Finally, even if PBGC were to decide not to follow the FAR in conducting a trust fund procurement, it would remain subject to CICA. Under CICA and the Office of Federal Procurement Policy Act, PBGC must follow many of the same general requirements found in the FAR and would be subject to legal challenges to its contract awards for non-compliance with those requirements. As discussed above, PBGC is required to conduct all its procurements in accordance with the general requirement of CICA for full and open competition." More specifically, CICA requires, among other things, that agencies use noncompetitive procedures only in situations specifically delineated in the law; and that solicitations contain specifications meeting criteria set forth in the law." CICA also states that it is the policy of the Congress that "a fair proportion of [the Government's contracts] shall be placed with small-business concerns. PBGC is subject to the bid protest jurisdiction of this Office under CICA, even when acting in its trustee capacity."

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Question 6: Are all contracts executed by the PBGC done so in carrying out its government functions? Are contracts related to administration of the trust funds carried out by the PBGC as an exercise of its governmental powers, and if so, are these contracts reimbursable by the trust funds? If not, do the trust funds have actual administrators who solicit and award contracts under their own authority? Please provide supporting citations.

Answer: PBGC exists as a government corporation, and any action it takes must be in that capacity, including when it is contracting as court-appointed trustee. However, in that case, PBGC is also acting with the additional legal authority of a trustee. PBGC contracts related to the purposes of the trust funds are reimbursable from those funds.27

PBGC was chartered by statute as a wholly owned government corporation, to achieve specified purposes, including providing for the timely and uninterrupted payment of pension benefits to participants and beneficiaries in terminated pension

22

41 U.S.C. § 251 et seq. "Full and open competition" means that "all responsible sources are permitted to submit sealed bids or competitive proposals." See generally the response to question 4.

26

Professional Pension Termination Associates, B-230007.2, May 25, 1988, 88-1 CPD 1498.

27

Pension Benefit Guaranty Corporation's Use of Contingent Fee Arrangement with Outside Counsel, B-223146 (Oct. 7, 1986).

28

plans covered by ERISA. As a government corporation, it can only act pursuant to authority granted by its statutory charter. One such authority is to enter into

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contracts. Thus, when PBGC executes a contract within the scope of its authority, it does so in furtherance of its government functions.

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One of the functions PBGC is authorized by law to perform is to serve, when appointed by a court, as trustee for the assets of terminated pension plans." PBGC then holds these assets as trust funds. When acting as trustee, PBGC may exercise powers given by ERISA to trustees, subject to the jurisdiction of the court appointing it." At the same time, PBGC continues to be a government corporation, with the powers bestowed on it by the Congress in that capacity. Thus, in entering into a contract as trustee, PBGC is exercising both its governmental powers and its powers as appointed trustee. This is analogous to what would happen if, as the law permits, a bank or trust company were appointed as trustee for the assets of a terminated plan. The private trustee, in awarding contracts, would be acting pursuant to the authority of its corporate charter to accept the appointment as trustee, and to do what is necessary for that purpose, and also pursuant to its role as court-appointed trustee.

Question 7: Do the trust funds, in GAO's opinion, contain private funds or government funds?

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Answer: Assets of the trust funds are private funds. As discussed in answer to question 1, they are not appropriated funds. They consist of amounts contributed to private pension plans by employers and plan participants, and earnings on investment of these amounts. The United States has no legal or ownership interest in them. They are held in private trust accounts, impressed with a trust in favor of the plan participants and beneficiaries, rather than on the books of the Treasury, as is generally the case with public funds. The trust assets are under the control of a court-appointed trustee, and are available for disbursement by the trustee to plan participants and beneficiaries, without legislative action.

This distinction between private and government funds-is not precisely the one drawn by the FAR in terms of what constitutes an acquisition. For that purpose, as discussed in the answer to question 1, the issue is whether funds are "appropriated"

or not.

Question 8: To whom, in either the Executive or Legislative Branches, is the PBGC accountable for its expenditure of funds from the trust funds, particularly for contracting?

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Answer: As a creation of the Congress discharging a public purpose, PBGC is subject to oversight to the same extent as other federal agencies. In the executive branch, PBGC is under the direct control of, and is accountable to, a board of directors comprising the Secretary of Labor, the Secretary of the Treasury, and the Secretary of Commerce. In addition, PBGC is subject to the Government Corporation Control Act (GCCA)." GCCA requires that PBGC annually submit to the President a "business-type budget that the President is then free to modify before incorporating it in his annual budget proposal to the Congress. GCCA also calls for audits by an independent auditor of the financial statements of the covered corporations.

