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entitled 'Pension Benefit Guaranty Corporation; Governance Structure 
Needs Improvements to Ensure Policy Direction and Oversight' which was 
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Report to Congressional Committees: 

United States Government Accountability Office: 

GAO: 

July 2007: 

Pension Benefit Guaranty Corporation: 

Governance Structure Needs Improvements to Ensure Policy Direction and 
Oversight: 

GAO-07-808: 

GAO Highlights: 

Highlights of GAO-07-808, a report to congressional committees 

Why GAO Did This Study: 

The Pension Benefit Guaranty Corporation (PBGC) insures the pensions of 
millions of private sector workers and retirees in certain employer-
sponsored pension plans. It is governed by a board of directors 
consisting of the Secretaries of the Treasury, Labor, and Commerce, who 
are charged with providing PBGC with policy direction and oversight. 
This report assesses (1) the extent to which PBGCs governance 
structure provides PBGC with policy direction and oversight, and (2) 
whether administrative responsibilities among the PBGC board, 
Department of Labor (DOL), and PBGC management are clearly defined. We 
examined corporate governance practices, select federal government 
corporations, and reviewed documents on PBGCs structure. We 
interviewed officials from all board member agencies and PBGC, among 
others. 

What GAO Found: 

Although PBGCs board has provided greater attention to PBGC since 
2003, the board has limited time and resources to provide policy 
direction and oversight and has not established comprehensive written 
procedures and mechanisms to monitor PBGC operations. Because PBGCs 
board is composed of three cabinet secretaries, who have numerous other 
responsibilities, the board structure does not guarantee that PBGCs 
board is active and diverse. For example, since 1980, a span of 27 
years, there were only 18 official board meetings, as shown below. 
Further, the board has not established formal procedures to ensure that 
PBGC management provides it information on all policy matters nor has 
it developed standing committees to oversee operations. Instead, the 
board relies on PBGCs Inspector General and managements oversight 
committees to ensure that PBGC is operating effectively. However, there 
are no formal protocols concerning the Inspector Generals interaction 
with the board, and PBGC internal management are not independent and 
are not required to routinely report all matters to the board. Even 
though PBGC uses informal channels of communication to inform its board 
members, the boards oversight may be limited, because it cannot be 
certain that it is receiving high quality and timely information about 
all significant matters facing the corporation. 

Figure: Number of PBGC Board Members Held, 1974- May 2007: 

[See PDF for Image] 

Source: GAO analysis of PBGC documents and board meeting minutes. 

[End of figure] 

PBGCs lack of formal guidelines to articulate the administrative roles 
and responsibilities among the board, the Secretary of Labor as the 
board chair, board members agencies, and the PBGC Director has led, at 
times, to confusion and inefficiencies. The board has not addressed 
uncertainty over the extent to which PBGC is a separate and distinct 
executive agency, a fact that has resulted in confusion over when DOL 
has the authority to manage PBGCs operations. Further, neither DOL nor 
PBGC has developed formal policies and procedures to define the boards 
authorities and responsibilities. Instead, PBGC officials typically 
react to DOLs periodic written and oral communications, which PBGC 
officials said sometimes become a part of PBGCs operational framework. 
For example, PBGC is required to incorporate its budget request with 
DOLs budget request, and over the years, DOL has taken a more active 
role in reviewing PBGCs budget. However, PBGC officials believe that 
DOL has in some cases overstepped its role. For instance, DOL and PBGC 
officials disagreed over the inclusion of a funding request in PBGCs 
fiscal year 2007 budget. 

What GAO Recommends: 

GAO recommends that the board develop policies and mechanisms 
consistent with corporate governance practices, and develop formal 
guidelines to clarify roles and responsibilities. In response, PBGCs 
board stated that its review of the corporations bylaws will help 
delineate authorities, and PBGCs interim director said he was 
committed to working with the board to enhance PBGCs governance 
processes. 

GAO is also asking Congress to consider expanding the PBGCs board of 
directors. 

[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-07-808. 

To view the full product, including the scope and methodology, click on 
the link above. For more information, contact Barbara Bovbjerg, 202-512-
7215, bovbjergb@gao.gov. 

[End of section] 

Contents: 

Letter: 

Results in Brief: 

Background: 

Board Structure Provides Limited Attention and Mechanisms for 
Overseeing PBGC: 

Lack of Protocols for Administering PBGC Can Result in Confusion and 
Inefficiencies: 

Conclusions: 

Matter for Congressional Consideration: 

Recommendations for Executive Action: 

Agency Comments and Our Evaluation: 

Appendix I: Scope and Methodology: 

Appendix II: List of Selected Federal Government Corporations: 

Appendix III: Examples of Corporate Governance Practices: 

Appendix IV: Comments from the Pension Benefit Guaranty Corporation 
Board of Directors: 

Appendix V: Comments from the Pension Benefit Guaranty Corporation: 

Appendix VI: Contacts and Acknowledgments: 

GAO Related Products: 

Tables: 

Table 1: Examples of Corporate Governance Practices: 

Table 2: Comparison of Select Government Corporations with a Similar 
Mission: 

Figures: 

Figure 1: Comparison of Public and Private Entities: 

Figure 2: Net Financial Position of PBGC's Single-Employer Program: 

Figure 3: Number of PBGC Board Meetings Held, 1974-May 2007: 

Abbreviations: 

DOL: Department of Labor: 

ERISA: Employee Retirement Income Security Act of 1974: 

FDIC: Federal Deposit Insurance Corporation: 

GCCA: Government Corporation Control Act: 

GSE: government-sponsored enterprise: 

OMB: Office of Management and Budget: 

PBGC: Pension Benefit Guaranty Corporation: 

PPA: Pension Protection Act of 2006: 

United States Government Accountability Office: 
Washington, DC 20548: 

July 6, 2007: 

The Honorable Max Baucus: 
Chairman:
The Honorable Charles E. Grassley: 
Ranking Member: 
Committee on Finance: 
United States Senate: 

The Honorable Edward M. Kennedy: 
Chairman:
The Honorable Michael B. Enzi: 
Ranking Member: 
Committee on Health, Education, Labor and Pensions: 
United States Senate: 

The Pension Benefit Guaranty Corporation (PBGC) insures the pensions of 
more than 44 million private sector workers and retirees in over 30,000 
employer-sponsored pension plans. Since its creation in 1974, PBGC's 
assets have increased significantly, and its financial portfolio is now 
one of the largest of any federal government corporation. In addition, 
PBGC has become responsible for a number of large terminated pension 
plans, which have brought the corporation record numbers of claims from 
plan participants. In fact, between fiscal year 2000 and 2005, the 
number of participants to whom PBGC has paid benefits increased from 
around 243,000 to almost 700,000, with another half million expected to 
receive benefits from PBGC when they become eligible to retire. To 
strengthen pension plan funding, Congress passed the Pension Protection 
Act of 2006 (PPA).[Footnote 1] However, PBGC still shows an accumulated 
$18 billion deficit for its single-employer insurance program. 

Established as a self-financing government corporation, PBGC is 
governed by a three-member board of directors consisting of the 
Secretaries of the Treasury, Labor, and Commerce. PBGC board members 
are charged with providing policy direction and oversight of PBGC's 
finances and operations. Because of concerns about PBGC's long-term 
financial condition, in 2003, we added PBGC's single-employer pension 
insurance program--its largest insurance program--to our high-risk 
list; a group of federal programs that need urgent attention and 
transformation. PBGC's insurance program remains on the high-risk list 
today.[Footnote 2] We reviewed PBGC's governance and management 
structure to determine whether PBGC is well positioned to address 
current and growing fiscal and operational challenges. Specifically, 
this report assesses (1) the extent to which PBGC's governance 
structure provides PBGC management with policy direction and oversight, 
and (2) whether the administrative responsibilities among PBGC's board, 
the Department of Labor (DOL), and PBGC's management are clearly 
defined. 

To identify the extent to which PBGC's governance structure provides 
policy direction and oversight, we reviewed the Employee Retirement 
Income Security Act of 1974[Footnote 3] (ERISA) and PPA to understand 
the authority of PBGC's board of directors as well as the 
administrative responsibilities of PBGC's Director. We examined private 
sector corporate governance guidelines and those of similar federal 
government corporations to determine the extent to which other 
corporations have similar policy mandates, structures, and oversight 
functions. We selected similar federal government corporations with 
similar missions and designations as listed under the Government 
Corporation Control Act (GCCA).[Footnote 4] To determine the extent to 
which PBGC's administrative structure has affected PBGC's internal 
operations, we collected and reviewed documents related to PBGC's 
organizational structure and administrative reporting requirements, 
such as its relationship with DOL and the Office of Management and 
Budget (OMB). In addition, we reviewed the work of PBGC's Office of the 
Inspector General and GAO to determine what weaknesses or 
inefficiencies resulted from the corporation's governance and 
organizational structure. We met with officials from PBGC; the 
Departments of the Treasury, Labor, and Commerce; and OMB; as well as 
with former PBGC executive directors, former general counsels, and 
former PBGC staff. While we met with the board representatives and 
their staff, we did not meet with the cabinet secretaries who 
constitute the board. 

We conducted our work between November 2006 and May 2007 in accordance 
with generally accepted government auditing standards. Appendix I 
discusses our scope and methodology in further detail. 

