Actuarial Changes for PBGC, But OIG Wants More Recordkeeping Fixes

The Pension Benefit Guaranty Corporation (PBGC) reports that in 2023 it changed its actuarial valuation methods, but at the same time a report by the Office of the Inspector General (OIG) warns that the PBGC has more work to do with its financial recordkeeping. 

Actuarial Changes

The PBGC in its 2023 actuarial report says that during fiscal year (FY) 2023, it implemented changes in the assumptions it uses in its actuarial valuation system. 

For the Single Employer program, the PBGC increased the age threshold at which liabilities are 100% phased-out. Liabilities are phased-out at 100% for deferred participants whose ages are 75 and over; previously it was 100% at age 70. Another change was the separation of the mortality tables for the system to use separate annuitant, non-annuitant and contingent survivor tables; previously, a single combined table was used.

For the Multiemployer Program, the PBGC calculated liability for each plan, using the cash flow method, as the present value of future guaranteed benefit and expense payments, net of the present value of future employer contributions and withdrawal liability payments. This liability was determined as of the later of Sept. 30, 2023, and the actual or projected date of insolvency, and then discounted back to Sept.30, 2023, using interest only. The most recent available actuarial reports and information provided by representatives of the affected plans served as the basis for the valuations.

Internal Control Flaws

The PBGC may have made some actuarial changes, but in other areas involving financial records there is work to be done, suggests the OIG in its Fiscal Year 2023 Financial Statement Audit Management Letter Report, which it issued Dec. 21, 2023. Ernst & Young LLP (EY) performed the audit for the OIG.

EY identified deficiencies in internal control in FY 2023. 

In one application for Special Financial Assistance (SFA), the PBGC did not document which death matches had been used; the report suggests that the PBGC maintain sufficient documentation to ensure that all plans applying for SFA have complied with the final rule requirements to conduct a plan level death audit within one year of the plan’s measurement date. The PBGC reports that it has updated its procedures to ensure and document that applying plans have complied with the final rule requirements.

As part of test-of-control (TOC) procedures, EY identified instances in which there was minimal formal documentation and support to provide evidence of review steps performed concerning actuarial controls involving procedures that required judgment or decisions unique to a plan. The report notes that the PBGC's current procedures are to document review evidence through checklists, email support, and signatures; however, the details about how the review steps are executed often are not formally documented. The PBGC has identified improvements it plans to make in FY 2024, but remediation has not yet occurred.

The entitlement of one of the users was not included in the FY 2023 Account and Entitlement Recertification.

Pending Issues

There also are some shortcomings identified earlier that still have not been resolved, according to the report. For instance, experience studies for certain spousal age differences and phase out liability for missing participants are outdated. The report says that the PBGC office to which the matter has been assigned has made its resolution a low priority. 

Another shortcoming identified years ago is that in the automated ruleset process, a misconfiguration was identified that resulted in 13 users maintaining roles that violated existing segregation-of-duty (SoD) rulesets but were not tracked or resolved by management.

The PBGC says it is testing and evaluating methods for monitoring the activities of users who have role assignments that violate SoD rules, but are accepted due to justified business purposes. The PBGC also plans to update processes and procedures as appropriate to respond to alerts generated by SoD-related monitoring.

But Still…

While there are procedures the OIG wants corrected, the fact that there are some issues does not mean the world is coming to an end. The OIG contends that the issues EY identified “are not significant”; in fact, they were not even serious enough to report in the Independent Auditor's Reports issued on Nov. 15, 2023. The OIG calls the internal control deficiencies “opportunities to strengthen PBGC’s operations.”