Private Pensions: Opportunities Exist to Further Improve the	 
Transparency of PBGC's Financial Disclosures (27-MAR-06,	 
GAO-06-429).							 
                                                                 
The Pension Benefit Guaranty Corporation's (PBGC) single-employer
insurance program insures the pension benefits of over 34 million
participants in almost 29,000 private sector defined benefit	 
pension plans. The increase in PBGC's probable claims has raised 
questions about PBGC's monitoring and financial disclosure	 
practices, including whether the information that PBGC discloses 
is sufficient for interested parties to understand the effect on 
PBGC's financial condition. GAO examined (1) the steps that PBGC 
takes to monitor and ensure the accuracy of its probable claims, 
(2) how PBGC's financial liability reporting compares with those 
of publicly traded companies, and (3) the steps PBGC has taken to
improve the transparency of its financial reporting and whether  
additional improvement is needed.				 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-06-429 					        
    ACCNO:   A50039						        
  TITLE:     Private Pensions: Opportunities Exist to Further Improve 
the Transparency of PBGC's Financial Disclosures		 
     DATE:   03/27/2006 
  SUBJECT:   Accounting standards				 
	     Claims processing					 
	     Data integrity					 
	     Federal corporations				 
	     Financial disclosure				 
	     Financial management				 
	     Financial management systems			 
	     Monitoring 					 
	     Pension claims					 
	     Pensions						 
	     Reporting requirements				 
	     Risk management					 
	     Systems analysis					 
	     Transparency					 

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GAO-06-429

     

     * Results in Brief
     * Background
     * PBGC Has a Process in Place to Monitor and Ensure the Accura
          * PBGC Has Procedures in Place to Monitor Single-Employer Prob
          * PBGC Takes Steps to Ensure the Accuracy of Its Probable Clai
     * PBGC and Public Companies Follow Different Reporting Require
          * Differences in PBGC and Public Company Liability Settlement
          * PBGC's Liability Settlement Reporting Practices Are More Com
     * PBGC'S Financial Disclosures Have Improved, but Transparency
          * PBGC Has Taken Steps to Improve the Transparency of Its Fina
          * Pension Experts, Financial Analysts, and Others Have Concern
     * Conclusions
     * Recommendations
     * Agency Comments
          * Estimated Probable Claim Liabilities in Its Deficit
          * Projected Date of Insolvency
          * Interest Rate Level
     * Staff Acknowledgments
     * GAO's Mission
     * Obtaining Copies of GAO Reports and Testimony
          * Order by Mail or Phone
     * To Report Fraud, Waste, and Abuse in Federal Programs
     * Congressional Relations
     * Public Affairs

Report to Congressional Requesters

United States Government Accountability Office

GAO

March 2006

PRIVATE PENSIONS

Opportunities Exist to Further Improve the Transparency of PBGC's
Financial Disclosures

GAO-06-429

On May 1, 2006, page 6, in line 1 of the second paragraph, the "standards
promulgated by" was revised to read "FASB standards, as permitted by."

Contents

Letter 1

Results in Brief 3
Background 5
PBGC Has a Process in Place to Monitor and Ensure the Accuracy of Its
Single-Employer Probable Claims Forecasts 9
PBGC and Public Companies Follow Different Reporting Requirements when
Reporting Liability Settlements, Including Probable Losses 14
PBGC'S Financial Disclosures Have Improved, but Transparency in Some Areas
Remains an Issue 17
Conclusions 22
Recommendations 22
Agency Comments 23
Appendix I Comments from the Pension Benefit Guaranty Corporation 24
Appendix II Comments from the Securities and Exchange Commission 26
Appendix III Other Concerns Regarding the Information PBGC Discloses about
Its Financial Condition 28
Appendix IV GAO Staff Acknowledgments 30

Table

Table 1: List of Probable Classification Criteria 10

Figure

Figure 1: Summary of Probable Net Claims Activity, Fiscal Years 1987-2004
14

Abbreviations

ACLI American Council of Life Insurers

CWG Contingency Working Group

ERISA Employee Retirement Income Security Act

FASAB Federal Accounting Standards Advisory Board

FASB Financial Accounting Standards Board

FDIC Federal Deposit Insurance Corporation

GAAP Generally Accepted Accounting Principles

IPVFB Integrated Present Value of Future Benefits

IRS Internal Revenue Service

OMB Office of Management and Budget

PBGC Pension Benefit Guaranty Corporation

SEC Securities and Exchange Commission

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separately.

United States Government Accountability Office

Washington, DC 20548

March 27, 2006

The Honorable John Lewis Ranking Minority Member Subcommittee on Oversight
Committee on Ways and Means House of Representatives

The Honorable Earl Pomeroy House of Representatives

The Pension Benefit Guaranty Corporation's (PBGC) single-employer
insurance program is a federal program that insures certain benefits of
the more than 34 million workers and retirees covered by almost 29,000
private sector defined benefit pension plans. In recent years, because of
the collapse of several large underfunded pension plans, the program's
financial condition has deteriorated from a $9.7 billion cumulative
surplus at the end of fiscal year 2000, to a $22.8 billion cumulative
deficit as of the end of fiscal year 2005. PBGC's liabilities include
liabilities incurred from plans that have already terminated and, as
required under Generally Accepted Accounting Principles (GAAP), estimated
losses incurred from "probable" terminations, also referred to as
"probable claims." A plan is classified as a probable claim if PBGC
determines that it is likely to terminate in the future. Forty-six percent
($10.4 billion) of PBGC's cumulative deficit as of the end of fiscal year
2005 represents PBGC's estimated liability for its probable claims. PBGC
cites the deteriorating financial position of a number of PBGC-insured
plans and the companies that sponsor them as a primary reason for the
increase in the amount booked as probable claims. GAO has previously
reported on this and other structural problems facing PBGC's
single-employer program.1 In 2003, we placed PBGC's single-employer
insurance program on our high-risk list of agencies and programs that need
broad-based transformations to address major challenges, because of our
concerns about the program's long-term viability.

1See GAO, Pension Benefit Guaranty Corporation: Single-Employer Pension
Insurance Program Faces Significant Long-Term Risks, GAO-04-90
(Washington, D.C.: Oct. 29, 2003); Private Pensions: Recent Experiences of
Large Defined Benefit Plans Illustrate Weaknesses in Funding Rules,
GAO-05-294 (Washington, D.C.: May 31, 2005); Private Pensions: Revision of
Defined Benefit Pension Plan Funding Rules Is an Essential Component of
Comprehensive Pension Reform, GAO-05-794T (Washington, D.C.: June 7,
2005); Private Pensions: The Pension Benefit Guaranty Corporation and
Long-Term Budgetary Challenges, GAO-05-772T (Washington, D.C.: June 9,
2005); and Private Pensions: Questions Concerning the Pension Benefit
Guaranty Corporation's Practices Regarding Single-Employer Probable
Claims, GAO-05-991R (Washington, D.C.: September 9, 2005).

