Moreover, PBGC, which is designed to safeguard the retirement funds of about 42 million Americans, now faces new questions of improperly steering $40 million worth of agency contracts, as outlined by a General Accounting Office (GAO)/Office of Special Investigations (OSI) report delivered during a joint hearing by the Special Committee on Aging and the Committee on Small Business.
"One of our witnesses says this agency created an 'unbelievable mess' for his mother. I'd borrow his words and say this agency is an unbelievable mess. Contractors do most of the work, yet nobody looks over their shoulder. Their product suffers. Retirees pay the price. This is not the way for the government to treat people," Grassley said. He is chairman of the Aging Committee.
"PBGC has responded well to some of the shortcomings found in its management procedures, but in terms of its primary duty -- making sure retirees get pensions owed them when they need it -- there is still a lot of work to be done," said Bond, who is chairman of the Senate Committee on Small Business. "Today's OSI report opens a new can of worms altogether. Possible contract steering is a serious matter that must be thoroughly investigated. I believe OSI's decision to refer this matter to the Justice Department is on target."
In their testimony, GAO officials confirmed that PBGC has tended to structure contracts in a way that favors particular contractors. PBGC was required to resort to significant contracting for staff help as a result of several large pension plan failures in the mid-1980s, according to the GAO.
As part of its investigation, OSI reviewed contracts issued during 1997 and 1998 worth approximately $40 million. OSI officials testified that results of the review could amount to contract steering fraud and that they plan to refer the findings for criminal prosecution.
The GAO/OSI inquiries stemmed from a February 16, 1999, letter by Grassley and Bond requesting a study of the PBGC's efficiency and effectiveness, particularly regarding contracting practices. Key documents connected with OSI's review were subpoenaed by the Special Committee on Aging on August 25, 2000.
Today's joint hearing also examined the process used by PBGC to issue so-called Initial Determination Letters (IDLs), which are used to establish the amount of pension benefits retirees will receive when they begin drawing on their retirement funds. In some instances, PBGC has forced individuals to wait for years to receive IDLs to determine their correct benefit levels. An extended wait can result in PBGC requesting a refund of overpaid amounts or a lump-sum payment of underpaid amounts that carry big tax consequences.
A previous report by the PBGC's Inspector General (IG) concluded that a majority of IDLs were issued more than five years after the agency took over the pensions. Specifically, 26 percent were issued between two and five years; 42 percent were issued between six and 10 years; and 16 percent were issued between 11 and 20 years.
The Committees also reviewed PBGC efforts to improve computer security as recommended by the IG and supported by Grassley and Bond. In the fall of 1999, the IG released a study of information security practices at PBGC, which contained the results of a penetration study done by a PricewaterhouseCoopers team.
The IG raised the possibility that PBGC computers could be vulnerable to high-tech tampering by computer hackers capable of creating "ghost retirees" and fraudulently authorizing payment of benefits. Although the IG had warned PBGC officials in advance that a penetration study would be conducted, PBGC was caught unprepared and vulnerable.
Following the study, Grassley and Bond sent a letter to PBGC Executive Director David Strauss on January 11, 2000, calling for an action plan to resolve the weaknesses uncovered by the IG and requesting that monthly reports be provided to both Committees on the implementation of such a plan. The letter set a goal of resolving all outstanding computer security issues by the end of Fiscal 2000 (or September 30, 2000).
The PBGC's August report indicates it is "on-track" to complete enhancements recommended. Grassley and Bond today requested that the IG conduct a follow-up penetration study.
After today's hearing, Grassley and Bond said they would:
* refer the OSI investigation findings to the Department of Justice;
* request from Strauss a plan for improving IDLs within 45 days;
*request the IG to do an IDL accuracy study;
*and request from the PBGC a corrective action plan for addressing contract management problems.
