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PBGC Already Moved in Response to 2003-2004 National Steel Pension Concerns

March 31, 2011

Unclear if Benefits Were Affected, Agency Pledges to Correct Mistakes

Washington—The Pension Benefit Guaranty Corporation moved quickly to resolve problems described in a recent inspector general report on the takeover of National Steel’s pension plans in 2003. The report said corrective action began last year.

“We take our responsibility to the people we serve very seriously,” said PBGC Director Josh Gotbaum, appointed to lead the agency last July by President Obama. “We are embarrassed and saddened that this occurred. We are resolved to set things right, and we will do so.”

Following National Steel’s 2003 bankruptcy, PBGC became responsible for seven pension plans covering 35,000 workers and retirees. PBGC has since paid more than $1.5 billion to National Steel retirees.

In Minnesota’s Iron Range, more than 1,000 National Steel Pellet Company retirees receive benefits from the agency. PBGC has paid over $62 million to Pellet Company retirees since assuming the plans.

At the same time PBGC took responsibility for paying benefits, it also took over the plans’ assets. The agency’s IG found that PBGC and its contractor had done a seriously flawed job in making sure it had collected all the assets and that assets had been properly allocated to each plan. As a result, some National Steel retirees might have received lower benefits than they should have.

Neither the IG nor PBGC yet knows whether any National Steel pensioner actually suffered any reduced benefit as a result of the audit. PBGC is working now to find out and expects to know sometime this summer.

PBGC committed to correct its mistakes. “If anyone lost even a dime, their benefits will be corrected and they will be paid back with interest—and an apology,” Gotbaum said.

Gotbaum joined PBGC in July 2010. Since then, in response to earlier IG findings, the agency has taken the following steps:   

  • PBGC hired a public accounting firm to completely redo the National Steel asset audit. Once that’s done, PBGC will calculate whether any retirees have been harmed, and how much they are owed in additional benefits and interest.
  • PBGC has hired new public accounting firms to perform all future asset audits.
  • PBGC strengthened its asset audit process and procedures. A chief auditor is now in charge and separate staff auditors have been assigned to each pension plan case team. The process of handling and reviewing asset audits has also been strengthened.
  • Several months ago, the agency announced that it would undertake a top-to-bottom strategic review of the benefit department’s organization, policies and procedures. This review will be led by PBGC’s Deputy Director for Operations. Its goal is to put changes in place by the end of the year.

 “Plain and simple, PBGC did a bad job,” said Gotbaum. “I agree with all the Inspector General’s findings and will implement all her recommendations to make sure this never happens again.”

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PBGC No. 11-36