"Retirees should be able to count on a reliable source of income," said Senator Brown, who led the letter requesting the GAO investigation.
"We have a responsibility to our seniors to take a comprehensive look at the procedures that this congressionally chartered entity utilizes to ensure fair and timely benefit calculations,"
"For seniors and retirees who worked hard for many years and now depend on pensions, reliability is essential. They deserve a transparent and predictable payment process, not the fear that their expected income might suddenly disappear because of a bureaucratic error," Senator Clinton said. "I urge PBGC to investigate these troubling reports and make the necessary improvements. Our retirees have earned a system that works. "
"Millions of Americans rely on their pensions to make retirement comfortable and secure and PBGC has a responsibility to provide timely and accurate payments," Senator Durbin said. "Miscalculations have resulted in real hardship for America's retirees and we need to get to the bottom of it. I hope this study will allow problems to be identified so that they can be promptly addressed and corrected."
"An independent assessment by the Government Accountability Office is part of an overall review of how the PBGC makes important calculations. Congress needs to make sure administrative actions by the PBGC don't make things worse for pensioners who are already in a tough situation," Senator Grassley said.
"The PBGC is responsible for protecting the pensions of millions of Americans and we in Congress are responsible for watching over the PBGC. I am proud to join my colleagues to request this study to help the PBGC better serve the retirees whose pensions they are responsible for," said Senator Mikulski, who chairs the HELP Committee's Retirement and Aging Subcommittee. "I know first hand how workers and retirees can be hurt when a factory closes, because it happened to thousands of my constituents at Bethlehem Steel in Baltimore. I will always fight for these hard working men and women and their families to protect what they worked so hard to build."
"Americans deserve to retire with a stable income, health care benefits and retirement security," said Senator Obama. "We must ensure that these retirees are not burdened with unfair and erroneous costs as a result of inaccurate PBGC estimates. I urge the GAO to immediately examine any miscalculations in this process."
The pensions of more than 44 million private sector workers and retirees are insured by the PBGC. PBGC is responsible for collecting premiums from plan sponsors and for providing timely and uninterrupted pension payments if plan sponsors file for bankruptcy or terminate plans.
When PBGC assumes responsibility for payments, it initially pays a retiree an estimated benefit until it calculates the final amount that beneficiary will receive. However, it often takes PBGC several years to calculate the final benefit amount. When the final benefit amount is lower than the estimated payment, not only do PBGC beneficiaries begin receiving lower pension payments, but they must return the overpayment accrued over time. This often results in financial hardship for retirees living on fixed incomes.
The Senators have requested that GAO study several aspects of PBGC performance to determine how its benefit determination process could be improved. Specifically, they requested that GAO:
* Explain how PBGC estimates initial benefits
* Determine why there have been noted delays in making final benefit determinations
* Examine the extent to which retiree benefits change significantly when they become final and the reasons for these changes
* Examine the discrepancies between negotiated and guaranteed benefits for those retirees whose benefit plans have come under PBGC administration due to plan termination
* Examine how the PBGC appeals process functions, including the ease of participant access to the process and the length of time that passes awaiting decision.
A copy of the letter is below:
July 1, 2008
Gene Dodaro
Acting Comptroller General
U.S. Government Accountability Office
441 G Street, N.W.
Washington, DC 20548
Dear Mr. Dodaro:
We are writing to request a GAO assessment of the process by which the Pension Benefit Guaranty Corporation (PBGC) estimates retiree benefits for corporations that it insures. We are concerned about the impact this process has on pension recipients who have suffered lost paychecks, health benefits, and retirement security in the face of economic volatility and outsourcing.
The PBGC protects the pensions of more than 44 million private sector workers and retirees in over 30,000 employer-sponsored defined benefit pension plans. PBGC's primary responsibility is to collect premiums from plan sponsors and to provide timely and uninterrupted benefit payments when terminations or bankruptcies occur. In the event of plan terminations, PBGC assumes control of plan assets, calculates benefit amounts, and pays recipients a guaranteed benefit. PBGC initially pays retirees an estimated benefit without interruption, but routinely takes several years to calculate the final benefit amount. At times, the final benefit amount is significantly different than initially estimated. In these cases, recipients may face a considerable decrease in monthly payments and may also be forced to pay back overpayments, creating significant financial hardship.
The most recent example concerns employees of Republic Technologies International (RTI), a steel company that declared bankruptcy in 2001 and terminated its pension plans for employees in Ohio, Illinois, Indiana, New York, and Pennsylvania in 2002. Although PBGC assumed immediate control of the terminated RTI pension plan, final benefit determinations were not made until this past spring – almost 6 years later. RTI retirees now face significant decreases in monthly benefit payments, some of up to 70 percent. These benefit reductions are compounded by a recoupment policy that has left many retirees in debt to PBGC, some up to $75,000.
In light of these circumstances, we are requesting that GAO study several aspects of PBGC performance to determine how its benefit determination process can be improved. Specifically, we would like GAO to determine: 1) how PBGC estimates initial benefits; 2) why there have been noted instances in which there have been delays in making final benefit determinations;
Thank you for your cooperation in addressing these matters. Please contact Cathy Zebrowski in Senator Brown's office at 224-0719 if you have any questions.
Sincerely,
Senators: Max Baucus, Evan Bayh, Sherrod Brown, Richard Burr, Robert P. Casey, Hillary Rodham Clinton, Richard Durbin, Mike Enzi, Chuck Grassley, Edward Kennedy, Barbara Mikulski, Barack Obama, Arlen Specter
