____________________________________________________________________________ ___ Title: Pension Benefit Guaranty Corporation Subtitle: Report No.: GAO/HR-93-5 Date: December 1992 ____________________________________________________________________________ ___ Author: United States General Accounting Office Addressee: High-Risk Series This file contains the text of a GAO report. Delineations within the text indicating chapter titles, headings, and bullets are preserved. No attempt h as been made to display graphic images or pagination of the typeset report. Footnotes appear in brackets at the reference point in the text. Underlined text is indicated by underscore characters (_Introduction_). Superscript characters are preceeded by a backslash (\a). Figures may be omitted or replaced with tables. Tables may not resemble those in the printed version. A printed copy of this report may be obtained from the GAO Documents Distribution Facility by calling (202) 512-6000 or faxing your request to (301) 258-4066 or writing to P.O. Box 6015, Gaithersburg, MD 20877. ____________________________________________________________________________ ___ ____________________________________________________________________________ ___ CONTENTS Overview - The Problem - The Causes - GAO's Suggestions for Improvement ERISA Provides Federal Safeguards Growing Deficit Threatens Pension Insurance Program - Plan Underfunding Presents Greatest Risk - PBGC's Limited Ability to Deal With Risk - Improving PBGC's Financial Condition - Management Deficiencies Weaken Program Administration Effectiveness of ERISA Enforcement Efforts Is Limited - Scarce Resources Hinder Efforts - Certain Joint Enforcement Efforts Have Not Been Effectively Coordina ted - Deficiencies and Limited Scope Weaken Independent Plan Audits Oversight of Annuity Provider Selections Needs Strengthening - PBGC Guarantees Do Not Cover Insurance Annuities - State Guarantees Leave Gaps in Coverage - Inadequate Federal Oversight Conclusions and Action Needed High-Risk Series - Lending and Insuring Issues - Contracting Issues - Accountability Issues ____________________________________________________________________________ ___ Office of the Comptroller General Washington, DC 20548 December 1992 The President of the Senate The Speaker of the House of Representatives In January 1990, in the aftermath of scandals at the Departments of Defense and Housing and Urban Development, the General Accounting Office began a special effort to review and report on federal government program areas that we considered "high risk." After consulting with congressional leaders, GAO sought, first, to identify areas that are especially vulnerable to waste, fraud, abuse, and mismanagement. We then began work to see whether we could find the fundament al causes of problems in these high-risk areas and recommend solutions to the Congress and executive branch administrators. We identified 17 federal program areas as the focus of our project. These program areas were selected because they had weaknesses in internal controls (procedures necessary to guard against fraud and abuse) or in financial management systems (which are essential to promoting good management, preventing waste, and ensuring accountability). Correcting these problems is essential to safeguarding scarce resources and ensuring their efficient and effective use on behalf of the American taxpayer. This report is one of the high-risk series reports, which summarize our findings and recommendations. It describes our concerns over the financial condition of the Pension Benefit Guaranty Corporation (PBGC). The report focuses on three areas of critical importance to the viability of the pensio n insurance program: PBGC's growing deficit, primarily caused by termination o f large, underfunded pension plans; weaknesses in the Department of Labor's, t he Internal Service's, and independent public accountants' efforts to detect pension plan abuses that place plan assets at risk; and pressures the Congre ss faces to expand PBGC guarantees to cover insurance annuitants and other groups. Copies of this report are being sent to the President-elect, the Democratic and Republican leadership of the Congress, congressional committee and subcommittee chairs and ranking minority members, the Director-designate of the Office of Management and Budget, the Secretary-designates of Labor and t he Treasury, the Commissioner of Internal Revenue, and the Executive Director o f the Pension Benefit Guaranty Corporation. Signed: Charles A. Bowsher ____________________________________________________________________________ ___ OVERVIEW ---------------------------------------------------------------------------- --- In 1974, the Congress passed the Employee Retirement Income Security Act (ERISA) to correct weaknesses in the private pension system. ERISA set minim um funding standards for defined benefit pension plans to ensure that they woul d accumulate sufficient funds to pay for the benefits they promised. ERISA als o established the Pension Benefit Guaranty Corporation (PBGC) to insure guaranteed benefits in the event that defined benefit plans terminated witho ut being fully funded. ERISA put in place a number of other provisions--reporting and disclosure requirements, minimum participation and vesting