Financial Audit: Pension Benefit Guaranty Corporation's 1994 and 1993
Financial Statements (Letter Report, 03/08/95, GAO/AIMD-95-83).

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  AIMD-95-83
     TITLE:  Financial Audit: Pension Benefit Guaranty Corporation's 
             1994 and 1993 Financial Statements
      DATE:  03/08/95
   SUBJECT:  Financial statement audits
             Trust funds
             Retirement pensions
             Internal controls
             Financial management systems
             Fund audits
             Reporting requirements
             Federal corporations
             Funds management
             Government liability (legal)
IDENTIFIER:  Single Employer Guaranty Fund
             PBGC Multiemployer Fund
             PBGC Pension and Lump Sum System
             
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Cover
================================================================ COVER


Report to the Congress

March 1995

FINANCIAL AUDIT - PENSION BENEFIT
GUARANTY CORPORATION'S 1994 AND
1993 FINANCIAL STATEMENTS

GAO/AIMD-95-83

Pension Benefit Guaranty Corporation

(917624)


Abbreviations
=============================================================== ABBREV

  ERISA - Employee Retirement Income Security Act
  FMFIA - Federal Managers' Financial Integrity Act
  GAO - General Accounting Office
  GATT - General Agreement on Tariffs and Trade
  PBGC - Pension Benefit Guaranty Corporation
  PC - personal computer
  PLUS - Pension and Lump Sum

Letter
=============================================================== LETTER


B-259540

March 8, 1995

To the President of the Senate and the
Speaker of the House of Representatives

This report presents our opinion on the financial statements of the
Pension Benefit Guaranty Corporation's Single-Employer Fund and
Multiemployer Fund for the fiscal years ended September 30, 1994 and
1993, and our evaluation of internal controls and compliance with
laws and regulations.  We conducted our audit pursuant to the
provisions of 31 U.S.C.  9105, as amended, and in accordance with
generally accepted government auditing standards. 

Our opinion on the Funds' financial statements is unqualified. 
During fiscal year 1994, the Corporation continued making progress in
improving its internal controls; however, material internal control
weaknesses continue to affect both funds.  This report also discusses
our continuing concerns about the long-term viability of the
Single-Employer Fund and weaknesses in employee benefit plan audits
and reports. 

We are sending copies of this report to the Chairmen and Ranking
Minority Members of the Senate Committee on Governmental Affairs; the
House Committee on Government Reform and Oversight; and the
Subcommittee on Oversight, House Committee on Ways and Means.  We are
also sending copies to the Secretaries of Labor, the Treasury, and
Commerce in their capacities as Chairman and members of the Board of
Directors of the Pension Benefit Guaranty Corporation; the
Corporation's Executive Director; the Director of the Office of
Management and Budget; and other interested parties. 

This report was prepared under the direction of Robert W.  Gramling,
Director of Corporate Financial Audits, Accounting and Information
Management Division, who may be reached at (202) 512-9406, if you
have any questions.  Other major contributors are listed in appendix
V. 

Charles A.  Bowsher
Comptroller General
of the United States


Letter
=============================================================== LETTER


B-259540

To the Board of Directors
Pension Benefit Guaranty Corporation

We have audited the accompanying statements of financial condition as
of September 30, 1994 and 1993, of the Single- Employer and
Multiemployer Funds administered by the Pension Benefit Guaranty
Corporation (PBGC), and the related statements of operations and
changes in net position and statements of cash flows for the fiscal
years then ended.  We found the following: 

  The Corporation's financial statements referred to above were
     reliable in all material respects. 

  In its 1994 report on internal controls, management fairly stated
     that internal controls in place on September 30, 1994, were not
     effective in assuring that transactions were properly recorded,
     processed, and summarized to permit the preparation of financial
     statements in accordance with generally accepted accounting
     principles and to maintain accountability for assets among
     funds.  However, through additional audit procedures, we were
     able to satisfy ourselves that these weaknesses did not have a
     material effect on the Corporation's financial statements.  In
     contrast, internal controls in place on September 30, 1994, did
     provide reasonable assurance that assets were safeguarded from
     material loss and that transactions were executed in accordance
     with management authority and significant provisions of selected
     laws and regulations. 

