By DAVID CAY JOHNSTON
March 28, 1999

A quarter-century ago, Congress created the Pension Benefit Guaranty Corp. to make sure that the 42 million workers with traditional pensions would get paid even if their employer went bankrupt. The legislation was hailed at the time as second only to Social Security in its significance to working Americans. How well that agency operates is now being questioned in a series of audits by the agency's inspector general, which are to be made public this week, and by a lawsuit charging that one of the pension agency's contractors defrauded it.

Two Republican senators who are familiar with the audit findings, Charles Grassley of Iowa and Christopher Bond of Missouri, said hearings would be held by September to investigate how well the agency is run and why, for example, nearly half of the 472,000 people covered by failed pension plans that the agency has taken over have not been told how much they are due each month.

Of the 200,000 people waiting for their initial determination of actual benefits, about 19,000 have been waiting for more than 13 years and some have been waiting for 18 years. When these people become eligible to receive pension checks, an estimated payment is sent until the actual amount is determined.

The audits, the lawsuits and the hearings come as congressional Republicans are gearing up for a battle to pass major changes in the Employee Retirement Income Security Act that have long been sought by major corporations and business owners. The Republicans say picayune regulations and poor operation of the pension agency are driving up pension-plan costs and hurting workers who change jobs often.

Advocates for pensioners say the Republican proposals would allow business owners and executives to get bigger tax breaks on larger pensions for themselves, while reducing incentives to pay retirement benefits to workers who receive lower pay.The audits found that "there were no monitoring controls in place that would enable" the pension agency "to detect potential unauthorized data modifications" like creating ghost retirees in its computers and sending them money.

Joseph Grant, the pension agency's deputy director, did not dispute most of the audit findings, but he said they drew too heavily on conditions that the Clinton administration inherited in 1993. Grant said that the pension agency, which received five awards from Vice President Al Gore for improving efficiency and customer service, had reduced the backlog of people waiting to hear how much they are due to 200,000 from 300,000 and would eliminate it in a few years.

Grant said there was no harm from delays in determining benefits, because when the exact amounts are determined, lump-sum payments with interest are sent to cover shortfalls, and pensioners can take months to return overpayments.

Grassley, the chairman of the Select Committee on Aging, said he disagreed. "I think they have forgotten what their mission is, which is to serve pensioners," Grassley said. "Six to 10 years is just too long for people to wait to find out how much their pension will be. We have to make this agency become more customer friendly, like we did with the IRS."

One employee of the agency, who calls himself Jim Dough, in order to avoid any retribution, has filed a lawsuit on behalf of the agency against one of its biggest contractors, Office Specialists of Peabody, Mass. He was joined by two former Office Specialists employees and by the Association of Former Pan Am Employees. Two years ago, the association filed a separate lawsuit accusing the pension agency of mishandling benefits for its 45,000 members.

The Dough lawsuit, unsealed on March 18 by a U.S. District Court judge in Baltimore, says that a senior pension agency official, Bennie Hagans, steered business to Office Specialists, which received a number of contracts without competitive bidding, and ordered payments to it expedited.

The suit also asserts that Hagans improperly intervened when Myrna Cooks, the Office Specialists liaison to the pension agency, quit to form her own company and was sued by Office Specialists for violating her employment contract. Hagans, the lawsuit asserts, "threatened Office Specialists" with a loss of business from the pension agency unless it dropped its suit against Mrs. Cooks and let her assume an Office Specialists contract valued at $13.5 million. Office Specialists then settled with Mrs. Cooks, whose business was awarded the contract.

Hagans, in two lengthy interviews, said that he had acted properly in every dealing and that his routine actions were being twisted by the plaintiffs, who he said had based their case on faulty assumptions.

Jesse Schaudies, general counsel for Randstad North America, a subsidiary of the Dutch company that owns Office Specialists, said, "We have no basis for believing there was anything improper" in its dealing with the pension agency.