Pension Benefit Guaranty Corporation:

Governance Structure Needs Improvements to Ensure Policy Direction and Oversight

GAO-07-808: Published: Jul 6, 2007. Publicly Released: Jul 17, 2007.

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

Although PBGC's board has provided greater attention to PBGC since 2003, the board has limited time and resources to provide policy direction and oversight and has not established comprehensive written procedures and mechanisms to monitor PBGC operations. Because PBGC's board is composed of three cabinet secretaries, who have numerous other responsibilities, the board structure does not guarantee that PBGC's board is active and diverse. For example, since 1980, a span of 27 years, there were only 18 official board meetings. Further, the board has not established formal procedures to ensure that PBGC management provides it information on all policy matters nor has it developed standing committees to oversee operations. Instead, the board relies on PBGC's Inspector General and management's oversight committees to ensure that PBGC is operating effectively. However, there are no formal protocols concerning the Inspector General's interaction with the board, and PBGC internal management are not independent and are not required to routinely report all matters to the board. Even though PBGC uses informal channels of communication to inform its board members, the board's oversight may be limited, because it cannot be certain that it is receiving high quality and timely information about all significant matters facing the corporation. PBGC's lack of formal guidelines to articulate the administrative roles and responsibilities among the board, the Secretary of Labor as the board chair, board members' agencies, and the PBGC Director has led, at times, to confusion and inefficiencies. The board has not addressed uncertainty over the extent to which PBGC is a separate and distinct executive agency, a fact that has resulted in confusion over when DOL has the authority to manage PBGC's operations. Further, neither DOL nor PBGC has developed formal policies and procedures to define the board's authorities and responsibilities. Instead, PBGC officials typically react to DOL's periodic written and oral communications, which PBGC officials said sometimes become a part of PBGC's operational framework. For example, PBGC is required to incorporate its budget request with DOL's budget request, and over the years, DOL has taken a more active role in reviewing PBGC's budget. However, PBGC officials believe that DOL has in some cases overstepped its role. For instance, DOL and PBGC officials disagreed over the inclusion of a funding request in PBGC's fiscal year 2007 budget.

Matter for Congressional Consideration

  1. Status: Closed - Implemented

    Comments: In July 2009, the Chairman of the U.S. Senate Special Committee on Aging, along with several other senators, introduced the Pension Benefit Guaranty Corporation Governance Improvement Act (S. 1544) to significantly improve the governance and oversight structure of the PBGC in response to GAO and the IG concerns about the structure. PBGC's governance structure was questioned in May 2009, at a hearing held by the Aging Committee, where GAO testified about weaknesses in PBGC's governance structure. The bill was subsequently referred to the Chairman of the Senate Health, Education, Labor and Pensions (HELP) Committee and, as a follow-up to the hearing, the Chairman of the Aging Committee requested a report from PBGC's Inspector General (IG). In December 2010, the two chairmen released a report written by the IG on the continuing financial and organizational problems facing the agency. The report reinforced the chairman's concern over the PBGC's capability to fulfill its mission to insure pensions. The IG stated that the agency remains insufficiently prepared to take on a potential influx of terminated pension plans, and suggested an approach for confronting the problem. The report also addressed the PBGC's significant contract workforce, which comprises nearly two-thirds of agency staff, yet has not been incorporated into prior strategies for taking on pension plans. In introducing legislation to significantly improve the governance and oversight structure of the PBGC, the Aging Committee Chairman noted that the IG report was another in a long line of studies that have reinforced the need to take action to improve the oversight and governance of the PBGC.

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

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: The Pension Benefit Guaranty Corporation (PBGC) insures the pensions of more than 44 million private sector workers and retirees in over 30,000 employer-sponsored pension plans. Established as a self-financing government corporation, PBGC is governed by a three member board of directors consisting of the Secretaries of the Treasury, Labor and Commerce. In July 2007, we found that the board had not established formal guidelines to articulate the administrative roles and responsibilities among the board, the Secretary of Labor as the board chair, board member agencies, and the PBGC director, which led, at times, to confusion and inefficiencies. We recommended that PBGC establish formal guidelines that articulate the role and responsibilities among the board, the Secretary of Labor as the board chair, board member agencies, and the PBGC director. In response to our recommendation, PBGC's board of directors stated that the review of and revisions to PBGC's bylaws would help delineate the respective roles and responsibilities. In May 2008 a final rule was issued in which the PBGC board of directors revised the corporation's bylaws, which specifically delineate the role and responsibilities of the board, the Secretary of Labor as the board chair, the board agencies, and the PBGC director.

    Recommendation: To improve overall accountability and oversight of PBGC, the Secretaries of the Treasury, Labor, and Commerce, as PBGC's board of directors, should establish formal guidelines that articulate the authorities of the Board Chair and the Department of Labor, the other board members and their respective departments, and PBGC's Director.

    Agency Affected: Department of Labor

  2. Status: Closed - Implemented

    Comments: The Pension Benefit Guaranty Corporation (PBGC) insures the pensions of more than 44 million private sector workers and retirees in over 30,000 employer-sponsored pension plans. Established as a self-financing government corporation, PBGC is governed by a three member board of directors consisting of the Secretaries of the Treasury, Labor and Commerce. In July 2007, we found that the board had not established formal guidelines to articulate the administrative roles and responsibilities among the board, the Secretary of Labor as the board chair, board member agencies, and the PBGC director, which led, at times, to confusion and inefficiencies. We recommended that PBGC establish formal guidelines that articulate the role and responsibilities among the board, the Secretary of Labor as the board chair, board member agencies, and the PBGC director. In response to our recommendation, PBGC's board of directors stated that the review of and revisions to PBGC's bylaws would help delineate the respective roles and responsibilities. In May 2008 a final rule was issued in which the PBGC board of directors revised the corporation's bylaws, which specifically delineate the role and responsibilities of the board, the Secretary of Labor as the board chair, the board agencies, and the PBGC director.