Results in Brief: 

PBGC's board has limited time and resources to provide policy direction 
and oversight and has not established comprehensive written procedures 
and mechanisms to monitor PBGC operations. While PBGC's board has 
provided greater attention to the corporation since 2003, the three- 
member board structure may not be large enough to dedicate the 
necessary time and attention or provide the skills needed to direct and 
oversee PBGC. In addition, because the board is composed only of 
cabinet secretaries, PBGC's board members typically change with each 
Administration, potentially limiting the board's institutional 
knowledge of the corporation. Since the board members have limited time 
to direct and oversee PBGC, they have designated representatives within 
their respective agencies to act on their behalf. However, these 
officials also have limited staff and resources to dedicate to PBGC. In 
fact, we found that between 1980 and May 2007, a span of 27 years, 
there were only 18 board meetings, 10 of which were since 2003. While 
the board is now meeting regularly, it appears that these meetings only 
last about an hour, with very little time spent on strategic and 
operational issues. The board also has not established formal 
procedures to ensure that PBGC management provides it with information 
on all policy matters, nor has it developed standing committees to 
oversee operations. Instead, the board relies on the Inspector General 
and PBGC management's oversight committees to ensure that PBGC is 
operating effectively. However, there are no formal protocols 
concerning the Inspector General's interaction with the board, and 
PBGC's management committees are not independent of management and are 
not required to routinely report all matters to the board. Even though 
PBGC uses informal channels of communication to inform its board 
members, the effectiveness of the board's oversight may be limited, 
because it cannot be certain that it is receiving high-quality and 
timely information about all significant matters facing the 
corporation. 

The PBGC's lack of formal guidelines to articulate the administrative 
roles and responsibilities among the board, the Secretary of Labor as 
board chair, the board members' agencies, and the PBGC Director has 
led, at times, to confusion and inefficiencies. Although ERISA places 
PBGC in DOL, the board has not addressed the uncertainty that exists 
over the extent to which PBGC is a separate and distinct executive 
agency, a fact that has resulted in confusion over the extent to which 
DOL has the authority to manage PBGC's operations. DOL officials 
believe that PBGC is one of its agencies, and PBGC officials believe 
that it is a separate and distinct executive branch agency that is 
responsible to the entire Board of Directors. PBGC has developed its 
own policies, procedures, directives, and systems separate from DOL, 
and does not rely on DOL-wide services, such as legal, procurement, and 
information technology services. Neither DOL nor PBGC has developed 
formal policies and procedures to define the administrative authorities 
and responsibilities of PBGC. Instead, PBGC officials typically react 
to DOL's periodic written and oral communications, which PBGC officials 
said sometimes become a part of PBGC's operational framework. For 
example, PBGC is required to incorporate its budget request with DOL's 
budget request. Over the years, DOL has taken an increasingly active 
role in reviewing PBGC's budget, and PBGC officials believe that DOL 
has in some cases overstepped its role. For instance, DOL and PBGC 
officials disagreed on the inclusion of a funding request in PBGC's 
fiscal year 2007 budget. 

We are asking Congress to consider expanding PBGC's board of directors. 
If Congress decides to take such action, it would be helpful to appoint 
additional members of diverse backgrounds who possess knowledge and 
expertise useful to PBGC's responsibilities and can provide the 
attention that would be needed. Further, dedicating staff, independent 
of PBGC's executive management, with relevant pension and financial 
expertise, to solely support the revised board's policy and oversight 
activities may be warranted. We are also making recommendations to the 
Secretaries of the Treasury, Labor, and Commerce, as the PBGC board of 
directors, to establish policies, procedures, and mechanisms to improve 
accountability and oversight of PBGC. In response to our draft report, 
the PBGC board of directors recognized that the current law establishes 
an unusual corporate structure for PBGC, and stated that if Congress 
considers making changes to PBGC governance structure, they would be 
pleased to discuss the merits of various corporate governance proposals 
for PBGC. The board also stated that the review and revisions of PBGC 
bylaws will help delineate the respective roles, responsibilities, and 
authorities of PBGC's board and Director in the management of PBGC. The 
PBGC interim director stated that PBGC management is committed to 
working with the board to enhance PBGC's governance processes on issues 
identified in our review. PBGC's board of directors and PBGC interim 
director's comments are reproduced in appendixes IV and V, 
respectively. 

Background: 

Congress passed ERISA to protect the rights and interests of 
participants and beneficiaries of private sector employee benefit 
plans. Before the enactment of ERISA, few rules governed the funding of 
defined benefit pension plans,[Footnote 5] and participants had no 
guarantee that they would receive promised benefits. Title IV of ERISA 
created PBGC to insure plan participants' benefits and to encourage the 
continuation and maintenance of private sector defined benefit pension 
plans by providing timely and uninterrupted payment of pension 
benefits.[Footnote 6] Through its two insurance programs, PBGC covers 
certain private sector defined benefit plans.[Footnote 7] PBGC is 
funded through insurance premiums from employers that sponsor insured 
pension plans as well as investment income and assets from terminated 
pension plans. 

ERISA established a governance structure consisting of a board of 
directors, with the Secretary of Labor as the Chairman of the Board. 
ERISA provided the Secretary of Labor with responsibility for 
administering PBGC's operations, personnel, and budget. The Secretary 
delegated the responsibility for administering PBGC to an Executive 
Director through a series of chairman's orders describing the Executive 
Director's responsibilities. For example, one order issued in 1984 
authorized the Executive Director to make final decisions addressing 
legal matters on behalf of the corporation. In 2006, PPA replaced the 
Chairman of the Board as PBGC's administrator with a Senate-confirmed 
director. The PPA established the director position at the same level 
of the executive schedule as two of the PBGC board representatives-- 
Under Secretaries of Commerce and Treasury as well as the heads of 
other federal government corporations, such as the Federal Deposit 
Insurance Corporation (FDIC) and the Export-Import Bank of the United 
States. In addition, the corporation is aided by a seven-member 
Advisory Committee appointed by the President to represent the 
interests of labor, employers, and the general public.[Footnote 8] This 
committee has an advisory role but has no statutory authority to set 
PBGC policy or conduct formal oversight. 

Under the GCCA, PBGC is a wholly owned government corporation--that is, 
the government holds all its assets and liabilities. However, the 
United States is not liable for any obligation or liability incurred by 
the corporation.[Footnote 9] (See app. II for a list of selected 
government corporations). According to public administration experts, a 
government corporation is appropriate for the administration of 
governmental programs that: 

* are predominately of a business nature, 

* produce revenue and potentially are self-sustaining, 

* involve a large number of business-type transaction with the public, 
and: 

* require greater budget flexibility than a government department or 
agency. 

Under ERISA, PBGC is also empowered to sue and be sued; appoint and fix 
the compensation of officers, employees, attorneys, and agents; and 
utilize the personnel and facilities of any other agency or department 
of the U.S. government with or without reimbursement (with its head's 
consent).[Footnote 10] Figure 1 illustrates some of the differences 
among traditional government departments/agencies, government 
corporations, government-sponsored enterprises (GSE),[Footnote 11] and 
private corporations. 

Figure 1: Comparison of Public and Private Entities: 

[See PDF for image] 

Source: GAO. 

[End of figure] 

With the financial collapse of several large corporations over the past 
years and the passage of the Sarbanes-Oxley Act of 2002,[Footnote 12] 
which outlined a framework for more effective corporate governance, 
many private sector companies have reassessed their corporate 
governance practices. Although the Sarbanes-Oxley Act is intended to 
strengthen the corporate governance of private sector entities, certain 
corporate governance elements from it may also be relevant to 
government corporations and government-sponsored enterprises.[Footnote 
13] For example, corporate governance practices suggest that 
corporations headed by boards of directors should have people in place 
with the appropriate qualifications, independence, and resources to 
conduct their responsibilities effectively. (See table 1 for examples 
of corporate governance practices.) Additional information on corporate 
governance practices is included in appendix III. 

Table 1: Examples of Corporate Governance Practices: 

Corporate practices: Board's fiduciary duties; 
Corporate governance guidelines: In carrying out their duties, 
directors should fulfill their fiduciary duties of care, loyalty, and 
good faith and act in the best interests of the corporation and its 
shareholders. Boards usually delegate the day-to-day management of the 
company to the Chief Executive Officer (CEO) and other senior 
management, but the board retains responsibilities for oversight and 
monitoring of these delegated functions. 

Corporate practices: Roles of board and management clearly defined; 
Corporate governance guidelines: A strong and effective board should 
have a clear view of its role in relationship to management. How a 
board organizes itself and structures its processes will vary with the 
nature of the business, business strategy, size and maturity of the 
company, and talents and personalities of the chief executive officer 
and the board. The Board should focus principally on guidance and 
strategic issues, choice of the CEO and other senior management, 
oversight and monitoring of management and company performance, and 
adherence to legal requirements. 

Corporate practices: Corporate governance guidelines available; 
Corporate governance guidelines: The board should have a set of written 
guidelines in place to articulate corporate governance principles and 
the roles and responsibilities of the board and management. These 
guidelines should be reviewed at least annually and help the board and 
individual directors understand their obligations and the general 
boundaries within which they will operate. 

Corporate practices: Board access to information; 
Corporate governance guidelines: The effectiveness of the board depends 
on the quality and timeliness of the information each director 
receives. The board and management should agree on the important 
information needed for board oversight and monitoring to enable the 
board to make informed decisions. 