  There was no reportable noncompliance with laws and regulations we
     tested. 

The following sections outline each of these conclusions in more
detail and discuss significant matters considered in performing our
audit and forming our opinions.  Appendix I discusses the scope of
our audit, including one area for which we reviewed and relied on the
work of an independent public accountant under contract to the
Corporation's Inspector General.  Appendix II presents the financial
statements of the funds; appendix III presents the Corporation's
assertion about the effectiveness of its internal controls; and
appendix IV contains the Corporation's written comments on a draft of
this report. 


   SIGNIFICANT MATTERS
------------------------------------------------------------ Letter :1

The following information discusses our continuing concerns about

  the long-term viability of the Single-Employer Fund and

  weaknesses in employee benefit plan audits and reporting. 

In addition, significant matters involving material weaknesses in
internal controls are discussed in a separate section below. 


      CONCERNS ABOUT THE LONG-TERM
      VIABILITY OF THE
      SINGLE-EMPLOYER FUND
---------------------------------------------------------- Letter :1.1

The Single-Employer Fund is able to meet its near-term benefit
obligations because premium receipts presently exceed benefit
payments and the Fund held investments having a market value of $7.2
billion and cash of $627 million at September 30, 1994.  The
Single-Employer Fund also reported a significant gain for the year,
largely as a result of the effect of rising interest rates on the
program's benefit liabilities. 

However, the Fund's unfunded $1.2 billion deficit, which represents a
shortfall in assets needed to satisfy the Corporation's benefit
liabilities for terminated plans and for those plans considered
likely to terminate, still constitutes a threat to the Fund's
long-term viability.  In addition to the losses recorded in the
financial statements and reflected in the unfunded deficit as of
September 30, 1994, the Corporation disclosed $18 billion in
estimated unfunded liabilities in single-employer plans that
represent reasonably possible future losses. 

The Employee Retirement Income Security Act of 1974 (ERISA), which
created the pension insurance program, established funding standards
for insured plans but allowed benefits to become guaranteed before
being funded by plan sponsors.  The resulting timing difference has
contributed, in large measure, to the Corporation's exposure should a
financially troubled plan sponsor be unable to meet its pension
obligations. 

Moreover, the premium structure of the Single-Employer Fund has
limited the Corporation's ability to manage the exposure posed by
underfunded plans because premiums paid by those plans have not fully
covered the risks. 

In 1987, the Congress modified the Single-Employer Fund's basic
flat-rate premium structure by adding a supplemental variable rate
premium which, for the first time, established a link between
premiums and plan underfunding.  The variable rate premium was based
on the unfunded vested liability as calculated by the plan, after
adjusting for a common interest rate, rather than the specific
unfunded liability the Fund assumes should a plan actually terminate. 
However, as previously reported,\1 the Single-Employer Fund often
assumes a substantially larger liability upon termination than the
last one calculated and reported by a plan. 

Also, the variable rate premium was subject to a maximum dollar
amount that, when reached, effectively limited the risk-based linkage
between premiums and plan underfunding.  In addition, the
Single-Employer Fund's premium structure did not take into account
the added risk of termination posed by underfunded plans sponsored by
financially troubled companies. 

To address these concerns, the administration supported legislation
proposed in the 103rd Congress to strengthen minimum funding
standards by requiring sponsors to increase their contributions to
underfunded defined benefit pension plans and phasing out the cap on
variable rate premiums paid by underfunded plans.  A modified version
of this proposal, the Retirement Protection Act of 1994, became law
on December 8, 1994, as part of legislation implementing the General
Agreement on Tariffs and Trade (GATT).  The Corporation anticipates
that this legislation will significantly reduce underfunding in the
plans that it insures and improve its financial condition.  We have
not assessed the long-term effects of this legislation on the
Corporation's deficit.  However, the Corporation will need to monitor
whether the legislation achieves the desired results. 


