Pension Benefit Guaranty Corporation
Office of Inspector General

To the Board of Directors
Pension Benefit Guaranty Corporation

This letter transmits the PricewaterhouseCoopers LLP report on the audit of the Fiscal Years (FYs) 2001 and 2000 financial statements of Single-Employer and Multiemployer Program Funds administered by the Pension Benefit Guaranty Corporation (PBGC). Section 9105 of 31 U.S.C., as amended, requires PBGC’s Inspector General or an independent external auditor, as determined by the Inspector General, to audit PBGC’s financial statements. The audit is to be performed in accordance with Government Auditing Standards as issued by the Comptroller General of the United States and other applicable audit requirements.

PricewaterhouseCoopers issued an unqualified opinion on the FYs 2001 and 2000 financial statements of Single-Employer and Multiemployer Program Funds administered by PBGC. In addition, PricewaterhouseCoopers issued two other reports – an unqualified opinion on PBGC management’s assertion about the effectiveness of its internal control and a report on PBGC’ s compliance with laws and regulations. The FY 2000 audit identified three reportable conditions within PBGC’s internal control. Audit work during FY 2001 confirmed that PBGC had strengthened its controls surrounding the Participant Records Information Systems Management application to warrant downgrading the reportable condition to a less significant management letter comment. However, two other reportable conditions remain.

1. PBGC needs to integrate its financial management systems and improve its systems development life cycle methodology; and
2. PBGC needs to improve and fully test its plan for maintaining continuity of operations.

To fulfill our statutory responsibility, we monitored the quality of PricewaterhouseCoopers’ audit work to ensure it was in accordance with Government Auditing Standards. Specifically, we:

• reviewed the audit approach and planning;
• evaluated the qualifications and independence of auditors;
• monitored the progress of the audit at key points;
• examined the working papers and reports; and
• performed other procedures that we deemed necessary.

Sincerely,

Wayne Robert Poll
Inspector General
February 25, 2002

PriceWaterhouseCoopers
Report of Independent Accountants

To the Inspector General
Pension Benefit Guaranty Corporation

We have audited the accompanying statements of financial condition of the Single-Employer and Multiemployer Program Funds administered by the Pension Benefit Guaranty Corporation (PBGC) as of September 30, 2001 and 2000, and the related statements of operations and changes in net position and statements of cash flows for the years then ended. These financial statements are the responsibility of PBGC’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America and Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Single-Employer and Multiemployer Program Funds administered by PBGC at September 30, 2001 and 2000, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

By law, PBGC’ s Single-Employer Program Fund (the Fund) must be self-sustaining and as such, its premiums must be sufficient to cover both its short and long-term obligations. The Fund is able to meet its short-term benefit obligations and internal analyses indicate that the combined effect of future premium revenue and reduced underfunding of Single-Employer plans may allow the Fund to meet its future obligations as well. While the Fund’s statement of financial condition reports a net position (assets in excess of liabilities) of $7.7 billion at September 30, 2001, losses that are “ reasonably possible” as a result of unfunded vested benefits are estimated to be $11 billion at September 30, 2001, as discussed in Note 7. To the extent contingent losses currently classified as “reasonably possible” become probable, such as from deteriorating economic conditions or from insolvency of a large plan sponsor, the Fund's net position could be depleted.

The Actuarial Valuation and other supplemental information contain a wide range of data, some of which are not directly related to the financial statements. We do not express an overall opinion on this information. However, we compared this information for consistency with the financial statements and discussed the methods of measurement and presentation with PBGC officials. Based on this limited work, we found no material inconsistencies with the financial statements.

In addition, in accordance with Government Auditing Standards, we have issued reports dated January 24, 2002, on management’s assertion about the effectiveness of its internal control and on its compliance with laws and regulations. These reports are integral parts of an audit conducted in accordance with Government Auditing Standards, and, in considering the results of the audit, these reports should be read along with the Report of Independent Accountants on the financial statements.

January 24, 2002
2002-2/23157-1

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