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entitled 'Pension Benefit Guaranty Corporation: Statutory Limitation on 
Administrative Expenses Does Not Provide Meaningful Control' which was 
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Report to the Ranking Minority Member, Special Committee on Aging, U.S. 

Senate:



February 2003:



PENSION BENEFIT GUARANTY CORPORATION:



Statutory Limitation on Administrative Expenses Does Not Provide 

Meaningful Control:



GAO-03-301:



Highlights:



Highlights of GAO-03-301, a report to the  Ranking Minority Member of 

the Special Committee on Aging, United States Senate.



PENSION BENEFIT GUARANTY CORPORATION

Statutory Limitation on Administrative Expenses Does Not Provide 

Meaningful Control.



Why GAO Did This Study:



Concerned about the increasing proportion of the Pension Benefit 

Guaranty Corporation’s (PBGC) operational and administrative budget 

that is outside the annual administrative expense limitation, the 

Ranking Minority Member of the Senate Special Committee on Aging asked 

GAO to review PBGC’s (1) application of the limitations set forth in 

its appropriations in developing its budget estimates and (2) 
methodology 

for allocating and reporting its operational and administrative 

expenses falling under the statutory limitation.



What GAO Found:



As part of PBGC’s fiscal year 1985 appropriation, Congress limited the 

amount of PBGC’s appropriated revolving funds available for 

“administrative expenses.” In later years, PBGC requested and Congress 

approved certain types of expenses to be excluded from the 

administrative expense limitation.  PBGC requested the exclusions in 

order to gain flexibility in dealing with several major pension plan 

terminations.  The exclusions, combined with PBGC’s application of the 

limitation, have resulted in only 5 percent of PBGC’s administrative 

and operating expenses being included in the limitation for fiscal year 

2002. GAO found significant problems with the way PBGC develops its 

proposed budget estimates for activities covered by its administrative 

expense limitation.  PBGC does not have a reliable basis for estimating 

its administrative expenses subject to the legislative limitation. As 

a result, PBGC’s estimates for its activities covered by the limitation 

are not meaningful and thus are ineffective in controlling 
administrative 

costs. In addition, PBGC does not have a meaningful basis for reporting 

adherence to the limitation, since it does not accumulate and allocate 

actual expenses for activities subject to the limitation. PBGC uses 

its budgeted amount for the administrative expenses limitation as a 

basis for allocating and reporting actual costs for those activities. 

This amounts to force fitting reported expenses so that they equal or 

come close to the budgeted amount for the limitation, and accordingly, 

does not provide reliable cost data related to actual activities or a 

meaningful basis for reporting and tracking compliance with the 

limitation.



Percentage of PBGC’s Operational and Administrative Expenses Subject to 
Limitation, Fiscal

Years 1985-2002:



[See PDF for Image]

[End of Figure]



What GAO Recommends:



Congress may wish to review whether or to what extent to continue 

including an administrative expense limitation in annual appropriation 

acts as an oversight tool.  GAO is  making recommendations to PBGC 

aimed at developing cost information to assist Congress in its 

oversight of PBGC’s activities and for congressional decision making 

about whether and to what extent it should continue to use an expense 

limitation in its oversight of PBGC. PBGC stated that its budget 

structure must change; however, its proposed revisions would not 

specifically address GAO’s recommendations.



To view the full report, including the scope

and methodology, click on the link above.

For more information, contact Jeanette Franzel at (202)512-9406 or at 

franzelj@gao.gov.



Contents:



Letter:



Results in Brief:



Scope and Methodology:



Background:



Evolution of PBGC’s Current Statutory Limitation on Administrative 

Expenses:



PBGC’s Application of the Statutory Limitations Is Not Reliable:



PBGC’s Reporting of Expenses Falling under the Administrative Expense 

Limitation Is Not Meaningful:



Conclusions:



Matter for Congressional Consideration:



Recommendations for Executive Action:



Agency Comments:



Appendixes:



Appendix I: Pension Plan Termination Procedures:



Appendix II: PBGC Finances Its Activities under Two Fund Types—

Appropriated Revolving Funds and the Trust Fund:



Appendix III: Limitation on Administrative Expenses 

Compared to Total Operational and Administrative Expenses, FY 1985-
2003:



Appendix IV: Comments from the Pension Benefit Guaranty

Corporation



Figures :



Figure 1: Major Types of PBGC Expenditures:



Figure 2: PBGC Net Position--Fiscal Years 1985-2002:



Figure 3: Percentage of PBGC’s Operational and Administrative Expenses 

Subject to Limitation, Fiscal Years 1985-2002:



Figure 4: PBGC’s Method of Calculating the Statutory Limitation on 

Administrative Expenses for the 1995 Budget Submission:



Figure 5: Relationship of PBGC’s Administrative Expense Limitation to 

Its Total Actual Operational and Administrative Expenses, Fiscal Years 

1985-2002:



Figure 6: PBGC’s Sources of Funding for Its Expenditures:



Abbreviations :



CMO: Chief Management Officer:



ERISA: The Employee Retirement Income Security Act of 1974:



OMB: Office of Management and Budget:



PBGC: Pension Benefit Guaranty Corporation:



Letter February 28, 2003:



The Honorable John Breaux

Ranking Minority Member

Special Committee on Aging

United States Senate:



Dear Senator Breaux:



The Pension Benefit Guaranty Corporation (PBGC) insures the benefits of 

44 million participants on default of their employer-sponsored defined 

benefit pension plans.[Footnote 1] Established by Title IV of the 

Employee Retirement Income Security Act of 1974 (ERISA)[Footnote 2] as 

a wholly owned government corporation, PBGC’s primary activities 

involve collecting insurance premiums from pension plan sponsors, 

overseeing plan terminations, and ensuring the proper disbursement of 

payments. During fiscal year 2002, PBGC received $812 million in 

premium income and paid over $1.5 billion in retirement benefits. ERISA 

requires that PBGC’s activities be self-financing. PBGC finances its 

activities primarily through premiums collected from covered plans, 

assets received from terminated plans, collection of employer 

liabilities due under ERISA, and investment earnings.



Amid congressional concerns that PBGC had not informed Congress of 

prior-year commitments for a large office automation project, PBGC’s 

fiscal year 1985 appropriation limited its use of its appropriated 

revolving funds for annual administrative expenses to $33.1 million, 

which included all of PBGC’s operational and administrative expenses at 

that time.[Footnote 3] Since fiscal year 1985, PBGC’s operational and 

administrative budget has grown significantly, to $227.2 million for 

fiscal year 2002, while the administrative expenses limited by annual 

appropriations acts have fallen to $11.7 million, or 5.2 percent of the 

total operational and administrative budget.



In your December 18, 2001, letter, you expressed concern about the 

increasing proportion of PBGC’s operational and administrative budget 

that is outside of the annual administrative expense limitation. In 

that regard, you asked us to (1) describe the evolution of PBGC’s 

current statutory limitation on administrative expenses, (2) review 

PBGC’s application of the limitations set forth in its appropriations 

in developing its budget estimates, and (3) review PBGC’s methodology 

for allocating and reporting its operational and administrative 

expenses falling under the statutory limitation.



Results in Brief:



As part of PBGC’s fiscal year 1985 appropriation, Congress limited the 

amount of PBGC’s appropriated revolving funds available for 

“administrative expenses” to $33.1 million. In fiscal years 1989 and 

1991, at PBGC’s request, Congress identified types of expenses to be 

excluded from the administrative expense limitation. With the statutory 

exclusions and PBGC’s flawed process for estimating its budget for and 

applying the administrative expense limitation, the portion of PBGC’s 

expenses subject to the limitation compared to its operational and 

administrative budget have decreased dramatically, from 100 percent in 

fiscal year 1985 to 5.2 percent in fiscal year 2002. The President’s 

proposed Budget of the United States Government, Fiscal Year 2004, 

released on February 3, 2003, proposes the elimination of the 

administrative expense limitation.



We found significant problems with the way PBGC developed its budget 

estimates for activities covered by its administrative expense 

limitation. As a result, PBGC’s estimate for activities covered by the 

budget limitation is not meaningful or reliable. PBGC officials could 

not demonstrate that they had conducted an analysis of expense 

classifications for its activities under the operational and 

administrative budget since PBGC last reviewed its activities in 1993. 

Regarding PBGC’s budget estimates for expenses subject to the limit, we 

identified flaws in the concepts supporting the calculation. PBGC’s 

estimates did not include any direct expenses and included only the 

amount of indirect expenses that was not allocated to other activities. 

Under this process, for fiscal year 1995, PBGC determined the amount of 

its proposed budget subject to the administrative expense limitation to 

be $11.5 million. PBGC has used this amount as a basis for all 

subsequent annual budget proposals without subsequent validation, even 

though the scope and size of PBGC’s operations have expanded 

significantly since fiscal year 1995.



We also found that PBGC’s reporting of administrative expenses that 

fall under the administrative expense limitation is not meaningful. 

PBGC does not use a transaction-based approach to report and track 

actual expenses covered by the limitation. Instead, PBGC uses its 

budgeted amount for the administrative expenses limitation as a basis 

for allocating and reporting actual costs for those activities. This 

amounts to force fitting reported expenses so that they equal or come 

close to the budgeted amount for the statutory limitation, and 

accordingly, does not provide reliable cost data related to actual 

activities or a meaningful basis for reporting and tracking compliance 

with the limitation.



While the initial statutory provision provided cost control over PBGC’s 

entire operational and administrative budget, the administrative 

expense limitation now represents an increasingly smaller segment of 

those costs. Congress may wish to review whether to continue including 

such a limitation in appropriations acts as an oversight tool. If a 

statutory limitation for controlling costs continues to be desirable, 

Congress may wish to reexamine the scope of the limitation and require 

PBGC to apply and report on the limitation in a more meaningful manner.



