i think is a very sound and realistic one. it is one that is rooted in our national security interests. i will start with that. another thing that struck me is that at the end of this week [inaudible] what came to my mind was the issue of afghanistan and a section of that summit and where we are looking at where the next steps are. i do think the summit is an excellent opportunity to register our strong commitment. a number of our allies are looking at taking an alternative

course. even though they may be taking an alternative course, i think this does provide an excellent opportunity to lay down the markers of our strategy very clearly and definitively and it will still appeal to our allies. our security alliance is critical. it can encourage them to move forward and still provide support for the situation on the ground, which, again, is afghanistan. many are already involved in this capacity. i think they can continue to be involved in a very critical way.

for long-term stability, it is essential to have a sound foundation of civil society, economic growth, and a foundation that tackles corruption. and i think the summit provides an opportunity to galvanize support from those that can help in this capacity. i wanted to underscore another thing she mentioned. she talked about pakistan. i do think our policies toward pakistan is essential and key in the dynamics of the evolution. i think she laid out very clearly areas that we need to be focused on in terms of pakistan

and the administration has focused on economic ways of entering pakistan and helping them and providing incentives so that we are in sync with our strategies with the eradication of those forces. we are players. the alliance is players, but all the countries in the region also have a role to play. that includes pakistan in this case. finally, i would say that, with regard to iraq, let me transfer over the same points that made in afghanistan. when i look back on track in terms of the evolution and the

development, i do think that the combination of hard power and soft power makes a difference. i am a very strong proponent of soft power. in this case, when you look at where iraq was and where it is now, i do think that the kind of assistance that has been rendered, let me pick out a different sector, not only our allies, but, by the way, public- private partnerships. so many private partnerships, non-governmental organizations have played a very key role on the ground in iraq. institutions, organizations, like the national endowment for democracy, the national democratic institute, the international republican institute -- i can go on for a whole variety. i can complement somebody sectors, whether it is held, basic public services, political

training, all of these areas have mattered. i wanted to mention someone who is now affiliated with harvard and has been a strong supporter of this kind of an agenda, the former ambassador to afghanistan, said lead to what -- sahid jewad is here in the audience. >> thank you. >> let me also begin by think telling -- but taking all of you for inviting me here tonight and imichele for being here tonight. i would like to begin by endorsing your final officer

list. our classrooms are filled with students who have served in a variety of capacities and are eager to find ways to serve going forward. i am sure many of them here and elsewhere will heed your call and i look forward to that. again, let me mention three things. the first is that the u.s. role and the importance of psychology -- when i think about what i have learned in being involved in iraq and afghanistan over the last year, when the united states brings many things to these theaters, it brings military power, financial resources, technical expertise, diplomatic hat. but one thing i certainly undervalued was the importance of studying a psychological environment. what i mean by that is that we are looking -- the international community, broadly speaking --

we look at them to make very hard decisions about their future. we cannot make those decisions for them. but we can help create a climate in which it is easy for them -- in which it is easier for them to choose a decision that may not be one that is personally aligned with their sectarian group or their tribe and prioritize as a nation. -- and prioritizes a nation. we are asking people to make decisions that could be very costly, not just financially, but primarily in terms of security and their future. if the united states helps to create psychological merman for them to make those decisions -- -- psychological environment for them to make those decisions, at the end of the day, what does it all added to? does it add up to a psychological environment in

which afghans, iraqis, and others can take the risk that we want them to take to create a better society? that is certainly one of the issues behind the timeline that secretary for elaborated on. -- secretary fornoy elaborated on. the second is building on the sock power issue. in our classrooms, many of us have talked about the importance of the civilian side of the equation. we're all very well trained to articulate that point as 80% of non-military and 20% military. in reality, i think we all know that our civilian side still falls short in many ways despite very serious effort on the part of the obama administration and the administration for the civilian side.

i want to build that into our conversation, the apartments of keeping at that, either by your own personal service, but also to our congress in recognizing that allocating money for the civilian efforts is as every bit as important as the military side. certainly, the civilian side and its ability to partner and work in a whole government approach, the military approach will be a key in the success in afghanistan, but also a key in consolidating the good things that happened in iraq in the last two years. if you talk to iraqis now, they're concerned about a lot of things, but one thing is will they be able to maintain a strategic relationship with the united states? we have an interest in seeing that that relationship has many, many dimensions, n just the military dimension. lastly, let me just conclude with a big topic. i will say two things on it.

the whole issue of what are the lessons from iraq to afghanistan -- we could spend months discussing it. i can tell you one area that i worry about people drawing lessons and another area where it is right to draw lessons. reconciliation, in some ways, we talk more about reconciliation in afghanistan. we recognize that that has to be a key component. i think there is a danger that we have the iraqi experience in our mind. if we look at what happened in iraq, reconciliation was very much a part of improved security environment in politics that both of my co-panelists described. but a lot of those people came into the political process without the iraqis in power having to make major changes to the constitution or the political order. it was not so much a negotiation where people had to make really

hard decisions about what was fundamental to the new iraq and what was something that could be given away. it basically was insurgents and others accommodating themselves to the new iraq. that is not irreversible, but that, in some ways, suggests that reconciliation in afghanistan may be easier than it probably will be paired in afghanistan, there will be tougher conversations and tougher decisions made about what is something that could be compromised d something that is not. i think there is a lot of room for drawing good lessons on the issue of transition. we talked about how the combat role in iraq shifted to supporting and training role in iraq and how that has been. that actually masked what was in fact a very sophisticated abolition of the relationship between the united states and

the iraqis, particularly on the military side, but not exclusively. the move in the u.s. was the front line actor, one where it became a supporting actor and now a behind-the-scen actor. it was one that was much more gradual, constantly taking assessments about is it possible to move forward? we have to move back? it took a lot of calibration. as the obama administration thinks about transition in afghanistan, something that is on people's minds, they are thinking about a model that will reflect t kind of sophisticated sequencing of both civilian and military relationships. let me stop there and turn it back to our chair.

>> can you tell us how it works in the pakistani peace? >> we have been investing in trying to develop a full- fledged strategic partnership with pakistan. we have had strong areas of cooperation on counterterrorism. one of the things that few americans know is that, over 30,000 pakistanis have actually died, either in the military or civilians who were targeted, in dealing with these militant and extremisgroups. they are paying a heavy price.

we believe that the more we can invest in pakistan, reassure them of our commitment to their stability, their economic and democratic development, the more they will be able to shift their strategic calculus in a way that buys and stability in the region and does not adopt some of their historical approaches to sort of hedging their bets, if you will turn the strategic partnership -- if you will. the strategic partnership is beginning to pay dividends. that shift will not happen overnight. we will continue continue investing in the cooperation to try to find more and more ways that we can cooperate to bring greater stability to the region. >> let me invite the audience to join the conversation. we have two microphones on the

ground floor. and there are two microphones here. the rules are that you stand up by the microphone, introduce yourself,ut your questions succinctly. we only have three speakers tonight. we have a great opportunity for about 20 minutes to have a serious conversation. >> my name is eugene hogan. i am stating for a doctoral degree at brandeis university where i am studying nuclear proliferation or ways to prevent it. since tonight's topic is women and war, alice hoping to -- i was hoping to ask about challenges and opportunities that women face in public service.

the challenges and opportunities for women in america, especially in the area of national security. thank you. >> i would start by noting how much things have opened up. my first tour in the pentagon, i remember hosting a lunch for senior women in the pentagon. all nine or 10 of us sat at one table. now, if i issued a similar invitation, we would burst out of the dining room. are we where we want to be? no. is it much improved? yes. what really gives me great confidence and inspiration is that there are a couple of generations right behind us. the women who are now serving as deputy assistant and at the office director level, recently out of graduate school, several

years of work experience, they are coming into leadership roles. there you see tremendous talen, gates wide-open, and i think lots of progress in terms of creating openings and opportunities for women. >> i think that's the situation has really opened up very widely for women. there are lots of opportunies. i am going to give a flip side to this. i remember when, as an ad -- as an undergraduate, i decided early on that i would go into international affairs. the fact of the matter was that there were not a lot of women who were going down that path. maybe some of the numbers at that time did not match up because some were not going into the foreign service. some were not going because that was not the educational path that they pursued. i went as an undergraduate to the school of foreign service at

georgetown and did my graduate work here at harvard. one of my professors, a huntington, he was very big on internships. i became an intern at the national security council. there were lots of doors opened up if you wanted to go through it and have the expertise. i will add to your question and said, basically, i think i have seen a market shift where a lot more women are pursuing careers in this path where they had not before, at least during my time and in the beginning of my career. but i think there are a lot of opportunities afforded now. >> let me put in 1 foot note and see if megan will speak to this. advertising remembering sam huntingtons intellectual contributions with one of his

students and the usual suspects, that is november 30. megan,ould you comment on this? >> yes. i have benefited from women in generations before mine and i did push some of those doors open. i have been very thankful for that in my career. this is a slightly different angle. there's the question of whether women should go into middle eastern studies? should they look to work in national security in the middle east? i would wholeheartedly say yes. i have found this to be a very fruitful and interesting and gratifying place to build relationships and to work with other people in other parts of the world. it could be from all kinds of things i have found, especially as a midwestern woman, being able to sit with theen and being able to sit with the women. i also get to see both sides of

a society which has setimes been closed to only one sex. >> maybe i could pursue a little further. after the invasion of iraq, it was part of the first wave and it was hard to do with the politics of iraq. it was two years before you were working in policy. there were difficulties in putting the government back together again. you went bacthere for several months. tell us a steady to about why it is difficult for women to do is in iraq? >> i found that advantages were much greater than the difficulties. when i think about the ability to be effective in the middle east and in iraq and afghanistan, i think about the y factor being the ability to

build relationships. i think you have experience that in your different forms of service. that is the key thing. there's a people who say that women are better than that -- bett at that than men. i don't get into that debate. but that was the key thing. having those relationships, some of them come from growing yourself at a great point of uncertainty. when i look at some of the relationships that i blt with iraqis letter of -- with iraq is that are important to me, they got a great start because i arrived before a lot of the iraqis returned from exile. we were on the ground together. those days were both terrifying and inspiring. whether you're a man or woman,

an amerin, an iraqi, any of this has more of a bearing on gender. that has been my experience. >> thank you so much, ladies, for coming. number one, the important correlation between poverty and terrorism -- i remember working in the northern frontier province. i believe much terrorism comes out of poverty in many of these areas. the only social services presented are from groups such as the period after the earthquake in pakistan, i remember the relations between america and pakistanis improved quite a bit. they are very appreciative that we were one of the first responders, our government, to the tragedy there. i wanted to get your insight on the role we're playing their to eradicate poverty. also, on behalf of my colleague

here, an officer in the army who is returning iraqi veteran, she was surprised that the lack of investment on women and children in iraq. there were doing a good job at educating the men and job skills traing and what not, but not for the women. she fears for the future security of the country in this way. i wanted to know, for you, what we're doing as a government to help the women and children in iraq. >> and take the last part? i thought, as you were asking your question, my first visit to iraq was because there was a conference, the voices of women of iraq conference. starting in 2003, many women in iraq were trying to organize and reach out and they had set an agenda for themselves as to what

they wanted to achieve and how they wanted to achieve it. i have to say that i was very impressed, first with the fact that the word definitive about what they wanted to achieve. it really ranged everything from educational opportunities that they wanted to further and solidify although they had some educational oortunities. at the same time, even to the area of sports and their ability and desire to participate in sports. over the past years, i think there has been a vigorous campaign and outreh fundamentally through government funding many ngos that are on the ground and that are specifically working with the ministries, the women's ministry, with the various women's organizations, legal organizations that have been set up, even garnering support for

women to run for political office. i remembe meeting a number of iraqi women who had never had anything to do with politics and were actually having the opportunity to come forward and to be able to do this. i will say that, in my view, a lot of the good work is done by a lot of grassroots organizations who are on the ground, who are working very closely with iraqi women, and trying to advance their goals and objectives as they havset them forth for themselves. at the state department, a woman has been designated as the ambassador for women's issues at large. we have worked with her over these years, both when she was in the private sector and now in government. this has been one of the priorities that both the government and private-sect

lives have been established. >> i want to address your estion about poverty and terrorism. we do not find a strong correlationetween economic background and those who choose terrorism. i do think there is a correlation in the un governed and under-governed spaces or places that tend to be more ground for safe havens for extra mr. groups. when you look across the fox up, parts of yemen, sumatra, they have deep and abiding grievance these between the and power groups, disaffected or disempowered groups, where you find only limited access for certain portions of the population to a basic services

where government is not -- government is seen more as predatory than services. you have another group come in and inside an extreme ideology and gain since thesympathy. what that has told us is that you need to take a look at government in a very integrated approach to fight terrorism. admiral wilson says that you cannot kill your way to victory in counter-terrorism. you have to drop some of the conditions thatreate ftile soil for terrorists to take root. >> good evening. i am hoping to take advantage of the broad title of this evening's top. i was very happy -- >> i would like you to introduce yourself. >> i am writing my thesis on governance and its impact on

the army corps of engineersn afghanistan. i think this is a place where you have an audience that is very devoted to public service and we have a lot of students in the room. we have a lot of different interests. professor alison has obviously gone less concerned about the proliferation of nuclear weapons. what are you most excited about it? you have each gun much bigger perspectives than these current conflicts. what is the next big thing? what else should we be putting our time and energy behind in the school of government? >> i will pick up on that. one of the areas that i think is really important and worth looking at is what is happening in the arctic. we have witnessed in the arctic

a warming trend. as a result, you have passages that are being opened. on one hand, this has commercial opportunities. but it also has a race for resources and other ramifications, in fact, for many countries, including our own, that border the arctic. actually, i think that there will be number of challenges. the united states has not signed the treaty. we we should be -- we should be a signatory for the law of the sea treaty. there will be a lot of interesting challenges as well as debates and discussions over that arena, which will loom larger. for those looking for new research topics, i would say to take a look at the arctic. it has energy ramifications, commercial ramifications, environmental ramifications, and questions of sovereignty. >> i would agree with that.

i would also nominate two more -- asia is a regional one. when you lookt our economic prosperity and interest, the changing power dynamics in asia, the rise of china and the rise of india, the reconsidering of international norms, commerce and trade, i think issue will be a focal point for our strategic interest for the next several decades. the other one that i have been talking about and that i am trying to recruit peopl to is cyber. cyber is a completely uncharted conceptual territory. it is like what the nuclear domain was before. most of our inherited friends fall short war are completely -- inherited frames fall short or

are completely misleading. thinking through how we integrate cyberspace and are thinking about cyber and terms economy and national security, it is very important. >> that was a very good question. >> good evening. i am a mid-career student here at the kennedy school. in january 2011, it will mark the 20-year anniversary of the collapse of the somali government. thank you for the insights into iraq and afghanistan. my question for the panel is what are the prospects for u.s. engagement or in engagement in the somalia situation? i would love to hear about that.