PBGC's financial condition is determined by comparing the values of its
assets and its liabilities. PBGC's assets consist primarily of accumulated
premiums paid by covered plans (invested in Treasury securities) and plan
assets assumed by PBGC when it takes over a plan. PBGC's liabilities
consist primarily of future benefit payment obligations for plans it takes
over and for plans that it believes will probably terminate in the near
future.2

The increase in PBGC's probable claims in recent years has raised
questions about PBGC's monitoring and financial disclosure practices,
including whether the information that PBGC discloses is sufficient for
interested parties to understand the net effect of such claims and
ultimately terminations. In September 2005, we provided detailed
information about PBGC's process for determining single-employer probable
claims and some information about PBGC's practices for disclosing
information about these claims.3 To address further questions about the
transparency of PBGC's probable claims process and its disclosure
practices, we are reporting on (1) the steps that PBGC takes to monitor
and ensure the accuracy of its probable claims forecasts, (2) how PBGC's
financial liability reporting compares with that of publicly traded
companies, and (3) the steps PBGC has taken to improve the transparency of
its financial reporting on its probable claims and financial condition and
whether additional improvement is needed.

To determine the steps PBGC takes to monitor and ensure the accuracy of
its probable claims forecasts, we reviewed PBGC documents and interviewed
PBGC officials about the methods they use, including the information
sources used to monitor claims. We also reviewed the agency's process and
internal controls for ensuring the accuracy of claims and analyzed PBGC's
historical data about its probable claims, but we did not test its
controls to ensure that they are effective. To determine and compare PBGC
and public company practices for making financial disclosures, we reviewed
applicable Generally Accepted Accounting Principles, Financial Accounting
Standards Board (FASB) standards, Financial Accounting Standards Advisory
Board (FASAB) standards, Securities and Exchange Commission (SEC)
disclosure requirements, and the financial disclosures that PBGC and
public companies issue. To determine the steps PBGC has taken to improve
the transparency of its financial disclosures and whether additional
improvement is needed, we identified PBGC initiatives aimed at improving
disclosure and interviewed industry association representatives, financial
analysts, and pension experts to determine what further improvements could
be made. We conducted our work from September 2005 through February 2006
in accordance with generally accepted government auditing standards.

2Under Statement of Financial Accounting Standard Number 5, loss
contingencies are classified as probable if the future event or events are
likely to occur.

3GAO, Private Pensions: Questions Concerning the Pension Benefit Guaranty
Corporation's Practices Regarding Single-Employer Probable Claims,
GAO-05-991R (Washington, D.C. September 2005)

                                Results in Brief

PBGC reports that it takes steps to monitor and ensure the accuracy of its
single-employer probable claims forecasts. PBGC monitors its probable
claims on an ongoing basis by contacting plan sponsors to obtain certain
plan financial information, reviewing filings submitted by probable plans
to conduct a risk analysis, and performing valuations to determine, among
other things, the present value of net probable claims and expected date
of probable plan termination. PBGC also regularly reviews and updates its
list of probable claims that it monitors. To help ensure the accuracy of
its probable claim estimates, PBGC uses an automated system and available
plan financial information to calculate the quarterly and fiscal year-end
financial statement assets and liabilities for probable claims. PBGC
officials believe their probable claims estimates are fairly accurate
because the estimates are generally close to the final net liability
amounts for those probable plans it ultimately took over.

PBGC and public companies have different practices for disclosing certain
information about liability settlements, including probable losses, that
arise from the differences between PBGC's responsibilities and disclosure
policies, and SEC's requirements for public companies.4 While PBGC and
public companies follow the same accounting standards for recording
probable losses in their annual financial statements, they each follow
different policies and requirements when reporting information about
probable losses throughout the fiscal year. When reporting information on
liability settlements, public companies are required to follow the
standards set forth by SEC requirements, while PBGC, which is not subject
to SEC requirements, follows its own set of policies and procedures. For
example, SEC requires companies to disclose major events throughout the
year, such as liability settlements, that shareholders should know about,
which can include any probable losses that are considered to be material,
in Form 8-K. In contrast, PBGC's policy prohibits the reporting of
information on plans classified as probable claims in order to protect the
economic health of the plan sponsor. We found that PBGC's disclosure
practices regarding information about probable losses are more comparable
to those of other government corporations, like the Federal Deposit
Insurance Corporation (FDIC). According to officials from both agencies,
PBGC and FDIC follow the same accounting standards and face similar risks
when disclosing information on liability settlements, including probable
losses. For example, both agencies state they do not disclose probable
loss amounts in their financial liability disclosures because doing so
might compromise their position in litigation and negatively affect the
financial condition of entities under their jurisdiction.

4 For the purposes of this report, the term "liability settlements" is
being used to discuss the information that PBGC, the Federal Deposit
Insurance Corporations (FDIC), and public companies disclose about
probable claims that occur between annual financial statements.

Although PBGC has taken measures to improve the transparency of the
information it reports related to its financial condition, pension
experts, financial analysts, and others said that additional improvements
are needed. PBGC recently began to include more information about its
methodology for determining probable claims in its annual reports and has
made more detailed information on its financial condition available on its
Web site. However, pension experts, analysts, and industry association
representatives said that they have specific concerns about the
transparency of information PBGC reports about its financial condition.
For example, they told us that the press releases PBGC issues to announce
new plan terminations do not provide the public with enough information to
determine the terminations' financial effect on PBGC's published deficit.
Pension experts and others said that such omissions may give the false
impression that the announced liability in the press release is a new
financial liability to PBGC and that PBGC is adding the entire amount of
the announced liability to its current financial deficit. However, if the
terminated plan was among PBGC's probable claims included in its year-end
financial statement, much of the plan's liability would already be
included in PBGC's deficit figures. Pension experts and others also
expressed concern about the lack of transparency regarding PBGC's interest
rate assumptions, such as information about the methodology PBGC uses to
calculate its interest rate. Specifically, the fact that PBGC does not
widely disclose the methods it uses to determine its interest rate
assumptions raises ambiguity about its assumptions and means that others
are unable to fully assess PBGC's financial condition. Finally, most
parties agreed that the information PBGC reports about its financial
condition is likely to become increasingly important if changes are made
to pension accounting rules, because such changes could have an effect on
defined benefit plans insured by PBGC.

Because of the questions raised about PBGC's financial disclosure
practices, we make recommendations to PBGC to disclose, in its press
releases, whether a newly terminated plan was classified as a probable
claim and already included in its reported deficit in its annual financial
statement; and to make its interest rate methodology more widely available
to the public on its Web site. PBGC agreed with our recommendations. PBGC
stated that in its future media releases it would note whether or not
reserves have previously been made relating to the termination of the
subject company's defined benefit plans and post additional details
regarding its interest methodology on its Web site.

                                   Background

PBGC's single-employer insurance program is a federal program that
protects the retirement incomes of more than 34 million workers and
retirees covered by almost 29,000 private sector defined benefit pension
plans. Defined benefit pension plans promise to pay a specified monthly
benefit at retirement, commonly based on salary and years on the job. PBGC
receives no funds from general tax revenues. Operations are financed by
insurance premiums set by Congress and paid by sponsors of defined benefit
plans, investment income, assets from pension plans taken over by PBGC,
and recoveries from the companies formerly responsible for the plans it
took over. In addition, PBGC uses Form 5500 information-the primary source
of information for both the federal government and the private sector
regarding the operation, funding, assets, and investments of private
pension plans--to monitor single-employer defined benefit pension plan
activities, focusing on assets, liabilities, number of participants, and
funding levels. Form 5500 information is also used to forecast PBGC's
potential liabilities.