We are making recommendations to PBGC aimed at developing cost 

information to assist Congress in its oversight of PBGC’s expenses and 

to aid congressional decision making about whether or to what extent it 

should continue to use an expense limitation in its oversight of PBGC.



In commenting on a draft of this report, the Chief Management Officer 

(CMO) of PBGC noted that the Corporation had reached a conclusion 

similar to ours about the clarity of PBGC’s current budget structure 

and stated that the budget structure must change. PBGC’s CMO also 

expressed concern that our report appears to be stating that PBGC’s 

budget structure does not provide Congress with meaningful control and 

disagreed with our conclusion that its reporting processes are not 

based on actual data. However, our report addressed the administrative 

expense limitation and not PBGC’s overall budget. As we stated in our 

report, we found significant problems with the way PBGC developed its 

budget estimates for activities covered by the administrative expense 

limitation as well as with PBGC’s reporting of actual expenses covered 

by the limitation. The percentage of PBGC’s expenses subject to the 

limitation has fallen significantly while its total operational and 

administrative expenses have increased significantly--resulting in 

only 5 percent of its expenses falling under the administrative expense 

limitation. Accordingly, the limitation as now structured and 

implemented does not represent a meaningful control over administrative 

expenses. PBGC proposed a restructuring of its budget, but this 

proposal does not specifically address our recommendations.



Scope and Methodology:



To describe the evolution of PBGC’s current statutory limitation on 

administrative expenses, we reviewed PBGC’s enabling and appropriations 

legislation from 1974 to 2002. We reviewed Titles I and IV of ERISA (29 

U.S.C. Chapter 18); Chapter 91 of Title 31, United States Code 

(commonly referred to as the Government Corporation Control Act); the 

Treasury-General Government Appropriations acts for various fiscal 

years; and pertinent legislative histories of those acts.



In order to review PBGC’s application of the statutory limitations in 

developing its budget estimates for amounts falling under the 

limitation, we reviewed the 1985-2003 Budget of the United States 

Government; PBGC’s 2002 annual report and financial statements; related 

audit reports, budget submissions, and proposals; and other 

publications and official correspondence dealing specifically with 

PBGC’s budget limitations.



To review PBGC’s methodology for allocating and reporting its 

operational and administrative expenses for activities falling within 

the administrative expense limitation, we reviewed key documents from 

PBGC’s budget formulation and execution process and interviewed PBGC 

officials knowledgeable about the process. We analyzed PBGC’s budget 

policy manual, mission and function descriptions for each PBGC 

department, and PBGC’s budget justification documents. We obtained and 

reviewed the 2001 budget execution reports submitted by PBGC to the 

Office of Management and Budget (OMB), including the Apportionment and 

Reapportionment Schedules (SF 132) and Reports on Budget Execution and 

Budgetary Resources (SF 133). We reviewed PBGC’s budgetary accounting 

code structure and obtained copies of budgeting and accounting 

documents applying those codes. We also interviewed PBGC’s Budget 

Director, Controller, Chief Management Officer, and other appropriate 

PBGC officials.



As agreed with your staff, we did not review the relationship of PBGC’s 

revolving funds to the trust funds it administers as trustee of defined 

benefit pension plans because this matter is subject to ongoing 

litigation.[Footnote 4] Accordingly, we did not review individual 

expense transactions for the purpose of determining whether they should 

be properly charged to the revolving or trust funds.



We conducted our review from March 2002 through December 2002 in 

accordance with generally accepted government auditing standards. We 

obtained written comments on a draft of this report from PBGC’s Chief 

Management Officer. These are included in appendix IV.



Background:



Congress enacted ERISA in 1974 to protect the anticipated retirement 

benefits of employees when defined benefit pension plans they 

participate in are terminated and do not have sufficient assets to pay 

the estimated future benefits promised to employees (underfunded 

plans). Defined benefit pension plans are established or maintained by 

employers or employee organizations, or both, and provide for a 

specific amount of retirement income with the payment amounts typically 

based on years of service and earnings.



PBGC insures participants for single-employer and multiemployer defined 

benefit pension plans. Single-employer plans generally consist of plans 

that provide benefits to employees of one employer. Multiemployer plans 

are those established through collective bargaining agreements that 

require contributions by and provide benefits to workers from more than 

one employer. PBGC charges a flat-rate premium or a variable-rate 

premium to finance its coverage of amounts needed to guarantee benefit 

payments of plans that terminate with insufficient assets to pay 

promised benefits. PBGC initiates involuntary terminations for 

underfunded plans. Once those plans are terminated, PBGC routinely is 

appointed as the permanent trustee. (App. I summarizes the plan 

termination processes in more detail.):



As shown in figure 1, PBGC’s major expenditures include benefit 

payments, financial assistance payments, and “operational and 

administrative” expenses. Under the single-employer program, PBGC makes 

guaranteed benefit payments to retirees or their dependents for 

underfunded terminated plans.[Footnote 5] Under the multiemployer 

program, PBGC provides financial assistance payments to pension plans 

that become insolvent. This allows the plans to continue paying 

participants their guaranteed benefits.



Figure 1: Major Types of PBGC Expenditures:



[See PDF for image] - graphic text:



[End of figure] - graphic text:



PBGC’s operational and administrative expenses include expenses 

incurred in carrying out its responsibilities as trustee of plans and 

its administrative expenses. PBGC’s expenses as a trustee include the 

costs of collecting plan assets; processing, accounting, valuing, and 

managing assets; determining eligibility and benefit levels; and paying 

benefits. PBGC divides its operational and administrative expenses into 

two subcategories: “services related to terminations” and 

“administrative.” PBGC treats all expenses of “services related to 

terminations,” including an allocation of indirect expenses, as 

expenses related to its role as trustee of plans. PBGC charges those 

expenses to its trust funds. (App. II discusses PBGC’s revolving and 

trust funds.) Over the years, PBGC operations have grown significantly 

as pension plan terminations have increased. PBGC’s reported net 

position increased from a negative $1.3 billion in fiscal year 1985 

(total assets of $1.2 billion against $2.5 billion in recorded 

liabilities) to 

$7.8 billion in fiscal year 2001 (total assets of $22.5 billion against 

$14.7 billion in recorded liabilities). In fiscal year 2002, PBGC’s net 

position decreased to a deficit of $3.5 billion (total assets of $26.4 

billion against $29.9 billion in recorded liabilities). The large 

decrease in PBGC’s net position in fiscal year 2002 was due largely to 

losses associated with completed and probable pension plan 

terminations. The number of pension plan participants that PBGC is 

responsible for increased from 170,000 in fiscal year 1985 to 783,000 

in fiscal year 2002, an increase of 361 percent. PBGC’s net position 

from fiscal year 1985 through 2002 is reflected in figure 2.



Figure 2: PBGC Net Position--Fiscal Years 1985-2002:



[See PDF for image] - graphic text:



[End of figure] - graphic text:



[A] Fiscal year 1986 includes $1.8 billion in liabilities that was 

subsequently returned by a Supreme Court ruling to a reorganized LTV 

Corporation.



Evolution of PBGC’s Current Statutory Limitation on Administrative 

Expenses:



In annual appropriations acts since fiscal year 1985, Congress has 

limited the amount of PBGC’s permanent indefinite revolving fund 

appropriations that may be used for administrative expenses. The annual 

appropriations acts have not defined the types of costs to be included 

as “administrative expenses.” In fiscal years 1989 and 1991, however, 

the appropriations acts identified certain PBGC contractual and other 

expenses to be excluded from the administrative expense limitation, 

thus narrowing the activities and expenses subject to the 

administrative expense limitation. Over time, the percentage of PBGC’s 

administrative expense limitation compared to the total operational and 

administrative budget has decreased dramatically, from 100 percent in 

fiscal year 1985 to 5.2 percent in fiscal year 2002. (See fig. 3 and 

app. III for more details.) This decrease resulted in part from the 

1989 and 1991 statutory provisions that narrowed the activities under 

the administrative expense limitation. The decrease is also a result of 

PBGC’s application of the statutory limitation in its budget process, 

which is described in a later section of this report.



Figure 3: Percentage of PBGC’s Operational and Administrative Expenses 

Subject to Limitation, Fiscal Years 1985-2002:



[See PDF for image] - graphic text:



[End of figure] - graphic text:



[A] Total operational and administrative expenses for fiscal years 1987 

and 1988 include $7.3 million in administrative expenses paid directly 

out of the trust fund. For fiscal years prior to 1989, “services 

related to terminations” expenses were paid directly out of the trust 

fund and were not included in revolving fund operational and 

administrative expenses.



The first limitation on PBGC’s administrative expenses appeared in the 

Department of Labor Appropriations Act for fiscal year 1985. Expressing 

concern that PBGC had not informed Congress of prior-year commitments 

for computer acquisitions, the Senate Committee on Appropriations 

recommended to Congress that it cap PBGC’s budget authority for its 

fiscal year 1985 “administrative expenses” at $33.1 million. This 

limitation applied to all of PBGC’s operational and administrative 

expenses for fiscal year 1985, which covered PBGC’s entire operational 

and administrative budget.[Footnote 6] Congress has included a 

limitation on administrative expenses in each annual appropriations act 

since fiscal year 1985.



