[Senate Hearing 106-856]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 106-856

                   JOINT HEARING ON PENSION TENSION:
   DOES THE PENSION BENEFIT GUARANTY CORPORATION DELIVER FOR RETIREES

=======================================================================

                             JOINT HEARING

                               before the

                       SPECIAL COMMITTEE ON AGING

                                and the

                      COMMITTEE ON SMALL BUSINESS
                          UNITED STATES SENATE

                       ONE HUNDRED SIXTH CONGRESS

                             SECOND SESSION

                               __________

                             WASHINGTON, DC

                               __________

                           SEPTEMBER 21, 2000

                               __________

                           Serial No. 106-38

         Printed for the use of the Special Committee on Aging


                   U.S. GOVERNMENT PRINTING OFFICE
67-979                     WASHINGTON : 2000


_______________________________________________________________________
            For sale by the U.S. Government Printing Office
 Superintendent of Documents, Congressional Sales Office, Washington, 
                               DC. 20402


                       SPECIAL COMMITTEE ON AGING

                  CHARLES E. GRASSLEY, Iowa, Chairman
JAMES M. JEFFORDS, Vermont           JOHN B. BREAUX, Louisiana
LARRY CRAIG, Idaho                   HARRY REID, Nevada
CONRAD BURNS, Montana                HERB KOHL, Wisconsin
RICHARD SHELBY, Alabama              RUSSELL D. FEINGOLD, Wisconsin
RICK SANTORUM, Pennsylvania          RON WYDEN, Oregon
CHUCK HAGEL, Nebraska                JACK REED, Rhode Island
SUSAN COLLINS, Maine                 RICHARD H. BRYAN, Nevada
MIKE ENZI, Wyoming                   EVAN BAYH, Indiana
TIM HUTCHINSON, Arkansas             BLANCHE L. LINCOLN, Arkansas
JIM BUNNING, Kentucky
                   Theodore L. Totman, Staff Director
                Michelle Easton, Minority Staff Director
                                 ------                                

                      COMMITTEE ON SMALL BUSINESS

                CHRISTOPHER S. BOND, Missouri, Chairman
CONRAD BURNS, Montana                JOHN F. KERRY, Massachusetts
PAUL COVERDELL, Georgia              CARL LEVIN, Michigan
ROBERT F. BENNETT, Utah              TOM HARKIN, Iowa
OLYMPIA J. SNOWE, Maine              JOSEPH I. LIBERMAN, Connecticut
MIKE ENZI, Wyoming                   PAUL WELLSTONE, Minnesota
PETER G. FITZGERALD, Illinois        MAX CLELAND, Georgia
MIKE CRAPO, Idaho                    MARY L. LANDRIEU, Louisiana
GEORGE V. VOINOVICH, Ohio            JOHN EDWARDS, North Carolina
SPENCER ABRAHAM, Michigan

                                  (ii)

  


                            C O N T E N T S

                              ----------                              
                                                                   Page
Opening statement of Senator Charles E. Grassley.................     1
Statement of Senator John Breaux.................................    12
Prepared statement of Senator Christopher Bond...................   177

                                Panel I

Thomas A. Parks, Cedar Rapids, IA................................    14
Bonne McHenry, former Pension Benefit Guaranty Corporation 
  Contract Employee, Merrimack, NH...............................    21
Wayne Robert Poll, Inspector General, Pension Benefit Guaranty 
  Corporation, Washington, DC....................................    31
Barbara D. Bovbjerg, Associate Director, Education Workforce, and 
  Income Security Issues, Health Education, and Human Services 
  Division, U.S. General Accounting Office, Washington, DC.......    49
Robert H. Hast, Assistant Comptroller General, Office of Special 
  Investigations, U.S. General Accounting Office, Washington, DC.   128
David Strauss, Executive Director, Pension Benefit Guaranty 
  Corporation, Washington, DC....................................   140

                                APPENDIX

GAO responses to questions.......................................   191
Pension Benefit Guaranty Corporation letter and responses to 
  questions......................................................   201
Testimony of John W. Wilde.......................................   230
Statement from Kenneth Lyons of the National Association of 
  Government Employees...........................................   234
Letter from Richard Brooks, Association of Former Pan Am 
  Employees......................................................   239
Letter from David W. Kuhnsman, Attorney-Advisor..................   247
Investigations into Allegations of Contract Improprieties from 
  Pension Benefit Guaranty Corporation...........................   252

                                 (iii)

  

 
  JOINT HEARING ON PENSION TENSION: DOES THE PENSION BENEFIT GUARANTY 
                    CORPORATION DELIVER FOR RETIREES

                              ----------                              


                      THURSDAY, SEPTEMBER 21, 2000

                                       U.S. Senate,
                                Special Committee on Aging,
                       and the Committee on Small Business,
                                                    Washington, DC.
    The committee met jointly, pursuant to notice, at 8 a.m., 
in room SD-562, Dirksen Senate Office Building, Hon. Charles 
Grassley (Chairman of the Committee) presiding.
    Present: Senators Grassley, Breaux and Bond.

    OPENING STATEMENT OF SENATOR CHARLES GRASSLEY, CHAIRMAN

    The Chairman. Thank you all for coming. And as everybody 
who observes Congress to any great extent, and that is probably 
a large--like I was about to say, there is unusual things 
happening. [Laughter.]
    And the most unusual is that we are meeting at 8 in the 
morning. And you can see that even the mechanical aspects of 
Congress do not operate very well at 8 o'clock in the morning. 
This is necessary because Senator Breaux and I are members of 
the Senate Finance Committee. And a meeting that was scheduled 
for yesterday at 10 o'clock was postponed to today at 10 
o'clock, which interfered with our hearing. And so we called 
this at 8 o'clock in the morning to be able to accommodate all 
of our responsibilities for today.
    So those of you who have come out early, we thank you very 
much for doing that, particularly those who had to come, 
members of this committee, as well as our witnesses.
    I thank Senator Bond, Chairman of the Committee on Small 
Business, and I thank the ranking members of both committees, 
Senator Breaux and Senator Kerry, for their support of this 
oversight hearing, and I thank my fellow members on both sides 
of the aisle for taking time out of their busy schedule at the 
end of the session to attend this hearing and also a second 
thank you for accommodating us by starting at 8 in the morning, 
for a second time, and I think they deserve it to thank our 
witnesses for being here today and again earlier than usual.
    Your testimony as witnesses will assist the committee 
greatly in determining how best to address the matters that are 
raised by you and by our investigators. I appreciate everyone's 
cooperation in permitting me to start so early, and I have 
explained why we are here, and I would appreciate members who 
normally are not ranking member or chairmen who I would defer 
to give statements, that today we will pass up those statements 
as a matter of time. So only Senator Breaux and I, and Senator 
Kerry and Senator Bond will have statements.
    There's been a lot of discussion throughout the 106th 
Congress about retirement income security. It has been a theme 
of my chairmanship of this committee. As this Congress comes to 
a close, we continue to work to pass legislation to help 
Americans create secure retirement. Next week, the Senate is 
going to debate the Comprehensive Pension Reform bill as an 
example. But what if you do not have a secure retirement or 
what if you will only receive a small pension from the Social 
Security Administration and your company's pension makes all of 
the difference in the world then to the quality of life you 
have in retirement.
    Imagine retiring and applying to receive your pension 
benefit from a company that you worked for very early in your 
career, and you find that that plan has gone bankrupt. Imagine 
collecting a pension check for a decade only to receive notice 
stating that you have been overpaid for several years. Now you 
owe several thousand dollars, and your monthly pension will be 
reduced drastically. Imagine receiving an IRS notice that you 
underpaid your taxes because of the lump sum you received as a 
result of somebody's miscalculation. Now that individual faces 
higher taxes and a 20-percent penalty.
    Imagine receiving a $473,000 check by mistake, as did the 
mother of one of today's witnesses. A copy of the check sent to 
the PBGC to return the mistaken money is demonstrated over here 
on this chart at my right. But the problem did not end there. 
Next, you will hear from the IRS because they get involved 
wanting taxes and penalties on a $470,000 mistake, and that is 
evidenced here by the letter from the IRS.
    This hearing then focuses upon the Pension Benefit Guaranty 
Corporation, the PBGC, as we will refer to it. It is a wholly 
owned Government corporation that manages $19 billion. The 
PBGC's core mission is to provide timely and accurate benefits 
to millions of Americans who are covered by private sector-
defined benefit plans. Today, we will examine how effectively 
the PBGC has carried out its missions.
    We are going to hear a lot about the Corporation's benefit 
determination process. To simplify this discussion, I have over 
here another chart that we prepared, which reflects an overview 
of the Corporation's benefit process. I plan to leave this 
chart up throughout the hearing for any witnesses who may wish 
to refer to it. The chart shows seven stages of the benefit 
determination process. We are primarily concerned with five 
stages, which are numbered on the chart.
    Today, we will hear various statistics about the length of 
time it takes the corporation to process final benefit 
determinations, and it is important to keep in mind four dates: 
The date of plan determination, and that is called Stage One; 
date of trustee is reflected, also, at Stage One; the date of 
actuarial valuation reflected in Stage Three; and the date of 
the initial or final determination letter is sent, and that is 
at Stage Four.
    Regardless of the dates used to analyze the efficiency of 
the Corporation's benefit process, it is important for us to 
keep one simple fact in mind: A retiring individual needs to 
know the amount of his or her retirement at the earliest 
possible date, preferably right after plan determination. Let 
me be clear that I recognize many people are satisfied with the 
Corporation's management. I am thankful for that. I further 
recognize that the Corporation has a difficult job in assessing 
plan records from bankrupt companies in calculating benefits.
    However, other people have had less satisfactory 
experiences, and we will hear from some of those stories today. 
Our purpose is not to embarrass anybody, but to focus on how we 
can continue to improve delivery of this vital service to 
millions of Americans. The committee has learned that it takes 
the corporation approximately 6 years from the date that a 
retirement plan terminates to determine the amount of a 
person's retirement benefit. Remember that that is an average 
time. From the chart to my right, you can see that some 
determinations might take as long as 15 to 20 years, and that 
is Chart No. D. That is a very long time for someone to wait 
before they know what their retirement is going to be.
    It is true that the Corporation does an excellent job of 
ensuring that people's payments continue through the 
determination process. The problem, however, arises with the 
uncertainty people can face from year to year. People need to 
know, as quickly as possible, the amount of their monthly 
retirement check. I believe that a corporation chartered by 
Congress can do much, much better. I intend to see that this 
situation improves dramatically.
    The hearing will cover two additional topics that are 
directly related to the benefits determination process: 
contract management and computer security. The Corporation's 
contract management is important to this discussion because 
more than one-half of the Corporation's 1,300 employees are 
contract employees located in 12 offices. These contract 
employees process the bulk of the Corporation's benefit 
determinations.
    Today, I and Senator Bond are releasing a General 
Accounting Office report on the Corporation's contract 
practices. In addition, the Corporation's Inspector General 
will discuss five reports that he has conducted on the length 
of time it takes the Corporation to process benefit 
determinations. The Inspector General will also discuss his 
computer penetration study that hacked into the Corporation's 
computer system and demonstrated its lack of security. The 
Corporation has reported to our two committees monthly and has 
made great strides to ensure that its computer system is more 
secure.
    [The prepared statement of Senator Grassley follows:]

             PREPARED STATEMENT OF SENATOR CHARLES GRASSLEY

    I want to begin by thanking Senator Bond, Chairman of the 
Committee on Small Business, as well as the Ranking Members of 
both committees, Senator Breaux and Senator Kerry, for their 
support on this oversight hearing. I want to thank my fellow 
Members, on both sides of the aisle, for taking time out of 
their busy schedules at the end of the session to attend this 
important hearing. In addition, I want to thank the witnesses 
for being here today. Your testimony today will assist the 
Committee greatly in determining how best to address the 
matters you raise.
    I appreciate everyone's cooperation in permitting me to 
start the hearing earlier today. I have been called to a 
Finance Committee mark-up on important legislation beginning at 
10 a.m. Therefore, I want to try to complete this hearing by 10 
a.m. today.
    There has been a lot of discussion throughout the 106th 
Congress about retirement income security. It has been a theme 
for me in my chairmanship of the Aging Committee. As this 
Congress comes to a close we continue to work to pass 
legislation to help Americans create a secure retirement. (Next 
week, the Senate will debate the comprehensive pension reform 
bill that I cosponsored.)
    But what if you don't have a secure retirement? Or, what if 
you will only receive a small pension from the Social Security 
Administration and your company's pension makes all the 
difference? Imagine retiring and applying to receive your 
pension benefits from a company that you worked for early in 
your career. You find it has since gone bankrupt. Imagine 
collecting a pension check for a decade only to receive a 
notice stating that you have been overpaid all these years. Now 
you owe several thousand dollars and your monthly pension will 
be reduced drastically. Imagine receiving an IRS notice that 
you underpaid your taxes because of the lump sum you received 
as a result of somebody's miscalculation. Now you face higher 
taxes and 20 percent penalties. Imagine receiving a $473,000 
check by mistake, as did the mother of one of today's 
witnesses. But, the problem didn't end there. Next, you will 
hear how the IRS got involved, wanting taxes and penalties on 
the $473,000 mistake.
    This hearing focuses on the Pension Benefit Guaranty 
Corporation, or PBGC, which is a wholly-owned government 
corporation that manages $19 billion. PBGC's core mission is to 
provide timely and accurate benefits to millions of people who 
are covered by private sector defined benefit plans. Today we 
will examine how effectively PBGC has carried out its mission.
    We are going to hear a lot about PBGC's benefit 
determination process. To simplify this discussion, we have 
prepared the next chart which reflects an Overview of PBGC's 
Benefit Process. I plan to leave this chart up throughout the 
hearing for any of the witnesses who may wish to refer to it. 
The chart shows seven stages of the benefit determination 
process. We're primarily concerned with five stages, which are 
numbered on the chart. Today we will hear various statistics 
about the length of time it takes PBGC to process final benefit 
determinations. It is important to keep in mind four key dates:

         date of plan termination (reflected at Stage I);
         date of trusteeship (reflected at Stage I);
         date of actuarial valuation (reflected at Stage III); 
        and
         date on which the initial (or final determination) 
        letter is sent (at Stage IV).