standards, and fiduciary responsibilities--to protect against waste, fraud, and mismanagement of pension plans. Responsibility for enforcing these provisions and the minimum funding standards was assigned to the Internal Revenue Service (IRS) and the Department of Labor. ============================================================================ === THE PROBLEM PBGC's problem is a large and growing deficit that threatens the insurance program's long-term financial viability. At the end of fiscal year 1991, thi s deficit--which had been accumulating since PBGC's inception in 1974--stood a t an estimated $2.3 billion. By 2001, under PBGC's most pessimistic projection , the figure could reach $17.9 billion. PBGC's financial condition has worsene d because companies have terminated pension plans that were insufficiently funded to cover the benefits they had promised their employees. An additional problem lies with IRS and Labor, which have found that establishing effective ERISA oversight and enforcement strategies is difficult. The two agencies have limited resources relative to their responsibilities; at IRS, for example, about 1,000 revenue agents are responsible for ensuring the compliance of nearly 1 million pension plans. Both IRS and Labor have taken steps to improve their oversight and enforceme nt programs, but weaknesses remain. Moreover, inadequate Labor and PBGC oversig ht of pension plans' selections of insurance annuity providers is a contributin g factor that could prompt the Congress to expand PBGC guarantees to cover insurance company annuities; a move that could further weaken PBGC's financi al condition. ============================================================================ === THE CAUSES Two features in the design of the pension insurance program have made it har d for PBGC to control the risks it faces due to underfunded pension plans. First, ERISA's minimum funding standards do not ensure that pension plan sponsors will contribute enough so that if the plans terminate, they will contain sufficient assets to cover all the promised benefits. Second, the premiums that PBGC charges pension plans do not fully cover the risks that PBGC assumes. Premiums are only partially risk-related, allowing sponsoring companies and participants to engage in risky behavior in the knowledge that if the plans terminate before benefits are fully funded, the responsibility for paying guaranteed benefits will fall to PBGC. In addition to these two program design problems, PBGC has experienced weaknesses in its internal controls and financial systems--for example, the lack of a reliable method for estimating PBGC's liability for future benefit s. PBGC also has serious problems with its premium reporting and collection system. Further, its efforts to identify and collect delinquent premiums, underpaid premiums, and related interest and penalties have been inadequate. ============================================================================ === GAO's SUGGESTIONS FOR IMPROVEMENT We have long supported legislative action to strengthen the funding standard s for defined benefit pension plans. Reducing underfunding would limit PBGC's future exposure and target the greatest threat facing the insurance program. We have also suggested that the Congress reexamine the program's premium structure, which could be made to better reflect the risks faced by the program. In particular, the premiums paid by underfunded pension plans shoul d be more in keeping with the risks they pose to PBGC. In addition, we have emphasized the need for PBGC to focus more attention on its management policies and systems and for IRS and Labor to improve their oversight and enforcement programs. While all three bodies have taken steps in these areas, we have made a number of recommendations that have not been ful ly addressed. These would correct system and control weaknesses in PBGC's liability estimation and premium and accounting operations and enhance ERISA oversight and enforcement efforts. ____________________________________________________________________________ ___ ERISA Provides Federal Safeguards ---------------------------------------------------------------------------- --- The Congress enacted ERISA to correct weaknesses in the private pension syst em that had resulted in workers and retirees losing benefits. ERISA set minimum funding standards for defined benefit plans [ Footnote 1: These plans pay specific retirement benefits, generally based on years of service, earnings, or both; the sponsoring company bears the investment risk. ] to ensure tha t sufficient funds would be available to pay promised benefits, and establishe d PBGC to insure benefits in the event a defined benefit pension plan terminat ed before becoming fully funded. When a plan terminates with insufficient funds to pay for the benefits earned by its participants, PBGC takes over the plan and pays guaranteed benefits. The purposes of this insurance program are to (1) encourage the continuation and maintenance of defined benefit pension plans, (2) provide for the timely and uninterrupted payment of pension benefits, and (3) maintain insurance premiums charged to pension plans at the lowest possible level. The program was intended to be self-financing, with funds being provided through terminated