However, in subsequent years, Congress excluded expenses from the 

“administrative expenses” that had been included under the original 

limitation in fiscal year 1985. For fiscal year 1989, PBGC requested 

that Congress exclude certain contractual expenses from the 

administrative expense limitation. PBGC’s Budget Director stated that 

the request was in response to several major plan terminations. He 

stated that PBGC needed flexibility to react quickly to the sizable 

cost and the unpredictable nature of pension plan terminations. The 

statutory administrative expense limitation in fiscal year 1989 limited 

PBGC’s appropriations for “administrative expenses” to $44.2 million 

and allowed PBGC to exclude from the limitation its “contractual 

expenses” for:



* legal and financial service contracts in connection with the 

termination of pension plans,



* asset management, and:



* benefits administration services.[Footnote 7]



In late fiscal year 1991, PBGC requested that Congress further expand 

its operational and administrative budget flexibility because of its 

rising workloads. PBGC requested that, for the last 2 months of fiscal 

year 1991 and thereafter, the exclusions from the expense limitation be 

expanded to include all expenses related to termination of pension 

plans, asset management, and benefits administration. Congress modified 

the administrative expense limitation as requested[Footnote 8] and has 

excluded these expenses from the limitation in subsequent 

appropriations acts. Subsequent to fiscal year 1991, PBGC made changes 

in its approach to applying the statutory limitations, which resulted 

in a further reduction in the proportion of expenses falling under the 

limitation.



After we provided a draft of our report to PBGC, the President’s 

proposed Budget of the United States Government, Fiscal Year 2004 was 

released on February 3, 2003. The fiscal year 2004 budget includes a 

proposal to eliminate the limit on PBGC’s administrative expenditures.



PBGC’s Application of the Statutory Limitations Is Not Reliable:



During our review, we found significant problems with the way PBGC 

developed its budget estimates for its administrative expense 

limitation. As a result, PBGC’s estimate for activities covered by the 

budget limitation is not meaningful or reliable. PBGC’s Budget Director 

could not demonstrate that PBGC had conducted any analysis of expense 

classifications for PBGC’s operational and administrative budget since 

PBGC last reviewed its activities in 1993. We identified flaws in the 

concepts supporting PBGC’s budget estimates for expenses subject to the 

limitation. For example, PBGC did not identify any direct costs of 

activities falling under the expense limitation, and based its 

estimated budget only on the amount of indirect expenses not allocated 

to activities PBGC attributes to plan terminations. Based on this 

flawed concept, PBGC determined that its estimated budget for 

administrative expense limitation was 

$11.5 million for fiscal year 1995. PBGC has used that amount, with 

some minor adjustments, as a basis for all subsequent annual budget 

proposals, without subsequent validation.



To calculate the estimated cost of activities subject to the statutory 

limitation based on the new exclusions that PBGC received beginning 

with the last 2 months of fiscal year 1991, PBGC’s Budget Director told 

us that PBGC conducted reviews in 1991 and 1993 of activities at 

different organizational levels. The official told us that based on a 

1993 review, PBGC identified and estimated direct and indirect expenses 

associated with PBGC’s different activities, including premium 

collections and revolving fund investment services--the major expense 

activities deemed by PBGC to remain subject to the administrative 

expenses limitation. The PBGC Budget Director was unable to provide us 

with documentation supporting the review or the resulting expense 

allocations among PBGC’s activities. The PBGC official also did not 

provide supporting documentation for the reasons why certain other 

regulatory and overhead activities were excluded from the budget 

estimates for the administrative expense limitation. Identifying and 

documenting its activities, along with a basis for including or 

excluding those activities from the administrative expense limitation, 

would have been PBGC’s logical first step in developing a cost 

allocation methodology for identifying total expenses under the 

administrative expense limitation.



However, in its budget proposals for fiscal year 1995, PBGC used a 

flawed methodology for estimating costs that was inconsistent with the 

concept of assigning direct and indirect costs based on activities 

performed. Under its proposed operational and administrative budget, 

PBGC identified estimated direct expenses for “services related to 

terminations” that it considered trustee activities. PBGC then placed 

all other expenses in a pool it characterized as “indirect,” even 

though these “indirect” expenses included direct expenses for premium 

collection and revolving fund investment services, the two major 

activities it deemed to be subject to the administrative expenses 

limitation. Further, PBGC estimated its budgeted amount for the expense 

limitation based on an allocation of the expenses in its pool of 

“indirect” expenses only. PBGC first allocated estimated “indirect” 

expenses to its “services related to terminations” based on the ratio 

of estimated direct expenses for trustee activities to PBGC’s total 

estimated operational and administrative expenses. PBGC then assigned 

the remaining “indirect” expenses to the estimated budget for the 

limited administrative expenses, even though no direct expenses had 

been assigned to those activities, and even though, by definition, 

indirect expenses are generally not allocated to functions that do not 

have direct expenses. (See fig. 4.):



Figure 4: PBGC’s Method of Calculating the Statutory Limitation on 

Administrative Expenses for the 1995 Budget Submission:



[See PDF for image] - graphic text:



[End of figure] - graphic text:



The effect of not considering the direct expenses associated with the 

activities falling under the limitation when budgeting for these 

activities is to arrive at a total budget estimate for limitation 

activities that may not be reasonable. The budget estimate could be 

overstated or understated depending on the actual level of direct 

expenses associated with limitation activities.



Based on this flawed approach, PBGC determined its proposed budget for 

the expense limitation to be $11.5 million in fiscal year 1995 and has 

used this amount as a basis for all subsequent years’ budget proposals. 

According to PBGC’s Budget Director, all of PBGC’s subsequent budget 

proposals for the statutory limitation on administrative expenses have 

been based on the fiscal year 1995 budgeted amount of $11.5 million, 

with minor cost adjustments and inflation adjustments.[Footnote 9] 

Therefore, from fiscal year 1995 through 2002, the amount of budgeted 

expenses falling under the limited administrative expense category has 

generally remained constant, while PBGC’s total budget for operational 

and administrative expenses has grown substantially. (See fig. 5.) PBGC 

has attributed all growth in expenses to trust fund activities and pays 

the increased expenses from the trust funds, without any verification 

of the validity of this approach.



Figure 5: Relationship of PBGC’s Administrative Expense Limitation to 

Its Total Actual Operational and Administrative Expenses, Fiscal Years 

1985-2002:



[See PDF for image] - graphic text:



[End of figure] - graphic text:



[A] Total operational and administrative expenses for fiscal years 1987 

and 1988 include $7.3 million in administrative expenses paid directly 

out of the trust fund. For fiscal years prior to 1989, “services 

related to terminations” expenses were paid directly out of the trust 

fund and were not included in revolving fund operational and 

administrative expenses.



PBGC’s Reporting of Expenses Falling under the Administrative Expense 

Limitation Is Not Meaningful:



We found that PBGC does not account for the actual expenses within its 

administrative expense limitation. Instead, PBGC uses its budgeted 

amount as a basis for allocating and reporting actual costs for those 

activities. PBGC accounts for operational and administrative expenses 

for activities other than “services related to plan terminations” under 

the category, “administrative expenses.” This amount includes indirect 

expenses for the statutory limitation category and indirect expenses 

for “services related to terminations.” However, the amount prorated to 

the limitation is based on the initial amount of administrative 

expenses budgeted for activities PBGC subjects to the limitation and is 

designed to allocate to the limitation an amount equal or close to the 

originally estimated amount. This amounts to force fitting reported 

actual expenses so that they equal or come close to the statutory 

limitation amount. This method does not provide meaningful funds 

control over these activities. As a result, PBGC does not have a 

meaningful basis for reporting and tracking its compliance with the 

limitation. The reporting of actual expenses should be from detailed, 

transaction-based support for the direct and indirect expenses related 

to the activities subject to the limitation.



According to PBGC’s Budget Director, PBGC developed its current method 

for reporting the costs associated with premium collection and 

revolving fund investment services to simplify the process and to avoid 

unduly complex and excessive accounting practices. He explained that 

the methodology was created to eliminate judgment calls and any “gray” 

distinctions between assigning costs for administrative activities 

subject to budget limitations and those not subject to budget 

limitations. This methodology, however, does not provide any reliable 

or meaningful cost data related to actual activities. Proper budgetary 

accounting provides a means to track the status of budget authority to 

help avoid overexpending or overobligating appropriations. A 

methodology for budgeting, allocating, and reporting costs should be 

clearly defined, well reasoned, consistently applied, and properly 

documented. However, PBGC’s process for determining annual proposed and 

reported actual costs of activities subject to the statutory limitation 

on administrative expenses is neither reasonable nor reliable.



As discussed in our executive guide on best practices in financial 

management,[Footnote 10] to effectively evaluate and improve the value 

derived from government programs and spending, Congress and other 

decision makers need accurate and reliable financial information on 

program cost and performance. We also note that financial information 

is meaningful when it is useful, relevant, timely, and reliable. Cost 

accounting principles call for direct costs to be assigned to an 

activity wherever feasible and economically practical, and indirect 

costs to be allocated on a reasonable and consistent basis. Such 

practices would require that PBGC periodically evaluate its methodology 

for assigning the direct costs of activities and the allocation of 

related indirect costs. Further, agencies administering appropriation 

and fund accounts are responsible for ensuring that the amounts 

obligated and expended do not exceed the legally imposed limitations. 

Thus, when obligating or expending amounts for its expenses under the 

administrative limitations, PBGC is required to separately track those 

amounts, including whether they were actually disbursed,[Footnote 11] 

so that it can determine by expense category whether its obligations 

and expenditures are proper in amount and purpose.



Conclusions:



PBGC’s budget proposals for its administrative expense limitation, 

along with its reporting of the amounts spent under the expense 

limitation, are not based on actual data and thus are not meaningful or 

effective in controlling administrative costs. PBGC does not have a 

reliable basis for estimating its budget for activities subject to the 

legislative limitation. Even if PBGC had such a basis, it still would 

have no basis for reporting on adherence to the limitation, since it 

does not accumulate and allocate actual expenses for activities subject 

to the limitation. Its practice of reporting on limitation expenses so 

that the reported amounts are designed to equal or come close to the 

budgeted numbers further undermines the credibility of this process. 

Furthermore, the percentage of PBGC’s operational and administrative 

budget subject to the limitation has fallen significantly while its 

total operations budget has increased significantly. Accordingly, the 

limitation as now structured and implemented does not represent a 

meaningful control over administrative expenses.