--------------------
\1 Pension Plans:  Hidden Liabilities Increase Claims Against
Government Insurance Program (GAO/HRD-93-7, December 30, 1992). 


      WEAKNESSES IN EMPLOYEE
      BENEFIT PLAN AUDITS AND
      REPORTING
---------------------------------------------------------- Letter :1.2

As we previously reported,\2 weaknesses in the scope and quality of
audits of employee benefit plans and the lack of plan reporting on
internal controls reduce their effectiveness in safeguarding the
interests of plan participants and the government.  Under ERISA, the
Department of Labor is responsible for establishing reporting and
disclosure requirements and monitoring ongoing employee benefit
plans, which include defined benefit pension plans insured by the
Corporation. 

In past reviews of independent public accountants' audits of employee
benefit plans we found severe weaknesses in both the quality and
scope of plan audits that made their reliability and usefulness
questionable.\3 ERISA allows plan administrators to limit the scope
of plan audits by excluding plan assets held by certain regulated
institutions from the scope of the auditor's work.  Thus, in cases
where the scope is limited, the auditor provides little or no
assurance about the existence, ownership, or value of assets that may
be material to the financial condition of those plans.  In addition,
plan auditors are not required to check the accuracy and completeness
of pension insurance premium filings applicable to insured plans or
related premium payments made to the Corporation.  Finally, while
plan administrators are responsible for establishing sound internal
controls and for complying with applicable laws and regulations,
ERISA does not require that either plan administrators or plan
auditors report to regulators and participants on the effectiveness
of internal controls. 

In our April 1992 report (GAO/AFMD-92-14), we recommended that the
Congress eliminate ERISA's limited scope audit provision and require
plan administrators and auditors to report on internal controls. 
Legislation was introduced late in the 103rd Congress that would have
eliminated limited scope audits, required peer review of auditors
conducting plan audits, and required plan administrators and auditors
to report irregularities.  This proposed legislation would not have
required plan administrators and auditors to report on internal
controls.  The legislation was not enacted, and as of February 15,
1995, the 104th Congress had not taken up similar legislation. 


--------------------
\2 Financial Audit:  Pension Benefit Guaranty Corporation's 1993 and
1992 Financial Statements (GAO/AIMD-94-109, May 4, 1994). 

\3 These reviews are discussed in Employee Benefits:  Improved Plan
Reporting and CPA Audits Can Increase Protection Under ERISA
(GAO/AFMD-92-14, April 9, 1992) and Changes Are Needed in the ERISA
Audit Process To Increase Protection for Employee Benefit Plan
Participants, U.S.  Department of Labor, Office of Inspector General,
09-90-001-12-001 (Washington, D.C.:  November 9, 1989). 


   MATERIAL INTERNAL CONTROL
   WEAKNESSES
------------------------------------------------------------ Letter :2

Our work disclosed that the Corporation has continued to make
progress in improving internal controls affecting its financial
reporting.  However, as of September 30, 1994, material weaknesses\4
continued to exist in the Corporation's internal control structure in
the three areas reported in our previous audits: 

  weaknesses in financial systems and related internal controls,

  inadequate controls over the assessment of the Multiemployer Fund's
     liability for future financial assistance, and

  inadequate controls over nonfinancial participant data. 

Through substantive audit procedures,\5 we were able to satisfy
ourselves that the weaknesses discussed below did not have a material
effect on the fiscal year 1994 and 1993 financial statements of the
Single-Employer and Multiemployer Funds.  However, these weaknesses
could result in misstatements in future financial statements and
other financial information if not corrected by management.  These
weaknesses could also have an adverse impact on management decisions
based, in whole or in part, on information whose accuracy is affected
by the deficiencies.  Unaudited financial information, including
budget information, reported by the Corporation or used as a basis
for management's operational decisions also may contain inaccuracies
resulting from these weaknesses. 


--------------------
\4 A material weakness is a reportable condition in which the design
or operation of the internal controls does not reduce to a relatively
low level the risk that losses, noncompliance, or misstatements in
amounts that would be material in relation to the financial
statements may occur and not be detected within a timely period by
employees in the normal course of their assigned duties. 

