The Pension Benefit Guaranty Corporation (PBGC) has work to do in its review of applications for aid under the Special Financial Assistance (SFA) program, says the Office of the Inspector General (OIG). 
The OIG released “Audit of PBGC’s Review of Initial Special Financial Assistance Applications” on June 30, 2023. In the audit, the OIG looked at the PBGC’s procedures in reviewing SFA applications and focused on three in particular.
The OIG says that in the three applications it reviewed, it found that PBGC had many procedures in place to review SFA applications, including:
- eligibility checks;
- completeness checks;
- actuarial and business assumption reviews;
- actuarial calculation reviews;
- legal reviews of plan amendments; and
- reviews by upper management.
The OIG verified that all three plans submitted documentation the PBGC required, and that the PBGC performed its eligibility checks, completeness checks, and legal reviews of plan amendments, and documented these steps in the concurrence packages.
Nonetheless, the OIG found areas in which the PBGC could improve. It said that the PBGC should:
- better document its analysis of potential application issues and management concurrence regarding the resolution of those issues to better ensure management oversight; and
- develop and implement additional controls to assess plan calculations for previously suspended benefits and a plan’s reported CBU history.
The Findings
Following are the OIG’s findings.
The PBGC’s documentation does not show in-depth analysis or management awareness of three potential SFA application issues.
The OIG says that it found three instances in which the PBGC did not document its analysis and resolution of a potential SFA application issue in its concurrence package.
It says that the PBGC’s written guidelines did not require documentation of discussions regarding SFA decisions or other documentation of management approval of decisions involving professional judgment. In addition, it says, direction from PBGC management may have contributed to inadequate documentation. As a result, the audit continues, PBGC management may not have adequate insight into the potential issues and risks related to individual SFA applications or related policy issues. The lack of written documents regarding decisions may also increase the risk of inconsistent decisions, it says.
The PBGC lacked written guidelines requiring documentation of discussions regarding SFA decisions.
The PBGC did not have written guidelines requiring documentation of discussions on, and management approval of, SFA decisions involving professional judgment the OIG found.
PBGC management may not have adequate insight into potential issues, and a lack of documentation increases the risk of inconsistent decisions.
Without adequate documentation of the discussions and resolution of issues with SFA applications, says the OIG, PBGC management may not have adequate insight into the potential issues and risks related to individual SFA applications or policy issues posed by these applications.
Additional reviews are needed regarding make-up payments for previous benefit cuts.
The OIG says that one plan in the sample included a total amount for make-up payments in its application, which PBGC approved, but the plan did not provide information on how the amount was calculated. This is an issue, says the OIG, because this could result in the PBGC paying benefits without sufficient analysis and, as a result, may not detect some discrepancies affecting the amount of SFA plans request.
The PBGC’s review process for make-up payments was not detailed enough to determine the accuracy of the total reported by the plan.
The PBGC’s guidance did not require that plans provide additional details on suspended benefits, says the report. As a result, it warns, the PBGC may not detect some discrepancies in suspended benefit calculations.
Additional reviews of contribution history and projections are necessary.
The PBGC’s written procedures with one of the three plans in particular did not specifically require historical contribution information reported by a plan to be checked against the audited financial statements in the Form 5500s, the OIG reports. In addition, says the audit, the PBGC did not examine the effect of including interest owed to the plan in its projections. However, supporting documentation did not explain why the amount was immaterial, and the PBGC did not establish a threshold for determining materiality. As a result, the PBGC approved an application that may not have calculated projected contributions accurately — and the total SFA amount paid may have been inaccurate, says the audit.
There was inconsistent information regarding one plan’s contribution income history and projections.
Although CBUs are an important factor in calculating SFA, the PBGC did not consistently cross-check the historical total contributions from the plans’ applications with contributions previously reported on audited financial statements in the Form 5500s.
The PBGC did not examine the effect of CDA interest on the plan’s projections.
The OIG says that the PBGC did not evaluate the effect of including one employer’s interest on deferred contributions to the CBU projections, including whether it was appropriate to project interest income based on CBUs.
The PBGC did not have written procedures for checking total contributions.
The OIG concluded that the PBGC did not consistently cross-check the historical contribution data because its written procedures were vague and did not specifically require this information reported by the plan to be checked against the Form 5500s.
The PBGC did not establish a threshold for a “material amount” in the SFA applications.
The OIG concluded that the PBGC did not evaluate the effect of including interest on deferred contributions in the plan’s CBU projections, because the official within the PBGC’s Office of Negotiations & Restructuring (ONR) stated he thought the amount that the employer owed under the CDA was “immaterial.”
Insufficient information may have led the PBGC to approve an application that may not have correctly calculated the SFA.
The OIG says that because it was unable to determine the reasonableness of the future contribution assumptions, it could not determine whether the plan underestimated or overestimated the SFA amount. Further, the PBGC approved an application that may not have calculated projected contributions and, consequently, the total SFA amount, accurately.
The OIG says that the PBGC’s decision to not define a threshold for materiality could result in individual reviewers making significant decisions.
Recommendations
The OIG recommends that the PBGC Office of Negotiations and Restructuring:
1. Develop and implement written guidelines to document analysis of potential issues and management agreement regarding the resolution of those potential issues before approving SFA applications.
2. Develop and implement additional controls to assess plans’ benefit repayment calculations.
3. Develop and implement additional controls to assess plans’ reported contribution history.
PBGC Response
The OIG reports that the PBGC plans to complete recommendations 1 and 2 by Dec. 31, 2023, and recommendation 3 by Oct.31, 2023.
About the SFA Program
On March 11, 2021, the American Rescue Plan (ARP) Act of 2021 was enacted. Among its many effects was adding Section 4262 to ERISA, which created the SFA Program administered by the PBGC.
In 2022, the OIG issued a report on the SFA program. They suggested that the PBGC may have been a bit hasty in crafting the SFA program and implementing its rules and warned that without a fraud risk assessment for the SFA program the PBGC is at risk for fraud. The OIG made eight recommendations for ways the PBGC Office of Negotiations and Restructuring could improve the SFA program, which the PBGC agreed to pursue.
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