2 professional knowledge and skills, and (3) the agency's personnel policies and practices are out of control. As a result, the work environment is extremely stressful, morale is poor, and employees are leaving. The public is not being served, as it should be. A major part of the problem is the PBGC's lack of accountability. PBGC is exempt from rules that apply to most government agencies. As pointed out at the hearings, a large part of PBGC's budget is exempt from the congressional process, and PBGC is not necessarily bound by normal procurement rules. The same applies to the personnel area. PBGC is exempt from the enforcement of merit system rules that prohibit arbitrary personnel practices. 5 U.S.C. § 2302. Accordingly, managers are unaccountable and feel free to abuse employees and do as they please in personnel matters. The atrocious treatment of contract employees at the Atlanta field office reported to the Senate Committees is typical of the way PBGC acts toward its Federal employees at the Washington, D.C. headquarters. A serious obstacle to PBGC effectively and efficiently carrying out its mission is an organizational structure that is overloaded with managers. The PBGC organization is layered with supervisor upon supervisor. Micromanagement suffocates employee initiative and stifles front line Federal employees in their ability to do their jobs. Endless bureaucratic procedures and red tape are the norm. In many areas, there is one supervisor for only five or six employees. The massive contracting out of work is wasteful and inefficient and drains the ability of the Federal employee workforce to concentrate on and accomplish its work. As reported at the hearings, PBGC's expenditures on contractors have grown ninefold from $11 million ten years ago to nearly $100 million. Contracts now represent over 60% of PBGC's administrative budget. But, PBGC's own studies a few years ago showed that contracting out costs nearly twice as much as the cost of a Federal employee. At that time, an in-house attorney cost $61 an hour, including overhead. Outside counsel cost $107. An inside actuary cost $50 an hour. An outside actuary cost $99. Since contractors do not have governmental authority to make benefit determinations, all their work must be thoroughly reviewed by the Federal employee workforce. Accordingly, because of the high ratio of contractors, PBGC's Federal employees use up a lot of time and resources attempting to monitor the work of the hundreds of contractor employees and end up re-doing the contractors' work. Of course, another serious problem with the degree to which PBGC uses contractors is the perennial problem of the revolving door: PBGC managers and contract holders back-scratching one another. The expansion of contracting out creates future private employment potential for managers when they leave and enables double dipping as retired PBGC managers return as contractors. All this leaves the undersized Federal employee staff overworked, overstretched and unable to do the quality job it would like to do. Quantity of work has replaced quality. To make matters worse, PBGC management bullies its Federal employees, misclassifies 3 Hostile treatment by supervisors has caused several employees to suffer medical problems and emotional breakdowns. A large number of employees must spend time under a nurse's care in the health unit daily. PBGC has classified many employees at GS grade levels at least one level below the norm and below the grade levels justified by the actual duties and responsibilities. Despite the tripling of productivity, management has reduced incentives and funding for special achievement and performance awards and taken away awards for outstanding performance. PBGC lowered employees' performance appraisals. The PBGC is facing an increasing number of claims of discrimination based on race, sex, age and disability. PBGC fails to provide reasonable accommodations for handicapped employees, does not follow the law for hiring handicapped individuals, and retaliates against disabled employees. PBGC has eliminated a special training and study program for actuaries, even though benefit calculation is central to the work of the agency. Employees are reacting by leaving the agency. In the past year, 20% of the PBGC's attorneys have departed. Large proportions of actuaries, accountants, auditors and financial analysts also are leaving. Needless to say, labor relations at PBGC are quite strained. PBGC has been fighting for fourteen months against reaching agreement on a collective bargaining agreement. The agency has been attempting to cut back on no-cost programs that permit employees flexible work arrangements that allow better balancing between family and work obligations and have proven to increase productivity and morale. Indeed, PBGC seeks to micromanage its employee's lives. A successful future for PBGC depends on properly utilizing the skills and experience of its most valuable component – its front line Federal employee workforce. A restructuring of PBGC and any redeployment of manpower should include: 1. 2. Bring contracted out work back in house. Reduce the number of contractors and increase the core Federal staff. This will save millions of dollars since contractors are much more expensive. Redundancy and duplication will be eliminated. Quality will be improved. Require PBGC to adhere to national and Governmental auditing standards such as 4. 5. 6. Introduce incentives allowed by regulation such as recruitment bonuses. Seek authorization from the Office of Personnel Management for special salary rates that could increase pay for the categories of employees where there are retention and recruitment problems. Since PBGC is in many ways similar to Federal bank regulatory and financial and Amend the law to make PBGC managers fully accountable to all merit system rules. 