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Meeting of the Board of Directors of the Pension Benefit Guaranty Corporation May 09, 2014

Designated Representatives of the Board Members

Department of Labor

Thomas E. Perez, Secretary of Labor and Chair of the PBGC Board of Directors
Phyllis C. Borzi, Assistant Secretary of Labor, Employee Benefits Security Administration
Judy Mares, Deputy Assistant Secretary of Labor, Employee Benefits Security Administration
Seema Nanda, Deputy Chief of Staff, Department of Labor
Ali Khawar, Chief of Staff, Employee Benefits Security Administration
Hilary Duke, Division Chief, Office of Policy and Research, Employee Benefits Security Administration
Nicole Swift, Employee Benefits Law Specialist, Employee Benefits Security Administration

Department of the Treasury

Jacob J. Lew, Secretary of the Treasury
Mary J. Miller, Under Secretary for Domestic Finance
J. Mark I wry, Deputy Assistant Secretary for Retirement and Health Policy
Philip Q~ Senior Policy Analyst, Office of Financial Institutions Policy
Kim Egert, Policy Advisor
Liz Hipple, Policy Advisor

Department of Commerce

Penny Pritzker, Secretary of Commerce
Mark Doms, Under Secretary for Economic Affairs
Rick Lattimer, Policy Analyst, Economics and Statistics Administration


Joshua Gotbaum, Director
Ann Orr, Chief of Staff
Alice Maroni, Chief Management Officer
Jioni Palmer, Acting Chief Policy Officer
Judith Starr, General Counsel and Secretary to the Board
Sanford Rich, Chief of Negotiations and Restructuring
Philip Langham, Chief of Benefits Administration
Barry West, Chief Information Officer
Christopher Bone, Policy, Research, and Analysis Department Director

PBGC Office of Inspector General

Deborah Stover-Springer, Deputy Inspector General
Rashmi Bartlett, Assistant Inspector General for Audit

PBGC Participant and Plan Sponsor Advocate

Constance Donovan

The Chair called the meeting to order at I0: I0, welcoming all attendees. He announced that the meeting would be in a roundtable format with Director Gotbaum and members of PBGC management to ensure an interactive dialogue on the issues. Before turning to the established agenda (Attachment I) both the Chair and Secretary Pritzker asked that the presentation on the 2013 Projections Report address changes to the methodology, including why the changes were made this year, and related communications issues.

FY2013 Projections Report

Director Gotbaum noted that the current report reflects improvements in the quality of analysis and procedural suggestions from the Inspector General's office, and that it is an ongoing process. Chris Bone, Director of PBGC's Policy, Research and Analysis Department, discussed the highlights of the 2013 Projections Report, focusing on the multiemployer program, where a significant fraction of plans remain troubled. He explained that both the peer review of the Multiemployer Pension Insurance Modeling System by Buck Consultants and PBGC's own sample of plans found that troubled plans do not take all the steps that are legally permitted, and that the model had been revised to take this into account. Actuarial report standards require current best estimates based on knowledge available. These changes nearly doubled the present value of the ten year deficit (for 2023) from the prior year's report. Mr. Bone explained that when the 2013 Projections Report is issued, there will be a web page with the underlying documentation and emerging documentation, including sensitivity testing. The Buck Report also will be on the website.

The Board discussed the rollout of the 2013 Projections Report with the Director. Secretary Lew emphasized the need for PBGC communications that not only explain the extent of the problem but also the degree of uncertainty around what is known.

Remedy of Internal Control Issues

The Chair expressed his thanks for a great discussion and turned to the next agenda item -the status of actions to address PBGC's internal control material weaknesses.

Chief Benefits Officer Phil Langham reported that, after undertaking a strategic review of the Benefit Administration & Payments Department (BAPD), they are now implementing a range of changes, including creation of new divisions to specialize on asset valuation, data management, and other matters. He noted that the effort will involve substantial retraining as well as an update of its actuarial technology system. The IT procurement will start this fall and should be complete by 2018. The Chair noted his appreciation of the challenges in the IT procurement process. The Chair and other board members asked if the IT timeline could be shortened with additional resources, and Mr. Langham said responded that it could, that implementation could be shortened by one year if the $18 million cost were funded upfront, rather than incrementally.

Chief Information Officer Barry West then explained that his office is on track this year to recommend for closure nearly two-thirds of the OIG recommendations related to the IT material weaknesses, with the remainder anticipated next year. He has assigned staff to focus on remediation, leveraged tools from other agencies, and strengthened incident management reporting and continuous monitoring, while maintaining transparency with OIG. In response to questions from Secretary Pritzker, Mr. West stated there has never been a break-in of PBGC's systems, he believes the systems are secure, and if a break-in occurred, PBGC would be able to diagnose and act quickly.

The Chair emphasized that resource issues need to be addressed during the OMB budget process, and that the Board will be supportive on budget efforts associated with addressing material weaknesses.

Inspector General Report

The Chair thanked the presenters and recognized the Acting Inspector General. Acting Inspector General Deborah Stover-Springer commended the level of transparency from both Mr. Langham and Mr. West as remarkable. She observed that if PBGC continues its existing rate of progress and the submissions it plans to make next year are confirmed by 010, one or more of the material weaknesses could be downgraded to significant deficiencies in 2015. The change OIG is making to the new outside auditor contract to enable closing packages to be reviewed during the audit downtime of January to March should facilitate this process.

After thanking all the presenters, the Chair concluded the meeting at 11: 16.