    Regardless of the dates used to analyze the efficiency of 
PBGC's benefit process, it is important for us to keep one 
simple fact in mind--a retiring individual needs to know the 
amount of his or her retirement at the earliest possible date--
preferably right after plan termination.
    Let me be clear that I recognize many people are satisfied 
with PBGC. I am thankful for that. I further recognize that 
PBGC has a difficult job in accessing plan records from 
bankrupt companies and calculating the benefit. However, other 
people have had less satisfactory experiences. We will hear 
some of those stories today. Our purpose is not to embarrass an 
agency but to focus on how we can continue to improve the 
delivery of this vital service to millions of Americans.
    The Committee has learned that it takes PBGC approximately 
6 years from the date that a retirement plan terminates to 
determine the amount of a person's retirement benefit. 
Remember--that's the average time. From the chart to my right, 
you can see that some determinations take from 15 to 20 
years!!. That's a very long time for someone to wait before 
they know what their retirement income will be.
    It is true that PBGC does an excellent job of ensuring that 
people's payments continue throughout the determination 
process. The problem arises with the uncertainty people can 
face for years and years. People need to know as quickly as 
possible the amount of their monthly retirement check. I 
believe that a corporation, chartered by Congress, can do much, 
much better. I intend to see that this situation improves 
dramatically.
    The hearing will cover two additional topics that are 
directly related to the benefits determination process: 
contract management and computer security. PBGC's contract 
management is important to this discussion because more than 
one-half of PBGC's 1,300 employees are contract employees 
located in 12 offices. These contract employees process the 
bulk of PBGC's benefit determinations. Today, Senator Bond and 
I are releasing a GAO report on PBGC's contract practices. In 
addition PBGC's Inspector General will discuss five reports he 
has conducted on the length of time it takes PBGC to process 
benefit determinations. The Inspector General will also discuss 
his computer penetration study that hacked into PBGC's computer 
system and demonstrated its lack of security. PBGC has reported 
to our two Committees monthly and has made great strides to 
ensure that its computer system is secure.

    [Charts on Overview of PBGC]

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    I now would refer to Senator Breaux, the distinguished 
ranking minority member of this Committee on Aging.

              STATEMENT OF SENATOR JOHN B. BREAUX

    Senator Breaux. Thank you, Mr. Chairman. I am delighted to 
join with you in participating in this hearing. I am glad the 
charts have cleared up how the Agency operates. I am not sure 
it is totally clear yet. Today, after reading that chart, it 
looks like how Congress operates, which is not very clear at 
all. [Laughter.]
    But I think it is important that we look at the agencies 
that we have jurisdiction over, particularly in the area of 
retirement security. The average American probably has never 
heard of a corporation called the Pension Benefit Guaranty 
Corporation. Most Americans would not be able to tell you what 
that Agency does. But for millions of Americans who rely on the 
Pension Benefit Guaranty Corporation for a check every month, 
they certainly understand it and know how important it is to 
their daily lives. They are dependent on it.
    In my own State of Louisiana, as an example, there are 302 
plans, I think, that pay premiums to cover over a half a 
million participants just in my State of Louisiana. This is a 
corporation that manages millions and millions of dollars and 
serves a very critical purpose for a large number of Americans. 
And I think, therefore, it is appropriate and proper that this 
committee, in particular, which has taken the leadership I 
think in so many areas dealing with retirement and pension 
benefits and issues of particular concern to the elderly in our 
country, that it is appropriate that we have this oversight 
committee.
    I think the executive director, Mr. Strauss, would be the 
first to admit that any agency in Government, indeed, can 
always do better than they have. And what we look for is a 
trend line of improving performance in serving the American 
public. I think it is important for this Agency, this 
Corporation, to know that Congress is looking at their 
operations and want to ensure that the movement is in the right 
direction in order to continue to improve services. And I think 
over the past years there has been an improvement in the 
quality of the services to the American people. This is an 
issue that is far too important to take lightly. Pensions are 
the life blood of many families in America. So we have to 
continue to do a better job than we did in the previous year.
    There has been some concern about the tardiness in coming 
up with a final determination of what the actual benefits would 
be on a month-to-month basis, and we need to do better in that 
area. I do note, however, that I don't think we've ever missed 
any payments, and people have always been able to depend on 
that pension check. And in most cases, the initial 
determination and the final determination are actually very 
close to being the same thing. Americans can depend on getting 
their pension from the Pension Guaranty Corporation.
    Customer services is a priority. I mean, this Agency, as we 
and the Congress, work for the American people. I have reviewed 
Mr. Strauss's testimony. I have been impressed that a person 
who is executive director has actually spent such an incredible 
amount of time in personally meeting with people who use this 
Corporation and depend on it. I think that is admirable. Too 
often, in Washington, people who run agencies have a disconnect 
with the people that they serve. It is very important to 
reestablish that, and I think they have done that.
    There has also been about 21 years of budget shortfalls in 
this Agency, which has been very disturbing. And it is good to 
note that over the last four consecutive years we have had a 
surplus. I think that is a major and very positive indication 
of movement in the right direction, as well as a downturn in 
the number of pending benefit determinations that are still 
pending and have been going down in each of the last 5 years.
    So there is progress that is being made. Is it a perfect 
Agency? No. Is there a perfect Agency in Washington? No. I 
mean, everybody can stand improvement, and that is what we are 
looking for here today. And I look forward to all of our 
witnesses and their recommendations.
    Thank you, Mr. Chairman.
    The Chairman. I will try to accommodate Senator Bond or 
Senator Kerry if they are under tight schedules when they show 
up, if they want to make statements, because they have to go to 
another committee meeting. Both staff can inform them that I am 
willing to do that to help them. Because we need to conclude 
the hearing at 10 a.m. to attend the Finance Committee mark-up, 
as I have already suggested, I thank the Inspector General for 
his preparation to provide an introductory overview of the 
PBGC. And in the interest of time, I want to dispense with that 
opening and make it a part of the record.
    Now, I introduce the panel, and I will introduce the entire 
panel, and then we will start with Mr. Parks and end with Mr. 
Strauss.
    Thomas A. Parks is a constituent of mine from Cedar Rapids, 
IA. And he has come here under extreme circumstances because he 
has been with a friend who is ill in Alaska, and we appreciate 
very much your taking time out of your schedule to come.
    Now, we have another person, Dr. Wilde, who evidently 
because of plane problems may not be able to get here. He 
happens to be from Dale City, CA, but is now in Chicago, it is 
my understanding. He is going to, if he gets here, will testify 
on behalf of his mother, Dorothy Jasco. If he does not come, we 
will be able to put his statement in the record.
    Then we have Bonne McHenry, a former contract employee of 
the Corporation, PBGC. She is from Merrimack, NH. Then, we have 
the Inspector General of the Corporation, Wayne Robert Poll. 
Thank you for coming.
    And Barbara Bovbjerg, Associate Director of Income Security 
at the General Accounting Office. Thank you.
    Robert H. Hast, Assistant Comptroller General for Special 
Investigations at the General Accounting Office.
    And then David Strauss, our Executive Director of the 
Pension Benefit Guaranty Corporation. Thank you.
    Now, we will start with Mr. Parks.

         STATEMENT OF THOMAS A. PARKS, CEDAR RAPIDS, IA

    Mr. Parks. Thank you, Senator. Let me also preface my 
remarks that I have no interest in negatively complicating the 
lives of anyone at the Pension Benefit Guaranty Corporation. My 
sole motivation is to illuminate past problems with and within 
the PBGC, based on my experience, so as to hopefully benefit 
what I suspect are probably thousands of retirees highly 
dependent upon the PBGC.
    That philosophy was enunciated in my letter to the PBGC of 
April 3, 1996, after approximately 4\1/2\ years had elapsed 
before my situation was finally resolved in August 2000. That 
final determination, incidently, came after approximately 8 
years after the PBGC became involved in this plan. In that 1996 
letter, I stated:
    ``My experience suggests to me that problems of this nature 
reflect much greater problems at the top. This does not 
necessarily mean at the supervisory level, it may be a funding 
issue or something comparable and equally difficult to 
resolve.''
    ``For that reason alone, I am writing to you to ask that my 
unanswered letters be answered and my case resolved with 
rational expediency and that you allow me the benefit of your 
insight into the overall question before I take this matter up 
with others who I am reasonably certain will act.''
    To that April 1996 letter I attached an earlier fax to the 
PBGC in which I recited a litany of mistakes, some of which 
involve my receiving, without explanation, a substantial check 
drawn on a bank other than that which the PBGC had indicated 
would be transmitting funds and against a company pension plan 
unrelated to me in any way. Subsequently, I received another 
check duplicating the amount of the first check, drawn upon the 
correct PBGC bank. I returned these funds to the PBGC via a 
certified check.
    Like other communications with the PBGC, these received no 
clarifying response. Instead, in April 1996, I received a 
request for documents that duplicated documents first supplied 
November 27, 1995. Subsequently, I received a surprising 
telephone inquiry from the PBGC asking if I could illuminate 
the cause of errors that were obviously internal to them and 
about which I was understandably uninformed. My response simply 
reiterated details previously supplied.
    Following months of frustrating absence of any closure on 
questions and issues put before the PBGC, in January 1997, I 
requested the assistance of Congressman Jim Leach. In my 
judgment, the initial response to the Congressman's office was 
evasive and of little assistance, except to confirm that some 
undefined action was in progress. Subsequently, in a letter 
dated February 3, 1997, a full 5 years after the applicable 
pension plan had been terminated with the PBGC's involvement 
and 1\1/2\ years after my retirement and filing for benefits, 
the PBGC confirmed their appointment as trustee, which had 
actually happened 6 months previously.
    The PBGC then, in February 1997, proceeded to send auditors 
to my former employer's office to audit materials readily 
available from Aetna from 1992 forward. Nothing further was 
heard from them until 8 months later, when they telephoned my 
employer's former plan administrator, asking questions 
previously answered many times and suggesting that they had 
``misplaced''--their words--applicable files and were 
``temporarily stymied.'' Consequently, on November 12, 1997, I 
requested assistance from the office of Senator Charles 
Grassley and provided that office with a detailed recap of 
pertinent communications with the PBGC extending from September 
1991, over 6 years. That communication and attachments are 
included herewith as a matter of record.
    The PBGC, in December 1997, responded to Senator Grassley, 
stating, among other things, that ``our processing schedule 
calls for final benefits to be calculated by the end of 1998,'' 
which actually did not occur until August 2000. In this 
response, the PBGC expressed concern over the length of the 
process and further stated that their problems resolution 
officer had been asked to monitor my case to ensure that it 
stays on track.
    I regret having to add to this litany of problems the fact 
that the final determination letter, ultimately received on 
August 14, 2000, was found to be incorrect and was superseded 
by what I presume is the ultimate final determination letter, 
dated August 18, 2000. In all fairness, I must add that this 
error was found by the PBGC without input from me and that they 
acted quickly to make the necessary corrections.
    This quick action suggestions or appears to suggest some 
internal improvements have taken place, but this appearance of 
improvement is so recent that I am hesitant to rely upon it.
    The fact remains that eight long years were consumed in the 
process between when the PBGC first became involved and their 
final determination of my case. During much of this time, I was 
uncertain as to benefits due me and aware that, upon final 
determination, I might have a partial repayment obligation 
rather than an increase in the monthly interim payment being 
received. Those interim payments began at $1,006 in May 1996 
and were provisionally adjusted upwards to $1,257 in February 
1998. In their final determination letter, the PBGC advised 
that my final entitlement would be increased by 83 cents.
    Your attention is drawn to Attachment 1 to my November 12, 
1997, letter to Senator Charles Grassley. That attachment, 
dated June 4, 1992, authored by my former employer's pension 
plan administrator, states that upon my retirement my benefit 
payment will be $1,257.88, only a nickel variance from the 
number determined by the PBGC to be applicable after 8 years of 
expended resources.
    When one compares the years and resources consumed to 
arrive at such an insignificant change, it is difficult to make 
a positive statement, even given that I do have an appreciation 
for fiscal and accounting procedures which might justify such a 
modest adjustment. The 1992 estimate authored by my former 
employer's plan administrator was not mere speculation. It was 
predicated upon the facts that Aetna's actuaries had monitored 
and reported upon the applicable plan for benefits for many 
years. Additionally, in compliance with Department of Labor 
requirements, the company's plan numbers and Aetna's numbers 
had been audited and verified annually by auditors such as 
Price Waterhouse and Arthur Anderson.
    The PBGC's refusal to work with this certified data and 
thus save years of expensive efforts, only to essentially 
arrive at an identical conclusion, appears to reflect that 
other situations possibly surfaced unsatisfactory detail. 
However, to consequently adopt an attitude that one rule or 
experience fits all is tunnel vision, causing corporate and 
human misery best avoided by working with more commonly 
accepted business practices. My decades of experience working 
for and operating small businesses dictates a strong position 
opposing such waste.
    I have also held management positions in Fortune 500 
companies and can attest that their ability and resources to 
deal with such problems are more in tune with these 
bureaucratic procedures, which have the potential of crushing 
small businesses. In most cases, where one rule or procedure is 
assumed applicable to all businesses, small or large, the small 
company operates at a distinct disadvantage.
    In summary, the delays and absence of communication over 
many years perpetuated uncertainties and prolonged 
determination of benefits to which I was, and am, entitled. I 
am fortunate that my financial survival was not at stake, but I 
suspect that many others suffering this treatment are injured 
or at least highly insecure.
    As I reflect upon this experience, I am led to speculate 
that the root problem is or was a lack of adequate resources to 
cope with a crescendo of plan failures during the 1990's. If 
that is the case, the fault rests not with line personnel, but 
rather with top management or funding sources or both for 
having failed to recognize the magnitude of the needs.
    Thank you very much.
    [The prepared statement of Mr. Parks follows:]

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    The Chairman. Thank you, Mr. Parks.
    Now, Ms. McHenry.