\5 Substantive audit procedures are detailed tests and analytical
procedures performed to detect material misstatements in the
classification of transactions, account balances, and disclosure
components of financial statements. 


      WEAKNESSES IN FINANCIAL
      SYSTEMS AND RELATED INTERNAL
      CONTROLS
---------------------------------------------------------- Letter :2.1

We reported for fiscal years 1992 and 1993\6 that weaknesses in
financial systems and related internal controls presented an
unacceptable risk to the Corporation that material misstatements
might occur in the Corporation's financial information and not be
detected promptly by the Corporation. 

During fiscal year 1994, the Corporation continued to take steps to
strengthen internal controls and to address weaknesses in financial
and management information systems.  For example, the Corporation
began testing the data supporting multiemployer plan requests for
financial assistance to ensure that they were valid and adequately
supported prior to providing the assistance, updated certain computer
operations procedures, and began detail system design for a new core
financial system incorporating the standard general ledger. 

However, as of September 30, 1994, the Corporation had not
implemented sufficient financial reporting controls to compensate
fully for its lack of financial system integration.  Deficiencies in
automated management and financial information systems continued to
inhibit management's ability to promptly and accurately accumulate
and summarize the information needed for internal and external
reports.  Overall, the Corporation's cumbersome and nonintegrated
processes for preparing the financial and other management
information needed to support operations and financial/budgetary
reporting were time-consuming and labor-intensive.  These conditions
were due, in part, to shortcomings in systems development and
operations, including the absence of a proven systems development
methodology.  Thus, system and control weaknesses exposed the
Corporation to a significant risk that the information could be
materially misstated.  These weaknesses were discussed in greater
detail in our previous reports. 


--------------------
\6 Financial Audit:  Pension Benefit Guaranty Corporation's 1992 and
1991 Financial Statements (GAO/AIMD-93-21, September 29, 1993); and
Financial Audit:  Pension Benefit Guaranty Corporation's 1993 and
1992 Financial Statements (GAO/AIMD-94-109, May 4, 1994). 


      INADEQUATE CONTROLS OVER THE
      ASSESSMENT OF THE
      MULTIEMPLOYER FUND'S
      LIABILITY FOR FUTURE
      FINANCIAL ASSISTANCE
---------------------------------------------------------- Letter :2.2

During fiscal year 1994, the Corporation placed into operation a new
computer system to determine the multiemployer plan universe and
identify financially troubled plans as part of its assessment of the
Multiemployer Fund's liability for future financial assistance. 
However, the new system's security controls were not designed to
effectively restrict access to program source code, executable
programs, and data tables.  Additionally, during system
implementation, the Corporation did not maintain evidence to document
that key financial and nonfinancial plan data were accurately and
completely transferred into the new multiemployer system. 

In addition, as reported for fiscal year 1993, the Corporation did
not review or properly supervise the process for determining which
plans should be included in the universe of multiemployer plans, or
address the accuracy of certain data utilized in identifying and
assessing financially troubled multiemployer plans. 


      INADEQUATE CONTROLS OVER
      NONFINANCIAL PARTICIPANT
      DATA
---------------------------------------------------------- Letter :2.3

As previously reported, the Corporation's controls did not ensure the
accuracy of nonfinancial participant data entered into the Pension
and Lump Sum (PLUS) system.  In processing a terminated pension plan,
the Corporation obtains nonfinancial participant data (such as social
security numbers and dates of birth and employment) and uses the
data, in conjunction with other information, to initially determine
participants' guaranteed benefits.  After the nonfinancial data are
obtained and initial benefits are determined, the data are entered
into the PLUS system automated database, which is used to respond to
participant inquiries and administer other benefit services.  The
Corporation uses these data annually to value its benefit liability
for participants whose data have been entered in PLUS.  Inaccurate
nonfinancial data can reduce the precision of the Corporation's
fiscal year-end liability valuation and delay the final calculation
of participant benefits. 