>> we are jt completing a review of our smaller policies. it is an extremely complex and vexing situation with great humanitarian consequences. we are redoubling our efforts to work with the transitional government to support the u.n. force and to increase the capacity to provide greater security forces. we also will be seeking t engage the other somali autonomoust or commissariea areas. it is an extremely difficult set of columns. frankly, our leverage is limited.

but we want to try to build capacity and the will of those who are more able to leverage the situation, make a difference on the ground, and help to make them more effective. >> we spoke a lot about the conflicts d iraq and afghanistan and we have not yet shifted gears about other issues, like proliferation with iran and north korea. seeing that the obama administration ran on a platform of increasing diplomatic engagement and talking with adversarial states, i was wondering if you get to comment on why we have not seen more of a push for diplomatic engagement and other things as well, such as sanctions. we have nothing any new initiatives. secretary of state clinton, at her confirmation hearing, there

was a lot of talk by many about pushing for moves like trying to the open an interest section, more cultural exchanges. i wanted to know if you have any inght why these things have not been happening. >> i will take the first if you will take the second. on the non-proliferation front, obama came into office with a very strong desire and effort to engage iran on its nucar program. the fact that it is out of compliance with the non- proliferation treaty and a number of u.n. resolutions and problems with the iaea, the engagement was quite serious. it was largely robust. however, the fact that we made such an effort at engagement and it was in good faith, it allowed

others in the international committee to join with us when it came time to push for sanctions. you had russia as a very strong supporter of sanctions. china and others, that you -- that is part of what is making -- the eu, that is part of what is making the sanctions effeive. the fact of our engagement made to the international effort stronger. in other areas, whether it was reinvigorating the nonproliferation review conference, convening the national security summit, the non-proliferation area has been a long line of diplomacy for the administration. but we could do more. >> if 5 heard the second part of your question as to what i take away from this, something that i think all three of us in our comments he referred to in a

way, in your opening comments, you referred to that. that has been one of the challenges. i believe secretary ges has been very direct on this issue as has secretary clinton -- about the need for not only addressing our defense and military-related issues, but looking at the integration of these components and how critical it isnd putting resources into the diplomatic side, which involves many of the soft power elements that we have discussed. i would simply say that i would start with the fact that there still needs to be a vigorous redressing of that issue. i know that the state department has emulated the talk apartment

of defense with this quadrennial -- has emulated the state department of defen with this quadrennial review. right now, the percentage of the moneys is very minimal. i think most think that it comprises a substantial part of our budget. it does not. >> michele was commenting on this that lost it. do you want to say more on that topic? >> one of the things that i think that those who serve in government find in this day and age is that it is difficult to find a challenge that you can effectively address with just one instrument of national power. what is neededs a much more whole-government approach and integrated approach. yet, what we find as a nation,

as we invest in one instrument, we put the military on steroids and everything else is on life support. i think that a song military serves our national interest fundamentally and very well. but it does not serve our interests in not being able to deploy civilians in an expeditionary manner to seek diplomacy and economic assistance. they can prevent situations become a conflict situation or can help them come out of conflict and gain political objectives. the politics of this on capitol hill are extremely challenging. it is much more difficult to get resources for the civilian side

of the house than the military side of the house. yet it complicates -- that amounts complicates our ability to achieve our objectives. the transition in iraq is a case of point. the military part of the transition is well-founded. the civilian part is not. it is a real challenge for coherent policy going forward. >> we have time for two final questions. this gentleman and this lady, thank you. >> numbest de, shalom -- namaste, cholon -- i am on racial them. i study women and war. that is why i'm here tonight. i would like to submit that to address the issues of psychological and garments and civility -- psychological arguments and civility, the

initiative of nonviolence would be a way to go forward. but because it would be a people movement. a. people move that would be political. it would be an interaction of government and the people. in particular, right now, on the west bank, there is a documentary coming out and the people of israel that together with the pple in the west bank and they promoted non- violence with women leading the way. so there is some strength. if women take the lead in the movement of non-violence, then we have the empathetic house that you alluded to in the beginning. then we also have a mobilized people. when obama took office, he reached out with the olive branch in his first television

interview. he said, we're not enemies to the islamic world. to get to my question, if there was a movement -- i have been working on a global strategy of nonviolence if anyone is interested with an initiative called "a call to women" -- if there was a call to women, not only in the united states, but there is evidence in afghanistan of the women getting together -- with the government be open -- would the government be open to the movement of nonviolence led by women and with the work together? >> think that there are -- over the course of history, there have been many times where

grass-roots movements have come out of civil society and have been very powerful proponents of positive change. our own experience is the civil rights movement, the experience of the nonviolent movement in india's formation -- there are many examples of this in history where there is initially difficult and the productive dialogue with a society. -- with a society and government. it is hard for me to speculate and know exactly what you are envisioning. but a dialogue with a civil society on how to move on a wide range of national security issuess a positive tng,

especially in a dramatic -- especially in a democratic society like ours. >> tony shays was undersecretary, one of the early people opening some of the doors. >> now i am just a lowly professor at fletcher. [laughter] michele, i credit you with being the parent of pdd 56 and the whole concept. we worke on this a bit together here at the kennedy school. the concept of civil military planning, it now seems to me to be more important than ever under the kind of irregular warfare and the kind of strategy. what kind of power can you put behind it or are you putting behind this concept?

that really goes to the question and discussion just prior to the last question on the shortage of resources. but in the government, the planning phase, knowing what'we failed that in iraq, what are you planning to do? >> there have been several iterations. it is something that we actively use. there was one plan developed in iraq -- i am not sure when they started, but i was there by the later stages -- and it is also being used in a more pro-active way as we contemplateotential future crises. we're trying to bring together

people to think through them and hold government, approach, identify, everything from strategy to resources and so forth. i think the planning phase has come a long way. what has not come with it as fully as we have been discussing is the resourced ching to fully enabled the civilian plant. >> unfortunately, we have ce to the end. let me say again what an honor it is to have such great public servants here and how much we especially appreciate michele for taking so much time out of her incredible schedule. thank you. [applause]

i forgot one thing. , admiral mike a mullen, the chairman of the joint chiefs of staff, will be here. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2010] >> we will have the senate labor and pensions committee. at 2:45 eastern, the senate armed services committee hears testimony on the defense department's plan to cut spending. later, a supreme court oral argument about the constitutionality of a california law banning the sale of violent video games to minors. >> you were watching c-span,

realpolitik and public affairs. every morning it is "washington journal." this connects you with officials. what's the u.s. house during the week and our continuing coverage of the new congress. congressional earrings and policy forms every night and supreme court oral arguments. you concede our signature interview programs over the weekend. -- you can see our signature into programs over the weekend. you can watch our programming any time at c-span.org and it is all searchable on our cspan video library. cspan, washington, your way. >> tonight, primetime, a discussion on the role of limited government with our two guests. that is followed at 9:30 by q &a

examining the new british coalition government and their plan to cut spending. at 10:30 eastern, a discussion on redistricting and whether class rather than race should be used for redistricting. >> now one oversight hearing on the financial stability of the federal body that insures private pension plans. congress created the pension benefit guaranty corp. in 1974 to protect retirees with to find retirement plans that run out of money. a report designates that pbgc is in need of urgent attention. witnesses includes the director. this runs just under two hours.

>> in this climate of on certainty, the pbgc role is more important than ever. i have talked to people making ends meet and they worry about having a job, putting food on the table, getting their kids in school and the last thing they need to do is lose sleep on whether they will have their pensions when they retire. that is why pbgc was created in 1974 so workers can rest assured that even if the company pension plan fails, they get a retirement benefit. 44 million workers rely on us to guarantee their hard earned pensions. the agency is responsible for making the $467 million in benefits get to 801,000 retirees every single month. that responsibility is growing. last year alone, we assumed responsibility for the pensions

of 109,000 people. for pbgc these are individuals and families that would have been left with next to nothing. a unfortunately, the future of this agency is at rest. the deficit rose again this year. annual report indicates that large plants could become insolvent in the near future. this could increase our deficit 10 fall and pose a significant administrative burden. in light of these challenges, strong and effective leadership is crucial. the inspector general recently released a report that raises serious questions -- concerns about whether pbgc could cope with the sudden influx of pensions brought on by a new condition.omp

the public's trust was eroded in the agency. we are starting to see some positive changes under mr. gottbaum need to whether this agency has structural problems. the board of directors has often been disengaged and acting as than a rubber stamp. even during the height of the recent economic crisis when the was most at risk, the board barely met. we should take a look at the construction of the board and the number of the board members. it is high time that we take a look.

senator kohl of wisconsin has put some ideas on the table. we want to work collaborates leave to improve pbgc and strengthen america's pension system. they have problems but i don't think they are insurmountable. i thank you all for being here today to discuss this important issue. by now yield to my friend from wyoming, senator enzi. >> few people realize that the corporation cents half a billion dollars each month to retirees whose company pensions have gone away. the magnitude of the statistic shows how important the management of pbgc is to retirees. in 2008, the vast majority of pension plans were nearly 100% funded. because of the economic downturn, we have seen a greater

number of employer pension plans taken over by the pbgc. the gao states that nearly 400 of the 1500 multi-employer pension plans are less than 80% funded. the pbgc is facing rough waters and will face them in the future. the corporate structure of the pbgc is unlike any in the government. it has three cabinet secretaries on the board of directors. elaine chow implemented reforms including revising the agency by laws. we will hear from our witnesses today to hear whether further improvement is necessary and recommendations on how to improve communication between the pbgc and its board of directors. enlarging it could be difficult the -- but not as difficult as it was in the private sector.

this could be difficult to get people to participate. i am open to legislation to improve the pbgc corporate governance. we must undertake reforms that strengthen the pbgc and our reply -- at our retirement system and stay away from reforms that might politicize or minimize the agencies' ability to do its job. i am looking forward to hearing from the business community about their interactions with the pbgc. our retirement system is built on a voluntary partnership of companies and their employees. in order to strengthen the system, we need a pbgc that can work with the business community otherwise they will decline to participate. they will switch to a 401k plan.

thank you for the hearing and i look forward to the testimony of witnesses. >> thank you. are three members of the board who are all cabinet secretaries. i have to believe they had don't have much time to go to board meetings. comparing it to other agencies that have even less responsibility, some of these other agencies have boards of seven members or nine members and one has 15 members and they set up subcommittees'. they have these different committees that take a different parts of the agency and they are responsible. i would like to discuss that with you. sure we will have talked today from our witnesses. we have two panels. the first panel has joshua gottbaum. appointment, he was

an operating partner at the blue capital. the education and income security issues at the u.s. government accountability office and rebecca ann batts and ken porter, that will be our second panel. the committee. this may be your first appearance thee. >> yes, sir it is. >> i read your testimony and it will be made part of the record in its entirety. i would ask if you could sum it up in several minutes.

and please proceed. >> i want to start frankly by thanking you for supporting my nomination. well the consequences of elevating the pbgc director to a presidential appointments subject to congressional approval. it changes the jobs. i hope that you will conclude having done so facilitates the very management and oversight the subjects of this hearing. i also want to thank you for holding this, which is my first oversight hearing. i believe an oversight. and giving me a chance to fulfill my commitment to the committee to give my impressions. since the pbgc has just turned cannot go chapter and verse over everything.

job, i cannot pretend to be an expert on the workings of everything we do. i would like to report my first impressions and make four points. that in light of the complex tasks that arisa has given the agency, pbgc performs them surprisingly well. it they have paid benefits for 36 years and despite the incredibly complex rules it has to follow to figure out what those benefits are, surprisingly accurate late. when a plan fails, our first priority is to make sure that benefit payments continue without interruption. last year, newly terminated plans covered 40,000 people who were getting checks every month from their plan that was terminated. everyone of those 40,000 people was transferred to pbgc without a hitch.

which i admit are hard to read and put them into testimony as a reminder of how complicated the benefit determination process is. pbgc starts by paying an estimate of what benefits are and then follows the many steps that are necessary to figure out the legal benefit payable under arisa. the good news is that despite this incredibly complicated process, 90% of the estimated payments are within 10% of the number that is finally determined to comply with arisa. the bad news is that this complicated process can take years and during that period time, people are uncertain. the second point, fro pbgc

preserving plant is just as important as replacing them when they fail. the most visible part of the agency's actions are when the agency stepped in after a plan fails. first, however, the agency tries to preserve plans and keeping pension promises into hands of the employers that made them. our view of it is that every plan that is kept by its employer and not terminated is better for the employees and pensioners and better for the last year our staff negotiated with dozens of companies, both parliament programs. result of that last year, companies came out of bankruptcy and kept their plans. included in those plans were a as a result of those efforts, a quarter of a million people had of companies go through

think that is important. third point, the staff of the pbgc is knowledgeable, compassionate, and committed. that is important because they need very high standards of stewardship and accountability. the agency measures its we measure customer service by how quickly benefits are determined. and by independent performance ratings. we measure investment performance by comparison with professional, private-sector benchmarks. we need financial reporting standards by having, we are pleased to say, for almost two decades, received a clean opinion on pbgc financial statements. more to be done. like many institutions both in and out of government, our i.t. systems do not meet today's tenders for connectivity, they do not meet standards for

security. like many other government agencies, we rely on contractors without having enough sufficiently skilled contract managers and sufficient procedures in place to manage them as well as we should. and a challenge for other agencies, when we think it's important that we are working on. my fourth and last -- one we think is important that we are working on. my fourth and last point -- there are broad challenges to the pbgc insurance program and in one sense we have been fortunate. despite the greatest financial turmoil in decades, fewer plans were terminated than anyone had expected. nonetheless, the facts are that many sponsors remain weak, many plans remain underfunded, and i would have to say the multi- employer system in particular is especially worrisome. that there are challenges are

undeniable. but what i believe is also undeniable is that time and erisa was to modify in erisa to enable the agency to do its job. pay, the premiums we charge. congress has also undertaken other actions such as changes in funding requirements. charges the pbgc with being an advocate in discussions -- given the history of non-partisan cooperation to meet these challenges, we hope that after a partnership will continue. i want to thank the committee again for its patience and also for your support, and i very

much look forward to hearing your views and answering your questions. >> thank you very much, mr. gotbaum. we'll start of the five-minute rounds. it will be me, senator murray, senator isaacson. then senator bentsen, senator casey. mr. gotbaum, on page 8 of your testimony, you said, "however, neither program has the resources to fully satisfy pbgc's obligations in the long run." i read that last night and i circled it. i said what is the long run? what is the long run? you refer to that in your written testimony couple of times, saying that things are ok now but in the long run you may not have. what is the long run? >> let's start by talking 20 years, ok?