  STATEMENT OF BONNE McHENRY, FORMER PENSION BENEFIT GUARANTY 
          CORPORATION CONTRACT EMPLOYEE, MERRIMACK, NH

    Ms. McHenry. I, Bonne Ann McHenry, respectfully submit the 
following testimony on September 21, 2000, before the Senate 
Special Committee on Aging and the Senate Committee on Small 
Business.
    I worked for Integrated Management Resources Group, 
Incorporated, IMRG, as a Senior Pension Administrator for the 
Atlanta PBGC office. My testimony is based on my experiences 
and observations. Since I was a member of the Pan American 
Cooperative Retirement Income Plan--Pan Am CRIP--team for most 
of this time, I would like to address the process, timeliness 
and accuracy of the issuance of these Initial Determination 
Letters.
    An Initial Determination Letter, IDL, is a communication to 
a participation in a PBGC-administered defined benefit pension 
plan that states the amount of his or her benefit at normal 
retirement age. If the participant is already receiving a 
pension, an IDL confirms or refutes the amount that is being 
paid. An IDL is the most important document that the 
participant will receive from the PBGC because a participant 
who disagrees with PBGC's determination cannot appeal PBGC's 
decision until an IDL is issued. In other words, PBGC prevents 
participants from appealing any disputed benefit amount by 
simply failing or refusing to issue an Initial Determination 
Letter.
    Those participants who believe they are entitled to a 
higher benefit, must put their financial future on hold because 
the major source of income from their pensions is uncertain. If 
a participant does not respond to his or her IDL within 45 
days, the right to appeal is lost. The Pan American World 
Airways Cooperative Retirement Income Plan was frozen on 
December 31, 1983, and the company filed bankruptcy and this 
plan was retroactively terminated on July 31, 1991.
    In my view, and based upon my experience, there was no 
justification for the delays in providing IDLs to the Pan Am 
participants. When I began working at the Atlanta PBGC office, 
over 7 years after PBGC assumed responsibility for this plan, 
the majority of the 20,000 participants in the CRIP plan had 
not yet received an Initial Determination Letter, yet I was 
able to look at a stand-alone PC screen connected to the Pan Am 
data base and see the work and salary history, as well as the 
calculated accrued benefit/IDL information for most Pan Am 
employees. Neither PBGC nor IMRG expressed concern for the 
impact of their poor management on participants. In my opinion, 
it should not have taken PBGC so long to issue IDLs.
    PBGC did not appear to take particular care with regard to 
accuracy, did not make the best use of both Pan Am's records 
and its own technology. Although the calculations for those who 
were receiving benefits had already been scanned into the PBGC 
IPS system and could have been used to verify benefit amounts, 
options chosen and spousal information, the PBGC sent out IDLs 
with incorrect benefit amounts, inaccurate options chosen, 
wrong name or ``unknown'' for spouse's name. The IDLs were 
issued with incorrect Social Security numbers. IDLs were sent 
to former Pan Am employees who are already being paid by CIGNA, 
Prudential, or Johnson Controls. IDLs were sent to people who 
had never worked for Pan Am. Letters were sent to retirees with 
the language, ``Due to unresolved issues, we cannot determine 
the amount of your benefit at this time.''
    When the PBGC office in Washington issued these IDLs in 
batches, it used its automated letter system called ALG. As a 
result, there were spelling and grammar mistakes and dates in 
fields were benefit amounts should be and vice versa. In every 
instance where I talked to someone who had received one of the 
above letters, I could almost always verify what the correct 
information should have been using the records that had been 
imaged or the Pan Am data base.
    Participants who elected the level income option, which 
drops down at the Social Security retirement age of 65, were 
incorrectly paid the same initial amount long after age 65, 
leading them to believe they were entitled to this amount, when 
they were given IDLs which recouped this overpayment, leaving 
them with little or no pension. Others were put into pay by 
PBGC with estimated benefits and then told to repay the 
difference when they were issued their IDLs for lower amounts. 
In my experience, there were far too many mistakes.
    IDLs were not sent to all participants who have a lump sum 
cash-out value between $3,500 and $5,000, notifying them that 
these funds are eligible to be rolled over into Individual 
Retirement Accounts. There are probably thousands of these 
participants. I could look them up on the PBGC data base under 
their respective CRIP groups: IUFA, flight attendants; TWU, 
mechanics; IBT, Teamsters; and management. Those who were 
called in were given IDLs and lump sums on a case-by-case 
basis. There were thousands of IDLs omitted.
    PBGC sent participants IDLs that gave them only 45.2 
percent of their benefits at age 55--or 50, if they were a 
flight attendant. This caused concern among the Atlanta 
administrators because we were given plan documents, and IUFA, 
TWU and IBT pamphlets that stated that the Pan Am early 
retirement percentage was 79 percent for those who met certain 
service requirements. Participants who lost this additional 
33.8 percent of their benefit were extremely upset. I could not 
get an explanation for this discrepancy between Pan Am policy 
and PBGC practice. A benefit of $300 a month was reduced by 
PBGC to only $135.60 a month, instead of the $237 a month that 
would have been paid by Pan Am.
    I believe that those who met the Pan Am service 
requirements should have received 79 percent of their pension 
at early retirement.
    Since the Pan Am participants who were hired after December 
31, 1983, were not eligible for any pension benefit, their 
records should have been deleted from the IDL data base. These 
extraneous records triggered error messages on reports and were 
of no use, other than to confuse the process.
    As you can imagine, the incorrect IDLs generated an 
extremely high volume of calls. Those of us who tried to answer 
questions about these letters often could not even view a copy 
of what had been sent. Batches of these IDLs disappeared and 
were not scanned. No record exists except for the mailed 
original. In my opinion, PBGC issued IDLs regardless of 
quality, solely to meet the court-ordered deadline.
    IMRG was not prepared to manage payroll, benefits and 
screening of candidates for employment or the training of 
existing employees in a reliable or responsible manner. I saw 
Myrna Cooks onsite only twice in a year-and-a-half. In my 
experience, she did not show any knowledge of or concern for 
either her employees or the work in progress. Myrna did not 
return our phone calls or respond to our e-mails. She kept more 
than 20 percent of the hourly wage she was receiving from PBGC.
    When I began work on the first day of Myrna's contract, I 
was the only new employee. The rest of the office had been 
employed by Office Specialists and continued with IMRG.
    I am not sure whether I should----
    The Chairman. How much do you have left?
    Ms. McHenry. I have about three pages.
    The Chairman. Would you maybe make two or three points that 
you have yet to make, please, because I think your testimony is 
very important.
    Ms. McHenry. The only real concern of management was that 
they not be embarrassed. There was no leadership. IMRG's 
management had no interest in ensuring that the work was 
completed in a timely and competent manner.
    The working conditions became so bad that employees banded 
together and sent an e-mail to David Strauss, the Executive 
Director of PBGC. We tried to address work-related issues, as 
well as the low morale. Barbara Mitchell was asked to send this 
compilation of our grievances because we felt that she would 
not be retaliated against. Barbara, herself a retiree from Pan 
Am, was an extremely knowledgeable and hardworking employee. 
She had worked for Office Specialists since 1992. Barbara and I 
both spoke to Joe Grant on the phone.
    When David Strauss, Joe Grant and Bennie Hagans came to 
Atlanta and met with the Pan Am CRIP team, there was an 
emphasis on open communication and bringing forward problems 
and issues. Administrators were then told by Bennie Hagans and 
Francis Emmanuel, the Manager, after David Strauss and Joe 
Grant had left, that all communications with Washington had to 
go through the Atlanta management. Employees were forbidden to 
communicate with PBGC directly or bring up issues at the weekly 
video conferences without prior clearance from Atlanta 
managers. This was a gag order.
    When Barbara expressed concern that she would be fired for 
being a spokesperson and telling what she knew, Joe Grant 
assured her that this would not happen. Barbara was fired 
shortly afterwards on November 8, 1999. She has been seeking 
redress from the Inspector General's Office since this time and 
has heard no decision.
    IMRG did not provide a defined benefit pension plan for its 
employees. There was a 401(k) plan for employee contributions 
only. I find it disheartening that David Strauss gives talks 
around our Nation promoting defined benefit plans and then PBGC 
gives a contract to IMRG which has none. This means that 
contract employees who are poorly and inconsistently paid, not 
well trained and have no pension plan, are expected to give 
good customer service to those who do. I believe that PBGC 
knows how poorly the Atlanta office is run and that thousands, 
if not millions, of dollars have been wasted as a result of not 
confronting the poor management that exists.
    In my opinion, pensioners of bankrupt companies should not 
be caught between an inefficient, incompetent bureaucracy and 
an inferior, covetous contractor.
    [The prepared statement of Ms. McHenry follows:]

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    The Chairman. Thank you, Ms. McHenry.
    Mr. Poll.

  STATEMENT OF WAYNE ROBERT POLL, INSPECTOR GENERAL, PENSION 
          BENEFIT GUARANTY CORPORATION, WASHINGTON, DC

    Mr. Poll. Good morning, Mr. Chairman and members of the 
committee. My office has been working with your committees over 
the past several years, and I appreciate this opportunity to 
discuss some of that work today. Today, I will be discussing 
computer security and the benefit determination process.
    During the past 5 years, we have performed a wide range of 
security reviews over information technology resources. These 
reviews have clearly pointed out that PBGC lacks a 
comprehensive IT security program. Without an effective and 
proactive IT security program, PBGC is exposed to risks. For 
example, someone with unauthorized access may modify, destroy 
and disclose sensitive information. To determine how vulnerable 
the Agency was to these risks, we conducted tests of the 
security environment. This is referred to as network 
penetration testing.
    We were glad to discover and report to PBGC that we were 
unable to penetrate its information systems using the Internet. 
However, we were able to access systems through both dial-in 
from remote locations and unauthorized access inside the 
Agency. This test revealed flaws in the security over computer 
resources and in employees' awareness of their security 
responsibilities.
    For example, during our testing, we obtained the highest 
security access and were able to create, delete and modify data 
and deny service to critical networks/systems. We were able to 
achieve a systems administrator level of access without being 
detected. These tests demonstrate that PBGC did not have an 
effective program that defined, implemented and enforced 
security strategy.
    Further, security standards for new systems need to be 
defined earlier in the development process to ensure that there 
is appropriate security before the system is placed into 
production. Then, PBGC needs to oversee the systems development 
process to ensure that contractors are complying with the 
improved system's design.
    In addition, in fiscal year 1997, Chairman Grassley, you 
asked my office to address certain questions regarding initial 
benefit determinations or IDLs. We looked at the efficiency and 
effectiveness of the benefit determination process and 
identified key areas of improvement. Our report included 
findings that PBGC could not attest that IDLs had been issued 
to all participants. We also completed two reviews on the 
length of time it had taken the Agency to issue IDLs. Our 
review revealed that PBGC continued to issue approximately one-
half of the IDLs more than 7 years after it became trustee.
    We also looked at how long it took PBGC to issue the IDLs 
after it had determined participants' benefit amounts. We found 
improvement. In our first report, we noted that only 35 percent 
of the IDLs were issued within one year of PBGC completing its 
evaluation. Our follow-on report noted that approximately 80 
percent of the IDLs were issued within a comparable 1-year 
period. In these two reports, we identified problems in the IDL 
data maintained in a data base called PRISM. Information in 
PRISM is used to pay benefits and answer participant questions. 
We found that the PRISM contained duplicate, incomplete and 
erroneous data, which this called into question the reliability 
of the data that PBGC used to report its operational 
performance.
    Our evaluation of whether participants are impacted by the 
delay in IDL issuance revealed that there is a gap between how 
participants and PBGC view delayed IDLs. We asked Agency 
management, ``How are participants impacted by your delay in 
issuing IDLs?'' PBGC's answer focused on the payment of 
estimated benefits. They suggested that a delayed IDL was very 
little impact because the participants are receiving their 
estimated monthly checks. Some participants, however, stated 
that they were financially or emotionally harmed by delayed 
IDLs. Participants also reported economic hardship, such as the 
possibility of having to repay PBGC's overpayment benefit 
amount.
    Finally, as stated in our report on the appeals process, we 
found that PBGC's assertions regarding appeals of IDLs were 
fairly presented. Notably, in fiscal year 1997, approximately 
one-half of the appeal decisions were favorable to the 
appellants.
    In conclusion, Mr. Chairman, over the years, my office has 
issued multiple reports commenting on weaknesses relating to 
PBGC's benefit determination process. The common theme of these 
reports is that there are systematic weaknesses in controlling 
participant information. More timely and reliable information 
would enable PBGC to better perform the benefit determination 
process and issue IDLs in a timely manner.
    I thank you for this opportunity to discuss our audit work 
and would be glad to answer your questions.
    [The prepared statement of Mr. Poll follows:]

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    The Chairman. Thank you, Mr. Poll.
    Now, Ms. Bovbjerg.