The Employee Retirement Income Security Act of 1974 (ERISA) established
PBGC to insure the pension benefits of participants, subject to certain
limits, in the event that an employer cannot pay its promised benefits.5
ERISA also required PBGC to encourage the continuation and maintenance of
voluntary private pension plans and to maintain premiums set by the
corporation at the lowest level consistent with carrying out its
obligations.6 PBGC may pay only a portion of a participant's accrued
benefit because of limits on the PBGC benefit guarantee; PBGC generally
does not guarantee benefits above a certain amount, currently $47,659
annually per participant at age 65. Additionally, benefit increases
arising from plan amendments in the 5 years immediately preceding plan
termination are not fully guaranteed, although PBGC will pay a portion of
these increases. Finally, sponsors of PBGC-insured defined benefit plans
pay annual premiums to PBGC for their coverage.7

PBGC prepares its financial statements in accordance with FASB standards,
as permitted by the Federal Accounting Standards Advisory Board.8 For
procedures on how to record and report contingencies, FASB's Statement of
Financial Accounting Standards No. 5, Accounting for Contingencies (FAS
No. 5), specifically requires that a liability for loss contingency be
recorded if two conditions are met: (1) information available prior to
issuance indicates that it is probable that a liability has been incurred
at the date of the financial statements, and (2) the amount of the loss
can be reasonably estimated. For fiscal year 2005, PBGC received its 13th
consecutive clean or unqualified audit opinion from its independent
auditors.

As a wholly-owned government corporation, PBGC is subject to the financial
and internal control reporting requirements of Chapter 91 of Title 31 of
the U.S. Code (commonly known as the Government Corporation Control Act).
The Office of Management and Budget (OMB) issues guidance to the heads of
federal agencies and government corporations that sets out the annual
process for them to make a statement as to the adequacy of their entity's
internal controls. In light of new requirements for publicly-traded
companies relating specifically to internal controls over financial
reporting and management's related responsibilities, contained in the
Sarbanes-Oxley Act of 2002,9 OMB recently revised its guidance to adopt
enhanced requirements for internal controls over financial reporting by
major federal agencies. Specifically, OMB added an entirely new appendix
to its existing guidance requiring that these agencies establish a formal
process for assessing their internal controls over financial reporting.
This new requirement, however, applies only to the 24 CFO Act agencies,10
and thus these specific requirements do not apply to PBGC.

5Some defined benefit plans are not covered by PBGC insurance; for
example, plans sponsored by professional service employers, such as
physicians and lawyers, with 25 or fewer employees.

629 U.S.C. S:1302(a).

7Premiums have two components: a per participant charge paid by all
sponsors and a "variable-rate" premium that some underfunded plans pay
based on the level of unfunded benefits.

8The Federal Accounting Standards Advisory Board (FASAB) considers and
promulgates accounting concepts and standards for the federal government.
FASAB is sponsored by the Comptroller General of the United States, the
Director of the Office of Management and Budget (OMB), and the Secretary
of the Treasury of the United States.

To estimate the present value of its future liabilities, PBGC develops
interest rate factors, similar to interest rates, to use for these
calculations, based on surveys of insurance companies conducted by the
American Council of Life Insurers (ACLI) for PBGC and the Internal Revenue
Service (IRS).11 The survey asks insurers to provide the net annuity price
for annuity contracts for plan terminations. PBGC develops interest rate
factors, similar to interest rates, from the survey results that together
with PBGC's other actuarial assumptions produce prices in line with those
of the private sector insurers surveyed, which are adjusted to the end of
the year using an average of the Moody's Corporate Bond Indices for Aa and
A-rated corporate bonds for the last 5 trading days of the month. The
adjusted interest rate factors are published in mid-December for use in
January. The interest rate factors are then further adjusted each
subsequent month of the year on the basis of the average of the Moody's
bond indices. All other things being equal, when interest rates are lower,
more money is needed today to finance future benefits because this money
will earn less income when invested. Therefore, lower interest rate
assumptions result in higher liability amounts, while higher interest rate
assumptions result in lower liability amounts.

9Pub. L. No. 107-204, S:S: 302, 404, 116 Stat. 745, 777, 789 (July 30,
2002).

1031 U.S.C. S: 901.

11ACLI conducts four surveys annually. PBGC interest rate factors used for
its financial statements are based on an average of the surveys conducted
in June and September.

In 1997, we reported that the cash-based federal budget, which focuses on
annual cash flows, does not adequately reflect the cost or the economic
impact of PBGC's single-employer pension insurance program and other
federal insurance programs.12 Generally, cost is only recognized in the
budget when claims are paid rather than when the commitment is made.
Benefit payments of terminated plans assumed by PBGC may not be made for
years, even decades, because plan participants generally are not eligible
to receive pension benefits until they reach age 65. Once eligible, these
benefits are paid over a period of years or even decades. As a result,
there can be years in which PBGC's current cash collections are estimated
to exceed current cash payments, regardless of the expected long-term cost
to the government. We concluded that the use of accrual concepts in the
budget for PBGC and other insurance programs has the potential to better
inform budget choices.

SEC, the principal federal regulator of the U.S. securities markets,
requires public companies to disclose meaningful financial and other
information to the public. SEC's mission is to protect investors, maintain
fair orderly and efficient markets, and facilitate capital formation.
Public companies are required to submit reports to SEC on Form 8-K, the
"current report" companies must file with SEC to announce certain major
events that shareholders should know about, including any expected losses
that are considered to be material. In addition, public companies must
submit annual reports on Form 10-K and quarterly reports on Form 10-Q.13
These disclosures are designed to keep the public informed about any
information that could be considered important for investors. This
provides a common pool of knowledge for all investors to use to judge for
themselves whether to buy, sell, or hold a particular security.

FDIC is a government corporation. In addition to its roles as primary
federal regulator of state-chartered banks that are not members of the
Federal Reserve System and back-up regulator for all insured depository
institutions, FDIC said it promotes public confidence and stability in the
U.S. financial system by insuring deposits in banks and thrift
institutions; by examining and supervising financial institutions; by
identifying, monitoring, and addressing risks to the deposit insurance
funds; and by limiting the effect on the economy and the financial system
when a bank or thrift institution fails. Similar to PBGC, FDIC receives no
congressional appropriations; it is funded by premiums that banks and
thrift institutions pay for deposit insurance coverage and from earnings
on investments in U.S. Treasury securities.

12 GAO, Budget Issues: Budgeting for Federal Insurance Programs,
GAO/AIMD-97-16 (Washington D.C.: Sept. 30, 1997).

13The annual report on Form 10-K provides a comprehensive overview of the
company's business and financial condition and includes audited financial
statements. The Form 10-Q includes unaudited financial statements and
provides a continuing view of the company's financial position during the
year. The report must be filed for each of the first three fiscal quarters
of the company's fiscal year.

