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

STATEMENT OF SENATOR JOHN B. BREAUX

Senator BREAUX. Thank you, Mr. Chairman. I am delighted to join with you in participating in this hearing. I am glad the charts have cleared up how the Agency operates. I am not sure it is totally clear yet. Today, after reading that chart, it looks like how Congress operates, which is not very clear at all. [Laughter.]

But I think it is important that we look at the agencies that we have jurisdiction over, particularly in the area of retirement security. The average American probably has never heard of a corporation called the Pension Benefit Guaranty Corporation. Most Americans would not be able to tell you what that Agency does. But for millions of Americans who rely on the Pension Benefit Guaranty Corporation for a check every month, they certainly understand it and know how important it is to their daily lives. They are dependent on it.

In my own State of Louisiana, as an example, there are 302 plans, I think, that pay premiums to cover over a half a million participants just in my State of Louisiana. This is a corporation that manages millions and millions of dollars and serves a very critical purpose for a large number of Americans. And I think, therefore, it is appropriate and proper that this committee, in particular, which has taken the leadership I think in so many areas dealing with retirement and pension benefits and issues of particular concern to the elderly in our country, that it is appropriate that we have this oversight committee.

I think the executive director, Mr. Strauss, would be the first to admit that any agency in Government, indeed, can always do better than they have. And what we look for is a trend line of improving performance in serving the American public. I think it is important for this Agency, this Corporation, to know that Congress is looking at their operations and want to ensure that the movement is in the right direction in order to continue to improve services. And I think over the past years there has been an improvement in the quality of the services to the American people. This is an issue that is far too important to take lightly. Pensions are the life blood of many families in America. So we have to continue to do a better job than we did in the previous year.

There has been some concern about the tardiness in coming up with a final determination of what the actual benefits would be on a month-to-month basis, and we need to do better in that area. I do note, however, that I don't think we've ever missed any payments, and people have always been able to depend on that pension check. And in most cases, the initial determination and the final determination are actually very close to being the same thing. Americans can depend on getting their pension from the Pension Guaranty Corporation.

Customer services is a priority. I mean, this Agency, as we and the Congress, work for the American people. I have reviewed Mr. Strauss's testimony. I have been impressed that a person who is executive director has actually spent such an incredible amount of time in personally meeting with people who use this Corporation

and depend on it. I think that is admirable. Too often, in Washington, people who run agencies have a disconnect with the people that they serve. It is very important to reestablish that, and I think they have done that.

There has also been about 21 years of budget shortfalls in this Agency, which has been very disturbing. And it is good to note that over the last four consecutive years we have had a surplus. I think that is a major and very positive indication of movement in the right direction, as well as a downturn in the number of pending benefit determinations that are still pending and have been going down in each of the last 5 years.

So there is progress that is being made. Is it a perfect Agency? No. Is there a perfect Agency in Washington? No. I mean, everybody can stand improvement, and that is what we are looking for here today. And I look forward to all of our witnesses and their recommendations.

Thank you, Mr. Chairman.

The CHAIRMAN. I will try to accommodate Senator Bond or Senator Kerry if they are under tight schedules when they show up, if they want to make statements, because they have to go to another committee meeting. Both staff can inform them that I am willing to do that to help them. Because we need to conclude the hearing at 10 a.m. to attend the Finance Committee mark-up, as I have already suggested, I thank the Inspector General for his preparation to provide an introductory overview of the PBGC. And in the interest of time, I want to dispense with that opening and make it a part of the record.

Now, I introduce the panel, and I will introduce the entire panel, and then we will start with Mr. Parks and end with Mr. Strauss. Thomas A. Parks is a constituent of mine from Cedar Rapids, IA. And he has come here under extreme circumstances because he has been with a friend who is ill in Alaska, and we appreciate very much your taking time out of your schedule to come.

Now, we have another person, Dr. Wilde, who evidently because of plane problems may not be able to get here. He happens to be from Dale City, CA, but is now in Chicago, it is my understanding. He is going to, if he gets here, will testify on behalf of his mother, Dorothy Jasco. If he does not come, we will be able to put his statement in the record.

Then we have Bonne McHenry, a former contract employee of the Corporation, PBGC. She is from Merrimack, NH. Then, we have the Inspector General of the Corporation, Wayne Robert Poll. Thank you for coming.

And Barbara Bovbjerg, Associate Director of Income Security at the General Accounting Office. Thank you.

Robert H. Hast, Assistant Comptroller General for Special Investigations at the General Accounting Office.

