Release of Confidential Plan Sponsor Data Draws Fire

June 18, 2002 ( - A US Congressman and the Labor Department's Inspector General have come under attack for publicly releasing plan sponsor information - information provided under a promise of confidentiality.

Representative Bernie Sanders (I-VT) and Labor Department Inspector General Gordon Heddell have drawn criticism for publicly releasing the names of 13 companies the IG has said have underpaid retirement benefits for some workers who left the companies before retirement age.

The critics include plan sponsor lobbyists as well as the head of the Pension Welfare Benefits Administration, and the evidence includes letters exchanged by Sanders and Heddell. Sanders made the names of the companies public on May 20, after Heddell identified them in an attachment to a May 16 letter to him. Sanders had written the IG asking for the names.

Internal Use Only?

In his reply , a copy of which Plan Sponsor has obtained, Heddell stated that the information was being provided to Sanders “in your capacity as the Ranking Member of the Subcommittee on International Monetary Policy and Trade.” Heddell specifically noted that the information was not available under the Freedom of Information Act and therefore is not potentially in the public domain. “Consequently, I would request that, if at all possible, this information be used only for the internal uses of the Subcommittee and that it not be disseminated any further,” he wrote.

Sanders ignored Heddell’s request and released the names. When asked why, Sanders’ press secretary replied, “These 13 companies were found to be illegally slashing their workers’ pensions, and it was important for the workers at these companies to know and that the names be released.” The fact that 13 of the 60 companies were violating the law suggests that the problem of underpaying pensions in cash balance conversion is widespread, the press secretary adds, and by releasing their names, Sanders has drawn attention to a significant problem (see Legislators Push for Answers on Cash Balance Calculations ).
Study Findings, Extrapolation

The IG’s study found that workers at companies that had converted their defined benefit pension plans to cash balance plans and who left before reaching retirement age were underpaid an estimated $17 million annually. Applying the rate of underpayment at the sampled companies to the estimated 300 to 700 cash balance conversions that have occurred, the total annual underpayment would be between $85 million and $199 million annually, the study stated.

Despite these revelations, Mark Ugoretz, president of the ERISA Industry Committee, faults Heddell and Sanders for violating the confidentiality of the 60 companies that participated in the study. Heddell gave Sanders the list of all 60 companies with a notation by name of the 13 that were accused of underpaying workers’ pensions.

“Under the inspector general law, the inspector general was obligated to maintain secrecy in the confidentiality of the information he received,” Ugoretz says. Further, the IG is under no obligation to release documents to Congress unless a committee specifically asks for it – and a request from a ranking member of a committee is not sufficient. Even after receiving the names, Ugoretz says, “I think Sanders had an absolute obligation to honor the confidentiality agreement.”

Heddell’s and Sanders’ actions could harm the federal government’s ability to conduct investigations, Ugoretz argues: “If the inspector general is correct in what he did and if Bernie Sanders is correct in what he did, an offer of confidentiality by any government agent isn’t worth the paper is it printed on.”

Confidential Disclosures

In a  copy of a letter the IG’s office sent to a company it wanted to participate in the study, obtained by Plan Sponsor , Linda Darby, regional inspector general for audit in San Francisco, wrote, “[T]he information you provide is considered confidential. The results of our review of your information will be combined with reviews of other plans and will be used to develop a report to Department of Labor management officials. The report will not identify any plans or plan sponsors by name or other identifying means.” The name of the company was blacked out on the copy Plan Sponsor obtained.

The IG’s study was not an audit of companies suspected of wrongdoing, Ugoretz points out, but of the DoL’s own enforcement efforts, and so “it’s questionable whether companies involved were even obligated to provide the information.” That is why they should have been provided confidentiality, he says.

Findings Questioned

In the study, Heddell alleges that the 13 companies were violating Sections 411 and 417 of the Internal Revenue Code and parallel provisions 203 and 205 of Title I of ERISA. He called on the Pension and Welfare Benefits Administration to more vigorously enforce the law affecting participants in cash balance conversions and to initiate action against the 13 plans that the IG found had underpaid participants. He also suggested that the PWBA work further with the IRS to develop improved guidance for plan sponsors in calculating benefits.

But Ann Combs, assistant secretary of labor for the PWBA, took issue with some parts of the IG’s study in a letter to Elliott Lewis, acting inspector general for audit. For one thing, she wrote, the report failed to note that the DoL was restricted in what it could do about lump sum calculations. Authority to issue regulations, rulings, opinions, variances, and waivers related to ERISA plans was transferred to the Treasury Department in a 1978 reorganization, and the DoL “is bound by regulations and interpretations issued by the Secretary of the Treasury in bringing such actions,” Combs wrote (see also Cash Balance Audit Conclusions Drawn, Questioned ).

Combs forwarded the IG’s report and attached documents to Treasury and the IRS for an expedited review. The IRS so far has not said how it has responded or intends to respond.

Combs also raised questions about the sampling methodology that allowed the audit team to reach its estimate of $85 million to $199 million annually in underpaid lump-sum payments for participants in cash balance conversions. The PWBA would need a broader survey or more detailed information from the IG’s office before it could decide to redirect its resources to more enforcement in this area, she said.

Ugoretz goes further, faulting the fundamental findings of the IG’s study that participants were underpaid. The method for calculating the value of a lump sum payment in a cash balance plan should be simply the present value of the cash balance account, he claims. Instead, the IG projected the participants’ account balances, with interest credits, to normal retirement age, then converted the account balance to an annuity, which is discounted to its present value using Treasury-specified interest rate and mortality assumptions.

Sometimes, when a plan’s interest rate assumption was higher than the legal discount rate, the calculation produced a lump sum greater than the accumulated cash balance account – an effect known as “whipsaw.” By using this method, Ugoretz claims, the IG’s study provided participants with a “windfall” and not an accurate value for their accumulated pensions. But the IG’s office says their methodology is required by statute, and Combs has not identified this publicly as an issue.

Sanders also requested the names of the individuals at the 13 companies who the IG claimed were underpaid. But in his May 16 letter to Sanders, Heddell did not attach those names, noting they were provided confidentially and that some companies did not provide individual names. He offered to meet with staff members from Sanders’ office to discuss providing some of the names. But a spokesperson for the IG’s office says that since the letter was sent the IG has held no meetings with Sanders’ staff and has forwarded no individual names.

These names might be made use of by trial attorneys looking for opportunities to file class action lawsuits, Ugoretz contends, and therefore should not be provided.

Whatever the outcome of the IRS’s deliberations, Sanders is not waiting for the agency to respond to Combs’ letter. He is planning to introduce legislation requiring the DoL to enforce “to a higher degree” the pension laws cited in the IG’s study, his press secretary says.

See ERIC Calls for Investigation of Pension Information Leak

ERIC’s letterchallenging the substance of the report


See also a response from the American Benefits Council



13 Companies Identified From the IG’s Report:


Accuride Corporation (Henderson KY)

Amoco Fabrics & Fibers Company (Atlanta GA)

Asea Brown Boveri Inc. (Norwalk CT)

BOC Group, Inc. (New Providence NJ)

Burns and Roe Enterprises, Inc. (Oradell NJ)

Chesapeake Directory Sales Company (Greenbelt MD)

First Allamerica Financial Life Insurance Company (Worcester MA)

Formosa Plastics Corporation (Livingston NJ)

General Atomics (San Diego CA)

Markem Corporation (Keene NH)

Robbins & Meyers, Inc. (Dayton OH)

Steel Heddle Manufacturing Company (Greenbelt MD)

Wake Medical Center (Raleigh NC)