[Senate Hearing 106-856]
[From the U.S. Government Publishing Office]
S. Hrg. 106-856
JOINT HEARING ON PENSION TENSION:
DOES THE PENSION BENEFIT GUARANTY CORPORATION DELIVER FOR RETIREES
=======================================================================
JOINT HEARING
before the
SPECIAL COMMITTEE ON AGING
and the
COMMITTEE ON SMALL BUSINESS
UNITED STATES SENATE
ONE HUNDRED SIXTH CONGRESS
SECOND SESSION
__________
WASHINGTON, DC
__________
SEPTEMBER 21, 2000
__________
Serial No. 106-38
Printed for the use of the Special Committee on Aging
U.S. GOVERNMENT PRINTING OFFICE
67-979 WASHINGTON : 2000
_______________________________________________________________________
For sale by the U.S. Government Printing Office
Superintendent of Documents, Congressional Sales Office, Washington,
DC. 20402
SPECIAL COMMITTEE ON AGING
CHARLES E. GRASSLEY, Iowa, Chairman
JAMES M. JEFFORDS, Vermont JOHN B. BREAUX, Louisiana
LARRY CRAIG, Idaho HARRY REID, Nevada
CONRAD BURNS, Montana HERB KOHL, Wisconsin
RICHARD SHELBY, Alabama RUSSELL D. FEINGOLD, Wisconsin
RICK SANTORUM, Pennsylvania RON WYDEN, Oregon
CHUCK HAGEL, Nebraska JACK REED, Rhode Island
SUSAN COLLINS, Maine RICHARD H. BRYAN, Nevada
MIKE ENZI, Wyoming EVAN BAYH, Indiana
TIM HUTCHINSON, Arkansas BLANCHE L. LINCOLN, Arkansas
JIM BUNNING, Kentucky
Theodore L. Totman, Staff Director
Michelle Easton, Minority Staff Director
------
COMMITTEE ON SMALL BUSINESS
CHRISTOPHER S. BOND, Missouri, Chairman
CONRAD BURNS, Montana JOHN F. KERRY, Massachusetts
PAUL COVERDELL, Georgia CARL LEVIN, Michigan
ROBERT F. BENNETT, Utah TOM HARKIN, Iowa
OLYMPIA J. SNOWE, Maine JOSEPH I. LIBERMAN, Connecticut
MIKE ENZI, Wyoming PAUL WELLSTONE, Minnesota
PETER G. FITZGERALD, Illinois MAX CLELAND, Georgia
MIKE CRAPO, Idaho MARY L. LANDRIEU, Louisiana
GEORGE V. VOINOVICH, Ohio JOHN EDWARDS, North Carolina
SPENCER ABRAHAM, Michigan
(ii)
C O N T E N T S
----------
Page
Opening statement of Senator Charles E. Grassley................. 1
Statement of Senator John Breaux................................. 12
Prepared statement of Senator Christopher Bond................... 177
Panel I
Thomas A. Parks, Cedar Rapids, IA................................ 14
Bonne McHenry, former Pension Benefit Guaranty Corporation
Contract Employee, Merrimack, NH............................... 21
Wayne Robert Poll, Inspector General, Pension Benefit Guaranty
Corporation, Washington, DC.................................... 31
Barbara D. Bovbjerg, Associate Director, Education Workforce, and
Income Security Issues, Health Education, and Human Services
Division, U.S. General Accounting Office, Washington, DC....... 49
Robert H. Hast, Assistant Comptroller General, Office of Special
Investigations, U.S. General Accounting Office, Washington, DC. 128
David Strauss, Executive Director, Pension Benefit Guaranty
Corporation, Washington, DC.................................... 140
APPENDIX
GAO responses to questions....................................... 191
Pension Benefit Guaranty Corporation letter and responses to
questions...................................................... 201
Testimony of John W. Wilde....................................... 230
Statement from Kenneth Lyons of the National Association of
Government Employees........................................... 234
Letter from Richard Brooks, Association of Former Pan Am
Employees...................................................... 239
Letter from David W. Kuhnsman, Attorney-Advisor.................. 247
Investigations into Allegations of Contract Improprieties from
Pension Benefit Guaranty Corporation........................... 252
(iii)
JOINT HEARING ON PENSION TENSION: DOES THE PENSION BENEFIT GUARANTY
CORPORATION DELIVER FOR RETIREES
----------
THURSDAY, SEPTEMBER 21, 2000
U.S. Senate,
Special Committee on Aging,
and the Committee on Small Business,
Washington, DC.
The committee met jointly, pursuant to notice, at 8 a.m.,
in room SD-562, Dirksen Senate Office Building, Hon. Charles
Grassley (Chairman of the Committee) presiding.
Present: Senators Grassley, Breaux and Bond.
OPENING STATEMENT OF SENATOR CHARLES GRASSLEY, CHAIRMAN
The Chairman. Thank you all for coming. And as everybody
who observes Congress to any great extent, and that is probably
a large--like I was about to say, there is unusual things
happening. [Laughter.]
And the most unusual is that we are meeting at 8 in the
morning. And you can see that even the mechanical aspects of
Congress do not operate very well at 8 o'clock in the morning.
This is necessary because Senator Breaux and I are members of
the Senate Finance Committee. And a meeting that was scheduled
for yesterday at 10 o'clock was postponed to today at 10
o'clock, which interfered with our hearing. And so we called
this at 8 o'clock in the morning to be able to accommodate all
of our responsibilities for today.
So those of you who have come out early, we thank you very
much for doing that, particularly those who had to come,
members of this committee, as well as our witnesses.
I thank Senator Bond, Chairman of the Committee on Small
Business, and I thank the ranking members of both committees,
Senator Breaux and Senator Kerry, for their support of this
oversight hearing, and I thank my fellow members on both sides
of the aisle for taking time out of their busy schedule at the
end of the session to attend this hearing and also a second
thank you for accommodating us by starting at 8 in the morning,
for a second time, and I think they deserve it to thank our
witnesses for being here today and again earlier than usual.
Your testimony as witnesses will assist the committee
greatly in determining how best to address the matters that are
raised by you and by our investigators. I appreciate everyone's
cooperation in permitting me to start so early, and I have
explained why we are here, and I would appreciate members who
normally are not ranking member or chairmen who I would defer
to give statements, that today we will pass up those statements
as a matter of time. So only Senator Breaux and I, and Senator
Kerry and Senator Bond will have statements.
There's been a lot of discussion throughout the 106th
Congress about retirement income security. It has been a theme
of my chairmanship of this committee. As this Congress comes to
a close, we continue to work to pass legislation to help
Americans create secure retirement. Next week, the Senate is
going to debate the Comprehensive Pension Reform bill as an
example. But what if you do not have a secure retirement or
what if you will only receive a small pension from the Social
Security Administration and your company's pension makes all of
the difference in the world then to the quality of life you
have in retirement.
Imagine retiring and applying to receive your pension
benefit from a company that you worked for very early in your
career, and you find that that plan has gone bankrupt. Imagine
collecting a pension check for a decade only to receive notice
stating that you have been overpaid for several years. Now you
owe several thousand dollars, and your monthly pension will be
reduced drastically. Imagine receiving an IRS notice that you
underpaid your taxes because of the lump sum you received as a
result of somebody's miscalculation. Now that individual faces
higher taxes and a 20-percent penalty.
Imagine receiving a $473,000 check by mistake, as did the
mother of one of today's witnesses. A copy of the check sent to
the PBGC to return the mistaken money is demonstrated over here
on this chart at my right. But the problem did not end there.
Next, you will hear from the IRS because they get involved
wanting taxes and penalties on a $470,000 mistake, and that is
evidenced here by the letter from the IRS.
This hearing then focuses upon the Pension Benefit Guaranty
Corporation, the PBGC, as we will refer to it. It is a wholly
owned Government corporation that manages $19 billion. The
PBGC's core mission is to provide timely and accurate benefits
to millions of Americans who are covered by private sector-
defined benefit plans. Today, we will examine how effectively
the PBGC has carried out its missions.
We are going to hear a lot about the Corporation's benefit
determination process. To simplify this discussion, I have over
here another chart that we prepared, which reflects an overview
of the Corporation's benefit process. I plan to leave this
chart up throughout the hearing for any witnesses who may wish
to refer to it. The chart shows seven stages of the benefit
determination process. We are primarily concerned with five
stages, which are numbered on the chart.
Today, we will hear various statistics about the length of
time it takes the corporation to process final benefit
determinations, and it is important to keep in mind four dates:
The date of plan determination, and that is called Stage One;
date of trustee is reflected, also, at Stage One; the date of
actuarial valuation reflected in Stage Three; and the date of
the initial or final determination letter is sent, and that is
at Stage Four.
Regardless of the dates used to analyze the efficiency of
the Corporation's benefit process, it is important for us to
keep one simple fact in mind: A retiring individual needs to
know the amount of his or her retirement at the earliest
possible date, preferably right after plan determination. Let
me be clear that I recognize many people are satisfied with the
Corporation's management. I am thankful for that. I further
recognize that the Corporation has a difficult job in assessing
plan records from bankrupt companies in calculating benefits.
However, other people have had less satisfactory
experiences, and we will hear from some of those stories today.
Our purpose is not to embarrass anybody, but to focus on how we
can continue to improve delivery of this vital service to
millions of Americans. The committee has learned that it takes
the corporation approximately 6 years from the date that a
retirement plan terminates to determine the amount of a
person's retirement benefit. Remember that that is an average
time. From the chart to my right, you can see that some
determinations might take as long as 15 to 20 years, and that
is Chart No. D. That is a very long time for someone to wait
before they know what their retirement is going to be.
It is true that the Corporation does an excellent job of
ensuring that people's payments continue through the
determination process. The problem, however, arises with the
uncertainty people can face from year to year. People need to
know, as quickly as possible, the amount of their monthly
retirement check. I believe that a corporation chartered by
Congress can do much, much better. I intend to see that this
situation improves dramatically.
The hearing will cover two additional topics that are
directly related to the benefits determination process:
contract management and computer security. The Corporation's
contract management is important to this discussion because
more than one-half of the Corporation's 1,300 employees are
contract employees located in 12 offices. These contract
employees process the bulk of the Corporation's benefit
determinations.
Today, I and Senator Bond are releasing a General
Accounting Office report on the Corporation's contract
practices. In addition, the Corporation's Inspector General
will discuss five reports that he has conducted on the length
of time it takes the Corporation to process benefit
determinations. The Inspector General will also discuss his
computer penetration study that hacked into the Corporation's
computer system and demonstrated its lack of security. The
Corporation has reported to our two committees monthly and has
made great strides to ensure that its computer system is more
secure.
[The prepared statement of Senator Grassley follows:]
PREPARED STATEMENT OF SENATOR CHARLES GRASSLEY
I want to begin by thanking Senator Bond, Chairman of the
Committee on Small Business, as well as the Ranking Members of
both committees, Senator Breaux and Senator Kerry, for their
support on this oversight hearing. I want to thank my fellow
Members, on both sides of the aisle, for taking time out of
their busy schedules at the end of the session to attend this
important hearing. In addition, I want to thank the witnesses
for being here today. Your testimony today will assist the
Committee greatly in determining how best to address the
matters you raise.
I appreciate everyone's cooperation in permitting me to
start the hearing earlier today. I have been called to a
Finance Committee mark-up on important legislation beginning at
10 a.m. Therefore, I want to try to complete this hearing by 10
a.m. today.
There has been a lot of discussion throughout the 106th
Congress about retirement income security. It has been a theme
for me in my chairmanship of the Aging Committee. As this
Congress comes to a close we continue to work to pass
legislation to help Americans create a secure retirement. (Next
week, the Senate will debate the comprehensive pension reform
bill that I cosponsored.)
But what if you don't have a secure retirement? Or, what if
you will only receive a small pension from the Social Security
Administration and your company's pension makes all the
difference? Imagine retiring and applying to receive your
pension benefits from a company that you worked for early in
your career. You find it has since gone bankrupt. Imagine
collecting a pension check for a decade only to receive a
notice stating that you have been overpaid all these years. Now
you owe several thousand dollars and your monthly pension will
be reduced drastically. Imagine receiving an IRS notice that
you underpaid your taxes because of the lump sum you received
as a result of somebody's miscalculation. Now you face higher
taxes and 20 percent penalties. Imagine receiving a $473,000
check by mistake, as did the mother of one of today's
witnesses. But, the problem didn't end there. Next, you will
hear how the IRS got involved, wanting taxes and penalties on
the $473,000 mistake.
