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November 10, 1997 12:00 AM

PBGC LIMITS PAPERWORK FOR AUDITS

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    WASHINGTON - The PBGC has taken what might just be a first step in its goal of ensuring it receives premium payments that are due, while minimizing employers' expense.

    Effective immediately, employers targeted for audits of their premium payments made to the Pension Benefit Guaranty Corp. generally only will have to produce three years of premium-related information, such as W-2 income statements and pension financial reports, for agency auditors. The agency had been requiring six years of records.

    The PBGC only would go back further if problems appear in the first three years of information, said PBGC Executive Director David Strauss, He announced the change in audit policy last month at the annual membership meeting of the ERISA Industry Committee in Washington.

    "I have asked my team to look closely at what we are hearing from plan sponsors selected for review, to talk with our auditors around the country and to be open to sponsors' ideas on how to look for smarter ways to demonstrate the reliability of premium payments without undue burden," Mr. Strauss said.

    A PBGC team has been exploring with benefit trade groups and accounting and actuarial firms the feasibility of a voluntary premium "self-review program."

    Employers enrolling in that program would be assured that if they later were selected for audit by the PBGC, the audit would be limited to determining whether correct procedures were followed.

    "Only in cases where we had reason to question that would we look behind the self-review and require something more," Mr. Strauss said.

    The audit program was launched in late 1995 amid agency concerns that as much as 20% of premium filings understated participant counts or funding levels because of calculation errors. The PBGC now collects from employers more than $1 billion a year in premiums, which are based on the number of participants in corporate pension plans and their funding levels.

    Employer mistakes in premium calculations - if widespread - could cost the agency a significant amount of revenue.

    A pilot program conducted in the eastern part of the country between September 1995 and September 1996 generated about $4 million in additional income for the PBGC. The program has since been expanded nationwide.

    But benefit experts said the administrative burden on employers of dredging up six years of premium-related information has been difficult and expensive.

    The six-year requirement "posed a severe hardship on plan sponsors who are not accustomed to maintaining that kind of data" in a readily accessible way, said Pam Scott, a principal with The Kwasha Lipton Group in Fort Lee, N.J.

    "The pure mechanics of getting the information can be difficult," added Dick Joss, an actuary and consultant with Watson Wyatt Worldwide in Bethesda, Md. The problem of obtaining the information is compounded by the fact so many employers have changed computer systems in the past few years and new systems might have difficulty reading information on tapes generated by the prior systems, he added.

    The policy change "is a great move. It will have a huge positive impact. The further you back the audits, the harder it is to produce credible data," concurred Colin England, a principal at William M. Mercer Inc. in Washington.

    Mr. Joss mentioned one employer that spent about $120,000 trying to obtain the information requested by the PBGC during a premium audit.

    Moving to ease the burden of plan audits on employers is Mr. Strauss' second major decision since he joined the PBGC in July after nearly four years as deputy chief of staff for Vice President Al Gore. In September, Mr. Strauss abolished the PBGC's Top 50 list, an annual compilation of the 50 worst-funded corporate pension plans, a decision that also was applauded by employers.

    But Mr. Strauss reiterated earlier remarks that it is too soon for the agency to consider reducing the premium rate the agency charges employers with defined benefit plans. The basic rate is $19 per plan participant for fully funded plans. Aside from the base premium, sponsors of underfunded plans pay a variable rate premium, which is $9 per plan participant per $1,000 of plan underfunding.

    Last year, the PBGC posted an $869 million surplus, a dramatic turnaround from 1993 when its deficit neared $3 billion.

    While the PBGC's financial situation has improved significantly, a couple of big losses could quickly turn the surplus into a deficit, Mr. Strauss warned.

    "One or two large cases the size of Eastern Airlines or Pan American Airways could put us back in the red," he said. The 1991 terminations of those two failed airlines' massively underfunded pension plans were by far the PBGC's biggest losses, with total claims of $1.3 billion.

    Crain News Service

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