Matter for Congressional Consideration:



With only about 5 percent of total operating and administrative costs 

falling under the limitation in fiscal year 2002, the statutory 

limitation on administrative expenses offers little opportunity for 

controlling operational and administrative expenses. Because the 

limitation no longer serves as a meaningful control over PBGC’s 

administrative activities and expenses, Congress may wish to consider 

whether or to what extent to continue to use the administrative expense 

limitation as a tool for overseeing PBGC’s activities. Congress could 

choose to more clearly define PBGC’s administrative expense limitation, 

which would improve the limitation’s use as an oversight tool during 

the normal congressional appropriations process. A more clearly defined 

expense limitation could result in a larger share of PBGC’s expenses 

falling under the limitation. On the other hand, Congress may decide to 

eliminate the administrative expense limitation for PBGC altogether.



Recommendations for Executive Action:



In order to provide cost information to assist Congress in its 

oversight of PBGC’s expenses and for congressional decision making 

about whether or to what extent it should continue to use an expense 

limitation in its oversight of PBGC, we recommend that PBGC’s Executive 

Director:



* employ a systematic review, including both quantitative and 

qualitative measures, to develop a methodology for assigning the direct 

expenses related to its major categories of activities;



* develop a method of allocating indirect costs to each activity using 

a logical, reasonable, and consistent basis; and:



* develop a method for accounting for actual direct and indirect 

expenses for its major activities.



Agency Comments:



In commenting on a draft of this report, the Chief Management Officer 

(CMO) of PBGC noted that the Corporation had reached a conclusion 

similar to ours about the clarity of PBGC’s current budget structure 

and stated that the budget structure must change. In this regard, 

PBGC’s CMO stated that PBGC proposed a new budget structure for its 

fiscal year 2004 congressional budget submission that would restructure 

PBGC’s budget program and financing activity line items so that they 

match up with PBGC’s lines of business. PBGC’s CMO further stated that 

PBGC will consider establishing an internal review process in which 

budget, finance, auditing, and legal staff will examine all budget 

lines midyear to ensure their correct classification to the new 

activities.



PBGC’s CMO expressed concern that our report appears to be stating that 

PBGC’s budget structure does not provide Congress with meaningful 

control. However, our report addresses the administrative expense 

limitation and not PBGC’s overall budget. As we stated in our report, 

we found significant problems with the way PBGC developed its budget 

estimates for activities covered by the administrative expense 

limitation as well as with PBGC’s reporting of actual expenses covered 

by the limitation. The percentage of PBGC’s administrative expenses 

subject to the limitation has fallen significantly while its total 

operational and administrative expenses have increased significantly, 

resulting in only 5 percent falling under the administrative expense 

limitation. Accordingly, if Congress wishes to maintain some sort of 

limitation for some or all of PBGC’s administrative expenses, the 

limitation as now structured and implemented does not represent a 

meaningful control.



PBGC’s CMO disagreed with our conclusion that PBGC’s reporting 

processes are not based on actual data. As we stated in our report, for 

reporting on administrative expenses that fall under the administrative 

expense limitation, PBGC uses its budgeted amount for the 

administrative expense limitation as a basis for allocating and 

reporting actual costs for those activities. As discussed in the body 

of our report, this PBGC process merely results in force fitting 

reported expenses so that they equal or come close to the budgeted 

amount for the statutory limitation, and accordingly, does not provide 

reliable cost data related to actual activities or a meaningful basis 

for reporting and tracking compliance with the limitation.



PBGC’s CMO stated that the current budget proposal addresses the three 

recommendations in our report. However, as described in the CMO’s 

response, PBGC’s proposed budget restructuring does not specifically 

address our recommendations. As described in the CMO’s response, PBGC’s 

proposal does not address our recommendations calling for a systematic 

review to develop a methodology for assigning direct expenses to PBGC’s 

major categories of activities, developing a method of allocating 

indirect costs to those activities, and developing a methodology for 

accounting for those expenses for its major lines of activities.



Finally, PBGC notes that it is facing historic challenges to the 

pension insurance system given the significant number of large plan 

terminations and other potential liabilities. We agree that this is an 

opportune time for Congress to decide whether or to what extent it will 

use the administrative expense limitation as an oversight tool. As we 

state in our report, Congress may wish to review whether to continue 

including such a limitation in appropriations acts as an oversight 

tool. If a statutory limitation for controlling costs continues to be 

desirable, Congress may wish to reexamine the scope of the limitation 

and require PBGC to apply and report on the limitation in a more 

meaningful manner.



As agreed with your office, unless you announce its contents earlier, 

we plan no further distribution of this report until 30 days after its 

issuance date. At that time, we will send copies to the Chairman of the 

Senate Special Committee on Aging and to other interested congressional 

committees. We are also sending copies to the Executive Director of the 

Pension Benefit Guaranty Corporation. Copies of this report will also 

be made available to others upon request. In addition, the report will 

be available at no charge on the GAO Web site at http://www.gao.gov.



Please contact me at (202) 512-9406 or by e-mail at franzelj@gao.gov if 

you or your staff has any questions concerning this report. Key 

contributors to this report were Darryl Chang, F. Abe Dymond, Meg 

Mills, and Estelle Tsay.



Sincerely yours,



Jeanette M. Franzel

Director, Financial Management and Assurance:



Signed by Jeanette M. Franzel:



[End of section]



Appendixes:



Appendix I: Pension Plan Termination Procedures:



The Employee Retirement Income Security Act of 1974 (ERISA) directs 

PBGC to oversee the termination of single-employer defined benefit 

pension plans under three different sets of circumstances.[Footnote 12] 

Each type of termination involves different procedures. PBGC may be 

appointed as pension plan trustee under two of these procedures.



ERISA authorizes plan sponsors or plan administrators[Footnote 13] to 

initiate the termination of ongoing plans under three general 

circumstances and through three corresponding procedures set out in 

federal regulations. First, a plan administrator may initiate a 

“standard termination” of a single-employer plan if the liabilities of 

the plan are sufficiently funded. “Standard termination” is the name 

given by ERISA to the termination procedure that consists primarily of 

a series of notices and valuations. Second, a plan administrator of a 

single-employer plan may initiate a “distress termination” when the 

plan sponsor and each member of the plan sponsor’s controlled group 

meet financial distress criteria. “Distress termination” is the name 

given by ERISA to the termination procedure that authorizes plan 

administrators to notify PBGC that they intend to terminate a plan 

because (1) the employer is in liquidation proceedings, (2) the 

employer is in reorganization proceedings and the bankruptcy court 

determines that the employer is unable to continue in business if it 

must fund the plan, 

(3) PBGC agrees that the employer cannot pay all debts and cannot 

continue in business, or (4) PBGC agrees that the costs of continuing 

plan coverage are “unreasonably burdensome” solely because of a decline 

in the employer’s workforce. If, during a “distress termination,” PBGC 

determines that the plan is not sufficiently funded to cover the 

amounts it would guarantee, it must petition a federal district court 

or reach agreement with a plan administrator to terminate the plan.



A third termination procedure--”PBGC-initiated termination” (sometimes 

called “involuntary termination”)--is available only to PBGC. PBGC must 

initiate the “involuntary termination” of a single-employer plan when 

it determines that there are insufficient plan assets to pay benefit 

liabilities currently due, and it may initiate a plan termination when, 

among similar reasons, PBGC’s “long-run loss with respect to the plan 

may reasonably be expected to increase unreasonably.”[Footnote 14] 

“Involuntary termination” remains available during “standard” and 

“distress terminations.”:



Once the decision to terminate an underfunded plan has been made, 

either in a distress termination or in a PBGC-initiated termination, 

the applicable procedures vary:



* PBGC and the plan administrator may agree to the appointment of an 

interim trustee to administer the plan while they or a federal district 

court consider whether the plan should be terminated. If they do not 

agree to an appointment, either may petition a federal district court 

to appoint an interim trustee for that duration.[Footnote 15]



* PBGC and the plan administrator may agree that the plan should be 

terminated, and if they also agree to the appointment of a permanent 

trustee, that trustee may terminate the plan.



* PBGC may apply to a federal district court for a decree adjudicating 

that the plan should be terminated, or if an interim trustee has been 

appointed, the trustee may also apply for that decree. The court must 

stay any proceedings against the plan in any court until it adjudicates 

the matter. If the court grants the decree, it authorizes the interim 

trustee to terminate the plan or appoints a new permanent trustee to do 

so.



* If an interim trustee is appointed upon initiation of the 

“involuntary termination,” but the court dismisses an application for 

termination or PBGC fails to file an application within sufficient 

time, that trustee’s duties end.



A plan’s termination date triggers various powers and duties of PBGC, 

employers, trustees, plan administrators and sponsors, participants, 

and the federal courts. The plan termination date generally is reached 

when agreed to by PBGC or when ordered by a federal court pursuant to 

the applicable termination procedure. On the plan termination date, 

benefits cease to accrue to plan participants, the plan is generally 

removed from coverage under Title I of ERISA, and the plan can be 

processed for liquidation.[Footnote 16] The termination date is used by 

PBGC to make and issue determinations on the value of (1) vested 

benefits, (2) unfunded vested benefits, (3) employer liability for 

unfunded amounts,[Footnote 17] and (4) PBGC’s liability for its insured 

amounts.