8. Require PBGC to comply with executive orders and bargain with employees over staffing and technology so that employees can contribute their expertise on how to streamline and upgrade PBGC's operations. Chairman Bond and Grassley thank you again for the opportunity to a written statement for the record. We look forward to working with you to ensure that the PBGC continues its fine work. October 4, 2000 VIA FACSIMILE Senator Charles Grassley 135 Hart Senate Office Building Washington, DC 20050 Re: Hearings Regarding PBGC Practices Held on September 21, 2000 Dear Senator Grassley: I write this letter on behalf of the Association of Former Pan Am Employees, While AFPAE welcomes the Hearings and applauds the Committee for the diligent oversight role it has played concerning PBGC activities, we strongly suggest that much more needs to be done to control the excesses of this agency who we believe has lost its focus. Through its public statements and lobbying efforts, PBGC has succeeded in "lowering the bar" by which its performance is measured so that any improvement in participant service is widely heralded as a major achievement. The horrendous experience of tens of thousands of former Pan Am employees, at the hands of PBGC, has hardened AFPAE's resolve to insure that PBGC is held to the same standards of participant service and protection of participant rights expected and demanded of officials responsible for the operation of private pension plans. PBGC's operations need to be addressed at several levels, including, but not limited to 1) its attitude towards the participants whose pensions it was formed to protect; 2) protection of the legal rights of those participants; and 3) clear and timely disclosure of the information to participants. The Committee is, no doubt, aware of many of the considerations that served as the underlying rationale for the basic tenants of the Employee Retirement Security Act of 1974 ("ERISA"). As some of these considerations directly bear on PBGC's conduct, they are worthy of repetition. Prior to the passage of ERISA, many officials responsible for the operation and administration of pension plans engaged in acts of self-dealing, including failure to exercise diligence in selecting investments and lending substantial portions of plan assets in to employer/sponsor of the plan. It was also common for employers to interpret the plan so as to deny benefits to employees and to terminate employees immediately prior to becoming eligible to receive benefits. Finally, many employers avoided paying benefits by simply not telling entitled. As you know, ERISA effectuated a sea change in the private pension landscape, primarily by changing the legal standards by which the conduct of plan officials is governed. Although ERISA prohibited many specific acts of self-dealing, more importantly, it clearly re-defined the standard by which the conduct of plan officials is measured. Under ERISA, every pension plan must appoint at least two fiduciaries to oversee its operation and administration - one to be responsible for plan investments, usually referred to as the Trustee, and the other to be responsible for the administration, usually referred to as the Administrator. Both fiduciaries are held to the highest possible legal standard and are required to act solely in the interest of the participants in the plan. Fiduciaries were required to follow the terms of the plan, except in situations where following the plan would violate ERISA. In addition, ERISA imposed numerous reporting and disclosure requirements upon the individuals responsible for the operation and administration of the plan. Participants are now automatically entitled a copy of a "layman's" description of the plan, known as a "summary plan description", and are entitled to a copy of the plan document upon request. Participants are also entitled to a statement of the benefits to which they are entitled with thirty days of request. ERISA imposes a penalty of $100 per day, in the discretion of the court, for failure to comply with a participant request. ERISA also requires all plans to establish a claims denial procedure and communicate that procedure to participants. Under Department of Labor regulations, an Administrator must respond to a claim for benefits within 90 days, or the claim is considered denied. In addition, the Administrator is required to provide a detailed explanation of the reason for the denial. Similarly, an Administrator must respond to a participant appeal within 90 days, or the participant's claim is considered denied, and he or she may seek redress in state or federal court. AFPAE strongly believes that PBGC is the business of administering private In addition to creating the participant rights outlined herein, ERISA created the PBGC for the purpose of insuring payment of pensions to participants in situations where pension plans were unable to pay pensions due the financial difficulties of their sponsoring employers. Virtually the entire pension insurance scheme is financed through annual premiums paid by employer-sponsors of the pension plans covered by the PBGC insurance program. The law permits, but does not require, PBGC to become trustee of the plan, as any other person or organization may be appointed. However, in its twenty five-year existence, PBGC has never sought appointment or even acquiesced in the appointment of any other party as the trustee of any terminated pension plan. |