>> oh. >> the pbgc has had a financial deficit, reported a financial deficit for 30 of its 36 years. that means that when you compare the cash that we have on hand with the obligations we will pay over the next 30 years, plus, bigger -- discounting the present value committee of the dishes are bigger than the cash we have. what has happened is congress has stepped in in some way and said maybe your premiums are too low and maybe you need to change. as a result, we have neglected to pay benefits for those 36 years -- for 30 to 36 -- 430 out as the obligations get larger, the deficit is larger.

the pbgc has a talented group of simulations, which i would call the future. them, okay, let's take the program as we have now, the law as we have now, the practices that we have now, and -- and run your simulations for the next 20 years with different economic scenarios. scenarios, over the 20-year period, in how many percentages do we run out of money over 20 years? they came back said and that they can back and said it depends in part on what your investment practices will be. but if you look at the pbgc's distort investment practice and project forward 20 years, if congress does nothing, maybe

there is a less than 5% chance that the pbgc runs out of money 20 years from now. but the fact is, mr. chairman, congress has never done nothing. there is always -- there is make sure that the pbgc has the resources it needs. not to diminish that real challenges in the system. there absolutely are and we ought to take them seriously, but i do not think we should act because we fear that the pbgc is imminently going to run out of money. >> later on that page, you say that pbgc's estimate of its multi-employer reasonably possible exposure reasincreased is that a typo? >> no sir.

one of the things that the pbgc watches the pension system. the tools we have for doing so are not perfect, but i think they're pretty good and the people who do it are very committed. one of the things they do time after time is make estimates as to which plans they think are likely over the next decade to get into trouble. they would become the pbgc's business. and they make several kinds of gases. our live it docked they make several kinds of gases. , which plans to we think -- it is possible, and as i mentioned

in my testimony and as this committee knows i know very well, when you look at the multi-employer world, the multi- employer systems work pretty well for a very long period of time, and in recent years a combination of the economics of the industry that they are in and the investment practices, they are now in serious condition, and we are watching. as a result, because we keep an account of the ones that might get into trouble, and increasingly some big ones are, that is why we say our potential exposure has gone up by a lot. does that make sense? >> sort of. i think i have got it. senator? >> i think you, mr. got bombed, for serving, and i think you for your passion. -- i thank you, mr. gotbaum, for

serving, and i thank you for your passion. i know your job is very challenging, so i think you for your willingness to serve. now that you have been there for a few months, what steps would you take to ensure the board of directors is fully engaged in the agency's activities, and what recommendations do you have to improve communication with the pbgc and the board? >> a very good question, sir. i have worked in a lot of institutions in my life in government and outside, and i have worked with large boards, small boards. i had 27 board members. when i ran hawaiian airlines, i had a board member of one of the bankruptcy court judge. what i find is, what matters more than structure is engagement in communication.

i will tell you that this board is -- they take their job very seriously. i cannot speak for previous administrations, i cannot speak for previous boards. i am well aware of the fact that in the past there were times when the board did not meet at all, but that is not this board. i have been on the board for four months. we have already had two board meetings. we have another one next week. the board has a set of senior officials -- the board reps, who are actively engaged. i meet with them or talk with them at least monthly and communicate by phone and sit down more often than that. so i actually think there is now very extensive communication. very extensive communication. i am very well aware of the fact

that in the past that has not been the case. but i think it is important for the community to know what is going on right now. >> thank you. several months ago, senators hope in -- harkin, baucus, grassley, and i sent a letter, and the company had check one box on the pbgc form to select an alternative funding formula. but unfortunately, inadvertently did not check a second box that would have reaffirmed the funding formula. the pbgc took a hard line on those companies. i'm glad the matter was resolved in the good common sense matter, but it showed the relationship between the pbgc and the business community was not healthy. companies can drop their defiant benefit plans in favor of a for a one k plan, and i want to know what you're doing to help build the relationship of a 401 k plan.

i want to know what you're doing to help build the relationship. >> a good question, an important question. as a person who has been in the community of business myself, on both sides, and recognizing that the defined benefit -- the defined benefit system is -- i have met repeatedly with the organized business organizations ]iyñmasqwysñsqqsqy5 i have made sure that the professional staff of the pbgc understand that part of our job is to interact and communicate. whether we can do something or not, it is important that we communicate. as you mentioned, the issue regarding the mistaken checking

-- and i think that is a perfectly good example, sir. as i mentioned in my testimony, what we do is pretty complicated. that is kind of in the nature of pensions. so it turned out to be the case that there were a number of companies who, not intending to pay fast and loose, just made a mistake. as it happens in those instances, there was sufficient other evidence that we had that it really was an honest mistake and nobody was paying fast and loose, etc. we said in that case, let us recognize an honest mistake and allow them to correct it. so that is what we did. that is the sort of thing that i think we need to keep doing. >> thank you. my time is expired. i have some other questions. if we do not go a second round, i will submit them in writing for an answer. >> senator murray?

>> i have a couple of questions. i know the pbgc does not get any general tax revenues at its obligations are not backed by the u.s. government. but i feel obligated to make sure that stewardship and accountability are contract workers who are about 2/3 of pbgc are met when we have a lot of government contractors today that are under investigation. we're talking about a wage freeze for government employees. i wanted to ask you what pbgc is force lacked a strategic approach to contract and federal workers? >> this is, as i mentioned in my testimony, one of the challenges the pbgc faces.

when do you rely on contractors? how do you rely on contractors, etc.? what we do and what we are doing, and frankly i cannot take credit for this, the agency started doing this before i joined the agency. is to do several things, senator. one thing is that you need to place a process for actually planning and thinking about in advance what your contracting is, representativwhr saying what contracts we are going to have, etc. yourself, ok, do i have the adequate contractor base? do they have the confidence i need, are they going to be around, etc.? that is the process we are starting. you

work at your actual contracts and say, does this contract will people's feet to the fire in a way that makes sense? does the contract require performance and pay them for performing, not for just showing up? senator, we are starting that. in other words, what we are contractors and saying -- some of the contracts do that right of them say we are hiring expect you to meet this standard, but we want you to do better color so we will pay you more if you do better. other contracts do not. those are the sort of things we are doing. another thing i should mention the process by which you do

government than it is outside government. one of the things you have to do is make sure your procurement process is up to snuff, that it meets the standards you have. and we have been working on it and made very real progress. we have procedures in place that we did not have, and we are now building the team to follow them, but we're still doing it. this is an area we're it is a necessary part to actually get to, and we are working on it. look forward recommendations. thing i wanted to ask you quickly is to sort of summarize what changes legislatively we need to make in

governments improvement act of 2009? >> senator, one of the defects that i do not at this point have opinions much administration agrees with. what i hope will be the case is that -- one of the things i have seen that impresses me enormously is that pensions are so complicated that the only progress comes when it is non- partisan, not even bipartisan, but non-partisan. when there is a consensus that we ought to do this, that it is a good government thing to do. i mentioned the menu of things coming in the past -- premiums, benefits, funding requirements, etc. those are clearly things you have undertaken that we've implemented in the past, probably on the agenda in the future. i do not have an opinion at this is.

facing them, we obviously want to work with you and reach that same kind of active partnership that pension security has had for 36 years. >> i look forward to hearing your opinion. thank you very much. thank you, mr. chairman. >> mr. gotbaum, thank you for being here today. your last exchange between senator murray and yourself was the most important of this hearing so far because it will be critical for you to make recommendations to us in terms of what we need to do. in the immediate future, i think, in terms of legislation. pbgc would have already gone broke if we had not done the pension protection act of 2005, and the amendment by senator cardin and myself earlier this year to ease and smooth the contributions of corporations and not take all the cash out of corporate america and put it in

the pension fund and cost even more jobs than we have. but we still are not there yet. you have a great record and a great history and four months is not a long time. but i hope you would take your question to task and her answer. i pledge to you to work in a bipartisan way because it does -- we need some good recommendations, and we need them quicker rather than later. from my standpoint. >> message received, senator. we look forward to doing exactly that. >> because we can avoid a catastrophe, avoid a collapse of pbgc not by making irrational assumptions, but by looking reality. saw it 2007, 2008, 2009. nobody assumed we would be in that kind of a market. secondly, who manages your assets? >> the pbgc, ever since it , the assets are managed

professional managers. about a quarter of our assets are in deposit in the treasury, so that is held by the treasury. but about 3/4 of them are managed by outside professionals. the reason for that is simple. the pbgc not be mucking around and making choices about not the mucking around and making choices about which stocks or bonds to buy or not to buy. so we do not. we have an investment policy which is set by the board, and then we implement it by picking managers and saying go do your job. >> i think that is important and i appreciate the answer. looking at the gao chart on page four of the report, between 2006 of 2010, your assets have

increased by 30%. i assume that is because of defaulted plans and guest them by growth of assets, is that right? >> yes, that is my gas. guess.t is my >> lastly, based on senator harkin's remarks, i do think we ought to look withusly into working you for these challenging times ahead because you can give good people more work than they can handle and something falls through the cracks. i think you need that kind of support as well. we demonstrated that you can change board structure and you can change outcomes for the better i just giving the person responsible for running the agency the support they need in terms of professional advice.

suggestions like that, and i appreciate senator harkin bringing that up. thank you, mr. chairman. >> [inaudible] i just found the button. i am brand new here. i want to thank you so much for being here, and it is my honor to represent the people of west virginia. it is a hard-working state and we have a work ethic that is one of the best in the nation. they do the heavy lifting, working in the mines and factories, and they have done it for years and years and they do not ask for much, just an opportunity to be able to provide for their families, and then when they give a lifetime of working, they want to make sure they have a pension related to the work they have given. unfortunately, that has not always happened. if i can reflect back on board and steel, it was devastating.

it took a tremendous toll on people's lives. i have a hard time understanding how this can happen when a company goes to a bankruptcy and they can shed all of its liabilities, and it still has value to it, bought by another company that comes in and leaves it without the pensions that they worked for. because of their age, they may have started at 18, 20 years of age, and now at 50, 55, they cannot find a job and they have put 30 years in. they were devalued, their assets, to the point where they had to take a meaningless entry job, if you will. at a very minimum wage. they try to survive. it's just not fair, and with the program you have in place, i do not know what kinds of checks and balances you have. if that would have been foreseen, the collapse of that company, and they were not in

shape to take care of their employees, why was that not caught? i know you have been here a short time, too. coming as a former governor from my state, liabilities are something we're all dealing with and it will recap on everyone in our state. we have so many states the cannot fulfil their obligations. what happens is that it is because the benefits continue to change, there is no money going in to manage and it does not add up. so you have to come to grips with the hard decisions. and when you freeze those and we market that was not anticipated, that keep it solvent, or is it going to insolvency where people lost everything? i am trying to find out, how do we prevent that? you all were in place when it hit the skids, if you will. so many people were left

without. a few people got close to what the pensions would be, but very people -- but many people got very little. do you all have checks and balances in place now? >> yes. i do not know if you know this, senator, but after i left the carter white house, my first job was as an investment banker working for the divisional management of that steel company. i worked with then governor rockefeller. so the people there are very close to me. i talked to them even as recently as a month ago. it is undeniably a tragedy, and nobody can sugarcoat that. as i mentioned in my testimony, in describing more of my further testimony, one of the things we really try to do is we try to

bankruptcy, not to terminate their plans. we do that by saying if you terminate your plan, we become a creditor. unlike most creditors, pbgc is very good and very -- pbgc financial analysts and lawyers are very good, and they throw their weight around on behalf of employees. but the have a limited priority. we're mostly general creditors, so it is the case that if we at had more room may be in bankruptcy, we could have said, yes, you are in bankruptcy, but maybe if you pass off the -- >> if i could just ask you a question -- i looked when all this thing took place and i was not governor at the time. there should have been a deal made to keep them whole, and the

value was there to keep them whole, but the value was allowed to go into bankruptcy. the people who came in and bought it had no right -- had reliability whatsoever and passed on that. i do not want any employer or any state to go through what our state went through. >> this is not really a question for the record kind of thing, permission, if some members of the pbgc staff would come with your staff -- >> i hope you never have to go through this. >> the fact in the date on that -- it has occurred to me that i have seen other places, plants that go under. somebody comes and and they buy

up all the assets. but for some reason, and they assume liabilities but they did liability. >> this is an ongoing concern. there is another company now, a foreign company, that owns this. but the people in was virginia that worked there all their not left behind. >> that is right. >> is the question, how do we prevent -- >> i will meet with your staff, senator, and tell you what we find. ?> senator frank anen >> thank you, mr. chairman. with the pbgc has the adequate structure and the resources to perform this job, the pbgc is

tasked with preserving pension plans, paying benefits when plans fail, maximizing payments in the failed plans, and being highly accountable to our pensioners. there are some areas in which the pbgc has truly excelled. everyone here should be impressed that the pbgc has been making uninterrupted, on-time monthly payments to beneficiaries for decades with some exceptions. pbgc has been made relatively prudent investment decisions and yielded satisfactory returns under difficult conditions, especially over the past few years. one area that concerns me is the level of accountability to pensioners. when i talk with pensioners in minnesota, especially when i'm up on the iron range, i hear their accounts of working with pbgc, i hear the frustration in their voices when they explained

that their benefit determinations have taken years to process. some of them have told me that it has been years since they have even heard from the pbgc about their determination. this is extremely painful and disruptive for them and their families. it is impossible to plan for their futures, and i think that our pensioners deserve better than that. i understand that much of today's focus is going to be on a small, select group of people. the board who should be held -- how they should be appointed, what numbers is ideal -- those are all good questions that we need to tackle, but we need to keep the focus on the people that the pbgc serbs, our

nation's pensioners, our workers, and our -- that the pbgc serves, our nation paused pensioners, our re workers, and our retirees. i think the senator got to this. i have to go to a judiciary hearing, i am sorry. but i read that somewhere between 1983 and 1992, there is not one meeting of the board. is that correct? >> fortunately for me, i was not associated with the pbgc during that period. but i know that gao in their testimony has included a graph that shows the board meetings, and i do know in the past there were long periods of time when the board just plain did not meet. >> that kind of underscores part of the problem, i think, which is that obviously this board,

the improvised -- comprised of cabinet secretaries, may not have enough time to meet. i know a number of entities have studied this and said we need to have a beer board and they have got to ask that we have got to have a bigger board and they fed pause and engineer. >> we are trying to understand -- members of the administration have met with community staff to try to understand what is trying to be achieved by this. as you might expect, senator, and as i mentioned in my testimony, from my perspective, one of the most important changes in the governance of the pbgc was the one that this committee and this congress made in 2006, which was to take the director and say you are on the agency, you are going to be appointed by the president,

subject to senate confirmation, which means you will report to this committee. i think that is an important change in governance. as i also said in my testimony, or in response to the chairman's questions, i cannot speak to the board about what is in the basket. -- i cannot speak about the boards in the basket. this board meets more frequently than any pbgc board since it was founded more than 30 years ago. >> do you think you would be helped by having some board members who are not cabinet secretaries, who have more time to spend on this job? in all sorts of areas -- in addressing all the problems that you face, in addressing the

preventing pensions from going belly up, figuring out what to do about the deficits you have, about all the different problems that you have -- don't you think that a few more members who are dedicated -- dedicating more of their time and effort to this, it would be helpful? >> as i have said in response to the chairman's question, i have worked with lots of different board structures and can work the system. i can work with the current structure and have. my concern, if you will, is that there are, beyond the questions of board restructuring, there are some very real and central issues that pbgc faces, that the

pension plans face, etc. i would especially help -- you are the committee, in some respects you are the functional board. but in some respects there is the attention to those challenges, but because i think those of the real challenges we face. >> my time is up, so, thank you, mr. chairman. >> thank you, mr. chairman. thank you for letting this hearing on an issue -- for holding this hearing on an issue that is of particular concern to folks in any economy, but especially an economy that is in rough shape. the people -- the concern people have about retirement security. i wanted to step back for a moment and think about the grave

concerns that people have about their own retirement security. i'm thinking about two categories. one category of folks are those who have worked, put those years in as governor mentioned talked about, and have the expectation of having that security. but also we have got to be concerned about folks who are still in the workforce, much younger workers who are working -- looking down the road. in some ways, i think if we are going to strike a bargain with workers to say if you get a good education and you work hard and study hard, if you continue to improve your skills over time, our end of the bargain is we will try to do everything we can to help you with health care. that is a promise yet unfulfilled. but we will also provide retirement security. if that is the deal, you get educated and keep your skills up to be able to compete in a world economy, we will help you with

health care and retirement security. that is the goal and the ultimate good bargain for workers and for our economy. but to get there, we have to do a lot of the basics, the fundamentals, what the football players would call blocking and tackling. en and others have raised -- senator franken and others have raised questions. i'm wondering if you can do one of two things are both. either give us a preview of where you think it is headed in terms of what determinations you will make as it relates to an investment policy. or, if not, can you give us a sense of how -- what are the considerations you are weighing and developing? what is the guidance you are

using to develop that investment policy? because that rate of return and that return you will get is going to be very helpful in making the ultimate goal of getting workers some peace of mind. >> let me -- i am happy to answer questions for the record or with staff, etc., on benefit determinations. on investment policy, investment policy has been -- first of all, it is important note that investment policy is something which, although the director of the pbgc is always involved in making recommendations, is decided by the board of the pbgc. when i came on in july, the board said, ok, we have been thinking about this for a while. why don't you do your review and come to your own views, and then talk with us about what you

think, and then the decision will be made. we have a board meeting next week, where we are planning to have a discussion on that. so i do not want to presage that, and it would be inappropriate for me to prejudge it, but i think it ought to be pretty clear what are the major considerations that have always been part of the investment policy decision. one of them has been you need to invest in a way that covers as much as possible the benefits the pbgc is obligated to pay and reduces the pressure to raise premiums. so parley you invest to maximize return. thus a partly you invest to maximize returns. -- so partly you invest to maximize returns. as a government agency you want to make sure that the pbgc does not take unnecessary or

inappropriate risks. there are plenty of people -- some of whom i have invested with myself, who can take risks that would be inappropriate for the pbgc to take. we are more conservative than that. we do not do that for the third thing i also think matters is that -- so we do not do that. the third thing i think that matters is whatever the policy is, it needs to be something we can implement in a way that is so clean that our inspector general and the gao, and frankly, me, because my ethical standards i do not think are any lower than any of theirs, can come to this committee and say we can do this in a matter that is clean out in a manner that is clean. that is what we're looking for, and having had some discussions already, i'm pretty confident that that is what we will end up with. >> i appreciate that.

