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May 20, 2010

Pension Benefit Guarantee Corp. is financially compromised and bureaucratically unsound

By CREW Staff

CREW reported on the scary state of America’s pension regime back in March. New articles and reports suggest things have only gotten worse.

The Pension Benefit Guarantee Corporation (PBGC) isn’t just financially compromised.It is also bureaucratically unsound. An outside audit report by Clifton and Gunderson found “material weakness” with the PBGC’s security protocols, access controls, and information management.“Material weakness” is the audit equivalent of a failing grade.

Just how bad things are was driven home forcefully when a Transportation Security Administration employee found an unencrypted thumb drive in a Cleveland parking lot full of PBGC data, including pension account information and Social Security numbers for 1,300 Americans. As the Center for Public Integrity has reported, the drive was traced back to a PBGC contractor, who had accidentally lost it. An investigation by the PBGC Inspector General (IG) found that the data had been downloaded in violation of official policy.

In response, PBGC fabricated remedial action. PBGC claimed to Congress and its own IG that it provided the contractor with additional security training, and implemented 45 of 65 recommended security reforms. In fact, they did no such thing. As Senator Chuck Grassley put it in a March 31st letter to the PBGC’s acting director: “Upon further review, the OIG determined that PBGC fabricated this follow-up action.”

Unfortunately, it’s not the only time the PBGC has lied to its watchdogs. In their audit, Clifton Gunderson found no evidence that PBGC had made progress in addressing its systemic security weaknesses, despite repeated assurances otherwise. And, as Grassley’s letter goes on to explain, the PBGC falsely claimed to have implemented 17 other controls and procedures, including basic steps to evaluate multimillion dollar contract deliverables.In fact, as the Center for Public Integrity notes, as of April 26, 2010, the PBGC had over 200 unimplemented recommendations and reforms. Meanwhile, pension deficits get worse. A new report from the Government Accountability Office raises serious concerns about the pension plans at government-owned GM and Chrysler, with potentially dire consequences for the PBGC.

According to their own management, both companies’ pension plans will require multi-billion dollar infusions in the next five years just to meet minimum government standards.If GM and Chrysler fail to return to profitability and are forced to terminate their pension plans, PBGC will be on the hook; in early 2009, they estimated their exposure to be $14.5 billion. Sector-wide, PBGC analysts estimate the auto industry’s unfunded pension liabilities at $77 billion, of which PBGC guarantees $42 billion.

Even without auto-industry woes, American pension plans are looking bad.The PBGC’s own recently released annual report predicts its deficit could grow from $22 billion to $34 billion by 2019, prompting renewed talk of a tax-payer bailout.The problem is not confined to the federal level. As the Wall Street Journal has reported, California alone may be carrying upwards of $500 billion in unfunded pension liabilities, masked by the use of unrealistic rates of return. It’s hard to see how this story can end well for the American public.

Unless citizens demand real corporate and government pension administration reform, we could be left holding the bill for cleaning up private sector irresponsibility and public sector incompetence. And it’s going to be one big tab.

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