The federal agency that pays retirement benefits of workers enrolled in bankrupt plans is spending increasingly more on administration and operations beyond limits set by Congress, prompting one senator's concern that those rising costs are depleting funds needed for pensions.
The skyrocketing expenses at the Pension Benefit Guaranty Corp. are occurring just as more employer-provided pensions are going broke, according to a new report by the General Accounting Office.
"The pension trust funds should be protected for the benefit of the millions of retirees that PBGC is, by law, expected to protect," said Sen. John Breaux of Louisiana, the top Democrat on the Senate Special Committee on Aging.
"The trust fund is not for unnecessary or inappropriate administrative operating expenses that have no relation to termination of pension plans," he said yesterday.
PBGC spokesman Randy Clerihue said the GAO study did not find "unnecessary or inappropriate" expenses and made no conclusions about those costs. Also, such costs have increased with the PBGC's obligation to more underfunded pension plans and their beneficiaries.
PBGC is financed by insurance premiums set by Congress and paid by employers. It receives no money from taxpayers. The agency also gets funding from the pension plans it takes over, recoveries from companies that were responsible for the plans and investments.
Yesterday, the PBGC said it has assumed control of the pension plan for US Airways pilots. The plan is underfunded by about $2.5 billion. The agency will add about $600 million to the plan's $1.2 billion assets to fund about half the losses. That means the airline's 6,000 pilots will face significant cuts in their retirement benefits.
The agency in 2002 rang up a record $3.6 billion deficit after exhausting its $7.7 billion surplus, for a net loss of $11.37 billion. It assumed control over a record 144 pension plans covering 187,000 people. It also paid a record $1.5 billion in benefits, nearly 50 percent higher than 2001.
In 1985, Congress began setting annual limits on PBGC's administrative costs, but a few years later granted some exceptions.
In 1987, the agency spent $7.3 million beyond the $35.8 million administrative limit approved by Congress. By 2002, excess spending had grown to $214 million, while the congressional limit on spending had dropped to $11.6 million.
Clerihue said that while administrative costs have increased, the cost per plan participant has dropped.
In 1995, the agency spent almost $137.5 million for administration and had 171,000 plan participants, or $804 per participant. In 2002, PBGC spent $227.2 million on administration and had 783,000 plan participants, or about $288 per participant.
"More termination work meant more work in information technology, procurement, human resources and most other areas of administration," said John Seal, PBGC's chief management officer, in a response letter to the GAO report.
PBGC has proposed eliminating congressional budget limits.
In the report, investigators found "significant problems with the way PBGC develops its proposed budget estimates."
It does not reliably calculate expense estimates, which "are not meaningful and thus are ineffective in controlling administrative costs," the report said.