i am out of time, but thank you for that answer. thank you, mr. chairman. >> thank you, mr. chairman, and i, too, appreciate this hearing today. congratulations on your nomination and confirmation, and i know four into the month -- for four months into the job you have an incredible amount on your plate. in your testimony, you said that pbgc's situation is a result of inadequate planning and misfortune, in part a result of the fact that premiums the agency charges were insufficient to pay for all of the benefits that pbgc insures. i know we were talking a little bit about the premiums, but what does pbgc charge in premiums? and when was the last time that the premiums were evaluated? tell me about your thoughts on recalculating them. >> let me summarize it at my

level of understanding, and then my staff will enable me to add details to the record. when the pbgc was started out, they really had no idea what level of premiums made sense, so they guest. >> this was 30 years ago? >> 36 years ago, yes. so they said for single-employer plans, it will be $1 per participant per year, and for multi-employer plans, they will be 50 cents. what has happened over the years, because for most of the pbgc's time, there has been a deficit, meaning the premiums -- the premiums we take, the cash that we have, etc., is less than the obligations. congress has time and again said we are going to raise premiums, change premiums so there are now -- there is a basic flat

rate premium and there is a premium that relates to the funding. one of the issues that has been raised in the past is whether or not in addition underfunding premiums ought to be based on the risk that a plan terminates, not just talk underfunded is but what the risk is, etc.. -- not just how underfunded it is but what the risk is, etc. if i get this wrong, i will correct it in the record. but from the $1 per participant per year, it now are round numbers to about $80 per participant, per year. that gives you an idea by how much premiums -- >> what about recalculating that, and evaluating that moving forward? what is your plan? >> that is something which has been on the agenda a bunch of times. i am to noon on the job to even

have an opinion as to what happened -- i am too new on the job to even have an opinion as to what happened. the last time i believe it was changed was in 2006, and as part of the pension protection act. so my hope and expectation would be, as we get there, as to what the options are, that that discussion can be part of the mix. >> but as the director, are you not concerned about wanting to move forward? when you are looking at these huge deficits that you have been talking about? >> it's funny, no one has asked the question exactly that way. senator, what i have learned in my four month on the job, and having watched the decision making, is that pension policy has to be consensual.

pensions are mind bending lake complicated, and the fact is we do not make progress unless we work at it. from my perspective, what is much more important than moving fast is that we engage enough so that there is a consensus, so that nobody thinks somebody is playing fast moves. the other thing, as i mentioned in my response to chairman harkin, is we have $80 billion in assets. last year we paid out about $6 billion, took in about $3 billion in premiums and recoveries and other things like that. so in negative cash flow of about $3 billion. so we at $80 billion in cash. from my perspective, there is no danger that the pbgc is going to run out of cash. when i say the foreseeable

future, my very careful and basilius inspector general and folks in exporting get nervous when i say the foreseeable future, but guess what, we are not going to run out of cash in the foreseeable future. that is not my concern. my concern is that in the same way congress always has, worked and talked and figured out a solution, that there is enough time to do that. that is something we would like to engage in. >> do you have a number in the private industry market that would compare to your $80 premium? >> no, senator, we do not, because one of the things that happens when the government takes over an insurance function is that most folks in the private sector do not do that insurance function. so there is no ready standard. there have been some academic studies -- most academic studies

suggest that the average premium ought to be considerably higher. and most academic studies suggest that the premium ought to take the risk -- what the benefit actually is -- into account, and that this stuff that we do not do. but it is clearly something which has been part of the discussion in the past, and i hope will be part of the discussion in the future. >> you have used the term "foreseeable future pickup i am very -- the term for see it -- the term "foreseeable future." i am very concerned about that. >> my definition of the foreseeable future is 20 years. one of the things we did, and let me summarize and say i asked the best people i know who are the people working the pbgc who

every day estimate what our cash flows are, what our obligations are, etc., and i said assume congress does nothing and the pbgc does its job. what are the odds that 20 years from now we will run out of money? 20 years from now. and they said, the whole investment policy about where it is, maybe less than 5%. so a less than one in 20 chance that we run out of money, and that is with no discussion, no change, etc. so i expect to not only retire but to leave this earth before the pbgc runs out of money. >> when i think about the people who count on it, i think the foreseeable future needs to have a short definition so we can plan appropriately and effectively for these retirees.

>> if i misspoke, senator, i apologize. what i'm trying to say is i think people who get benefits from the pbgc ought not to worry about the benefits. they are going to get them. >> you talk a little bit about the governing structure, and i'm concerned about the board. but there are also the oversight functions, the advisory committee. do you think the advisory committee should have statutory authority to conduct audits and case reviews? tell me about how you utilize the advisory committee. >> bank, senator. from my perspective, that is an important question because the advisory committee -- as with boards in the past, the advisory committees have done different things in the past. with your permission, i would like to tell you how i -- >> i just realized i am over time. i apologize. >> i will be brief.

my view is this is a knowledgeable group of people who every eight weeks come to washington and spent a day walking through which the director of the pbgc and staff talking about issues. they talk about investment policy issues, issues involving multi-employer plans, so my view is this is a group of people who i can talk to who have a broad range of backgrounds. i think they do a good job, and frankly, i like working with them. >> thank you, very much. mr. gotbaum, existing law gives the pbgc three things they have got to district 1, ensure pensions. number 2, collect premiums. number 3, -- ensure pensions, check, you have done that.

collect premiums, done that. number 3, encourage the continuation of benefits pension plans, we have been losing them since pbgc has come into being. i assume that is your feeling on the periphery? -- on number three? >> i think no one can deny, mr. chairman, that there are clearly real challenges and trouble in the defined benefit world. >> why? why? >> i am sufficiently new at this that i do not want to pretend that i and definitive on this because i am not, but it is pretty clear to me that part of this is that plan sponsors, companies, businesses, etc., have decided that they do not want to offer defined benefit

plans. for whatever reason, their employees are satisfied with defined contribution plans, no plan at all, or whatever, etc. that is clearly something which is more than the pbgc can, in my view, effect or change by its program. >> but you are supposed to encourage the continuation of defined benefit. >> but i think we are in a couple of senses. >> but we are losing them all the time. >> we are, but it is still a fact, mr. chairman, that there are still some 40-plus billion people that are protected by defined benefit plans. from my perspective, part of the mandate to preserve plans is what we do when we try to convince companies not to terminate their plans. part of that mandate is when we go into a company in bankruptcy

and say are you sure you want to terminate your plan? because if you do, you are going to have to deal with us. i think that is part of the way we fulfill that mandate. the other way that we can fulfill that mandate is to engage in the broader discussions about how do we make sure that whatever the form of retirement security is it is adequate, understood him and widely available. >> what about a company that does not go into bankruptcy? >> if a company does that, one of the things that happens is, we have tools that we can take action on, and we do. we have an early-warning

program, and we have authorities that you have given us to engage with companies that, when they take steps, corporate transactions, shutdowns, closures, that we can say to the company that we are nervous about what this does to your pension plan and we think you should do something to shore up the pension plan. the thing we cannot do is if a company legally decides it is going to terminate its plan and terminates it accorded to erisa, according to the law, which means it buys annuities for all the participants, erisa permits a company to do that and the pbgc has no authority to tell them not to. so if they follow in erisa and decide not to do a plan, that is not something we can do, except to make sure that when they do a standard plan termination, that

they do it according to arizona, according to the rules, but it is done -- according to a erisa , according to the rules. >> do you have any opinion you would like to voice on whether or not with bankruptcy law, that the status of the defined benefit pensioner recipient, plan participant is the proper phrase, should be higher on the pecking order, the list of creditors that need to be satisfied if a plan goes into bankruptcy? do you have any opinion on that? >> not an informed opinion, senator. with your permission, let me think about it, find out the facts, and circle that. >> because there is legislation here pending to do that, and i

did not know if you had any thought on that. i would give the benefit of thinking about it and get back to us on it. i appreciate it very much. senator, any other questions? >> mr. chairman, i haven't told that i have misrepresented the at -- i have been told that i have misrepresented the average premium. if you will permit me to set the record a more detailed response so i can give you the full range and what the figures actually are, i would be grateful. >> mr. gotbaum, thank you very much. we appreciate your testimony, and we look forward to your leadership and working with you did to my staff, i may be sending some questions down to you. the other senators can submit questions for 10 days. thank you very much, mr. gotbaum. we'll turn to our second panel. our second panel is barbara

bovbjerg, the gao, and rebecca anne watts, who is the inspector general of the pbgc. and mr. ken order of the american benefits council. i would ask and again -- mr. ken porter of the american benefits council. mr. bovbjerg -- did i say it right? >> i just had to say that my in- proud residents of iowa city. >> that is a recognizable name in iowa. i should have known better.

we will start with ms. bovbjerg and go down the line if you could sum it up in five or seven minutes, i would appreciate it. >> thank you, mr. chairman. senator, members who stayed, thank you. i am grateful to be invited here today to talk to the need to improve management at the pbgc. the pbgc insures the pensions of 44 million workers, yet it faces an accumulated deficit of $23 billion. pbgc's responsibilities have increased significantly since its creation in 1974, and its financial portfolio is one of the largest of any government corporation. my testimony today discusses the need for a strong board structure and for improved management of its contracts and benefit determination processes. my statement is based upon our prior work on these topics, many of it to this committee.

first, the board. pbgc needs a strong policy direction and oversight in the face of its current financial condition and long term or foreseeable structural challenges. our prior work has highlighted a number of limitations with the statutory structure of the board, starting with the size and composition know what the government corporation -- no other government corporation is as well as pbgc -- is as small as pbgc. its members other responsibilities limit the time they have to focus on pbgc is this. the board structure is vulnerable to disruptive transition. at each change in presidential administration, the entire board and the pbgc director leaves with the administration, and not only the meeting continuity of pbgc, but leaving no board level leadership in the face of immediate policy challenges.

amidst the turbulent economic times between february 2009 and february 2010, the board did not meet at all. gao -- suggest that it be changed to include additional members who possess knowledge and expertise useful to pbgc's mission, and that the terms of the overlapping to the ensure an active board at all times. these steps can improve continuity and strength of the pbgc oversight. i am pleased that this committee is considering legislation that would bring about such a change. i would like to change -- i would like to turn to management issues at pbgc. since the mid-1980's, pbgc has had contracts covering a wide range of services, and as his workload has grown, has come to rely heavily on contractors to

supplement its work force. although pbgc has taken some steps to improve workforce management, the corporation still lacks the strategic approach to optimize federal and contract workers. also, pbgc continues to focus a strategic management almost entirely on its own federal workforce rather than the performance of contractors. our previous work force has found weaknesses in the pbgc overall contract management as well. we found that most of pbgc's lack performance incentives. the corporation declined to take our recommendation to elevate procurement in strategic planning and decision making despite the importance of this function to the pbgc operations. we have additional work underway on this important topic and we

will be reported on it next year. we also made recommendations regarding pbgc's at determine his asian -- determination policies. when pbgc takes over terminated plants, it must calculate the benefits of the participants of the plan. a small number of large and complex plans account for most of the lengthy delays in payments to participants. although the corporation has recently adopted several of our recommendations for improvement, it has not yet incorporated the performance measurements that we believe is necessary. improvements like these can help it reduce the benefit determinations that are so troubling to beneficiaries an unnecessarily add to their stress. in conclusion, pbgc, has become ever more essential to american workers and retirees during the downturn. yet even with the increased

tentativeness of the board, -- a tad of this of the board, pbgc will be leaders list -- attentiveness of the board, pbgc will be leaderless at times. that is why the bill you are considering that would address these issues is so important. although i have to say, even though improving governance and oversight of pbgc does not solve pbgc's financial problems, actions like this will be critical to help pbgc manage them as they rise, which they surely will. i am available for questions. that concludes my statement. >> thank you very much, bovbjerg. now we turn to ms. batts. please proceed. you have to punch your button down there. >> ok. thank you. i'm rebecca and that's --

rebecca ann batts, office of inspector general. strong management in the pension benefit guaranty corporation. the office of inspector general address the issues most critical ensuring that the corporation is calling its mission and then continued to in the future. -- fulfilling its mission and can continue to in the future. despite the many challenges pbgc continues to face, my message today is one of good news. the director and i communicate frequently and i believe effectively. we have monthly discussions on a critical issues with representatives of pbgc board members. after meetings with the board of

directors, i sit in executive sessions with the board members to address areas of particular concern or sensitivity. pbgc is taking many of our seriously and implementing effective, corrective action. clasping my office reported issues with -- last spring my pbgc program. took prompt, corrective action, going above and beyond recommended, with the goal of becoming a model for handling sensitive information. the corporation is better positioned to protect personally identifiable information of the workers it serves. much remains to be done. the corporation has committed to addressing longstanding issues,

including weaknesses in contacting and information technology security -- the witnesses who offered over and over today. pbgc works to protect pensions of american workers. historically, two out of every three people doing the work for pbgc are contractors, and the corporation spends about 2/3 of its operating budget on contracts. pbgc's contractors don't always deliver goods and services. they should. allowing a contractor to provide the cost of its waste or abuse, if not outright fraud. if not outright fraud. when my office recently found that a pbgc contractor did not

exercise due professional care corporation committed to hiring a cpa firm to reperformed the related to two of the largest claims in pbgc. they are developing a plan seat on how contractor work will be modified and evaluated in the future. recommendations in audits, pbgc develop a standard set of operating procedures to establish basic antril controls over the contracting process. the corporation has committed to a series of reviews with staff who provide day-to-day monitoring and supervision of pbgc contractors with the objective of ensuring compliance with the newly implemented policy and internal control. pbgc also depends on its computers. almost every aspect of pbgc is

automation through the payment of benefit checks to pbgc's retirees. pbgc cannot use its computer, corporations can i do its job my office is -- cannot do its job. my office has identified issues that pose an increasing and substantial risk to pbgc to carry out its mission. the corporation has developed action plans and acknowledges that the actions will not be completed for three to five years. oig is monitoring the implementation of the plan. you may have noticed something important about the theme of my testimony today. much of my discussion has focused on the future, perplexities -- plans for corrective action and what pbgc promises to do. pbgc leadership at all those who have oversight responsibility for the corporation should make certain that pbgc is effective

in executing planned corrective action. mr. chairman, that concludes my remarks. i would be happy to take any questions. >> thank you very much, ms. batts. mr. porter, welcome. >> i appreciate the opportunity to be here today. my name is ken porter and i benefits consultant with the american benefits council. previously, i spent 35 years with the company where i was the finance director responsible for all corporate risk management as well as the financial planning an actuarial responsibility for all employee benefits are now the world. -- around the world. there were 160,000 participants in the plan is sponsored by the company in the united states, about $18 billion of assets covering those participants at the time. the focus of commons today are

on the relationship between pbgc and the benefit sponsored community. the american benefits got represents the pbgc customer base, the premium payers. we appreciate the a longstanding relationship we have with the pbgc. throughout all of its use, pbgc has been quite open to communicating with us and sharing what our concerns are, and we openly welcome suggestions on how we can make that communication even better than it is. i have two issues i want to highlight today. the first is a general observation. we have mentioned one of the missions of the pbgc is to encourage the continuation and maintenance of voluntary private pensions. as a corporate risk managemer, i spent many hours negotiating with insurance companies of all

kinds of risks throughout the world, and typically we would come up with a win-win solution with the insurance companies would recognize the business needs of the insured, and the risks for the insured would be paid off, and the insurance company would maintain requirements for profitability and reserves. once in awhile, the insurance company would not be able to, for one reason or another, recognize the needs of business, and the business would have to make a decision to either find a different insurance company or to choose not to insure the particular risk. but if they're going to have a defined benefit plans, the company must use the pbgc and pay the premiums that congress or gains from time to time. we are very concerned, as plan sponsors, that the actions and policies of pbgc 10 tended to interfere with normal business

transactions, and as such, to discourage plan sponsors from attending plans in addition to other factors that have worked against the sponsorship of employe benefits. -- employed benefits. the recent regulations that pbgc proposed -- in those rules, we believe they could have significant impact and have the potential of interfering with normal business transactions of corporations, posed no material risk to -- even though those posed no material risk to pbgc. we look. forward to working to help them rethink what these rules -- look very for to working with them to help weaken with dos goolsbee -- working with them to help rethink what those rules could

be. second example, over the last two years, there is been bipartisan support for relief for plan -- plan sponsors confronting plans due to simultaneous effective date of the pension protection act and the economic downturn. during that period of time, pbgc said it really resisted bipartisan efforts to provide smoothing -- significantly resisted bipartisan efforts to provide smoothing. it sent out red flags. finally, the second issue regards the investment policy. we agree with mr. gotbaum's comments that they have to be well thought out and concerted, that you have to take into account all the constituents from the prime sponsor perspective. we look at pbc's deficits as reported and no to that there is only two ways that they can raise that as its. one is through investment return that exceeds the conservative

measure of their liabilities. the second is to rely on congress to raise the premium on plan sponsors. as the number of plants he sponsors declined, -- plan sponsors declined, the premiums been charged for the remaining plants he sponsors will become -- plan it sponsors will become debilitating. in conclusion, it is our desire to continue working with the pbgc openly. we value the relationship we have with them. we want to be clients as well as business partners with pbgc and we have our share to be with this committee -- shared a view with this committee, that the sponsor community must encouragement to ensure benefit security for people covered by these plans. thank you. >> thank you very much. thank you all for your frank testimony.

