Pension Fund Agency Is Being Scrutinized
By: David Cay Johnston
A quarter-century ago, Congress created the Pension Benefit Guaranty
Corporation to make sure that the 42 million workers with traditional
pensions would get paid even if their employer went bankrupt. The
legislation was hailed at the time as second only to Social Security in its
significance to working Americans.
How well that agency operates is now being questioned in a series of
audits by the agency's inspector general, which are to be made public this
week, and by a lawsuit charging that one of the pension agency's contractors
Two Republican Senators who are familiar with the audit findings, Charles
E. Grassley of Iowa and Christopher S. Bond of Missouri, said that hearings
would be held by September to investigate how well the agency is run and
why, for example, nearly half of the 472,000 people covered by failed
pension plans the agency has taken over have not been told how much they are
due each month.
Of the 200,000 people waiting for their initial determination of actual
benefits, about 19,000 have been waiting for more than 13 years and some
have been waiting for 18 years. When these people become eligible to receive
pension checks an estimated payment is sent until the actual amount is
The audits, the lawsuit and the hearings come as Congressional
Republicans are gearing up for a battle to pass major changes in the
Employee Retirement Income Security Act that have long been sought by major
corporations and business owners. The Republicans says picayune regulations
and poor operation of the pension agency are driving up pension-plan costs
and hurting workers who change jobs often.
Advocates for pensioners say the Republican proposals would allow
business owners and executives to get bigger tax breaks on larger pensions
for themselves, while reducing incentives to pay retirement benefits to
workers who receive lower pay.
The audits found that "there were no monitoring controls in place
that would enable" the pension agency "to detect potential
unauthorized data modifications" like creating ghost retirees in its
computers and sending them money.
Robert Wayne Poll, the pension agency inspector general, said he found
only one person with such authority and that person had acted properly.
"Our concern," Mr. Poll said "is that others, who might not
be as forthright as this person," could create ghost pensioners and pay
them, or, when a pensioner dies, divert checks to themselves or
Mr. Poll, who spoke after being told that a critic of the agency had
supplied copies of his work to a reporter, said he was continuing this
Mr. Poll said he was also concerned that the pension agency would not
certify to him that its records on issuing benefit determinations were
Joseph Grant, the pension agency's deputy director, did not dispute most
of the audit financings, but he said they drew too heavily on conditions
that the Clinton Administration inherited in 1993.
Mr. Grant said that the pension agency, which received five awards from
Vice President Al Gore for improving efficiency and customer service, had
reduced the backlog of people waiting to hear how much they are due to
200,000 from 300,000 and would eliminate it in a few years.
Mr. Grant said there was no harm from delays in determining benefits
because when the exact amounts were determined, lump-sum payments with
interest were sent to cover shortfalls or pensioners could take months to
Senator Grassley, the chairman of the Select Committee on Aging, said he
disagreed. "I think they have forgotten what their mission is, which is
to serve pensioners," Mr. Grassley said. "Six to 10 years is just
too long for people to wait to find out how much their pension will be. We
have to make this agency become more customer-friendly, like we did with the
Senator Grassley said that lump sums to make up for short payments both
deprive people of income when they need it and can push them into a higher
tax bracket, making their benefits less valuable. And he said cutting
benefits by as much as 10 percent per month until overpayments were returned
could be cruel to elderly people on fixed incomes.
Mr. Bond, who is chairman of the Small Business Committee, said that his
office had talked to pension agency workers who said that it "is not
properly doing its job of assuring that people get the pensions they
One employee of the agency, who calls himself Jim Dough, to avoid any
retribution, has filed a lawsuit on behalf of the agency against one of its
biggest contractors, Official Specialists of Peabody, Mass. He was joined by
two former Office Specialists' employees and by the Association of Former
Pan Am Employees. Two years ago, the association filed a separate lawsuit
accusing the pension agency of mishandling benefits for its 45,000 members.
The Dough lawsuit, unsealed on March 18 by a Federal District Court judge
in Baltimore, says that a senior pension agency official, Bennie L. Hagans
Jr., steered business to Office Specialists, which received a number of
contracts without competitive bidding, and ordered payments to it expedited.
The suit also asserts that Mr. Hagans improperly intervened when Myrna
Cooks, the Office Specialists' liaison to the pension agency, quit to form
her own company and was sued by Office Specialists for violating her
employment contract. Mr. Hagans, the lawsuit asserts, "threatened
Office Specialists" with a loss of business from the pension agency
unless it dropped its suit against Mrs. Cooks and let her assume an Office
Specialists' contract valued at $13.5 million. Office Specialists then
settled with Mrs. Cooks, whose business, operated out of her home, was
awarded the contract.
Mr. Hagans, in two lengthy interviews, said he had acted properly in
every dealing and that his routine actions were being twisted by the
plaintiffs, who he said had based their case on faulty assumptions.
Jesse P. Schaudies, general counsel for Randstad North America, a
subsidiary of the Dutch Company that owns Office Specialists, said that
"we have no basis for believing there was anything improper" in
its dealing with the pension agency.