meetings and workshops. On inquiries, from the inception of the program through December 1975, PBGC responded to approximately 13,200 written and 17,600 telephone inquiries. During the same period, the field staff of the Department of Labor answered about 25,500 inquiries on PBGC matters on a reimbursable basis.

Existing policies have been publicized through a similar variety of resources. We have published a summary of the plan termination insurance program and a compilation of replies to typical inquiries. Meetings have been held with practitioners on general matters and with participants in specific pending cases to explain our procedures and their rights. We have issued news releases to announce and to clarify policies and have conducted workshops on our filing procedures. We have attempted to keep our forms simple and our instructions clear. At present, we have only one public use form, of 2 pages. It serves a triple purpose of premium estimate, premium reconciliation and PBGC annual report. We have published messages to alert the practitioners on how to avoid costly mistakes and minimize interest and late payment charges.

5. Legal Groundwork. Many complex and interrelated issues (e.g.,
legal, actuarial, accounting, etc.) have been resolved during these
formative months, impacting on PBGC's ability to determine accurately
the liabilities stemming from plan terminations in order that the
Corporation can properly pay basic guaranteed benefits and collect
employer liabilities. A broad scope of legal opinions, advice
and guidance in program development and execution to the Board of
Directors, the Advisory Committee, the Executive Director and the
Corporation's staff has been provided along with a significant
measure of answers to legal inquiries and interpretations to private
sector attorneys and members of the public. The Corporation's legal
staff has also completed the development, drafting, clearance and
promulgation in the Federal Register of 25 proposed and final
rules and regulations.

6.

Administrative. The Corporation's staff has grown from a small cadre of individuals on loan from other agencies at the time of enactment (September 1974) to 304 employees as of January 18, 1976. The Office of Management and Budget has recently raised, in a reapportionment action, PBGC's ceiling from 305 to 467 positions for FY 1976. It has authorized PBGC a 571 ceiling for FY 1977.

The staff occupied rented space in Silver Spring, Maryland from the date of enactment until September 15, 1975. The organization then occupied a new building at 2020 K Street, N.W., Washington, D.C., where we have a five year lease for approximately 100,000 square feet, with a 5-year renewal option.

The Corporation has been organized into five offices: General Counsel,
Finance and Administration, Program and Policy Development, Program
Operations, and Communications. See the PBGC Organization Chart,
Figure 2. Work is continuing on the development of internal admini-
strative systems and procedures.

G.

PROGRAM OBJECTIVES FOR FY 1976 AND FY 1977

1. Case Processing. The Corporation's principle objective for
the remainder of FY 1976 (including the transition period) is to
process to completion approximately 3,300 pension plan termination
cases. Of this total, approximately 700 plans will have funding
insufficiencies and an estimated 17,500 vested participants will
have to have all or part of their pensions secured by PBGC. In
FY 1977, the numbers will increase to approximately 4,200 total
plans, of which 1,550 will be insufficient involving 38,775 vested
participants.

2. Contingent Employer Liability Insurance. The development of an
insurance program to protect employers against liability for unfunded
guaranteed benefits in terminated plans will be a major activity
during FY 1976 and FY 1977. This effort will involve the resolution
of various legal and policy issues underlying the determination of
the mandatory or voluntary nature of the program, levels of coverage
to be made available, terms and conditions of the insurance, and
the basis for premium rates. Activity will also include an effort
to develop reliable estimates of the basic cost of operating the
program and the premium revenue required.

In order to mitigate the financial impact of any uncertainty as
to how the program is to be implemented, the Corporation intends
to define and explain the contingent employer liability insurance
program well in advance of the September 2, 1977, date required
by ERISA. It is expected that this advance knowledge of program
coverage may be of assistance to employers for whom the potential
liabilities of a plan termination have an impact on their ability
to finance operations. This information may also assist employers
and unions in their consideration of plan improvements.

Discussions concerning program objectives and requirements will continue with employers and employee representatives. In addition, contact with private insurers will continue in an effort to determine their financial capability and future involvement in the program.