This hearing focuses on the Pension Benefit Guaranty
Corporation, or PBGC, which is a wholly-owned government
corporation that manages $19 billion. PBGC's core mission is to
provide timely and accurate benefits to millions of people who
are covered by private sector defined benefit plans. Today we
will examine how effectively PBGC has carried out its mission.
We are going to hear a lot about PBGC's benefit
determination process. To simplify this discussion, we have
prepared the next chart which reflects an Overview of PBGC's
Benefit Process. I plan to leave this chart up throughout the
hearing for any of the witnesses who may wish to refer to it.
The chart shows seven stages of the benefit determination
process. We're primarily concerned with five stages, which are
numbered on the chart. Today we will hear various statistics
about the length of time it takes PBGC to process final benefit
determinations. It is important to keep in mind four key dates:
date of plan termination (reflected at Stage I);
date of trusteeship (reflected at Stage I);
date of actuarial valuation (reflected at Stage III);
and
date on which the initial (or final determination)
letter is sent (at Stage IV).
Regardless of the dates used to analyze the efficiency of
PBGC's benefit process, it is important for us to keep one
simple fact in mind--a retiring individual needs to know the
amount of his or her retirement at the earliest possible date--
preferably right after plan termination.
Let me be clear that I recognize many people are satisfied
with PBGC. I am thankful for that. I further recognize that
PBGC has a difficult job in accessing plan records from
bankrupt companies and calculating the benefit. However, other
people have had less satisfactory experiences. We will hear
some of those stories today. Our purpose is not to embarrass an
agency but to focus on how we can continue to improve the
delivery of this vital service to millions of Americans.
The Committee has learned that it takes PBGC approximately
6 years from the date that a retirement plan terminates to
determine the amount of a person's retirement benefit.
Remember--that's the average time. From the chart to my right,
you can see that some determinations take from 15 to 20
years!!. That's a very long time for someone to wait before
they know what their retirement income will be.
It is true that PBGC does an excellent job of ensuring that
people's payments continue throughout the determination
process. The problem arises with the uncertainty people can
face for years and years. People need to know as quickly as
possible the amount of their monthly retirement check. I
believe that a corporation, chartered by Congress, can do much,
much better. I intend to see that this situation improves
dramatically.
The hearing will cover two additional topics that are
directly related to the benefits determination process:
contract management and computer security. PBGC's contract
management is important to this discussion because more than
one-half of PBGC's 1,300 employees are contract employees
located in 12 offices. These contract employees process the
bulk of PBGC's benefit determinations. Today, Senator Bond and
I are releasing a GAO report on PBGC's contract practices. In
addition PBGC's Inspector General will discuss five reports he
has conducted on the length of time it takes PBGC to process
benefit determinations. The Inspector General will also discuss
his computer penetration study that hacked into PBGC's computer
system and demonstrated its lack of security. PBGC has reported
to our two Committees monthly and has made great strides to
ensure that its computer system is secure.
[Charts on Overview of PBGC]
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I now would refer to Senator Breaux, the distinguished
ranking minority member of this Committee on Aging.
STATEMENT OF SENATOR JOHN B. BREAUX
Senator Breaux. Thank you, Mr. Chairman. I am delighted to
join with you in participating in this hearing. I am glad the
charts have cleared up how the Agency operates. I am not sure
it is totally clear yet. Today, after reading that chart, it
looks like how Congress operates, which is not very clear at
all. [Laughter.]
But I think it is important that we look at the agencies
that we have jurisdiction over, particularly in the area of
retirement security. The average American probably has never
heard of a corporation called the Pension Benefit Guaranty
Corporation. Most Americans would not be able to tell you what
that Agency does. But for millions of Americans who rely on the
Pension Benefit Guaranty Corporation for a check every month,
they certainly understand it and know how important it is to
their daily lives. They are dependent on it.
In my own State of Louisiana, as an example, there are 302
plans, I think, that pay premiums to cover over a half a
million participants just in my State of Louisiana. This is a
corporation that manages millions and millions of dollars and
serves a very critical purpose for a large number of Americans.
And I think, therefore, it is appropriate and proper that this
committee, in particular, which has taken the leadership I
think in so many areas dealing with retirement and pension
benefits and issues of particular concern to the elderly in our
country, that it is appropriate that we have this oversight
committee.
I think the executive director, Mr. Strauss, would be the
first to admit that any agency in Government, indeed, can
always do better than they have. And what we look for is a
trend line of improving performance in serving the American
public. I think it is important for this Agency, this
Corporation, to know that Congress is looking at their
operations and want to ensure that the movement is in the right
direction in order to continue to improve services. And I think
over the past years there has been an improvement in the
quality of the services to the American people. This is an
issue that is far too important to take lightly. Pensions are
the life blood of many families in America. So we have to
continue to do a better job than we did in the previous year.
There has been some concern about the tardiness in coming
up with a final determination of what the actual benefits would
be on a month-to-month basis, and we need to do better in that
area. I do note, however, that I don't think we've ever missed
any payments, and people have always been able to depend on
that pension check. And in most cases, the initial
determination and the final determination are actually very
close to being the same thing. Americans can depend on getting
their pension from the Pension Guaranty Corporation.
Customer services is a priority. I mean, this Agency, as we
and the Congress, work for the American people. I have reviewed
Mr. Strauss's testimony. I have been impressed that a person
who is executive director has actually spent such an incredible
amount of time in personally meeting with people who use this
Corporation and depend on it. I think that is admirable. Too
often, in Washington, people who run agencies have a disconnect
with the people that they serve. It is very important to
reestablish that, and I think they have done that.
There has also been about 21 years of budget shortfalls in
this Agency, which has been very disturbing. And it is good to
note that over the last four consecutive years we have had a
surplus. I think that is a major and very positive indication
of movement in the right direction, as well as a downturn in
the number of pending benefit determinations that are still
pending and have been going down in each of the last 5 years.
So there is progress that is being made. Is it a perfect
Agency? No. Is there a perfect Agency in Washington? No. I
mean, everybody can stand improvement, and that is what we are
looking for here today. And I look forward to all of our
witnesses and their recommendations.
Thank you, Mr. Chairman.
The Chairman. I will try to accommodate Senator Bond or
Senator Kerry if they are under tight schedules when they show
up, if they want to make statements, because they have to go to
another committee meeting. Both staff can inform them that I am
willing to do that to help them. Because we need to conclude
the hearing at 10 a.m. to attend the Finance Committee mark-up,
as I have already suggested, I thank the Inspector General for
his preparation to provide an introductory overview of the
PBGC. And in the interest of time, I want to dispense with that
opening and make it a part of the record.
Now, I introduce the panel, and I will introduce the entire
panel, and then we will start with Mr. Parks and end with Mr.
Strauss.
Thomas A. Parks is a constituent of mine from Cedar Rapids,
IA. And he has come here under extreme circumstances because he
has been with a friend who is ill in Alaska, and we appreciate
very much your taking time out of your schedule to come.
Now, we have another person, Dr. Wilde, who evidently
because of plane problems may not be able to get here. He
happens to be from Dale City, CA, but is now in Chicago, it is
my understanding. He is going to, if he gets here, will testify
on behalf of his mother, Dorothy Jasco. If he does not come, we
will be able to put his statement in the record.
Then we have Bonne McHenry, a former contract employee of
the Corporation, PBGC. She is from Merrimack, NH. Then, we have
the Inspector General of the Corporation, Wayne Robert Poll.
Thank you for coming.
And Barbara Bovbjerg, Associate Director of Income Security
at the General Accounting Office. Thank you.
Robert H. Hast, Assistant Comptroller General for Special
Investigations at the General Accounting Office.
And then David Strauss, our Executive Director of the
Pension Benefit Guaranty Corporation. Thank you.
Now, we will start with Mr. Parks.
STATEMENT OF THOMAS A. PARKS, CEDAR RAPIDS, IA
Mr. Parks. Thank you, Senator. Let me also preface my
remarks that I have no interest in negatively complicating the
lives of anyone at the Pension Benefit Guaranty Corporation. My
sole motivation is to illuminate past problems with and within
the PBGC, based on my experience, so as to hopefully benefit
what I suspect are probably thousands of retirees highly
dependent upon the PBGC.
That philosophy was enunciated in my letter to the PBGC of
April 3, 1996, after approximately 4\1/2\ years had elapsed
before my situation was finally resolved in August 2000. That
final determination, incidently, came after approximately 8
years after the PBGC became involved in this plan. In that 1996
letter, I stated:
``My experience suggests to me that problems of this nature
reflect much greater problems at the top. This does not
necessarily mean at the supervisory level, it may be a funding
issue or something comparable and equally difficult to
resolve.''
``For that reason alone, I am writing to you to ask that my
unanswered letters be answered and my case resolved with
rational expediency and that you allow me the benefit of your
insight into the overall question before I take this matter up
with others who I am reasonably certain will act.''
To that April 1996 letter I attached an earlier fax to the
PBGC in which I recited a litany of mistakes, some of which
involve my receiving, without explanation, a substantial check
drawn on a bank other than that which the PBGC had indicated
would be transmitting funds and against a company pension plan
unrelated to me in any way. Subsequently, I received another
check duplicating the amount of the first check, drawn upon the
correct PBGC bank. I returned these funds to the PBGC via a
certified check.
Like other communications with the PBGC, these received no
clarifying response. Instead, in April 1996, I received a
request for documents that duplicated documents first supplied
November 27, 1995. Subsequently, I received a surprising
telephone inquiry from the PBGC asking if I could illuminate
the cause of errors that were obviously internal to them and
about which I was understandably uninformed. My response simply
reiterated details previously supplied.
Following months of frustrating absence of any closure on
questions and issues put before the PBGC, in January 1997, I
requested the assistance of Congressman Jim Leach. In my
judgment, the initial response to the Congressman's office was
evasive and of little assistance, except to confirm that some
undefined action was in progress. Subsequently, in a letter
dated February 3, 1997, a full 5 years after the applicable
pension plan had been terminated with the PBGC's involvement
and 1\1/2\ years after my retirement and filing for benefits,
the PBGC confirmed their appointment as trustee, which had
actually happened 6 months previously.
The PBGC then, in February 1997, proceeded to send auditors
to my former employer's office to audit materials readily
available from Aetna from 1992 forward. Nothing further was
heard from them until 8 months later, when they telephoned my
employer's former plan administrator, asking questions
previously answered many times and suggesting that they had
``misplaced''--their words--applicable files and were
``temporarily stymied.'' Consequently, on November 12, 1997, I
requested assistance from the office of Senator Charles
Grassley and provided that office with a detailed recap of
pertinent communications with the PBGC extending from September
1991, over 6 years. That communication and attachments are
included herewith as a matter of record.
The PBGC, in December 1997, responded to Senator Grassley,
stating, among other things, that ``our processing schedule
calls for final benefits to be calculated by the end of 1998,''
which actually did not occur until August 2000. In this
response, the PBGC expressed concern over the length of the
process and further stated that their problems resolution
officer had been asked to monitor my case to ensure that it
stays on track.
I regret having to add to this litany of problems the fact
that the final determination letter, ultimately received on
August 14, 2000, was found to be incorrect and was superseded
by what I presume is the ultimate final determination letter,
dated August 18, 2000. In all fairness, I must add that this
error was found by the PBGC without input from me and that they
acted quickly to make the necessary corrections.
This quick action suggestions or appears to suggest some
internal improvements have taken place, but this appearance of
improvement is so recent that I am hesitant to rely upon it.
The fact remains that eight long years were consumed in the
process between when the PBGC first became involved and their
final determination of my case. During much of this time, I was
uncertain as to benefits due me and aware that, upon final
determination, I might have a partial repayment obligation
rather than an increase in the monthly interim payment being
received. Those interim payments began at $1,006 in May 1996
and were provisionally adjusted upwards to $1,257 in February
1998. In their final determination letter, the PBGC advised
that my final entitlement would be increased by 83 cents.
Your attention is drawn to Attachment 1 to my November 12,
1997, letter to Senator Charles Grassley. That attachment,
dated June 4, 1992, authored by my former employer's pension
plan administrator, states that upon my retirement my benefit
payment will be $1,257.88, only a nickel variance from the
number determined by the PBGC to be applicable after 8 years of
expended resources.
When one compares the years and resources consumed to
arrive at such an insignificant change, it is difficult to make
a positive statement, even given that I do have an appreciation
for fiscal and accounting procedures which might justify such a
modest adjustment. The 1992 estimate authored by my former
employer's plan administrator was not mere speculation. It was
predicated upon the facts that Aetna's actuaries had monitored
and reported upon the applicable plan for benefits for many
years. Additionally, in compliance with Department of Labor
requirements, the company's plan numbers and Aetna's numbers
had been audited and verified annually by auditors such as
Price Waterhouse and Arthur Anderson.