Weaknesses in controls over nonfinancial participant data and related
recommendations are discussed in the Pension Benefit Guaranty
Corporation Inspector General Report No.  94-6/23079-1 and as updated
in its report No.  95-5/23083-1.  In our report (GAO/AIMD-94-109), we
concurred with the Inspector General's recommendations, which are
designed primarily to strengthen the verification of participant data
and the input and edit controls over participant data maintained in
PLUS. 

During fiscal year 1993, the Corporation initiated efforts designed
to improve the accuracy of certain aspects of nonfinancial
participant data entered into the PLUS system.  However, control
weaknesses involving these data continued to exist for fiscal year
1994 because the Corporation had not made significant progress in
improving procedures for obtaining and documenting participant data
in a timely manner.  Also, weaknesses existed in the Corporation's
verifying and editing of the nonfinancial participant data entered
and maintained in the Corporation's records and its PLUS database. 

We previously made recommendations for addressing each of the
material internal control weaknesses discussed in this report.\7
These recommendations called for strengthening internal controls over
systems development/modification and integration, financial
reporting, multiemployer financial assistance, and participant data. 
While the Corporation made progress during fiscal year 1994 in
addressing these recommendations, these efforts have not been
completed.  The Corporation has stated its commitment to fully
addressing the weaknesses disclosed in these reports. 


--------------------
\7 Financial Audit:  Pension Benefit Guaranty Corporation's 1992 and
1991 Financial Statements (GAO/AIMD-93-21, September 29, 1993);
Financial Audit:  Pension Benefit Guaranty Corporation's 1993 and
1992 Financial Statements (GAO/AIMD-94-109, May 4, 1994); Pension
Benefit Guaranty Corporation Inspector General Report No. 
93-6/23069-1, September 29, 1993; and Pension Benefit Guaranty
Corporation Inspector General Report No.  94-6/23079-1, May 4, 1994. 


   OPINION ON FINANCIAL STATEMENTS
------------------------------------------------------------ Letter :3

In our opinion, the accompanying financial statements present fairly,
in all material respects, the financial position of the
Single-Employer and Multiemployer Funds administered by the Pension
Benefit Guaranty Corporation as of September 30, 1994 and 1993, and
the results of their operations and cash flows for the fiscal years
then ended, in accordance with generally accepted accounting
principles. 

However, misstatements may nevertheless occur in other financial
information reported by the Corporation as a result of the internal
control weaknesses previously described.  Furthermore, the
Corporation's assessment of the Multiemployer Fund's exposure to
liabilities for future financial assistance is subject to material
uncertainties, whose eventual effects cannot be reasonably determined
at present.  Many complex factors must be considered to identify
multiemployer plans which are likely to require future assistance and
to estimate the amount of such assistance.  These factors, which
include the financial condition of the plans and their multiple
sponsors, will be affected by future events, most of which are beyond
the Corporation's control. 


   OPINION ON INTERNAL CONTROLS
------------------------------------------------------------ Letter :4

We evaluated management's assertion about the effectiveness of its
internal controls designed to: 

  safeguard assets against loss from unauthorized use or disposition;

  assure the execution of transactions in accordance with management
     authority and with laws and regulations that have a direct and
     material effect on the financial statements or that are listed
     by OMB and could have a material effect; and

  properly record, process, and summarize transactions to permit the
     preparation of reliable financial statements in accordance with
     generally accepted accounting principles and to maintain
     accountability for assets. 

In its 1994 report on internal controls, the Corporation's management
fairly stated that internal controls in effect on September 30, 1994,
did not provide reasonable assurance that the Corporation properly
recorded, processed, and summarized transactions to permit the
preparation of financial statements in accordance with generally
accepted accounting principles.  However, controls in effect on
September 30, 1994, provided reasonable assurance that assets were
safeguarded against loss from unauthorized use or disposition and
that transactions were executed in accordance with management's
authority and significant provisions of selected laws and
regulations.  Management made this assertion, which is included in
appendix III, using the internal control and reporting criteria set
forth in the Federal Managers' Financial Integrity Act (FMFIA) and
implementing guidance.  In making this assertion, management
considered the material weaknesses we found. 