     PBGC Has a Process in Place to Monitor and Ensure the Accuracy of Its
                   Single-Employer Probable Claims Forecasts

PBGC reports that it monitors its probable claims on an ongoing basis by
contacting plan sponsors to obtain certain plan financial information,
reviewing filings submitted by probable plans to conduct a risk analysis,
and performing valuations to determine, among other things, the present
value of net probable claims and expected date of probable plan
termination. PBGC also regularly updates and reviews its list of probable
claims that it monitors. PBGC also takes certain steps to ensure the
accuracy of its probable claims, such as using an automated system for
estimating probable claims and the most currently available data when
calculating its estimates. We found that PBGC's probable claims estimates
are reasonable because they are generally close to the final claim amounts
that are determined for these plans that PBGC ultimately takes over.

PBGC Has Procedures in Place to Monitor Single-Employer Probable Claims on a
Year-round Basis

PBGC assesses underfunded plans to determine which plans should be
classified as probable claims and monitored on an ongoing basis. To be
classified as a probable claim, a plan must meet at least one of the seven
criteria PBGC uses, five of which it characterizes as objective, and two
as subjective. According to PBGC officials, objective criteria are used
when substantial evidence exists to indicate that the plan sponsor is in
liquidation or insolvency proceedings or will meet the requirements for a
distress or involuntary termination. Subjective criteria involve
management judgment.14 Table 1 shows the different applications of the
objective and subjective criteria used to classify plans as probable
claims.

14According to PBGC, subjective criteria must typically be used when most
plans meet the criteria for recognition under FAS No. 5 of GAAP while in
or close to reorganization under Chapter 11 bankruptcy.

Table 1: List of Probable Classification Criteria

Criterion type Description                                                 
Objective      The plan's contributing sponsor(s) is in liquidation under  
                  Title 11 of the United States Code or comparable state      
                  insolvency proceeding.                                      
Objective      PBGC has received a distress termination filing, and        
                  substantial evidence exists that the requirements for a     
                  distress termination are likely to be met.                  
Objective      PBGC has been informed that a distress termination will be  
                  filed, and substantial evidence exists that the             
                  requirements for a distress termination are likely to be    
                  met.                                                        
Objective      PBGC has advised the plan administrator that a distress     
                  termination should be filed, and substantial evidence       
                  exists that the requirements for a distress termination are 
                  likely to be met.                                           
Objective      PBGC is considering or is expected to consider the plan for 
                  an involuntary termination, and substantial evidence exist  
                  that the requirements for an involuntary termination are    
                  likely to be met.                                           
Subjective     The plan was classified as reasonably possible and it was   
                  determined that the plan is a very high risk plan that      
                  should be classified as probable.                           
Subjective     Plans can be classified as probable if any other set of     
                  circumstances exist that in PBGC's judgment constitute a    
                  probable termination.                                       

Source: GAO analysis of PBGC data.

Once probable plans are identified, PBGC uses certain information to more
closely monitor such plans and the future claims they represent. To
accomplish this, PBGC primarily relies on information it receives from
plan sponsors, information from Section 4010 filings, reportable event and
distress termination filings, and other sources. 15

           o  Information from plan sponsors: PBGC officials said they
           contact plan sponsors in order to monitor the case and obtain any
           required information not submitted by the plan sponsor, such as
           the plan's most recent Form 5500 filing and actuarial valuation
           report. PBGC officials said they also make an assessment of the
           potential for termination. This is part of a process that
           encompasses (1) querying the plan sponsor about the intentions
           with regard to its pension plans, (2) obtaining estimates of due
           and unpaid employer contributions and unfunded benefits, and (3)
           performing a risk analysis.

           o  Section 4010 filings: These filings provide PBGC with actuarial
           and other information on some underfunded plans and financial
           information for companies that meet certain criteria. PBGC said
           that these filings are an important component of PBGC's monitoring
           activities. Section 4010 of ERISA requires the reporting of plan
           actuarial and company financial information by employers with
           plans that have aggregate unfunded vested benefits in excess of
           $50 million, missed required contributions in excess of $1
           million, or outstanding minimum funding waivers in excess of $1
           million. The information required to be filed includes (1) plan
           identifying information, (2) information regarding the fair market
           value of plan assets and the value of benefit liabilities on a
           PBGC termination liability basis, and (3) financial information,
           such as financial statements.

           o  Reportable event and distress termination filings: The major
           types of reportable event filings that PBGC uses to monitor
           underfunded plans include the inability of a plan to pay
           participants the benefits due them in the form prescribed by the
           plan, bankruptcy or insolvency proceedings, liquidation
           proceedings or the dissolving of the plan sponsor, and failing to
           meet the minimum funding standards. According to PBGC officials,
           PBGC is notified of reportable events affecting approximately 300
           plans per year. On average, 200 of these plans either undergo
           standard terminations or continue without termination, resulting
           in PBGC not taking over the plan.16 The remaining 100 plans
           eventually become distress terminations or involuntary
           terminations.17

           o  Other sources: PBGC uses Form 5500 information to monitor plan
           funding. PBGC also monitors news sources (e.g., Bloomberg,
           Livedgar, and NewsEdge) to identify transactions that could
           adversely affect plan funding status and ultimately PBGC. In
           addition, PBGC contracts with Dun and Bradstreet's First Alert
           Service, which reports on bankruptcy filings within several days
           of the filing.

           As part of its monitoring process, all probable claims are
           reviewed by PBGC's Contingency Working Group (CWG), which is
           composed of representatives from various departments and divisions
           within PBGC. The CWG is responsible for approving probable plan
           classifications and probable loss amounts. PBGC updates its
           probable claims three times per year, and performs valuations for
           financial reporting purposes on all plans on the probable claims
           list. For each financial reporting date (March 31, June 30, and
           September 30), PBGC actuaries prepare a preliminary list of
           probable claims that also contains the estimated date of plan
           termination and the present value of the each plan's net claim.
           For each period, the Contingency Working Group reviews and
           approves the finalized list of probable claims.

           PBGC reports that it takes certain steps to help ensure the
           accuracy of its probable claims. One of PBGC's key controls to
           help ensure accuracy is an automated system for estimating
           probable claims. The Integrated Present Value of Future Benefits
           (IPVFB) system estimates the probable losses and does so according
           to GAAP and FAS No. 5 standards. To calculate the fiscal year end
           financial statement assets and liabilities for probable plans,
           plan information such as Form 5500 filings, asset statements,
           annuity purchases, contributions, and estimated dates of plan
           termination are entered into the IPVFB system as of the estimated
           date of plan termination and fiscal year end. This system adjusts
           the liabilities from the plan's assumptions, such as mortality,
           interest, and expected retirement age, to standard assumptions
           used by PBGC, and then produces a report that provides PBGC staff
           with information on how the assets and liabilities are brought
           forward from the Actuarial Valuation Report date to the date of
           the financial statements. PBGC officials reported that the
           agency's process for estimating its probable claims is reviewed by
           its financial auditors as part of its annual audit of its
           financial statements. As noted earlier, the auditors have issued
           unqualified audit opinions for the last 13 years.

           PBGC officials also told us they help ensure high levels of
           accuracy by using the most current data available as the starting
           point in their valuation process, but there's room for improving
           the timeliness of the data. For example, PBGC has 4010 data for
           the largest plans that it designates as probable claims, but even
           those data are 3  1/2 months old when received, and they are
           received only once per year. On occasion, PBGC is able to obtain
           more current actuarial valuation reports, but it is not able to do
           this regularly for all plans on the probables list.