The PBGC's refusal to work with this certified data and
thus save years of expensive efforts, only to essentially
arrive at an identical conclusion, appears to reflect that
other situations possibly surfaced unsatisfactory detail.
However, to consequently adopt an attitude that one rule or
experience fits all is tunnel vision, causing corporate and
human misery best avoided by working with more commonly
accepted business practices. My decades of experience working
for and operating small businesses dictates a strong position
opposing such waste.
I have also held management positions in Fortune 500
companies and can attest that their ability and resources to
deal with such problems are more in tune with these
bureaucratic procedures, which have the potential of crushing
small businesses. In most cases, where one rule or procedure is
assumed applicable to all businesses, small or large, the small
company operates at a distinct disadvantage.
In summary, the delays and absence of communication over
many years perpetuated uncertainties and prolonged
determination of benefits to which I was, and am, entitled. I
am fortunate that my financial survival was not at stake, but I
suspect that many others suffering this treatment are injured
or at least highly insecure.
As I reflect upon this experience, I am led to speculate
that the root problem is or was a lack of adequate resources to
cope with a crescendo of plan failures during the 1990's. If
that is the case, the fault rests not with line personnel, but
rather with top management or funding sources or both for
having failed to recognize the magnitude of the needs.
Thank you very much.
[The prepared statement of Mr. Parks follows:]
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The Chairman. Thank you, Mr. Parks.
Now, Ms. McHenry.
STATEMENT OF BONNE McHENRY, FORMER PENSION BENEFIT GUARANTY
CORPORATION CONTRACT EMPLOYEE, MERRIMACK, NH
Ms. McHenry. I, Bonne Ann McHenry, respectfully submit the
following testimony on September 21, 2000, before the Senate
Special Committee on Aging and the Senate Committee on Small
Business.
I worked for Integrated Management Resources Group,
Incorporated, IMRG, as a Senior Pension Administrator for the
Atlanta PBGC office. My testimony is based on my experiences
and observations. Since I was a member of the Pan American
Cooperative Retirement Income Plan--Pan Am CRIP--team for most
of this time, I would like to address the process, timeliness
and accuracy of the issuance of these Initial Determination
Letters.
An Initial Determination Letter, IDL, is a communication to
a participation in a PBGC-administered defined benefit pension
plan that states the amount of his or her benefit at normal
retirement age. If the participant is already receiving a
pension, an IDL confirms or refutes the amount that is being
paid. An IDL is the most important document that the
participant will receive from the PBGC because a participant
who disagrees with PBGC's determination cannot appeal PBGC's
decision until an IDL is issued. In other words, PBGC prevents
participants from appealing any disputed benefit amount by
simply failing or refusing to issue an Initial Determination
Letter.
Those participants who believe they are entitled to a
higher benefit, must put their financial future on hold because
the major source of income from their pensions is uncertain. If
a participant does not respond to his or her IDL within 45
days, the right to appeal is lost. The Pan American World
Airways Cooperative Retirement Income Plan was frozen on
December 31, 1983, and the company filed bankruptcy and this
plan was retroactively terminated on July 31, 1991.
In my view, and based upon my experience, there was no
justification for the delays in providing IDLs to the Pan Am
participants. When I began working at the Atlanta PBGC office,
over 7 years after PBGC assumed responsibility for this plan,
the majority of the 20,000 participants in the CRIP plan had
not yet received an Initial Determination Letter, yet I was
able to look at a stand-alone PC screen connected to the Pan Am
data base and see the work and salary history, as well as the
calculated accrued benefit/IDL information for most Pan Am
employees. Neither PBGC nor IMRG expressed concern for the
impact of their poor management on participants. In my opinion,
it should not have taken PBGC so long to issue IDLs.
PBGC did not appear to take particular care with regard to
accuracy, did not make the best use of both Pan Am's records
and its own technology. Although the calculations for those who
were receiving benefits had already been scanned into the PBGC
IPS system and could have been used to verify benefit amounts,
options chosen and spousal information, the PBGC sent out IDLs
with incorrect benefit amounts, inaccurate options chosen,
wrong name or ``unknown'' for spouse's name. The IDLs were
issued with incorrect Social Security numbers. IDLs were sent
to former Pan Am employees who are already being paid by CIGNA,
Prudential, or Johnson Controls. IDLs were sent to people who
had never worked for Pan Am. Letters were sent to retirees with
the language, ``Due to unresolved issues, we cannot determine
the amount of your benefit at this time.''
When the PBGC office in Washington issued these IDLs in
batches, it used its automated letter system called ALG. As a
result, there were spelling and grammar mistakes and dates in
fields were benefit amounts should be and vice versa. In every
instance where I talked to someone who had received one of the
above letters, I could almost always verify what the correct
information should have been using the records that had been
imaged or the Pan Am data base.
Participants who elected the level income option, which
drops down at the Social Security retirement age of 65, were
incorrectly paid the same initial amount long after age 65,
leading them to believe they were entitled to this amount, when
they were given IDLs which recouped this overpayment, leaving
them with little or no pension. Others were put into pay by
PBGC with estimated benefits and then told to repay the
difference when they were issued their IDLs for lower amounts.
In my experience, there were far too many mistakes.
IDLs were not sent to all participants who have a lump sum
cash-out value between $3,500 and $5,000, notifying them that
these funds are eligible to be rolled over into Individual
Retirement Accounts. There are probably thousands of these
participants. I could look them up on the PBGC data base under
their respective CRIP groups: IUFA, flight attendants; TWU,
mechanics; IBT, Teamsters; and management. Those who were
called in were given IDLs and lump sums on a case-by-case
basis. There were thousands of IDLs omitted.
PBGC sent participants IDLs that gave them only 45.2
percent of their benefits at age 55--or 50, if they were a
flight attendant. This caused concern among the Atlanta
administrators because we were given plan documents, and IUFA,
TWU and IBT pamphlets that stated that the Pan Am early
retirement percentage was 79 percent for those who met certain
service requirements. Participants who lost this additional
33.8 percent of their benefit were extremely upset. I could not
get an explanation for this discrepancy between Pan Am policy
and PBGC practice. A benefit of $300 a month was reduced by
PBGC to only $135.60 a month, instead of the $237 a month that
would have been paid by Pan Am.
I believe that those who met the Pan Am service
requirements should have received 79 percent of their pension
at early retirement.
Since the Pan Am participants who were hired after December
31, 1983, were not eligible for any pension benefit, their
records should have been deleted from the IDL data base. These
extraneous records triggered error messages on reports and were
of no use, other than to confuse the process.
As you can imagine, the incorrect IDLs generated an
extremely high volume of calls. Those of us who tried to answer
questions about these letters often could not even view a copy
of what had been sent. Batches of these IDLs disappeared and
were not scanned. No record exists except for the mailed
original. In my opinion, PBGC issued IDLs regardless of
quality, solely to meet the court-ordered deadline.
IMRG was not prepared to manage payroll, benefits and
screening of candidates for employment or the training of
existing employees in a reliable or responsible manner. I saw
Myrna Cooks onsite only twice in a year-and-a-half. In my
experience, she did not show any knowledge of or concern for
either her employees or the work in progress. Myrna did not
return our phone calls or respond to our e-mails. She kept more
than 20 percent of the hourly wage she was receiving from PBGC.
When I began work on the first day of Myrna's contract, I
was the only new employee. The rest of the office had been
employed by Office Specialists and continued with IMRG.
I am not sure whether I should----
The Chairman. How much do you have left?
Ms. McHenry. I have about three pages.
The Chairman. Would you maybe make two or three points that
you have yet to make, please, because I think your testimony is
very important.
Ms. McHenry. The only real concern of management was that
they not be embarrassed. There was no leadership. IMRG's
management had no interest in ensuring that the work was
completed in a timely and competent manner.
The working conditions became so bad that employees banded
together and sent an e-mail to David Strauss, the Executive
Director of PBGC. We tried to address work-related issues, as
well as the low morale. Barbara Mitchell was asked to send this
compilation of our grievances because we felt that she would
not be retaliated against. Barbara, herself a retiree from Pan
Am, was an extremely knowledgeable and hardworking employee.
She had worked for Office Specialists since 1992. Barbara and I
both spoke to Joe Grant on the phone.
When David Strauss, Joe Grant and Bennie Hagans came to
Atlanta and met with the Pan Am CRIP team, there was an
emphasis on open communication and bringing forward problems
and issues. Administrators were then told by Bennie Hagans and
Francis Emmanuel, the Manager, after David Strauss and Joe
Grant had left, that all communications with Washington had to
go through the Atlanta management. Employees were forbidden to
communicate with PBGC directly or bring up issues at the weekly
video conferences without prior clearance from Atlanta
managers. This was a gag order.
When Barbara expressed concern that she would be fired for
being a spokesperson and telling what she knew, Joe Grant
assured her that this would not happen. Barbara was fired
shortly afterwards on November 8, 1999. She has been seeking
redress from the Inspector General's Office since this time and
has heard no decision.
IMRG did not provide a defined benefit pension plan for its
employees. There was a 401(k) plan for employee contributions
only. I find it disheartening that David Strauss gives talks
around our Nation promoting defined benefit plans and then PBGC
gives a contract to IMRG which has none. This means that
contract employees who are poorly and inconsistently paid, not
well trained and have no pension plan, are expected to give
good customer service to those who do. I believe that PBGC
knows how poorly the Atlanta office is run and that thousands,
if not millions, of dollars have been wasted as a result of not
confronting the poor management that exists.
In my opinion, pensioners of bankrupt companies should not
be caught between an inefficient, incompetent bureaucracy and
an inferior, covetous contractor.
[The prepared statement of Ms. McHenry follows:]
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The Chairman. Thank you, Ms. McHenry.
Mr. Poll.
STATEMENT OF WAYNE ROBERT POLL, INSPECTOR GENERAL, PENSION
BENEFIT GUARANTY CORPORATION, WASHINGTON, DC
Mr. Poll. Good morning, Mr. Chairman and members of the
committee. My office has been working with your committees over
the past several years, and I appreciate this opportunity to
discuss some of that work today. Today, I will be discussing
computer security and the benefit determination process.
During the past 5 years, we have performed a wide range of
security reviews over information technology resources. These
reviews have clearly pointed out that PBGC lacks a
comprehensive IT security program. Without an effective and
proactive IT security program, PBGC is exposed to risks. For
example, someone with unauthorized access may modify, destroy
and disclose sensitive information. To determine how vulnerable
the Agency was to these risks, we conducted tests of the
security environment. This is referred to as network
penetration testing.
We were glad to discover and report to PBGC that we were
unable to penetrate its information systems using the Internet.
However, we were able to access systems through both dial-in
from remote locations and unauthorized access inside the
Agency. This test revealed flaws in the security over computer
resources and in employees' awareness of their security
responsibilities.
For example, during our testing, we obtained the highest
security access and were able to create, delete and modify data
and deny service to critical networks/systems. We were able to
achieve a systems administrator level of access without being
detected. These tests demonstrate that PBGC did not have an
effective program that defined, implemented and enforced
security strategy.
Further, security standards for new systems need to be
defined earlier in the development process to ensure that there
is appropriate security before the system is placed into
production. Then, PBGC needs to oversee the systems development
process to ensure that contractors are complying with the
improved system's design.
In addition, in fiscal year 1997, Chairman Grassley, you
asked my office to address certain questions regarding initial
benefit determinations or IDLs. We looked at the efficiency and
effectiveness of the benefit determination process and
identified key areas of improvement. Our report included
findings that PBGC could not attest that IDLs had been issued
to all participants. We also completed two reviews on the
length of time it had taken the Agency to issue IDLs. Our
review revealed that PBGC continued to issue approximately one-
half of the IDLs more than 7 years after it became trustee.
We also looked at how long it took PBGC to issue the IDLs
after it had determined participants' benefit amounts. We found
improvement. In our first report, we noted that only 35 percent
of the IDLs were issued within one year of PBGC completing its
evaluation. Our follow-on report noted that approximately 80
percent of the IDLs were issued within a comparable 1-year
period. In these two reports, we identified problems in the IDL
data maintained in a data base called PRISM. Information in
PRISM is used to pay benefits and answer participant questions.
We found that the PRISM contained duplicate, incomplete and
erroneous data, which this called into question the reliability
of the data that PBGC used to report its operational
performance.
