Thirteen U.S. senators on Wednesday, July 2, asked for an investigation into how the Pension Benefit Guaranty Corp. calculates benefits due to participants in the pension plans it takes over.
The group—which includes Sen. Barack Obama, D-Illinois, the presumptive Democratic candidate for president—asked the Government Accountability Office to investigate how the PBGC initially estimates benefits due and why there have been, in some cases, lengthy delays in final benefit determinations. In addition, they want the GAO to examine the extent to which benefits calculations change between the initial and final determinations.
In their letter to the GAO requesting a review of the issues, the senators wrote that while the PBGC initially pays participants in terminated plans an estimated benefit without interruption, the agency “routinely takes several years to calculate the final benefit amount.” That final benefit amount is at times significantly different from the initial estimate, resulting in situations in which participants will see their monthly benefits decrease, while also being forced to pay back overpayments, according to the letter.
The senators cited the example of employees and retirees who participated in pension plans sponsored by Republic Technologies International Inc., a now-defunct Akron, Ohio-based steel bar manufacturer. The PBGC took over the plans in 2002 after the company filed for bankruptcy. The plans had $108 million in unfunded PBGC-guaranteed benefits.
The PBGC later won a court victory that effectively allowed it to avoid liability for about $100 million in so-called shutdown benefits—a type of early retirement benefit paid when a company closes a facility—to participants who were members of the United Steelworkers of America. The litigation delayed final benefit determinations, a PBGC spokesman said.
According to the senators’ letter, the PBGC took six years to make final benefit determinations, with some retirees facing 70 percent decreases in monthly benefit payments.
A PBGC spokesman said the agency is reading the letter and for now it does not have a comment. However, PBGC officials previously have noted that it can take some time to make final benefit determinations, because pension plan records can be in poor shape at the time a plan sponsored by a bankrupt company is taken over.
Other senators signing the letter include: Sen. Max Baucus, D-Montana, who chairs the Finance Committee; Charles Grassley, R-Iowa, the panel’s ranking minority member; Edward Kennedy, D-Massachusetts., the chairman of the Health, Education, Labor and Pensions Committee; and Mike Enzi, R-Wyoming, that panel’s ranking minority member.
Filed by Jerry Geisel of Business Insurance, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.