     STATEMENT OF BARBARA D. BOVBJERG, ASSOCIATE DIRECTOR, 
   EDUCATION, WORKFORCE, AND INCOME SECURITY ISSUES, HEALTH, 
EDUCATION, AND HUMAN SERVICES DIVISION, U.S. GENERAL ACCOUNTING 
                     OFFICE, WASHINGTON, DC

    Ms. Bovbjerg. Thank you, Mr. Chairman. Mr. Chairman, 
Senator Breaux, I am pleased to be here today to discuss the 
Pension Benefit Guaranty Corporation's management of its 
contracting responsibilities.
    The Corporation relies heavily on contractors to perform 
its functions, spending over 60 percent of its operating budget 
on contracting. In fact, contractors comprise half the PBGC 
workforce and staff all of its field operations.
    Today, I would like to focus my remarks on three aspects of 
PBGC's contract management, the basis for PBGC's decision to 
use contractors, the contractor selection process and 
monitoring contractor performance. My testimony summarizes 
results of work we have done over the past year at PBGC 
headquarters and at field locations, and this work is discussed 
in more detail in our report released today by both committees.
    First, the decision to use contractors. PBGC's contracting 
decisions have been heavily influenced by rapidly increasing 
workloads. In the mid-eighties, bankruptcies at LTV Steel, Pan 
American Airlines, and other large corporations more than 
doubled the number of pension beneficiaries under PBGC 
administration. Rather than request new Federal hiring 
authority during what was then a period of Federal downsizing, 
the Corporation moved quickly to bring in contract help. Over 
time, PBGC continued to use contractors to address a growing 
backlog of work.
    Although the outlook for PBGC workloads has changed over 
time, the Corporation continues to rely heavily on contractors. 
Use of contractors in the past, indeed, helped PBGC address a 
growing workload, but today things look different. Improvements 
in plan funding, changes in pension law and a declining number 
of defined benefit plans all suggest changes in PBGC's future 
workload. Accompanying changes in staffing levels and 
organizational structure may be warranted and should be 
considered in the Agency's planning efforts. However, PBGC 
lacks a blueprint for organizing its contractor and Federal 
staff to meet current and future needs cost-effectively and 
risks being unprepared for a changing future pension 
environment. We believe that this must change.
    My second point deals with contractor selection. In our 
review of PBGC's most recent field services procurements, we 
identified weaknesses that could affect competition which, in 
turn, could cause PBGC to pay too much for these services. 
While PBGC competed operations at four field locations in 1997, 
it continued its practice of making sole-source awards in seven 
other field locations. PBGC asserts that the incumbent 
contractors are uniquely qualified, but we found no indication 
that the Agency conducted the outreach or market research 
necessary to assure that, indeed, no other providers would 
qualify.
    And in the four field locations where the procurements were 
competed, we found other weaknesses that may have affected 
competition. PBGC consolidated requirements for three 
geographically remote contractor offices into a single 
procurement and excluded the services for the fourth office 
from the consolidation. Corporation staff stated that requiring 
the successful offeror to perform at all three locations would 
not restrict competition, but simultaneously acknowledged that 
the fourth site was kept separate so that the incumbent 
contractor could compete. PBGC did not provide a sound 
rationale for structuring the procurement this way, and in the 
end, incumbent contractors won these bids. PBGC could have done 
more to ensure competition in these instances, and by 
extension, ensure more cost-effective contracts.
    I just give these as examples of our findings. We have 
detailed several more concerns with contractor selection in our 
report. In addition, we also obtained information that involved 
possible improprieties and referred it for investigation, an 
investigation which is the subject of Mr. Hast's statement 
today.
    Finally, let me turn to contract monitoring. In recent 
years, PBGC has taken actions to better oversee its contractors 
in field locations. However, we identified several key 
management weaknesses, including a lack of centrally compiled 
field location data that we feel is necessary to truly monitor 
performance, deficiencies in field office quality reviews and 
an organizational alignment that could affect the objectivity 
of contract review. Such weaknesses left uncorrected could 
affect the Corporation's ability to monitor and hold 
contractors accountable for their performance.
    In our report, we have recommended a number of actions 
that, based on our work, we believe would improve PBGC's use of 
contractors. The Corporation has said it agrees with most of 
our recommendations and plans to act in several areas to 
improve contract management. And, indeed, absent meaningful 
action, PBGC risks being unprepared for future workloads, risks 
contracts that cost too much for too little and ultimately 
risks a deterioration of service to plan participants.
    Mr. Chairman, that concludes my statement. I ask that my 
written statement be submitted to the record, please, and I 
would be happy to answer any questions.
    [The prepared statement of Ms. Bovbjerg follows:]

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    The Chairman. Let me make clear that everybody's written 
statement, if it is longer or different than your oral remarks, 
are automatically included in the record.
    Now, Mr. Hast.

  STATEMENT OF ROBERT H. HAST, ASSISTANT COMPTROLLER GENERAL, 
   OFFICE OF SPECIAL INVESTIGATIONS, U.S. GENERAL ACCOUNTING 
                     OFFICE, WASHINGTON, DC

    Mr. Hast. Chairman Grassley and Senator Breaux, I am 
pleased to be here to discuss the investigation you requested 
into the alleged contracting irregularities at the Pension 
Benefit Guaranty Corporation. As a result of information and 
documentation obtained by Ms. Bovbjerg's group during its 
previously discussed review of PBGC, she referred certain 
contracting irregularities to us. Those irregularities appear 
to involve improprieties or potentially illegal activity.
    We investigated whether PBGC's award of two contracts to 
Integrated Management Resources Group was improper. The two 
contracts, an auditing contract and a field benefits 
administration contract for the FBA office in Atlanta, GA, were 
worth approximately $40 million combined. Specifically, we 
investigated allegations that Bennie L. Hagans, PBGC's Director 
of the Insurance Operations Department, which oversees the 
administration of FBA, had improperly influenced the award of 
these contracts to IMRG. IMRG has been owned and operated by 
Myrna Cooks since April 1997, when she resigned from Office 
Specialists, a PBGC contractor. Ms. Cooks had been a Manager 
and Vice President of Office Specialists, which at the time of 
her resignation held the two contracts we investigated.
    In brief, Mr. Hagans' actions demonstrated a lack of 
impartiality with respect to IMRG and created the appearance of 
improperly influencing the award of the two contracts in 
question. What follows is some of the evidence we discovered. 
IMRG was awarded its first contract, an auditing contract, on 
October 10, 1997. It had an estimated maximum value of almost 
$14 million. However, between the time she left Office 
Specialists and was awarded her first contract, 34 telephone 
calls were logged from either Mr. Hagans' PBGC office telephone 
or his PBGC cellular telephone to Ms. Cooks' home, the location 
of IMRG.
    Ms. Cooks told us that she had both received many calls 
from Mr. Hagans and made many calls to him during this period. 
For example, on July 10, 1997, after IMRG submitted its 
auditing contract proposal, PBGC phone records show two calls 
were made from Mr. Hagans' office to Ms. Cooks' hotel room in 
Atlanta. Hotel records indicate four calls from Ms. Cooks' 
hotel room to Mr. Hagans' hotel after he had arrived in Atlanta 
the same day. Two of these calls were made on the evening of 
July 10th. The second two were made early the next morning at 
5:50 a.m. and 6:33 a.m., just before Mr. Hagans visited the 
Atlanta office of Office Specialists.
    Ms. Cooks told us she was in Atlanta to recruit Office 
Specialist employees for IMRG and that the purpose of the hotel 
room calls were to request Mr. Hagans to intercede with Office 
Specialists' management to stop them from interfering with 
their employees' discussion with her about possible employment 
with IMRG. Ms. Cooks told us that Mr. Hagans resolved this 
problem for her. She also stated that her other calls with Mr. 
Hagans concerned personnel problems at Office Specialists, but 
she was unable to detail what she meant by this. Mr. Hagans 
also cannot explain the content of the many phone conversations 
he had with Ms. Cooks.
    Additionally, on or about August 29, 1997, after IMRG had 
submitted its contract proposals, but before the auditing 
contract was awarded that October, Ms. Cooks met with an 
officer of a Maryland bank to seek financing for IMRG. We 
interviewed the bank officer who processed the loan application 
and reviewed the loan file with his contemporaneous notes and 
memos of contacts with Ms. Cooks and Mr. Hagans.
    According to the bank officer and his notes, Ms. Cooks 
informed him that she was competing for the PBGC contracts held 
by Office Specialists. The bank officer told Ms. Cooks that 
before approving the loan, he wanted assurances directly from 
PBGC officer responsible for awarding the contracts that IMRG 
would be awarded the contracts she claimed to be taking over 
from Office Specialists. In response, Ms. Cooks provided Mr. 
Hagans as a reference. The bank officer stated that after he 
had a telephone conversation with Mr. Hagans, he was convinced 
that Ms. Cooks' claim was truthful. PBGC telephone records show 
a 16-minute telephone call from Mr. Hagans' office to the bank 
officer on September 9, 1997.
    In October 1997, Ms. Cooks notified the bank officer that 
IMRG had been awarded only the audit contract of the three she 
had bid on. The bank officer told her that he could not 
understand why she was unsuccessful getting the other two. In 
response, Ms. Cooks asserted that Office Specialists had 
substantially underbid IMRG. Ms. Cooks also told the bank 
officer that Mr. Hagans had pledged to give IMRG $3 million in 
additional work from the savings between the IMRG and Office 
Specialists bids. Ms. Cooks also told him that PBGC was acting 
to remove Offices Specialists from the Atlanta FBA contract for 
nonperformance, and that once this occurred, the Atlanta 
contract would be given to IMRG. This is reflected in the bank 
officer's memo to support approving the loan.
    The bank officer's memo also reflects his very frank 
discussion with Mr. Hagans in early September 1997, about IMRG 
and Ms. Cooks. In that discussion, Mr. Hagans said that he 
campaigned continuously for Office Specialists' removal from 
all three contracts in favor of Ms. Cooks. It continued that 
Mr. Hagans was a very big fan of Ms. Cooks and politicked 
within the Agency for her company to receive the bid.
    After we presented Ms. Cooks with the above evidence, she 
claimed no knowledge of the statements attributed to her and 
was not aware that the bank officer had contacted Mr. Hagans, 
even though she had used him as a reference. Mr. Hagans told us 
that he did not know that he was listed as a bank reference and 
did not remember speaking to the bank officer. He added that if 
he had spoken with the bank officer, that it may look wrong 
and, in hindsight, it would have been bad judgment.
    This concludes my prepared statement. I will be happy to 
respond to any questions of you or other members of the 
committee. Thank you.

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    The Chairman. Thank you, Mr. Hast.
    Now, Mr. Strauss. You might want to pull the microphone a 
little bit closer to you.
    Thank you.

