PBGC's Legal Support:
Improvements Needed to Eliminate Confusion and Ensure Provision of Consistent Advice
GAO-07-757R: Published: May 18, 2007. Publicly Released: Jun 20, 2007.
The Pension Benefit Guaranty Corporation (PBGC) insures the pensions of nearly 44 million private sector workers in over 30,000 employer-sponsored defined benefit pension plans. Established in 1974 as a self-financing government corporation, PBGC's primary responsibility is to insure, under statutory limits, the pension benefits of participants in covered private defined benefit plans. PBGC collects premiums from the sponsors of defined benefit pension plans and administers plans that are terminated for reasons such as plan insolvency or bankruptcy. In the event of a termination, PBGC assumes control of plan assets, determines plan benefit liabilities, and pays benefits as guaranteed by statute. In fiscal year 2006, about 612,000 plan participants and beneficiaries received $4.1 billion in benefit payments from PBGC. An additional 659,000 participants in plans already trusteed by the corporation will receive benefits from PBGC when they become eligible to retire. An increase in underfunded plan terminations in recent years increased the number of plan participants receiving and eligible for benefit payments. In 2005, PBGC reorganized, creating an additional legal department called the Office of the Chief Counsel, and placed this new office under the Chief Insurance Program Officer. The Chief Counsel was given the responsibility for overseeing legal issues pertaining to PBGC's core mission functions, such as negotiations involving terminations resulting from bankruptcies, while the General Counsel retained responsibility for such general law issues as ethics, procurement, and personnel law. Concerns have been raised, however, that this organizational change, a decentralization of legal functions, has affected the uniformity of PBGC's legal opinions, because there is no single chief legal officer ultimately responsible for overseeing all programmatic or regulatory issues. Because of these concerns, and in light of PBGC's growing workload, you asked us to examine the effect the reorganization of the corporation's legal functions into separate offices has had on PBGC's operations. Accordingly, we assessed whether the reorganization has (1) clearly defined the roles and responsibilities of PBGC's legal offices and (2) ensured that consistent legal advice is provided to the PBGC Director.
In summary, the restructuring of PBGC's legal functions into separate offices has caused confusion over each office's authority. As a result, PBGC staff has sought advice from both the Office of the General Counsel and the Office of the Chief Counsel, sometimes in an effort to obtain a desired response. Further, PBGC officials told us that attorneys from the Office of the General Counsel have provided legal advice when the Office of the Chief Counsel had responsibility for the issue, which resulted in confusion and conflicting opinions. PBGC's current legal structure does not guarantee that a chief legal officer has an opportunity to provide advice and views on legal matters, including those reaching the Director. Currently, the Chief Counsel does not have a reporting relationship to either the General Counsel or the Director. In an August 2006 report on a multimillion dollar business transaction, the Inspector General found that PBGC put itself at risk because the General Counsel was not informed and did not serve its function as a check on critical issues. When an organization implements a decentralized legal structure, all counsel housed in specific business units typically report administratively to a chief legal officer, such as a general counsel, who in turn reports directly to the agency head.
Recommendation for Executive Action
Status: Closed - Not Implemented
Comments: PBGC's Director stated that he has not experienced any problem receiving the information and legal advice he has needed or requested. PBGC has instituted processes and procedures for its legal offices that facilitate greater communication and cooperation. The Director will continue to monitor the situation closely and will take steps to restructure the organization if appropriate legal advice is not received in an effective and efficient manner. In 2008, PBGC reported no change in its actions and has determined that it will manage through any risk. As of 2011, the status of this recommendation has not changed: the agency considers no change to the organization is necessary.
Recommendation: In order to promote clear lines of authority and the provision of consistent legal advice, the PBGC should provide for all legal functions to be overseen by a single chief legal officer with full authority to delineate the duties of each legal office and a direct reporting relationship to the Director.
Agency Affected: Pension Benefit Guaranty Corporation