Pension Benefit Guaranty Corporation:

Statutory Limitation on Administrative Expenses Does Not Provide Meaningful Control

GAO-03-301: Published: Feb 28, 2003. Publicly Released: Mar 31, 2003.

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Concerned about the increasing proportion of the Pension Benefit Guaranty Corporation's (PBGC) operational and administrative budget that is outside the annual administrative expense limitation, the Ranking Minority Member of the Senate Special Committee on Aging asked GAO to review PBGC's (1) application of the limitations set forth in its appropriations in developing its budget estimates and (2) methodology for allocating and reporting its operational and administrative expenses falling under the statutory limitation.

As part of PBGC's fiscal year 1985 appropriation, Congress limited the amount of PBGC's appropriated revolving funds available for "administrative expenses." In later years, PBGC requested and Congress approved certain types of expenses to be excluded from the administrative expense limitation. PBGC requested the exclusions in order to gain flexibility in dealing with several major pension plan terminations. The exclusions, combined with PBGC's application of the limitation, have resulted in only 5 percent of PBGC's administrative and operational expenses being included in the limitation for fiscal year 2002. GAO found significant problems with the way PBGC develops its proposed budget estimates for activities covered by its administrative expense limitation. PBGC does not have a reliable basis for estimating its administrative expenses subject to the legislative limitation. As a result, PBGC's estimates for its activities covered by the limitation are not meaningful and thus are ineffective in controlling administrative costs. In addition, PBGC does not have a meaningful basis for reporting adherence to the limitation, since it does not accumulate and allocate actual expenses for activities subject to the limitation. PBGC uses its budgeted amount for the administrative expenses limitation as a basis for allocating and reporting actual costs for those activities. This amounts to force fitting reported expenses so that they equal or come close to the budgeted amount for the limitation, and accordingly, does not provide reliable cost data related to actual activities or a meaningful basis for reporting and tracking compliance with the limitation.

Status Legend:

More Info
  • Review Pending-GAO has not yet assessed implementation status.
  • Open-Actions to satisfy the intent of the recommendation have not been taken or are being planned, or actions that partially satisfy the intent of the recommendation have been taken.
  • Closed-implemented-Actions that satisfy the intent of the recommendation have been taken.
  • Closed-not implemented-While the intent of the recommendation has not been satisfied, time or circumstances have rendered the recommendation invalid.
    • Review Pending
    • Open
    • Closed - implemented
    • Closed - not implemented

    Matter for Congressional Consideration

    Matter: With only about 5 percent of total operating and administrative costs falling under the limitation in fiscal year 2002, the statutory limitaion on administrative expenses offers little opportunity for controlling operational and administrative expenses. Because the limitation no longer serves as a meaningful control over PBGC's administrative activities and expenses, Congress may wish to consider whether or to what extent to continue to use the administrative expense limitation as a tool for overseeing PBGC's activities. Congress could choose to more clearly define PBGC's administrative expense limitation, which would improve the limitation's use as an oversight tool during the normal congressional appropriations process. A more clearly defined expense limitation could result in a larger share of PBGC's expenses falling under the limitation. On the other hand, Congress may decide to eliminate the administrative expense limitation for PBGC altogether.

    Status: Closed - Implemented

    Comments: In 2004, Congress passed P.L. 108-199 (enacted 1/23/04) which eliminated the distinction between PBGC's limitation and non-limitation administrative expenses.

    Recommendations for Executive Action

    Recommendation: In order to provide a cost information to assist Congress in its oversight of PBGC's expenses and for congressional decision making about whether or to what extent it should determine continue to use an expense limitation in its oversight of PBGC, PBGC's Executive Director should develop a method for accounting for actual direct and indirect expenses for its major activities.

    Agency Affected: Pension Benefit Guaranty Corporation

    Status: Closed - Implemented

    Comments: This new structure provides the capacity for better accounting of direct costs associated with PBGC's two lines of business, and separately identifies shared program and other support costs.

    Recommendation: In order to provide cost information to assist Congress in its oversight of PBGC's expenses and for congressional decision making about whether or to what extent it should continue to use an expense limitation in its oversight of PBGC, PBGC's Executive Director should develop a method of allocating indirect costs to each activity using a logical, reasonable, and consistent basis.

    Agency Affected: Pension Benefit Guaranty Corporation

    Status: Closed - Implemented

    Comments: Indirect costs are prorated between the direct costs of PBGC's activities. Activities related to Pension Insurance and Pension Plan Terminations are considered direct costs. All shared program support, administrative support and information technology infrastructure costs fall under Operational Support activities. Operational Support activities are prorated between Pension Insurance and Pension Plan Termination activities.

    Recommendation: In order to provide cost information to assist Congress in its oversight of PBGC's expenses and for congressional decision making about whether or to what extent it should continue to use an expense limitation in its oversight of PBGC, PBGC's Executive Director should employ a systematic review, including both quantitative and qualitative measures, to develop a methodology for assigning the direct expenses related to its major categories of activities.

    Agency Affected: Pension Benefit Guaranty Corporation

    Status: Closed - Implemented

    Comments: PBGC undertook a complete redesign of its budget structure, which has been approved by OMB and Congress. PBGC's new budget methodology includes and requires a systematic review and identification of direct costs related to major categories of activities. Account line items are grouped into three activity categories: Pension Insurance; Pension Plan Termination; and Operational Support. Activities related to Pension Insurance and Pension Plan Terminations are considered direct costs.

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