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CCH® PENSION — 10/13/09

GAO urges PBGC to develop better strategy for processing complex plans

The Government Accountability Office (GAO) has issued a report recommending that the PBGC develop a better strategy for processing complex terminated plans in order to reduce delays, minimize overpayments, improve communication with participants, and make the appeals process more accessible.

With the current state of the economy, the PBGC may be required to assume responsibility for the plans of a growing number of companies filing bankruptcy. The GAO issued the report in response to Congressional concerns about the PBGC's benefit determination process, reductions in benefits due to guarantee limits, and the retirement security of employees.

Processing times, overpayments, communication

The GAO's review of plans terminated with insufficient funds and trusteed by the PBGC during fiscal years 2000 through 2008 revealed that a small number of complex plans, especially those with large numbers of participants affected by limits on guaranteed benefit amounts, accounted for most cases with lengthy delays and overpayments.

The 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 and plans with missing data, the GAO found. Although many participants are affected by sizable benefit reductions, the GAO found that the vast majority are not affected by overpayments. Moreover, nearly two-thirds of overpayments involved participants in just 10 plans. In cases with overpayments, the PBGC generally requires benefits to be reduced by no more than 10% until the amount owed is repaid, but due to participants' ages, the full amount often is never recouped.

The GAO found that the PBGC has made efforts to improve participant communication, but key correspondence often did not meet the needs of those in complex plans. For example, when the process was lengthy, the PBGC did not communicate with some participants for several years. When the benefit calculation was complicated, the PBGC did not provide explanations that could be understood without further information or assistance.

Since restructuring the appeals process in 2003, the PBGC has reduced the average amount of time needed to decide an appeal by almost a year, the GAO found. However, the PBGC does not readily provide key information that would be helpful to participants in deciding whether to pursue an appeal, according to the GAO.

GAO recommendations

A more strategic approach is needed for processing complex plans prone to delays and overpayments, according to the GAO. The GAO report made several specific recommendations.

First, the GAO recommended that the PBGC set goals for timeliness and monitor the progress made in finalizing benefit determinations for large, complex plans separately from other plans.

Second, to reduce the number and size of overpayments in large, complex plans, the GAO urged the PBGC to prioritize the calculation of estimated benefits for retirees subject to the guarantee limits and to adjust estimates, as needed, throughout the benefit determination process. To reduce increased overpayments due to appeals, the PBGC should prioritize the processing of appeals for those already receiving benefits and should consider implementing the final benefit determination for retirees during the appeals process, the GAO recommended.

Third, the GAO report recommended that the PBGC develop improved procedures for adapting and reviewing letters to participants in large, complex plans, such as by (1) providing more specific information in letters to participants who receive benefit reductions describing which limits were applied and why; (2) ensuring all letters to participants involving benefit reductions are reviewed for accuracy and coherence before being sent; and (3) establishing processes to more frequently communicate with participants who are experiencing delays in receiving final benefits determinations.

Finally, the GAO report urged, the PBGC should provide information or resources to help participants in large, complex plans better understand their benefit calculations and to avoid any unnecessary appeals. Specifically, the PBGC's benefit determination letters should provide information, such as how participants can obtain additional information by using the Freedom of Information Act or other resources, the report said.

Source: GAO report, "Pension Benefit Guaranty Corporation: More Strategic Approach Needed for Processing Complex Plans Prone to Delays and Overpayments," GAO-09-716 (August 2009).

For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer's Benefits Reports.

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