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Statement of David M. Strauss Executive Director Pension Benefit Guaranty Corporation

Before The
Appropriations Subcommittee on Labor, Health and Human Services,
Education, and Related Agencies
March 22, 2000

Mr. Chairman and Members of the Subcommittee:

Good afternoon. I appreciate the opportunity to appear before you today. I want at the outset to express my appreciation to you, Mr. Chairman, for the support you have given to the PBGC over these past years, including your leadership in the passage of the Retirement Protection Act of 1994 (RPA). Mr. Chairman, the RPA has been a key factor in the agency's move from deficit to surplus.


PBGC insurance is essential to safeguarding the retirement income security of the 43 million American workers in nearly 40,000 defined benefit pension plans. The PBGC is responsible for the pensions of more than half a million workers and retirees in almost 2,800 PBGC trusteed plans.

Before addressing our budget request, I want to talk about the progress we have made on the PBGC's three principal priorities: safeguarding the PBGC's solvency; promoting defined benefit plans; and making the PBGC a premier customer service agency.

Safeguarding the PBGC's solvency

The PBGC's single-employer insurance program had a deficit for its first 21 years. In FY 1994 that deficit had reached $2.9 billion and the PBGC was on both the GAO's and OMB's High Risk Lists. Today, the program is in surplus, the PBGC has been off the High Risk Lists since 1996, and the PBGC has had clean audits for the last six years.

Despite this surplus, the PBGC has to remain vigilant because there are many factors that affect the PBGC's financial health that are beyond our control. Even with a strong economy we have been taking on a steady stream of newly terminated plans, and changing economic conditions such as a recession could result in both major plan failures and an increase in smaller plan failures. Several big plan failures could easily put us back in the red.

Promoting defined benefit plans

Another priority has been to revitalize the defined benefit pension system to strengthen existing plans and create new plans. This is a priority because the future of the system is not certain: almost no new plans are being created, few participants are coming into the system, and the number of retirees in the system will soon outnumber the number of active workers.

Those American workers who do have defined benefit plans are the lucky ones. They are assured of predictable, secure benefits for life. The President's FY 2001 budget contains a number of provisions that are designed to encourage the expansion of pension coverage, including a simplified defined benefit plan for small businesses.

Making the PBGC a premier customer service agency

And finally, I can report to you today that improved customer service has been a major PBGC achievement. The agency has greatly improved customer service for participants in plans we take over, plan sponsors, and the pension professionals who advise them.

Faster Final Benefit Determinations

A key element of our improved customer service has been the speedier issuance of final benefit determinations to participants. Unlike the Social Security Administration, which generally pays benefits in accordance with a single formula, the PBGC pays benefits in accordance with the terms of each pension plan it takes over. This means, in effect, that we are operating almost 2,800 benefit programs, no two of which are alike. To determine a participant's correct benefit, therefore, is very labor intensive because it requires a great deal of actuarial and other work.

The PBGC's highest priority has always been to make sure that all retirees in trusteed plans begin receiving monthly benefits from the day they retire, and to assure that those who are already retired get uninterrupted benefits. In the past, a large workload and a lack of resources made it difficult for the agency to address other issues, including the speedy issuance of final benefit determinations.

In FY 1994 the PBGC was issuing from 20,000 to 25,000 benefit determinations per year, but the backlog of participants awaiting final benefit determinations had grown to 300,000 -- a 12 year workload; we had over 70,000 participants in over 600 trusteed plans who had been waiting more than 7 years for their final benefit determinations, many as long as 20 years; and there were thousands of participants in several hundred plans that the PBGC had not yet been able to trustee, some of whom had been waiting as long as 10 or 20 years.