           PBGC officials also said since single-employer probable claims are
           estimates, factors that are not fully determinable can cause the
           actual claims PBGC receives to differ from its probable estimates.
           According to these officials, when they calculate their probable
           estimates, they usually do not have complete data on the
           provisions of the plan, the characteristics of plan participants,
           the exact date of plan termination, the precise value of plan
           assets and liabilities at that termination date, or the level of
           recoveries from the plan's sponsor, all of which may change over
           time. Additionally, potential changes in PBGC's valuations,
           knowledge of specific plan provisions, and participant
           characteristics combine in ways that can cause the actual claims
           from these plans to deviate from the estimates, regardless of the
           timeliness of the data used in preparing the estimates. When a
           probable claim becomes an actual claim, PBGC officials said they
           adjust the probable claim estimate to that of the actual claim
           amount as of the date of plan termination. If a plan is removed
           from the probables list for a reason other than termination, the
           previously estimated claim is removed from the probable claims
           total and reclassified, often as a reasonably possible claim.18

           PBGC data showed its total probable claims estimates ($21.8
           billion) for all plans that eventually terminated were within one
           percentage point of the actual claim amount ($21.9 billion).
           Ninety-five percent of the $22.9 billion in resolved probable
           claims was in plans that terminated with PBGC.19 In addition,
           historically the vast majority of probable claims (76%)
           subsequently become actual claims, as shown in figure 1.

           Figure 1: Summary of Probable Net Claims Activity, Fiscal Years
           1987-2004

           Moreover, of the $16.9 billion of probable net claims that were
           reported in the financial statements as of the end of fiscal year
           2004, more than $10 billion was in plans that terminated during
           fiscal year 2005.

           PBGC and public companies have different practices for disclosing
           information about liability settlements, including probable
           losses. Although PBGC and public companies follow the same
           accounting standards for recording probable losses in their annual
           financial statements, they each follow different policies and
           requirements when reporting information about probable losses
           throughout the fiscal year. When reporting information on
           liability settlements, PBGC follows its own set of policies and
           procedures, while public companies are required to follow the
           standards set forth by SEC requirements. PBGC's disclosure
           practices regarding financial liabilities are similar to those of
           other government corporations, namely FDIC, which operates similar
           programs and faces similar risks.

           PBGC and publicly traded companies have different practices for
           disclosing information on liability settlements, including
           probable losses. Both PBGC and public companies follow the same
           accounting standards for recording probable losses in their annual
           financial statements. For example, PBGC announces an estimated
           liability from probable claims in its annual report, and public
           companies report similar information about probable losses in
           their annual reports. However, when reporting information about
           probable losses throughout the fiscal year, PBGC and public
           companies have different practices, which result from the
           different policies and requirements of each entity.

           PBGC's reporting in its annual report, or elsewhere, is meant to
           avoid the disclosure of any information on specific plans
           classified as probable in order to prevent harm to the economic
           health of the plan sponsor. When a plan is classified as a
           probable claim and has not yet terminated, PBGC's policy precludes
           the disclosure of any information indicating that a specific plan
           has been classified as a probable claim. In its annual report,
           PBGC reports its probable claim estimates as an aggregated total
           value of net claims in order to conceal exactly which plans are
           included in the figure. PBGC also identifies its probable claim
           estimates by industry in its financial statements. PBGC officials
           said their policy of not disclosing any information on plans so
           classified is meant to avoid causing more economic distress to the
           plan sponsor, because such plans usually have plan sponsors that
           are already economically weak. According to these officials, this
           policy exists so that disclosure does not unnecessarily (1)
           compromise a company's ability to continue as a going concern and
           (2) influence a sponsor's decision whether to maintain or
           terminate its pension plans. For example, if investors knew that
           PBGC had classified a particular plan as a probable claim, this
           could encourage additional negative speculation about the
           financial health of the plan sponsor and trigger activity that
           might further the financial instability of the company.

           When PBGC takes over a plan, it typically issues a press release
           announcing the liability PBGC expects to incur, without indicating
           if the terminated plan had already been booked as a probable claim
           and consequently included in its previously announced deficit in
           its year-end financial report. According to PBGC officials, PBGC
           does not release the amount of its previously booked probable
           claims in its press releases for fear of compromising PBGC's
           position in litigation and of negatively affecting a company's
           financial condition. These officials said that releasing its
           previously booked probable claim amounts would enable someone to
           make a comparison between PBGC's booked liability for a particular
           plan and the amount of underfunding for that plan. Publicizing
           this information could affect PBGC's ability to recover the full
           amount of a plan's claims in litigation because companies are
           likely to resist a settlement with PBGC for more than the amount
           of PBGC's previously booked losses. In addition, announcing the
           previously booked liability also has a negative impact on a
           company's ability to obtain additional financing and may worsen
           its financial condition.

           In contrast, public companies must follow SEC requirements for
           disclosing information on financial liability settlements,
           including probable claims. Federal securities laws enforced by SEC
           require that public companies disclose information on liabilities
           booked as a probable loss. Public companies must submit current
           reports to SEC on Form 8-K for a number of specified events,
           including any material event that might affect the investment
           decisions of shareholders. For example, when a public company
           books a material liability as "probable," the company is required
           to file a Form 8-K with SEC. Often companies issue such
           information in a press release, which they may attach to the 8-K.

           Although SEC requires public companies, under certain conditions,
           to disclose information about a probable loss, there is much
           variability in how these companies choose to disclose this
           information. According to SEC officials, some companies choose to
           provide as much information as possible concerning their probable
           losses, while other companies choose to release less information.
           For example, some companies release the specific amount of a
           probable loss in an 8-K, and after the liability has changed from
           a probable claim to a certainty, these companies choose to
           redisclose the previously booked quantity to fully demonstrate the
           total financial impact of the liability on the company. Other
           companies choose to be more general in their disclosure of
           probable liabilities by disclosing information about these
           quantities in general terms, such as announcing a range instead of
           a specific number.

           Pension experts, financial analysts, SEC officials, and others
           said that the different reporting practices and policies of PBGC
           and public companies are a consequence of the different risks and
           responsibilities faced by each entity. They agreed that there
           would likely be further economic distress for plan sponsors if
           PBGC divulged which plans are classified as probable before those
           plans terminate. These experts also noted that while PBGC has an
           obligation to not disclose information on its probable claims,
           public companies have a responsibility to report as much
           information as possible, including probable claims, in order to
           keep investors informed and able to make knowledgeable decisions.
           Finally, they said that the unique risks of PBGC as a government
           corporation make its disclosure responsibilities distinctively
           different from those of public companies.

           We found that PBGC's reporting practices are more comparable to
           those of government corporations like FDIC than they are to those
           of public companies. Both corporations operate similar types of
           programs, and both agencies have a responsibility to ensure the
           stability of the programs they operate. Unlike public companies,
           PBGC and FDIC are not subject to SEC requirements. In our
           discussions with PBGC and FDIC officials, we found that both
           agencies have adopted similar disclosure policies when reporting
           probable losses.