Corporate practices: Board composition and size; 
Corporate governance guidelines: The composition and skill set of the 
board should be linked to the company's particular challenges and 
strategic vision. As companies develop and experience changed 
circumstances, the desired composition of the board may be different 
and should be reviewed. 

Corporate practices: Board committee structure; 
Corporate governance guidelines: Boards should establish committees 
that will enhance the overall effectiveness of the board by ensuring 
focus and oversight on matters of particular concern. Committees can 
enhance board effectiveness by permitting closer focus, oversight, and 
monitoring of sensitive areas. In the private sector, certain statutes 
and standards require that companies maintain a number of standing 
committees, such as an audit, nominating, and compensation committees. 
In addition, boards have established committees, such as risk, 
technology, pension and benefits, public policy, and corporate 
governance, which focus on substantive issues of particular concern to 
the company or the board. 

Source: Carolyn K. Brancato and Christian A. Plath, Corporate 
Governance Handbook, 2005: Legal Standards and Board Practices, The 
Conference Board (New York, New York: 2005). 

[End of table] 

PBGC's financial outlook has improved since 2004, when it reported an 
accumulated deficit of $23 billion, but PBGC still projects large 
deficits for its single-employer program. Despite PPA's provisions to 
strengthen defined benefit plan funding, PBGC reported an accumulated 
deficit of $18.1 billion as of September 30, 2006. While PBGC currently 
has assets exceeding $60 billion, sufficient to meet its 
responsibilities in the coming years, the single-employer program has 
had an accumulated deficit for much of its existence--the value of its 
program assets is less than the present value of benefits and other 
obligations (see fig. 2). 

Figure 2: Net Financial Position of PBGC's Single-Employer Program: 

[See PDF for image] 

Source: Pension Benefit Guaranty Corporation. 

Note: Net position equals program assets less the current value of 
future benefit obligations for terminated plans and those deemed likely 
to default. Values are for the end of the fiscal year. 

[End of figure] 

Board Structure Provides Limited Attention and Mechanisms for 
Overseeing PBGC: 

PBGC's board has limited time and resources to provide policy direction 
and oversight and has not established procedures and mechanisms to 
monitor PBGC operations. Although PBGC's board members have met more 
frequently since 2003, the three cabinet secretaries composing the 
board have numerous other responsibilities, and have been unable to 
dedicate consistent and comprehensive attention to PBGC. In fact, we 
found that between 1980 and May 2007, a span of 27 years, there were 
only 18 board meetings, 10 of which were since 2003. The three-member 
board is also not large enough to ensure diverse skills, such as 
knowledge in strategic risk assessment and management, are included to 
direct and oversee PBGC. Since the board has limited time to direct and 
oversee PBGC, the members have designated officials within their 
respective agencies to conduct much of the work on their behalf. 
However, these officials also have limited resources to dedicate to 
PBGC. Further, the board has not established important mechanisms, such 
as the use of standing committees, to monitor and review PBGC 
operations and programs. Instead, the board mostly relies on the 
Inspector General and PBGC's management oversight committees to ensure 
that PBGC is operating effectively. However, there are no formal 
protocols requiring the Inspector General to routinely meet with the 
board or its representatives and staff, and PBGC's management 
committees are neither independent of PBGC, nor are they required to 
routinely report all matters to the board. As a result, the 
effectiveness of the board's oversight may be limited, because it 
cannot be certain that it is receiving high-quality and timely 
information about all significant matters facing the corporation, even 
though PBGC officials report that they informally communicate with the 
board representatives weekly. 

PBGC's Board Structure Limits Board Members' Ability to Direct and 
Oversee PBGC: 

PBGC's board members have numerous other responsibilities in their 
roles as cabinet secretaries and have been unable to dedicate 
consistent and comprehensive attention to PBGC. ERISA charges the PBGC 
board with directing and overseeing PBGC management in several ways. 
The board is required to approve final decisions on policy matters that 
could affect many American employers and their workers. The board is 
also responsible for reviewing and approving PBGC's budget, monitoring 
financial performance, approving the corporation's strategic plan, and 
evaluating the effectiveness of its managers, among other 
responsibilities. Beyond their roles as heads of executive agencies and 
sitting on PBGC's board, two of the cabinet secretaries are also 
members of other boards. For example, the Secretary of the Treasury 
serves on the boards of the Millennium Challenge Corporation, the 
Community Development Financial Institutions Fund, and is a managing 
trustee of the Social Security and Medicare trust funds.[Footnote 14] 
The Secretary of Commerce is on the board of the Export-Import Bank of 
the United States.[Footnote 15] The Secretary of Labor is also a 
trustee of the Social Security and Medicare trust funds. 

According to some corporate governance guidelines, boards should have 
no fewer than 5 members and no more than 15.[Footnote 16] With only 3 
members, PBGC's board may not be large enough to include the knowledge 
needed to direct and oversee PBGC, such as expertise in accounting, 
management, or strategic risk assessment. According to corporate 
governance guidelines, the board of directors should be large enough to 
provide the necessary skill sets, but also small enough to promote 
cohesion, flexibility, and effective participation. We did not identify 
any other government corporations with a similar board size as PBGC. 
Government corporations' boards averaged about 7 board members, with 
one having as many as 15. For example, the Overseas Private Investment 
Corporation's board of directors consists of 15 members--8 from the 
private sector and 7 from the federal government, as shown in table 2. 

Table 2: Comparison of Select Government Corporations with a Similar 
Mission: 

Federal government corporation: Commodity Credit Corporation; 15 U.S.C. 
 714; 
Number of board members: 8; 
Board composition: Board of directors is subject to the general 
supervision and direction of the Secretary of Agriculture, who is an ex-
officio director and chairperson of the board. The board consists of 
seven members, in addition to the Secretary, who are appointed by the 
President, with the advice and consent of the Senate. 

Federal government corporation: Export-Import Bank of the United 
States; 12 U.S.C.  635; 
Number of board members: 5; 
Board composition: Board of directors consists of the bank's president 
and chairman, the first vice president, as vice chairman, and three 
other directors. All of the members of the board of directors are 
appointed by the President with the advice and consent of the Senate 
and serve 4- year terms. 

Federal government corporation: Federal Crop Insurance Corporation; 7 
U.S.C.  1505; 
Number of board members: 10; 
Board composition: Board of directors, who are appointed by and serve 
at the pleasure of the Secretary of Agriculture. 

Federal government corporation: Federal Deposit Insurance Corporation; 
12 U.S.C.  1811; 
Number of board members: 5; 
Board composition: Board of directors consists of the Comptroller of 
the Currency, the Director of the Office of Thrift Supervision, and 
three citizens appointed by the President with the advice and consent 
of the Senate. Members serve 6-year terms. 

Federal government corporation: Overseas Private Investment 
Corporation; 22 U.S.C.  2191; 
Number of board members: 15; 
Board composition: Board of directors consists of eight members from 
the private sector and seven from the federal government. At least two 
of the private sector directors must be experienced in small business, 
one must represent organized labor, and another must have experience in 
cooperatives. Government members include the Administrator of the 
Agency for International Development, the United States Trade 
Representative or Deputy U.S. Trade Representative, the President of 
the Overseas Private Investment Corporation, and four additional 
members who are senior officials of other government agencies, 
including the Department of Labor. All members must be appointed by the 
President, with advice and consent of the Senate. 

Federal government corporation: Pension Benefit Guaranty Corporation; 
29 U.S.C  1301; 
Number of board members: 3; 
Board composition: Board of directors consists of the Secretaries of 
Labor, Commerce, and the Treasury, with the Secretary of Labor as 
Chairman. The corporation is headed by a Director appointed by the 
President with the advice and consent of the Senate. 

Source: GAO analysis of U.S. Code. 

[End of table] 

PBGC's board structure does not guarantee that the board represents a 
diverse set of interests and contains areas of expertise particular to 
PBGC. According to corporate governance guidelines published by The 
Conference Board,[Footnote 17] corporate boards should be structured so 
that the composition and skill set of a board is linked to the 
corporation's particular challenges and strategic vision, and should 
include a mix of knowledge and expertise targeted to the needs of the 
corporation. Boards of directors should include certain expertise in 
accounting and finance, strategic risk assessment, management, and 
industry knowledge, among other factors. PBGC's board members represent 
the interests of three government agencies--DOL and the Treasury share 
responsibility for ERISA, and Commerce represents the interests of 
business and economic sectors. While having these interests represented 
on PBGC's board is important and the members can draw on the expertise 
within their respective agencies, PBGC's governance structure does not 
necessarily guarantee that board members will have a range of diverse 
expertise needed to specifically address PBGC's policy and oversight 
because the current structure only consists of members who serve by 
virtue of their position in the federal government. 