Terminated plans under “PBGC-initiated terminations” are “closed-out” 

when PBGC issues final determinations of benefits payable to plan 

participants, resolves participants’ appeals from the determinations, 

and places the plans in administrative status. Under the administrative 

status, PBGC contracts with plan administrators and other service 

contractors for subsequent investment of plan assets, payment of 

benefits due, and maintenance of participant data. The average age of 

benefit determinations issued in fiscal year 2002 was 3.3 years after 

the date PBGC was appointed as trustee. The average age of unissued 

benefit determinations at fiscal year end was 0.9 years.[Footnote 18] 

Under “standard” and “distress terminations,” plans are liquidated when 

PBGC receives a certificate of distribution of plan assets from a plan 

administrator (certifying that the administrator purchased annuities or 

paid participants a lump sum). Plan administrators do not manage 

benefit payments, participant data, or plan investments after they are 

distributed under “standard” or “distress terminations.” PBGC estimates 

that it will approve 1,200 “standard terminations” and conduct 110 

“involuntary terminations” by the end of fiscal year 2003 and 

anticipates the same workload in fiscal year 2004. ERISA also 

authorizes PBGC to restore any terminating or terminated plan to Title 

I “active” status, and it has done so with major plan failures, such as 

LTV Corporation’s $1.8 billion underfunded plans in 1986.



[End of section]



Appendix II: PBGC Finances Its Activities under Two Fund Types--

Appropriated Revolving Funds and the Trust Fund:



Prior to 1981, PBGC was treated as an off-budget federal 

entity,[Footnote 19] and its transactions were excluded from the budget 

totals. Beginning in 1981, Public Law 96-364 required that PBGC’s 

receipts and disbursements be included in the budget. These are 

accounted for in a single U.S. Treasury account and reported in a 

single budget account--the PBGC Fund, a public enterprise fund. PBGC 

also maintains separate trust fund accounts in a custodian bank for 

plan assets it holds as trustee and to account for terminating or 

terminated plans. These accounts are not included in the total of the 

federal budget. The trust funds, referred to by PBGC collectively as 

the “trust fund,” reflect accounting activity associated with:



* trusteed plans--plans for which PBGC has legal responsibility,



* plans pending trusteeship--terminated plans for which PBGC has not 

yet become legal trustee, and:



* probable terminations--plans that PBGC determines are likely to 

terminate and be trusteed by PBGC.



To provide financing for PBGC, ERISA established revolving funds for 

PBGC that constitute permanent indefinite appropriations.[Footnote 20] 

Out of these revolving funds, PBGC may pay its expenses, such as 

“operational and administrative expenses,” guaranteed benefits, and 

financial assistance. Accordingly, PBGC categorizes its expenditures 

into three groups. (See 

fig. 6.) First are PBGC’s “operational and administrative” expenses, 

which PBGC further divides into two subcategories: “administrative 

expenses” and “services related to terminations.”[Footnote 21] Both of 

these expense subcategories are paid from the revolving funds, but the 

trust fund periodically reimburses PBGC for the “services related to 

terminations” expenses and portions of the “administrative expenses” 

that are allocated to “services related to terminations.”:



Figure 6: PBGC’s Sources of Funding for Its Expenditures:



[See PDF for image] - graphic text:



[End of figure] - graphic text:



PBGC’s two other expense categories are benefit payments that PBGC 

makes to retirees or their dependents (benefit payments) and financial 

assistance loans that provide PBGC assistance to underfunded 

multiemployer pension plans (financial assistance). PBGC expends its 

revolving funds for both categories, but the trust fund reimburses the 

revolving funds for a percentage of the amount of benefit payments. 

PBGC calculates the reimbursement percentage using what it calls its 

“proportional funding” method. The “proportional funding” percentage 

represents aggregate calculations of the amount of benefits that can be 

paid by the trust fund without its being depleted.[Footnote 22] No 

financial assistance payments are reimbursed by the trust fund.



Appropriated Revolving Funds:



Title IV of ERISA establishes seven revolving funds on the books of the 

U.S. Treasury and provided PBGC with permanent indefinite spending 

authority to carry out its duties. ERISA lists the programs, 

activities, and costs that each of the seven revolving funds may be 

used to support. Of the seven revolving funds, however, PBGC currently 

uses only three because it does not conduct the programs or activities 

supported by the other four. Of the three revolving funds that PBGC 

currently uses, funds 1 and 7 support the basic benefit guarantee 

program for single-employer pension plans and fund 2 supports the basic 

benefit guarantee program for multiemployer pension plans. All of these 

are combined into the PBGC fund for budget reporting purposes.



Title IV of ERISA lists the specific types of resources to be credited 

to each fund.[Footnote 23] For example, PBGC’s revolving funds 1 and 2 

may receive premiums charged to employers, attorney’s fees awarded to 

PBGC, earnings on investments of amounts in the funds, and amounts that 

PBGC may borrow from the U.S. Treasury (up to $100 million).[Footnote 

24] Revolving fund 1 may also receive amounts transferred to it from 

revolving fund 7. Revolving fund 7, however, may only receive certain 

premiums for single-employer plans, and also the related penalties, 

interest charges, and earnings on investment of those amounts.



Title IV of ERISA also specifies the types of expenses that each fund 

may pay and certain types of expenses each may not pay. For example, 

PBGC may use the two benefit guarantee revolving funds to pay such 

costs as PBGC’s guaranteed pension plan benefits, to purchase assets of 

terminated plans, and to pay for certain of PBGC’s “operational and 

administrative expenses” not included in the statutory “administrative 

expense” limitation. However, PBGC may use amounts in each of its 

revolving funds only for the purposes specified by ERISA for each, and 

they may not be used to finance any other activity.



Congress reviews PBGC’s budget each year, as required by the Government 

Corporation Control Act.[Footnote 25] However, with the exception of 

amounts limited under the statutory limitation on administrative 

expenses, the revolving funds are available to PBGC without annual 

appropriations, so long as expenditures do not exceed available 

resources.



Trust Fund:



Title IV of ERISA also authorizes PBGC to be appointed as interim 

trustee of pension plans to control them after it has initiated an 

involuntary termination (in its corporate capacity) or to serve as 

permanent trustee after the plan terminates. According to the PBGC 

General Counsel, “PBGC routinely requests that it be appointed trustee 

of terminated, under-funded pension plans, and courts routinely grant 

such requests.”[Footnote 26] PBGC administers such plans in the trust 

fund by depositing their assets into accounts held at a custodian bank. 

The trust fund identifies trusteed plan assets according to plan type 

(e.g., single employer) and year of termination. Once plan assets are 

deposited into the trust fund, PBGC combines them with the assets of 

similar plan types, so that the assets lose their individual plan 

accounting identity. Within the trust fund, however, PBGC currently 

accounts for more than trusteed plan assets, including 

(1) plans pending trusteeship--terminated plans for which PBGC has not 

become legal trustee by fiscal year-end--and (2) probable terminations-

-plans that PBGC determines are likely to terminate and be trusteed by 

PBGC. PBGC expends amounts from these combined accounts for plan 

benefit payments and expenses arising from all the plans.



PBGC distinguishes the legal status of its revolving funds from its 

trust fund, concluding that the “private” trust fund assets are not 

subject to government restrictions on their use, except to the extent 

that PBGC voluntarily abides by any restrictions. In 1985 and 1986, we 

concluded that the funds held by PBGC as permanent trustee of 

terminated plans under ERISA were not subject to the laws applicable to 

expenditures of appropriated funds by wholly owned government 

corporations. Specifically, we concluded that they were not subject to 

laws related to procurement of investment manager services, laws 

requiring the deposit of collections into the General Fund of the U.S. 

Treasury, and laws requiring the use of government printing 

plants.[Footnote 27]



We found that when PBGC assumed the fiduciary duties of permanent 

trustee as prescribed by ERISA, the specific activities considered in 

those cases were “fundamentally different” than those arising from its 

governmental duties because the outcome would inure to “the benefit of 

the trust funds and not to the direct benefit of the United States.” 

Because these fiduciary duties were the same as those of a “private 

fiduciary” appointed to the same position, we concluded that the funds 

should be treated as “non-public” in nature for the purposes of the 

specific activities then under review.[Footnote 28] Since then, a 1987 

amendment to ERISA expanded PBGC’s authority to pool the assets of any 

terminated plan for administration, investment, payment of the 

liabilities of those pooled plans, and for other purposes that PBGC 

deems appropriate.[Footnote 29]



PBGC now administers the trust fund together with the revolving funds 

under a “proportional funding” method whereby it pays benefits from 

each of these funds using financial calculations designed to maximize 

the longevity of their combined assets. PBGC uses the trust fund for 

all of its corporate expenses except those subject to the statutory 

limitation on administrative expenses, the benefit payment amounts 

“proportionately” attributed to the revolving funds, and the amounts 

for multiemployer plan financial assistance.



According to PBGC budget and accounting officials, the assets and 

liabilities of trusteed terminated plans, terminated plans pending 

trusteeship, and “probable terminations” are accounted for by program 

and year within the trust fund. PBGC uses the value of its accounts in 

its allocation of investment gains and losses and in its expenses. It 

allocates earnings and expenses to individual trust funds in proportion 

to their value relative to the total amount of the trust funds, unless 

such activities are directly attributable to a specific fund. PBGC’s 

trust funds are not included in the federal budget.



Reimbursement of Appropriated Revolving Funds from the Trust Fund:



In the fiscal years from 1985 through 1988, expenses for the 

administration of terminated plans entrusted to PBGC were accounted for 

under the separate trust fund, which is not subject to the 

appropriations act limitation on administrative expenses. 

Consequently, amounts budgeted for these trust fund expenditures were 

not included in PBGC’s revolving fund budget submitted to Congress. For 

example, in fiscal years 1987 and 1988, the trust fund directly paid 

$7.3 million for administrative expenses for trust fund operations that 

were not included in the revolving fund operating budgets. During 

fiscal year 1989, as PBGC needed additional amounts in the revolving 

funds for additional unbudgeted contractual expenses, it used 

additional funds from its trust fund without a need for further 

congressional approval.