  STATEMENT OF DAVID M. STRAUSS, EXECUTIVE DIRECTOR, PENSION 
          BENEFIT GUARANTY CORPORATION, WASHINGTON, DC

    Mr. Strauss. Thank you, Mr. Chairman. I appreciate the 
opportunity to respond. I am a notorious micro-manager, and so 
it is killing me not to be able to take each one of these items 
and respond to each with some specificity.
    Mr. Chairman, I was grateful for the opportunity to meet 
with your staff for about an hour-and-a-half last week to go 
over many of these issues in much greater detail. And, because 
of your time constraints today, what I would like to do is 
limit myself to four points this morning. I have five charts 
here which I think will help us with some of the mind-numbing 
complexity. So my charts will probably be helpful in terms of 
answering some of these questions.
    The four points that I want to make, Mr. Chairman, are, 
first, I want to publicly apologize to Dr. Wilde for the way we 
handled his mother's case. She should not have had to go 
through this upsetting experience, and for that I am very 
sorry. And, Mr. Chairman, I want to assure you that shortly 
after Dr. Wilde's mother received that erroneous check in 1997, 
we fixed the glitch in what was then a new computer system to 
prevent this kind of error from ever occurring again.
    Mr. Chairman, some of the details in Dr. Wilde's testimony 
about the phone calls to PBGC are very disturbing to me, and I 
want to assure you that I want to find out exactly what 
happened in each case and report back to you because I want you 
to know that in every office of the PBGC and every contract 
office, and you can go into the Waterloo office, you will see 
our service pledge posted on the wall. Calls are to be 
responded to in 24 hours. Letters are to be answered within a 
week, and I think that this has become an important part of our 
culture. And so, if there are problems with PBGC phone calls, 
that would be something that would be of great interest to me, 
and I want to assure you that I will investigate this 
personally and report back to the committee.
    Second, witnesses at today's hearing have raised questions 
about specific contracts with the Integrated Management 
Resources Group. Mr. Chairman, I want to make two comments 
about these allegations. One, I would never tolerate, for one 
moment, the kind of conduct contained in these allegations, and 
I want the committee to know that. Second, over the last 3 
years, the GAO, the Department of Justice, the PBGC's Inspector 
General and the PBGC's General Counsel have all conducted 
investigations and no one has been able to substantiate any of 
these allegations of misconduct. And so I want you to know that 
this is something that we have looked at for 3 years. I have 
looked at these procurements myself. I spent a day-and-a-half 
looking at each one of these procurements, and none of these 
allegations have been substantiated.
    I want you to know that we continue to cooperate fully with 
all of these investigations. And, today, I am submitting for 
the record a full report on this matter, which was prepared by 
PBGC's General Counsel.
    Mr. Chairman, I want you to know that I remain confident in 
the integrity of our employees, and I am satisfied that we are 
correctly following the Federal Acquisition Regulation process. 
While I have not had the opportunity to see the OSI report 
released this morning, I welcome anything, any further review 
that will finally put these allegations to rest.
    The third point that I want to make is to correct any 
misimpression from the earlier testimony that there is a delay 
in our participants receiving their benefits and that a delay 
in receiving these final determination letters has anything to 
do with our adherence to our ERISA statutory mandate, which is 
to provide continuous and uninterrupted benefits to each of the 
participants in these PBGC plans. Let me assure you that, when 
we take over a plan, we pay retiree benefits without 
interruption. And, as other participants become eligible for 
benefits, we pay them without delay. In other words, no 
participant ever has to wait to receive their benefits.
    Mr. Chairman, I have attended almost 100 participant 
meetings and personally met with over 8,000 PBGC participants, 
and many of them are like Mr. Parks here. I mean, I have heard 
those same concerns, and I am acutely aware that the primary 
concern of these individuals is to receive their benefits 
promptly. And each month the PBGC pays over $75 million in 
benefits to more than 215,000 participants. As I explained in 
great detail in my written testimony, the benefit amounts 
participants receive are considered to be estimated. And before 
we can calculate final benefits, we must satisfy the 
requirements of ERISA by verifying all of the plan records and 
participant data. In most cases, as with Mr. Parks, and I am 
very sympathetic with Mr. Parks, there is little or no 
difference between the estimated benefit and the final benefit 
amounts.
    The other misimpression that I want to correct is with 
regard to benefit estimates. Benefit estimates have been a 
passion of mine at the PBGC. And I want you to know that you 
can call us up, and we can give you a ballpark benefit estimate 
in 5 minutes. And so, if someone is 20 years away from 
retirement and we have just trusteed a plan, and they are 
wondering what the benefit might be, we can give you a ballpark 
benefit estimate in 5 minutes. If you are getting closer to 
retirement and it is important for you to have a precise 
benefit estimate, we now can provide those precise benefit 
estimates within 15 days.
    Over the last 25 years, during the history of ERISA, 
obviously, technology has changed dramatically. We have much 
better technological tools now that help us to do these things. 
And I just want you to know that there should be no concern on 
the part of any PBGC participant about benefit estimates. You 
can get a ballpark one in 5 minutes. If you want a precise one, 
we can give it to you within 15 days.
    My final point, Mr. Chairman, is that your committees, the 
PBGC's Inspector General and the GAO have made a number of 
recommendations over the past several years concerning PBGC 
benefit determinations, contract management and computer 
security. Mr. Chairman, we found these recommendations to be 
most helpful. I am pleased to report to you that we have 
already implemented most of them, and we are following up on 
the rest. And as you know, Mr. Chairman, we have been reporting 
monthly to your committee on our computer security efforts. And 
as promised, we will complete our corrective action plan by 
September 30.
    With that, I want to thank you, again, Mr. Chairman, for 
giving me an opportunity to appear this morning, and I welcome 
your questions.
    [The prepared statement of Mr. Strauss follows:]

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    The Chairman. Thank you. If it is OK with Senator Breaux, I 
think what we will do is, even though there are only two of us 
here, do 5-minute turns so if other members come in, they will 
not miss a chance. So will the staff make sure that I do not 
take more than 5 minutes, at least in the first round.
    Mr. Parks, I have already said how you are assisting a 
friend during a time of ill health, and so I want to thank you 
for coming here away from that trying time for you. Today, you 
testified that PBGC's delays and absence of communication 
caused uncertainties about your benefits since April 1996. I 
know you finally received your final benefit notice just last 
month. Do you know whether all of the 250 kwik-way participants 
have received a determination of their benefits as well?
    Mr. Parks. Mr. Chairman, I do not know if all. I have 
checked and quite a number of them have and all approximately 
at the same time that I received mine. But I am sure there are 
others that received it as well.
    The Chairman. Do you have recommendations for the PBGC on 
how it can improve communication with participants once it 
assumes responsibility for the administration of a plan?
    Mr. Parks. Well, without desiring to offend anyone, I have 
to--refer to the 17 attachments to my testimony which clearly 
indicate that we have telephone calls that are not responded 
to, we have letters that are not answered. It would seem to me 
that just the common courtesy of proceeding to respond to those 
would be a step in the right direction.
    The Chairman. So the 24-hour rule that Mr. Strauss has 
referred to is not necessarily followed in the people you have 
had contact with.
    Mr. Parks. That is correct, sir.
    The Chairman. To Inspector General Poll, in your November 
24th, 1998, report, and it was titled, ``Pension Plan 
Participants Impacted by Delays in Initial Determination Letter 
Issuance,'' the Corporation asserted a 3-year goal for 
processing plan determinations, as adopted in its Results Act 
Strategic Plan. Has that goal been achieved?
    Mr. Poll. I have not had a chance to audit that particular 
situation at this point in time. Because of the last follow-up 
report, we had indicated that it takes about 7 years or 6 to 7 
years to be able to produce that. That is something that is on 
my radar screen to be doing in the future.
    The Chairman. Is it fair to say that if the Corporation 
supplied the necessary human resources to gather participant 
information and facilitate actuarial valuations of plan 
determination, that the Corporation would be able to meet this 
3-year goal?
    Mr. Poll. I think it certainly is possible. I think you 
have to arrange your resources, as you had indicated, and also 
have the proper systems in place to be able to do that. But, 
again, I have not looked at that. And there are probably some 
additional efficiencies that could be derived from 
reengineering their process or looking at their processing in 
different ways.
    The Chairman. Mr. Strauss, how long does it take?
    Mr. Strauss. How long does it take us to do these final 
benefit determinations? I am sorry, Mr. Chairman?
    The Chairman. Yes, that is right, and particularly in 
regard to the 3-year goal that you have set.
    Mr. Strauss. What I can tell you, Mr. Chairman, is that, 
for plans that we are taking in today, we should be able to 
meet the 3-year goal.
    The Chairman. I want to visit with you, Mr. Strauss, about 
the actuarial valuation completion date. Can you explain why it 
can take a year or more to issue the letter after--and I want 
to emphasize after--the valuation is complete? Because it seems 
to me that once all of the hard work is done, then the letter 
could go out immediately.
    Mr. Strauss. Mr. Chairman, up to now, our most important 
task has been to work down these backlogs. And I think that 
this is where my charts would be helpful.
    The Chairman. OK. Take your time.
    Mr. Strauss. To try to make some sense out of this for the 
committee, I think that there are a couple of charts here that 
will be helpful in terms of understanding this process. I do 
not want to say anything here that would reflect poorly on my 
predecessors in any way, because when ERISA was passed in 1974, 
our statutory mandate was to provide continuous and 
uninterrupted benefits to the participants in the plans that we 
trusteed. And so the Corporation's critical priority was to 
make sure that participants were paid.
    And so you see here, in 1994, the average age of the oldest 
plans in our inventory are about 20 years because the priority, 
up to this time, has been to make sure that when we trustee a 
plan we put the participants in pay status. And so doing the 
final benefit determinations was never a Corporate priority. 
Now that we have been able to work down this backlog, and 
thanks to improved technology, you can see that we are making 
pretty steady progress here in terms of working down this aging 
inventory.
    And while this is going on, Mr. Chairman, you can see from 
my second chart here that the number of final benefit 
determinations that were produced each year was somewhere 
around 10,000, 15,000, 20,000. For the last 6 years, we have 
been able to push out about 60,000 final benefit determinations 
each year. And so I think that we have been able to take 
advantage of these perfect economic conditions, where we have 
not been taking in large plans, to work down these historical 
backlogs. And as you can see, we have improved our output.
    The Chairman. Let me follow up before you ask your first 
question because I think it fits right in here, a continuation.
    Now, you have asserted that in fiscal year 1999 the average 
age of the IDLs issued after date of trusteeship was five and 
seven-tenth years. Now, the Inspector General stated in his 
written testimony that the Corporation uses a standard 
averaging method which masks the number of letters, IDLs, that 
take longer to process. So I would like to give you an 
opportunity to respond to that statement. The five and seven-
tenth years is the average age of the IDLs that were issued in 
fiscal year 1999, so half took longer than that, and obviously 
took a much shorter time; is that correct?
    Mr. Strauss. Mr. Chairman, I think what I would like to do 
on this point is to provide you with detailed information for 
the record that explains all of these various numbers. Even I, 
as the Executive Director of the Corporation, can tell you 
generally the progress that we are making and that the age of 
the inventory has come down dramatically, that we are doing 
these benefit determinations much faster, and that we are 
producing many more of them each year. But once we get beyond 
that level of detail, what I would like to do is provide for 
the record answers to the more detailed questions, if you would 
be so kind.
    The Chairman. That is OK. Could you be specific on this, 
though, whether or not the average includes some IDLs that have 
been issued or all IDLs in your backlog?
    Mr. Strauss. Yes, sir, I would be happy to provide you with 
whatever specificity would be helpful.
    The Chairman. Senator Breaux.
    Senator Breaux. Thank you very much. I thank all of the 
panelists for their presentations.
    Mr. Parks, I apologize for the difficulties you have had. I 
was impressed with the fact that when you got the check and 
thought it was not a correct amount, you sent it back. I know a 
number of my constituents who have accepted it, cashed it and 
then called me up to try and find out a way for them to keep 
it. [Laughter.]
    And to your credit, you did the right thing, and hopefully 
things will work out.
    I take it that after all of this, you ended up getting 80 
cents a month more; is that in your testimony?
    Mr. Parks. I think it is 83 cents, yes.
    Senator Breaux. Eighty-three cents more. So I guess the 
good news and bad news--the bad news, it took so long to get 
the final determination, but the good news is was not far off 
the initial target.
    Mr. Parks. I would comment, just for the edification of the 
committee, that all of this was transpiring in our lives, our 
corporate lives, as a result of a reorganization in 1992 which, 
incidently, was successful. But a lot of us, myself included, 
at that point in time were in an insecure status because we put 
everything we could find, beg, borrow or steal, into 
reorganizing and supporting the company.
    Senator Breaux. Sure.
    Mr. Parks. So having any additional insecurity, we really 
did not need.
    Senator Breaux. And, Mr. Poll, it was interesting to see, I 
mean, we are all struggling, and we are trying to make certain 
that all of our computer systems are secure. We have seen this, 
the top of the news lately is with regard to what we do with 
our computers. And your job, I guess, is to check various 
Federal agencies to see how we are doing in this regard.
    What you found at the Corporation, do you think it was in 
much worse condition, about the same or better than most of 
them that you are looking at? I think we are all struggling to 
make sure that our computer systems are secure, and all of 
these are very important. Do you have a comparison of what you 
have found here in comparison to, perhaps, other agencies?
    Mr. Poll. The only comparison I would have is what I read 
in the newspapers because I----
    Senator Breaux. Oh, Lord. [Laughter.]
    Mr. Poll. Which I do not take, you know, with much stock 
in.
    Senator Breaux. But from your personal looking and your 
Department, you do not have enough to compare----
    Mr. Poll. We do not look at other agencies and things of 
that nature dealing with any security--computer security. What 
we did find, I felt it was serious, and I notified the 
Corporation as quickly as I could about the results of the 
tests that we conducted. And they agreed with us that it was 
serious. Because when you kind of hang your keys out there 
outside your house and say, ``Come on in,'' and that is one 
serious problem, and that is what they basically did.
    And the other thing that we----
    Senator Breaux. So the--I am sorry.
    Mr. Poll. The other thing is that we did hack into the 
system, not using through the Internet, but other means, and we 
were able to be in there for about a 2-week period undetected 
by anyone in the Corporation. And we could have conducted 
serious damage on any of the IT systems that they had. We could 
have downloaded information. But that was not the objective. 
The objective was to get into the system and see if there were 
holes and then report that. And that is what we did.
    Senator Breaux. Thank you. You say on Page 6 that, in 
response to these findings that you made with this 
investigation, that the Corporation management has developed 
both high-level and detailed corrective action plans to address 
the weaknesses that was identified, and they are required to 
report on their actions monthly. Is that being done? I mean, 
the report period, are they reporting back to you? Are you 
continuing to monitor and check whether the recommendations are 
being followed or not?
    Mr. Poll. I could validate that I have been to just about 
every meeting they have had once a month, where the people who 
are working on fixing the problems report to Executive Director 
Strauss. And it seems like it is progressing along.
    Senator Breaux. You all have actual meetings? I mean, this 
is just not----
    Mr. Poll. Yes. He has actual meetings where they present, 
and I have gone behind, and I have done some checking, some 
verification, validation of it. But it is not quite 9/30 yet, 
so they have not really completed everything. And once that is 
done, and I have spoken to the committee's staffers, and I have 
suggested that I will write a report as to what my opinion as 
to how they did comply with those recommendations that we had 
made.
    Senator Breaux. Thank you. Ms. Bovbjerg, in your GAO 
recommendations and with regard to contracting and 
organizational field structures, I take it that you all have 
made a series of recommendations after you have identified the 
problem areas. Can you tell the committee how were those 
received? I mean, has there been a cooperative relationship or 
a negative relationship, if you will, dealing with GAO's 
findings with regard to the Corporation?
    Ms. Bovbjerg. We have printed in our report a copy of Mr. 
Strauss's letter to us, the Agency comments, as a result of the 
draft report we sent him. And I think they are very detailed 
and largely positive. They agree with us on most of our 
recommendations and most of our findings. We detail where there 
are some disagreements and have stated that there are things 
that they will be doing in the near future that should address 
many of our points.
    Senator Breaux. GAO, gosh, we deal with GAO all of the 
time, particularly in the committee that is chaired by Chairman 
Grassley, and very helpful to us, do you all do a follow-up 
role normally with your recommendations with the groups that 
you do these recommendations to?
    Ms. Bovbjerg. Yes, sir, we do. We keep track and work with 
the agencies.
    Senator Breaux. And that is being done in this case.
    Ms. Bovbjerg. It will be, yes.
    Senator Breaux. Mr. Hast, thank you for your testimony. I 
guess, when you were looking into some of the specific 
contracting questions that you have looked at, you said that 
there has been an appearance of improperly influencing the 
award of two contracts, I take it your testimony is that that 
has now been turned over to the appropriate people in Justice, 
I guess, for them to look at it.
    Mr. Hast. We have not yet, but at the conclusion of this 
hearing, we will meet with Justice and give them this 
investigation.
    Senator Breaux. And then they take it from there and do 
their investigation, I take it, and then you all sort of move 
back at that point?
    Mr. Hast. Yes, sir.
    Senator Breaux. And that will be done.
    Mr. Hast. That will be done.
    Senator Breaux. Mr. Strauss, I guess what you are saying, 
everybody wants to know what their pension is going to be as 
quickly as they can. This chart, I take it, shows me that, in 
1994, that is 20 months--20 years----
    Mr. Strauss. Twenty years.
    Senator Breaux. What does that mean? Twenty years in 1994 
what?
    Mr. Strauss. What this means is that in 1994, the oldest 
plans in the inventory with incomplete benefit determinations 
were about 20 years old.
    Senator Breaux. That means that people were receiving their 
pensions in 1994, they just had not gotten a final 
determination----
    Mr. Strauss. They had not gotten their final benefit 
calculation.
    Senator Breaux. And that 20 years was the age of the 
longest number of pensioners that had not received a final 
determination or was that the average?
    Mr. Strauss. Yes, the oldest plans in the inventory.
    Senator Breaux. Were 20 years without getting their final 
determination.
    Mr. Strauss. Right. And now the oldest plans in the 
inventory are about 5 years old.
    Senator Breaux. So those people that have not gotten a 
determination, a final determination, after 5 years are still 
monthly getting an estimated pension every month?
    Mr. Strauss. That is correct, Senator. The ERISA statutory 
mandate is that we provide these participants with a 
continuous, uninterrupted payment from the moment we take these 
plans over.
    Senator Breaux. And explain to the committee what happens 
if the final determination that they are entitled to is more 
than they had been getting or less than they had been getting, 
what happens.
    Mr. Strauss. If the final benefit is more, then we make up 
the difference, plus interest. If the final benefit is less, if 
they were getting more than they were entitled to, then we have 
a very liberal recoupment policy.
    Senator Breaux. That is when they call their Congressman. 
[Laughter.]
    Mr. Strauss. Senator, we have actually worked with this 
committee and made changes in our recoupment policy, as a 
result of the interest of this committee.
    Senator Breaux. I guess, and I have dealt with these things 
on Social Security, when someone has had a determination that 
they have gotten too much and then the Government tries to get 
the money back, and they find that they are sort of, I mean, 
they are destitute or there is just no way they are going to 
pay it back, we attempt to try and work something out with 
them. Does the same thing----
    Mr. Strauss. Right. And under no circumstances would we 
recoup more than 10 percent a month. So no one would have their 
benefit cut----
    Senator Breaux. My final question, if it is about 5 years 
now, and it used to be twenty years for the age of the oldest, 
what is the goal? I mean, is that about as best we can do, 
considering the bankrupt plans that we take over, or is there a 
goal to get it down further than that?
    Mr. Strauss. We believe that for the plans that we are 
taking in today that we will be able to get these final benefit 
determinations issued within 3 years.
    Senator Breaux. Three years, OK.
    Thank you all. I thank all of the members of the panel.
    Thank you, Mr. Chairman.
    The Chairman. Thank you.
    Senator Bond.
    Chairman Bond. Thank you very much, Senator Grassley. And 
my apologies. I had commitments this morning until 9 o'clock 
which prevented from being here. But I am glad we have this 
hearing, and I have already submitted a statement for the 
record, so I will not enlighten and thrill you with my opening 
statement. That will be part of the record. I know you are 
really disappointed in that, but I would like to get on with 
the questions.
    The Chairman. It is a real shame.
    Chairman Bond. I could read it if you want to. [Laughter.]
    The Chairman. That is OK.
    [The prepared statement of Chairman Bond follows:]