    Recommendation: To improve overall accountability and oversight of PBGC, the Secretaries of the Treasury, Labor, and Commerce, as PBGC's board of directors, should establish formal guidelines that articulate the authorities of the Board Chair and the Department of Labor, the other board members and their respective departments, and PBGC's Director.

    Agency Affected: Department of the Treasury

  3. Status: Closed - Implemented

    Comments: In response to our recommendation, PBGC's board of directors, which includes the Departments of Labor, Commerce and Treasury, stated that the review of and revisions to PBGC's bylaws would help delineate the respective roles and responsibilities as well as establish policies and procedures for increased board oversight of PBGC's activities. In May 2008, PBGC issued a final rule in which the PBGC board of directors revised the corporation's bylaws, which specifically delineated the role and responsibilities of the board, the Secretary of Labor as the board chair, the board agencies, and the PBGC director. PBGC contracted with a firm to identify and review governance models and provide a background report to assist the board in its review of alternative government structures. In May 2009, to improve overall accountability and oversight of PBGC, the Board adopted Resolution 2009-06 to ensure appropriate separation of duties of the PBGC Director. The resolution prohibits the Director from participating personally and substantially in the procurement of goods and services for the PBGC.

    Recommendation: To improve overall accountability and oversight of PBGC, the Secretaries of the Treasury, Labor, and Commerce, as PBGC's board of directors, should establish policies, procedures, and mechanisms for providing oversight of PBGC that are consistent with corporate governance guidelines.

    Agency Affected: Department of Labor

  4. Status: Closed - Implemented

    Comments: In response to our recommendation, PBGC's board of directors, which includes the Departments of Labor, Commerce and Treasury, stated that the review of and revisions to PBGC's bylaws would help delineate the respective roles and responsibilities as well as establish policies and procedures for increased board oversight of PBGC's activities. In May 2008, PBGC issued a final rule in which the PBGC board of directors revised the corporation's bylaws, which specifically delineated the role and responsibilities of the board, the Secretary of Labor as the board chair, the board agencies, and the PBGC director. PBGC contracted with a firm to identify and review governance models and provide a background report to assist the board in its review of alternative government structures. In May 2009, to improve overall accountability and oversight of PBGC, the Board adopted Resolution 2009-06 to ensure appropriate separation of duties of the PBGC Director. The resolution prohibits the Director from participating personally and substantially in the procurement of goods and services for the PBGC.

    Recommendation: To improve overall accountability and oversight of PBGC, the Secretaries of the Treasury, Labor, and Commerce, as PBGC's board of directors, should establish policies, procedures, and mechanisms for providing oversight of PBGC that are consistent with corporate governance guidelines.

    Agency Affected: Department of Commerce

  5. Status: Closed - Implemented

    Comments: In response to our recommendation, PBGC's board of directors, which includes the Departments of Labor, Commerce and Treasury, stated that the review of and revisions to PBGC's bylaws would help delineate the respective roles and responsibilities as well as establish policies and procedures for increased board oversight of PBGC's activities. In May 2008, PBGC issued a final rule in which the PBGC board of directors revised the corporation's bylaws, which specifically delineated the role and responsibilities of the board, the Secretary of Labor as the board chair, the board agencies, and the PBGC director. PBGC contracted with a firm to identify and review governance models and provide a background report to assist the board in its review of alternative government structures. In May 2009, to improve overall accountability and oversight of PBGC, the Board adopted Resolution 2009-06 to ensure appropriate separation of duties of the PBGC Director. The resolution prohibits the Director from participating personally and substantially in the procurement of goods and services for the PBGC.

    Recommendation: To improve overall accountability and oversight of PBGC, the Secretaries of the Treasury, Labor, and Commerce, as PBGC's board of directors, should establish policies, procedures, and mechanisms for providing oversight of PBGC that are consistent with corporate governance guidelines.

    Agency Affected: Department of Labor

  6. Status: Closed - Implemented

    Comments: The Pension Benefit Guaranty Corporation (PBGC) insures the pensions of more than 44 million private sector workers and retirees in over 30,000 employer-sponsored pension plans. Established as a self-financing government corporation, PBGC is governed by a three member board of directors consisting of the Secretaries of the Treasury, Labor and Commerce. In July 2007, we found that the board had not established formal guidelines to articulate the administrative roles and responsibilities among the board, the Secretary of Labor as the board chair, board member agencies, and the PBGC director, which led, at times, to confusion and inefficiencies. We recommended that PBGC establish formal guidelines that articulate the role and responsibilities among the board, the Secretary of Labor as the board chair, board member agencies, and the PBGC director. In response to our recommendation, PBGC's board of directors stated that the review of and revisions to PBGC's bylaws would help delineate the respective roles and responsibilities. In May 2008 a final rule was issued in which the PBGC board of directors revised the corporation's bylaws, which specifically delineate the role and responsibilities of the board, the Secretary of Labor as the board chair, the board agencies, and the PBGC director.

    Recommendation: To improve overall accountability and oversight of PBGC, the Secretaries of the Treasury, Labor, and Commerce, as PBGC's board of directors, should establish formal guidelines that articulate the authorities of the Board Chair and the Department of Labor, the other board members and their respective departments, and PBGC's Director.

    Agency Affected: Department of Commerce

 

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