           According to officials from PBGC and FDIC, both agencies follow
           the same accounting standards and face similar risks when
           disclosing information about probable losses. For example,
           officials from both agencies said they do not disclose
           case-specific, detailed information on probable claims in order to
           protect the entities under their jurisdictions from further
           economic distress. Just as PBGC avoids exacerbating the economic
           situation faced by plan sponsors whose plans are booked as
           probable, FDIC avoids any financial statement disclosure action
           that might cause further economic distress for the institutions it
           insures. In addition, PBGC follows a policy of not disclosing
           probable claim amounts in its press releases announcing the
           termination of a plan. FDIC officials said that the agency issues
           a press release on the day of institution failure that may or may
           not, depending on the nature and timing of the failure, include an
           estimated cost to the Insurance Fund. The unique responsibilities
           of each entity heavily influence the nature and content of the
           disclosures.

           Over the years, PBGC has made efforts to improve the transparency
           of its disclosures, including revising its annual report to
           include more detailed information about its methodology for
           determining probable claims, and it has published more detailed
           information about its financial condition on its Web site. Despite
           PBGC's efforts to improve the transparency of its disclosures,
           pension experts and others told us that they would like to see
           more information disclosed when PBGC announces the termination of
           a new plan in its press releases and that they have some
           uncertainty about PBGC's methodology for calculating its interest
           rate. In addition, pension experts, financial analysts, and
           industry association representatives told us that PBGC's
           disclosures are likely to become increasingly important in light
           of upcoming changes in the pension accounting rules for plan
           sponsors.

           PBGC officials told us they regularly review the agency's policies
           for disclosing information related to its financial condition and
           revise their disclosure documents as needed. According to PBGC
           officials, when making decisions to revise its disclosures, PBGC
           takes into consideration, among other things, current changes in
           the private pension environment that affect the agency's financial
           condition and information that would help the public better
           understand PBGC's current financial condition.

           Over the last several years PBGC took the following actions to
           improve the transparency of its disclosures:

           o  it published a fact sheet on its Web site that provides answers
           to questions that have been raised about PBGC financial condition,
           including its deficit, the true cost of its insurance program, and
           pension underfunding;

           o  it revised its annual report to include more detailed
           information about its methodology for determining probable claims;

           o  it revised its Pension Insurance Data Book 2003 , which has
           detailed statistics for the agency's insurance programs, to
           include information related to PBGC's claims experiences in order
           to provide more historical data on the number and size of claims
           by the year the plans terminated, the funding levels of the plans
           at termination, and the size of the plans at termination;

           o  it released extensive data about PBGC's financial condition, as
           well as explanatory and white papers about how to understand
           PBGC's financial condition, reports, and methods available on its
           Web site ( www.pbgc.gov ); and

           o  it revised the agency's Web site to make it more user-friendly.

           PBGC officials also said they conduct a range of educational
           outreach activities with their various stakeholders, including
           plan participants, experts, policy makers, and the press. For
           example, PBGC discusses its financial condition at various
           meetings with plan participants held each year. PBGC officials
           also regularly give speeches at gatherings of actuaries, lawyers,
           financial officers, benefit specialists, and other members of the
           plan sponsor community. PBGC also issues press releases regarding
           its current financial condition, in connection with the annual
           financial statements.

           Some pension experts and others have expressed concern that some
           aspects of PBGC's disclosures are still unclear. For example, PBGC
           does not include sufficient information to determine the financial
           impact of new terminations on PBGC's financial position when it
           issues a press release. When announcing the termination of a new
           plan in its press releases, PBGC does not announce whether or not
           the terminated plan was previously booked as a probable and
           already included in its reported deficit and reported in its
           annual financial statement. For example, when a large plan is
           terminated, PBGC puts out a press release announcing the following
           information about the terminated plan:

           o  the type of termination and reason for termination;

           o  plan information, including the amount of assets, amount of
           liability, level of funding, and the number of employees covered
           by the plan;

           o  the current estimate of PBGC's liability; and

           o  a review of pension rules and guarantee limits.

           When announcing a plan's termination, PBGC does not disclose
           whether the plan was previously booked as a probable claim, and
           experts and others said this practice leads some to believe that
           PBGC is assuming a wholly new liability, in addition to the large
           deficit already reported by PBGC in its annual report. According
           to PBGC officials, in the case of most large terminations, PBGC
           has already recorded a major part of the announced liability in
           its reported deficit as a probable claim. Thus, when PBGC issues a
           press release, it may appear that PBGC is assuming a considerable
           liability with the termination of a large underfunded pension plan
           when in fact most of the announced liability has been previously
           recorded in PBGC's annual financial statement and is already
           reflected in its previously reported deficit. Pension experts and
           financial analysts said that PBGC's press releases include PBGC's
           best estimate of the financial liability facing PBGC without any
           mention of how much of this liability has already been recorded as
           a probable claim in its annual financial statement. Experts and
           others told us that when PBGC puts out a press release announcing
           the termination of a new plan, they regularly receive telephone
           calls from the media and others asking if this announced liability
           is a new liability added to PBGC's deficit. By revealing whether
           the newly terminated plan was previously recorded as a probable
           claim, PBGC would give policy makers and others better information
           to understand the impact on PBGC's financial condition.

           Pension experts and financial analysts were also concerned that
           they remain uncertain about PBGC's methodology for calculating the
           interest rate it uses to discount its long-term liabilities and
           would like to see more information disclosed about this process.
           The interest rate used by PBGC to calculate its liabilities has a
           significant effect on the reported financial condition of PBGC.
           For instance, if PBGC reduced its interest rate, the value of its
           liabilities would increase, and conversely, if PBGC increased its
           interest rate, the value of PBGC's liabilities would decrease.
           Pension experts said that because PBGC's interest rate choice has
           a large impact on its reported financial position, they are
           troubled that the assumptions surrounding the interest rate
           decision are not transparent. Pension experts and financial
           analysts said that they are uncertain of the exact calculations
           used by PBGC to calculate its rate, and they believe that PBGC
           could do more to clarify its interest rate assumptions and the
           effect of this rate on its reported financial position.

           According to PBGC officials, information about their interest rate
           calculations is available upon request but is not provided in its
           annual financial disclosure documents. Although PBGC discloses its
           interest rate factors and some of its actuarial assumptions in its
           annual financial statement, it does not disclose its entire
           interest rate methodology. PBGC officials also told us that in
           2003, during bankruptcy proceedings for US Airways, the court
           reviewed PBGC's interest rate. During these proceedings, PBGC
           submitted a detailed presentation on how the rate is calculated,
           which is now part of the public record. The court upheld PBGC's
           use of its interest rate. PBGC officials told us they distribute
           documentation of their methodology when it is requested. However,
           while the assumptions and calculations PBGC uses to calculate its
           interest rate are public information, such information is not
           readily accessible to experts, plan sponsors, plan participants,
           or lawmakers because they may not know that this information is
           available upon request.

           Pension experts and others also had additional concerns about
           PBGC's methodology and practices that PBGC has addressed.
           Specifically, they were concerned that PBGC's practices and
           disclosures overstate PBGC's economic distress by (1) including
           estimated probable claim liabilities in its deficit, (2) not
           publishing a projected date of PBGC's insolvency,20 and (3) using
           a low interest rate. For more information on these concerns and
           PBGC's responses to these concerns, see appendix III.