                  PREPARED STATEMENT OF CHAIRMAN BOND

    This morning we continue our on-going look at the Pension 
Benefit Guaranty Corporation with a hearing to assess where we 
stand on several issues that have been under review by the 
Small Business Committee and by the Special Committee on Aging.
    At the end of the day, the PBGC has one key deliverable 
item. That is the Initial Determination Letter (or IDL) that it 
sends to pensioners of failed plans. The IDL is the definitive 
statement of benefits that pensioners will receive. It states 
the level of benefits that the PBGC insures under the law, 
given that the pension plan itself has failed and that its 
assets are likely unable to deliver the level of benefits that 
would have been provided if the plan had not failed.
    As Senator from Missouri, I am concerned about unnecessary 
delays in issuing IDLs. Missouri has a substantial retired 
population. The Lake of the Ozarks area has long been a popular 
place for retirees to enjoy after a long career of hard work. 
If IDLs are not issued promptly, these retirees can be directly 
affected, as today's hearing will show.
    However, as Chairman of the Senate Committee on Small 
Business, I am also interested in seeing that small businesses 
get what they pay for when they pay insurance premiums to the 
PBGC. The PBGC finances its operations (which include 
monitoring of endangered plans, as well as closing out those 
that actually fail) by charging premiums based on the number of 
pension plan participants. If those funds are not spent 
effectively, this means that small business is paying a fee and 
not getting enough value from it. That directly affects the 
ability of small businesses to offer defined-benefit pension 
plans to their employees.
    In addition to those broader issues, I as Chairman am also 
interested in the issues surrounding the support functions at 
PBGC, such as computer security and especially contracting. 
Computer security illustrates a number of issues facing not 
only the PBGC but also other agencies, such as the Small 
Business Administration. All agencies of government have a 
continuing battle to keep a little distance ahead of the 
hackers. These range from hackers who delight in causing 
headaches and mischief, to those who seek to steal personal 
information to perpetrate identity thefts, to those who are 
intent upon ripping off the Government.
    With respect to contracting, the Small Business Committee 
has a long-standing commitment to enhancing small business 
participation in procurement. Although the rules governing the 
PBGC are not necessarily the same as those that apply to the 
regular Executive Branch purchasing agencies, the PBGC 
nevertheless highlights a number of the broader procurement 
problems.
    As the General Accounting Office will tell us, the PBGC has 
not done enough oversight of the contractor personnel at its 
Field Benefit Administration offices. They have not collected 
performance reports on an office-by-office basis, making it 
impossible to assess the past performance of incumbent 
contractors. GAO will also point to the PBGC's market outreach 
and research efforts, which may have done the minimum work 
necessary under the law without providing the kind of effort 
that enhances competition and ensures small business 
participation.
    It is vital that contracting be done in an ethical manner 
with the broadest possible outreach to small business. We have 
heard countless times from small business that they think some 
procurements are already ``wired'' for a predetermined 
contractor. If the PBGC does a better jobof outreach to small 
business and does a better job of assessing the performance of 
incumbent contractors, the PBGC can help allay those fears, 
enhance competition, and deliver better quality services to the 
pensioners who rely on it.
    Ultimately, however, these supporting functions of 
contracting and computer security are simply pieces of the 
overall puzzle. Done poorly, they impede the overall mission. 
Done correctly, they help the PBGC do its job effectively. In 
the eyes of pensioners, though, the central job is the IDL--the 
ability to resolve failed plans quickly and with the minimum 
disruption to the retirees who often have little else to rely 
on to pay their bills.
    Chairman Grassley, I thank you for your long-standing 
interest in the PBGC and for your cooperation and assistance in 
our joint oversight efforts.