plan assets, recoveries from the sponsors of terminated plans, premiums collected from ongoing pension plans, and investment income. [ Footnote 2: In the event that PBGC's resources are not sufficient to pay guaranteed benefits, ERISA permits it to borrow $100 million from the federa l government. ] ERISA also established reporting and disclosure requirements, set minimum participation and vesting standards, and outlined fiduciary responsibilities . [ Footnote 3: A fiduciary generally is anyone who exercises discretionary control over plan management or provides investment advice to it. Fiduciarie stypically include plan administrators, trustees, and investment managers. ] Primary responsibility for ensuring that ongoing pension plans comply with ERISA standards is shared by two agencies--IRS (participation, vesting, and funding) and the Department of Labor (reporting and disclosure, and fiduciar y standards). ____________________________________________________________________________ ___ GROWING DEFICIT THREATENS PENSION INSURANCE PROGRAM ---------------------------------------------------------------------------- --- PBGC's single-employer insurance fund [ Footnote 4: PBGC administers two separate programs--one for single-employer plans, the other for multiemploye r plans. The multiemployer plan insurance program had an accumulated surplus o f $187 million as of 1991, according to PBGC. ] has had a deficit since its inception in 1974, and this deficit is growing. This deficit threatens the insurance program's long-term financial viability. It has resulted primarily from (1) the plans of bankrupt companies terminating without sufficient fund s to pay guaranteed benefits and (2) a premium structure that does not provide enough revenue to cover losses. PBGC's financial condition is further weaken ed by management problems that have prevented PBGC from effectively assessing a nd monitoring its financial condition and have resulted in lost premium income. ============================================================================ === PLAN UNDERFUNDING PRESENTS GREATEST RISK PBGC currently has a positive cash flow--annual premium and asset incomes exceed its annual benefit obligations and administrative costs. But the longer-term prospects are troublesome, because the future benefit payments f or which it has already assumed responsibility exceed the value of assets now o n hand. And PBGC faces the threat of being forced to assume a substantial amou nt of additional liabilities if a relatively few large pension plans fail. PBGC's current deficit measures its financial condition and reflects the resources that are needed to provide guaranteed benefits to participants in underfunded plans that have been or are expected to terminate in the near future. PBGC has had a deficit since its inception and this deficit had increased to $2.3 billion by the end of fiscal year 1991. PBGC's financial condition looks even worse when potential terminations of underfunded plans are considered. PBGC estimated in its 1991 annual report that $40 billion in underfunding existed in the ongoing plans it insures. Of the $40 billion in underfunding, PBGC estimates that $13 billion is in plans sponsored by financially troubled firms, primarily those in the steel, tire, automobile, and airline industries. Taking this underfunding into account, PBGC's most pessimistic 10-year forecast shows that its deficit could reach $17.9 billion by 2001. [ Footnote 5: This estimate assumes that the plans with $13 billion in underfunding plus some smaller ones will terminate durin g the 10-year period. ] ============================================================================ === PBGC's Limited Ability to Deal With Risk Two design features of the pension insurance program--ERISA's minimum fundin g standards and the premium structure--limit PBGC's ability to control the ris ks these underfunded plans pose. ERISA's minimum funding standards do not ensur e that all plan sponsors will make sufficient plan contributions to pay promis ed benefits upon termination. For example, plans that had unfunded liabilities when ERISA was enacted are allowed to amortize the unfunded amount over a 40-year period; benefit increases can be amortized over a 30-year period. However, plan sponsors may increase benefits even if the existing benefits a re not fully funded. As a result, many of the plans that were underfunded when ERISA was enacted remain underfunded. The Congress has enacted legislation t o strengthen the minimum funding standards, most recently in 1987. However, these changes may not be enough to ensure PBGC's long-term financial viability. We are currently assessing the impact of the 1987 changes on plan funding. The premium structure further limits PBGC's ability to manage its risks. The premiums PBGC collects from a plan do not insure the plan against a specifie d and limited shortfall in assets. Rather, they insure the plan against any shortfall, up to the maximum guarantee times the number of plan participants , no matter how large. Well-funded plans are subsidizing underfunded plans through the premium structure. Originally, the Congress set the single-employer plan premium at $1 a year for each plan participant, regardless of the plan's funded status. To better reflect the risk PBGC