For its fiscal year 1989 budget, PBGC included in its budget submission 

to Congress a request for authority to initially use the revolving 

funds for all revolving fund and trust fund expenses, with the trust 

fund later reimbursing the revolving funds for trustee-related expenses 

associated with plan terminations. In the committee reports 

accompanying their respective appropriations bills, the House and 

Senate Appropriations committees approved the PBGC proposal to pay 

expenses from the revolving funds, without limitation, that were 

previously paid from the trust fund.[Footnote 30]



PBGC now routinely makes payments from the revolving funds first, with 

reimbursements from the trust fund.[Footnote 31] For example, in fiscal 

year 2001, PBGC’s total reported operational and administrative 

expenses of $187.9 million included amounts chargeable to both the 

revolving funds and the trust fund. Of this, PBGC charged $176.3 

million to the trust fund. Because not all of these were actually paid 

out during fiscal year 2001, PBGC carried forward to fiscal year 2002 

those amounts due to the revolving funds, totaling about $173.3 

million.[Footnote 32] The remaining amount of about $11.6 million was 

not reimbursed, and was therefore paid by the revolving funds, and it 

reflects slightly less than the estimated $11.7 million for 

administrative expenses limited by Congress for fiscal year 2001. PBGC 

has stated that only the amounts submitted to Congress in its 

administrative expense budget are subject to the annual appropriations 

review process because the remaining amounts are reimbursed from the 

trust fund and constitute “non-public” funds.[Footnote 33]



[End of section]



Appendix III: Limitation on Administrative Expenses Compared to Total 

Operational and Administrative Expenses, FY 1985-2003:



Dollars in millions.



1985; Dollars in millions: Statutory administrative limitation: $33.1; 

Total budgeted operational and administrative expenses: $33.1; Actual 

expenses for administrative limitation: $33.0; Total actual operational 

and administrative expenses: $33.0[ A]; Percentage of limitation to 

total operational and administrative expenses: 100.0.



1986; Dollars in millions: Statutory administrative limitation: 32.3; 

Total budgeted operational and administrative expenses: 32.3; Actual 

expenses for administrative limitation: 31.2; Total actual operational 

and administrative expenses: 31.2[ A]; Percentage of limitation to 

total operational and administrative expenses: 100.0.



1987; Dollars in millions: Statutory administrative limitation: 36.9; 

Total budgeted operational and administrative expenses: 36.9; Actual 

expenses for administrative limitation: 35.8; Total actual operational 

and administrative expenses: 43.1[A]; Percentage of limitation to total 

operational and administrative expenses: 83.1.



1988; Dollars in millions: Statutory administrative limitation: 40.4; 

Total budgeted operational and administrative expenses: 40.4; Actual 

expenses for administrative limitation: 37.7; Total actual operational 

and administrative expenses: 45.0[A]; Percentage of limitation to total 

operational and administrative expenses: 83.8.



1989; Dollars in millions: Statutory administrative limitation: 44.2; 

Total budgeted operational and administrative expenses: 73.3; Actual 

expenses for administrative limitation: 39.9; Total actual operational 

and administrative expenses: 61.9; Percentage of limitation to total 

operational and administrative expenses: 64.5.



1990; Dollars in millions: Statutory administrative limitation: 42.3; 

Total budgeted operational and administrative expenses: 70.4; Actual 

expenses for administrative limitation: 42.2; Total actual operational 

and administrative expenses: 67.7; Percentage of limitation to total 

operational and administrative expenses: 62.3.



1991; Dollars in millions: Statutory administrative limitation: 42.7; 

Total budgeted operational and administrative expenses: 71.1; Actual 

expenses for administrative limitation: 41.2; Total actual operational 

and administrative expenses: 76.9; Percentage of limitation to total 

operational and administrative expenses: 53.6.



1992; Dollars in millions: Statutory administrative limitation: 46.8; 

Total budgeted operational and administrative expenses: 103.4; Actual 

expenses for administrative limitation: 46.3; Total actual operational 

and administrative expenses: 114.6; Percentage of limitation to total 

operational and administrative expenses: 40.4.



1993; Dollars in millions: Statutory administrative limitation: 33.9; 

Total budgeted operational and administrative expenses: 131.1; Actual 

expenses for administrative limitation: 33.5; Total actual operational 

and administrative expenses: 130.7; Percentage of limitation to total 

operational and administrative expenses: 25.6.



1994; Dollars in millions: Statutory administrative limitation: 34.2; 

Total budgeted operational and administrative expenses: 135.7; Actual 

expenses for administrative limitation: 33.9; Total actual operational 

and administrative expenses: 132.8; Percentage of limitation to total 

operational and administrative expenses: 25.5.



1995; Dollars in millions: Statutory administrative limitation: 11.5; 

Total budgeted operational and administrative expenses: 137.5; Actual 

expenses for administrative limitation: 11.3; Total actual operational 

and administrative expenses: 132.4; Percentage of limitation to total 

operational and administrative expenses: 8.5.



1996; Dollars in millions: Statutory administrative limitation: 10.6; 

Total budgeted operational and administrative expenses: 141.2; Actual 

expenses for administrative limitation: 9.8; Total actual operational 

and administrative expenses: 134.6; Percentage of limitation to total 

operational and administrative expenses: 7.3.



1997; Dollars in millions: Statutory administrative limitation: 10.3; 

Total budgeted operational and administrative expenses: 135.7; Actual 

expenses for administrative limitation: 10.3; Total actual operational 

and administrative expenses: 134.8; Percentage of limitation to total 

operational and administrative expenses: 7.6.



1998; Dollars in millions: Statutory administrative limitation: 10.4; 

Total budgeted operational and administrative expenses: 147.8; Actual 

expenses for administrative limitation: 10.2; Total actual operational 

and administrative expenses: 145.2; Percentage of limitation to total 

operational and administrative expenses: 7.0.



1999; Dollars in millions: Statutory administrative limitation: 11.0; 

Total budgeted operational and administrative expenses: 159.9; Actual 

expenses for administrative limitation: 10.5; Total actual operational 

and administrative expenses: 156.1; Percentage of limitation to total 

operational and administrative expenses: 6.7.



2000; Dollars in millions: Statutory administrative limitation: 11.1; 

Total budgeted operational and administrative expenses: 174.7; Actual 

expenses for administrative limitation: 11.0; Total actual operational 

and administrative expenses: 173.0; Percentage of limitation to total 

operational and administrative expenses: 6.4.



2001; Dollars in millions: Statutory administrative limitation: 11.7; 

Total budgeted operational and administrative expenses: 190.6; Actual 

expenses for administrative limitation: 11.6; Total actual operational 

and administrative expenses: 187.9; Percentage of limitation to total 

operational and administrative expenses: 6.2.



2002; Dollars in millions: Statutory administrative limitation: 11.7; 

Total budgeted operational and administrative expenses: 227.2; Actual 

expenses for administrative limitation: 11.6; Total actual operational 

and administrative expenses: 225.2; Percentage of limitation to total 

operational and administrative expenses: 5.2.



2003; Dollars in millions: Statutory administrative limitation: 

13.1[B]; Total budgeted operational and administrative expenses: 

225.4[B]; Actual expenses for administrative limitation: Not available; 

Total actual operational and administrative expenses: Not available; 

Percentage of limitation to total operational and administrative 

expenses: Not available.



[End of table]



Source: PBGC data.



[A] Total operational and administrative expenses for fiscal years 1987 

and 1988 include $7.3 million in administrative expenses paid directly 

out of the trust fund. For fiscal years prior to 1989, “services 

related to terminations” expenses were paid directly out of the trust 

fund and were not included in revolving fund operational and 

administrative expenses.



[B] Proposed in President’s Budget.



[End of section]



Appendix IV: Comments from the Pension Benefit Guaranty Corporation:



Pension Benefit Guaranty Corporation PBGC 1200 K Street, N.W., 

Washington, D.C. 20005-4026:



FEB 6 2003:



Ms. Jeannette M. Franzel:



Director, Financial Management and Assurance General Accounting Office:



Dear Ms. Franzel:



Thank you for the opportunity to review your draft report on the 

Corporation’s administrative expense limitation. We appreciate the 

effort of your staff in working on this complex, technical issue 

regarding the Congressional limitation on a portion of PBGC’s budget.



While the report reaches a similar conclusion to one that we have 

reached about the practicability and clarity of the current structure, 

we are concerned about the implication throughout the report that 

PBGC’s budget does not provide Congress with meaningful control. In 

addition, we disagree regarding the conclusion that our reporting 

processes are not based on actual data. Specifically, the obligations 

reported under the administrative expense limitation are based on 

actual data, and finally determined through our allocation process. 

Overall PBGC has a system for accumulating and reporting actual 

obligations consistent with its approved SF 132 Ap].3ortionment/

Reapportionment Schedule.



We agree that the structure must change, and have worked with the 

Office of Management and Budget to develop a new budget structure, 

which you will find presented in PBGC’s FY 2004 Congressional budget 

submission. However, we believe that our past budget practices provided 

an opportunity for Congress to have appropriate oversight of our budget 

process.



The report’s conclusion about the amount of control over PBGC’s 

“administrative” costs seems to have resulted at least in part from 

confusion over the terms used and the practices applied. The report 

speaks of “operational and administrative” expenses, and of expenses in 

PBGC’s role as trustee’, but neither:



phrase appears in PBGC’s annual authorization. Instead, the 

Corporation’s annual authorization sets a dollar amount of moneys PBGC 

can expend from its revolving funds (the so-called “limitation” 

expenditures) and then provides, “[T]hat expenses ... in connection 

with the termination of pension plans, for the acquisition, protection 

or management, and investment of trust assets, and for benefits 

administration services shall be . . . excluded from the ... 

limitation.” In other words, “administrative expenses” do not 

necessarily mean just administrative costs; in fact, they cover 

anything not related to trust expenses or benefits administration, 

including such “line” costs as premium collections.



Even at the time Congress adopted this language, PBGC officials 

recognized that the exceptions (to the limitation) had vi:rtually 

swallowed the rule; i.e., the vast majority of PBGC expenditures 

resulted from the termination of pension plans, the investment of trust 

assets, or benefits administration. They also knew, however, that the 

language had to be read in conjunction with the dollar limitation. 

