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News & Policy

Pension Plans: Standard Termination Audit Findings

June 16, 1997

  • PBGC periodically audits a sample of fully funded pension plans that employers terminate to determine if earned benefits have been distributed to participants.

  • In response to a request from the Senate Select Committee on Aging, PBGC provided summary statistics on the results of audits since 1986.

  • The most recent audit estimates that approximately 8 percent of about 290,000 plan participants in 6,000 fully funded plans that were ended between January 1994 and December 1995 did not receive their full benefit when they accepted lump sum payments.

  • The sample audit concentrates on small terminated pension plans where most errors in calculating lump sum benefits occur. (70 percent of the sample were plans that had less than 250 participants.) The error rate among large fully funded pension plans that terminate is quite small.

  • Because the errors have been detected primarily in small plans, the extrapolation to all pension plans is not appropriate since a small percentage of participants are in small plans.

  • The audit sampled 374 fully funded terminated plans covering 2,800 participants and found 13.7 percent or 382 participants were underpaid. This raw, unadjusted data is then extrapolated to determine that 8 percent of lump sums were underpaid to participants in all fully funded terminated plans during the audit cycle.

  • The PBGC audit finds that the miscalculations are due primarily to the use of the wrong interest rate in determining the lump sum amounts. Proper interest rates are determined by the law and the pension plan provisions. Within certain legal constraints, plans generally use the PBGC interest rate or the 30 year Treasury rate.

  • When errors in benefit payments are found in an audit, PBGC requires companies to correct the payment and, if necessary, pursues court action (ex: Piggly Wiggly).

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PBGC No. 97-31A