           Concerns about the transparency of information on the financial
           condition of the PBGC are not new. As we previously reported, the
           cash-basis of the federal budget contributes to a lack of
           transparency about PBGC and other federal insurance programs that
           may delay recognition of emerging financial problems.21
           Furthermore, current budget reporting may not provide policy
           makers with information or incentives to address potential funding
           shortfalls before claim payments come due. Generally costs are
           recorded in the budget too late for policy makers to control them
           or even ensure that adequate resources will be available to cover
           them. The delayed budget recognition of these costs can reduce the
           number of viable options available to policy makers and may
           ultimately increase the cost to the government.

           Finally, many of the pension experts, financial analysts, and
           industry association representatives we consulted observed that
           PBGC's disclosures are likely to become increasingly important if
           changes to the pension accounting rules currently under discussion
           are made, as these could have an effect on defined benefit plans
           covered by PBGC. The primary accounting rule change that is being
           discussed is likely to move the disclosure of the funding status
           of pension plans from the footnotes to the balance sheet of the
           employer's financial statement. According to FASB, this change is
           intended to make an employer's pension obligations more visible on
           the balance sheet and income statement in order to increase the
           transparency of the plan sponsor's financial position. Financial
           analysts and others told us that there are many potential effects
           to this expected change that do not directly influence PBGC but
           are likely to indirectly affect PBGC's financial condition. For
           example, pension experts and analysts said that the new FASB
           changes could have a positive effect on PBGC's future financial
           condition by promoting greater contributions and higher funding
           levels from plan sponsors, thus reducing PBGC's exposure to
           financially troubled plans.

           The information that PBGC reports on its probable claims and
           financial liabilities is the main source of information that
           policy makers and interested parties have to evaluate the
           financial condition of PBGC. The more transparent PBGC is about
           the impact of new terminations on PBGC's financial positions and
           the methodology it uses to determine its interest rate, the less
           ambiguity there will be about PBGC's financial condition and the
           more beneficial PBGC's financial reporting will be for policy
           makers and others. Public understanding of PBGC's financial
           condition will become even more important in the near future if
           the proposed changes to pension accounting rules are made,
           potentially affecting PBGC's financial condition.

           The risks faced by PBGC when disclosing information about probable
           claims are not the same as those faced by public companies. PBGC
           must be careful not to release information that can negatively
           affect the sponsors of the plans it insures or its ability to
           recover assets from the sponsors of the plans that it takes over.
           Public companies' disclosures are aimed at providing necessary
           information to investors. Improving the transparency of the
           financial information released by PBGC will require finding a
           solution that does not hinder the agency's ability to make
           recoveries from plan sponsors for the losses it incurs.

           We recognize that PBGC believes that there are reasons for
           withholding certain information about its probable claims. As we
           reported, PBGC does not disclose the names and liability amounts
           for newly terminated plans that were classified as probable claims
           because of its concerns of compromising PBGC's position during
           litigation and negatively affecting the economic health of plan
           sponsors. However, PBGC could better describe the impact of new
           claims on its reported net financial position when announcing new
           plan terminations in its press releases. Therefore, we recommend
           that PBGC consider disclosing, in its press releases, whether a
           newly terminated plan was classified as a probable and already
           included in its reported deficit in its annual financial
           statement.

           To improve the transparency of the interest rate assumptions PBGC
           uses to calculate its liabilities, we recommend that PBGC makes it
           interest rate methodology more widely available to the public. In
           doing so, PBGC should considering making this information
           available on its Web site.

           We provided a draft of this report to PBGC, FDIC, the Department
           of Labor (Labor), SEC, and the Department of the Treasury
           (Treasury). PBGC provided written comments, which appear in
           appendix I. PBGC's comments agreed with the findings and
           conclusions of our report. SEC provided written comments which
           appear in appendix II. SEC's comments generally agreed with our
           findings related to SEC's Form 8-K and material liabilities. The
           agency's comments also provided additional information that is
           related to Form 8-K requirements and financial statement
           disclosure of loss contingencies. PBGC and FDIC also provided
           technical comments on the draft. We did not receive any comments
           from Labor and Treasury. We incorporated each agency's comments as
           appropriate.

           As arranged with your office, unless you publicly announce its
           contents earlier, we plan no further distribution of this report
           until 30 days from the issue date. At that time, we will send
           copies of this report to the Secretary of Labor, the Secretary of
           the Treasury, and the Executive Director of the Pension Benefit
           Guaranty Corporation; appropriate congressional committees; and
           other interested parties. We will also make copies available to
           others on request. In addition, the report will be available at no
           charge on GAO's Web site at http://www.gao.gov .

           If you have any questions concerning this report, please contact
           me at (202) 512-7215. Other contacts and acknowledgments are
           listed in appendix IV.

           Barbara D. Bovbjerg Director, Education, Workforce and Income
           Security Issues

           Pension experts and others had additional concerns about the
           Pension Benefit Guaranty Corporation's (PBGC) methodology and
           practices that have been addressed by PBGC. Pension experts and
           industry association representatives told us they are also
           concerned that PBGC's practices and disclosures overstate its
           economic distress by (1) including estimated probable claim
           liabilities in its deficit, (2) not publishing a projected date of
           insolvency, and (3) using a low interest rate. Each of these
           concerns has already been addressed by PBGC.

           PBGC includes estimated net losses incurred from probable
           terminations in its liabilities when calculating its deficit. Some
           experts are concerned that PBGC's deficit is largely composed of
           liabilities from probable claims that might never terminate. In
           addition, these parties told us that by only booking the net
           claim, instead of booking the assets and liabilities separately,
           PBGC is making its own funded ratio look worse. PBGC officials
           agreed that this practice may make their funded ratio lower but
           said it has no impact on the size of its deficit. However, PBGC
           officials said that according to FAS 5, PBGC is required to
           include the expected net claims from probable claims in its
           financial statement if the loss is probable and the amount of the
           loss can be reasonably estimated. Furthermore, the accounting
           standards do not permit PBGC to separately book plan assets and
           liabilities of probable claims until PBGC takes over the plan.

           Pension experts and industry association representatives also told
           us that PBGC publicizes its large financial deficit without
           publishing an estimated date of insolvency. While some experts we
           spoke to understand that PBGC has enough assets to pay its
           promised obligations for a number of years, they are concerned
           that by not announcing a date of insolvency, PBGC leaves the
           impression that participants are at imminent risk of not receiving
           their benefits. PBGC officials told us that a projected date of
           insolvency for the single-employer program is not calculated
           because there are many uncertain variables that will affect PBGC's
           future cash flows, and it is not possible to reasonably project a
           date of insolvency with any accuracy. The uncertainty of when PBGC
           will trustee new plans, how those claims will affect PBGC's future
           cash flows, and of PBGC's revenue from investment returns make it
           impossible to make reasonable predictions of the date of PBGC's
           insolvency. However, PBGC officials reported that the agency's
           analysis has shown that there is less than a 10 percent chance
           that its single-employer program will not have sufficient assets
           to pay guaranteed benefits through 2020.

