At the request of PBGC, the Office of Inspector General initiated an audit to examine the administrative costs paid by PBGC for operations of certain insolvent multiemployer plans.

After comparing the benefits paid by the smallest plans to administrative costs, we concluded that administrative costs were disproportionate when compared to the benefits paid to participants. For most of the 10 plans we reviewed, the administrative costs represented a significant amount of the financial assistance PBGC paid to the plan. For example:

• In 3 of the 10 plans, the cost of administering the plan far exceeds the amount paid to retirees. For one plan, PBGC paid $83,934 in administrative costs for $32,897 of benefits, which is 2 ½ times the benefits paid to retirees.
• In another 4 plans, the administrative costs ranged from 27% to 63% of the retirees' benefit payments.
• In 2005, for these 10 smallest plans, PBGC paid a total of $425,658 in benefits and $240,162 in administrative expenses. This means that PBGC paid approximately 56% of the benefits costs for plan administration expenses.

After considering the available options and the related legal implications, we recommended that the best option for reducing the overall cost of administering the smallest insolvent plans is to fund sufficient amounts for the plan administrator to purchase annuities or pay lump sums to each participant. This would eliminate over $1.9 million in future administrative costs and the costs of in-house monitoring of insolvent plans.