3.

Alternate Premium. A third major effort, already underway, is development of alternate premium proposals for the basic insurance program. Such a premium, if approved, would apply to plan years beginning on or after September 2, 1976, as permitted by Section 4006 of ERISA. Present efforts have focused on policy and legal issues involved in developing equitable rate structures

that satisfy income needs. The possibility of adopting a premium which can be calculated without detailed current actuarial information in order to ease the administrative burden on small plans is being considered.

4.

Determination of Employer Net Worth. Section 4062 establishes the maximum employer liability for unfunded guaranteed benefits as 30 percent of net worth determined on a basis chosen by the Corporation as best reflecting the current status of the employer's "operations and prospects. This differs from the more customary "book value" method which does not consider an employer's prospects. The prescribed approach requires development of new policies and concepts. A regulation is expected to be issued in proposed form in February 1976, detailing and inviting comments on the Corporation's methods for determining net worth.

5. Coordination with Other Agencies. The Corporation is continuing to work closely with the Department of Labor and the Internal Revenue Service to avoid duplication and to minimize the administrative burden of reporting requirements and to coordinate policies and procedures regarding plan terminations. An important objective involves the development, with the Internal Revenue Service, of interagency procedures for the treatment of partial termination of plans, plan mergers and consolidations, and transfers of plan assets.

Coordinated procedures must also be developed with the Internal Revenue Service and the Department of Labor to obtain the verification of the universe of approximately 120,000 defined benefit plans and the review of new plan applications to determine coverage and compliance. Criteria for identifying plans which represent a potential significant liability to the PBGC are being studied to establish systems for early interagency determinations with respect to such plans.

6.

Computer Systems. The design of computer software, and related forms and procedural manuals, will continue to be of high priority. In the area of actuarial support, software will be developed if possible, which will allow: (a) a continuous updating of PBGC valuation factors and close-out rates to keep them consistent with current market trends and conditions; and (b) an automated allocation of plan assets.

The initial computer systems for processing premiums will be
redesigned to permit faster processing of premium payments and

the timely identification of over- and underpayments and the resulting
refund or billing actions, as well as the maintenance of a complete
plan history. Other important systems include those for: (a) benefit
payment and services; (b) asset accounting; (c) case tracking; and
(a) financial modeling.

7.

Financial Management. With advice from the Advisory Committee and the recently established Investment Panel, the Corporation has devised a strategy for managing the assets of plans terminating with insufficient assets. That strategy includes the selection of a custodian bank and a number of investment management organizations to assist PBGC in controlling the assets of small, insufficiently funded terminating plans which will be held in a commingled trust account. With this approach, the earnings on assets can be optimized and the trustee related costs minimized through economies of scale. These investment management organizations under contract will have the responsibility to manage the assets allocated to their supervision in accordance with the goals and objectives mutually agreed upon by the money management organizations and the Corporation. At the outset of the program, there will be three money managers: a fixed income manager and two common stock managers. One common stock manager will concentrate on growth stocks. The other equity manager will apply his expertise to the management of a portfolio of common stocks, the characteristics of which are predominately not analogous to the characteristics of "growth stocks." This diversification is for the purpose of assuring that PBGC will decrease its vulnerability at any given time to the same market valuation influences. As assets accumulate over time, the Corporation will consider adding additional money managers when it appears to be in its advantage to do so.

An additional element of the investment management system will be
the custodian bank. This bank, operating under contract to PBGC,
will act as the central depository for the assets of terminated
pension plans for which PBGC becomes trustee. In addition, the
custodian bank will be vested with the responsibility of assisting
the Corporation in the ongoing management and/or liquidation of such
nonmarketable assets that may accrue to PBGC. As assets accumulate
over time, the Corporation will add an additional custodian bank
if it appears to be in its advantage to do so.

The final elements of this system provide for the use of a performance measurement organization and a transaction audit organization. These organizations, chosen from the private sector of the investment community, will be under contract to assist the Corporation staff in measuring relative performance to like pools of assets with like risk criteria and size,