i, it just hit on this one issue of board membership, and looking at ms. bovbjerg's testimony and outlining all the different federal at department's that we have that have boards now -- credit corporation -- i am familiar with that from my ag work -- fdic, 10, opec, 15. also, it just seems may be odd to me, but in all my years, i don't remember having a board that consisted simply of three appointed secretaries of departments. usually, boards are made up of people that have expertise and background and continue on, so that there is not one abrupt change from administration to the next.

i would just ask you again for the record, your own views from having looked at this -- mr. porter, you, too, i want you to think about to these boards expanded -- i don't have a number, i don't know if they are expended, but to a least a continuity from one administration to the other -- i agree with everything that has been said that this is one area that ought not to be political or partisan. we ought to get the best people of all to be on the boards to have these backgrounds, where you have a hold over, some rotational kind of system, so that you keep expertise on these boards from one administration to the next. i just want your views on that, and how important is that right now for us to pay attention to. mr. porter. >> certainly, i cannot dictate

or would not even want to begin to dictate how large it would be. i agree that whatever the size of the board is, and its constituency, it needs to be a board that has longevity, needs to have continuity. the period of time during the economic turmoil that was mentioned, there was effectively no board or executive director for a period of time -- it was very troubling to the business community to be would support measures that would provide for continuity. we look back at the investment policy and we see frequent changes to the investment policy that if not always been to the best interest in the long term. we don't see plans to change investment strategies frequently. yet that seems to have happened to the pbgc overtime. batts -- ms. batts.

>> from the perspective of the office of inspector general, there is a problem when you lose continuity of the board. you referred to the unfortunates tuition with the former director -- unfortunate situation with the former director. in february 2010, when my office confirmed misconduct, the former director was gone from pbgc, but the contract under question remain. now, i was able to speak to pbgc once we confirm the misconduct. the acting director was not part of the problem. we had no issues. how to the acting director also been part of the problem -- had the acting director also been part of the problem, pbgc would have had no one to go to, no board members, no confirmed secretary of commerce or labor

or secretary of treasury. and would have had one confirmed the port rep. that did represent an additional ability for us -- additional of vulnerability for us. that is something to think about in terms of continuity for the board. >> i have already talked about this a lot. i will take a lot of time -- i won't take a lot of time. the continuity part is very important for a lot of the reasons already mentioned. i do want to say that the original board, which is, in our work, seems unique in the federal government -- the regional board was there for diversity. labor represents workers, commerce represents sponsors, treasury represents finance. that is a really good idea, but you need more of that in addition to more members. it would be helpful to have someone on the board who is a management expert or risk

assessment expert or pension finance person. it would have to be concerned about conflicts when you appoint people who might be involved with the industry, but it would be really important to continue that tradition of diversity. i also wanted to say that the mackenzie report which followed up on hours with regard to what boards might look-alike reported that in a survey, members of corporate boards said they spent an average of 22 hours a month on the board worked, and i just don't see how that is possible for the cabinet secretary for the u.s. government. >> thank you all very much. >> thank you, mr. chairman. mr. porter, i was interested in your referenced in your testimony to the pbgc's proposed regulations imposing enormous liabilities on companies with respect to the routine business transactions that you say it

posed no threat to the pbgc. can you provide us with an example of that? >> certainly. thank you senator. one example, and this is the nature of the game -- as plan sponsors a freeze plans for a variety of reasons, the number of active employees participating in those plants these tended to shrink over time. you can imagine many of the situations where the number of active participants in plan might be a fraction of the total number of participants with the employer. the employer might have 10,000 employees, but only 1000 of them are active participants in the plan. under the rules, they impose a significant increase in the liability and bonding requirements if 20% of the active participants believe the plan -- leave the plan's sponsor. he might have 200 lawyers involved in the divestiture.

that would only represent 2% of the total workforce. but because it is 20% of the plan, the plan will now be subject to enormous increases and a liability. because it is a legacy plan, there may be 10,000, at 12,000, 15,000 retirees in the plan, not just active employees. the pact and the plan sponsor would be enormously proud of having a smaller device -- the impact on the plan sponsor would be enormous simply from having a smaller divestiture. >> thank you, that is very helpful, letting us know unintended consequences. things that we have or might potentially do. ms. bovbjerg, in your opinion,

creating the benefits from the audit board, which would require more attention and time of board meetings, and also to write oversight for pbgc, and what can be done for the mess and board of the pbgc advised the committee? >> we did not call for a separate audit board, but we would always like to see more auditing capacity. >> i do, too. >> what we did think about, though, was the importance of the standing committee on the board, that that needs to be an audit committee to work with the external auditors and pay pretty concentrated attention to the finances of pbgc. we have not thought about a separate board but we would consider that. i would be willing to recommend it and get myself in trouble.

you asked about the advisory board, which is seven members appointed by the president, and they report to the director. most committees and boards of that nature report directly to the board of directors. that might be something -- that advisory groups -- it was called an advisory committee in the past. it was at one time the investment advisory board. they were only looking at investment issues. it has been a little -- it has changed over time, and it has been subject to what the director wants them to be, to a great extent. i think that having them more connected to the board might be something to consider. >> thank you. ms. batts, you testified that the pbgc has developed action plans to address witnesses in

information technology and other areas. but critical details have yet to be developed. would pbgc benefit from hiring a risk-management specialist to help them prepare for future risks facing the agency and retirement community? >> that is an interesting question. with addressing many of the areas of persistent weakness. for example, in its information technology security work, i don't really -- i'm not aware of the need for such a selection, but that is not the and i thought about. pbgc has reached out to get the and it has

reached out frequently for contracts. my time has expired. >> thank you, mr. chairman. i find reporting on the relation with the contractors a little disturbing. i was wondering, what percentage of the work force is comprised -- and this can go to anybody -- is comprised of contractors. than 2/3, but historically is right around 2/3. >> ok, has there been any thought to -- i know, like in the military now, there is a tendency now to stop this dependence on contractors and go back to actually using the

military to do its job, because they have a loyalty to the country and the military, and people who are contractors have a loyalty to making a profit to their contractor. is there any thought about increasing the number of people who work for the pbgc and less reliance on contractors? >> back in 2000, we took a look at the issue. there are arguments on both sides. we look at the ramp up in contractors that pbgc in the 1990's and 1980's. the bankruptcy of eastern airlines, pan am -- they had to get people in place quickly to process benefits. they did that, but that structure as essentially stayed in place. when we were reporting on this

in 2000, we said that we think you should really review this. do you need locations in places where there were all of these eastern employees, for example? maybe if you are a virtual organization, it doesn't matter. but we thought they should consider this. there is an argument for wrapping up with contractors when you need them, and then dropping off, which you cannot do with federal employees. they thought to their workload -- >> the workload has not decreased, right? >> it hasn't. >> we are not anticipating a decrease in for a while. >> oh, it could get much bigger. >> this is like when the cold war ended, we got this peace dividend and increased contractors as we needed them, and we found we were in a war for nine or 10 years, relying so much on contractors and wasting

a tremendous amount of money on contractors. i am wondering if we are wasting a tremendous amount of money on contractors, where i am not hearing reports about the kind of job they are doing. >> it is something we think they should look at. they should not just keep going because -- >> well, a lot of things are recommendations to look at things, but who is going to look at them if you have a board that does not meet any board that is comprised of -- and a board that is comprised of three cabinet secretaries. we talk about the continuity of the board. there is no institutional memory here. how you get it done if there is no institutional memory? this seems to have to be done soon. >> senator franken, if i could add, our office has done recent audit work in this area, and we do have opened recommendations and include with the contract in the fed -- to complete -- take a

strategic look and include with the contract with the federal employee work force for strategic planning. it is consistent with recommendations made by gao in the past. >> can i ask about the long-term plans or shape of this, the work force of pbgc? i saw in the briefings for this hearing that there is worry about, obviously, increased needs in terms of failures in pension accounts. and i know that the role of the pbgc is to encourage the kind -- encourage defined benefits. but defined benefits are going down in our society.

is there a curve projected on the role that pbgc that coincides with defined benefits in our society, the role they are going to play? in other words, is this going to go up at a certain point and then start to come down again as defined benefits plays a low role? i know we are trying to encourage defined benefits, but that does not seem to be happening. is there some kind of actuarial look at what the future of the pbgc in terms of its responsibilities will be, vis-a- vis what the curve of a defined benefits are? was that clear? because i don't know -- >> no, they are not going out that far. as defined benefits decline, there are fewer plans out

there, there are still a really big plans with a lot of participants. when pbgc looks to the teacher, it looks at the likelihood that those plans will go under and they will be underfunded at the same time and they block to take them. as far as they can look out, they are still taking benefits and taking underfunded plans. but there is going to be a time, but way down the road. >> way down the road. it said that the idea of perhaps relying less on contract -- so that the idea of perhaps relying less on contractors and bring more federal employees into the pbgc as a way of saving money and getting the job done better is not such a bad idea? >> it could be a really good idea. they need to consider it. we cannot tell -- >> how long do you have to consider these things, and who would consider them? would the board consider them? the board does not seem capable

of considering much of anything. >> the board should. it should be an issue for the portrait is a long-term strategic issue. >> ok, -- well >> senator, if i may add a point that for me practitioners perspective, outsourcing of benefit calculations at a particular is perhaps one of the most complicated endeavors we have in our society. if there is a change of status quo to something else, from one contractor to another, or one contractor back into the government, there has to be a transition plan that may span several years. at which time there will be duplicative costs an effort. the second point i would like to make is that the majority of plans that have been frozen are sponsored by healthy companies that continue to fund their plans. they are not terminated or being

turned over to the pbgc. certainly, pbgc has to take into account the risks at and the probability that they might be turned over. it is incumbent upon us to continue and have policies that encourage these companies that continue to fund them as they are doing today, even though new employees may not be participating. there are hundreds of thousands of employees who are continuing to participate as grandfathered employees. we want them to continued. just because they are not available for current employees does not mean that they are necessarily healthy and are going to be a problem for pbgc. not all of these plans are going to come to pbgc for their efforts. >> thank you, mr. chairman. >> senator hagan. >> thank you, mr. chairman, and thank you to all the witnesses for your testimony. it seems apparent that we need

new board and governance rules and obligations for the board, and also a contract procurement issues have been raised any to have a lot more attention. i have lots of issues and questions. ms. bovbjerg, i was interested in your testimony about overpayment. he said the management of the pbgc management process -- these plans were responsible for most long delays and the processing and most cases of overpayment. can you discuss that? >> it can be a long and difficult process to figure out what benefits are owed and participants in it that's the that's pbgc -- in a plan that pbgc trustees -- a number of people in particular at 84 still, we were getting notices that they had been overpaid by

as much as $50,000. now, the odds that they will ever actually repaid at a very, very slim -- repay that are very, very slim because they would lose a small amount of their benefit monthly. it would probably never get to the point of having to repay eight. however, they were counting on a certain benefit level, and suddenly the sky falls. they are not getting that benefit, and it is reduced a little bit for the overpayment. after you have been waiting as long as nine years for your benefit determination, that can be a terrible -- >> nine years? >> the average is about three, but it can go as long as nine for three large and complex plans, as some of the steel plants these were. as we look at what causes these overpayments, why do things take so long, it was always these large, complicated plans.

we thought that what we to think about it -- one way to think about it, one way to hold our own feet to the fire on this, was to keep track of how quickly and how accurately they are calculating benefits for large plans separately from the overall average. that is something that they have not been willing to do yet. >> that is a huge problem. mr. porter, do you have any comments on the overpayment aspect? >> overpayment is a challenge, and the complex benefit plan, the calculation of the benefit is sometimes exacerbated by a lot of factors that might have occurred 10 or 15 years in the past. i can see the problems. in the private sector, the they would go nine years to fix something to it for two years seems like the lower

range. it is a very difficult challenge. something needs to be done certainly to keep -- make these calculations more quickly so that people are not held up by benefits. that is an incredible amount of time. >> i asked about the premiums. do you see in your report -- ms. bovbjerg, did you talk about the premiums? >> some years ago we looked pretty hard at pbgc finances, and is pregnant, investment income, or better -- plans -- it is premiums, investment income, or better funding of plans. the deficit reduction act of 2005, i think, raise premiums. i would not sit around $40 a

partisan, the flat rate -- i would say at about $40 a participant, the flat rate, and there is another part, said the underfunded plans after put in more as well. after that, the pension protection act of 2006 strengthened the funding rules. employers with spot to benefit plans would have less time to get full funding, and at certain assumptions, a range of assumptions that they had to use. the design was that when plans came to pbgc, there would be in better shape and he would not have bethlehem steel -- fully funded two years before the bankruptcy. by the time of bankruptcy, they were down to 30% or 40%. those things are designed to balance what flexibility employers need with protecting

pbgc's fiscal integrity. but the problem was that it was all designed to take place at the times of the market meltdown, and companies were under serious stress. those particular provisions have been delayed in taking effect. our belief is that when they do take effect, it will improve funding, and will mitigate the risk for pbgc. but every paper on the issue of premiums says that they need to be more risk-based, because no insurance company on earth would operate the way we operate with pbgc. >> mr. porter, in your testimony you talked about the investment policy and the assumptions in the older report on the reported deficit. at about the investment policy, if you believe a to be based on a diversified portfolio.

