Inspector General and Auditor Letter

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) 2002 and 2001 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. This audit is performed 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.

PricewaterhouseCoopers issued an unqualified opinion on the FYs 2002 and 2001 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.

Two reportable conditions were carried forward from prior financial statement audits. Though audit work during FY 2002 showed that PBGC had made progress in addressing these reportable conditions, it was not sufficient to remove them and they remain:

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

In addition, the FY 2002 audit work identified three other reportable conditions:

PBGC needs to continue its efforts to implement an effective fully integrated and functional enterprise-wide security program.
PBGC needs to improve its controls over the identification and measurement of estimated liabilities for probable plan terminations.
PBGC needs to enhance controls over measurement of asset values for non-commingled assets of trusteed plans, plans pending trusteeship and plans probable for termination.

To fulfill the Inspector General ’s 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.

Based on results of our oversight review, we determined that PricewaterhouseCoopers planned, executed, and reported the results of its audit of FYs 2002 and 2001 financial statements of Single-Employer and Multiemployer Program Funds administered by PBGC in accordance with applicable standards. Therefore, we conclude that PricewaterhouseCoopers’ audit work provides a reasonable basis on which to render its January 14, 2003 opinion.

A set of PricewaterhouseCoopers’ reports (2003-3/23168-2) is available upon request from the PBGC’s Office of Inspector General.

Sincerely,
Deborah Stover-Springer
Deputy Inspector General
January 24, 2003

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, 2002 and 2001, 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 the PBGC at September 30, 2002 and 2001, 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 therefore its premiums must be sufficient to cover both its short and long-term obligations. The Fund has been able to meet its short-term benefit obligations, and PBGC internal analyses project that it will be able to do so for the foreseeable future. However, the Fund’s statement of financial condition reports a net deficit position (liabilities in excess of assets) of $3.6 billion at September 30, 2002. Losses that are “reasonably possible” as a result of unfunded vested benefits are estimated to be $35.4 billion at September 30, 2002, as discussed in Note 7. The Fund’s net position, and long-term viability, could be negatively impacted by losses from plans classified as reasonably possible (or from other plans not yet identified as potential losses) as a result of deteriorating economic conditions, the insolvency of a large plan sponsor or other factors.

Management’s discussion and analysis, 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 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 14, 2003, 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 14, 2003
2003-2/23168-1

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