Our evaluation of whether participants are impacted by the
delay in IDL issuance revealed that there is a gap between how
participants and PBGC view delayed IDLs. We asked Agency
management, ``How are participants impacted by your delay in
issuing IDLs?'' PBGC's answer focused on the payment of
estimated benefits. They suggested that a delayed IDL was very
little impact because the participants are receiving their
estimated monthly checks. Some participants, however, stated
that they were financially or emotionally harmed by delayed
IDLs. Participants also reported economic hardship, such as the
possibility of having to repay PBGC's overpayment benefit
amount.
Finally, as stated in our report on the appeals process, we
found that PBGC's assertions regarding appeals of IDLs were
fairly presented. Notably, in fiscal year 1997, approximately
one-half of the appeal decisions were favorable to the
appellants.
In conclusion, Mr. Chairman, over the years, my office has
issued multiple reports commenting on weaknesses relating to
PBGC's benefit determination process. The common theme of these
reports is that there are systematic weaknesses in controlling
participant information. More timely and reliable information
would enable PBGC to better perform the benefit determination
process and issue IDLs in a timely manner.
I thank you for this opportunity to discuss our audit work
and would be glad to answer your questions.
[The prepared statement of Mr. Poll follows:]
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The Chairman. Thank you, Mr. Poll.
Now, Ms. Bovbjerg.
STATEMENT OF BARBARA D. BOVBJERG, ASSOCIATE DIRECTOR,
EDUCATION, WORKFORCE, AND INCOME SECURITY ISSUES, HEALTH,
EDUCATION, AND HUMAN SERVICES DIVISION, U.S. GENERAL ACCOUNTING
OFFICE, WASHINGTON, DC
Ms. Bovbjerg. Thank you, Mr. Chairman. Mr. Chairman,
Senator Breaux, I am pleased to be here today to discuss the
Pension Benefit Guaranty Corporation's management of its
contracting responsibilities.
The Corporation relies heavily on contractors to perform
its functions, spending over 60 percent of its operating budget
on contracting. In fact, contractors comprise half the PBGC
workforce and staff all of its field operations.
Today, I would like to focus my remarks on three aspects of
PBGC's contract management, the basis for PBGC's decision to
use contractors, the contractor selection process and
monitoring contractor performance. My testimony summarizes
results of work we have done over the past year at PBGC
headquarters and at field locations, and this work is discussed
in more detail in our report released today by both committees.
First, the decision to use contractors. PBGC's contracting
decisions have been heavily influenced by rapidly increasing
workloads. In the mid-eighties, bankruptcies at LTV Steel, Pan
American Airlines, and other large corporations more than
doubled the number of pension beneficiaries under PBGC
administration. Rather than request new Federal hiring
authority during what was then a period of Federal downsizing,
the Corporation moved quickly to bring in contract help. Over
time, PBGC continued to use contractors to address a growing
backlog of work.
Although the outlook for PBGC workloads has changed over
time, the Corporation continues to rely heavily on contractors.
Use of contractors in the past, indeed, helped PBGC address a
growing workload, but today things look different. Improvements
in plan funding, changes in pension law and a declining number
of defined benefit plans all suggest changes in PBGC's future
workload. Accompanying changes in staffing levels and
organizational structure may be warranted and should be
considered in the Agency's planning efforts. However, PBGC
lacks a blueprint for organizing its contractor and Federal
staff to meet current and future needs cost-effectively and
risks being unprepared for a changing future pension
environment. We believe that this must change.
My second point deals with contractor selection. In our
review of PBGC's most recent field services procurements, we
identified weaknesses that could affect competition which, in
turn, could cause PBGC to pay too much for these services.
While PBGC competed operations at four field locations in 1997,
it continued its practice of making sole-source awards in seven
other field locations. PBGC asserts that the incumbent
contractors are uniquely qualified, but we found no indication
that the Agency conducted the outreach or market research
necessary to assure that, indeed, no other providers would
qualify.
And in the four field locations where the procurements were
competed, we found other weaknesses that may have affected
competition. PBGC consolidated requirements for three
geographically remote contractor offices into a single
procurement and excluded the services for the fourth office
from the consolidation. Corporation staff stated that requiring
the successful offeror to perform at all three locations would
not restrict competition, but simultaneously acknowledged that
the fourth site was kept separate so that the incumbent
contractor could compete. PBGC did not provide a sound
rationale for structuring the procurement this way, and in the
end, incumbent contractors won these bids. PBGC could have done
more to ensure competition in these instances, and by
extension, ensure more cost-effective contracts.
I just give these as examples of our findings. We have
detailed several more concerns with contractor selection in our
report. In addition, we also obtained information that involved
possible improprieties and referred it for investigation, an
investigation which is the subject of Mr. Hast's statement
today.
Finally, let me turn to contract monitoring. In recent
years, PBGC has taken actions to better oversee its contractors
in field locations. However, we identified several key
management weaknesses, including a lack of centrally compiled
field location data that we feel is necessary to truly monitor
performance, deficiencies in field office quality reviews and
an organizational alignment that could affect the objectivity
of contract review. Such weaknesses left uncorrected could
affect the Corporation's ability to monitor and hold
contractors accountable for their performance.
In our report, we have recommended a number of actions
that, based on our work, we believe would improve PBGC's use of
contractors. The Corporation has said it agrees with most of
our recommendations and plans to act in several areas to
improve contract management. And, indeed, absent meaningful
action, PBGC risks being unprepared for future workloads, risks
contracts that cost too much for too little and ultimately
risks a deterioration of service to plan participants.
Mr. Chairman, that concludes my statement. I ask that my
written statement be submitted to the record, please, and I
would be happy to answer any questions.
[The prepared statement of Ms. Bovbjerg follows:]
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The Chairman. Let me make clear that everybody's written
statement, if it is longer or different than your oral remarks,
are automatically included in the record.
Now, Mr. Hast.
STATEMENT OF ROBERT H. HAST, ASSISTANT COMPTROLLER GENERAL,
OFFICE OF SPECIAL INVESTIGATIONS, U.S. GENERAL ACCOUNTING
OFFICE, WASHINGTON, DC
Mr. Hast. Chairman Grassley and Senator Breaux, I am
pleased to be here to discuss the investigation you requested
into the alleged contracting irregularities at the Pension
Benefit Guaranty Corporation. As a result of information and
documentation obtained by Ms. Bovbjerg's group during its
previously discussed review of PBGC, she referred certain
contracting irregularities to us. Those irregularities appear
to involve improprieties or potentially illegal activity.
We investigated whether PBGC's award of two contracts to
Integrated Management Resources Group was improper. The two
contracts, an auditing contract and a field benefits
administration contract for the FBA office in Atlanta, GA, were
worth approximately $40 million combined. Specifically, we
investigated allegations that Bennie L. Hagans, PBGC's Director
of the Insurance Operations Department, which oversees the
administration of FBA, had improperly influenced the award of
these contracts to IMRG. IMRG has been owned and operated by
Myrna Cooks since April 1997, when she resigned from Office
Specialists, a PBGC contractor. Ms. Cooks had been a Manager
and Vice President of Office Specialists, which at the time of
her resignation held the two contracts we investigated.
In brief, Mr. Hagans' actions demonstrated a lack of
impartiality with respect to IMRG and created the appearance of
improperly influencing the award of the two contracts in
question. What follows is some of the evidence we discovered.
IMRG was awarded its first contract, an auditing contract, on
October 10, 1997. It had an estimated maximum value of almost
$14 million. However, between the time she left Office
Specialists and was awarded her first contract, 34 telephone
calls were logged from either Mr. Hagans' PBGC office telephone
or his PBGC cellular telephone to Ms. Cooks' home, the location
of IMRG.
Ms. Cooks told us that she had both received many calls
from Mr. Hagans and made many calls to him during this period.
For example, on July 10, 1997, after IMRG submitted its
auditing contract proposal, PBGC phone records show two calls
were made from Mr. Hagans' office to Ms. Cooks' hotel room in
Atlanta. Hotel records indicate four calls from Ms. Cooks'
hotel room to Mr. Hagans' hotel after he had arrived in Atlanta
the same day. Two of these calls were made on the evening of
July 10th. The second two were made early the next morning at
5:50 a.m. and 6:33 a.m., just before Mr. Hagans visited the
Atlanta office of Office Specialists.
Ms. Cooks told us she was in Atlanta to recruit Office
Specialist employees for IMRG and that the purpose of the hotel
room calls were to request Mr. Hagans to intercede with Office
Specialists' management to stop them from interfering with
their employees' discussion with her about possible employment
with IMRG. Ms. Cooks told us that Mr. Hagans resolved this
problem for her. She also stated that her other calls with Mr.
Hagans concerned personnel problems at Office Specialists, but
she was unable to detail what she meant by this. Mr. Hagans
also cannot explain the content of the many phone conversations
he had with Ms. Cooks.
Additionally, on or about August 29, 1997, after IMRG had
submitted its contract proposals, but before the auditing
contract was awarded that October, Ms. Cooks met with an
officer of a Maryland bank to seek financing for IMRG. We
interviewed the bank officer who processed the loan application
and reviewed the loan file with his contemporaneous notes and
memos of contacts with Ms. Cooks and Mr. Hagans.
According to the bank officer and his notes, Ms. Cooks
informed him that she was competing for the PBGC contracts held
by Office Specialists. The bank officer told Ms. Cooks that
before approving the loan, he wanted assurances directly from
PBGC officer responsible for awarding the contracts that IMRG
would be awarded the contracts she claimed to be taking over
from Office Specialists. In response, Ms. Cooks provided Mr.
Hagans as a reference. The bank officer stated that after he
had a telephone conversation with Mr. Hagans, he was convinced
that Ms. Cooks' claim was truthful. PBGC telephone records show
a 16-minute telephone call from Mr. Hagans' office to the bank
officer on September 9, 1997.
In October 1997, Ms. Cooks notified the bank officer that
IMRG had been awarded only the audit contract of the three she
had bid on. The bank officer told her that he could not
understand why she was unsuccessful getting the other two. In
response, Ms. Cooks asserted that Office Specialists had
substantially underbid IMRG. Ms. Cooks also told the bank
officer that Mr. Hagans had pledged to give IMRG $3 million in
additional work from the savings between the IMRG and Office
Specialists bids. Ms. Cooks also told him that PBGC was acting
to remove Offices Specialists from the Atlanta FBA contract for
nonperformance, and that once this occurred, the Atlanta
contract would be given to IMRG. This is reflected in the bank
officer's memo to support approving the loan.
The bank officer's memo also reflects his very frank
discussion with Mr. Hagans in early September 1997, about IMRG
and Ms. Cooks. In that discussion, Mr. Hagans said that he
campaigned continuously for Office Specialists' removal from
all three contracts in favor of Ms. Cooks. It continued that
Mr. Hagans was a very big fan of Ms. Cooks and politicked
within the Agency for her company to receive the bid.
After we presented Ms. Cooks with the above evidence, she
claimed no knowledge of the statements attributed to her and
was not aware that the bank officer had contacted Mr. Hagans,
even though she had used him as a reference. Mr. Hagans told us
that he did not know that he was listed as a bank reference and
did not remember speaking to the bank officer. He added that if
he had spoken with the bank officer, that it may look wrong
and, in hindsight, it would have been bad judgment.
This concludes my prepared statement. I will be happy to
respond to any questions of you or other members of the
committee. Thank you.
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The Chairman. Thank you, Mr. Hast.
Now, Mr. Strauss. You might want to pull the microphone a
little bit closer to you.
Thank you.
STATEMENT OF DAVID M. STRAUSS, EXECUTIVE DIRECTOR, PENSION
BENEFIT GUARANTY CORPORATION, WASHINGTON, DC
Mr. Strauss. Thank you, Mr. Chairman. I appreciate the
opportunity to respond. I am a notorious micro-manager, and so
it is killing me not to be able to take each one of these items
and respond to each with some specificity.
Mr. Chairman, I was grateful for the opportunity to meet
with your staff for about an hour-and-a-half last week to go
over many of these issues in much greater detail. And, because
of your time constraints today, what I would like to do is
limit myself to four points this morning. I have five charts
here which I think will help us with some of the mind-numbing
complexity. So my charts will probably be helpful in terms of
answering some of these questions.
The four points that I want to make, Mr. Chairman, are,
first, I want to publicly apologize to Dr. Wilde for the way we
handled his mother's case. She should not have had to go
through this upsetting experience, and for that I am very
sorry. And, Mr. Chairman, I want to assure you that shortly
after Dr. Wilde's mother received that erroneous check in 1997,
we fixed the glitch in what was then a new computer system to
prevent this kind of error from ever occurring again.