i guess we don't really know the investment policy. >> no. i certainly don't. i could not prognosticate on what the changes ought to be. clearly, there needs to be a balance of all the risks associated. it needs to have longevity, it needs to be executed in a way that is not detrimental. long term investment policies have served the pension community generally very well. we would like to see stability in it. there needs to be a balance of what sponsors the, because it is premium and goes to the protection of the participants, as the public perception, because unfortunately, pbgc is a republic and the press has a view of what it thinks is right or wrong as well -- is public and the press has a view of what it thinks is right or wrong as

well. >> i guess i'm surprised we don't see what the investment policy is. i know my time is up, but i think you have had a good hearing and we obviously have a lot to do in order to improve pbgc going forward. i know our new director is working on that. >> may i jump in? we have a report under way that looks at pbgc's policies and practices over time, and that is coming out at the end of february. i think that will answer some of your questions. >> thank you all very much. i thank the panel for being here and for your testimony in work -- and your work. thank you, senators, who have participated here. this is another in a series of hearings we will be having on this committee on a broad overview of retirement programs in america and what is happening

to retirement programs. this is obviously one a big slice of it here, the defined benefit pension programs. the security, that in to security, the ability of pbgc to meet its obligations. there are other elements of retirement security that this committee is going to be looking at. but certainly, the things that came up today is something i will be discussing with senator enzi and other senators on this committee to see what actions, if any, we want to take. i think there are elements that have come out in the testimony today that i think compel us to do something about the continuity boards, expertise, that type of thing, that we need to take a close look at. i will discuss that with senator enzi and others to see what action we might want to take. not this year of course, but

sometime down the road. thank you all very much. with that, the committee will stand adjourned. >> coming up here on c-span this afternoon, the senate armed services committee hears testimony on the defense department's plan to cut spending. after that, at 5:00 eastern, a supreme court all will what about the constitutionality of a california law banning the sale of violent video games to minors. at 6:00, in new york city mayor michael bloomberg, florida gov. charlie crist, and delaware congressman michael castle discuss electoral reform. >> the c-span networks. we provide coverage of politics, public affairs, and nonfiction books, and american history. it is available to you on television, radio, on line, and social media sites. find our content any time through the c-span video library. we take c-span on the road with

our digital bus and local content vehicle, bringing our resources to your community. it is washington your way. the c-span networks, now available in over 1 million homes. created by cable, provided as a public service. >> tonight, primetime on c-span, a discussion of the role of limited government with amity shlaes and william kristol. that is followed by "q&a," on the budish coalition government and its plans the to cut the -- spending. british coalition government and its plans to cut spending. now a hearing on the defense department budget. in the fall, the department released a proposal that would shift internal defense spending to increase efficiency and cut down on overall costs. it met with mixed reviews at the

senate armed services committee hearing. what does this include deputy defense secretary william lynn. the -- witnesses include a deputy defense secretary william lynn. this is about two hours. >> we are pleased to have deputy secretary of defense bill lynn under secretary for acquisitions and logistics' ashton carter, and the vice-chairman of the joint chiefs of staff, james cartwright. we thank you all for being here this morning. on may 8, the secretary of state said that the defense department must take a look at how it is organized and operated, every aspect of how does business. in each instance, we must see if this disrespectful of the american taxpayer at a time of , and is duress this the best use limited

dollars? given the wars we are interested in, the capabilities most likely to deal with the most likely and legal threats." i shared a secretary's objectives of reducing overhead and access any defense enterprise and instilling a culture of savings and a straight across the department of defense. -- restraint across the department of defense. the secretary follow up with a series of specific cost-cutting measures, including a reduction in funding of service and support contracts by 10% per year for three years, a freeze on the number ofosd, defense agency, and, and commissions, a in the number of ses positions, new limits on positions and support contractor is fordod intelligence

functions, and the elimination or consolidation of several defense commands and agencies, including the assistant secretary of the fence for network and immigration, the business transformation agency, and the joint forces command. now, i agree with the secretary on the rapidly expanding course of service contractors who support the department. too often in the past we have restrained the number of dod without placing any limits on the number of service contractors. as a result, we have more than doubled our spending on service contractors over the last decade, while the size of the dod civilian work force has been largely unchanged. rather than saving money, we have lost badly needed talent and expertise and institutional knowledge in the government and given contractors more responsibility for the performance of critical government functions than is appropriate. i believe that the acquisition

of the efficiency initiatives announced by secretary carter are consistent with the objectives of the weapons systems acquisition reform act and other recent acquisition legislation initiated by this committee. although i have concerns about some of the details, i am a particularly pleased by secretary carter's on open systems architecture, fixed- price incentive contacts, increased focus on affordability and program schedule, and improve the management of contracts for services. i hope that he will place an equal at this is on the implementation of the acquisition reform act requirements for development and testing and systems engineering. at the same time, i believe that the secretary's initiatives deserve close scrutiny from our committee. the secretary has a legitimate objective of eliminating or consolidating protective and overlapping organizations within the department, and his determination to cut costs and

produce efficiencies is commendable. but it appears that there was inadequate analysis and inadequate openness and the procedure which preceded the august announcement. for example, we need to be sure that the personnel restrictions announced by the secretary did not undermine our ongoing efforts to rebuild the department's acquisition work force. study after study, a hearing after hearing has shown that our acquisition programs cost billions of dollars more than they showed, in significant part because of our acquisition work force was dramatically cut in the 1990's and no longer has the capacity to perform its essential functions. as the acquisition advisory committee reported four years ago, our failure to find adequate number of acquisition professionals has been "penny wise and pound foolish," as it seriously undermines the pursuit

of good value for the expenditure of public resources. similarly, we need a detailed accounting of the functions performed by the organizations that the secretary proposes to consolidate or eliminate. for those functions that will no longer be performed, we need to understand why they are no longer needed. for those functions that are still needed, we need to understand who will perform at. we need to understand what resources will be eliminated, and what the real savings are likely to be. i am disappointed that more than six weeks after the secretary's announcement of these measures, we have received only the roughest and most general information about the department's plans. i fully understand the frustration the senators from virginia, for instance, and others about their inability to obtain a more complete rationale and a plan of the pentagon cost

to propose actions. the secretary's intended to reduce duplication, overhead, and access in the department of defense is commendable, but his actions should be supported by an open process, which includes detailed analysis and full consideration of opposing views. we thank our witnesses put their presence here this morning and we look forward to the testimony. i call upon senator mccain. >> thank you, mr. chairman, at the key to our distinguished witnesses for a hearing this morning and for their service to our nation. in august, secretary gates announced a series of initiatives intended to reduce excess overhead cost and improve efficiency of dod. as part of this initiative, secretary gates past dr. carper to improve the department's buying power for the weight it acquires critical goods and services in order to stop runaway cost growth and program delays. we look forward to hearing from dr. carter about the initial

progress he's making within dod and with defense industry partners in this critical area. both these issues are coming at an important time. we have got to find ways to operate government more efficiently and at a lower cost to taxpayers. secretary gates understands the tough economic and fiscal situation facing our nation. i support strongly his efforts in doing everything possible to make every taxpayer dollar counts. i want to emphasize that the intent of this effort is not to reduce the department, but to find savings over future years, to invest in critical structure and modernization priorities. we cannot afford to shortchange our military, and we must maintain commitments to the defense budget that supports the full range of our national security commitments. this committee has consistently supported the department's

efforts to reduce the massive overhead costs in order to be able to direct more resources to our fighting forces and weapons modernization. the initiatives are clearly aimed addressing the explosive growth in support contracts and overhead personnel. i look forward to getting more information on these proposals in the next few months in order to fully understand the scope of the anticipated savings and the impact on the nation -- on the missions and operations of our forces. one proposal the secretary has recommended is the elimination of a joint forces command. i strongly support that proposal. on the issue of the elimination of business transfer nation agency, i would be interested, secretary carter and maybe secretary lynn, will we ever have an audit of the defense department? i think it would be one major step forward. the secretary also challenged

the services to find more than $100 billion in overhead savings over the next five years. obviously, we want to make sure that those reductions are -- that don't impact long-term readiness overtime. i support the secretary's decision to address inosd and defense agencies and combat commands and freeze at 2010 levels the number of senior executives, general flag officers, and political positions. dod management deserves a progress review to be assured that it as the military personnel with the right ranks and positions. i also say that i support the secretary's decision to eliminate the second engine for the joint strike fighter. but on the subject of the joint strike fighter, i would point out to the witnesses and my colleagues that the joint strike fighter is another example of

the terrible cost overruns associated with weapons procurement, and the reasons why we not only need to make $100 billion in savings, but we need to fundamentally reform our acquisitions system. i believe -- correct me if i'm wrong, mr. lynn -- that the joint strike fighter cost more than its original estimates. we cannot continue down that path. it is just not affordable, and the american people deserve better. but getting back to the subject at hand, i look forward to hearing from the bonuses. -- know everyone -- hearing from the witnesses. i know everyone on this committee looks forward to working with you to bring about the changes and this bold initiative by the secretary of defense. thank you very much, mr. chairman. >> thank you very much, senator mccain. >> thank you for the opportunity to appear before you to discuss

the department's efficiency efforts. if it is acceptable to the committee, i would like to put the full statement into the record and summarize here briefly in an oral statement. >> thank you. >> during a speech in may of this year at the eisenhower library, secretary gates allied how in order to maintain america's key military capabilities at a time of war and fiscal pressure, the defense department would need to fundamentally change the way it does business. the reason is this. to sustain the current military force structure, which we must do given the security challenges this country faces, requires the equivalent of a real budget growth% to 3%. the overall defense budget is projected to rise in real terms by about 1% based on dod's inflation assumptions. the department cannot and should not ask congress and the american taxpayers for more increases in any year unless we

have done everything possible to make the dollars we already have called for more. bridging that gap requires culling the department's massive overhead costs and structures and directing them to the fighting forces and modernization accounts. this is this is about shifting resources and priorities within the existing law. that requires reducing the department's overhead costs by targeting unnecessary excess and duplication in the defense enterprise. how we can flatten and

streamline the organization, reduce the executive and flag officer and the staff apparatus that supports them. should overlapping commands in it organizations and reduce the role and cost of support contractors. since the secretary's speech in may, d&b embark on a four-track approach and it cost conscious way of doing business. we briefly touch on treks one to three in and spend more time on track four. on track 1, the secretary directed the military services to find more than $100 billion in overhead savings over the next five years. these services will be able to keep many of those savings that they generate to invest in higher priority war fighting and modernization needs. this effort is now under way, and we have begun to review the services submissions. fiscal year 2012 budget will reflect the results when it is submitted to the congress in

february. on track two, the department is seeking ideas, suggestions, and proposals regarding efficiencies from outside the normal channels. we have solicited input from experts from think tanks, from industry, and from the department of external boards. we have also established a suggestion program to solicit our own employees' ideas. the department is willing to consider any reasonable suggestion to reduce our overhead. on track 3, the department is conducting a broad review of how it is organized and operated to and former president obama's to 12 cents -- 2012 budget process. this review focuses on affecting long-term systemic improvements in several key areas of dod operations. dr. carter will address these in more detail in his opening statement. with regard to track four, the secretary announced on august 9

specific areas where the department can take action now to reduce inefficiencies and ever had. these steps are intended to jump-start the reform process ahead of an severed from the normal programming and budget submission process. in particular, they represent the secretaries lead efforts to reduce headquarters and supports bureaucracies. military and civilian alike. that have swelled to cumbersome proportions, grown over reliant on contractors, and become accustomed to operating with little consideration of costs. though all of these efforts will result in measurable savings, and equally important purpose is to instill a culture of cost- consciousness and restraint within the department. a culture that sets priorities, makes real trade-offs, and separates unrestrained appetites from genuine requirements. there are eight major initiatives in track four that reduce support contractors,

headquarters personnel, senior executives, and flag in general officers. track four also includes efforts to reduce the boards and commissions and redundant intelligence organizations. finally, they involve several organizational establishments. the last decade has seen a significant growth of new offices and organizations, including two new combatant demands and five new defense agencies. the secretary concluded that joined forces command, the assistant secretary of defense for networks and information and -- information integration, the j6 directorate, and the defense business transformation agency no longer effectively satisfy the purpose for which they were created. some missions and tasks that each performance remain vital but can be managed effectively elsewhere. other functions that each perform are either already performed elsewhere or are no

longer relevant to the operation of the department. we are mindful that the recommended actions will have economic consequences for displaced employees, their families, and their local communities. the department is committed to working with the affected communities and will devote significant attention to the challenges employees will face during this transition. we have asked dr. clifford stanley, under secretary for personnel and readiness, to take direct responsibility for this aspect of the department's planning in order to ensure we take the steps necessary to help impacted employees with the appropriate assistance and support. in closing, i understand that some of these reforms may be controversial and unwelcome to some people, both inside and outside the apartment. no doubt, many of these changes will be stressful, even wrenching for the organization and employees involved. i would ask the members of this committee in congress as a whole

to consider this reform agenda in terms of our responsibilities as leaders to set priorities and of the resources for more they're needed least to where they belong. america's fighting forces, its investment in future capabilities, and most importantly, the needs of our men and women in uniform. that is what secretary gates and president obama are proposing, and we urge your strong support. thank you for the opportunity to discuss this initiative with you today. >> thank you very much. secretary carter. >> thank you. on a piece of the initiative that i have been charged with organizing, which concerns the $400 billion of the $700 billion

defense budget, which is contract it out for goods and services. the other $300 billion is spent within the walls, if you like, of the department of defense on salaries and benefits, so forth. the other $400 is contract it out, roughly equally between goods and services. and we estimate that by targeting efficiencies in the way that these goods and services are required, we can make a significant contribution to the overall $100 billion goal that the secretary gates and deputy secretary lynn have laid down for us over the next five years. to put it bluntly, we cannot support our troops to the capabilities they need unless we do so. our challenge is to sustain a

military work, take care of our troops and families, and invest in new capabilities, all in an era where defense budgets will not be growing as rapidly as they were in the years following 9/11. last year, we identified savings in the defense budget by canceling a needed programs, and we will need to do more of that. now we must also find savings within programs and activities we do need and do want. the department must achieve what economists call productivity groups and what i have called learning to do more with not more. delivering the program the department needs and the war fighter needs for the amount of money we're going to get. if you think about a computer, you buy a computer every year. it's a little bit better and cheaper. why is it that on the contrary, as senator mccain noted, we come before you every year with exactly the same product, and it

costs more. that is not productivity growth, and we need productivity growth in the defense sector. in late june, we laid out a mandate to the defense acquisition work force and the defense industry describing how the department can achieve this better buying power in contacted activities. on the timber 14, a few weeks ago, after several months of intensive work within the department, with our program managers, systems came in, senior logisticians, and so forth, and with our partners in industry accomplish this work and perform it for us, and outside experts, i issued specific guidance on how to implement that mandate. i would like to submit that guidance. the june 28 mandate as well, and all the material that accompanied them for the record and supplement it briefly.

we're now moving vigorously in implementation mode and digging each of those 28 items that were in the guidance and making them happen. let me, if i may, just to summarize the high points of those points of guidance, in five categories, with specific examples. first, as we begin a new programs, such as the ohio class replacement, the joint family of systems for long-range strike, the army combat vehicle, and even the new presidential helicopter, which we will be embarking on, we need to establish affordability requirements that have the same force as high priority performance requirements. we will also insist that acquisition professionals and suppliers plan according to what programs should cost, not according to a self-fulfiling

historical estimates of what they will cost, as if nothing can be changed in how we do business. we are already using this method to drive down costs in the joint strike fighter program, the department's largest in the backbone of tactical air power for u.s. and many other countries, but we have a long way to go, as senator mccain noted. and we say that we're not going to pay that. we should pay something less than that. we should manage to a better results. second, to incentivize productivity and innovation in industry, will strengthen the connection between profit and performance that our business practices. among other things, we're exploring ways for contacting and financing vehicles and a pilot-preferred supplier program, to reward contractors to control their costs and demonstrate exemplary performance. third, we will remove obstacles

to e effective competition. last year, the pentagon reported $55 billion in contracts that were supposed to be competitive but for which only one bid was received. usually from an incumbent. yeah, simple changes in how we structure evaluations and work with industry have been shown to reduce by 50% the incidence of single bids by incumbents. additionally, we will promote real competition, for it is the single most powerful tool that the debarment as to drive productivity forward. we must stop deluding ourselves with the idea that directed buys from two designated suppliers represents real competition. we are already cutting down on it directed buys with the navy combat ships, or we have set in place will competition that will save more than $1 billion the next five years alone. and we can demonstrate that. with additional savings expected over the entire life of the lcs

program. competition is not always available, but the evidence is clear that the government is not availing itself of all possible competitive situations. fourth, we will move more aggressively to manage the over two hundred billion dollars we spend annually on services, such as information technology, knowledge-based services, facilities that keep, what and system maintenance, and transportation. when most people think of the defense budget, they think of ships and planes. but more than 50% of our contract spending is actually for services. he may find this hard to believe, but our practice is for buying services are even less effective than for buying weapons systems. fifth, we're taking steps to it -- >> i do not have any difficulty believing that at all. i just want you to know. [laughter] >> i am research and you do not. i did at first, but i am getting used to it. fifth, we're taking steps to reduce unproductive processes

and bureaucracy by reducing the number of reviews to those necessary to support major investment decisions or to uncover and respond to a significant program execution issues. eliminating low value-added statutory processes, and i hasten to say, at this point, i am not referring to provisions of the weapons as an acquisition reform act. we understand the intent of that and appreciate that and are executing that intent, including developmental tests and evaluation and systems engineering. the kind of thing i have in mind is this, i sit in the pentagon on saturday afternoon reading reports to you better this thick that there in an embarrassing number of circumstances late to need and convinced it i am the only human being that has ever read it and never will.