   REPORTABLE CONDITION
------------------------------------------------------------ Letter :5

While the Corporation made progress in addressing the reportable
conditions identified and discussed with the Corporation during our
fiscal year 1993 audit, our audit for fiscal year 1994 found that one
of these reportable conditions continued to exist.  Although this
reportable condition is not considered a material weakness, it
represents a significant deficiency in the design or operation of the
Corporation's internal controls and should be corrected. 

The Corporation's controls over documentation supporting participant
data maintained on PLUS were inadequate.  In many cases, the
Corporation was unable to provide documentation supporting the
nonfinancial participant data entered on PLUS.  In addition, the
Corporation was not always able to demonstrate that procedures
designed to support the accuracy of PLUS data were performed. 
Without proper supporting documentation, the Corporation may be
unable to demonstrate the accuracy of PLUS data used to value the
Corporation's liability for terminated plans. 

This reportable condition and related recommendations are discussed
further in the Pension Benefit Guaranty Corporation Inspector General
Report No.  94-6/23079-1 and as updated in its report No. 
95-5/23083-1.  In our report (GAO/AIMD-94-109), we concurred with the
Inspector General's recommendations and recommended that the
Corporation implement them.  The Corporation agreed with the
recommendations but its intended corrective actions had not
progressed sufficiently to prevent the documentation weakness
identified by the audit. 

In addition to the material weaknesses and reportable condition
described in this report, we noted other less significant matters
involving the Corporation's internal control structure and its
operations which we will be reporting separately to the Corporation's
management.  Similarly, in addition to the material weakness and
reportable condition described in Pension Benefit Guaranty
Corporation Inspector General Report No.  95-5/23083-1, other less
significant matters related to the Corporation's internal control
structure over its liability for future benefits on terminated plans
will be reported separately to management by the Corporation's
Inspector General. 


   COMPLIANCE WITH LAWS AND
   REGULATIONS
------------------------------------------------------------ Letter :6

Our tests of compliance with significant provisions of selected laws
and regulations disclosed no material instances of noncompliance. 


   AGENCY COMMENTS AND OUR
   EVALUATION
------------------------------------------------------------ Letter :7

Commenting on a draft of this report, the Corporation's Executive
Director agreed with our findings.  The Executive Director's written
comments, provided in appendix IV, discuss the Corporation's ongoing
efforts to address the internal control weaknesses and respond to our
previous recommendations.  We plan to monitor the adequacy and
effectiveness of these efforts as part of follow-up audits of the
Corporation's financial statements. 

Charles A.  Bowsher
Comptroller General
of the United States

February 15, 1995


OBJECTIVES, SCOPE, AND METHODOLOGY
=========================================================== Appendix I

The Corporation's management is responsible for

  preparing the annual financial statements of the two funds in
     conformity with generally accepted accounting principles;

  establishing, maintaining, and assessing the internal control
     structure to provide reasonable assurance that the broad control
     objectives of FMFIA are met; and

  complying with applicable laws and regulations. 

We are responsible for obtaining reasonable assurance about whether
(1) the Corporation's financial statements are reliable (free of
material misstatement and presented fairly in conformity with
generally accepted accounting principles) and (2) management's
assertion about the effectiveness of internal controls is fairly
stated in all material respects based upon the control criteria in
GAO's Standards for Internal Controls in the Federal Government
required by the Federal Managers' Financial Integrity Act.  We are
also responsible for testing compliance with significant provisions
of selected laws and regulations and for performing limited
procedures with respect to certain other information appearing in
this financial statement. 

