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May 3, 2010
1:11 PM

CONTACT: Center for Public Integrity (CPI)

Steve Carpinelli (202) 481-1225

Federal Agency Guaranteeing Americans’ Pensions Flunks Internal Audit

Responsible For Cleaning Up Failed Companies’ Messes, The Pension Benefit Guaranty Corporation Has a Mess of Its Own To Clean Up

WASHINGTON - May 3 - The federal corporation responsible for rescuing Americans' pensions from troubled companies has received an "F" for the internal controls it exercises over its own finances, according to a Center for Public Integrity investigation. The Center's investigative story, "No Guarantees at the Pension Benefit Guaranty Corporation," found the corporation suffers from other failings that alarm its internal watchdog and key members of Congress.

Over the last two years, the Pension Benefit Guaranty Corporation (PBGC) has lost Social Security numbers stored on an unsecured thumb drive, misled members of Congress, and flunked its own audit for a "material weakness" in its internal financial controls. The low-profile federal entity, funded by insurance premiums paid by pension fund operators, protects the pensions of about 44 million workers and retirees in traditional defined benefit pension plans that promised a fixed monthly or bi-weekly payment to retirees for life. When a covered company's pension plan defaults, PBGC swoops in and protects workers' retirements.

"PBGC did not have effective internal control over financial reporting (including safeguarding assets) and compliance with laws and regulations and its operations," said Inspector General Rebecca Anne Batts, the corporation's internal watchdog.

A Center review of hundreds of pages of memos, audits, and internal reports shows the corporation has been unable to make several guarantees about its own work.  

Despite being the custodian of some of Americans' most private data, PBGC suffers from such lax security that a contractor was able in 2008 to download the pension and Social Security numbers of 1,300 Americans to an unsecured electronic thumb drive that was then lost at an Ohio train station, according to documents and interviews. The corporation also has been criticized for letting its contractors hire employees with inadequate experience or education, and has been cited repeatedly since 1997 for failing to create a unified financial management system to better safeguard its funds. It lacks the ability, for instance, to independently confirm the investment revenue figures reported by a contractor hired to engage in securities lending on its behalf, according to audit reports and interviews.
And the PBGC's former chief executive was the subject of a year-long criminal investigation that ended in March with no criminal charges but a conclusion that his conduct raised "serious ethical concerns," documents show.

Such systematic PBGC problems concern lawmakers like Sen. Charles Grassley, the top Republican on the Senate Finance Committee, and Sen. Herb Kohl of Wisconsin, the Democratic chairman of the Senate Special Committee on Aging, particularly because the corporation's own long-term financial outlook has worsened over the last few years. Kohl, who backs legislation to strengthen the PBGC's oversight and governance, told the Center that the corporation's "long-running problems .... should serve as a wake-up call to Congress." Nearly one in six Americans relies on the PBGC to guarantee their pensions and "the agency is far too important to let it operate without adequate oversight," added Kohl.

The Center for Public Integrity is a nonprofit organization dedicated to producing original, responsible investigative journalism on issues of public concern. The Center is non-partisan and non-advocacy. We are committed to transparent and comprehensive reporting both in the United States and around the world.

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