Our review of other governance structures found that many government 
corporations' boards of directors consist of a variety of individuals 
reflecting a mix of knowledge, perspectives, and political 
affiliations. For instance, the FDIC board includes a full-time 
Chairman as well as the directors of the Office of the Comptroller of 
the Currency, the Office of Thrift Supervision, and two other directors 
with specific banking expertise, such as state bank supervision. In 
addition, because PBGC's board is composed of cabinet secretaries, 
PBGC's board members typically change with each administration, 
limiting the board's institutional knowledge of the corporation. Other 
government corporations have integrated staggered term limits to avoid 
such gaps. For example, OPIC's directors may be appointed for a term of 
no more than 3 years, and the terms of no more than 3 of the 15 
directors can expire in any 1 year.[Footnote 18] 

Since PBGC's inception, the board has met infrequently. While corporate 
governance guidelines do not specify either frequency or duration of 
board meetings, the literature states that the appropriate number of 
hours to be spent by a director on his or her duties and the frequency 
and length of the meetings depend largely on the complexity of the 
corporation and its operations.[Footnote 19] Longer meetings may permit 
directors to explore key issues in more depth, whereas shorter but more 
frequent meetings may help the directors stay up to date on emerging 
corporate trends and business and regulatory developments. However, as 
shown in figure 3, PBGC has only recently begun to meet regularly. In 
2003, after several high-profile pension plan terminations and with the 
urging of PBGC's Executive Director, PBGC's board agreed to begin 
meeting twice a year to discuss PBGC matters. As a result, between July 
2003 and May 2007, the PBGC board met 10 times. PBGC officials told us 
that it is a challenge to find a time when all three cabinet 
secretaries are able to meet. As a result, the board members' 
representatives officially met in their place 3 of the 10 times. 
Government corporations' boards vary in the number of times they meet, 
but our review found that on average many government corporations meet 
about 5 times per year, with some meeting more often. For example, we 
found that the Export-Import Bank of the United States' board generally 
met more than twice a month between 2004 and 2006. 

Figure 3: Number of PBGC Board Meetings Held, 1974-May 2007: 

[See PDF for image] 

Source: GAO analysis of PBGC documents and board meeting minutes. 

[End of figure] 

While the PBGC board is now meeting twice a year, it appears that very 
little time is spent on addressing PBGC's strategic and operational 
issues. According to corporate governance guidelines, boards should 
meet regularly and focus principally on broader issues, such as 
corporate philosophy and mission, broad policy, strategic management, 
oversight and monitoring of management, and company performance against 
business plans.[Footnote 20] However, our review of the board's 
recorded minutes found that although some meetings devoted a portion of 
time to certain strategic and operational issues, such as investment 
policy, the financial status of PBGC's insurance programs, and outside 
audit reviews, the board meetings generally only lasted about an hour. 

Since the board members have limited time to direct and oversee PBGC, 
they have designated officials and staff within their respective 
agencies to conduct much of the work on their behalf. These officials 
are referred to as board representatives and act as liaisons between 
their cabinet secretaries and PBGC. They hold the rank of assistant 
secretary or above.[Footnote 21] Yet PBGC's board representatives have 
no policy-making authority under ERISA. Under PBGC's bylaws, however, a 
representative may represent a board member at a board meeting, and 
take action on behalf of the board member if the board member ratifies 
the representative's actions in writing within a reasonable time. 

PBGC officials told us that the board representatives meet regularly-- 
several times a year--and generally provide staff with broad policy 
direction and oversight on behalf of the cabinet secretaries. They also 
receive briefings on emerging issues and matters requiring the board's 
attention. However, we found limited documentation of such meetings. In 
fact, we were informed that no formal minutes were kept of these 
meetings, and the only documentary evidence we found of the board 
representatives' meeting was when they represented their respective 
board members at select board meetings. Each representative has a 
dedicated staff person whose assignments include working on PBGC 
matters. Although the board representatives can draw on the expertise 
of other staff within their respective agencies as needed, these staff 
persons have other job responsibilities, which could limit the amount 
of time they can dedicate to PBGC. Consequently, limited time and 
attention may be dedicated to PBGC matters. 

Board Lacks Mechanisms to Monitor and Review PBGC Operations and 
Programs: 

Neither the board nor PBGC has developed formal procedures to ensure 
information is elevated to the board on all pertinent policy matters. 
Further, likely because of its small size, the board has not 
established standing oversight committees. As a result, the board may 
be unaware of significant PBGC management actions. According to 
corporate governance guidelines, corporate boards should have 
mechanisms to monitor and review operations, assess progress against 
performance measures, and manage risks to the institution, and boards 
should operate using committees to assist them. The board has not 
established formal policies and procedures describing the types of 
policy matters that should be raised to the board's attention. Rather, 
the board relies mostly on PBGC's management to inform the board of 
pending issues when management believes it's appropriate, which is done 
through weekly communications to the board representatives. While 
officials believe that this process has generally worked well, in some 
cases board members have not received information in a timely manner. 
For example, in 2005, PBGC's Inspector General found that the board 
members and their representatives were not told of certain actions 
taken by PBGC's management regarding a large bankruptcy settlement 
until after the case had been settled. In response, PBGC drafted a 
protocol to govern communications with the board representatives about 
potential settlements. At this writing, the board is also revising the 
PBGC's bylaws, which establish board governing procedures. However, 
since there are no formal policies and procedures describing what other 
policy matters should be elevated to the board's attention, the board 
may be unaware of other significant actions of PBGC's management. 

The board has not established standing committees, such as audit and 
ethics committees, to perform certain oversight and monitoring 
functions. A committee structure permits the board to address key areas 
in more depth than may be possible in a full board meeting. In prior 
years, the board established certain committees--staffed with 
individuals from PBGC's Advisory Committee--to probe specific issues. 
However, the board has not used this approach since the early 1990s. 
Instead, the board has generally relied on PBGC's Inspector General and 
its executive management to provide oversight of PBGC's operations. 

As of May 2007, PBGC's Inspector General reports directly to the board 
and conducts reviews of PBGC's operations and financial condition and 
monitors PBGC's contractors. Even though the current board has required 
the Inspector General to brief it at its now semiannual meetings, there 
are no formal protocols describing the Inspector General's interaction 
with the board or its representatives and staff. Consequently, if the 
Inspector General or the board were to change, it is unclear whether 
the Inspector General or the board would be aware of this informal 
protocol. Further, the board relies on PBGC's executive management 
committees and working groups for monitoring and reviewing PBGC's 
operations.[Footnote 22] However, these committees and working groups 
are not independent of PBGC's management and are not required to 
routinely report to the board. Some government corporations, such as 
FDIC, the Export-Import Bank of the United States, the Overseas Private 
Investment Corporation, and the National Railroad Passenger Corporation 
(Amtrak), have established standing committees to conduct certain 
oversight functions to assist their boards of directors. For example, 
FDIC's board of directors established standing committees, such as the 
Case Review Committee and the Audit Committee, to conduct certain 
oversight functions. FDIC's committees are governed by formal rules 
that cover areas such as membership, functions and duties, and, in some 
cases, submission of activity reports to the board. 

Lack of Protocols for Administering PBGC Can Result in Confusion and 
Inefficiencies: 

While ERISA provides the board, the Secretary of Labor as Chair, and 
PBGC's Director the authority to oversee and administer PBGC, no formal 
guidelines articulate the different roles and responsibilities of the 
board and PBGC management. ERISA established PBGC "within the 
Department of Labor" and provided the Secretary of Labor administrative 
authority over the corporation. As a consequence, the Secretary has 
been responsible for overseeing PBGC's operations, including overall 
supervision of PBGC's personnel, organization, and budget practices. As 
a result, DOL officials consider PBGC to be a DOL agency and have 
required the corporation to follow its policies and procedures. 
However, under its authorities, PBGC has also developed its own 
policies, procedures, directives, and systems separate from DOL, and it 
does not rely on DOL-wide services, such as legal, procurement, and 
information technology. As a result, DOL and PBGC disagree over the 
extent to which PBGC is a separate and distinct executive agency. 

A November 2005 PBGC memorandum stated that Congress' intention in 
placing PBGC within DOL was to provide PBGC with a physical location 
and was not meant in an organizational or operational sense. Some PBGC 
managers now view the language as an anachronism. One former PBGC 
Executive Director also noted that PBGC could not be just like any 
other DOL agency, because if it were, the Secretaries of the Treasury 
and Commerce, by a two-vote majority, could theoretically direct 
policies of another federal cabinet department. Further, federal 
agencies, including DOL, recognize PBGC's separateness either directly 
or indirectly through various types of reporting requirements that are 
required of PBGC and the board. For example, PBGC is responsible for 
representing itself in matters before other agencies, such as the Equal 
Employment Opportunity Commission, the Federal Labor Relations 
Authority, and the Merit Systems Protection Board. In another instance, 
DOL's Office of the Solicitor stated in a March 2007 letter to the 
Department of Justice that while PBGC was "within the Department of 
Labor," the two agencies have historically operated with separate 
administrative structures and should be considered separate for matters 
relating to postemployment ethics. 

The uncertainty of PBGC's status has resulted in confusion over the 
extent to which DOL has the authority to manage PBGC's operations. 
According to our internal control standards,[Footnote 23] agencies 
should ensure that key areas of authority and responsibilities are 
defined and communicated. However, neither the board, DOL, nor PBGC has 
developed formal policies and procedures to define its authorities and 
responsibilities. Instead, PBGC officials typically react to DOL's 
periodic written and oral communications, which PBGC officials said 
sometimes become a part of PBGC's operational framework. DOL and PBGC 
provided us with memorandums and e-mail correspondence outlining some 
of these administrative requirements. The following are examples of the 
confusion and disagreement resulting from the uncertainty related to 
PBGC's status: 

* In December 2006, the Office of the Secretary of Labor, without 
consulting with officials from the Departments of the Treasury or 
Commerce, orally directed PBGC to obtain DOL's clearance before it 
could advertise for or select individuals to fill three vacant 
executive management positions, even though DOL had not required this 
in prior years. According to PBGC officials, this resulted in hiring 
delays. DOL officials stated that this requirement was needed to 
oversee PBGC's hiring activities only while PBGC has an interim 
director. 