And then David Strauss, our Executive Director of the Pension Benefit Guaranty Corporation. Thank you. Now, we will start with Mr. Parks.

STATEMENT OF THOMAS A. PARKS, CEDAR RAPIDS, IA Mr. PARKS. Thank you, Senator. Let me also preface my remarks that I have no interest in negatively complicating the lives of anyone at the Pension Benefit Guaranty Corporation. My sole motivation is to illuminate past problems with and within the PBGC, based on my experience, so as to hopefully benefit what I suspect are probably thousands of retirees highly dependent upon the PBGC.

That philosophy was enunciated in my letter to the PBGC of April 3, 1996, after approximately 42 years had elapsed before my situation was finally resolved in August 2000. That final determination, incidently, came after approximately 8 years after the PBGC became involved in this plan. In that 1996 letter, I stated: "My experience suggests to me that problems of this nature reflect much greater problems at the top. This does not necessarily mean at the supervisory level, it may be a funding issue or something comparable and equally difficult to resolve."

"For that reason alone, I am writing to you to ask that my unanswered letters be answered and my case resolved with rational expediency and that you allow me the benefit of your insight into the overall question before I take this matter up with others who I am reasonably certain will act."

To that April 1996 letter I attached an earlier fax to the PBGC in which I recited a litany of mistakes, some of which involve my receiving, without explanation, a substantial check drawn on a bank other than that which the PBGC had indicated would be transmitting funds and against a company pension plan unrelated to me in any way. Subsequently, I received another check duplicating the amount of the first check, drawn upon the correct PBGC bank. I returned these funds to the PBGC via a certified check.

Like other communications with the PBGC, these received no clarifying response. Instead, in April 1996, I received a request for documents that duplicated documents first supplied November 27, 1995. Subsequently, I received a surprising telephone inquiry from the PBGC asking if I could illuminate the cause of errors that were obviously internal to them and about which I was understandably uninformed. My response simply reiterated details previously supplied.

Following months of frustrating absence of any closure on questions and issues put before the PBGC, in January 1997, I requested the assistance of Congressman Jim Leach. In my judgment, the initial response to the Congressman's office was evasive and of little assistance, except to confirm that some undefined action was in progress. Subsequently, in a letter dated February 3, 1997, a full 5 years after the applicable pension plan had been terminated with the PBGC's involvement and 11⁄2 years after my retirement and filing for benefits, the PBGC confirmed their appointment as trustee, which had actually happened 6 months previously.

The PBGC then, in February 1997, proceeded to send auditors to my former employer's office to audit materials readily available from Aetna from 1992 forward. Nothing further was heard from them until 8 months later, when they telephoned my employer's former plan administrator, asking questions previously answered many times and suggesting that they had "misplaced"—their

words-applicable files and were "temporarily stymied." Consequently, on November 12, 1997, I requested assistance from the office of Senator Charles Grassley and provided that office with a detailed recap of pertinent communications with the PBGC extending from September 1991, over 6 years. That communication and attachments are included herewith as a matter of record.

The PBGC, in December 1997, responded to Senator Grassley, stating, among other things, that "our processing schedule calls for final benefits to be calculated by the end of 1998," which actually did not occur until August 2000. In this response, the PBGC expressed concern over the length of the process and further stated that their problems resolution officer had been asked to monitor my case to ensure that it stays on track.

I regret having to add to this litany of problems the fact that the final determination letter, ultimately received on August 14, 2000, was found to be incorrect and was superseded by what I presume is the ultimate final determination letter, dated August 18, 2000. In all fairness, I must add that this error was found by the PBGC without input from me and that they acted quickly to make the necessary corrections.

This quick action suggestions or appears to suggest some internal improvements have taken place, but this appearance of improvement is so recent that I am hesitant to rely upon it.

The fact remains that eight long years were consumed in the process between when the PBGC first became involved and their final determination of my case. During much of this time, I was uncertain as to benefits due me and aware that, upon final determination, I might have a partial repayment obligation rather than an increase in the monthly interim payment being received. Those interim payments began at $1,006 in May 1996 and were provisionally adjusted upwards to $1,257 in February 1998. In their final determination letter, the PBGC advised that my final entitlement would be increased by 83 cents.

Your attention is drawn to Attachment 1 to my November 12, 1997, letter to Senator Charles Grassley. That attachment, dated June 4, 1992, authored by my former employer's pension plan administrator, states that upon my retirement my benefit payment will be $1,257.88, only a nickel variance from the number determined by the PBGC to be applicable after 8 years of expended re

sources.