Mr. Chairman, some of the details in Dr. Wilde's testimony
about the phone calls to PBGC are very disturbing to me, and I
want to assure you that I want to find out exactly what
happened in each case and report back to you because I want you
to know that in every office of the PBGC and every contract
office, and you can go into the Waterloo office, you will see
our service pledge posted on the wall. Calls are to be
responded to in 24 hours. Letters are to be answered within a
week, and I think that this has become an important part of our
culture. And so, if there are problems with PBGC phone calls,
that would be something that would be of great interest to me,
and I want to assure you that I will investigate this
personally and report back to the committee.
Second, witnesses at today's hearing have raised questions
about specific contracts with the Integrated Management
Resources Group. Mr. Chairman, I want to make two comments
about these allegations. One, I would never tolerate, for one
moment, the kind of conduct contained in these allegations, and
I want the committee to know that. Second, over the last 3
years, the GAO, the Department of Justice, the PBGC's Inspector
General and the PBGC's General Counsel have all conducted
investigations and no one has been able to substantiate any of
these allegations of misconduct. And so I want you to know that
this is something that we have looked at for 3 years. I have
looked at these procurements myself. I spent a day-and-a-half
looking at each one of these procurements, and none of these
allegations have been substantiated.
I want you to know that we continue to cooperate fully with
all of these investigations. And, today, I am submitting for
the record a full report on this matter, which was prepared by
PBGC's General Counsel.
Mr. Chairman, I want you to know that I remain confident in
the integrity of our employees, and I am satisfied that we are
correctly following the Federal Acquisition Regulation process.
While I have not had the opportunity to see the OSI report
released this morning, I welcome anything, any further review
that will finally put these allegations to rest.
The third point that I want to make is to correct any
misimpression from the earlier testimony that there is a delay
in our participants receiving their benefits and that a delay
in receiving these final determination letters has anything to
do with our adherence to our ERISA statutory mandate, which is
to provide continuous and uninterrupted benefits to each of the
participants in these PBGC plans. Let me assure you that, when
we take over a plan, we pay retiree benefits without
interruption. And, as other participants become eligible for
benefits, we pay them without delay. In other words, no
participant ever has to wait to receive their benefits.
Mr. Chairman, I have attended almost 100 participant
meetings and personally met with over 8,000 PBGC participants,
and many of them are like Mr. Parks here. I mean, I have heard
those same concerns, and I am acutely aware that the primary
concern of these individuals is to receive their benefits
promptly. And each month the PBGC pays over $75 million in
benefits to more than 215,000 participants. As I explained in
great detail in my written testimony, the benefit amounts
participants receive are considered to be estimated. And before
we can calculate final benefits, we must satisfy the
requirements of ERISA by verifying all of the plan records and
participant data. In most cases, as with Mr. Parks, and I am
very sympathetic with Mr. Parks, there is little or no
difference between the estimated benefit and the final benefit
amounts.
The other misimpression that I want to correct is with
regard to benefit estimates. Benefit estimates have been a
passion of mine at the PBGC. And I want you to know that you
can call us up, and we can give you a ballpark benefit estimate
in 5 minutes. And so, if someone is 20 years away from
retirement and we have just trusteed a plan, and they are
wondering what the benefit might be, we can give you a ballpark
benefit estimate in 5 minutes. If you are getting closer to
retirement and it is important for you to have a precise
benefit estimate, we now can provide those precise benefit
estimates within 15 days.
Over the last 25 years, during the history of ERISA,
obviously, technology has changed dramatically. We have much
better technological tools now that help us to do these things.
And I just want you to know that there should be no concern on
the part of any PBGC participant about benefit estimates. You
can get a ballpark one in 5 minutes. If you want a precise one,
we can give it to you within 15 days.
My final point, Mr. Chairman, is that your committees, the
PBGC's Inspector General and the GAO have made a number of
recommendations over the past several years concerning PBGC
benefit determinations, contract management and computer
security. Mr. Chairman, we found these recommendations to be
most helpful. I am pleased to report to you that we have
already implemented most of them, and we are following up on
the rest. And as you know, Mr. Chairman, we have been reporting
monthly to your committee on our computer security efforts. And
as promised, we will complete our corrective action plan by
September 30.
With that, I want to thank you, again, Mr. Chairman, for
giving me an opportunity to appear this morning, and I welcome
your questions.
[The prepared statement of Mr. Strauss follows:]
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The Chairman. Thank you. If it is OK with Senator Breaux, I
think what we will do is, even though there are only two of us
here, do 5-minute turns so if other members come in, they will
not miss a chance. So will the staff make sure that I do not
take more than 5 minutes, at least in the first round.
Mr. Parks, I have already said how you are assisting a
friend during a time of ill health, and so I want to thank you
for coming here away from that trying time for you. Today, you
testified that PBGC's delays and absence of communication
caused uncertainties about your benefits since April 1996. I
know you finally received your final benefit notice just last
month. Do you know whether all of the 250 kwik-way participants
have received a determination of their benefits as well?
Mr. Parks. Mr. Chairman, I do not know if all. I have
checked and quite a number of them have and all approximately
at the same time that I received mine. But I am sure there are
others that received it as well.
The Chairman. Do you have recommendations for the PBGC on
how it can improve communication with participants once it
assumes responsibility for the administration of a plan?
Mr. Parks. Well, without desiring to offend anyone, I have
to--refer to the 17 attachments to my testimony which clearly
indicate that we have telephone calls that are not responded
to, we have letters that are not answered. It would seem to me
that just the common courtesy of proceeding to respond to those
would be a step in the right direction.
The Chairman. So the 24-hour rule that Mr. Strauss has
referred to is not necessarily followed in the people you have
had contact with.
Mr. Parks. That is correct, sir.
The Chairman. To Inspector General Poll, in your November
24th, 1998, report, and it was titled, ``Pension Plan
Participants Impacted by Delays in Initial Determination Letter
Issuance,'' the Corporation asserted a 3-year goal for
processing plan determinations, as adopted in its Results Act
Strategic Plan. Has that goal been achieved?
Mr. Poll. I have not had a chance to audit that particular
situation at this point in time. Because of the last follow-up
report, we had indicated that it takes about 7 years or 6 to 7
years to be able to produce that. That is something that is on
my radar screen to be doing in the future.
The Chairman. Is it fair to say that if the Corporation
supplied the necessary human resources to gather participant
information and facilitate actuarial valuations of plan
determination, that the Corporation would be able to meet this
3-year goal?
Mr. Poll. I think it certainly is possible. I think you
have to arrange your resources, as you had indicated, and also
have the proper systems in place to be able to do that. But,
again, I have not looked at that. And there are probably some
additional efficiencies that could be derived from
reengineering their process or looking at their processing in
different ways.
The Chairman. Mr. Strauss, how long does it take?
Mr. Strauss. How long does it take us to do these final
benefit determinations? I am sorry, Mr. Chairman?
The Chairman. Yes, that is right, and particularly in
regard to the 3-year goal that you have set.
Mr. Strauss. What I can tell you, Mr. Chairman, is that,
for plans that we are taking in today, we should be able to
meet the 3-year goal.
The Chairman. I want to visit with you, Mr. Strauss, about
the actuarial valuation completion date. Can you explain why it
can take a year or more to issue the letter after--and I want
to emphasize after--the valuation is complete? Because it seems
to me that once all of the hard work is done, then the letter
could go out immediately.
Mr. Strauss. Mr. Chairman, up to now, our most important
task has been to work down these backlogs. And I think that
this is where my charts would be helpful.
The Chairman. OK. Take your time.
Mr. Strauss. To try to make some sense out of this for the
committee, I think that there are a couple of charts here that
will be helpful in terms of understanding this process. I do
not want to say anything here that would reflect poorly on my
predecessors in any way, because when ERISA was passed in 1974,
our statutory mandate was to provide continuous and
uninterrupted benefits to the participants in the plans that we
trusteed. And so the Corporation's critical priority was to
make sure that participants were paid.
And so you see here, in 1994, the average age of the oldest
plans in our inventory are about 20 years because the priority,
up to this time, has been to make sure that when we trustee a
plan we put the participants in pay status. And so doing the
final benefit determinations was never a Corporate priority.
Now that we have been able to work down this backlog, and
thanks to improved technology, you can see that we are making
pretty steady progress here in terms of working down this aging
inventory.
And while this is going on, Mr. Chairman, you can see from
my second chart here that the number of final benefit
determinations that were produced each year was somewhere
around 10,000, 15,000, 20,000. For the last 6 years, we have
been able to push out about 60,000 final benefit determinations
each year. And so I think that we have been able to take
advantage of these perfect economic conditions, where we have
not been taking in large plans, to work down these historical
backlogs. And as you can see, we have improved our output.
The Chairman. Let me follow up before you ask your first
question because I think it fits right in here, a continuation.
Now, you have asserted that in fiscal year 1999 the average
age of the IDLs issued after date of trusteeship was five and
seven-tenth years. Now, the Inspector General stated in his
written testimony that the Corporation uses a standard
averaging method which masks the number of letters, IDLs, that
take longer to process. So I would like to give you an
opportunity to respond to that statement. The five and seven-
tenth years is the average age of the IDLs that were issued in
fiscal year 1999, so half took longer than that, and obviously
took a much shorter time; is that correct?
Mr. Strauss. Mr. Chairman, I think what I would like to do
on this point is to provide you with detailed information for
the record that explains all of these various numbers. Even I,
as the Executive Director of the Corporation, can tell you
generally the progress that we are making and that the age of
the inventory has come down dramatically, that we are doing
these benefit determinations much faster, and that we are
producing many more of them each year. But once we get beyond
that level of detail, what I would like to do is provide for
the record answers to the more detailed questions, if you would
be so kind.
The Chairman. That is OK. Could you be specific on this,
though, whether or not the average includes some IDLs that have
been issued or all IDLs in your backlog?
Mr. Strauss. Yes, sir, I would be happy to provide you with
whatever specificity would be helpful.
The Chairman. Senator Breaux.
Senator Breaux. Thank you very much. I thank all of the
panelists for their presentations.
Mr. Parks, I apologize for the difficulties you have had. I
was impressed with the fact that when you got the check and
thought it was not a correct amount, you sent it back. I know a
number of my constituents who have accepted it, cashed it and
then called me up to try and find out a way for them to keep
it. [Laughter.]
And to your credit, you did the right thing, and hopefully
things will work out.
I take it that after all of this, you ended up getting 80
cents a month more; is that in your testimony?
Mr. Parks. I think it is 83 cents, yes.
Senator Breaux. Eighty-three cents more. So I guess the
good news and bad news--the bad news, it took so long to get
the final determination, but the good news is was not far off
the initial target.
Mr. Parks. I would comment, just for the edification of the
committee, that all of this was transpiring in our lives, our
corporate lives, as a result of a reorganization in 1992 which,
incidently, was successful. But a lot of us, myself included,
at that point in time were in an insecure status because we put
everything we could find, beg, borrow or steal, into
reorganizing and supporting the company.
Senator Breaux. Sure.
Mr. Parks. So having any additional insecurity, we really
did not need.
Senator Breaux. And, Mr. Poll, it was interesting to see, I
mean, we are all struggling, and we are trying to make certain
that all of our computer systems are secure. We have seen this,
the top of the news lately is with regard to what we do with
our computers. And your job, I guess, is to check various
Federal agencies to see how we are doing in this regard.
What you found at the Corporation, do you think it was in
much worse condition, about the same or better than most of
them that you are looking at? I think we are all struggling to
make sure that our computer systems are secure, and all of
these are very important. Do you have a comparison of what you
have found here in comparison to, perhaps, other agencies?
Mr. Poll. The only comparison I would have is what I read
in the newspapers because I----
Senator Breaux. Oh, Lord. [Laughter.]
Mr. Poll. Which I do not take, you know, with much stock
in.
Senator Breaux. But from your personal looking and your
Department, you do not have enough to compare----
Mr. Poll. We do not look at other agencies and things of
that nature dealing with any security--computer security. What
we did find, I felt it was serious, and I notified the
Corporation as quickly as I could about the results of the
tests that we conducted. And they agreed with us that it was
serious. Because when you kind of hang your keys out there
outside your house and say, ``Come on in,'' and that is one
serious problem, and that is what they basically did.
And the other thing that we----
Senator Breaux. So the--I am sorry.
Mr. Poll. The other thing is that we did hack into the
system, not using through the Internet, but other means, and we
were able to be in there for about a 2-week period undetected
by anyone in the Corporation. And we could have conducted
serious damage on any of the IT systems that they had. We could
have downloaded information. But that was not the objective.
