PBGC’s insurance programs are in need of urgent congressional attention  and agency action. As of September  2010, PBGC’s estimated financial deficit for both programs combined was  $23.0 billion—more than double its deficit from 2 years earlier. ERISA specified that PBGC is to have a  three-member board of directors consisting of the Secretaries of the  Treasury, Commerce, and Labor. PBGC’s governance structure is also vulnerable to disruptive transitions  with each administration change. Our prior work has also found that PBGC’s board members often have  limited time and resources to dedicate to PBGC matters given their  numerous other responsibilities in their roles as cabinet secretaries. The current board has recently begun to meet more frequently,  meeting three times since February 2010. However, prior to that time, the  board had not met since February 2008, despite pending terminations of  several pension plans sponsored by large automakers and congressional  investigations into certain procurement practices. To address these weaknesses in PBGC’s governance structure, we believe  that Congress should consider expanding the board of directors to include  additional members with diverse backgrounds who possess knowledge  and expertise useful to PBGC’s mission. PBGC Needs More Strategic Management of Its Contract Workforce and Benefit Determination Process

Although PBGC management has taken steps in recent years to strengthen  its operations, our prior work has identified ways that the corporation  could be more strategic in its management of its contract workforce and  the benefit determination process. The need for a strategic approach in  these areas is essential to ensure that PBGC is operating as efficiently and  effectively as possible to manage its increasing workload. About  two-thirds of PBGC’s workforce consists of contract workers (see fig. Over the years, PBGC has taken steps to improve its workforce  management. In this plan, PBGC acknowledges the importance of  contracting and the challenges of balancing their workforce between  federal and contract workers, but the plan does not provide specific  actions to address such challenges and appears to continue to focus  primarily on PBGC’s federal workers. Although we commend PBGC for its improvements to contract  management, we continue to believe that more should be done to include  procurement decision-making in corporate-level strategic planning and to  link contractor performance measures with the corporation’s mission. Benefit Determination Process Management

Finally, our prior work has also found that PBGC needs a more strategic  approach for determining the benefits for participants in large, complex  plans that have been terminated. However, we continue to  believe that reporting performance measures that reflect averages across  all plans does not provide adequate weight to large versus small plans and  does not provide sufficient incentive to improve the processing times for  large, complex plans. Its  premium base has been eroding over time as fewer sponsors are paying  premiums for fewer participants. In addition, as a result of the recession,  PBGC is still at risk from the increased underfunding of some large  defined benefit plans. Improvements to PBGC’s governance and to its strategic management  cannot correct the structural weaknesses of its financial design, but it can  put PBGC in a better position to confront the challenges that lie ahead. Companies that pay annual  premiums to PBGC and the millions of employees whose retirement  benefits are under PBGC’s protection are owed greater stewardship of the  corporation and its funds. Pension Benefit Guaranty Corporation: Financial Challenges Highlight  Need for Improved Governance and Management. Private Pensions: The Pension Benefit Guaranty Corporation and Long- Term Budgetary Challenges.
Why GAO Did This Study

The Pension Benefit Guaranty Corporation (PBGC) is a self-financing government corporation that insures the pensions of 44 million workers in more than 27,000 private sector defined benefit pension plans. Yet, PBGC faces financial instability that could pose a future threat to this source of protection for Americans' retirement income. As fewer sponsors pay premiums for fewer participants in defined benefit plans, and as the underfunding of large defined benefit plans increases, the risks to PBGC's financial future also increase. As of September 2010, PBGC's net accumulated financial deficit was $23 billion. GAO has designated PBGC and the pension insurance programs it administers as "high risk" areas in need of urgent attention and transformation to address economy, efficiency, or effectiveness changes. In this testimony, GAO discusses its recent work regarding PBGC. Specifically, this statement focuses on needed improvements to PBGC's governance structure and strategic management based on GAO's prior work in these areas. GAO is making no new recommendations in this statement, but continues to believe that Congress should consider expanding PBGC's board of directors and that PBGC should implement recommendations from prior reports that have not yet been implemented, such as those concerning strategic workforce management and benefit determination process performance measures for large, complex plans.

What GAO Found

PBGC requires a strong governance structure and strategic management to ensure that it can meet its future financial challenges. Companies who pay annual premiums to PBGC and the millions of employees whose retirement benefits are under PBGC's protection are owed greater stewardship of the corporation and its funds. By law, PBGC is governed by a three-member board of directors composed of the Secretaries of the Treasury, Commerce, and Labor. Because of their numerous responsibilities in their roles as cabinet-level secretaries, the board members have historically been unable to dedicate consistent attention to PBGC matters. In fact, since 1980, the board has met only 23 times. During a critical 2-year period between February 2008 and February 2010, amid turbulent economic times and congressional investigations of certain procurement practices, the board did not meet at all. While the current PBGC board is meeting more frequently than in prior years, its members still have little time to devote to PBGC governance and the board remains vulnerable to disruptive transitions during future changes of administration. In addition, although PBGC management has taken steps in recent years to strengthen its operations, recommendations from GAO's prior work concerning how the corporation could improve its strategic workforce management and the benefit determination process have yet to be fully implemented. PBGC's contract workers comprise about two-thirds of its workforce, yet GAO found that workforce management lacked a strategic approach for determining the mix of contract and federal workers, and PBGC did not include procurement decision making in corporate-level strategic planning. Also, GAO found that management of PBGC's benefit determination process did not provide for separate reporting of performance measures for large, complex plans, yet these plans are responsible for most long delays in processing and most cases with overpayments. Measures that reflect averages across all plans do not provide sufficient incentive to improve the processing of these plans. The need for a more strategic approach in managing both the contract workforce and the benefit determination process is essential to ensure that PBGC is operating efficiently and effectively. Improvements to PBGC's governance and strategic management cannot correct structural weaknesses in its financial design, but it can better position PBGC for the challenges that lie ahead.