In order to fulfill these responsibilities, we

  examined, on a test basis, evidence supporting the amounts and
     disclosures in the financial statements of each of the two
     funds;

  assessed the accounting principles used and significant estimates
     made by the Corporation's management;

  evaluated the overall presentation of the financial statements;

  obtained an understanding of the internal control structure related
     to safeguarding assets, compliance with laws and regulations
     including execution of transactions in accordance with budget
     authority, financial reporting, and assessed control risk;

  tested relevant internal controls and evaluated management's
     assertion about the effectiveness of internal controls;

  tested compliance with selected provisions of the following laws
     and regulations:  the Employee Retirement Income Security Act of
     1974, as amended, and the Chief Financial Officers Act of 1990. 
     The provisions selected for testing included, but were not
     limited to, those relating to

benefit guarantees and financial assistance;

the availability of, accounting for, and use of funds;


the preparation and issuance of financial statements and management
reports; and

premiums and the assessment of related interest and penalties. 

We also conducted tests of compliance with the Anti-Deficiency Act
that were limited to comparing the Corporation's recorded payments to
related authorized limitations on certain payments and
apportionments. 

In fulfilling our responsibilities, we have relied on audit work
performed by an independent public accounting firm under the
direction of the Corporation's Inspector General.  The scope of this
work, performed in conjunction with our audit, included an audit of
the Corporation's liabilities for future benefits on terminated plans
and related losses, expenses, and cash flows, as well as related
internal controls and compliance.  We worked with the Inspector
General to establish the scope of the work.  We reviewed the work and
concur with its scope, opinions, conclusions, and recommendations,
which are presented in Pension Benefit Guaranty Corporation Inspector
General Report No.  95-5/23083-1. 

We did not evaluate all internal controls relevant to operating
objectives as broadly defined by FMFIA, such as those controls
relevant to preparing statistical reports and ensuring efficient
operations.  We limited our internal control testing to accounting
and other controls necessary to achieve the objectives outlined in
our opinion on management's assertion about the effectiveness of
internal controls.  Because of inherent limitations in any internal
control structure, losses, noncompliance, or misstatements may
nevertheless occur and not be detected.  We also caution that
projecting our evaluation of controls to future periods is subject to
the risk that controls may become inadequate because of changes in
conditions or the degree of compliance with controls may deteriorate. 

Our audit was conducted pursuant to provisions of 31 U.S.C.  9105, as
amended, and in accordance with generally accepted government
auditing standards.  We believe our audit provides a reasonable basis
for our opinions. 


FINANCIAL STATEMENTS
========================================================== Appendix II

   Statements of Financial
   Condition

   (See figure in printed
   edition.)



   (See figure in printed
   edition.)

   Statements of Operations and
   Changes in Net Position

   (See figure in printed
   edition.)

   Statements of Cash Flows

   (See figure in printed
   edition.)

   Notes to Financial Statements

   (See figure in printed
   edition.)



   (See figure in printed
   edition.)



   (See figure in printed
   edition.)



   (See figure in printed
   edition.)



   (See figure in printed
   edition.)



   (See figure in printed
   edition.)



   (See figure in printed
   edition.)



   (See figure in printed
   edition.)



   (See figure in printed
   edition.)



   (See figure in printed
   edition.)




(See figure in printed edition.)Appendix III
MANAGEMENT'S REPORT ON INTERNAL
CONTROLS
========================================================== Appendix II



(See figure in printed edition.)



(See figure in printed edition.)




(See figure in printed edition.)Appendix IV
COMMENTS FROM THE PENSION BENEFIT
GUARANTY CORPORATION
========================================================== Appendix II



(See figure in printed edition.)



(See figure in printed edition.)



(See figure in printed edition.)


MAJOR CONTRIBUTORS TO THIS REPORT
=========================================================== Appendix V

ACCOUNTING AND INFORMATION
MANAGEMENT DIVISION, WASHINGTON,
D.C. 

H.  Kent Bowden, Assistant Director
William L.  Anderson, III, Senior Audit Manager
Scott E.  McNulty, Audit Manager
Donald R.  Baiardo, Senior Auditor
Paul F.  Foderaro, Senior Auditor
Bradley T.  Berkebile, Auditor
Denise Fruik, Auditor
Clazina A.  Piombino, Auditor

OFFICE OF THE GENERAL COUNSEL

Helen Desaulniers, Attorney