* A May 2006 DOL memorandum to all its agency heads, including PBGC, 
provided guidance for the preparation and submission of information 
technology investments in DOL's fiscal year 2008 budget request. 
However, because OMB considers PBGC's information technology program 
independent from DOL's, there has been confusion not only between DOL 
and PBGC officials, but also among DOL officials, over the role that 
DOL's Chief Information Officer has in PBGC's information technology 
program and whether DOL's guidance is applicable to PBGC on this issue. 

DOL and PBGC have also disagreed on management approaches to PBGC's 
operations. For example: 

* During the fiscal year 2007 budget process, DOL and PBGC officials 
disagreed over the amount of money included in PBGC's budget for the 
development of a new system for pension plan sponsors to file their 
required annual reports to DOL electronically.[Footnote 24] While PBGC 
benefits from these annual reports, PBGC's Inspector General reviewed 
PBGC's fiscal year 2007 budget request, which included $7 million to 
cover these costs. After investigating, the Inspector General concluded 
that the requested increase was disproportionate to PBGC's usage of the 
annual reports. However, DOL officials disagreed with the Inspector 
General's findings and said that the Inspector General's methodology 
for determining the percentage usage was flawed.[Footnote 25] Further, 
the board representatives from the Departments of the Treasury and 
Commerce were unaware of DOL and PBGC's actions until they were brought 
to their attention by PBGC's Inspector General. In May 2007, the 
direction to transfer funds was enacted by Congress and PBGC is 
providing $7 million to DOL as part of a fiscal year 2007 supplemental 
appropriation.[Footnote 26] 

* In January 2007, DOL officials orally directed PBGC to have no direct 
contact with OMB without DOL's approval, a condition that PBGC 
officials believe has strained the relationship between DOL and PBGC 
budget offices. In previous years, PBGC's budget office worked directly 
with OMB examiners to resolve matters related to its annual budget 
submissions, even though PBGC submitted its budget to OMB through DOL's 
Office of the Assistant Secretary for Administration and Management. 
DOL now closely monitors PBGC's interactions with OMB by attending 
meetings and participating in telephone calls. DOL officials said that 
such action is needed to coordinate with PBGC in order to provide OMB 
examiners with a consistent message. OMB officials said that DOL's 
review of PBGC's budget submission was useful. 

* DOL and PBGC officials have also disagreed over PBGC's authority to 
explore and establish an independent compensation system for its 
employees. In the early 1990s, PBGC officials requested approval from 
DOL to establish a new compensation system (outside of the federal 
government's "general schedule" pay system and merit pay), arguing that 
PBGC employees should be exempt from these pay systems because their 
compensation was not wholly from appropriated funds. In a 1992 
memorandum, DOL cited the absence of an explicit exception for PBGC 
employees, the legislative history of ERISA, and prior rulings by the 
Federal Labor Relations Authority and the United States Court of 
Appeals for the District of Columbia to argue against such an 
exemption. Consequently, some PBGC officials believe PBGC is limited in 
attracting and retaining the types of expert financial and actuarial 
staff it needs. 

Conclusions: 

As PBGC continues to navigate the challenges presented by the changing 
defined benefit pension environment, ensuring that the corporation is 
soundly governed and efficiently managed is essential to the thousands 
of Americans who rely on PBGC for their retirement income. Since 1974, 
the private sector pension industry has evolved and corporate 
governance models have changed. Yet, PBGC is still directed and 
overseen by one of the smallest and least diverse boards of directors, 
even though it is financially one of the largest corporations within 
the federal government. 

While the current board members recognize PBGC's importance and are 
meeting more frequently than before, the limited amount of time they 
can dedicate to PBGC is troubling. In fact, if PBGC's board of 
directors were held to private sector standards, the corporation could 
be considered vulnerable to mismanagement. Because the Secretaries 
change with each administration, the board may also have limited 
institutional knowledge. This could weaken PBGC's governance further, 
since the ever-changing board membership may not understand the 
corporation's business or the vulnerabilities it faces. Even though 
each agency has a variety of staff who may be able to fill the gaps in 
institutional knowledge, each board agency has only assigned a board 
representative and one staff person, both of whom have other job 
responsibilities, a fact that may limit the time and attention given to 
PBGC. As a result, oversight of this $60 billion corporation that 
provides pension benefits to over a half a million participants in 
terminated pension plans may be limited. 

Because the Secretary of Labor has historically had the authority to 
administer PBGC, DOL has, in some ways, filled the void in 
accountability. However, the confusion resulting from the lack of 
clarity over who is responsible for certain matters has raised 
additional questions about the extent to which DOL should be involved 
in directing PBGC's activities. Board representatives from the 
Departments of Commerce and the Treasury have often deferred to DOL on 
administrative matters and not generally questioned DOL on its actions. 
Perhaps some aspects of the relationship between DOL and PBGC could be 
clarified in the revised bylaws currently being prepared, but it 
remains essential that the board exercise its authority to oversee PBGC 
and coordinate with DOL and each other not only on major policy issues, 
but also on the oversight of PBGC's activities. PBGC's management staff 
should also work with the board to ensure that all significant matters 
are formally elevated to the board's attention. This will become even 
more critical in the coming months as the new Senate-confirmed Director 
begins to work with the board to clarify the Director's role in 
administering PBGC. 

Matter for Congressional Consideration: 

To strengthen PBGC's policy direction and oversight, Congress should 
consider expanding PBGC's board of directors. If Congress decides to 
expand the board, it would be helpful to appoint additional members of 
diverse backgrounds who possess knowledge and expertise useful to 
PBGC's responsibilities and can provide the attention that would be 
needed. This revised board structure could resemble those at other 
government corporations, such as the Federal Deposit Insurance 
Corporation, the Export-Import Bank of the United States, or the 
Federal Crop Insurance Corporation. Further, dedicating staff, 
independent of PBGC's executive management, with relevant pension and 
financial expertise, to solely support the revised board's policy and 
oversight activities may be warranted. 

Recommendations for Executive Action: 

To improve overall accountability and oversight of PBGC, we recommend 
that the Secretaries of the Treasury, Labor, and Commerce, as PBGC's 
board of directors, 

* establish policies, procedures, and mechanisms for providing 
oversight of PBGC that are consistent with corporate governance 
guidelines and: 

* establish formal guidelines that articulate the authorities of the 
Board Chair and the Department of Labor, the other board members and 
their respective departments, and PBGC's Director. 

Agency Comments and Our Evaluation: 

We obtained written comments on a draft report from the Secretary of 
Labor, on behalf of the PBGC board of directors, and from the interim 
director of PBGC. Their comments are reproduced in appendixes IV and V, 
respectively. In addition, the Departments of the Treasury, Labor, and 
Commerce, as well as PBGC, provided technical comments, which were 
incorporated in the report where appropriate. 

In response to our draft report, the PBGC board of directors recognized 
that the current law establishes an unusual corporate structure for 
PBGC, and stated that a number of corporate structures are possible for 
addressing PBGC's unique purpose and authority under the law. The board 
members added that if Congress considers making changes to PBGC 
corporate structure, they would be pleased to discuss the merits of 
various corporate governance proposals. Further, the board reiterated 
its continued commitment to improving the corporate governance of PBGC 
within the current statutory structure, and stated that in addition to 
the board members meeting regularly, the board representatives and 
their staffs of resident experts in pension and financial matters meet 
frequently throughout the year to address PBGC matters. The board also 
stated that the review and revisions of PBGC bylaws will help delineate 
the respective roles, responsibilities, and authorities of PBGC's board 
and Director in the management of PBGC. The PBGC interim director 
stated that PBGC management is committed to working with the board to 
enhance PBGC's governance processes on issues identified in our review. 

As agreed with your offices, unless you publicly announce its contents 
earlier, we plan no further distribution of this report until 30 days 
after its issue date. At that time, we will send copies of this report 
to the Secretaries of the Treasury, Labor, and Commerce as well as the 
Director of PBGC and other interested parties. We will also make copies 
available to others on request. If you or your staff have any questions 
concerning this report, please contact me on (202) 512-7215. Key 
contributors are listed in appendix VI. 

Signed by: 

Barbara D. Bovbjerg: 
Director, Education, Workforce, and Income Security Issues: 

[End of section] 

Appendix I: Scope and Methodology: 

To address Pension Benefit Guaranty Corporation's (PBGC) governance 
structure, we interviewed board representatives, board agency 
officials, former PBGC Executive Directors, former PBGC General 
Counsels, senior PBGC management officials, former and current 
Executive Directors, officials from the Office of Management and 
Budget, and outside experts to obtain their perspectives on the board's 
governance structure and its effect on management and operations. To 
encourage open communication, we met with many officials separately, 
and in all cases, subordinate employees were interviewed separately 
from their managers. Additionally, we spoke to PBGC's Inspector General 
as well as PBGC's union representatives. We were unable to attend a 
PBGC board meeting to observe what types of issues the board members 
discussed during their biannual meetings, because the PBGC board does 
not open its meetings to the public or others. 