faces from underfunded plans, the premium was restructured in 1987. Underfunded plans are now required to pay a supplement al premium. Currently, each plan pays a fixed per participant rate of $19 a yea r; underfunded plans pay an additional variable premium of $9 for each $1,000 o f unfunded vested benefits per participant. [ Footnote 6: Plans are required to pay the variable premium if their liabilities for immediate and deferred vested benefits exceed their assets. ] The combined premium has a ceiling of $72 per person. The fixed premium probably overcharges well-funded plans for the risk PBGC assumes in insuring them; the capped variable premium undercharges underfunded plans for this risk. PBGC's inability to restrict claims, coupled with a premium structure that i s only partially risk-related, makes it subject to a "moral hazard." Moral hazard surfaces when the insured parties--in this case, plan sponsors and participants--engage in risky behavior knowing that the guarantor will assum e a substantial portion of the risk. For example, plan sponsors may divert pla n funds for other uses or increase promised benefits knowing that if the plan terminates before these benefits are fully funded PBGC will assume the responsibility for paying guaranteed benefits, within certain limits. [ Footnote 7: PBGC phases in guarantees for new benefits over a period of up to 5 years. ] Strengthening funding standards for underfunded plans and bette r relating premiums to plan underfunding would reduce this moral hazard. ============================================================================ === Improving PBGC's Financial Condition During the previous congressional session, the administration and congressional members proposed strengthening ERISA's minimum funding standar ds to reduce PBGC's future liabilities. The administration further proposed legislation to freeze benefit guarantees where a plan sponsor gives a benefi t increase in an underfunded plan and to change the bankruptcy code to improve PBGC's recoveries in bankruptcy proceedings. These proposals sought to limit the size of the liabilities PBGC will be asked to assume in the future; they did not specifically address the reduction of PBGC's current deficit. To reduce PBGC's deficit, the Congress historically has approved premium increases. Proposals to limit PBGC's liabilities or reduce its deficit involve difficul t trade-offs and demonstrate the tensions inherent in the pension insurance program. For example, strengthening the minimum funding standards will increase the federal deficit in the short run, because pension contributions are a tax-deductible business expense. Limiting guarantees on benefit increases will result in pensioners not becoming eligible for additional guaranteed benefits. This proposal will likely affect collectively bargained union plans the most, [ Footnote 8: These plans are referred to as flat benefit plans. ] because the structure of many of these plans often result s in negotiated benefit increases in already underfunded plans. These are also among the largest, most underfunded plans. Enhancing PBGC's standing in bankruptcy may make obtaining credit more difficult for financially troubled firms and may force companies into bankruptcy more quickly. Giving PBGC a higher standing may also make negotiating agreements with creditors more difficult, thereby hampering firm s' efforts to emerge from bankruptcy. Alternatively, concerns have been raised that increasing the fixed portion of the premium, another possible approach, will prompt well-funded plans to drop out of the system. We believe strengthening the funding standards is the most appropriate tool for enhancing PBGC's long-term viability. Reducing plan underfunding can be xpected to lower PBGC's future losses by targeting the greatest threat to PBGC. We also believe the Congress should consider making the variable rate premium more risk-related in order to reduce PBGC's current deficit. ============================================================================ === MANAGEMENT DEFICIENCIES WEAKEN PROGRAM ADMINISTRATION In addition to the program design problems confronting PBGC, weaknesses in internal controls and financial systems have undermined PBGC's ability to administer the pension insurance program. We have been unable to audit PBGC' s financial statements, primarily because we were unable to determine the reliability of PBGC's estimated liability for future benefits. [ Footnote 9: This liability account, which makes up more than 95 percent of PBGC's report ed liabilities, represents the present value of the future pension benefits PBG C is committed to pay. ] Without reliable financial statements, PBGC cannot effectively monitor its financial condition. Most recently, our fiscal year 1991 audit disclosed that PBGC had not developed and put into place the necessary documentation and support for the techniques and assumptions used to estimate its reported liability for futur e benefits. PBGC had also not assessed the completeness and accuracy of the da ta used by each estimating technique. PBGC has since made progress in addressin g these weaknesses; we are evaluating this progress as part of our fiscal year 1992 audit. PBGC has also had serious problems with its premium reporting and collection system. PBGC's