The PBGC’s inspector general said the agency lacks internal controls over the valuation of terminated pension plan assets, not just over the handling of United Airlines’ plan terminations that the IG’s report called “seriously deficient.”
Rebecca Anne Batts, inspector general of the Pension Benefit Guaranty Corp., said in a telephone interview that the agency’s attempts to correct valuation procedures “has not resulted in a fair market valuation of assets,” because of inadequate oversight and contracting guidelines.
“PBGC still hasn’t invested in the expertise to get this right,” Ms. Batts said.
“It’s not going to be an easy fix,” Ms. Batts said. “You have a cultural problem and it’s hard to know how you’re going to get back to better numbers. That’s the message of the report.”
The report on the valuation of United Airlines’ terminated pension plans in 2005 focused on serious flaws in plan asset audits by one contractor, Integrated Management Resources Group, but Ms. Batts said there’s a lack of internal controls over all terminated plan valuations, despite numerous reviews by both the agency and its inspector general.
Among other plan valuations, the $8 billion valuation made by IMRG for four United defined benefit plans “is not a reliable number,” Ms. Batts said. It has not been determined yet whether that $8 billion figure is too high or too low.
The inspector general first questioned discrepancies in the United audits in 2010, which prompted the PBGC to engage a CPA firm to re-evaluate those plan assets.
The second reports “were also themselves significantly flawed,” according to the new inspector general report.
IMRG CFO Melanie Bilal said the firm had no comment.
Ms. Batts said the PBGC board of directors — Labor Secretary Hilda Solis, Commerce Secretary John E. Bryson and Treasury Secretary Timothy Geithner — “is taking this seriously” and will discuss the issue at its meeting Thursday.
Responding to the latest United report in a Nov. 30 statement, Vincent Snowbarger, PBGC deputy director of operations, said agency officials are “embarrassed” by the poor work, but will fix any miscalculated benefits including paying overdue amounts with interest, and have begun implementing some of the inspector general’s recommendations in the United report.
“There’s no question that our contractor did a very bad job and we didn’t catch it. We have a plan in place to make sure that this doesn’t happen again,” said J. Jioni Palmer, PBGC communications director, in a telephone interview “The fact that it taints us in the minds of our retirees is the problem. We’re committed to looking at everything and making sure that people are made whole.”
In a Nov. 30 letter to the board, Rep. George Miller, D-Calif., ranking member of the House Education and Workforce Committee, asked for a timeline for revisiting United’s valuations within two weeks, and for PBGC to “identify all flaws” in all plan valuation and benefit calculation contracts performed by IMRG. Mr. Miller wants the PBGC to correct underpayments to plan participants “with interest and without delay.” Citing “grave concern” over the agency’s accounting failures, Mr. Miller also referred the IMRG contracts to the U.S. attorney general.
The United audit can be found online at http://oig.pbgc.gov/audit/2011/summaries/PA-10-72-1.html.