the reason i am reading it is i designed it and am afraid of embarrassing myself. i signed an equal number of letters to you in which we say that you asked for it in may and it is now june and we're still working on the report, so this has nothing to do with intent. it has to do with the execution and the paperwork burden we have imposed upon ourselves. that is just a piece of it. it is not just in responding to your inquiries, which we need to do. is our own internal paperwork, and very importantly, it is the paperwork burden we impose upon industry. which we have them do something. of course, then we end up paying for it. these are the kinds of things we're talking about. not changing the intent of any of that reporting, but trying to change the volume and responsiveness of it, mr. chairman. he mentioned that, so i wanted

to comment on that. let me conclude by saying we recognize that changing business practices will take time and require the continued close involvement of our industry partners to have made major contributions to this effort and whose technical vitality and financial vitality as in the national interest. we also need your support for the success of this endeavor. why do we think we can succeed? several reasons. first, we have at reasonable reduction targets here. next, we are focused on the specific savings, not on abstractions, but on specific things we can do and have been shown to work. third, it is fair to said that after an era of double digit year-on-year budget growth, there's fat that has crept in that we can identify get out. before this that president obama, secretary gates, deputy

secretary lynn, you, this committee, congress as a whole, and the american taxpayers are all expecting it, wanted, needed it. and the last thing, i would say, is those who doubt or hesitation, they need to consider the alternative to the careful management to this new era. that would be broken or cancel programs, budget turbulence, uncertainty for industry, erosion of taxpayer confidence, if they're getting value for their dollar, and especially lost the ability for the war fighter in a dangerous world. not only can we succeed in this endeavor, but we really have to. thank you. >> thank you very much. general -- >> chairman, senator mccain, and distinguished members of the committee, thank you for the opportunity to discuss the department of defense efficiency initiatives. a few points in context, we remain a nation at war.

troops are deployed around the world, many engaged in combat. we are committed to insuring these troops are properly supported. second, dod is a bureaucracy that has not fully adapted to the information age. we must be able to adapt with increased speed to ensure we remain and sustain our competitive advantage. during the time of rapidly evolving threats, our success depends on our ability to adapt quickly. third, dod is cognizant of the nation's financial situation. we do not expect budgets to grow at the rate that the grew over the last decade. when developing grand strategy, it is the first duty of this strategy is to appreciate the financial position of his or her nation. we demonstrated this appreciation during last year's weapon system portfolio changes and earlier this year in the process to release our strategic reviews. the secretary's sufficiency

initiatives are aimed at seeking the same effect in our organizations. these initiatives are not a cut, but rather a shift of resources from overhead to the war fighter, increasing the ratio. regarding that this establishment of joint forces command, they have helped to accomplish the primary goal for which it was established, to drive joined as through the military. we must continue along the positive vector's regarding joint activities as directed in cold water nichols. we must also approve initiatives to strengthen efforts in the interagency and combined irina speed up it is our goal to reduce unintended redundancies and leering. and more clearly align operational responsibilities to service, train, and the club functions, in order to reduce inefficiencies as presented. at all the spots, we must consolidate functions were proper id. or functions are retained, move

towards a construct of combined joint interagency task force organizations or centers. the combined an interagency aspects are critical components to establishing baseline capacity, and search expectations required for functions and capabilities this nation prisons. as the cyber domain continues to grow in importance, the department will make sure lines of responsibility are clear and a double. we focus of cyber operations and cyber command. we will align policy in oversight activities in strengthening the dod chief information officer. finally, we must align cyber requirements and cyber acquisition to maximize support to operational activities. given the expanding role in criticality of information in the network said hold and transmit that information, we need to manage systems in the cyber domain as we do weapons systems. to insure our success, i.t. systems must have the proper

architecture in capability to ensure adaptability and innovation. further, our architecture should enable collaboration draw join, interagency, coalition, and commercial partnerships. the free flow of intermission among these players is integral to superior architecture. the department's information systems must extend to the tactical edge and must work when others do not. i look forward to answering your questions. thank you. >> thank you very much, general car right. here is the time situation this morning. we have two votes probably beginning at 11:30 a.m. many of us, perhaps most of us, are going to be going than to arlington for senator stevens funeral, which i think the bus leaves at 12:15 p.m. we want everybody to have some time here this morning, so we're going to have to have a short first round.

but then i will come back and whoever else can come back after the second vote, assuming that there is one. so there is likely to be a gap here between somewhere around 11:40 a.m. and 12:15 p.m. we're also going to have a vote off the floor on a number of matters that are pending before the committee. that will be the end of the first vote. so i hope everybody will help out on having that off the floor the first ofnd of both this morning in the senate. so let's have a short first round here so that everybody will have at least some of her to amend the -- have some opportunity, including those going to the funeral. so we will have a five-minute round. if there's not enough time for everybody, then perhaps we can

yield to each other to accommodate that goal. let me start with you, secretary lynn. to often in the past, we have constrain a member of dod employees without placing limitations on the number of service contractors. we have not been told where categories of contract services are covered by the secretary's directive. my -- am i correct in understanding that critical functions, like weapons systems maintenance, health care services, and logistics support to our troops will not be affected by the planned reduction in contract services? and when can we expect to see a clear definition of what categories of contract services are covered by the plan recovered and what categories of services are excluded? >> your assumption, mr.

chairman, is correct. this reduction in service support contractors would not affect critical war fighting capabilities like weapons maintenance. the general definition of a support service contractor would be someone who provides staff augmentation to government employees. i realize you're looking for something more precise, and we are endeavoring to provide that. we have a task force working on that over the course of the fall. sometime late this fall or early next year, we should have that. >> is that task force in place now? >> yes. >> who is on it? >> the overall task force is chaired by robert rangel, the secretary's chief of staff, and there's a subgroup. i will have to get for the record who chairs the sub group. >> that would be helpful. in the past, we found that proposed cuts to contract services are nearly impossible to enforce because expenditures

for service contracting are invisible in the department's budget. for this reason, section 8060 of the national defense authorization act for fiscal year 2008 required that budget justification document clearly and separately identify the amounts requested in each budget account for procurement of services. the department has not yet complied with that requirement. when are you going to comply with that requirement? >> part of the effort would be to comply with that requirement, and i would add that i think your application is right. we are regretting that the department had not complied earlier, it would make the task we're undertaking easier if we had better data. we are endeavoring to develop that. when will the department comply with that statutory requirement?

will it be by the two top -- the 2012 budget request? >> we are going to do our very best. >> it is a couple years now overdue, so that is not a satisfactory. i am wondering if you can give us a better handle on that. it is necessary month-by-month. i do not want to burden you with unnecessary requirements, but this is something in law, and it is essential that there be compliance. will you let as know at the end of october? let's report whether or not the budget for 2012 will be complying with that requirement. let us know by the end of october. >> yes, i will do that. >> on the other issue, was there an analysis of that issue before

the decision was made, and so, precisely who was involved in that analysis? >> this secretary made his decision on that based on a series of meetings, probably as many as 30 meetings that he had with senior military advisers, the chiefs, a combatant commanders, the ones under incoming and outgoing for joint forces command as well as the secretary of defense. during those meetings, but the central military rationale, there are four in the unified command plan for the joint forces command. those purposes no longer -- it was redundant with with the

joint staff was already doing. joint training and doctrine are still important job -- functions, but they no longer justified a four-star a military command with that budget. >> would you provide the committee any analyses which were completed or done or presented to the secretary relative to that issue, for the record? >> we will provide whatever we have for the record. >> ok. as the president approved that yet? those changes in the unified command plan? >> the president has not yet made a decision. >> thank you so much. >> thank you. i thank the witnesses. you have been around for quite a while now. don't you think one of the fundamental problems we're facing here is the consolidation of defense industries, which is

really lead to a virtual lack of competition? so i think we're all aware that in the 1990's, defense industries were encouraged to consolidate. now we have very little, if any, competition. if there is any competition, it is between two. most of them, there is none. do you grew 3 the that is a fundamental problem here? >> -- and do you agree with me that that is of the mendell problem? >> yes, it is. that is why we have to work extra hard to make sure we get real competition. there are several things we can do so that we do have competition among the big houses. it is important that we continue to encourage new entrants into the defense field, particularly smaller companies that might grow into bigger companies. they offer vitality and technical help as well as new forms of competition. that is to include small

business. it is important that we look at creative ways of getting competition. i mentioned the combat ship acquisition strategy, as the navy altered it six months ago or so. that was a situation where we had exactly what you're pointing to, which is two shipbuilders who were showing the signs of suggesting in bids an expectation that they would continue to be in business no matter what. so they said, well, that is not working for us, so we're going to down selected somebody will lose and somebody will witin. >> supply that for the record. i think that is really one of the biggest problems here and i

am glad we're going to fix cost incentive and fixed-price incentive contracts. but if it is only one major defense corporation, i do not know the answer, but i really do believe that that is the fundamental problem. speaking of reports, there's a myriad of reports required by congress every year, and it grows every year. every time we do the authorization bill and somebody wants amendment approval, was a, let's ask for study and report. you have seen a game played. so have you, bill. why don't you give us a list of reports that are unnecessary and you think i needed and duplicative, and maybe we connect next year and eliminate a lot of those. and you could spin your saturday afternoon down watching naval academy football instead of sitting in your office. we all know that there are stacks and stacks of them. maybe it would be good to get an

assessment that the reports we think are not needed, and i think we would agree with a lot of them. we do not read those reports either. dirty little secret. sometimes we get briefed on them if they're very important, but the vast majority are stored somewhere. i do not even know where. isn't the biggest cost escalation to dod today in health care? >> yes, sir. i do not know if it is the biggest in terms of percentage increase, but that is the largest account growing at a substantial pace. >> do you have any ideas on that issue? >> we are reviewing that. as part of the fiscal 2012 budget, we will be proposing some ideas on how to restrain health-care costs. >> there is no doubt that it is growing in dramatic fashion. and the double-digit inflation. >> in some years. >> recently. >> yes.

>> the other thing that might be helpful to this committee, after asking for a report, maybe you could do a little study for us are just compile statistics on the so-called to to to tell ratio of last say 20 to 25 years. i think we will find dramatic growth in both civilian personnel, pentagon and other places, and i think we're also going to see a dramatic growth in staffing. and the tooth-to-tail ratio becoming less and less often. do you agree that that is pretty much the case, general? >> yes, i do, senator. we have several steps that have grown. the impact on the force is it ages of the force. it consolidates a lot of our activities, leadership activities, and headquarters away from the battlefield. and it tends to be layered.

that is what we're after. >> i think it would be helpful to us and maybe motivates some kind of action if you showed us how dramatic that growth has been, as opposed to the actual number of war fighters on the battlefield or in the ocean or in the air. thank you. >> thank you. >> mr. chairman, thank you. thank you to the three of you. thank you to secretary gates for initiating this series of moves, which i support. the effect is that we're asking for our military more than we have in quite awhile, with a combination of being involved in the war against islamist extremism, managing relations with a rising and more assertive china, and a host of other problems. the fact is we are already facing a squeeze where we are not giving the military all that they need. therefore, part of the answer is to eliminate the waste.

bottom line, i appreciate very much what secretary gates and all of you are doing here. i want to focus on joined forces command. i have questions about that. i am not stating my opposition to the proposal here, but i really want to ask, is it good for our national security? have we reached the point where it is really time to put up the mission accomplished sign on jointness in our military, and does it really save enough money to justify what will be lost by closing the command? to me, those are important questions, and did not have the answers yet. but i want to admit that i may be biased year, but i am still going to keep my mind open. because i was involved in the late 1990's with the former senator, perhaps future senator, in the legislation to create

this joined forces command. we were responding to a report by what was then called a national defense panel, which was kind of a team b outside group to review the clutch real defense review of 1997. it was an impressive group. phil ardeen was the chairman. it had many people on it that we know. they recommended the creation of the joint forces command to drive jointness through our military, which in not been done, even though goldwater nichols was in forest giant law. ultimately, secretary cohen and the general put this join forces command in a place. so my question really is, and i must say with respect -- to meet, there is a little bit of

confusion about what the argument here is. secretary, in your testimony, you did say the principal purpose for the creation of jfcom was to embrace joint operations and doctrine has largely been achieved. on the other in, you did say in response to senator levin, still important that -- essentially, it is not been achieved, but it no longer justify as a four- start command. i have three open-ended questions. one is, have we really -- i do not believe we have accomplished the mission of guaranteeing jointness in our military, which is fighting dryly. i wonder if you're going to disband this command, where else are you going to do it, our do

you think we have achieved it? second, does is save enough money to justify the closing of the command? >> i would not say it as strongly as you did in terms of mission accomplished, danger in that statement. i think we have made -- crooks former presidents everywhere have, for short. >> we have made substantial progress in internalizing join into the combatant commands. it is different from the 1991 gulf war, which was in many ways the trigger for the recommendation. we operate in the conflicts we are in fundamentally differently than we did then. i think the services operate fundamentally differently, in a much more joined way. it was our conclusion that we made sufficient progress that it will not be research -- reversed and that we can use the joint

staff, supported organizations, to continue to command-and- control and other important elements to continue that progress. but it does not justify a $1 billion command. we do think we can make substantial savings off of that $1 billion by eliminating some of the functions such as the joint manning role it plays with schuler would surely duplicates the role of joint staff. >> do we have a cost figure at this time about how much you think closing the join forces command will save? >> we think we will be able to save a substantial portion of that $1 billion. but part of the process now is to determine which elements of the joint forces command want to keep it where we want to keep them and which things would go way, the headquarters, the joint manning functions, and then to net that through and get the savings figure. >> if there are some parts of

the command you're going to keep because you feel they're still necessary, where will they be? will something be lost if there disbanded? and look forward to the answers on another day. >> thank you. >> thank you. this question is for the entire panel. it has to deal with something as secretary gates stated in his may 8, 2010 speech. he said "the fact that we are a nation at war calls the sustaining of the current military joint structure." and we have to cut their overhead costs and transfer the savings to forced structure and marne in this issue with in the program budget. on august 9, 2010, secretary gates stated that the task before us is too significant

reduce the department's access overhead costs and applies savings to forced structure and modernization. but over the summer, there have been rumors that the b1 bomber fleet, which is been in almost constant presence above afghanistan, might be proposed to retire. general petraeus, in front of this committee a few months ago, spoke highly of the b1's presence and performance in afghanistan. i am perplexed by rumors such as the proposed retirement of the b1 fleet to obtain the savings in light of secretary gates' emphasis on retaining the force structure. what in cutting the force structure to find savings in this initiative be in direct contradiction of secretary gates initiative to cut overhead costs and transfer those savings to force structure and modernization?

