Over the years, PBGC operations have grown  significantly as pension plan terminations have increased. 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. 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. PBGC’s Application of the Statutory Limitation 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 does not have a  meaningful basis for reporting and tracking its compliance with the  limitation. 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. 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. 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. We are also sending copies to the Executive Director of the  Pension Benefit Guaranty Corporation.
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 operational 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.