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GCCA also has implications for legislative branch oversight. It expressly gives the Congress responsibility for consideration of the corporate budgets submitted by the President." GCCA also requires government corporations to submit an annual management report to the Congress and to this Office." GAO's role is expressly recognized in GCCA" and, as you know, we also perform reviews of PBGC at the request of Members or committees of Congress.

Other legislative branch oversight of PBGC stems from the appropriations committees' consideration of its budget, and from activities of committees with legislative or oversight jurisdiction over it. PBGC is also subject to both executive and legislative oversight under the Government Performance and Results Act, which requires agencies to prepare and submit to the President and the Congress annual performance plans with specific goals, and reports on how their performance compares with the goals."

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31 U.S.C. § 9106. Copies of these reports also go to the President and the Director of the Office of Management and Budget.

Pension Benefit Guaranty Corporation

PBGC 1200 K Street, N.W., Washington, D.C. 20005-4026

US GOVERNMENT AGENCY

(202) 326-4010

On behalf of the Pension Benefit Guaranty Corporation (PBGC), I am submitting this letter, with attachments, for the record of the joint hearing entitled "Pension Tension: Does the Pension Benefit Guaranty Corporation Deliver for Retirees" held on September 21, 2000, by the Senate Special Committee on Aging and the Senate Committee on Small Business.

This letter answers, for the record, the twelve follow-up questions that you asked in your letter of September 28, 2000. This letter also includes answers to questions that you asked at the hearing and for which I agreed to submit responses for the record, as well as additional information that I promised to submit for the record.

EXECUTIVE SUMMARY

Benefit Determinations

Two years ago, the Committees asked the PBGC's Inspector General (IG) to review the timeliness of the PBGC's benefit determination process. The IG found that the PBGC generally had taken an average of 5.7 years to give participants their final benefit determinations. (The method used to calculate the average age of benefit determinations is discussed in our response to question 3.)

As I testified before the Committees, our highest priority has always been to ensure that participants continue to receive their benefit payments without interruption. As explained in more detail in our response to question 5, I have made the speedier issuance of final benefit

determinations a top priority.

We have tripled the number of final benefit determinations issued from 20,000 in 1993 to more than 60,000 each year since 1995. And we have made this dramatic improvement in the timeliness of benefit processing without compromising the accuracy of the final determinations. (See our responses to questions 2 and 4 to see how we ensure the accuracy of our final determinations.)

The IG's reports do not reflect the dramatic processing improvements we have made or the current status of the PBGC's operations. For plans that we trustee today, we expect to issue final benefit determinations within three years. (Three-year processing is the best we can do without legislative changes such as those detailed in our response to question 12.)

In order to make more timely benefit determinations, the PBGC has become more aggressive in its efforts to obtain and protect records that contain vital participant and actuarial valuation information. (See our response to question 1.)

Contract Management

The Committees asked the GAO to review the PBGC's contract management. GAO found that we complied with all legal requirements, but identified several areas where we can further improve our operations. As I testified before the Committees, we accepted the GAO's recommendations and have already begun implementing them. As detailed in our responses to questions 7, 8, and 9, an independent organization will study the issue of the organizational placement of our Contracts and Controls Review Department, and the PBGC is now compiling data to allow senior management to more effectively monitor FBA performance. As we responded to the GAO report, the PBGC will seriously consider using fixed-price contracts in all situations where these contracts are practicable. (See our response to question 10.)

Contract Awards to IMRG

Witnesses at the hearing raised allegations of steering of contracts by Mr. Bennie Hagans to Ms. Myrna Cooks, President of the Integrated Management Resources Group. As I noted during my testimony, over the last three years, the GAO, the Department of Justice, and the PBGC's Inspector General have all conducted investigations, and no one has been able to substantiate any allegations of misconduct. Enclosed for the record is an updated report prepared by the PBGC's General Counsel (see Enclosure C).

As more fully explained in my response to question 6, prior to the hearing I raised the possibility that the accusations against Mr. Hagans and Ms. Cooks might be racially motivated. Because these matters had been discussed privately with the Committees, I saw no reason to bring it up at the hearing.