Magazine

Published in December 2000

Too Close For Comfort

By Elayne Demby | December 2000

Critics cite favoritism at PBGC

Critics cite favoritism at PBGC

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When the highest bidder on two Pension Benefit Guaranty Corporation contracts won the deals, the process—and players—became suspect. The case landed on the agenda of a Senate joint committee on aging and small business last September after a PBGC employee complained to an attorney representing the Association of Former Pan Am Employees.

Robert Hast, assistant comptroller general with the Office of Special Investigations for the Government Accounting Office, says one PBGC employee's actions demonstrated a lack of impartiality and created the appearance of improperly influencing the two contracts. The GAO referred the case to the US Attorney on October 24. Neither the Justice Department nor the GAO will comment.

Plan sponsors need to be concerned about this, says Washington-based attorney and ERISA co-author, Michael Gordon, because "the system is not functioning the way it ought to."

The PBGC employee, Bennie Hagans, directs the Insurance Operations Department and oversees Field Benefits Administration contracts with outside vendors to handle retiree distributions for terminated plans assigned to the PBGC. The GAO investigated the two contracts—worth $40 million—awarded in 1997 and 1998 to Integrated Management Resources Group, a firm owned and operated since April 4, 1997, by Myrna Cooks. Apparently, IMRG was not the lowest bidder.

Until April 1997, Cooks worked for Office Specialists, the PBGC contractor that formerly held the contracts, where she had overall management responsibility for those PBGC contracts.

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Hast testified that, from April 4, 1997, to October 10, 1997, when IMRG was awarded its first contract, more than 34 calls were logged between Hagans and Cooks. Government regulations forbid contact between contract bidders and the contracting agency during the bidding process.

It did not end there. Hagans flew to Atlanta to intercede with Office Specialists' management on Cooks' behalf as she tried to hire away their staff. Hagans helped Cooks obtain financing for IMRG, assuring a bank officer that IMRG would get the business. Later, Hagans indicated that he wanted FBA contracts removed from Office Specialists and awarded to Cooks.

At the Senate hearings, David Strauss, PBGC's executive director, stated, "After hearing the testimony of today's witnesses, I continue to be confident in the integrity of our employees." Previously, Strauss declared that charges against Hagans and Cooks were racist, since both are African-American. But Strauss refused to repeat the allegations of racism while under oath, and Hagans has not been disciplined.

"The facts outlined in the GAO report demonstrate impropriety in Mr. Hagans' conduct awarding the contract to Myrna Cooks, and it's outrageous that David Strauss continues to allow him to serve in that capacity," says Harvey Katz, an attorney with New York-based Berlack Israels & Liberman.

Katz represents the Association of Former Pan Am Employees in a legal battle with the PBGC. The contract to manage the terminated Pan Am plan was awarded to Cooks.

Katz alleges that former Pan Am employees were harmed, since money that could have provided retirement benefits was squandered through favoritism.

James J Keightley, PBGC's general counsel, says the GAO report, based on Hast's testimony, was incomplete. "PBGC is confident that, after the Department of Justice has reviewed the matter completely, it will find that there is no conflict of interest or appearance of a conflict under the government's ethics rules," he says.

Others are still critical. "We can't have a system where bureaucratic ineptitude is allowed to flourish without a response," says Gordon.

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