The objective was to get into the system and see if there were
holes and then report that. And that is what we did.
Senator Breaux. Thank you. You say on Page 6 that, in
response to these findings that you made with this
investigation, that the Corporation management has developed
both high-level and detailed corrective action plans to address
the weaknesses that was identified, and they are required to
report on their actions monthly. Is that being done? I mean,
the report period, are they reporting back to you? Are you
continuing to monitor and check whether the recommendations are
being followed or not?
Mr. Poll. I could validate that I have been to just about
every meeting they have had once a month, where the people who
are working on fixing the problems report to Executive Director
Strauss. And it seems like it is progressing along.
Senator Breaux. You all have actual meetings? I mean, this
is just not----
Mr. Poll. Yes. He has actual meetings where they present,
and I have gone behind, and I have done some checking, some
verification, validation of it. But it is not quite 9/30 yet,
so they have not really completed everything. And once that is
done, and I have spoken to the committee's staffers, and I have
suggested that I will write a report as to what my opinion as
to how they did comply with those recommendations that we had
made.
Senator Breaux. Thank you. Ms. Bovbjerg, in your GAO
recommendations and with regard to contracting and
organizational field structures, I take it that you all have
made a series of recommendations after you have identified the
problem areas. Can you tell the committee how were those
received? I mean, has there been a cooperative relationship or
a negative relationship, if you will, dealing with GAO's
findings with regard to the Corporation?
Ms. Bovbjerg. We have printed in our report a copy of Mr.
Strauss's letter to us, the Agency comments, as a result of the
draft report we sent him. And I think they are very detailed
and largely positive. They agree with us on most of our
recommendations and most of our findings. We detail where there
are some disagreements and have stated that there are things
that they will be doing in the near future that should address
many of our points.
Senator Breaux. GAO, gosh, we deal with GAO all of the
time, particularly in the committee that is chaired by Chairman
Grassley, and very helpful to us, do you all do a follow-up
role normally with your recommendations with the groups that
you do these recommendations to?
Ms. Bovbjerg. Yes, sir, we do. We keep track and work with
the agencies.
Senator Breaux. And that is being done in this case.
Ms. Bovbjerg. It will be, yes.
Senator Breaux. Mr. Hast, thank you for your testimony. I
guess, when you were looking into some of the specific
contracting questions that you have looked at, you said that
there has been an appearance of improperly influencing the
award of two contracts, I take it your testimony is that that
has now been turned over to the appropriate people in Justice,
I guess, for them to look at it.
Mr. Hast. We have not yet, but at the conclusion of this
hearing, we will meet with Justice and give them this
investigation.
Senator Breaux. And then they take it from there and do
their investigation, I take it, and then you all sort of move
back at that point?
Mr. Hast. Yes, sir.
Senator Breaux. And that will be done.
Mr. Hast. That will be done.
Senator Breaux. Mr. Strauss, I guess what you are saying,
everybody wants to know what their pension is going to be as
quickly as they can. This chart, I take it, shows me that, in
1994, that is 20 months--20 years----
Mr. Strauss. Twenty years.
Senator Breaux. What does that mean? Twenty years in 1994
what?
Mr. Strauss. What this means is that in 1994, the oldest
plans in the inventory with incomplete benefit determinations
were about 20 years old.
Senator Breaux. That means that people were receiving their
pensions in 1994, they just had not gotten a final
determination----
Mr. Strauss. They had not gotten their final benefit
calculation.
Senator Breaux. And that 20 years was the age of the
longest number of pensioners that had not received a final
determination or was that the average?
Mr. Strauss. Yes, the oldest plans in the inventory.
Senator Breaux. Were 20 years without getting their final
determination.
Mr. Strauss. Right. And now the oldest plans in the
inventory are about 5 years old.
Senator Breaux. So those people that have not gotten a
determination, a final determination, after 5 years are still
monthly getting an estimated pension every month?
Mr. Strauss. That is correct, Senator. The ERISA statutory
mandate is that we provide these participants with a
continuous, uninterrupted payment from the moment we take these
plans over.
Senator Breaux. And explain to the committee what happens
if the final determination that they are entitled to is more
than they had been getting or less than they had been getting,
what happens.
Mr. Strauss. If the final benefit is more, then we make up
the difference, plus interest. If the final benefit is less, if
they were getting more than they were entitled to, then we have
a very liberal recoupment policy.
Senator Breaux. That is when they call their Congressman.
[Laughter.]
Mr. Strauss. Senator, we have actually worked with this
committee and made changes in our recoupment policy, as a
result of the interest of this committee.
Senator Breaux. I guess, and I have dealt with these things
on Social Security, when someone has had a determination that
they have gotten too much and then the Government tries to get
the money back, and they find that they are sort of, I mean,
they are destitute or there is just no way they are going to
pay it back, we attempt to try and work something out with
them. Does the same thing----
Mr. Strauss. Right. And under no circumstances would we
recoup more than 10 percent a month. So no one would have their
benefit cut----
Senator Breaux. My final question, if it is about 5 years
now, and it used to be twenty years for the age of the oldest,
what is the goal? I mean, is that about as best we can do,
considering the bankrupt plans that we take over, or is there a
goal to get it down further than that?
Mr. Strauss. We believe that for the plans that we are
taking in today that we will be able to get these final benefit
determinations issued within 3 years.
Senator Breaux. Three years, OK.
Thank you all. I thank all of the members of the panel.
Thank you, Mr. Chairman.
The Chairman. Thank you.
Senator Bond.
Chairman Bond. Thank you very much, Senator Grassley. And
my apologies. I had commitments this morning until 9 o'clock
which prevented from being here. But I am glad we have this
hearing, and I have already submitted a statement for the
record, so I will not enlighten and thrill you with my opening
statement. That will be part of the record. I know you are
really disappointed in that, but I would like to get on with
the questions.
The Chairman. It is a real shame.
Chairman Bond. I could read it if you want to. [Laughter.]
The Chairman. That is OK.
[The prepared statement of Chairman Bond follows:]
PREPARED STATEMENT OF CHAIRMAN BOND
This morning we continue our on-going look at the Pension
Benefit Guaranty Corporation with a hearing to assess where we
stand on several issues that have been under review by the
Small Business Committee and by the Special Committee on Aging.
At the end of the day, the PBGC has one key deliverable
item. That is the Initial Determination Letter (or IDL) that it
sends to pensioners of failed plans. The IDL is the definitive
statement of benefits that pensioners will receive. It states
the level of benefits that the PBGC insures under the law,
given that the pension plan itself has failed and that its
assets are likely unable to deliver the level of benefits that
would have been provided if the plan had not failed.
As Senator from Missouri, I am concerned about unnecessary
delays in issuing IDLs. Missouri has a substantial retired
population. The Lake of the Ozarks area has long been a popular
place for retirees to enjoy after a long career of hard work.
If IDLs are not issued promptly, these retirees can be directly
affected, as today's hearing will show.
However, as Chairman of the Senate Committee on Small
Business, I am also interested in seeing that small businesses
get what they pay for when they pay insurance premiums to the
PBGC. The PBGC finances its operations (which include
monitoring of endangered plans, as well as closing out those
that actually fail) by charging premiums based on the number of
pension plan participants. If those funds are not spent
effectively, this means that small business is paying a fee and
not getting enough value from it. That directly affects the
ability of small businesses to offer defined-benefit pension
plans to their employees.
In addition to those broader issues, I as Chairman am also
interested in the issues surrounding the support functions at
PBGC, such as computer security and especially contracting.
Computer security illustrates a number of issues facing not
only the PBGC but also other agencies, such as the Small
Business Administration. All agencies of government have a
continuing battle to keep a little distance ahead of the
hackers. These range from hackers who delight in causing
headaches and mischief, to those who seek to steal personal
information to perpetrate identity thefts, to those who are
intent upon ripping off the Government.
With respect to contracting, the Small Business Committee
has a long-standing commitment to enhancing small business
participation in procurement. Although the rules governing the
PBGC are not necessarily the same as those that apply to the
regular Executive Branch purchasing agencies, the PBGC
nevertheless highlights a number of the broader procurement
problems.
As the General Accounting Office will tell us, the PBGC has
not done enough oversight of the contractor personnel at its
Field Benefit Administration offices. They have not collected
performance reports on an office-by-office basis, making it
impossible to assess the past performance of incumbent
contractors. GAO will also point to the PBGC's market outreach
and research efforts, which may have done the minimum work
necessary under the law without providing the kind of effort
that enhances competition and ensures small business
participation.
It is vital that contracting be done in an ethical manner
with the broadest possible outreach to small business. We have
heard countless times from small business that they think some
procurements are already ``wired'' for a predetermined
contractor. If the PBGC does a better jobof outreach to small
business and does a better job of assessing the performance of
incumbent contractors, the PBGC can help allay those fears,
enhance competition, and deliver better quality services to the
pensioners who rely on it.
Ultimately, however, these supporting functions of
contracting and computer security are simply pieces of the
overall puzzle. Done poorly, they impede the overall mission.
Done correctly, they help the PBGC do its job effectively. In
the eyes of pensioners, though, the central job is the IDL--the
ability to resolve failed plans quickly and with the minimum
disruption to the retirees who often have little else to rely
on to pay their bills.
Chairman Grassley, I thank you for your long-standing
interest in the PBGC and for your cooperation and assistance in
our joint oversight efforts.
Chairman Bond. Mr. Poll, I understand that you gave the
PBGC management advance warning that you intended to do a
penetration study; is that correct? And when did you do that?
Mr. Poll. I did give the Corporation management advance
warning, basically, orally, that I was going to do a
penetration study. I did not give them the exact time and date,
but they did know. I did indicate that to at least three
people, that I remember. And we did the penetration study, and
then we gave them the results. I also have suggested to them
recently, again, that I may retest, again. And they do not know
when that is going to happen, but I may retest again.
Chairman Bond. You were able to crack into the system; is
that correct?
Mr. Poll. Yes, we did.
Chairman Bond. What could an unauthorized hacker do if they
got access to----
Mr. Poll. An unauthorized hacker could be in the system. If
they are not detected, they would get quite a bit of
intelligence from the system on how to, for example, get into
the password files. We did. We got into the password files, and
we had just about everybody's password when we did that. We,
also, could have downloaded every piece of information they had
in these systems, and we do not think, at that point--they are
a little more aware now--but at that point, we think we could
have downloaded all kinds of sensitive information, participant
information and other information, financial, also, and they
would have not known it had gone out of their system and
outside.
Chairman Bond. Was this one where you could have put a
phony recipient into the system?
Mr. Poll. I believe, yes, that we could, with the systems
administrator access that we had. Because the systems
administrator access is up here. The Corporation has indicated
that they have controls. The controls are down here. Systems
administrator access can manipulate those controls because they
are the owner or the individual who has the security on the
system. So that is a real vulnerability.
Chairman Bond. But did PBGC detect that you were in there
after a certain time?
Mr. Poll. No, they did not, not during the test.
Chairman Bond. You came and went and there was no--you left
no----
Mr. Poll. We came and went several times----
Chairman Bond. No footprints.
Mr. Poll. We did it from a remote dial-up, which is through
a modem, and we attached to a modem and got in. And we also
came into the Corporation, went to a conference room, and we
were able to get into the system while onsite.
Chairman Bond. Let me change to another aspect. Why did
your office decide to refer to the Office of Special
Investigation at the GAO, the matter of the $40 million in
contracts?
Ms. Bovbjerg. The focus of the work that I was leading was
really management of the contracts and planning. It is a
different focus than a criminal investigation. When we were
presented with information that, because we are not criminal
investigators, we didn't know how to handle it, we turned it
over to Mr. Hast.
Chairman Bond. Mr. Poll, I understand that you initiated an
investigation in the $40 million in contracts a year or two
ago; is that correct?
Mr. Poll. We have looked at PBGC's contracts over many
years. Yes, I think we did look into, if you are referring to
the Office Specialists contract----
Chairman Bond. Yes.
Mr. Poll. Yes, we did look into that, and we do have some
investigative issues.
Chairman Bond. How often did Mr. Strauss contact you or
seek input from you about the alleged contract steering matter
that was discussed by the GAO and the Office of Special
Investigations?
Mr. Poll. Well, I would say that Mr. Strauss has not
directly contacted me or discussed this investigation with me
at all.
Chairman Bond. Turning to Mr. Hast, Ms. Cooks needed to
obtain resumes to respond to the PBGC's Request for Proposal;
is that correct?
Mr. Hast. Yes.
Chairman Bond. Do you have any information regarding how
Ms. Cooks obtained resumes for her response to the PBGC?
