Pension Benefit Guaranty Corporation:

More Strategic Approach Needed for Processing Complex Plans Prone to Delays and Overpayments

GAO-09-716: Published: Aug 17, 2009. Publicly Released: Sep 16, 2009.

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As the insurer of over 29,000 private sector defined benefit plans, the Pension Benefit Guaranty Corporation (PBGC) may be required to assume responsibility for the plans of a growing number of companies filing bankruptcy due to the recession. Concerns about PBGC's benefit determination process, reductions in benefits due to guarantee limits, and workers' retirement security overall led the chairmen and ranking members of the Senate Health, Education, Labor, and Pensions Committee and the Senate Finance Committee, among others, to ask GAO to study: (1) how long it takes PBGC to make benefit determinations; (2) the extent of overpayments on retirees' benefits; (3) how well PBGC communicates with participants; and (4) the timeliness and accessibility of the appeals process. To conduct this study, GAO reviewed PBGC policies and procedures, analyzed automated data and case files, and interviewed PBGC officials and certain associations, participants, and their representatives from among those most affected by the process.

GAO's review of plans terminated with insufficient funds and trusteed by PBGC during fiscal years 2000 through 2008 revealed that a small number of complex plans--especially those with large numbers of participants affected by limits on guaranteed benefit amounts--accounted for most cases with lengthy delays and overpayments. Processing times. PBGC completed most participants' benefit determinations in less than 3 years, but required more time--up to 9 years--to process determinations for complex plans and plans with missing data. Nearly three-quarters of the lengthiest processing times were associated with individuals in just 10 of the 1,089 plans reviewed. Although PBGC has taken steps to shorten this process, its initiatives do not address the longest delays. Overpayments. Although many participants are affected by sizable benefit reductions, the vast majority are not affected by overpayments. Moreover, nearly two-thirds of overpayments involved participants in just 10 plans. In cases with overpayments, PBGC's policy generally requires participants' benefits to be reduced by no more than 10 percent until the amount owed is repaid, but due to participants' ages, the full amount often is never recouped. Communication. PBGC has made efforts to improve communication, but key correspondence often did not meet the needs of those in complex plans. For example, when the process was lengthy, PBGC did not communicate with some participants for several years. When the benefit calculation was complicated, PBGC did not provide explanations that could be understood without further information or assistance. Appeals. Since restructuring the appeals process in 2003, PBGC has reduced the average amount of time needed to decide an appeal by almost a year. However, the agency does not readily provide key information that would be helpful to participants in deciding whether to pursue an appeal.

Status Legend:

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  • 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

    Recommendations for Executive Action

    Recommendation: To improve PBGC's benefit determination process, a more strategic approach is needed to prepare for and manage the calculation of benefit amounts and communications with participants in cases involving large, complex plans. PBGC should set goals for timeliness and monitor the progress made in finalizing benefit determinations for large, complex plans separately from other plans.

    Agency Affected: Pension Benefit Guaranty Corporation

    Status: Closed - Not Implemented

    Comments: According to agency officials, formal process improvement efforts have been put in place to tailor plan processing to plan size and streamline other aspects of work in an effort to reduce process times in the future. For example, during FY 2009, new project management software was implemented to allow the agency to better monitor and track tasks associated with its largest and complex plans (that is, those plans having 10,000 or more participants or that are high visibility). While GAO supports these improvements, full implementation of this recommendation would require including a performance measure in the agency's Annual Management Report that reflects the average time (in years) between trusteeship and benefit determination issuance for large, complex plans separately from other plans. PBGC officials told us that they have no plans to set any performance goals separately for large, complex plans as a group. Due to the complexities and variations with each of these plans, schedules are set on an individual plan basis only. GAO continues to believe that reporting performance measures that reflect averages across all plans does not provide adequate weight to large versus small plans and does not provide sufficient incentive to improve the processing times for large complex plans.