Accordingly, they initially divided Corporation expenses between two 

expense categories:



1) expenditures directly related to one of the three enumerated 

categories of expenses (termination of pension plans; protection, 

management and investment of trust assets; and benefits administration) 

which were funded 100% with non-limitation, trust fund moneys; and:



2) other expenditures, e.g., expenses for internal operations such as 

those of the Facilities and Services Department and the Human Resources 

Department, and such line operations as premium collections, which did 

not directly relate to termination of pension plans; protection, 

management and investment of trust assets; etc.



By 1993, however, the Corporation realized that this dichotomy of 

expenditures led to problems. It seemed too facile to assume that all 

of the Corporations internal operating expenses, for example, had no 

accounting relationship to the termination of pension plans and other 

activities funded from the non-limitation budget. Clearly, the 

Corporations infrastructure expenditures in 

support of these activities should have been charged to the 

nonlimitation, trust fund expenditures. As a result, the Corporation 

established “allocated nonlimitation “ funds for this purpose; this 

allocation of indirect expenditures along with direct expenditures more 

accurately reflected PBGC’s actual requirements and expenses. While the 

current draft report expresses a certain concern about the Corporations 

budget structure, GAO was provided a comprehensive briefing by PBGC’s 

budget director regarding the current methodology when it was being 

developed and implemented during the mid-1990’s. No basic concerns were 

raised at that time and we believed that this practice was an 

acceptable and reasonable approach.



Each year there is a detailed line item review made of every one of the 

hundreds of budget line items in PBGC’s operating budget system to 

ensure appropriateness of which budget activity to charge, as well as 

the reasonableness of the charge itself. This detailed review is 

performed by the Budget Department and to some extent, the Corporations 

Budget Planning Integration Team (BPIT). Also, the Budget Department 

holds periodic meetings, throughout the year, with PBGC departments to 

ensure they are spending in accordance with their budget plan.



Over the years, PBGC has regularly reviewed its expenditures to ensure 

the appropriateness of these allocations. With the growing number of 

pension plan terminations involving large numbers of participants, the 

percentage of infrastructure expenditures directly related to 

terminations, investment and benefit administration grew substantially 

and the percentage of infrastructure expenditures related to other 

Corporate activities declined. This is because PBGC’s other line of 

business, Pension Insurance (basically premium operations) has been 

relatively stable.



The “nonlimitation” part of PBGC’s budget, as the report points out, 

grew to account for an increasing portion of the Corporations budget. 

This did not reflect an attempt to evade the constraints of the 

limitation budget. Instead, the shift in percentages occurred as a 

natural result of PBGC’s non-limitation expenses growing so much faster 

than the limitation budget expenses. That occurred because of the large 

numbers of plan terminations and the concomitant large increase in 

benefit administration activity, and trust asset protection, management 

and investment activity.



The report states that PBGC did not fully document the ongoing analyses 

of its limitation and allocated nonlimitation. We would contend that 

our documentation, whatever its apparent deficiencies, was 

proportionate to amounts at stake compared to the pressing nature of 

other concerns - such as:



obtaining the funding necessary to fulfill our statutory obligations. 

Any analysis of our budget process has to take into account the real 

world we found ourselves in. In 1985, the Corporation had 

responsibility for a total of 171,000 current and future payees in some 

1,300 plans. By the end of FY 2002, this had grown to 783,000 

participants in over 3,100 plans. Just in the last three years, PBGC 

has become responsible for the plans of TWA, Grand Union, LTV Steel, 

and, most recently, Bethlehem and National Steel Corporations.



Despite this growth in workload, and the growth in PBGC’s overall 

budget, the administrative expenses limitation remained fairly 

constant. Between 1995 and 2000, for example, PBGC’s overall 

operational budget rose from $133.7 million to $187.8 million, but the 

administrative limitation --subject to rescissions and other 

constraints --actually fell, from $11.5 million to $11.1 million. Of 

course, the “allocated nonlimitation” or indirect: portion of our 

budget rose; it rose because more termination work meant more work in 

information technology, procurement, human resources, and most other 

areas of administration. It also rose because we developed new 

accounting systems and implemented other financial controls that enable 

PBGC to earn and maintain clean audit opinions. Equally important, it 

ensures that the Corporation properly collect monies owed it.



We consider it critically important to remember that, whatever problems 

it may have presented in administration, the budget limitation did in 

fact provide Congress with a means of reviewing PBGC’s annual budget 

submission every year since its implementation. Each year since 1985 

the Corporation has presented all of its annual costs to Congress, 

rather than just a portion narrowly defined as “administrative.” Each 

year Congress has reviewed and approved that budget, as has the Office 

of Management and Budget. Congressional hearing records will show that 

our full budget was being reviewed, not just the limitation amount. 

PBGC has also continued to review its internal budget by each year 

examining each of the hundreds of project lines in its budget to ensure 

their correct alignment with the activities of “administrative 

expenses” and “services related to terminations.”:



We also note that under the Government Corporation Control Act (the 

“GCCA”), 31 U.S.C. section 9101 et seq., PBGC is required to “ ... 

prepare and submit each year to the President, a business-type budget 

in a way ... the President prescribes ....” The PBGC complies with this 

mandate.



Regarding the report’s recommendations, we believe it important to note 

that in enacting the Government Corporation Control Act (GCCA), 

Congress did not intend to subject Government Corporabions to the 

budgetary controls applied to Government agencies. The GCCA was enacted 

“to bring Government corporations and their transactions and operations 

under annual scrutiny by the Congress and to provide current financial 

control thereof.” Control Act, section 2, 59 Stat. 597. A “Resume in 

Explanation of H.R. 3660” accompanied the bill to the House floor. The 

resume contains the following acknowledgment:



[Government] corporations zoere created to conduct their activities 

with a freedom thought to be inconsistent with the types of financial 

control applicable to the regular Government departments and agencies.



93 Cong. Rec. H8546-8547 (daily ed. Sept. 12,1945) (statement of Rep. 

Sabath) (emphasis added).



Notwithstanding the above discussion, we agree that the current budget 

structure and methodology can be confusing and needs improvement. As 

mentioned above, we have developed a proposed new structure for our FY 

2004 Congressional budget submission. In brief, the new structure would 

restructure PBGC’s Budget Program and Financing activity line items so 

that they match up with the Corporation’s lines of business. This 

results in the following budget activity structure:



Pension Insurance: Includes pension plan technical assistance, new 

pension plan promotion activities, premium collections and premium 

investments.



Pension Plan Termination: Includes all activities related to plan 

termination and trusteeship, plan. asset management investment and 

accounting, and benefit administration.



Operational Support: Includes the administrative, information 

technology infrastructure and other direct program support for both the 

Corporation’s insurance and plan. termination lines of business. This 

activity is clearly linked to the Corporation’s success in carrying out 

its two program lines of business.



The current budget already receives 95% of its funds from the trust 

funds and, as discussed in the report and elsewhere in this letter, the 

current methodology of trying to pay for operational costs from both 

premiums and trust funds overly complicates PBGC’s budget 

administration. Eliminating this requirement allows for significant 

simplification and better understandability of PBGC’s operational 

budget. Under the proposed budget structure, all expenses would 

continue to flow through PBGC’s Revolving Fund and then be reimbursed 

by the trust funds:



to cover PBGC’s full operating budget (excluding benefit payments and 

financial assistance).



To strengthen PBGC’s accountability to the Congress, this proposal 

suggests that PBGC continue to submit its entire budget justification 

for annual review by the appropriation committees. The new language 

would still permit PBGC to request a reapportionment if unexpected 

program workload later required an increase in operational funding. But 

unlike today, the Corporation would provide a 15-day notification of a 

reapportionment increase for operational expenses to the appropriation 

committees before PBGC could obligate any of the funds. Department of 

Labor and Office of Management and Budget oversight would continue as 

at present.



We believe that our current budget proposal sufficiently addresses the 

three recommendations contained in the report. Further, PBGC will 

consider establishing an internal review process, in which a board of 

financial, budget, legal, and audit staff will conduct a mid-year 

examination of all budget lines to ensure their correct classification 

to the new activities. This board will document the rationale for any 

changes and establish a more formal record than under the current 

system.



At the current time, we are facing historic challenges to the pension 

insurance system given the significant number of large plan 

terminations and other potential liabilities. In order to meet these 

challenges, PBGC needs the flexibility that our proposed budget 

proposal would provide to help us fulfill our mission. I would hope 

that, when issued in final, your report will take into account the 

above discussion and reflect a balanced view of PBGC’s overall level of 

budgetary responsibility, and the very real operational challenges the 

Corporation has faced since the implementation of the administrative 

expense limitation in 1985.2 Again, I appreciate the opportunity to 

comment on the draft report.



Sincerely,



John Seal:



Chief Management Officer:



Signed by John Seal:



In addition to this response, PBGC has provided under separate cover 

a number of suggested technical corrections to the draft report.



Footnote: In a number of places, the Report talks about expenditures 
related to 

PBGC’s responsibilities as “trustee.” In doing so, the Report seems to 

imply that only expenditures as trustee may be considered 

“nonlimitation” expenses. That is simply not the case. As noted above, 

Congress classifies as “nonlimitation expenses” all expenses in 

connection with the termination of pension plans, for the acquisition, 

protection or management, and investment of trust assets, and for 

benefit administration services. The PBGC budget structure classifies 

all such expenses, including those 

related to termination of pension plans as 

nonlimitation. Many termination activities are performed not as 

trustee, but as part of PBGC’s other statutory responsibilities, and 

would have to be performed regardless of whether PBGC were statutory 

trustee. For example, the Report suggests that benefit calculations and 

certain benefit payments are trustee responsibilities. As PBGC has 

argued in ongoing litigation, these are not statutory trustee 

responsibilities, and would be performed by PBGC even if a third party 

had been appointed trustee. Nevertheless, the costs of performing; such 

benefit calculations and making benefit payments are properly 

characterized as nonlimitation expenses - they fit within the 

subcatagory of benefit administration services - and as such, those 

costs are properly charged to the trust funds.