To identify the extent to which PBGC's governance structure provides 
policy direction and oversight, we reviewed previous GAO work on the 
governance of private sector and government corporations and PBGC's 
single-employer and multiemployer insurance programs and management 
challenges. We also identified key provisions of the Employee 
Retirement and Income Security Act of 1974 (ERISA), the Pension 
Protection Act of 2006 (PPA), and the Government Corporation Control 
Act (GCCA) that outline the authority of PBGC's board of directors as 
well as the administrative responsibilities of PBGC's Director. 
Further, our review examined the governance structures of similar 
federal government corporations listed in the GCCA to determine the 
extent to which they had similar sizes, compositions, activities, 
policy mandates, and oversight functions. In addition, we also reviewed 
our reports and other available literature, such as The Conference 
Board's Corporate Governance Handbook 2005, [Footnote 27]on the 
characteristics of private sector boards of directors to identify 
common practices. We also consulted our standards for internal control 
in the federal government to determine how delegations of authority 
affect an agency's internal control environment.[Footnote 28] 

To understand the board of directors' role, we reviewed documentation 
related to the board members' activities. We collected and reviewed 
available board meeting minutes from 2000 to 2006 to identify what 
types of actions the board members had considered and taken. In 
addition, we requested documentation on board representative meetings, 
however, we were told that no formal documentation existed. Also, we 
reviewed board meeting information dating back to 1974, including 
summations of board resolutions. We also collected and reviewed 
memorandums from PBGC officials and other information concerning 
previous efforts by PBGC staff to evaluate the issue of PBGC's 
governance structure. 

To assess how PBGC's governance structure affects its ability to 
conduct efficient operations, we identified and reviewed key legal 
interpretations of ERISA, PPA, and corresponding regulations that 
outline the relationship between PBGC's board of directors, the 
Secretary of Labor as Board Chair, and PBGC's Director. We reviewed 
available policies and procedures regarding PBGC's interaction with the 
board members' agencies, and we collected and reviewed the policies and 
procedures from PBGC and DOL. Given the Secretary of Labor's role as 
Board Chair, we reviewed available documentation on DOL and PBGC 
protocols to determine the extent to which guidance existed on how they 
should interact on specific administrative activities. 

[End of section] 

Appendix II: List of Selected Federal Government Corporations: 

Federal government corporation: Commodity Credit Corporation; 15 U.S.C. 
714, et seq; 
Mission: Created to stabilize, support, and protect farm income and 
prices. CCC also helps maintain balanced and adequate supplies of 
agricultural commodities and aids in their orderly distribution. 

Federal government corporation: Export-Import Bank of the United 
States; 12 U.S.C. 635, et seq; 
Mission: Assists in financing the export of goods and services between 
the United States and international markets. The Export-Import Bank of 
the United States is the official export credit agency of the United 
States. 

Federal government corporation: Federal Crop Insurance Corporation; 7 
U.S.C. 1501, et seq; 
Mission: Improves the economic stability of agriculture through a sound 
system of crop insurance and provides the means for the research and 
experience helpful in devising and establishing such insurance. 

Federal government corporation: Federal Deposit Insurance Corporation; 
12 U.S.C. 1811, et seq; 
Mission: Preserves and promotes public confidence in the U.S. financial 
system by insuring deposits in banks and thrift institutions for up to 
$100,000 per depositor; by identifying, monitoring and addressing risks 
to the deposit insurance funds; and by limiting the effect on the 
economy and the financial system when a bank or thrift institution 
fails. 

Federal government corporation: Federal Financing Bank; 12 U.S.C. 2281, 
et seq; 
Mission: Established to centralize and reduce the cost of federal 
borrowing, as well as federally assisted borrowing from the public. 

Federal government corporation: Federal Prison Industries (UNICOR); 18 
U.S.C. 4121, et seq; 
Mission: To employ and provide skills training to the greatest 
practicable number of inmates confined within the Federal Bureau of 
Prisons and produce goods for sale to the federal government. 

Federal government corporation: Financing Corporation; 12 U.S.C. 1441, 
et seq; 
Mission: The Financing Corporation (FICO) serves as a financing vehicle 
for the Federal Savings and Loan Insurance Corporation (FSLIC) 
Resolution Fund (formerly the Federal Savings and Loan Insurance 
Corporation) by issuing debentures, bonds, and other obligations. 

Federal government corporation: Government National Mortgage 
Association; 12 U.S.C. 1717, et seq; 
Mission: A corporation that guarantees, with the full faith and credit 
of the U.S. government, full and timely payment of all monthly 
principal and interest payments on the mortgage-backed securities of 
registered holders. 

Federal government corporation: National Railroad Passenger Corporation 
(AMTRAK); 49 U.S.C. 241, et seq; 
Mission: Provides passenger train service in the United States. 

Federal government corporation: Overseas Private Investment 
Corporation; 22 U.S.C. 2191, et seq; 
Mission: Helps U.S. businesses invest overseas, fosters economic 
development in new and emerging markets, assists the private sector in 
managing risks associated with foreign direct investment, and supports 
U.S. foreign policy. 

Federal government corporation: Pension Benefit Guaranty Corporation; 
29 U.S.C. 1301, et seq; 
Mission: Established to encourage the continuation and maintenance of 
private sector defined benefit pension plans, provide timely and 
uninterrupted payment of pension benefits, and keep pension insurance 
premiums at a minimum. 

Federal government corporation: Presidio Trust of San Francisco; 16 
U.S.C. 460bb note; 
Mission: Established to protect, preserve, and enhance the Presidio as 
a resource for the American public and as a national historic landmark. 

Federal government corporation: Resolution Funding Corporation; 12 
U.S.C. 1441b; 
Mission: Established by Congress to raise funds for the activities of 
the Resolution Trust Corporation. 

Federal government corporation: Rural Telephone Bank[A]; 7 U.S.C. 941, 
et seq; 
Mission: Established in 1971 to obtain supplemental funds for use in 
making loans to eligible telecommunications companies and cooperatives. 

Federal government corporation: Saint Lawrence Seaway Development 
Corporation; 33 U.S.C. 981, et seq; 
Mission: Established to construct deep water navigation works in the 
Saint Lawrence Seaway. 

Federal government corporation: Tennessee Valley Authority; 16 U.S.C. 
831, et seq; 
Mission: Created in May 1933 to provide navigation, flood control, 
electricity generation, fertilizer manufacturing, and economic 
development in the Tennessee Valley. 

Federal government corporation: United States Postal Service; 39 U.S.C. 
101, et seq; Mission: Established to provide postal service to the 
United States. 

Federal government corporation: Valles Caldera Trust; 16 U.S.C. 698-v4, 
et seq; 
Mission: Created to manage, provide administrative services, collect 
funds, and coordinate with federal and state governments on behalf of 
the Valles Caldera National Preserve. 

Source: GAO analysis of federal government corporations. 

[A] In February 2005, the President's fiscal year 2006 budget proposed 
the dissolution of the Rural Telephone Bank. After 6 months of 
discussion and deliberation, the board of directors unanimously 
approved resolutions to liquidate and dissolve the bank. On November 
10, 2005, the liquidation and dissolution process was initiated with 
the enactment of the 2006 agriculture appropriations bill. 

[End of table] 

[End of section] 

Appendix III: Examples of Corporate Governance Practices: 

Corporate practices: Board's fiduciary duties; 
Corporate governance guidelines: In carrying out their duties, 
directors should fulfill their fiduciary duties of care, loyalty, and 
good faith, and act in the best interests of the corporation and its 
shareholders. Boards usually delegate the day-to-day management of the 
company to the chief executive officer (CEO) and other senior 
management, but the board retains responsibilities for oversight and 
monitoring of these delegated functions; A director's actions must 
fulfill three fiduciary duties: 
* the duty of care to make decision that are informed,; 
* the duty of loyalty to act without conflict and always to put the 
interests of the corporation before those of the individual director, 
and; 
* the duty to act in good faith in accordance with evolving corporate 
governance best practices. 

Corporate practices: Roles of board and management clearly defined; 
Corporate governance guidelines: A strong and effective board should 
have a clear view of its role in relationship to management. How a 
board organizes itself and structures its processes will vary with the 
nature of the business, business strategy, size and maturity of the 
company, and talents and personalities of the chief executive officer 
and the board. The board should focus principally on guidance and 
strategic issues, choice of the CEO, other senior management, oversight 
and monitoring of management and company performance, and adherence to 
legal requirements. 

Corporate practices: Corporate governance guidelines available; 
Corporate governance guidelines: The board should have a set of written 
guidelines in place to articulate corporate governance principles and 
the roles and responsibilities of the board and management. These 
guidelines should be reviewed at least annually and help the board and 
individual directors understand their obligations and the general 
boundaries within which they will operate; A constructed set of 
governance guidelines will, in part,; 
* delineate responsibilities of the board, management, directors, and 
committees; 
* be reviewed regularly, at least annually, and revised as appropriate; 
and; 
* be made publicly available; Guidelines should also include 
information on director orientation and continuing education. Such 
orientation should entail a thorough briefing on the company and its 
businesses and industries, organizations, people, strategies, key 
issues, and risks. Further, guidelines should include continuing 
education requirements for board members, which can be fulfilled 
through the use of subject matter experts or belonging to professional 
organizations that offer training courses and publish information 
pertaining to their industry's operating environment. 