efforts to identify and collect delinquent (unpaid) premiums, underpaid premiums, and related interest and penalties have been inadequate. PBGC has not made frequent attempts to collect delinquent premiums from larg e plans, and has not even attempted to identify or collect delinquent premiums from small plans. A breakdown in PBGC's computerized premium accounting syst em was a major factor in some of these problems. Moreover, PBGC normally has no t used civil action to collect delinquent premiums. PBGC's computerized premium accounting system has not been fully operational since 1988, after PBGC attempted unsuccessfully to modify the system to hand le variable premiums. PBGC management has not paid sufficient attention to premium system improvement initiatives to modify the current system and procure a replacement system. As a result, PBGC has only partially restored its premium accounting system operations. ____________________________________________________________________________ ___ Effectiveness of ERISA Enforcement Efforts Is Limited ---------------------------------------------------------------------------- --- Effective enforcement of ERISA requirements is essential to reducing the ris k to PBGC's insurance program. Although PBGC's primary risk involves large pension plans, its exposure is further increased by the termination of small , underfunded plans where ERISA violations are more likely to occur. These violations have added to PBGC's financial losses and increased its administrative burden. The Department of Labor and IRS share responsibility for ensuring that ERISA violations are detected, appropriate penalties are imposed, and any plan fun d deficiencies are corrected. These divided enforcement responsibilities under ERISA challenge IRS and the Department of Labor to provide effective individual enforcement and coordinate their joint enforcement responsibilities. Both agencies have made progress in improving their enforcement efforts, but problems remain. ============================================================================ === SCARCE RESOURCES HINDER EFFORTS Labor's and IRS's efforts are hindered by scarce resources relative to the size of the plan universe and disappointing enforcement targeting results. A t IRS, about 1,000 revenue agents are responsible for ensuring that nearly 1 million pension plans comply with ERISA. Labor's resources are even more limited--fewer than 400 investigators oversee the pension plan universe as well as other types of benefit plans. Labor and IRS have taken steps to improve their enforcement efforts and make more effective use of these scarc e resources. For example, Labor adopted an enforcement strategy in 1986 to better allocate resources for investigation. IRS is making underfunded plans , which pose the greatest risk to PBGC, a high priority in its enforcement strategy. Both agencies are implementing new targeting systems aimed at better detecti ng ERISA violations. We are currently examining the effectiveness of Labor's enforcement strategy and targeting system. In 1990, we found that initial results of this new enforcement strategy were disappointing. Recently completed initial targeting test results were also disappointing in that targeting criteria identified few plans with ERISA violations. ============================================================================ === CERTAIN JOINT ENFORCEMENT EFFORTS HAVE NOT BEEN EFFECTIVELY COORDINATED IRS and Labor efforts to better coordinate certain joint enforcement efforts--fiduciary violation actions and case referrals--have lagged. Labor has responsibility for determining whether a type of fiduciary violation--known as a prohibited transaction--has occurred and then informin gIRS of it. IRS has responsibility for imposing an excise tax, with certain exceptions, at the time of referral. However, IRS does not automatically impose excise taxes based on these referrals, and Labor officials have not followed up to ensure that IRS is imposing the prohibited transaction excise tax in all appropriate instances. Timely identification and action on fiduciary violations can help limit PBGC 's losses and reduce its administrative burden. In 11 of 40 terminated plans we examined where PBGC assumed responsibility, fiduciary breaches that drained plan assets--including prohibited loans and theft--had occurred while the plans were ongoing. PBGC was unable to recover the missing funds in four of the six prohibited loan cases, because it learned of the problem only after he plan had been terminated, when few assets remained. IRS and Labor also have not effectively coordinated enforcement activities o n other types of case referrals. Most IRS referrals to Labor involve small pla ns that Labor typically does not investigate. The agencies have yet to reach agreement on the best method of selecting, handling, and following up on the se referrals. ============================================================================ === DEFICIENCIES AND LIMITED SCOPE WEAKEN INDEPENDENT PLAN AUDITS The scarce enforcement resources available to IRS and Labor increase the significance of the independent public accountant audits of plans required b y ERISA. [ Footnote 10: Under ERISA, Labor requires plans with 100 or more participants to obtain an annual plan