    Chairman Bond. Mr. Poll, I understand that you gave the 
PBGC management advance warning that you intended to do a 
penetration study; is that correct? And when did you do that?
    Mr. Poll. I did give the Corporation management advance 
warning, basically, orally, that I was going to do a 
penetration study. I did not give them the exact time and date, 
but they did know. I did indicate that to at least three 
people, that I remember. And we did the penetration study, and 
then we gave them the results. I also have suggested to them 
recently, again, that I may retest, again. And they do not know 
when that is going to happen, but I may retest again.
    Chairman Bond. You were able to crack into the system; is 
that correct?
    Mr. Poll. Yes, we did.
    Chairman Bond. What could an unauthorized hacker do if they 
got access to----
    Mr. Poll. An unauthorized hacker could be in the system. If 
they are not detected, they would get quite a bit of 
intelligence from the system on how to, for example, get into 
the password files. We did. We got into the password files, and 
we had just about everybody's password when we did that. We, 
also, could have downloaded every piece of information they had 
in these systems, and we do not think, at that point--they are 
a little more aware now--but at that point, we think we could 
have downloaded all kinds of sensitive information, participant 
information and other information, financial, also, and they 
would have not known it had gone out of their system and 
outside.
    Chairman Bond. Was this one where you could have put a 
phony recipient into the system?
    Mr. Poll. I believe, yes, that we could, with the systems 
administrator access that we had. Because the systems 
administrator access is up here. The Corporation has indicated 
that they have controls. The controls are down here. Systems 
administrator access can manipulate those controls because they 
are the owner or the individual who has the security on the 
system. So that is a real vulnerability.
    Chairman Bond. But did PBGC detect that you were in there 
after a certain time?
    Mr. Poll. No, they did not, not during the test.
    Chairman Bond. You came and went and there was no--you left 
no----
    Mr. Poll. We came and went several times----
    Chairman Bond. No footprints.
    Mr. Poll. We did it from a remote dial-up, which is through 
a modem, and we attached to a modem and got in. And we also 
came into the Corporation, went to a conference room, and we 
were able to get into the system while onsite.
    Chairman Bond. Let me change to another aspect. Why did 
your office decide to refer to the Office of Special 
Investigation at the GAO, the matter of the $40 million in 
contracts?
    Ms. Bovbjerg. The focus of the work that I was leading was 
really management of the contracts and planning. It is a 
different focus than a criminal investigation. When we were 
presented with information that, because we are not criminal 
investigators, we didn't know how to handle it, we turned it 
over to Mr. Hast.
    Chairman Bond. Mr. Poll, I understand that you initiated an 
investigation in the $40 million in contracts a year or two 
ago; is that correct?
    Mr. Poll. We have looked at PBGC's contracts over many 
years. Yes, I think we did look into, if you are referring to 
the Office Specialists contract----
    Chairman Bond. Yes.
    Mr. Poll. Yes, we did look into that, and we do have some 
investigative issues.
    Chairman Bond. How often did Mr. Strauss contact you or 
seek input from you about the alleged contract steering matter 
that was discussed by the GAO and the Office of Special 
Investigations?
    Mr. Poll. Well, I would say that Mr. Strauss has not 
directly contacted me or discussed this investigation with me 
at all.
    Chairman Bond. Turning to Mr. Hast, Ms. Cooks needed to 
obtain resumes to respond to the PBGC's Request for Proposal; 
is that correct?
    Mr. Hast. Yes.
    Chairman Bond. Do you have any information regarding how 
Ms. Cooks obtained resumes for her response to the PBGC?
    Mr. Hast. By approaching people that were already working 
at Office Specialists, and I am sure there may have been 
others, but certainly by approaching people that were already 
working for Office Specialists.
    Chairman Bond. Mr. Strauss, again, welcome this morning. We 
are glad to have you here.
    Mr. Strauss. Thank you, Senator.
    Chairman Bond. When the New York Times asked about the 
results of the penetration study, you described our concerns as 
ludicrous and said, ``I would say we are on a very high state 
of alert here at the PBGC.'' Do you still believe that way?
    Mr. Strauss. I believe that we are on a very high state of 
alert. And the point that I was trying to make there is that 
many of the concerns that were raised were actually addressed 
in the report. Some of the issues that were raised were 
actually being addressed at that time, and that is the point 
that I was sort of unartfully trying to make.
    Chairman Bond. You advised the staff, both of the Committee 
on Aging and Small Business, that you were very active when the 
allegations reached you regarding possible problems in 1998 
with respect to the $40 million in contracts in question, yet 
the report prepared for you by the general counsel is dated 
about 3 days ago. Is that when that report was completed?
    Mr. Strauss. What I asked the general counsel for a summary 
of everything that had gone on up to that point. And so the 
summary was completed a few days ago to respond to the 
committee. But if you would just give me one minute on this 
issue since----
    Chairman Bond. Sure. I would be happy to.
    Mr. Strauss [continuing]. PBGC contracts are an issue for 
this committee.
    What I want to assure you, Senator, is that I, personally, 
have looked at these four or five procurements that have been 
an issue for this committee. And what I have prepared for the 
committee is the steps involved in the PBGC's contracting 
process and all of the checks and balances in that system. And 
I want to assure the committee that we follow the Federal 
Acquisition Rules, and that if you look at those steps 
carefully there is no one person, including the Executive 
Director at the PBGC, who can influence those contracts. There 
is a step-by-step process and I could go into each of these 
things in great detail.
    But I want you to know that it is not the head of the 
Insurance Operations Division, under No. 5 there, who picks the 
panel of technical experts, it is the head of the Procurement 
Operation at PBGC. And the way our culture works, these 
technical experts function very independently. And then when 
you look at the next step in the process there, then these 
technical experts get together, compare their findings, and 
they are required to come up with a consensus recommendation. 
And so I want you to know that for each of these procurements 
that are in question here, that I have reviewed them myself. 
And I believe that my employees are entitled to a presumption 
of innocence until the facts and the conclusions really support 
that there is some sort of wrongdoing I simply have not been 
able to find any, and I want you to know that I have gone over 
these procurements myself with a fine-toothed comb.
    Chairman Bond. Mr. Strauss, you say that there are system 
checks-and-balances in place and that it works. Mr. Hast, is 
that what you found?
    Mr. Hast. Well, I agree with Mr. Strauss that there should 
be a presumption of innocence until something is proven. I 
would say that our findings are that there is an appearance 
that these contracts were steered and that the checks-and-
balance systems that they have in place are not working very 
well. And I think we are going to refer our information, both 
to Mr. Strauss, the additional information we developed----
    Chairman Bond. That will be resolved in another forum.
    Mr. Hast. Yes.
    Chairman Bond. Mr. Hast, just very briefly, back on the 
resumes. Were the Office Specialists employees allowed to give 
Mrs. Cooks their resumes from the beginning?
    Mr. Hast. I am not absolutely sure.
    Chairman Bond. Could you just describe for us how Mrs. 
Cooks received the Office Specialists resumes.
    Mr. Hast. I was just told we were told during interviews 
that at the beginning they were told they were not allowed to 
give her resumes. There were some court actions going on 
between Office Specialists and Ms. Cooks and that that is when 
Mr. Hagans was called and asked to come to Atlanta and 
intervene, which he did. And once he intervened, they were able 
to give her the resumes.
    Chairman Bond. Mr. Hagans has intervened with Office 
Specialists----
    Mr. Hast. Yes.
    Chairman Bond [continuing]. To facilitate the delivery of 
the resumes of the Office Specialists employees to Ms. Cooks; 
is that correct?
    Mr. Hast. Yes.
    Chairman Bond. Turning to Mr. Poll, have you all had 
cooperation with the management of PBGC? How has your 
cooperation been?
    Mr. Poll. In general, Mr. Chairman, the Agency is resistant 
to us in certain areas of receiving information. Specific areas 
such as financial statement audits pretty much set out that 
that information is written down, and they know exactly what we 
are looking for.
    And audits and investigations requires several times to ask 
for the information to get it, and sometimes they like to get 
involved in telling us exactly what we should have, as opposed 
to what we want. And, also, some departments, like the General 
Counsel's Office, has instructed their staffs that they are not 
to speak to the IG or the IG's Office until they notify the 
general counsel and possibly getting some type of approval for 
doing that.
    So I kind of consider that to be a little bit resistant.
    Chairman Bond. Thank you, Mr. Poll.
    Mr. Chairman, I apologize for going over my time, but I 
appreciate the chance to ask the questions.
    The Chairman. Thank you very much.
    I will start with you, Mr. Strauss, on a second 5-minute 
turn here. And this is something I am going to want you to 
either respond to or clarify, if you would like to. You stated 
that your general counsel investigated the IMRG contracts. We 
requested a copy and received only a summary of the other 
investigations. I would like to read from the report that you 
provided to us. And so this would be from your general counsel 
to you, and I would read the bottom paragraph on the first 
page.
    ``Based on the extensive number of investigations that have 
taken place, my personal involvement in the various management 
inquiries and the checks and balances in the contracting 
process, I do not believe that any misconduct took place in the 
award of these contracts. In light of the IG's ongoing 
investigation, I would not recommend conducting an additional 
management investigation, either internally or using outside 
counsel, as is often done in the private sector. In my view, 
there is little we can do, at this time, other than to await 
the inspector general to complete his investigation.''
    And this is a follow-up of the litany of investigations you 
have said you have looked into that you referred to that there 
ought to be a presumption of innocence, and I do not disagree 
with that. But you were talking about all of the investigations 
you made and how you have looked into it, and you have your 
General Counsel here advising you just to wait for the 
Inspector General.
    Mr. Strauss. What I can assure the committee is that a 
number of these issues have been investigated. And so let us 
just take the 47 phone calls, for example. Needless to say, I 
hear these revelations about the same time the committee does, 
and so I am very interested in knowing what is going on. And a 
lot of this information exists somewhere in my organization, 
either the Inspector General has already looked at this or this 
has been part of some other investigation.
    And so when I heard that there had been 47 phone calls 
between Mr. Hagans and Ms. Cooks within a very short period of 
time, needless to say that was a concern of mine, and I wanted 
to know what the facts were. And I found that the facts were 
not that there had been 47 calls, but that there had been 34 
calls, and that 18 of these calls were a minute or less, and 
that these calls extended over an 8-month period. And then I 
saw a statement that had been prepared by Mr. Hagans, where he 
had tried to reconstruct what they were talking about in each 
of these phone calls.
    And so a bit of evidence here that seems very suspicious on 
the surface, when you really investigate what is going on here, 
there is a plausible explanation for it, and there was nothing 
that was proven that would indicate, in any way, that we are 
not following the Federal Acquisition Rules or Regulations to 
the letter. And I bet I, personally, investigated 15 different 
issues like that, where concerns were brought to my attention, 
and I investigated them personally and found out that there was 
a perfectly plausible explanation.
    The Chairman. Are there other general counsel reports not 
provided to us?
    Mr. Strauss. I have instructed my people to provide 
everything.
    The Chairman. Mr. Hast, during your investigation, did you 
review documentations prepared by the Corporation showing how 
the decisions were made to award the two contracts to the 
Integrated Management Resource Group, Myrna Cooks' company that 
you investigated?
    Mr. Hast. Yes. We reviewed the negotiation summaries for 
the auditing service contract awarded in 1997 and the Atlanta 
FBA contract awarded in 1998.
    The Chairman. Did you identify anything strange or unusual 
about the Corporation's decision to make these awards to the 
IMRG?
    Mr. Hast. We did. PBGC appeared to use disparate rationales 
in making its final selections for these two contracts. The 
scoring for each bidder was based upon a combination of 
technical evaluation points and cost analysis. In the first 
contract, valued at about $14 million, IMRG was not the low 
bidder, but was awarded the contract based on scoring 1.29 
points higher than Office Specialists in the technical 
evaluation, but IMRG was $590,000 higher in cost. PBGC 
justified the award to IMRG with higher costs based on the 
technical point difference that favored IMRG.
    However, for the second contract, valued at about $25 
million, IMRG was five points lower in the technical evaluation 
than its competitor, but it was about $685,000 lower in cost. 
In this case, PBGC justified the award based on the lower price 
by IMRG. PBGC's treatment of the evaluations and its 
justifications appear inconsistent with one another, and it 
adds to the appearance of improper influence used in awarding 
these contracts to IMRG.
    The Chairman. Mr. Hast, referral of criminal investigations 
obviously a very serious step. What do you believe to be the 
most appropriate way to proceed there?
    Mr. Hast. I believe that we should refer this to the United 
States Attorney's Office in Washington, D.C.
    The Chairman. Ms. McHenry, it has been represented by the 
PBGC that its contracts with highly specialized personnel were 
familiar with terminated plans that the PBGC administers. It is 
my understanding, for instance, that many of the Pan Am pension 
staff were hired by the contractor. Were you familiar with the 
particular plans with which you worked at the Atlanta office?
    Ms. McHenry. Not before I was actually employed there. But 
I am an actuarial analyst and quickly was able to come up to 
speed with these plans. There were only two, other than Barbara 
Mitchell, so that would make three former Pan Am employees who 
were actually actively working on Pan Am plans.
    The Chairman. What is your observations about the personnel 
that were hired by IMRG in regard to this work?
    Ms. McHenry. I think that the level of education is low, 
and I also believe that the way that the administrators were 
trained was very lacking in substance and competency.
    The Chairman. One last question of you, since I have had a 
series of questions. This will be the last one.
    You stated that one of your responsibilities at IMRG was to 
correct and reissue Initial Determination Letters sent out by 
the Corporation. Do you know what caused the PBGC to mail out 
so many incorrect IDLs?
    Ms. McHenry. I think they were in a great rush, and I think 
that the data that they were using was not properly checked 
because I had the same data and ability to see that data right 
in Atlanta, and I could see the correct information, but 
somehow the data base got scrambled or something happened to 
cause these various incorrect IDLs to go out. So it just was 
not managed correctly I just wanted to say that I, personally, 
witnessed pensioners waiting for as long as 6 or 7 months to 
get a first check. It was not a matter of just sending in an 
application and having IMRG respond to that in a prompt manner.
    The Chairman. Thank you, Ms. McHenry.
    Senator Breaux.
    Senator Breaux. Thank you very much. Let me explore two 
separate points here.
    Mr. Strauss and Mr. Hast had responded to the Chairman's 
question with a prepared, and I appreciate it being a prepared 
statement, because what you are talking about has to be very 
accurately presented here. Can we give you an opportunity to 
respond to the comments that Mr. Hast presented to the 
committee, which I guess, in essence, said that when he looks 
at these contracts, it looks bad, I mean, it looks improper.
    Mr. Strauss. It is possible that there are some appearance 
issues here. What I want to assure the committee is that I 
believe in the integrity of our process. We have about 1,400 
contract actions every year, and we have very competent people 
who are involved in this. The head of Procurement at the 
Pension Benefit Guaranty Corporation is a 37-year Government 
veteran. He is a veteran of the Cuban Missile Crisis, he has 