Corporate practices: Board access to information; 
Corporate governance guidelines: The effectiveness of the board depends 
on the quality and timeliness of the information each director 
receives. The board and management should agree on the important 
information needed for board oversight and monitoring and to enable the 
board to make informed decisions; Directors' access to management and, 
as necessary and appropriate, independent advisors. For purposes of 
having information that is timely and relevant, boards need to have 
both formal and informal channels of communication with the appropriate 
officers and other individuals within the company that enable directors 
to perform their oversight functions. 

Corporate practices: Conduct of board meetings; 
Corporate governance guidelines: Boards should consider the following 
best practices to generally ensure effective decision making and 
exchange of information and ideas: 
* Directors should be able to place items on the agenda, with time for 
adequate discussion and consideration; 
* The lead director should take responsibility to surfacing issues that 
affect the business; 
* Management should provide information that effectively explains the 
corporation's operating and financial status, as well as other 
significant issues facing the corporation and the board; * Meetings 
should be structured to encourage participation and dialogue among the 
directors; 
* Directors should attempt to attend all board meetings and actively 
participate in the meetings, including asking hard questions of 
management; Executive sessions: 
* should promote open dialogue among the members and free exchange of 
ideas, perspectives, and information,; 
* have a 'feedback' mechanism to the CEO for important issues that may 
arise, and; 
* be supplemented by additional off-line informational channels to help 
build trust and relationships among the directors. 

Corporate practices: Board composition and size; 
Corporate governance guidelines: The composition and skill set of the 
board should be linked to the company's particular challenges and 
strategic vision. As companies develop and experience changed 
circumstances, the desired composition of the board may be different 
and should be reviewed; Regardless of their mix of background and 
skills, all directors should: 
* possess knowledge and expertise to fulfill an appropriate role given 
the mix of background and skills; 
* exercise diligence, including attending board and committee meetings 
and coming prepared to provide thoughtful input at the meetings and 
during communications between meetings; and; 
* be independent in their judgment and committed to the long-term 
interests of the company; 
The composition of the board should be tailored to meet the needs of 
the company at its stage of development, but there should be a mix of 
director knowledge and expertise in areas such as; 
* accounting and finance,; 
* strategic risk assessment,; 
* technology,; 
* management, and; 
* industry knowledge; 
The size of the board will vary depending on the corporation's needs 
and requirements. Boards need to be large enough to accommodate the 
necessary skill sets, but small enough to promote cohesion, 
flexibility, and effective participation. According to a private sector 
research center, in 2004, the median private sector board size ranged 
from 11 to 15 total members, with the number of outside directors 
ranging from 8 to 9. 

Corporate practices: Board leadership; 
Corporate governance guidelines: Boards should adopt a structure that 
provides the nonmanagement directors with the leadership necessary for 
them to act independently as well as function effectively. This 
structure could include separating the positions of chairman and CEO, 
creating a lead independent director, or appointing a presiding 
director from among the independent directors; Any structural 
alternative, a private sector board wishes to adopt should; 
* strengthen the independence and oversight role of the board; 
* provide the nonmanagement directors with the ultimate authority over 
information flow to the board; and; 
* improve the relationship and flow of information between the board, 
CEO, and senior management. 

Corporate practices: Board committee structure; 
Corporate governance guidelines: Boards should establish committees 
that will enhance the overall effectiveness of the board by ensuring 
focus and oversight on matters of particular concern. Committees can 
enhance board effectiveness by permitting closer focus, oversight, and 
monitoring of sensitive areas. In the private sector, certain statutes 
and standards require that companies maintain a number of standing 
committees, such as an audit committee, a nominating committee, and a 
compensation committee. In addition, boards have established 
committees, such as risk, technology, pension and benefits, public 
policy, and corporate governance, which focus on substantive issues or 
particular concerns to the company or the board; Examples of 
committees: 
* Audit committee: Is responsible for the appointment, compensation, 
and oversight of the work of any registered public accounting firm 
employed by that issuer; and must be composed entirely of independent 
directors, meaning that a director may not, other than in his or her 
capacity as member of the audit committee, the board of directors, or 
any other board committee, accept any consulting, advisory, or other 
compensatory fee from the issuer or be an affiliated person of the 
issuer or its subsidiary; 
* Governance committee: Is designed for the purpose of monitoring and 
implementing the governance structure of the corporation. This 
committee of independent directors is charged, in part, with ensuring 
that the board is informed of new and emerging governance practice 
being employed. 

Corporate practices: Oversight mechanisms--internal controls; 
Corporate governance guidelines: Boards must play an active role in the 
area of internal controls by ensuring that the company has an effective 
internal control framework in place. This should include the assessment 
and management of key financial and nonfinancial risks and an effective 
monitoring and oversight process, supported by timely and accurate 
information and clear communication channels; Internal controls are 
processes designed to provide reasonable assurance that an organization 
is achieving its objectives by helping to; 
* protect its assets,; 
* ensure it is not overly exposed to risk,; 
* improve the reliability of internal and external reporting,; 
* promote compliance with applicable laws and regulations, and; 
* improve the effectiveness and efficiency of operations. 

Source: Carolyn K. Brancato and Christian A. Plath, Corporate 
Governance Handbook 2005: Developments in Best Practices, Compliance, 
and Legal Standards, Special Report SR-05-02, The Conference Board (New 
York, New York: 2005); Richard Steinberg, PriceWaterhouseCoopers, 
Corporate Governance and the Board: What Works Best, The Institute of 
Internal Auditors Research Foundation (May 1, 2000); and Scott Green, 
Sarbanes-Oxley and the Board of Directors: Techniques and Best 
Practices for Corporate Governance, John Wiley and Sons, Inc. (Hoboken, 
New Jersey: 2005). 

[End of table] 

[End of section] 

Appendix IV: Comments from the Pension Benefit Guaranty Corporation 
Board of Directors: 

Secretary Of Labor: 
Washington, D.C. 20210: 

Jun 2 6 2007: 

Mr. David M. Walker: 
Comptroller General: 
United States Government Accountability Office: 
Washington, DC 20548: 

Dear General Walker: 

As the Chair of the Board of Directors of the Pension Benefit Guaranty 
Corporation (PBGC), I am responding on behalf of the Board to your 
request for comments on the Government Accountability Office's (GAO) 
draft report entitled "Pension Benefit Guaranty Corporation: Governance 
Structure Needs Improvements to Ensure Policy Direction and Oversight" 
(GAO-07-808). 

The current law establishes an unusual corporate structure for the 
PBGC. There are concerns about whether this statutory structure is the 
best approach. A number of corporate structures are possible that take 
into account the PBGC's unique purpose and its authority under the law. 
If Congress considers this issue further, we will be pleased to discuss 
the merits of various proposals to enable the Corporation to best 
succeed in its primary mission to safeguard the pension benefits of 
American workers, retirees and their families. 

Within the current statutory structure, my fellow Board members and I 
have been committed to improving the corporate governance of the PBGC, 
and I am pleased the draft report documents our efforts in this 
important area. For example, prior to my becoming Chair of the PBGC, 
the Board had not met since 1995. 1 instituted twice-annual Board 
Meetings and established the Board practice of meeting directly with 
the PBGC Inspector General and the Corporation's outside auditors, as 
well as PBGC executives, during Board meetings. 

The Board Representatives and their staffs of resident experts in 
pension and financial matters meet frequently throughout the year with 
one another and with PBGC officials, and receive weekly reports from 
the PBGC. The Board has worked together through some of the PBGC's most 
financially challenging years, culminating in the most significant 
revision of the nation's pension laws since the PBGC's creation. 

As GAO notes, the Board previously directed an ongoing review of the 
bylaws of the Corporation to determine what changes would improve the 
oversight and administration of the PBGC and to adapt the bylaws to the 
changes encompassed in the Pension Protection Act. The review of, and 
the revisions to, the bylaws will help delineate the respective roles, 
responsibilities, and authority of the Director and the Board in the 
management of the PBGC. 

The PBGC is dedicated to protecting the basic pension benefits of 44 
million Americans covered by the PBGC's insurance programs. We 
appreciate having had the opportunity to review and comment on the 
draft report. 

Sincerely, 

Signed by: 

Elaine L. Chao: 
Chairman of the Board: 
Pension Benefit Guaranty Corporation: 

[End of section] 

Appendix V: Comments from the Pension Benefit Guaranty Corporation: 

Pension Benefit Guaranty Corporation: 
1200 K Street, N.W., 
Washington, D.C. 20005-4026: 
Office of the Director: 

June 22, 2007: 

Barbara D. Bovbjerg, Director: 
Education, Workforce, and Income Security Issues: 
U.S. Government Accountability Office: 
Washington, D.C. 20548: 

Dear Ms. Bovbjerg: 

Thank you for the opportunity to comment on the draft version of your 
report entitled "PBGC Governance Structure Needs Improvements to Ensure 
Policy Direction and Oversight." Corporate governance issues have 
received greater attention recently in a variety of settings, and PBGC 
appreciates GAO's work in assessing whether PBGC's governance structure 
could be enhanced. 

