Since then, the influx of large plan  terminations has continued. For example, in August 2009, PBGC assumed  responsibility for six Delphi pension plans, covering about 70,000 workers  and retirees, and underfunded by a total of about $7.0 billion. PBGC’s Benefit Determination Process Generally Takes about 3 Years to Complete

Our review of plans terminated and trusteed between fiscal years 2000 and  2008 found that PBGC completed most participants’ benefit  determinations in less than 3 years, but required more time—up to 9  years—to process determinations for complex plans, plans with missing  data, and plans with large numbers of participants. As some pension  advocacy groups and union representatives have noted, long delays and  uncertainty over final benefit amounts make it difficult for workers to plan  for retirement, and especially for retirees who have come to depend on a  certain level of monthly income. The  key points of contact with workers and retirees that occur during this  process are described in detail below. Initial Notification

PBGC’s first communication with participants is generally a letter  informing them that their pension plan has been terminated and that  PBGC has become the plan trustee. However, some  participants may have their benefits reduced to comply with certain limits,  specified under ERISA and related regulations. 2). Finalized Benefit Amounts  Once the benefit determination process is complete, PBGC notifies each  participant of the final benefit amount with a “benefit determination  letter.” From the time of its initial contact with plan participants until the  benefit determination process is complete, PBGC generally does not  communicate with participants. PBGC’s Recoupment Process Affects Only a Small Percentage of Terminated Plan Participants

The vast majority of participants in terminated plans are not affected by  overpayments or PBGC’s recoupment process. Overpayments can occur for two basic reasons: (1) there is a period of  time when the retiree’s estimated benefit has not yet been reduced to  reflect applicable limits; and (2) the retiree’s estimated benefit is adjusted  to reflect applicable limits, but the estimate is still greater than the benefit  amount that is ultimately determined to be correct. The amount of the benefit  reduction for recoupment of the overpayment is $38 per month, to be paid  until 6/1/2020. It can still  come as a shock when—perhaps years later—they receive a final benefit  determination letter with this news. Their frustration may be compounded  if they fail to understand the explanations provided in the benefit  determination letters. Conclusions and Recommendations

To address the concerns of workers and retirees in terminated plans who  stand to lose as much as one-half or more of their long-anticipated  retirement income, and who will likely have to make painful financial  adjustments, PBGC needs a more strategic approach for processing  complex plans prone to delays and overpayments.
Why GAO Did This Study

Under the single-employer insurance program, the Pension Benefit Guaranty Corporation (PBGC) may become the trustee of underfunded plans that are terminated and assume responsibility for paying benefits to participants as they become due, up to certain legal limits. From its inception in 1974 through the end of fiscal year 2008, PBGC has terminated and trusteed a total of 3,860 single-employer plans covering some 1.2 million workers and retirees. Since 2008, the economic downturn has brought a new influx of pension plan terminations to PBGC, and more are expected to follow. The committee asked GAO to discuss our recent work on PBGC. Specifically, this testimony describes: (1) PBGC's process for determining the amount of benefits to be paid; and (2) PBGC's recoupment process when the estimated benefit provided is too high and a retiree receives an overpayment that must be repaid. To address these objectives, GAO relied primarily on a recent report titled Pension Benefit Guaranty Corporation: More Strategic Approach Needed for Processing Complex Plans Prone to Delays and Overpayments ( GAO-09-716 , Aug. 2009). In that report, GAO made numerous recommendations. PBGC generally agreed and is taking steps to address the concerns raised. No new recommendations are being made in this testimony.

What GAO Found

Most participants must wait about 3 years for PBGC to complete the benefit determination process and provide their finalized benefit amounts, but the vast majority are not affected by overpayments or the recoupment process. Nevertheless, long delays and uncertainty over final benefit amounts make it difficult for workers to plan for retirement, and for retirees who may have come to depend on a certain level of monthly income. During the benefit determination process, key points of contact with workers and retirees include: (1) Initial notification: PBGC's first communication with participants is generally a letter informing them that their pension plan has been terminated and that PBGC has become the plan trustee. (2) Estimated benefits: For retirees, PBGC continues payments after plan termination, but adjusts the amounts to reflect limits set by law. These payments are based on estimates, so overpayments can occur. (3) Finalized benefit amounts: Once the benefit determination process is complete, PBGC notifies each participant of the final benefit amount through a "benefit determination letter." A small percentage of participants have incurred overpayments to be repaid through the recoupment process. But for those affected, the news can still come as a shock, especially when several years have elapsed since their benefits were reduced to comply with legal limits. Their frustration may be compounded if they cannot understand the explanations provided by PBGC. As the influx of large, complex plan terminations continues, improvements in PBGC's processes are urgently needed.