audit, which must be conducted by an independent, qualified public accountant. ] Yet we found numerous deficiencies in the plan audits we reviewed that made their usefulness questionable. Moreover, ERISA allows plan administrators to exclude plan investments held by certain regulated institutions, such as banks and insurance companies, from the scope of a plan audit. These limited scope audits diminish the value of the audit and may confuse statement users. Also ,neither plan administrators nor plan auditors are required to report on internal controls, including those established to ensure compliance with federal laws and regulations. The administration has proposed legislation to repeal the limited scope audit provision. ____________________________________________________________________________ ___ OVERSIGHT OF ANNUITY PROVIDER SELECTIONS NEEDS STRENGTHENING ---------------------------------------------------------------------------- --- The recent failures of several large insurance companies, most notably Executive Life Insurance Company, have raised concerns that federal oversigh t of plans' selections of insurance annuity providers is inadequate. Inadequat e federal oversight may add to increasing pressures the Congress may face to expand PBGC guarantees to cover insurance annuities if the existing guarante es fail to adequately protect pensioners' benefits. [ Footnote 11: The Congres s also faces pressures to expand PBGC coverage to include so-called pension losers--people who lost their pensions before ERISA protections were enacted . ] Such guarantees could increase PBGC's liability by as much as $50 billion , according to PBGC estimates. ============================================================================ === PBGC Guarantees Do Not Cover Insurance Annuities Some pension plans decide to provide benefits to pensioners in the form of insurance company annuities. A plan may purchase annuities when the plan terminates, if it is fully funded, or while ongoing. Our analysis of insuran ce industry and government data suggests that 3 to 4 million retirees and surviving dependents receive such insurance annuities. Before these plans purchased insurance annuities, almost all of their retirees had been in defined benefit plans that were guaranteed by PBGC. However, PBGC has determined that ERISA does not provide authority to guarantee these insuranc e annuities, and collects no premiums for retirees paid through an insurance annuity. As a result, these pensioners lose the federal guarantee when they retire or leave the plan. ============================================================================ === STATE GUARANTEES LEAVE GAPS IN COVERAGE In the absence of federal guarantees, pensioners receiving their benefits in the form of insurance annuities must rely on coverage provided by state guarantee laws if their insurers fail. All states--but not the District of Columbia--have set up guaranty funds to protect policyholders of insolvent health and life insurers, but variations and gaps in coverage provisions expose some to a potential loss of benefits. For example, some annuities are not covered by any state fund, due to variations in state funds' rules of coverage. Moreover, state guarantee coverage limits do not fully cover the value of pensioners' annuities in some cases. ============================================================================ === INADEQUATE FEDERAL OVERSIGHT The threat to retirees' pension benefits due to insurance company failures, and the weaknesses in existing guarantees for pensioners' insurance annuitie s, have raised concerns about the effectiveness of federal regulation and oversight of pension plans' annuity purchases. To address these concerns, Labor and PBGC--which share oversight responsibility for ensuring that pensi on plans act prudently in selecting insurance companies for annuity purchases--have taken steps to ensure that pension plans purchase the safest available annuity. Since March 1990, PBGC has reviewed terminating plans' selection of annuity providers and referred questionable selections to Labor . Labor investigates these referrals and pursues remedies to protect or restor e participants' benefits when it determines that a fiduciary violation has occurred. The effectiveness of these efforts is constrained, however, by two factors. First, Labor has not provided guidance to fiduciaries regarding specific factors that they should consider in evaluating prospective annuity provider s. Second, neither Labor nor PBGC routinely monitors annuity provider selection s of ongoing pension plans. Although fiduciary requirements apply to these ongoing plans, absent routine agency monitoring, violations may go undetecte d. ____________________________________________________________________________ ___ CONCLUSIONS AND ACTION NEEDED ---------------------------------------------------------------------------- --- As long as pension plan underfunding persists, the pension insurance program and plan participants' benefits are at risk. We believe now is the time to a ct to reduce these risks. Reducing these threats to PBGC will require a combination of legislative actions and strengthened oversight and enforcemen t efforts. We have long supported the use of strong and effective funding standards for the nation's