worked in Procurement for the Department of the Navy and for 
the military before he came to the PBGC. This is a man who has 
total integrity. And so when you look at this process here, we 
have a lot of procurements. We have a lot of technical 
expertise in this area. And I have investigated each of these 
issues that have been raised, including some that Mr. Hast 
raised this morning, and, Senator Breaux, even though I do not 
believe that this is the appropriate forum to litigate this 
issue, that I want you to know that I am aware of each of these 
issues. And as these issues have been presented to me, I have 
investigated them, personally, to see if anything has happened 
here that would give me reason to have concern about the 
integrity of our process. And I have not seen anything to 
indicate to me, in any way, that the integrity of our process 
was compromised.
    Senator Breaux. I take it that, again, I think both sides 
are correct. We are not going to litigate this thing here. I 
take it that you will pledge your full cooperation with Justice 
and work with them and try to get to the bottom of whether 
there is anything improper, from a legal standpoint.
    Mr. Strauss. Yes, Senator. And we have cooperated fully in 
all of these investigations.
    Senator Breaux. Well, the good news is I just got a note 
that said that the Finance Committee's, Mr. Chairman, mark-up 
has been postponed until tomorrow. [Laughter.]
    So we can begin this hearing at 10 o'clock instead of at 8 
o'clock in the morning. But I was here. [Laughter.]
    Ms. McHenry, let me ask a couple of questions. I am trying 
to understand this situation, and it is a little bit confusing.
    I take it that you were working with IMRG. You were 
extremely critical of what you saw in the office in I take it 
the 17 months that you were there. Before IMRG had the 
contract, Office Specialists had it in Atlanta; is that 
correct?
    Ms. McHenry. Yes, that's correct.
    Senator Breaux. You didn't work with Office Specialists, 
did you?
    Ms. McHenry. No. They had a hiring freeze on toward the end 
of their contract year.
    Senator Breaux. As far as you knew, did things work better 
when Office Specialists had the contract than after IMRG got 
the contract?
    Ms. McHenry. I think, from the employees' point of view, 
yes, because Office Specialists paid once a week. IMRG paid 
twice a month and then withheld 2 weeks of earnings, whereas, 
Office Specialists did not, and it staggered paydays, which 
upset everyone's budgets, and would not respond to questions 
about benefits or anything else. They just took a totally ``let 
us ignore the Atlanta office'' stance.
    Senator Breaux. What confuses me, to a certain extent, you 
say in your testimony that you were the only new employee at 
IMRG, that the rest of the office used to work for Office 
Specialists. It seems to me that, in essence, the people 
running the operation in Atlanta before the new contract was 
awarded was the same people running the office after the new 
contract was awarded because IMRG apparently hired everybody 
from the people who had the contract the first time. In fact, 
you point out you were the only new employee. And, in fact, it 
sounds like to me we still had Office Specialists running the 
show down there, and you were the only new employee. I don't 
understand why, when Office Specialists was on the letterhead, 
it was working OK, and when IMRG became on the letterhead, all 
of a sudden it all fell apart. Any kind of comment as to why?
    Ms. McHenry. Well, we had a great turnover. The contract 
called for over 60 employees, but during the time I was there 
it never reached more than 41, 42, 43 people. I think probably 
between 12, 13, 14 people had left and others had been 
reemployed during that time. So although we are starting out 
with maybe the same workforce, it changed over with new people 
coming in.
    Senator Breaux. Can you tell us what led you to leave.
    Ms. McHenry. I think the very low standards and the 
inability to get anyone's attention.
    Senator Breaux. Was the head person in the office a new 
employee or was the head person a former Office Specialists 
employee?
    Ms. McHenry. Former Office Specialists. Francis Emmanuel 
was the actuary for Office Specialists.
    Senator Breaux. So the same person that ran it for Office 
Specialists ended up running it for IMRG?
    Ms. McHenry. No. I do not know what happened. They----
    Senator Breaux. I thought you said they were the same.
    Ms. McHenry. Not in the same positions. The same people. 
Others left. There were quite a number of people who left prior 
to IMRG getting the contract.
    Senator Breaux. Well, was the person running the office, I 
use that term colloquially--I do not know what running the 
office means--but I mean the person in charge.
    Ms. McHenry. I do not think anyone really ``ran'' the 
office, and that was a great problem.
    Senator Breaux. Was the person in charge, there had to be 
somebody that had the titular head of being in charge, was that 
person initially a former Office Specialists employee?
    Ms. McHenry. Yes.
    Senator Breaux. And was that person there the 17 months 
that you worked there?
    Ms. McHenry. Yes. He is now gone.
    Senator Breaux. So they had the same person running the 
office for IMRG that ran it for Office Specialists for the time 
that you were there. It is kind of interesting.
    Ms. McHenry. Someone else I think was in the manager's 
slot, and I do not know who that person would have been.
    Senator Breaux. Mr. Strauss, can you comment? It seems to 
me that you changed the contract, but essentially the same 
people were doing the work.
    Mr. Strauss. Yes, Senator, I would love to try to shed some 
light on this. The Atlanta office is obviously very familiar to 
me. And based on some of my testimony this morning, you 
probably think that I am the Director of Procurement at the 
PBGC, rather than the Agency head. But I want to make a couple 
of points about the Atlanta office. In that these contracts 
that we have, even though you read these huge dollar figures in 
the paper, those dollar figures tend to reflect 5 years. And 
these contracts have to be evaluated annually based on costs 
and performance. And so any PBGC contract that we have has to 
be evaluated every year.
    I was very dissatisfied myself with what was going on in 
the Atlanta office. The problem that we have is that in a major 
population center like Atlanta, where unemployment is very low, 
recruiting people to work on these contracts is a real 
challenge. I was dissatisfied with what was going on in the 
office there. And so, in I believe it was late 1997, we 
evaluated the Office Specialists' contract, and basically let 
them know that we were dissatisfied and that we were going to 
rebid the contract after one year.
    And then we had competitive bidding. And people here who 
have more expertise than me can tell you how many people 
actually bid on this contract, but I believe there were three 
or four bidders for this contract. But because ERISA benefits 
administration of failed pension plans is a very technical and 
specialized field, the people who are bidding here tend to be 
bidding the same employees. And so the cost differential is in 
the overhead, and that is what we are really looking at. And so 
that is how these operations are staffed. That is how the 
operation in Waterloo is staffed. And I still believe, Senator, 
that if we can get you to the Waterloo office, you will get a 
much better insight into the work that is done there, the 
quality of the work that is done there, the quality of the 
people, and that that is much more representative of us than 
this Atlanta office.
    And I want to assure the committee that I had town hall 
meetings myself with the Atlanta employees--Bonne is very 
familiar to me. She is an e-mail pal of mine. We have made 
changes, we have given them technology, and we have weekly 
video conferences with the Atlanta operation. And so we have 
tried to make a number of changes with respect to the Atlanta 
operation, and I believe that we have addressed many of the 
issues that Bonne has raised this morning in her testimony.
    Senator Breaux. Thank you, Mr. Chairman.
    The Chairman. Thank you very much.
    I want to assure everybody that even though the Finance 
Committee is not meeting at 10 o'clock, I had a simultaneous 
mark-up in Judiciary, so I am going to have to hurry along here 
and get done regardless.
    Thank you very much, Senator Breaux, for your loyalty to 
this committee.
    To follow up on Senator Breaux's statement and question, 
Mr. Strauss, are you saying that the management of IMRG was 
worse than the Office Specialists, despite the fact that some 
of the same people were former Office Specialists staff. So 
management was different, and Ms. Cooks only visited the office 
a couple of times?
    Mr. Strauss. I do not know how many times she visited the 
office. What I can tell you, Senator, is that I had four town 
hall meetings myself in the Atlanta office. I am very familiar 
with the Atlanta office. Many of the employees there have 
communicated with me directly, and I believe, based on the work 
plans that we provide these offices and the way in which we 
measure their work, that there has been improvement in the 
Atlanta office. I would be more than happy to submit that for 
the record to help to clarify some of these issues.
    The Chairman. Ms. McHenry, I think I would like to have 
your response to the same issue I raised with Mr. Strauss.
    Ms. McHenry. Let me ask you just to rephrase what----
    The Chairman. Well, basically, we are going over the 
follow-up of Senator Breaux's question. And I asked Mr. Strauss 
if he was saying that the management at IMRG was worse than 
Office Specialists, despite the fact that some of the same 
people were former Office Specialists staff, some management 
was different, and Ms. Cooks only visited the office a couple 
of times.
    Ms. McHenry. Oh, very definitely. She made a very clear 
statement that she was leaving everything in the hands of 
Francis Emmanuel, who was a very incompetent manager, as far as 
the employees were concerned. I think that the employees wanted 
to do a good job, but were constantly upset because Myrna 
Cooks, IMRG, could not pay them correctly, on time, and then 
kept changing paydays and would not address any of the issues.
    And then Francis Emmanuel just kept everyone subdued by 
threats, and intimidation, and notes in files and just trying 
to make sure that everyone stayed quiet about what they saw and 
what was going on.
    The Chairman. Ms. Bovbjerg, since the PBGC is a wholly 
owned Government corporation, what laws govern its operation, 
particularly contracting laws?
    Ms. Bovbjerg. PBGC's procurement activities related to 
benefit processing and determination are not subject to the 
FAR. We have had a lot of discussion about this this morning, 
about the Federal Acquisition Regulation. PBGC voluntarily 
follows the FAR as a policy, but not as a matter of law, and 
that is because their funding is mainly from a nonappropriated 
source.
    The Chairman. Mr. Strauss testified that FAR applies, which 
is it, in your judgment?
    Ms. Bovbjerg. It applies as a matter of policy. The 
Corporation has chosen to follow the FAR. Now, I want to stress 
that in our work, which was a management review, the PBGC met 
the basic requirements of the FAR. In the information that we 
referred to Mr. Hast, he may be finding other things, but we 
found that they met the basic requirements of the FAR. I also 
want to emphasize that the FAR is the floor for what you might 
expect for really good management of a contracts process; we 
found that technically those contracts were competed, they were 
competitive, but that they clearly could have done more to get 
more bidders, to have more competition on price, on service. 
And we think that not taking action to really do more and to 
really go as far as you can toward full and open competition 
can result in poor service, it can result in higher cost, and 
ultimately, when those contracts are not closely managed after 
they are awarded, ultimately, you have more of a potential for 
waste, fraud and abuse than you would if they were closely 
managed.
    The Chairman. Well, if few Federal laws apply, as you have 
indicated, then is it fair to say that the PBGC has very little 
oversight by the executive and legislative branches of the 
Federal Government and has free access to spend the trust fund 
in any matter its executives see fit?
    Ms. Bovbjerg. We have commented in our report that there is 
only a very small amount of their budget under direct 
congressional oversight--this is the limitation amount. It is 
about $11 million of their $160 million budget. And there is 
rather general guidance as to what the nonlimited amounts can 
be spent for. We have observed in the report that, in some 
ways, this means that Congress does not have the normal 
budgetary oversight that it has for other agencies and that 
this also contributes to some of the management issues and 
contracts awards and processes not being very closely watched.
    The Chairman. When did the General Accounting Office bring 
this lack of oversight and the leeway by which there is very 
little control over the trust fund money to the attention of 
Congress? Maybe never?
    Ms. Bovbjerg. Traditionally, when we have done work on PBGC 
in the past, we have focused nearly entirely on the finances--
and the premiums and the assets of the plans and the risk of 
future problems. In fact, I know that Mr. Strauss had a chart 
over there a few minutes ago that showed there was a large 
deficit around 1992-1993, and that was when we designated the 
PBGC a high-risk program. We felt that there was potential for 
deficits to go from $3 billion in that year to something like 
$18 or $20 billion in 5 to 10 years, and we were concerned 
about that.
    This is the first time, in this review, that we have really 
looked at how the Corporation is managed and not at how their 
balance sheet looks.
    The Chairman. Following up on the lack of oversight on the 
part of Congress, besides conducting more of these activities, 
what can Congress do to ensure that the Corporation conducts 
its operation in a manner that sufficiently administers trust 
fund assets, while still meeting the needs of pension plan 
participants?
    Ms. Bovbjerg. We did not make a recommendation on this, 
Senator, and that is because that is a much more complex issue 
than we could really address in this report. But I do want to 
say that I think that asking the kinds of questions that you 
have been asking and the kind of work that we have begun to do 
on management issues goes a long way to increasing oversight. 
But such an approach is necessarily ad hoc. And we think it is 
worth considering how to build a more routine approach to 
oversight of this Corporation.
    The Chairman. Mr. Strauss, you heard Ms. McHenry state in 
her testimony that the Corporation issued determination letters 
regardless of the quality, solely to meet a court-ordered 
deadline. How does the PBGC measure the accuracy of 
determination letters it sends out? In other words, while it 
may take the PBGC less time to issue determination letters, is 
accuracy compromised in the interest of speedy delivery?
    Mr. Strauss. I want to make a couple of points about this. 
One, we have a management control unit that looks at this. And 
when you look at our historical appeals rate, which would deal 
with these sorts of issues, that has not varied much from year 
to year.
    The Chairman. Do you have any way, though, of measuring the 
accuracy of the letters of determination?
    Mr. Strauss. Well, we have a Corporate standard, where the 
Corporate goal is to provide them promptly and to make sure 
that they are accurate. And so that is a high priority for the 
Corporation.
    The Chairman. Well, I think that we will close there. And I 
may have some questions to submit for answer in writing. And by 
the way, we may also, I should have announced this at the 
beginning, for those of you that are not acquainted with the 
congressional process and you need some help from my staff, if 
you get letters or questions for answer in writing, my staff 
will help you process that. Most everybody else here 
understands that a lot of members cannot come or even those of 
us who do come will have some letters for follow-up. So we will 
keep the record open for a couple weeks on that.
    I look forward to hearing the results of the action 
requests that we made today. The Inspector General's rigorous 
testing of the IDL accuracy and his follow-up penetration tests 
of the Corporation's information system I think will give us an 
updated status report on how the PBGC is responding to the 
concerns that we have heard today. And in light of the grave 
concerns raised by the Corporation contracting practices, that 
area also warrants continued scrutiny. And I understand that 
the Office of the General Accounting Office Special 
Investigations will refer the matter to the Department of 
Justice for appropriate action. That is your decision, but I 
think it is one that we have heard enough that it is worth that 
process ought to go through.
    And for Mr. Strauss, I will, as I told you a week ago 
yesterday when you and I were involved in a contest, a three-
mile contest to see who could run the fastest and you beat me--
--
    Mr. Strauss. I thought you had won, Mr. Chairman. 
[Laughter.]
    The Chairman. I will be available any Saturday morning from 
8 to 9:30 to visit the Waterloo office. It is close to my home, 
and I would be glad to do that.
    Mr. Strauss. We will look forward to having you.
    The Chairman. Thank you.
    The meeting is adjourned. Thank you all very much.
    [Whereupon, at 10:01 a.m., the committee was adjourned.]

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