The Office of Inspector General for PBGC has issued a report entitled PBGC Processing of Terminated United Airlines Pension Plans was Seriously Deficient.
The report continues the IG's work since 2009 to identify flaws in how PBGC's contractor valued the assets of pension plans, and in how PBGC handled oversight of that contractor. PBGC has already publicly agreed with these findings.
Further, the report notes flaws with the initial submission of a CPA firm that is re-doing the work that the original contractor did poorly.
Finally, the report recognizes that, if carefully and professionally implemented, PBGC's new three-tiered review process is likely to result in a more effective review of future plan asset valuation reports. (This internal review process is designed to check and re-check this asset re-valuation work drawing on expertise throughout the agency, and is only complete with the signature of Deputy Director for Operations Vince Snowbarger.)
PBGC does not yet know whether any benefits must be corrected. However, if people have been underpaid, we will correct the error and pay the overdue amount with interest and an apology. If they have been overpaid, we will adjust their payments going forward. The payment will be reduced to the correct benefit amount, and then further reduced (generally by no more than 10%,) until the overpayment is paid back to PBGC. In these cases, PBGC will charge neither interest nor any penalty.
The bankruptcy of United Airlines (UAL) resulted in the termination of four pension plans, affecting 126,000 workers and retirees and their families. PBGC assigned a contractor, Integrated Management Resources Group, Inc. (IMRG) the task of evaluating the plans' assets. IMRG did shoddy work on this and other plan audits.
- 2004 - 2005: PBGC inherits the assets and liabilities of four UAL plans.
- 2008: IMRG completes its asset valuation work on UAL plans.
- 2010: Inspector General briefs PBGC management on UAL and other asset-audit issues; PBGC completes an internal review, identifying errors and omissions in our plan asset audits.
- 2010-2011: PBGC begins work on a number of fronts to correct such mistakes in plans we are already responsible for, and to prevent similar errors in the future (see New Procedures, below.)
- March 2011: IG publishes a report detailing deficiencies in IMRG's asset audit of National Steel plans.
- April 2011: CPA firm completes re-valuation reports for UAL plans.
- November 2011: Inspector General publishes report, PBGC Processing of Terminated United Airlines Pension Plans was Seriously Deficient.
PBGC's new procedures to address the flaws noted in the IG's briefings and reports include:
- A review of the plan asset valuation of such plans, using a number of CPA firms
- PBGC's internal three-tier review of the re-valuations conducted by the CPA firms, to ensure that this work is both accurate and complete, and
- A top-to-bottom strategic review of PBGC's Benefits Administration and Payment Department (which is responsible for oversight of such asset valuation work)
Review in Mid-Process
The OIG's report on the UAL plans notes that:
- the initial submission by our contracted CPA firm is also deficient from the standpoint of PBGC's procedures and standards;
- PBGC has not yet completed its review of this report from the CPA firm; and
- "PBGC has recently implemented a more detailed and in-depth review procedure for the re-valuations of UAL and National Steel plan assets; if carefully and professionally implemented, the new procedures are likely to result in PBGC conducting a more effective review of future plan asset valuation reports. The first or primary stage of PBGC's review of the UAL plan asset valuations is currently nearing completion."
In the report, OIG offered 15 recommendations; PBGC Management responded to each. The OIG has concurred with our Management Response for nine of the fifteen recommendations.
PBGC's efforts are aimed not only at getting these benefit calculations right, but also at assuring accuracy and quality in our benefit administration processes in the future.