           Some pension experts, industry association representatives, and
           financial analysts disagree with PBGC's choice of interest rate
           used when calculating the value of its liabilities and argue that
           this interest rate is unrealistically low, thereby overstating the
           value of its reported deficit. These experts said that PBGC should
           be using a higher interest rate that is more in line with current
           corporate economic conditions. According to PBGC officials, the
           agency's interest factors are based on the rate at which a private
           insurance company would charge plan sponsors to take on a plan's
           promised benefits. The survey ensures that PBGC's termination
           values reflect the current market price of terminating a plan.
           PBGC officials also noted that its auditors have issued
           unqualified opinions on its financial statements, which include
           its liabilities for probable losses and the interest factors used
           to calculate these liabilities. In addition, the American Academy
           of Actuaries conducted a study that found its procedures
           accurately reflected annuity prices.

           Tamara Cross, Assistant Director; Raun Lazier, Analyst-in-Charge;
           Diana Blumenfeld; Joseph Applebaum; Richard Burkard; Robert Dacey;
           Kimberly McGatlin; Jonathan McMurray; James McTigue Jr.; and Roger
           J. Thomas made important contributions to this report.

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15At least one of the following criteria must be met in order for PBGC to
approve a distress termination filing: (1) liquidation in bankruptcy
(Chapter 7) or insolvency proceedings; (2) reorganization in bankruptcy
(Chapter 11); (3) a company will be unable to continue to stay in business
unless its plan is terminated; and (4) unreasonable, burdensome pension
costs caused solely by a decline in workforce.

16The termination of a fully funded defined benefit plan is called a
standard termination. According to PBGC officials, in a standard
termination the plan sponsor either purchases annuities for the plan's
participants or the plan pays them lump sum distributions to satisfy its
financial obligations.

17PBGC may initiate involuntary terminations for several reasons,
including if PBGC's loss from that plan may be expected to increase
unreasonably if the plan is not terminated. 29 U.S.C. S:1342(a).

PBGC Takes Steps to Ensure the Accuracy of Its Probable Claims

18Plans are classified as reasonably possible if they have over $50
million in aggregate underfunding, the plan sponsor's bonds are below
investment grade, the sponsor has applied for a minimum funding wavier
with the Internal Revenue Service or has missed a minimum funding
contribution, or the sponsor is in reorganization under Chapter 11.

19The $22.9 billion amount represents both $21.8 billion for probable
claims that became actual claims and $1.1 billion for claims that were
removed from the probable category.

PBGC and Public Companies Follow Different Reporting Requirements when Reporting
                Liability Settlements, Including Probable Losses

Differences in PBGC and Public Company Liability Settlement Reporting Result
from Differences between PBGC Disclosure Policies and SEC Requirements

PBGC's Liability Settlement Reporting Practices Are More Comparable to Those of
FDIC

PBGC'S Financial Disclosures Have Improved, but Transparency in Some Areas
                                Remains an Issue

PBGC Has Taken Steps to Improve the Transparency of Its Financial Disclosures

Pension Experts, Financial Analysts, and Others Have Concerns about the
Transparency of PBGC's Disclosures

20This is the date when PBGC's available resources will not be sufficient
to pay the monthly benefits currently coming due.

21U.S. General Accounting Office, Budget Issues: Budgeting for Federal
Insurance Programs, GAO/AIMD-97-16 (Washington D.C.: Sept. 30, 1997) and
U.S. Government Accountability Office, Private Pensions: The Pension
Benefit Guaranty Corporation and Long-Term Budgetary Challenges,
GAO-05-772T (Washington D.C.: June 9, 2005).

                                  Conclusions

                                Recommendations

                                Agency Comments

Appendix I: Comments from the Pension Benefit Guaranty Corporation
Appendix I: Comments from the Pension Benefit Guaranty Corporation

Appendix II: Comments from the Securities and Exchange Commission Appendix
II: Comments from the Securities and Exchange Commission

Appendix III: Other ConcInformation PBFinan Appendix III: Other Concerns
Regarding the Information PBGC Discloses about Its Financial Condition

Estimated Probable Claim Liabilities in Its Deficit

Projected Date of Insolvency

Interest Rate Level

A Appendix IV: GAO Staff Acknowledgments

Staff Acknowledgments

(130508)

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Highlights of GAO-06-429 , a report to congressional requesters

March 2006

PRIVATE PENSIONS

Opportunities Exist to Further Improve the Transparency of PBGC's
Financial Disclosures

The Pension Benefit Guaranty Corporation's (PBGC) single-employer
insurance program insures the pension benefits of over 34 million
participants in almost 29,000 private sector defined benefit pension
plans. The increase in PBGC's probable claims has raised questions about
PBGC's monitoring and financial disclosure practices, including whether
the information that PBGC discloses is sufficient for interested parties
to understand the effect on PBGC's financial condition. GAO examined (1)
the steps that PBGC takes to monitor and ensure the accuracy of its
probable claims, (2) how PBGC's financial liability reporting compares
with those of publicly traded companies, and (3) the steps PBGC has taken
to improve the transparency of its financial reporting and whether
additional improvement is needed.

What GAO Recommends

To improve the transparency of the information PBGC discloses about its
financial condition, GAO recommends that PBGC (1) disclose in its press
releases whether a newly terminated plan was already included in its
published deficit, and (2) make its interest rate methodology more widely
available to the public. PBGC agreed with our recommendations. Also, PBGC,
FDIC, and SEC provided technical comments on the draft. We incorporated
each agency's comments as appropriate.

PBGC takes steps to monitor and ensure the accuracy of its single-employer
probable claims forecasts. PBGC reported it monitors its probable claims
on an ongoing basis by contacting plan sponsors to obtain certain plan
financial information, reviewing filings submitted by probable plans to
conduct a risk analysis, and performing valuations to determine the
present value of net probable claims and expected date of probable plan
termination. To ensure the accuracy of its probable claims, PBGC reported
that it uses an automated system and available plan financial data to
calculate the assets and liabilities for probable plans.

PBGC and public companies have different practices for disclosing certain
information about liability settlements, including probable losses, that
arise from the differences between PBGC's responsibilities and disclosure
policies, and the Security and Exchange Commission's (SEC) requirements
for public companies. While PBGC and public companies follow the same
accounting standards for recording probable losses in their annual
financial statements, they each follow different policies and requirements
when reporting information about probable losses throughout the fiscal
year. When reporting information on liability settlements, public
companies are required to follow the standards set forth by SEC
requirements, while PBGC, which is not subject to SEC requirements,
follows its own set of policies and procedures. GAO found that PBGC's
disclosure practices regarding probable losses are more comparable to
those of the Federal Deposit Insurance Corporation (FDIC).

PBGC has made efforts to improve the transparency of the information it
discloses about its financial condition, but pension experts, financial
analysts, and others believe that additional improvements are still
needed. PBGC has recently taken steps to include more information about
its methodology for determining probable claims in its annual reports and
make more detailed information on its financial condition available on its
Web site. However, pension experts, analysts, and industry association
representatives still have concerns about transparency. Many stated that
the press releases PBGC issues that announce newly terminated plans do not
provide the public with enough information to determine the financial
impact of such plans on PBGC's published deficit. In addition, these
parties expressed concern about the lack of transparency regarding the
methodology PBGC uses to determine its interest rate its uses to calculate
its liabilities. Specifically, these parties told us the fact that PBCG
does not widely disclose the interest rate methodology contributes to
ambiguity about PBGC's assumptions and means that these parties are unable
to fully assess PBGC's financial condition.
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