Compliance

Report Says PBGC Calculations Flawed

By Rebecca Moore editors@plansponsor.com | May 30, 2012

May 29, 2012 (PLANSPONSOR.com) – Calculations in Pension Benefit Guaranty Corporation (PBGC) reports were wrong due to the lack of a quality control process, according to a Management Advisory Report (MAR).

The agency’s Office of Inspector General (OIG) conducted a review following a whistle-blower complaint received through the OIG Hotline.  The review confirmed the complainant’s assertion that the present value of financial assistance payments for multiemployer plans, as reported in PBGC’s FY 2010 Annual Exposure Report issued November 10, 2011 (see “PBGC Report Forecasts Higher Deficits”), was unrealistically low.  Based on a review of available documentation, interviews with key PBGC officials, and analysis, the OIG concluded that PBGC had issued the report with errors and inconsistencies in both the multiemployer and single-employer sections. This occurred because PBGC had not established a quality control or quality review process to ensure the integrity of reported actuarial estimates.  The Policy Research and Analysis Department (PRAD) Director acknowledged the errors and explained that his department did not have policies in place for quality control.     

The PBGC responded to the OIG’s findings, saying: “Last year, we made changes to ensure such errors do not recur.  On the instruction of the PBGC Director, all estimates used for PBGC reports are now being reviewed outside PRAD.”  However, the OIG found instead of requesting a quality assurance review, the PRAD Director implemented the PBGC Director’s guidance by instructing the actuary “to dot our numbers for the 2011 Exposure Report.”  The process of “dotting” is simply verification that a particular value is correctly copied and transferred from one place to another.   

The OIG said the process of dotting does not involve verification of underlying calculation or supporting documentation and is not sufficient for quality control. It found the revised process is still inadequate to ensure the integrity of PRAD’s actuarial estimates.     

The OIG requests the PBGC provide a written response detailing the actions to be taken to address the reported issues.  As part of that response, PBGC should include information about additional enhancements – over and above the process of “dotting” – to ensure that the actuarial data published by PBGC is accurate and supported by appropriate documentation.  

The audit report is at http://oig.pbgc.gov/audit/2012/pdf/PA-12-87.pdf.