PBGC Shows Statistics on Annuity Purchase and Deficient Pension Payouts
The PBGC, in response to a Senate Committee on Aging request, provided a summary of statistics on audit results of terminated plans. (Pension Plans: Standard Termination Audit Findings, PBGC, 6/16/97) The PBGC's most recent audit estimates that about 8% of about 290,000 plan participants in 6,000 fully funded plans that were ended between January 1994 and December 1995 did not receive their full benefit when they accepted lump sums.
The audit sampled 374 fully funded terminated plans covering 2,800 participants and found that 13.7%, or 382 participants, were underpaid. This raw, unadjusted data was then extrapolated to determine that 8% of lump sums were underpaid to participants in fully funded terminated plans during the audit cycle.
I was hesitant at first to buy an annuity on the internet. Once I got your quote report and read your reviews I was happy I found your website. Your phone reps were always very helpful. You made the whole thing go really simple. Thank you guys!
The sample audit concentrated primarily on small terminated pension plans where most errors in calculating lump sums occur. The PBGC said that 70% of its sample were plans with fewer than 250 participants. Because the errors have been detected primarily in small plans, extrapolating the data to all pension plans is not appropriate since a small percentage of participants are in small plans, the PBGC said. The error rate among large fully funded pension plans is quite small, according to the PBGC.
The PBGC found that miscalculations are due primarily to the use of the wrong interest rate in determining the lump sum amounts. Within certain legal constraints, plans generally use the PBGC interest rate or the 30-year Treasury rate.
When the PBGC finds errors in benefits payments on audit, it requires companies to correct the payments. If necessary, the PBGC will pursue court action.