The following are GAO’s comments on the Pension Benefit Guaranty 

Corporation’s (PBGC) letter dated February 6, 2003.



GAO Comments:



1. The term “administrative expenses” in appropriations acts, 

legislative history, and PBGC’s practices differ from how the term is 

typically used. Therefore, we used terminology in our report that we 

believe is understandable to third parties not involved in PBGC’s 

annual appropriations process. Throughout the report, we are specific 

when we discuss the expenses that fall under PBGC’s limitation, and use 

the term “administrative expenses that fall under the limitation” or 

the “administrative expense limitation.”:



2. As we state in our report, the reviews conducted by PBGC in 1991 and 

1993 to identify and document its activities would have been PBGC’s 

logical first step in developing a cost allocation methodology for 

identifying total expenses under the administrative expense limitation. 

However, in its budget proposal for fiscal year 1995, PBGC used a 

flawed methodology for estimating costs that was inconsistent with the 

concept of assigning direct and indirect costs based on activities 

performed. Furthermore, PBGC has not reviewed this methodology since 

then.



3. We do not disagree with PBGC’s overall assumptions about the 

relationship of its costs to its overall workload trends. However, PBGC 

has not reviewed its activities--looking at approach and amounts--to 

determine whether the large changes in the scope of its workload call 

for changes in the way it budgets and reports the amounts subject to 

the administrative expense limitation.



[End of Section]



FOOTNOTES



[1] Defined benefit pension plans are established or maintained by 

employers or employee organizations, or both, and provide for a 

specific amount of retirement income with the payment amounts typically 

based on years of service, income, and earnings.



[2] Pub. L. 93-406, Title IV, 88 Stat. 1003, Sept. 2, 1974. PBGC’s 

enabling legislation, as amended, is codified at 29 U.S.C. §§ 1301 - 

1461 (2000).



[3] Pub. L. 98-619, 98 Stat. 3307, Nov. 8, 1984.



[4] Pineiro v. Pen. Ben. Guar. Corp., 22 Fed. Appx. 47 (2nd Cir. 2001).



[5] An underfunded plan may terminate only if PBGC or a bankruptcy 

court finds that one of the four conditions for a distress termination, 

as defined in ERISA, is met or if PBGC terminates a plan under 

specified statutory criteria.



[6] PBGC’s Budget, Budget Justification, and supporting testimony are 

reflected in Hearings on H.R. 6028/S.2836 Before the Subcomm. on Labor, 

Health and Human Servs., Educ. and Related Agencies of the Senate Comm. 

on Appropriations, 98th Cong. 1083, Pt. 1 (1984), and in the pertinent 

committee reports accompanying the Department of Labor Appropriations 

Act for Fiscal Year 1985: H.R. Rep. 98-911, at p. 15 (1984); S. Rep. 

98-544, at p. 18 (1984); H.R. Conf. Rep. 98-1132, at p. 9 (1984).



[7] Pub. L. 100-436, 102 Stat. 1680, Sept. 20, 1988.



[8] Pub. L. 101-517, 104 Stat. 2193, Nov. 5, 1990.



[9] PBGC’s Budget Director told us that any differences between the 

proposed budget and appropriated amounts are due to rescissions. A 

rescission is legislation enacted by Congress that cancels the 

availability of budgetary resources previously provided by law before 

the authority would otherwise lapse.



[10] U.S. General Accounting Office, Executive Guide: Creating Value 

through World-class Financial Management, GAO/AIMD-00-134 (Washington, 

D.C.: April 2000).



[11] OMB Circular No. A-11 (2002), §§ 20.4(b)(4), 82.14, and 86.6 

require PBGC to separately account for and report limitations on its 

revolving fund authority in its budget proposals, apportionment or 

reapportionment requests (SF 132), and obligation and expenditure 

reports (SF 133).



[12] Employers in a multiemployer plan may terminate the plan through 

certain amendments or by withdrawing from it.



[13] Plan sponsors for multiemployer plans are either the plan’s 

designated joint board of trustees or, if none, the plan administrator. 

Plan sponsors for single-employer plans are the employers responsible 

for contributing funds to the plan. Plan administrators are designated 

within the plan or, if none, are the plan sponsors or as otherwise 

designated by the Secretary of Labor.



[14] 29 U.S.C. § 1342 (a) (2000).



[15] According to PBGC officials, PBGC does not seek interim trustee 

appointments for policy reasons, and it has only been appointed as 

interim trustee once in the past 16 years.



[16] United States v. Hook, 195 F.3d 299, 306-08 (7th Cir. 1999), 

rehearing and rehearing en banc denied, cert. denied, 529 U.S. 1082 

(2000), rehearing denied, 530 U.S. 1226 (2000). 29 U.S.C. § 1307(a) 

(2000). Certain fiduciary duties under Title I continue, however. 29 

U.S.C. § 1342(d)(3) (2000).



[17] In the case of bankruptcy liquidation or reorganization 

proceedings, PBGC values the plans’ assets and liabilities (as modified 

by the bankruptcy court pursuant to its interpretation of bankruptcy 

law), and pursues a claim against the employer in those proceedings. 

Sometimes, the courts accept PBGC’s valuation when prioritizing 

creditors’ claims against the sponsoring employers’ assets. PBGC may 

attempt to have its claims for employer liabilities designated as an 

“administrative expense,” giving it a higher claims status. The 

relationships between ERISA and the bankruptcy and tax laws are often a 

cause for debate, and several statutory changes have been recommended 

or are pending in Congress.



[18] As reported in Pension Benefit Guaranty Corporation, 2002 Annual 

Report (Washington, D.C.: 2002), 24.



[19] Any federal fund or trust fund whose transactions are required by 

law to be excluded from the totals of the President’s budget and 

Congress’ budget resolutions, even though they are part of the total 

government transactions.



[20] 29 U.S.C. § 1305 (2000); Pension Benefit Guaranty Corporation’s 

Use of Contingent Fee Arrangement with Outside Counsel, B-223146 (Oct. 

7, 1986). PBGC’s revolving funds constitute permanent appropriations 

because they do not require subsequent congressional action to make 

their assets available for expenditure. They constitute indefinite 

appropriations because all receipts from ERISA’s specified sources are 

available, the exact amount of which is determinable only at some 

future date.



[21] “Services related to terminations” expenses include expenses 

associated with terminating plans and other pretermination functions, 

as well as expenses related to administering terminated, trusteed 

plans.



[22] The proportional funding ratio is determined by dividing the trust 

assets of the fund by the present value of future benefit payments of 

the fund.



[23] PBGC does not expend general tax revenues, and the United States 

is generally not liable for its obligations and liabilities.



[24] We are aware of only one instance in which PBGC exercised this 

authority. Immediately upon its creation in 1974, PBGC borrowed 

$100,000 to cover its start-up costs, and it repaid the loan shortly 

thereafter.



[25] PBGC submits its annual budget program to OMB. The President, 

through OMB, submits PBGC’s budget program to Congress together with 

his annual budget.



[26] Memorandum of Law In Support of Pension Benefit Guaranty 

Corporation’s Motion to Dismiss, Pineiro v. Pen. Ben. Guar. Corp., No. 

96 CIV 7392 (LAP), filed Jan. 31, 1997 (S.D. N.Y. 1997).



[27] Procurement of Investment Manager Services by the Pension Benefit 

Guaranty Corporation, B-217281-O.M. (Mar. 27, 1985); Matter of Pension 

Benefit Guaranty Corporation’s Use of Contingent Fee Arrangement with 

Outside Counsel, B-223146 (Oct. 7, 1986); Matter of Pension Benefit 

Guaranty Corporation Printing and Distribution Requirements, B-217628, 

65 Comp. Gen. 226, nt. 1 (Jan. 23, 1986); see also Fiduciary Duties of 

Pension Benefit Guaranty Corporation, B-284479 (Jan. 27, 2000).



[28] Our decision in Matter of Pension Benefit Guaranty Corporation’s 

Use of Contingent Fee Arrangement with Outside Counsel, B-223146 (Oct. 

7, 1986), stated the proposition that moneys sought, received, and 

managed by PBGC as an ERISA trustee constitute “private” assets because 

they would benefit only plan participants under ERISA’s trust 

provisions. In that case, the money sought under an otherwise improper 

contract arrangement “primarily consist[ed] of” employer liabilities 

that, beginning that year, were to be deposited in a special ERISA 

trust fund for that purpose.



[29] Pub. L. 100-203, §9314, 101 Stat. 1330-366, Dec. 22, 1987 (29 

U.S.C. § 1342 (a) (2000).



[30] S. Rep. 100-399, at 20 (1988); H.R. Rep. 100-689, at 17 (1988).



[31] PBGC officials stated that “the language establishing the uses of 

the revolving fund (See ERISA Section 4005) and the language governing 

the uses of the trust fund (See ERISA Section 4042) allow virtually any 

corporate expenditure to be paid for out of either [the revolving or 

the trust] fund.” PBGC also stated that alternative practices would be 

administratively unfeasible and very costly.



[32] The total adjusted reimbursable amount from the trust fund was 

$178 million. See Budget of the United States Government, Fiscal Year 

2003--Appendix, 667. The amount actually reimbursed during fiscal year 

2001 includes amounts disbursed from the revolving funds during that 

year plus amounts carried forward from fiscal year 2000.



[33] The Subcommittee on Labor, Health and Human Services, and Related 

Agencies of the House Committee on Appropriations published the same 

conclusion in its committee report after its 1998 budget hearings where 

it questioned PBGC management on this issue. H. Rpt. 105-205 (1997).



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