that during the past year, a regulation was issued defining the nature of the basic benefits to be guaranteed by the Corporation. In addition, proposed regulations were issued on other pertinent matters such as describing how plan benefits and assets are to be valued for the purposes of determining whether plan assets are sufficient to cover basic guaranteed benefits. I would like to add that the board of directors met on January 29 and approved regulations for the other elements necessary for making final valuations for processing of these plans. However, while these regulations were being developed, the Corporation was able to improvise methods for processing many plans which it found to be clearly sufficient. By clearly sufficient, I mean that the assets valued on a reasonable basis were clearly more than enough to cover all of the vested pension benefits provided under the plan. In these situations, the Corporation adopted an expedited procedure which allows the plan administrator to certify to the adequacy of plan assets to meet all benefit obligations. Based on this certification, a notice of sufficiency is issued allowing the plan administrator to distribute plan assets to participants. Through January 23, 1976, 1,645 plan administrators were offered the opportunity to certify to the adequacy of plan assets and in 1,343 of these cases, a notice of sufficiency has been issued. In other situations where the Corporation was not able to find that plan assets were clearly sufficent, the plan administrators were authorized to continue benefit payments to participants pending the issuance of final regulations and a final processing of their case. Throughout this period, our No. 1 concern has been to insure that participants in terminated plans continue to receive their benefits. And I can't emphasize enough that that has been our guiding principle. We are very aware that there are hundreds and, in fact, thousands of participants in these pension plans which have terminated that are waiting every month to get their monthly benefit checks. We know that their rent and groceries oftentimes depend on the timely receipt of that benefit check, so even though we are not able to arrive at the final calculations of exactly how much these plans might be sufficient or insufficient in their assets, we try to make sure that the monthly benefit checks get issued. In some instances, it was necessary for the Corporation to directly intervene in a terminated plan to insure that benefits were continued to participants. The Corporation is now trustee of 15 terminated plans. In these plans, the Corporation is responsible for paying approximately $250,000 per month in retirement benefits to some 1,700 participants. The reasons for these trusteeships vary, but frequently involve a situation where the sponsoring employer was in bankruptcy and no one was authorized to take action in regard to the pension plan. For example, in the REA Express case, PBGC was appointed trustee of the pension plan after the sponsoring company was declared bankrupt. By this action, PBGC guaranteed that monthly benefit payments would not be interrupted. This case has been described in a recent article that appeared in the Washington Star. For your informtion, we have appended a copy of that article. In addition to the 1,343 cases closed during our "clearly sufficient" procedures, another 863 have been closed after determinations were made that the plan termination, for one reason or another, was not covered under title IV. Even in situations of noncoverage, our case officers usually start out with what is apparently a legitimate notice of an intention to terminate a defined benefit plan and only after a conversation or two with the plan administrator and the review of documents subsequently received, is the determination made. I might add that the reason I believe that quite a number of these cases at the present time wind up being closed administratively is that pension plan administrators are not quite sure of what types of pension plans are covered under his insurance program. As a precautionary measure they file a notice of intention to terminate. even though the type of plan is not covered. The principles objectives we have established are mainly concerned with putting in place the rest of the machinery needed to process terminations involving insufficiently funded plans. We will also concentrate on the development of the contingent employer liability insurance (CELI) program. There are numerous approaches that can be adopted in the design of this program, which will provide insurance coverage protection for employers against the "30 percent of net worth" liability that can be assessed plan sponsors when plans terminate without sufficient assets to cover guaranteed plan liabilities. The professional accounting treatment of this liability may impact on the credit standing of plan sponsors. For this reason, PBGC believes it has the responsibility of deciding, as soon as practicable, the form this program will take and its implementation schedule. We will also be concerned with the prudent management of assets of terminating plans being held in trust by PBGC. To this end, with the assistance of the advisory committee we have formulated an assets management program that will permit the corporation to become the trustee of most plans terminating without sufficient assets and in doing so, minimize trustee expenses and optimize earnings on investments. Of the $28.7 million increase in obligation authority required in our fiscal year 1977 budget plan, 80 percent is for increased benefit payments and 20 percent is for increased administrative costs. This is a reflection of the fact that we will be creating the administrative mechanism during the remainder of fiscal year 1976 and the transition quarter which will permit us not only to routinely process termination cases and commence benefit payments this year, but to be fully functioning as we enter fiscal year 1977 to handle the now building backlog of cases involving insufficient funds. Subject to revisions based on the analyses described above which are now underway, PBGC should be paying out approximately $3 million per month to an estimated 28,000 retired participants by the end of fiscal year 1977. An equal number of participants in deferred payment status should also have future benefits guaranteed by the Corporation by that date. We project a cash balance in our revolving fund of approximately $54.344.000 at the end of fiscal year 1977. That concludes my opening statement, Mr. Chairman. I would be happy to answer any questions you may have. [The attachments follow:] 1974 ACTUAL PENSION PLAN TERMINATION CASE OPENINGS FIGURE 3 SEPT OCT NOV DEC JAN FEB MAR APR MAY JUN JUL AUG SEPT OCT NOV DEC JAN FEB MAR APR MAY JUN JUL AUG SEPT 1500 1400 1300 1200 1100 1000 900 900 800 700 700 SEPT OCT NOV DEC JAN FEB MAR APR MAY JUN JUL AUG SEPT OCT NOV DEC JAN FEB MAR APR MAY JUN JUL AUG SEPT NUMBER OF PLAN TERMINATION CASE OPENINGS |