When one compares the years and resources consumed to arrive at such an insignificant change, it is difficult to make a positive statement, even given that I do have an appreciation for fiscal and accounting procedures which might justify such a modest adjustment. The 1992 estimate authored by my former employer's plan administrator was not mere speculation. It was predicated upon the facts that Aetna's actuaries had monitored and reported upon the applicable plan for benefits for many years. Additionally, in compliance with Department of Labor requirements, the company's plan numbers and Aetna's numbers had been audited and verified annually by auditors such as Price Waterhouse and Arthur Ander

son.

The PBGC's refusal to work with this certified data and thus save years of expensive efforts, only to essentially arrive at an

thank the witnesses for being here today. Your testimony today will assist the Committee greatly in determining how best to address the matters you raise.

I appreciate everyone's cooperation in permitting me to start the hearing earlier today. I have been called to a Finance Committee mark-up on important legislation beginning at 10 a.m. Therefore, I want to try to complete this hearing by 10 a.m. today.

There has been a lot of discussion throughout the 106th Congress about retirement income security. It has been a theme for me in my chairmanship of the Aging Committee. As this Congress comes to a close we continue to work to pass legislation to help Americans create a secure retirement. (Next week, the Senate will debate the comprehensive pension reform bill that I cosponsored.)

But what if you don't have a secure retirement? Or, what if you will only receive a small pension from the Social Security Administration and your company's pension makes all the difference? Imagine retiring and applying to receive your pension benefits from a company that you worked for early in your career. You find it has since gone bankrupt. Imagine collecting a pension check for a decade only to receive a notice stating that you have been overpaid all these years. Now you owe several thousand dollars and your monthly pension will be reduced drastically. Imagine receiving an IRS notice that you underpaid your taxes because of the lump sum you received as a result of somebody's miscalculation. Now you face higher taxes and 20 percent penalties. Imagine receiving a $473,000 check by mistake, as did the mother of one of today's witnesses. But, the problem didn't end there. Next, you will hear how the IRS got involved, wanting taxes and penalties on the $473,000 mistake.

This hearing focuses on the Pension Benefit Guaranty Corporation, or PBGC, which is a wholly-owned government corporation that manages $19 billion. PBGC's core mission is to provide timely and accurate benefits to millions of people who are covered by private sector defined benefit plans. Today we will examine how effectively PBGC has carried out its mission.

We are going to hear a lot about PBGC's benefit determination process. To simplify this discussion, we have prepared the next chart which reflects an Overview of PBGC's Benefit Process. I plan to leave this chart up throughout the hearing for any of the witnesses who may wish to refer to it. The chart shows seven stages of the benefit determination process. We're primarily concerned with five stages, which are numbered on the chart. Today we will hear various statistics about the length of time it takes PBGC to process final benefit determinations. It is important to keep in mind four key dates:

⚫ date of plan termination (reflected at Stage I);

⚫ date of trusteeship (reflected at Stage I);

⚫ date of actuarial valuation (reflected at Stage III); and

• date on which the initial (or final determination) letter is sent (at Stage IV). Regardless of the dates used to analyze the efficiency of PBGC's benefit process, it is important for us to keep one simple fact in mind-a retiring individual needs to know the amount of his or her retirement at the earliest possible date-preferably right after plan termination.

Let me be clear that I recognize many people are satisfied with PBGC. I am thankful for that. I further recognize that PBGC has a difficult job in accessing plan records from bankrupt companies and calculating the benefit. However, other people have had less satisfactory experiences. We will hear some of those stories today. Our purpose is not to embarrass an agency but to focus on how we can continue to improve the delivery of this vital service to millions of Americans.

The Committee has learned that it takes PBGC approximately 6 years from the date that a retirement plan terminates to determine the amount of a person's retirement benefit. Remember-that's the average time. From the chart to my right, you can see that some determinations take from 15 to 20 years!!. That's a very long time for someone to wait before they know what their retirement income will be.

It is true that PBGC does an excellent job of ensuring that people's payments continue throughout the determination process. The problem arises with the uncertainty people can face for years and years. People need to know as quickly as possible the amount of their monthly retirement check. I believe that a corporation, chartered by Congress, can do much, much better. I intend to see that this situation improves dramatically.

The hearing will cover two additional topics that are directly related to the benefits determination process: contract management and computer security. PBGC's contract management is important to this discussion because more than one-half of PBGC's 1,300 employees are contract employees located in 12 offices. These contract employees process the bulk of PBGC's benefit determinations. Today, Senator Bond