defined benefit pension plans. The legislative proposals to strengthen the minimum funding standards have merit. Reducing underfunding would limit PBGC's future exposure and appropriately target the greatest threat confronting PBGC. While strengthened funding standards would increase the federal deficit in the short run, it is a necessary step to avoid potentially significant future costs. In addition, the Congress should consider whether the overall premium ceilin g and existing variable premium rate best reflect the risk to PBGC. Making the variable rate premium more risk-related would reduce PBGC's current deficit. The Congress should first focus on the premium paid by underfunded plans because these plans pose the greatest threat to the program. Effective oversight and enforcement are essential to complement needed legislative changes and reduce the pressures the Congress faces to take more severe measures to protect the pension insurance program and workers' benefits. We have made several recommendations to the Department of Labor, IRS, PBGC, and the Congress to enhance ERISA oversight and enforcement and improve agency operations. All three oversight bodies and the private audit community have taken steps to improve their respective oversight and enforcement efforts to correct identified weaknesses. Key recommendations we have recently made that have not yet been fully addressed are designed to he lp -- correct significant system and control weaknesses in PBGC's liability estimation and premium and accounting operations, and -- strengthen pension plan reporting and enhance the effectiveness of pensio n plan audits by independent public accountants. PBGC's serious operational problems indicate that PBGC officials need to foc us more attention on management policies and systems. The Department of Labor a nd IRS need to examine ways to improve the selection, handling, and follow-up o f enforcement cases these agencies refer to one another. Also, the Department of Labor and PBGC should improve their oversight of pension plans' selection of annuity providers. ____________________________________________________________________________ ___ RELATED GAO PRODUCTS ____________________________________________________________________________ ___ _Improving the Financial Condition of the Pension Benefit Guaranty Corporation_ (GAO/T-HRD-92-60, Sept. 25, 1992). _Pension Plans: Benefits Lost When Plans Terminate_ (GAO/T-HRD-92-58, Sept. 24, 1992). _Financial Condition of the Pension Benefit Guaranty Corporation_ (GAO/T-HRD-92-52, Aug. 11, 1992). _Premium Accounting System: Pension Benefit Guaranty Corporation System Must Be An Ongoing Priority_ (GAO/IMTEC-92-74, Aug. 11, 1992). _Pension Plans: Pension Benefit Guaranty Corporation Needs to Improve Premiu m Collections_ (GAO/HRD-92-103, June 30, 1992). _Employee Benefits: Improved Plan Reporting and CPA Audits Can Increase Protections Under ERISA_ (GAO/AFMD-92-14, Apr. 9, 1992.) _Financial Audit: Pension Benefit Guaranty Corporation's 1991 and 1990 Financial Statements_ (GAO/AFMD-92-35, Mar. 2, 1992). _Financial Audit: System and Control Problems Further Weaken the Pension Benefit Guaranty Fund_ (GAO/AFMD-92-1, Nov. 13, 1991). _Defined Benefit Pensions: Hidden Liabilities From Underfunded Plans and Potential New Obligations Confront PBGC_ (GAO/T-HRD-92-6, Oct. 31, 1991). _Pension Benefit Guaranty Corporation: Weak Financial Condition Worsened by Serious Internal Control Weaknesses_ (GAO/T-AFMD-91-9, Aug. 1, 1991). _Pension Plans: IRS Needs to Strengthen Its Enforcement Program_ (GAO/HRD-91-10, July 2, 1991). _Insurance Company Failures Threaten Retirement Income_ (GAO/T-HRD-91-41, Ju ne 27, 1991). _Pension Plans: Fiduciary Violations in Terminated Underfunded Plans_ (GAO/HRD-91-87, May 13, 1991). _Private Pensions: Millions of Workers Lose Federal Benefit Protection at Retirement_ (GAO/HRD-91-79, Apr. 25, 1991). _Federal Government's Oversight of Pension and Welfare Funds_ (GAO/T-HRD-37, June 13, 1990). ____________________________________________________________________________ ___ HIGH-RISK SERIES ---------------------------------------------------------------------------- --- ============================================================================ === Lending and Insuring Issues _Farmers Home Administration's Farm Loan Programs_ (GAO/HR-93-1). _Guaranteed Student Loans_ (GAO/HR-93-2). _Bank Insurance Fund_ (GAO/HR-93-3). _Resolution Trust Corporation_ (GAO/HR-93-4). _Pension Benefit Guaranty Corporation_ (GAO/HR-93-5). _Medicare Claims_ (GAO/HR-93-6). ============================================================================ === Contracting Issues _Defense Weapons Systems Acquisition_ (GAO/HR-93-7). _Defense Contract Pricing_ (GAO/HR-93-8). _Department of Energy Contract Management_ (GAO/HR-93-9). _Superfund Program Management_ (GAO/HR-93-10). _NASA Contract Management_ (GAO/HR-93-11). ============================================================================ === Accountability Issues _Defense Inventory Management_ (GAO/HR-93-12). _Internal Revenue Service Receivables_ (GAO/HR-93-13). _Managing the Customs Service_ (GAO/HR-93-14). _Management of Overseas Real Property_ (GAO/HR-93-15). _Federal Transit Administration Grant Management_ (GAO/HR-93-16). _Asset Forfeiture Programs_ (GAO/HR-93-17).