Today, we have dramatically improved the situation. Beginning in FY 1995, we tripled the number of benefit determinations made each year to over 60,000 (67,657 in FY 1999)(see chart #1) even though we trusteed record numbers of new plans (see chart #2) and took in large numbers of new participants (see chart #3). We have been able to cut the benefit determination backlog to 190,000 (a 3-year inventory as compared to the 12-year inventory of 1993-94)(see chart #4). For final benefit determinations issued in FY 1999 the average processing time was 5.7 years (see chart #5).

We accomplished this turnaround by reorganizing our operations, reallocating our resources, adopting new computer technologies, and streamlining our policies in dozens of areas. We are now approaching the goal set out in our Strategic Plan-- 3-4 year benefit processing for FY 2002.

Other Customer Service Initiatives

In addition to speedier benefit determinations, we have taken other steps to better serve participants. For example, we set up a Customer Service Center with a toll-free telephone number so that participants can speak personally with trained customer service representatives. We have adopted plain language principles in our correspondence, held over 60 meetings with participants in newly PBGC-trusteed plans, simplified some of our rules, and piloted ways to communicate more frequently with plan participants and provide them with earlier benefit estimates. We have also improved service to premium payers and pension practitioners in a number of ways. For example we moved the premium filing date to October 15th to make it coincide with the filing date for the Form 5500.

Computer Security

Before I speak to our budget request, I want to raise one other issue -- the need to enhance the PBGC's computer security to protect participant records. We have already taken a number of steps to do this: in 1997, we tested whether our computer systems could be penetrated from the Internet and strengthened the firewall between our Internet website and our internal data.

In 1999, our Inspector General conducted another penetration test. The security experts hired by the Inspector General were not able to penetrate or bypass the firewall but they were able to gain access to our data bases in other ways. When we received the OIG's report, we immediately took corrective action. We tightened standards for passwords and set up mechanisms to identify, and warn us against, attacks on our firewall or Internet servers. We now plan to automate much of the daily monitoring and checking that is now done.

I want to assure the subcommittee that no participant benefits have been tampered with, and no participant records have been compromised. We are determined to protect our data, particularly our participant records. We will insist that our information security practices embody the best practices of government and industry, including a process for continuous evaluation and improvement.



Now I will address the PBGC's FY 2001 budget request. The PBGC is requesting an administrative budget of $176.7 million for FY 2001, an increase of $12 million over our FY 2000 budget of $164.7 million. We request no increase in Federal staffing. About $4.4 million of this amount covers pay increases and inflation. Three budget initiatives account for $7.6 million: 1) reducing benefit determination processing times; 2) investing in computer security and communications; and 3) managing a growing investment portfolio.

Resources Required to Support Each of the PBGC's Four Strategic Goals

Goal #1: Protect existing defined benefit plans and their participants, thereby encouraging new plans. We are requesting $23.4 million towards this goal for FY 2001. Our enforcement programs, including legal and financial analysis to keep plans from terminating, are under this goal.

Goal #2: Provide high quality services, and accurate and timely payment of benefits to participants. We are requesting $89.5 million for FY 2001 (more than half our budget) to support our participant service operations. We expect to serve more than 500,000 participants in FY 2001 and to trustee an additional 110 plans. We are asking for an increase of $2.7 million so that actuaries can do benefit valuations for additional plans to reduce the average benefit determination time from 3-5 years to 3-4 years by FY 2002.

Goal #3: Strengthen financial programs and systems to keep the pension insurance system solvent. We are requesting $41.9 million in FY 2001 for our financial management program. The $41.9 million includes an increase of $2.8 million to manage the PBGC's expanding portfolio of investments, which total almost $19 billion. Our financial management program helps ensure that the PBGC continues to receive unqualified (that is, "clean") audit opinions.

Goal #4: Improve internal management support operations. We are requesting $21.7 million for FY 2001 for management operations. We are requesting a $2.1 million increase for FY 2001 to enhance computer security and update other computer systems.


In closing, I want to thank you again, Mr. Chairman, for giving me the opportunity to appear before you this afternoon and I look forward to working with you and the members of the subcommittee.

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