    Recommendation: To improve PBGC's benefit determination process, a more strategic approach is needed to prepare for and manage the calculation of benefit amounts and communications with participants in cases involving large, complex plans. To reduce the number and size of overpayments in large, complex plans, PBGC should prioritize the calculation of estimated benefits for retirees subject to the guarantee limits and adjust estimates, as needed, throughout the benefit determination process. To reduce increased overpayments due to appeals, PBGC should prioritize the processing of appeals for those already receiving benefits and should consider implementing the final benefit determination for retirees during the appeals process.

    Agency Affected: Pension Benefit Guaranty Corporation

    Status: Closed - Implemented

    Comments: In response to this recommendation, PBGC stated that in distress terminations, it will coordinate with the prior plan actuary to reduce benefit payments, at plan intake, to the guarantee limits, and will evaluate its approach to determining assets available for benefit estimates and make adjustments to those estimates throughout the process. If a plan has substantial benefit reductions or there has been a significant policy issue, PBGC will re-look at the estimated benefits. In June 2013, PBGC updated its operations manual to emphasize the importance of timely benefit adjustments. The update highlights critical times during case processing when benefits may be adjusted, and details the documentation requirements to support such adjustments. The update also lists the actions that should be taken when issuance of benefit determination letters is delayed. With respect to appeals, PBGC stated that it will continue to prioritize cases with significant on-going overpayments. In addition to marking these cases as "high priority," a new bi-weekly report has been instituted to track these cases more closely. Finally, PBGC considered implementing the final benefit determination for retirees during the appeal process, but concluded that such an action would have significant legal consequences and would not enhance overall administrative efficiency or fairness to retirees.

    Recommendation: To improve PBGC's benefit determination process, a more strategic approach is needed to prepare for and manage the calculation of benefit amounts and communications with participants in cases involving large, complex plans. PBGC should develop improved procedures for adapting and reviewing letters to participants in large, complex plans, such as by (1) providing more specific information in letters to participants who receive benefit reductions describing which limits were applied and why; (2) ensuring all letters to participants involving benefit reductions are reviewed for accuracy and coherence before being sent; and (3) establishing processes to more frequently communicate with participants who are experiencing delays in receiving final benefits determinations.

    Agency Affected: Pension Benefit Guaranty Corporation

    Status: Closed - Implemented

    Comments: PBGC stated that it had reviewed its communications with participants where recoupments are involved, and as a result, has updated its benefit statements to better describe which benefits limits were applied and why, effective for all plans trusteed on or after 10/1/09. In addition, PBGC has begun sampling letters to participants in large complex plans to ensure the communications are clear and accurate. In March 2012, PBGC updated its operations manual to require that a review of benefit determination letters be conducted for plans having 10,000 or more participants or other special circumstances. The procedure specifies the steps for review and documentation that are to be maintained in the plan file as evidence to support that the review has in fact happened. In addition, PBGC has developed an overall communication strategy that would require communication with participants if their cases were not closed within the 3-year processing time frame. In such cases, it was decided to send email alerts directing participants to a plan-specific website for an updated status on the benefit determination process for that plan.

    Recommendation: To improve PBGC's benefit determination process, a more strategic approach is needed to prepare for and manage the calculation of benefit amounts and communications with participants in cases involving large, complex plans. PBGC should provide information or resources to help participants in large, complex plans better understand their benefit calculations and also to avoid any unnecessary appeals. Specifically, PBGC's benefit determination letters should provide information, such as how participants can obtain additional information by using the Freedom of Information Act or other resources.

    Agency Affected: Pension Benefit Guaranty Corporation

    Status: Closed - Implemented

    Comments: PBGC stated that OGC's Appeals Division, together with the Communications and Public Affairs Department, has redesigned their brochure, "Your Right to Appeal," to provide participants information about how to make a request under the Freedom of Information Act. The new brochure has been in use since May 2010.

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