With the passage of the Pension Protection Act of 2006, PBGC recognized 
the need to update the Corporation's bylaws, and has been working with 
the Board of Directors and their staff on this important project. We 
will continue to work with our Board to enhance our governance 
processes, as well as with our Board agencies on issues identified in 
the report, so that the Corporation will be best positioned to address 
the challenges we face in the years ahead. 

Sincerely, 

Signed by: 

Charles E. F. Millard: 
Interim Director: 

[End of section] 

Appendix VI: Contacts and Acknowledgments: 

GAO Contact: 

Barbara D. Bovbjerg, (202) 512-7215: 

Acknowledgments: 

The following team members made key contributions to this report: Blake 
Ainsworth, Assistant Director; Jason Holsclaw; Joe Applebaum; Kisha 
Clark; Monika Gomez; Jean McSween; Charles Willson; and Craig Winslow. 

[End of section] 

GAO Related Products: 

PBGC's Legal Support: Improvement Needed to Eliminate Confusion and 
Ensure Provision of Consistent Advice. GAO-07-757R. Washington, D.C.: 
May 18, 2007. 

Federal Deposit Insurance Corporation: Human Capital and Risk 
Assessment Programs Appear Sound, but Evaluations of Their 
Effectiveness Should Be Improved. GAO-07-255. Washington, D.C.: 
February 2007. 

High Risk Series: An Update. GAO-07-310. Washington, D.C.: January 
2007. 

Corporate Governance: NCUA's Controls and Related Procedures for Board 
Independence and Objectivity Are Similar to Other Financial Regulators, 
but Opportunities Exist to Enhance Its Governance Structure. GAO-07- 
72R. Washington, D.C.: November 30, 2006. 

Private Pensions: Questions Concerning the Pension Benefit Guaranty 
Corporation's Practices Regarding Single-Employer Probable Claims. GAO-
05-991R. Washington, D.C.: September 9, 2005. 

Private Pensions: The Pension Benefit Guaranty Corporation and Long- 
Term Budgetary Challenges. GAO-05-772T. Washington, D.C.: June 9, 2005. 

Government-Sponsored Enterprises: A Framework for Strengthening GSE 
Governance and Oversight. GAO-04-269T. Washington, D.C.: February 10, 
2004. 

Pension Benefit Guaranty Corporation: Single-Employer Pension Insurance 
Program Faces Significant Long-Term Risks. GAO-04-90. Washington, D.C.: 
October 2003. 

Pension Benefit Guaranty Corporation: Statutory Limitation on 
Administrative Expenses Does Not Provide Meaningful Control. GAO-03- 
301. Washington, D.C.: February 2003. 

GAO Forum on Governance and Accountability: Challenges to Restore 
Public Confidence in U.S. Corporate Governance and Accountability 
Systems. GAO-03-419SP. Washington, D.C.: January 2003. 

Pension Benefit Guaranty Corporation: Contracting Management Needs 
Improvement. GAO/HEHS-00-130. Washington, D.C.: September 2000. 

Government Corporations: Profiles of Existing Government Corporations. 
GAO/GGD-96-14. Washington, D.C.: December 1995. 

FOOTNOTES 

[1] Pub. L. No. 109-280, 170 Stat. 780. 

[2] GAO, High Risk Series: An Update, GAO-07-310 (Washington, D.C.: 
January 2007), and GAO, Private Pensions: The Pension Benefit Guaranty 
Corporation and Long-Term Budgetary Challenges, GAO-05-772T 
(Washington, D.C.: June 9, 2005). 

[3] ERISA is a federal law that, among other things, set certain 
minimum standards for pension plans sponsored by private employers and 
established PBGC. 29 U.S.C. 1001-1461. 

[4] 31 U.S.C.  9101-9110. 

[5] A defined benefit plan is a pension plan where the plan sponsor 
provides a benefit generally expressed as a monthly benefit based on a 
formula that generally combines salary and years of service to the 
company. Defined benefit plans usually express benefits as an annuity, 
but may offer departing participants the opportunity to receive lump 
sum distributions. 

[6] ERISA also established rules for funding defined benefit plans, 
instituted pension insurance premiums, promulgated certain fiduciary 
rules, and mandated annual reporting requirements. 

[7] PBGC administers two programs: the single-employer and 
multiemployer insurance programs. A single-employer plan is established 
and maintained by only one employer. Single-employer plans can be 
established unilaterally by the sponsor or through a collective 
bargaining agreement with a labor union. 29 U.S.C.  1002(41). A 
multiemployer plan is a collectively bargained arrangement between a 
labor union and a group of employers in a particular trade or industry. 
Management and labor representatives must jointly govern multiemployer 
plans. 29 U.S.C.  1002 (37). 

[8] 29 U.S.C.  1302(h). 

[9] 29 U.S.C.  1302(g)(2). 

[10] 29 U.S.C.  1302(b). 

[11] A government-sponsored enterprise is a federally established, 
privately owned corporation. 2 U.S.C.  622. GSEs typically receive 
their financing from private investment, and the credit markets 
perceive that GSEs have implied federal financial backing. In general, 
GSEs do not receive government appropriations. 

[12] Pub. L. No. 107-204, 116 Stat. 745. 

[13] GAO, Highlights of GAO's Corporate Governance, Transparency, and 
Accountability Forum, GAO-02-494SP (Washington, D.C.: March 2002), and 
GAO, Corporate Governance: NCUA's Controls and Related Procedures for 
Board Independence and Objectivity Are Similar to Other Financial 
Regulators, but Opportunities Exist to Enhance Its Governance 
Structure, GAO-07-72R (Washington, D.C. Nov. 30, 2006). 

[14] The Millennium Challenge Corporation is a U.S. government 
corporation designed to work with some of the poorest countries in the 
world to reduce global poverty through the promotion of sustainable 
economic growth. The Community Development Financial Institutions Fund 
was created to expand the capacity of financial institutions to provide 
credit, capital, and financial services to underserved populations and 
communities in the United States. Congress established the Social 
Security and Medicare trust funds in the U.S. Treasury to account for 
all program income and disbursements. Social Security and Medicare 
taxes, premiums, and other income are credited to the funds. 
Disbursements from the funds can be made only to pay benefits and 
program administrative costs. There are six trustees, four of whom 
serve by virtue of their positions in the federal government, and the 
other two trustees are public representatives appointed by the 
President. 

[15] The Export-Import Bank of the United States is the official export 
credit agency of the United States and assists in financing the export 
of U.S. goods and services to international markets. 

[16] Holly J. Gregory, Comparison of Corporate Governance Guidelines 
and Codes of Best Practice, Weil, Gotshal & Manges LLP (New York, New 
York: January 2006), and Carolyn K. Brancato and Christian A. Plath, 
Corporate Governance Handbook, 2005: Legal Standards and Board 
Practices, Special Report SR-05-02, The Conference Board (New York, New 
York: 2005). The Conference Board is a global business membership and 
research organization that creates and disseminates knowledge about 
management and the marketplace. 

[17] Corporate Governance Handbook 2005, Special Report SR-05-02 

[18] 22 U.S.C.  2193. 

[19] Corporate Governance Handbook 2005, Special Report SR-05-02 

[20] Corporate Governance Handbook 2005, Special Report SR-05-02 

[21] As of May 2007, the following officials within the Department of 
the Treasury, Commerce, and Labor represented their respective 
Secretaries: the Under Secretary of Domestic Finance (Treasury), Under 
Secretary for Economic Affairs (Commerce), and Assistant Secretary of 
the Employee Benefits Security Administration (DOL). The organizational 
level of a PBGC board representative can vary depending upon whom each 
secretary selects. Because the Secretary of Labor is the Board Chair, 
the DOL Assistant Secretary typically leads the board representatives. 
However, this may create a unique dynamic because the Under Secretaries 
outrank the DOL Assistant Secretary. 

[22] PBGC's executive management has established committees and working 
groups for policy and oversight, such as its Executive Management 
Committee, Internal Controls Committee, Budget and Planning Integration 
Team, and Operations Integration Board. According to PBGC, the 
Executive Management Committee is responsible for corporate policy 
decisions and for coordination of the work of various PBGC offices. The 
Internal Control Committee has oversight responsibility for PBGC's 
internal controls. The Budget Planning and Integration Team provides a 
standardized process to promote integrated approaches for the alignment 
of budgetary resources and strategic planning. The Operations 
Integration Board provides a forum for senior leadership to commission 
and review corporationwide programs, projects, and internal policies. 

[23] GAO, Internal Control Standards: Internal Control Management and 
Evaluation Tool, GAO-01-1008G (Washington, D.C.: August 2001). 

[24] Unlike most federal agencies, PBGC does not receive a general 
revenue appropriation each year, because PBGC is intended to be 
financially self-sustaining. However, PBGC is subject to spending 
limitations imposed by Congress and must submit an annual budget 
request through DOL and OMB. 

[25] GAO staff did not attempt to verify the Inspector General's 
findings. 

[26] Pub. L. No. 110-28,  6601. 

[27] Carolyn K. Brancato and Christian A. Plath, Corporate Governance 
Handbook 2005: Developments in Best Practices, Compliance, and Legal 
Standards, Special Report SR-05-02, The Conference Board (New York, New 
York: 2005). 

[28] GAO, Internal Control Standards: Internal Control Management and 
Evaluation Tool, GAO-01-1008G (Washington, D.C.: August 2001). 

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