Mr. Hast. By approaching people that were already working
at Office Specialists, and I am sure there may have been
others, but certainly by approaching people that were already
working for Office Specialists.
Chairman Bond. Mr. Strauss, again, welcome this morning. We
are glad to have you here.
Mr. Strauss. Thank you, Senator.
Chairman Bond. When the New York Times asked about the
results of the penetration study, you described our concerns as
ludicrous and said, ``I would say we are on a very high state
of alert here at the PBGC.'' Do you still believe that way?
Mr. Strauss. I believe that we are on a very high state of
alert. And the point that I was trying to make there is that
many of the concerns that were raised were actually addressed
in the report. Some of the issues that were raised were
actually being addressed at that time, and that is the point
that I was sort of unartfully trying to make.
Chairman Bond. You advised the staff, both of the Committee
on Aging and Small Business, that you were very active when the
allegations reached you regarding possible problems in 1998
with respect to the $40 million in contracts in question, yet
the report prepared for you by the general counsel is dated
about 3 days ago. Is that when that report was completed?
Mr. Strauss. What I asked the general counsel for a summary
of everything that had gone on up to that point. And so the
summary was completed a few days ago to respond to the
committee. But if you would just give me one minute on this
issue since----
Chairman Bond. Sure. I would be happy to.
Mr. Strauss [continuing]. PBGC contracts are an issue for
this committee.
What I want to assure you, Senator, is that I, personally,
have looked at these four or five procurements that have been
an issue for this committee. And what I have prepared for the
committee is the steps involved in the PBGC's contracting
process and all of the checks and balances in that system. And
I want to assure the committee that we follow the Federal
Acquisition Rules, and that if you look at those steps
carefully there is no one person, including the Executive
Director at the PBGC, who can influence those contracts. There
is a step-by-step process and I could go into each of these
things in great detail.
But I want you to know that it is not the head of the
Insurance Operations Division, under No. 5 there, who picks the
panel of technical experts, it is the head of the Procurement
Operation at PBGC. And the way our culture works, these
technical experts function very independently. And then when
you look at the next step in the process there, then these
technical experts get together, compare their findings, and
they are required to come up with a consensus recommendation.
And so I want you to know that for each of these procurements
that are in question here, that I have reviewed them myself.
And I believe that my employees are entitled to a presumption
of innocence until the facts and the conclusions really support
that there is some sort of wrongdoing I simply have not been
able to find any, and I want you to know that I have gone over
these procurements myself with a fine-toothed comb.
Chairman Bond. Mr. Strauss, you say that there are system
checks-and-balances in place and that it works. Mr. Hast, is
that what you found?
Mr. Hast. Well, I agree with Mr. Strauss that there should
be a presumption of innocence until something is proven. I
would say that our findings are that there is an appearance
that these contracts were steered and that the checks-and-
balance systems that they have in place are not working very
well. And I think we are going to refer our information, both
to Mr. Strauss, the additional information we developed----
Chairman Bond. That will be resolved in another forum.
Mr. Hast. Yes.
Chairman Bond. Mr. Hast, just very briefly, back on the
resumes. Were the Office Specialists employees allowed to give
Mrs. Cooks their resumes from the beginning?
Mr. Hast. I am not absolutely sure.
Chairman Bond. Could you just describe for us how Mrs.
Cooks received the Office Specialists resumes.
Mr. Hast. I was just told we were told during interviews
that at the beginning they were told they were not allowed to
give her resumes. There were some court actions going on
between Office Specialists and Ms. Cooks and that that is when
Mr. Hagans was called and asked to come to Atlanta and
intervene, which he did. And once he intervened, they were able
to give her the resumes.
Chairman Bond. Mr. Hagans has intervened with Office
Specialists----
Mr. Hast. Yes.
Chairman Bond [continuing]. To facilitate the delivery of
the resumes of the Office Specialists employees to Ms. Cooks;
is that correct?
Mr. Hast. Yes.
Chairman Bond. Turning to Mr. Poll, have you all had
cooperation with the management of PBGC? How has your
cooperation been?
Mr. Poll. In general, Mr. Chairman, the Agency is resistant
to us in certain areas of receiving information. Specific areas
such as financial statement audits pretty much set out that
that information is written down, and they know exactly what we
are looking for.
And audits and investigations requires several times to ask
for the information to get it, and sometimes they like to get
involved in telling us exactly what we should have, as opposed
to what we want. And, also, some departments, like the General
Counsel's Office, has instructed their staffs that they are not
to speak to the IG or the IG's Office until they notify the
general counsel and possibly getting some type of approval for
doing that.
So I kind of consider that to be a little bit resistant.
Chairman Bond. Thank you, Mr. Poll.
Mr. Chairman, I apologize for going over my time, but I
appreciate the chance to ask the questions.
The Chairman. Thank you very much.
I will start with you, Mr. Strauss, on a second 5-minute
turn here. And this is something I am going to want you to
either respond to or clarify, if you would like to. You stated
that your general counsel investigated the IMRG contracts. We
requested a copy and received only a summary of the other
investigations. I would like to read from the report that you
provided to us. And so this would be from your general counsel
to you, and I would read the bottom paragraph on the first
page.
``Based on the extensive number of investigations that have
taken place, my personal involvement in the various management
inquiries and the checks and balances in the contracting
process, I do not believe that any misconduct took place in the
award of these contracts. In light of the IG's ongoing
investigation, I would not recommend conducting an additional
management investigation, either internally or using outside
counsel, as is often done in the private sector. In my view,
there is little we can do, at this time, other than to await
the inspector general to complete his investigation.''
And this is a follow-up of the litany of investigations you
have said you have looked into that you referred to that there
ought to be a presumption of innocence, and I do not disagree
with that. But you were talking about all of the investigations
you made and how you have looked into it, and you have your
General Counsel here advising you just to wait for the
Inspector General.
Mr. Strauss. What I can assure the committee is that a
number of these issues have been investigated. And so let us
just take the 47 phone calls, for example. Needless to say, I
hear these revelations about the same time the committee does,
and so I am very interested in knowing what is going on. And a
lot of this information exists somewhere in my organization,
either the Inspector General has already looked at this or this
has been part of some other investigation.
And so when I heard that there had been 47 phone calls
between Mr. Hagans and Ms. Cooks within a very short period of
time, needless to say that was a concern of mine, and I wanted
to know what the facts were. And I found that the facts were
not that there had been 47 calls, but that there had been 34
calls, and that 18 of these calls were a minute or less, and
that these calls extended over an 8-month period. And then I
saw a statement that had been prepared by Mr. Hagans, where he
had tried to reconstruct what they were talking about in each
of these phone calls.
And so a bit of evidence here that seems very suspicious on
the surface, when you really investigate what is going on here,
there is a plausible explanation for it, and there was nothing
that was proven that would indicate, in any way, that we are
not following the Federal Acquisition Rules or Regulations to
the letter. And I bet I, personally, investigated 15 different
issues like that, where concerns were brought to my attention,
and I investigated them personally and found out that there was
a perfectly plausible explanation.
The Chairman. Are there other general counsel reports not
provided to us?
Mr. Strauss. I have instructed my people to provide
everything.
The Chairman. Mr. Hast, during your investigation, did you
review documentations prepared by the Corporation showing how
the decisions were made to award the two contracts to the
Integrated Management Resource Group, Myrna Cooks' company that
you investigated?
Mr. Hast. Yes. We reviewed the negotiation summaries for
the auditing service contract awarded in 1997 and the Atlanta
FBA contract awarded in 1998.
The Chairman. Did you identify anything strange or unusual
about the Corporation's decision to make these awards to the
IMRG?
Mr. Hast. We did. PBGC appeared to use disparate rationales
in making its final selections for these two contracts. The
scoring for each bidder was based upon a combination of
technical evaluation points and cost analysis. In the first
contract, valued at about $14 million, IMRG was not the low
bidder, but was awarded the contract based on scoring 1.29
points higher than Office Specialists in the technical
evaluation, but IMRG was $590,000 higher in cost. PBGC
justified the award to IMRG with higher costs based on the
technical point difference that favored IMRG.
However, for the second contract, valued at about $25
million, IMRG was five points lower in the technical evaluation
than its competitor, but it was about $685,000 lower in cost.
In this case, PBGC justified the award based on the lower price
by IMRG. PBGC's treatment of the evaluations and its
justifications appear inconsistent with one another, and it
adds to the appearance of improper influence used in awarding
these contracts to IMRG.
The Chairman. Mr. Hast, referral of criminal investigations
obviously a very serious step. What do you believe to be the
most appropriate way to proceed there?
Mr. Hast. I believe that we should refer this to the United
States Attorney's Office in Washington, D.C.
The Chairman. Ms. McHenry, it has been represented by the
PBGC that its contracts with highly specialized personnel were
familiar with terminated plans that the PBGC administers. It is
my understanding, for instance, that many of the Pan Am pension
staff were hired by the contractor. Were you familiar with the
particular plans with which you worked at the Atlanta office?
Ms. McHenry. Not before I was actually employed there. But
I am an actuarial analyst and quickly was able to come up to
speed with these plans. There were only two, other than Barbara
Mitchell, so that would make three former Pan Am employees who
were actually actively working on Pan Am plans.
The Chairman. What is your observations about the personnel
that were hired by IMRG in regard to this work?
Ms. McHenry. I think that the level of education is low,
and I also believe that the way that the administrators were
trained was very lacking in substance and competency.
The Chairman. One last question of you, since I have had a
series of questions. This will be the last one.
You stated that one of your responsibilities at IMRG was to
correct and reissue Initial Determination Letters sent out by
the Corporation. Do you know what caused the PBGC to mail out
so many incorrect IDLs?
Ms. McHenry. I think they were in a great rush, and I think
that the data that they were using was not properly checked
because I had the same data and ability to see that data right
in Atlanta, and I could see the correct information, but
somehow the data base got scrambled or something happened to
cause these various incorrect IDLs to go out. So it just was
not managed correctly I just wanted to say that I, personally,
witnessed pensioners waiting for as long as 6 or 7 months to
get a first check. It was not a matter of just sending in an
application and having IMRG respond to that in a prompt manner.
The Chairman. Thank you, Ms. McHenry.
Senator Breaux.
Senator Breaux. Thank you very much. Let me explore two
separate points here.
Mr. Strauss and Mr. Hast had responded to the Chairman's
question with a prepared, and I appreciate it being a prepared
statement, because what you are talking about has to be very
accurately presented here. Can we give you an opportunity to
respond to the comments that Mr. Hast presented to the
committee, which I guess, in essence, said that when he looks
at these contracts, it looks bad, I mean, it looks improper.
Mr. Strauss. It is possible that there are some appearance
issues here. What I want to assure the committee is that I
believe in the integrity of our process. We have about 1,400
contract actions every year, and we have very competent people
who are involved in this. The head of Procurement at the
Pension Benefit Guaranty Corporation is a 37-year Government
veteran. He is a veteran of the Cuban Missile Crisis, he has
worked in Procurement for the Department of the Navy and for
the military before he came to the PBGC. This is a man who has
total integrity. And so when you look at this process here, we
have a lot of procurements. We have a lot of technical
expertise in this area. And I have investigated each of these
issues that have been raised, including some that Mr. Hast
raised this morning, and, Senator Breaux, even though I do not
believe that this is the appropriate forum to litigate this
issue, that I want you to know that I am aware of each of these
issues. And as these issues have been presented to me, I have
investigated them, personally, to see if anything has happened
here that would give me reason to have concern about the
integrity of our process. And I have not seen anything to
indicate to me, in any way, that the integrity of our process
was compromised.
Senator Breaux. I take it that, again, I think both sides
are correct. We are not going to litigate this thing here. I
take it that you will pledge your full cooperation with Justice
and work with them and try to get to the bottom of whether
there is anything improper, from a legal standpoint.
Mr. Strauss. Yes, Senator. And we have cooperated fully in
all of these investigations.
Senator Breaux. Well, the good news is I just got a note
that said that the Finance Committee's, Mr. Chairman, mark-up
has been postponed until tomorrow. [Laughter.]
So we can begin this hearing at 10 o'clock instead of at 8
o'clock in the morning. But I was here. [Laughter.]
Ms. McHenry, let me ask a couple of questions. I am trying
to understand this situation, and it is a little bit confusing.
I take it that you were working with IMRG. You were
extremely critical of what you saw in the office in I take it
the 17 months that you were there. Before IMRG had the
contract, Office Specialists had it in Atlanta; is that
correct?
Ms. McHenry. Yes, that's correct.
Senator Breaux. You didn't work with Office Specialists,
did you?
