Currently, PBGC insurance  covers 44 million participants, including retirees, in over 29,000 DB plans. In 2003, GAO designated PBGC’s single-employer program as high-risk,  meaning that the program needs urgent Congressional attention and  agency action. PBGC’s Financial Condition Has Likely Worsened Since September 2008

While PBGC’s deficit improved for fiscal year 2008, the fiscal year ended  just prior to the severe market downturn, and it is likely that their net  position looks different today. Since we last reported to Congress on  PBGC, PBGC issued its fiscal year 2008 financials and reported that the  net deficit for its insurance programs was $11.2 billion. However, the lower 2008 deficit may be a  product of conditions that no longer exist. For example, PBGC’s net deficit  is a resulting difference between its assets and its liabilities. Improvements Needed to PBGC’s Governance and Management

		PBGC’s Governance Structure Needs Improvement

PBGC’s board has limited time and resources to provide policy direction  and oversight. PBGC’s three-member board, established by ERISA,  includes only the Secretary of Labor, as the Chair of the Board, and the  Secretaries of Commerce and Treasury. PBGC’s board members have numerous other responsibilities in  their roles as cabinet secretaries and have been unable to dedicate  consistent and comprehensive attention to PBGC. In addition, PBGC is also  exposed to challenges as the board, board members’ representatives, and  the director have changed with the recent presidential transition, limiting  the board’s institutional knowledge of the Corporation. As PBGC Relies Heavily on Its’ Contractor and Federal Workforce, A More Strategic Approach Is Needed

Although two-thirds of PBGC’s workforce includes contractor employees,  PBGC’s strategic planning generally does not recognize contracting as a  major aspect of PBGC activities (see figure 3). As PBGC’s workload grew due to the significant number of  large pension plan terminations, PBGC relied on contractors to  supplement its workforce, acknowledging that it has difficulty anticipating  workloads due to unpredictable economic conditions. PBGC lacks a strategic approach to its acquisition and human capital  management needs. (Appendix I  includes selected GAO recommendations on PBGC Governance and  Management). The need for a strategic approach to acquisition and human capital  management is essential to ensure that PBGC is able to manage the  administrative fluctuations of a pension insurance corporation. When we last reported on PBGC’s  financial challenges in September, we specifically mentioned the change in  investment policy as a key challenge going forward. This is still the case,  but even more recent events, such as legislative changes and the plight of  the automakers and other financially weak sponsors in other industries,  have the potential to expose PBGC to claims of a potentially  unprecedented magnitude. While many of the financial challenges are a result of long-term  weaknesses that are in many ways structural, PBGC does have some  degree of control over challenges it faces with respect to governance,  oversight, and management. Pension Benefit Guaranty Corporation: Improvements Needed to  Address Financial and Management Challenges.
Why GAO Did This Study

The Pension Benefit Guaranty Corporation (PBGC) insures the retirement future of nearly 44 million people in over 29,000 private-sector defined benefit pension plans. In July 2003, GAO designated PBGC's single-employer pension insurance program--its largest insurance program--as "high risk," including it on GAO's list of major programs that need urgent Congressional attention and agency action. The program remains on the list today with a financial deficit of just over $11 billion, as of September 2008. The committee asked GAO to discuss our recent work on PBGC. Specifically, this testimony addresses two issues: (1) PBGC's financial vulnerabilities, and (2) the governance, oversight, and management challenges PBGC faces. To address these objectives, we are relying on our prior work assessing PBGC's long-term financial challenges, and several reports that we have published over the last two years on PBGC governance and management. GAO has made a number of recommendations and identified matters for Congressional consideration in these reports, and PBGC is implementing some of these recommendations. No new recommendations are being made as part of this testimony.

What GAO Found

Financial and economic conditions have deteriorated since we last reported on PBGC's finances. While PBGC's deficit improved for fiscal year 2008, the fiscal year ended just prior to the severe market downturn, and this lower deficit may be a product of conditions that no longer exist. As a result, it is likely that PBGC's net position looks different today. Other recent events have also added to PBGC's financial challenges. These events include: recent legislation that grants funding relief to certain sponsors, developments with PBGC's investment policy, and a concern that a wide array of industry sectors--including the automotive sector--are under financial distress and may expose PBGC to future claims. As a result, the potential for automaker pension plan terminations could dramatically increase not only PBGC's deficit, but also its administrative workload. With mounting financial challenges and the potential for PBGC's workload to dramatically increase, our concerns about PBGC governance and strategic management have become acute, and improvements are needed, now more than ever. PBGC's board has limited time and resources to provide policy direction and oversight. The three-member board includes the Secretary of Labor, as the Chair of the Board, and the Secretaries of Commerce and Treasury. These board members have numerous other responsibilities and are unable to dedicate consistent and comprehensive attention to PBGC. With only 3 members, PBGC's board may not be large enough to include the knowledge needed to direct and oversee PBGC. In fact, the new board members have yet to meet, and there has not been a face-to-face board meeting in the last 15 months. In addition, without an appointed director, PBGC's governance structure is further exposed to challenges. Further, PBGC continues to lack a fully-adopted strategic approach to its acquisition and human capital management needs. Although contract employees comprise two-thirds of PBGC's workforce, PBGC's strategic planning generally does not recognize contracting as a major aspect of PBGC activities.