The Los Angeles Field Office (LAO) is successfully operating. LAO has responded to over 800 inquiries from the pension community since it opened in January 1978. LAO has also provided follow-up help to the national office staff in obtaining information on incomplete termination notices and on distribution of assets from sufficient plans which have terminated.

In FY 1978, PBGC increased its total end-of-year on-board staff from 416 to 446. At the end of the first quarter of FY 1979 the number on board was 458. The Presidential limitations on hiring slowed the staff build-up during this quarter. However, we expect to reach our FY 1979 ceiling of 487 by the end of FY 1979.

During FY 1978, an extensive evaluation of the Corporation's organizational structure and workflow was completed. As a result of this evaluation, a reorganization was designed to strengthen PBGC's operational programs and policy development. Its central features were

a.

b.

A shift from a horizontal structure, organized
primarily by type of technical expertise, to a
vertically-integrated structure based upon
operational functions. Since PBGC has two
primary operational functions, financial

and case processing, the reorganization brought
into these operational units the technical
expertise and policy development capabilities
they needed to do their work.

Table I (page 23) structure.

a staff that functions as the principal
policy-planning and policy-making body
for the Corporation. This staff is
the focal point of PBGC's efforts to
address and effect major policy changes
in the Corporation's programs and
enabling legislation.

a staff responsible for conducting program evaluation and research needs.

illustrates the revised organizational

The two significant program issues pending are a multi-
employer mandatory coverage program and the Contingent
Employer Liability Insurance Program (CELI). The
Corporation completed its review of the applicability
of Title IV to multiemployer pension plans and submitted
its report, entitled "The Multiemployer Report Required
by P.L. 95-214," to Congress on July 1, 1978. The Report
contained a set of options that would change the relation-
ship between benefits and contributions in multiemployer
plans and a set of alternative ways for treating multiemployer
plans and their sponsors at the point of plan termination.
options were designed to eliminate the inflexibility in
the current law that could actually encourage plan deteriora-
tion and plan termination. The Corporation is now
concentrating on specific recommendations. Under the
current law, mandatory coverage is to begin on July 1, 1979.
PBGC plans to present to Congress in 1979 major
revisions in the present statutory scheme for such coverage.
Presuming timely passage of legislation, PBGC would implement
the revised program in FY 1980. If this occurs, PBGC may
have to revise its FY 1980 budget request.

On July 1, 1978 PBGC delivered to Congress an interim report
on its progress towards developing a Contingent Employer
Liability Insurance Program (CELI). The report explored the
problems which the Corporation encountered in attempting
to design and implement a CELI program and concluded that
it is neither feasible nor desirable to do so. The report
also pointed out certain weaknesses which may exist in
the basic benefits program due to the manner in which
employer liability is determined and suggested two
alternative formulations of employer liability which might
both eliminate (or substantially reduce) those weaknesses
and provide employers a measure of relief from pension
liability in situations where it is clearly warranted.
Either of those alternatives would result in, not only a
major redesign of the termination insurance program, but
also some fundamental changes in the private pension system.
In August, following publication of the report, the CELI
Panel and the PBGC staff met to discuss its contents.
As a result of that meeting, an additional alternative
for formulation of employer liability emerged. The PBGC
is working on the details of this alternative. These
details were the subject of special meetings held in
various cities throughout the United States during October
and November. A special two-day working session held

at the end of November attempted to develop further

The

the ideas which had emerged at those meetings. During FY 1979, we will continue to study alternative proposals.

44-548 - 79-48

Other major program issues were or are involved
in litigation. The cases summarized below are
of special interest regarding the basic legislative
structure of the termination insurance program.

a.

b.

C.

John L. Connolly, et al. v. PBGC. At issue is
whether a collectively bargained multiemployer
plan that has a contribution rate based on cents
per hour and provides for a defined benefit is
covered under Title IV of ERISA. A U.S. District
Court in Los Angeles ruled that one such plan
is not a covered defined benefit plan and
ordered that the plan's premiums paid to PBGC
be returned. The U.S. Court of Appeals for the
Ninth Circuit reversed and remanded the case
to the District Court for consideration of
issues not dealt with on appeal. PBGC is
opposing Connolly's petition for certiorari
in the Supreme Court.

PBGC v. Avon Sole Company, Ouimet, et al.
PBGC is seeking to establish that members
of a controlled group of businesses are
jointly and severally liable to PBGC
for the insufficiency of a plan that
terminates under Title IV, based on the
consolidated statutory net worth (fair
market value) of the entire group. A
special Master recommended that the
Federal District Court in Massachusetts
deny PBGC's claim. PBGC has objected
to the Master's Report and is seeking
summary judgment in the District Court;
a PBGC motion to expedite the matter,
and a supplementary memorandum of law
requested by the court, were filed during
1978.

Nachman v. PBGC, et al. At dispute is
whether a plan's vested benefits are
guaranteed under Title IV, and the
employer liable to PBGC, when the plan
terminates without enough funds to meet
the guarantee. The plan limited the
employer's liability for payment of the
benefits, and termination occurred before
ERISA's Title I nonforfeitability rules
became effective. A U.S. District Court
in Chicago held that the employer is not
liable to PBGC. The U.S. Court of Appeals
for the Seventh Circuit reversed, holding
that the vested benefits are guaranteed and
the employer is liable to PBGC under

Title IV. The court rejected Nachman's
claim that such retroactive liability
was unconstitutional.

G.

H.

Objectives Through FY 1980

The accomplishments of the past year indicate that
PBGC has made substantial progress in carrying out
its Title IV responsibilities. Many operational and
policy issues related to the basic program have been
solved. During the remainder of FY 1979 and in FY 1980
the Corporation plans to carry forth further program
advances.

1. Legislative Proposals

In 1979, PBGC plans to present to Congress major
revisions in the present statutory scheme for mandatory
multiemployer plan coverage.

2. Systems Development

As the Corporation's activities have grown the need
for case processing and financial reporting systems has
increased. Accordingly, we are now testing and refining
a case tracking system. During FY 1979, we anticipate
expanding the system to cover all new termination case
openings and active termination cases. Once it is fully
operational, this system will provide management with
comprehensive information about the Corporation's termination
processing programs and will serve as a primary research tool
for program development and evaluation. We have also con-
tracted with an outside firm to assist us in developing
and implementing the first phase of a corporate-wide inte-
grated financial management system. We expect initial
short range recommendations from the contractor in March 1979.
After the more immediate recommendations are implemented,
we will begin to develop a corporate-wide computer-based
financial management system. Ultimately, this system will
allow PBGC to better respond to its responsibilities as a
corporate financial institution.

PBGC has completed a study of its computer capability
needs. We have determined that an in-house computer is
the most effective way to meet these needs. Funds for
developing and implementing an in-house computer system
are included in the FY 1980 budget.

BASIS FOR THE ESTIMATES

Plan Terminations

1. General

The primary workload factor for PBGC remains notices of
intent to terminate pension plans. Projections of this
workload made in prior years have been consistently