Ms. McHenry. No. They had a hiring freeze on toward the end
of their contract year.
Senator Breaux. As far as you knew, did things work better
when Office Specialists had the contract than after IMRG got
the contract?
Ms. McHenry. I think, from the employees' point of view,
yes, because Office Specialists paid once a week. IMRG paid
twice a month and then withheld 2 weeks of earnings, whereas,
Office Specialists did not, and it staggered paydays, which
upset everyone's budgets, and would not respond to questions
about benefits or anything else. They just took a totally ``let
us ignore the Atlanta office'' stance.
Senator Breaux. What confuses me, to a certain extent, you
say in your testimony that you were the only new employee at
IMRG, that the rest of the office used to work for Office
Specialists. It seems to me that, in essence, the people
running the operation in Atlanta before the new contract was
awarded was the same people running the office after the new
contract was awarded because IMRG apparently hired everybody
from the people who had the contract the first time. In fact,
you point out you were the only new employee. And, in fact, it
sounds like to me we still had Office Specialists running the
show down there, and you were the only new employee. I don't
understand why, when Office Specialists was on the letterhead,
it was working OK, and when IMRG became on the letterhead, all
of a sudden it all fell apart. Any kind of comment as to why?
Ms. McHenry. Well, we had a great turnover. The contract
called for over 60 employees, but during the time I was there
it never reached more than 41, 42, 43 people. I think probably
between 12, 13, 14 people had left and others had been
reemployed during that time. So although we are starting out
with maybe the same workforce, it changed over with new people
coming in.
Senator Breaux. Can you tell us what led you to leave.
Ms. McHenry. I think the very low standards and the
inability to get anyone's attention.
Senator Breaux. Was the head person in the office a new
employee or was the head person a former Office Specialists
employee?
Ms. McHenry. Former Office Specialists. Francis Emmanuel
was the actuary for Office Specialists.
Senator Breaux. So the same person that ran it for Office
Specialists ended up running it for IMRG?
Ms. McHenry. No. I do not know what happened. They----
Senator Breaux. I thought you said they were the same.
Ms. McHenry. Not in the same positions. The same people.
Others left. There were quite a number of people who left prior
to IMRG getting the contract.
Senator Breaux. Well, was the person running the office, I
use that term colloquially--I do not know what running the
office means--but I mean the person in charge.
Ms. McHenry. I do not think anyone really ``ran'' the
office, and that was a great problem.
Senator Breaux. Was the person in charge, there had to be
somebody that had the titular head of being in charge, was that
person initially a former Office Specialists employee?
Ms. McHenry. Yes.
Senator Breaux. And was that person there the 17 months
that you worked there?
Ms. McHenry. Yes. He is now gone.
Senator Breaux. So they had the same person running the
office for IMRG that ran it for Office Specialists for the time
that you were there. It is kind of interesting.
Ms. McHenry. Someone else I think was in the manager's
slot, and I do not know who that person would have been.
Senator Breaux. Mr. Strauss, can you comment? It seems to
me that you changed the contract, but essentially the same
people were doing the work.
Mr. Strauss. Yes, Senator, I would love to try to shed some
light on this. The Atlanta office is obviously very familiar to
me. And based on some of my testimony this morning, you
probably think that I am the Director of Procurement at the
PBGC, rather than the Agency head. But I want to make a couple
of points about the Atlanta office. In that these contracts
that we have, even though you read these huge dollar figures in
the paper, those dollar figures tend to reflect 5 years. And
these contracts have to be evaluated annually based on costs
and performance. And so any PBGC contract that we have has to
be evaluated every year.
I was very dissatisfied myself with what was going on in
the Atlanta office. The problem that we have is that in a major
population center like Atlanta, where unemployment is very low,
recruiting people to work on these contracts is a real
challenge. I was dissatisfied with what was going on in the
office there. And so, in I believe it was late 1997, we
evaluated the Office Specialists' contract, and basically let
them know that we were dissatisfied and that we were going to
rebid the contract after one year.
And then we had competitive bidding. And people here who
have more expertise than me can tell you how many people
actually bid on this contract, but I believe there were three
or four bidders for this contract. But because ERISA benefits
administration of failed pension plans is a very technical and
specialized field, the people who are bidding here tend to be
bidding the same employees. And so the cost differential is in
the overhead, and that is what we are really looking at. And so
that is how these operations are staffed. That is how the
operation in Waterloo is staffed. And I still believe, Senator,
that if we can get you to the Waterloo office, you will get a
much better insight into the work that is done there, the
quality of the work that is done there, the quality of the
people, and that that is much more representative of us than
this Atlanta office.
And I want to assure the committee that I had town hall
meetings myself with the Atlanta employees--Bonne is very
familiar to me. She is an e-mail pal of mine. We have made
changes, we have given them technology, and we have weekly
video conferences with the Atlanta operation. And so we have
tried to make a number of changes with respect to the Atlanta
operation, and I believe that we have addressed many of the
issues that Bonne has raised this morning in her testimony.
Senator Breaux. Thank you, Mr. Chairman.
The Chairman. Thank you very much.
I want to assure everybody that even though the Finance
Committee is not meeting at 10 o'clock, I had a simultaneous
mark-up in Judiciary, so I am going to have to hurry along here
and get done regardless.
Thank you very much, Senator Breaux, for your loyalty to
this committee.
To follow up on Senator Breaux's statement and question,
Mr. Strauss, are you saying that the management of IMRG was
worse than the Office Specialists, despite the fact that some
of the same people were former Office Specialists staff. So
management was different, and Ms. Cooks only visited the office
a couple of times?
Mr. Strauss. I do not know how many times she visited the
office. What I can tell you, Senator, is that I had four town
hall meetings myself in the Atlanta office. I am very familiar
with the Atlanta office. Many of the employees there have
communicated with me directly, and I believe, based on the work
plans that we provide these offices and the way in which we
measure their work, that there has been improvement in the
Atlanta office. I would be more than happy to submit that for
the record to help to clarify some of these issues.
The Chairman. Ms. McHenry, I think I would like to have
your response to the same issue I raised with Mr. Strauss.
Ms. McHenry. Let me ask you just to rephrase what----
The Chairman. Well, basically, we are going over the
follow-up of Senator Breaux's question. And I asked Mr. Strauss
if he was saying that the management at IMRG was worse than
Office Specialists, despite the fact that some of the same
people were former Office Specialists staff, some management
was different, and Ms. Cooks only visited the office a couple
of times.
Ms. McHenry. Oh, very definitely. She made a very clear
statement that she was leaving everything in the hands of
Francis Emmanuel, who was a very incompetent manager, as far as
the employees were concerned. I think that the employees wanted
to do a good job, but were constantly upset because Myrna
Cooks, IMRG, could not pay them correctly, on time, and then
kept changing paydays and would not address any of the issues.
And then Francis Emmanuel just kept everyone subdued by
threats, and intimidation, and notes in files and just trying
to make sure that everyone stayed quiet about what they saw and
what was going on.
The Chairman. Ms. Bovbjerg, since the PBGC is a wholly
owned Government corporation, what laws govern its operation,
particularly contracting laws?
Ms. Bovbjerg. PBGC's procurement activities related to
benefit processing and determination are not subject to the
FAR. We have had a lot of discussion about this this morning,
about the Federal Acquisition Regulation. PBGC voluntarily
follows the FAR as a policy, but not as a matter of law, and
that is because their funding is mainly from a nonappropriated
source.
The Chairman. Mr. Strauss testified that FAR applies, which
is it, in your judgment?
Ms. Bovbjerg. It applies as a matter of policy. The
Corporation has chosen to follow the FAR. Now, I want to stress
that in our work, which was a management review, the PBGC met
the basic requirements of the FAR. In the information that we
referred to Mr. Hast, he may be finding other things, but we
found that they met the basic requirements of the FAR. I also
want to emphasize that the FAR is the floor for what you might
expect for really good management of a contracts process; we
found that technically those contracts were competed, they were
competitive, but that they clearly could have done more to get
more bidders, to have more competition on price, on service.
And we think that not taking action to really do more and to
really go as far as you can toward full and open competition
can result in poor service, it can result in higher cost, and
ultimately, when those contracts are not closely managed after
they are awarded, ultimately, you have more of a potential for
waste, fraud and abuse than you would if they were closely
managed.
The Chairman. Well, if few Federal laws apply, as you have
indicated, then is it fair to say that the PBGC has very little
oversight by the executive and legislative branches of the
Federal Government and has free access to spend the trust fund
in any matter its executives see fit?
Ms. Bovbjerg. We have commented in our report that there is
only a very small amount of their budget under direct
congressional oversight--this is the limitation amount. It is
about $11 million of their $160 million budget. And there is
rather general guidance as to what the nonlimited amounts can
be spent for. We have observed in the report that, in some
ways, this means that Congress does not have the normal
budgetary oversight that it has for other agencies and that
this also contributes to some of the management issues and
contracts awards and processes not being very closely watched.
The Chairman. When did the General Accounting Office bring
this lack of oversight and the leeway by which there is very
little control over the trust fund money to the attention of
Congress? Maybe never?
Ms. Bovbjerg. Traditionally, when we have done work on PBGC
in the past, we have focused nearly entirely on the finances--
and the premiums and the assets of the plans and the risk of
future problems. In fact, I know that Mr. Strauss had a chart
over there a few minutes ago that showed there was a large
deficit around 1992-1993, and that was when we designated the
PBGC a high-risk program. We felt that there was potential for
deficits to go from $3 billion in that year to something like
$18 or $20 billion in 5 to 10 years, and we were concerned
about that.
This is the first time, in this review, that we have really
looked at how the Corporation is managed and not at how their
balance sheet looks.
The Chairman. Following up on the lack of oversight on the
part of Congress, besides conducting more of these activities,
what can Congress do to ensure that the Corporation conducts
its operation in a manner that sufficiently administers trust
fund assets, while still meeting the needs of pension plan
participants?
Ms. Bovbjerg. We did not make a recommendation on this,
Senator, and that is because that is a much more complex issue
than we could really address in this report. But I do want to
say that I think that asking the kinds of questions that you
have been asking and the kind of work that we have begun to do
on management issues goes a long way to increasing oversight.
But such an approach is necessarily ad hoc. And we think it is
worth considering how to build a more routine approach to
oversight of this Corporation.
The Chairman. Mr. Strauss, you heard Ms. McHenry state in
her testimony that the Corporation issued determination letters
regardless of the quality, solely to meet a court-ordered
deadline. How does the PBGC measure the accuracy of
determination letters it sends out? In other words, while it
may take the PBGC less time to issue determination letters, is
accuracy compromised in the interest of speedy delivery?
Mr. Strauss. I want to make a couple of points about this.
One, we have a management control unit that looks at this. And
when you look at our historical appeals rate, which would deal
with these sorts of issues, that has not varied much from year
to year.
The Chairman. Do you have any way, though, of measuring the
accuracy of the letters of determination?
Mr. Strauss. Well, we have a Corporate standard, where the
Corporate goal is to provide them promptly and to make sure
that they are accurate. And so that is a high priority for the
Corporation.
The Chairman. Well, I think that we will close there. And I
may have some questions to submit for answer in writing. And by
the way, we may also, I should have announced this at the
beginning, for those of you that are not acquainted with the
congressional process and you need some help from my staff, if
you get letters or questions for answer in writing, my staff
will help you process that. Most everybody else here
understands that a lot of members cannot come or even those of
us who do come will have some letters for follow-up. So we will
keep the record open for a couple weeks on that.
I look forward to hearing the results of the action
requests that we made today. The Inspector General's rigorous
testing of the IDL accuracy and his follow-up penetration tests
of the Corporation's information system I think will give us an
updated status report on how the PBGC is responding to the
concerns that we have heard today. And in light of the grave
concerns raised by the Corporation contracting practices, that
area also warrants continued scrutiny. And I understand that
the Office of the General Accounting Office Special
Investigations will refer the matter to the Department of
Justice for appropriate action. That is your decision, but I
think it is one that we have heard enough that it is worth that
process ought to go through.
And for Mr. Strauss, I will, as I told you a week ago
yesterday when you and I were involved in a contest, a three-
mile contest to see who could run the fastest and you beat me--
--
Mr. Strauss. I thought you had won, Mr. Chairman.
[Laughter.]
The Chairman. I will be available any Saturday morning from
8 to 9:30 to visit the Waterloo office. It is close to my home,
and I would be glad to do that.
Mr. Strauss. We will look forward to having you.
The Chairman. Thank you.
The meeting is adjourned. Thank you all very much.
[Whereupon, at 10:01 a.m., the committee was adjourned.]
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