>> secretary gates has asked us to do two things as we go through that. one is to make a determined effort to reduce overhead, transfer those resources to the war fighting accounts, and those are the quotes that you indicated. he has also asked us to take a scrub off the war fighting accounts themselves. that is what carter is doing. and to see if we can gain better effectiveness, better efficiency, better productivity from those forces. what the result will be of that, i will not pre-judge that at this time. but we're looking across the board, both of the forces themselves, as well as that overhead to war fighting transfer. what you're saying is that the department is not looking only at bureaucratic redundancies and overhead. but is looking at reducing force structure in order to provide --

>> we are looking at how to make the forces we have the most effective they can be to accomplish the mission. >> let me ask you one other question with regard to -- there's a september 20, 2010 air force times article were the general said the 2005 initiative to consolidate 26 installations to do 12 joint bases is a failure that has not produced the cost savings the department expected. the gao stated it was unclear whether join basing will result in actual savings. there was a college study stating that joined a sing is actually costing the department of defense more money and if the 26 bases and posts remain separate. what is your reaction to that criticism about the 2005 joint basing initiative ending up costing money rather than saving

money? >> i mean, i am aware of what the general said in the reports. i think we have to take them seriously than reexamine the path we're on andy the review and see if we think the data is right in the savings were there or rethink our course of action. >> does the current effort of race includes the closing overseas bases? >> yes. >> of their been recommendations made -- have there been recommendations made about base closures since august 9 of this year with the announcement? >> there have been no recommendations to that effect. but in terms of the overseas bases, and there is a global force posture review going on, looking at what the purposes are for those overseas forces and how best to accomplish those purposes. and then what we think the basing structure would be to

support that. that is a study that is ongoing now. >> i think my time has expired. thank you. >> thank you. just to get an overview about how we're going to approach these savings, this is a very simplistic, but it has to be commended through contract and elsewhere in afghanistan and others for operations. then there are programs that will help both the long-term defense plan in is operations. then there is the long-term defense plan. secretary lynn, as you approach this problem, is there any thought going into how you deal with these different types of resources? hopefully the supplemental funds in the iraq-afghanistan funds will diminish over time. how do factor in these different aspects? >> we will continue to propose

an overseas contingency account for those operations in afghanistan and whatever remains in iraq. over time, you could expect to see those conditions permitting decrease. most of what we have been talking about today in the $100 billion in the base budget, and we're talking about, to be clear, not reducing the base budget by $100 billion, but finding $100 billion in the overhead accounts that we can shift to the war fighting in towns, so that we can have 3% growth in the war fighting accounts, which is what we think we need to sustain those capabilities, but with only an overall top line of 1%. that is a significant challenge, but that is what we're trying to do. >> besides just the value of efficiency and productivity gains, this is also about freeing up resources and continuing operations overseas in supporting the forces.

is that fair? >> absolutely. >> part of what we would like to be able to do is the accounts have sustained capabilities that we have found necessary in this conflict that we want to retain as part of our core capability. this will create room for those abilities to move into the budget. >> and you identified capabilities which are specific and unique, which you're also planning to phase out, i presume. >> that is the case. that is with the analysis is looking for. >> secretary carter, you point out that services and growth in service contracts are probably more difficult and larger than we all expected. usually the poster child for this problem is a big weapons platform. it is very expensive. it is not fully competitive. what i sense, too, is that the

service contracts are proliferating. sometimes contractors are writing the contracts for the services. had you think you'll deal with this issue of service contracts? >> if you the main points, first thing is that the different categories are little different. so there's maintenance activities. there information technology services, a category of their own. there is advisory in assistance services, our knowledge-based services, which is principally the matter secretary lynn was speaking of earlier. these are augmentation of the government staff that provide expertise that we, at the moment, do not have within our own walls. so i have to contract for

externally, and they play an essential role. nothing wrong with that. we just want to make sure we get the inefficiently, and we're working to strengthen the talent we have within government and not be reliant upon people outside. and light -- our ships and planes are bought by people who buy ships and planes for a living. they're very good at it. most of our services are bought by people as an ancillary duties. they're amateurs. they're trying to get something else done. there issuing contracts for services in order to help them. it is not their principal preoccupation. it is unsurprising that their trade craft is not as good as it would be if that is all they did. we are trying to help them get better. how do you get better? you tried to shake the requirements to be clear about what you want. do not just drift into asking more and more and more and more reliant. ask yourself why five years ago, three people sufficed, and now

five people are doing exactly the same thing. recompete periodically. we're trying to help our services acquirers to do better without burdening them with administrative structures, but a system by being good amateur buyers. market research is part of that. a lot goes into this. it depends sector-by-sector. the low hanging fruit is there. there is a lot of money. the group has been a very, very high rate of growth over the last decade. services have grown faster than everything else. and knowledge based services have grown even faster than the rest of services. there is a lot we can do. contingency contacting is another area we're trying to improve. we know we did not do that well in iraq. we're trying to do better in afghanistan. we have work to do across the

board. >> a final comment. it seems that we have created a system that is much harder to hire a full-time dod employee than it is to write a contract worth 20 times more over the time span. we take the path of least resistance. is that your observation? >> it absolutely is. it is part of the acquisition work force initiative, which this committee had a lot to do with getting under way. we're trying to make it dis your for arabizing commands to hire within the walls of government -- for our hiring commands to hire within the walls of government. they are at the point of execution. systems engineers, cost analysis, confecting officers, and so forth, the people who actually execute. it is a struggle of the economic

circumstances. they help us in that regard as they help recruiting elsewhere in our department. we need to make it easier to bring people in if we want good people within the walls. >> thank you. >> thank you, mr. chairman. thank you all for your service and thank you for being here today. as someone who is new to the senate, one of the things that initially struck me when i first came here was the size of the defense department in the number of combatant commands and the number of four-star officers. i just want to go over this to make sure i have my information correct. as i count, we have 10 combatant commands, as well as this new cyber sub unified command, which i think is under strategic command. we have 40 four-star officers in

the u.s. military. as well as 717,000 civilian employees in the defense department. i think these are staggering numbers did it to the average american to hear the size of this organization -- and make no mistake that we all want to support the military and what the military to be as effective as possible, but we also want the military to be efficient. having heard what you have said, secretary carter, about outsourcing and cost increases and services on the outsourcing side, what are we doing to look internally be on the recent proposals that have come out about joined forces command? what are we doing internally to look to see if we are using our resources in the best way possible? are we top-heavy in the department of defense with our 40 four-star officers?

what can we do to make things more efficient? >> i think secretary lynn in the general are in a better position than i to answer that. >> i think most in numbers you gave are accurate. the secretary has directed there be, starting with flagon general officers, there has been an admission of the last 10 years of about 100 flag officers. he has asked for a review of that growth, with the target of reducing it by half that. similarly, there has been a growth of about 300 senior executives, civilian executives. he has the same aim the there, to review that growth with a target of a reduction of about 150. we have been talking about the growth in support contractors. he has directed that over the next three years, the target be

a 10% reduction in those support contractors. as i indicated, those are defined generally as people providing staff augmentation, as opposed to weapons testers or maintenance or more direct were fighting functions. the secretary has directed that we look at all -- you mentioned the various commissions. we have 165 of them. seems like a lot. we are reviewing those juicy we cannot reduce. he directed a 25% reduction. senator mccain mention of the studies, some of which we generated internally, some of which were looking to reduce on our own, some of which come from congress. there are good reasons for some of them. as the senator indicated, it is probably an appropriate time to review. i think we get about 600 annual reports and about 600 big ones in each bill. i think there are 1000 people

more less involved in producing those reports. so there's some footage of for reduction there. secretary gates, i think, has the same reaction you did. it is important to support the military. we are in the midst of a fight in afghanistan. we do not want to take away from that. but we think we can add to it by reducing our overhead accounts and putting those resources into the war fighting accounts. >> general, do you have any comment? >> quickly, the review the structure of the ranks, it said jarrett, is not only at the top. we're looking all the way through. every command we're looking at, every combatant commands. do we have the right level of responsibility? many times we have it there because a counterpart happens to be a four-stars something like that. that is not really good reason for it. so we're trying to understand how to get it back down so he

can be pushed back to where it is appropriate and where we have the right balance for a span of control and the responsibilities. >> what incentives to give to the department of defense employees to find savings? is there anything in their performance review, anything tied to their compensation if they're able to buy a ship cheaper find a saving in the contract? are we rewarding them? >> there is a substantial effort in this activity we have undertaken called a culture of savings. that is where we will look at the ideas of how to start to incentivize, not only the individual, but the institution to self-correct. which is difficult, but it will go to those types of things. how are you evaluated? is this important to command? does it actually keep the resources? never put the right incentives in the discussion we had earlier, were you have contractors and the daugaard

reserve and then civilians and uniformed military, active duty. can you put in place a structure this as each one of those costs escalates -- can i say, you need flexibility to move around? sometimes a contractor needs something right now to avoid the long times better to cover that. can we put in place the incentives to drive us into getting that civilian, not forgetting about it? >> my time is up, but i wanted to commend you for what your undertaking. it is vitally important. we're going to have this challenge throughout government. i hope the other agencies of government undertake the same methodology is that you are. it is not easy but needs to be done because our financial situation in this country will not allow us to keep spending more than we take in. thank you, and i appreciate the good work you're doing. >> thank you. >> thank you. senator nelson. >> thank you. let me add my appreciation for

the word you are doing to economize and to create a more effective budget process for the department of defense. as you do that, the questions will continue to come up. are you cutting in the right places, cutting the right way? are you leaving in place the best kind of military that we need? and are you improving it? the questions are there and will continue to be raised. senator lieberman preferred to jointness as a critical element of what you're doing, and maintaining a jointness as opposed to reducing and by dealing with the joint command. i hope that as we develop the process here to bring together the elements of the military so

that we eliminate stovepipe been in the protectionism of one branch of the government and its programs from the incursion by another branch of the military, that we will be able to maintain that jointness. obviously, it is not easy. it was not easy some time ago or we would not have created the command. i hope that it is now systematic in the thinking in within the department of defense, as well as with the branches of the military. in terms of reduction. senator levin and others have asked that this analysis that you're working be provided to us in a detailed analysis. do

we know -- do we have the time frame for what we might expect? inbev >> there are four tracks in this. the first is focused on the $400 billion savings. the savings themselves will be part of the fiscal 2012 budget to congress in february. the track to effort is the of such efforts, including the one that general cartwright referred to. we will be reporting those as they become available. tax 3 is focused on particular -- tack 3 ist

focused on particular in the appropriations this month. and tack four is the implementation plans. >> in what particular area -- i have been very pleased to see the level of coordination between the navy and the airforce in the global hoc program. it provides training, coordinated operation, and this program hands at opportunities to eliminate redundancy and improve mission effectiveness. i will go to one specific area where i hope that we can continue that kind of

cooperation and that kind of joint effort. that is on unmanned aerial vehicles. i have already spoken to both general casey and general shorts. they have a knowledge that they have to do better -- and general schwarzkop. they have acknowledged they have to do better. since both the army and the air force plan to spend more than $7 billion on similar aircraft, it raises a red flag. it is not that it cannot be taken away or overcome. but the red flag is there and we hope that it will direct the attention necessary. that is a very specific area where i think redundancy is very likely to be encountered. the wonder if you have any cartwright.eneral court righ >> there are places where we

look at commonality rather than redundancy. the drug control networks, the space side of the equation, making sure that their common to the best extent possible. in the unmanned aerial vehicles, we have a different mind-set for procurement. i taught -- by turn to dr. carter on some of this. it would be a common vehicle with different payloads. using that and being able to adapt those payloads to fight the changes as well as normal opposition processes has been our area. which plan to capitalize on that area. >> i think he has a great. the only thing i would add is on the global hawk.

-- global goc. that is a plan that has been growing. we are intent on restoring productivity. we have very good cooperation. this is an important program to us. we cannot allow ourselves to manage it in a way where it becomes unaffordable. it just happens that that is a program that is a focus of my attention, my managerial attention at the moment for just the reason i indicated earlier. i expressed their dismay at coming to you with exactly the same thing every year and asking for more money for it. so global hawkins' one that we need to do something important as it is. >> do you believe that there is a commonality between the air

force and the army with respect to that? >> i do agree. the rear word -- the rearward communications, some of the handling systems and the field, making them common, and then having a service were any key player can draw, these are the mix and match strategy toward uav's. we see that in the field up in afghanistan. >> thank you. >> thank you, senator nelson. senator brown is next. >> first of all, thank you for giving us the best value for our dollars. i think that every agency in the federal government should do a top to bottom review and streamline savings.

i am keenly concerned and aware of the fact that we need to maximize our dollars in this day and age because of what has happened federally. that being said, i find it curious that you have to come up the a budget to gewhen even federal government is not doing a budget. we do not have a budget ourselves. but you have to come up with a budget. i would hope that at some point we would start to lead by example. we have a tremendous amount of equipment. we have yards filled with it just sitting there. has there been any thought, in an effort to create jobs, into getting our equipment up and running and ready for the next battle, to move forward some of the expenditures that we will be using for that sort of thing may

be down the road, and bring it forward to actually get those things happening right now, getting everything back into the system and ultimately reevaluating where we need to go from there? we may not need some of the equipment that is slated down the road if we could take care of the stuff that we have. i will throw it out there for whomever. >> we have a major recent program on going, taking the equipment right now out of iraq and refurbishing that equipment were corporate, and bringing it back for units in the united states. that is going through the depots. that is going on as we speak.

>> as we read posture towards afghanistan, some of this equipment is being repaired and coming out in iraq in theater. that is one class of equipment. there's another class of equipment that we need to get back to the united states so that guard units and active duty units have something to train on. there is a third aspect year, the throughput capacity of our depots and our commercial activities. we're trying to commercialize that activity and keep it at cost and effectiveness as much as we can. there is the last category. the equipment that several of you are speaking to is probably coming to that we will not be using. it is out of date and we will probably replace it with the next generation. so can we take some of that equipment, and train people like iraqis to maintain it, and then provided to them so that we get

the bank for the buck? those things we tried to balance against. the highest priority is to make sure that we have everything we need in afghanistan. we keep the depot's moving quickly so that we can train and equip the forces that are in combat and then we work towards the lesser categories. >> senator mccain was saying that the whole idea of competition -- you're dealing with people who are providing equipment for us in the armed services -- do you think that competition is a good thing? if so, what are we doing to promote or send a message to us so that we can do our thing to promote competition? can we get a better price? it seems that the federal placenment is the only priu where we do not. >> we think competition is a better tool to get better prices

and better equipment or the same or lower prices pared it does not work in every -- lower prices. it does not work in every case. you have to structure the competition correctly so that it is not an allocation, so you're not maintaining both contractors and definitely. you need to make sure you're not over-investing up-front. in cases where you can avoid those pitfalls, it is a strong tool. we have restructured the biden to have much greater competition and we are getting the results from that. >> when work done by private contractors is absorbed by personnel, does it end up costing the taxpayers more money because the federal employees' costs significantly more when you take into account retirement and health benefits? is that an accurate statement?

does it cost more? >> are you asking if federal employees cost more than private? >> yes. >> as a general statement, i do not think that is correct. >> thank you. >> thank you senator brown. senator web. >> i would like to point out the number of union leaders and constituents from virginia are here today. mayor johnson from the city of suffolk and a senior representative from mcdonald. we're all united in the process used with respect to command. i would ask unanimous consent that statements submitted by these guests be entered into the record. >> they will be so. >> i served five years in the pentagon.

as a general principle, i support the idea first to bring efficiencies and to the process over there. i am particularly interested in seeing what you can come up with. i worked on this issue since i have been in the senate, probably the most dramatic impact being when senator mccaskill and i worked together on work time contacting and correcting deficiencies in that process. but any proposal effecting commandsin combat thin should have compliance with applicable laws in with everybody can understand it. this is not a parochial issue. it is an issue that has become more important to everyone in this committee as secretary gates and others follow through on their stated intention to

consolidate other military bases and installations. the lack of transparency and consultation, particularly with our delegation, stands at a stark contrast to how these are traditionally made. we heard today that the pentagon spent several months reviewing proposals, including holding more than 30 meetings. we did not have access. we did not have an opportunity to provide input. in fact, on august 9, secretary lynn, you called me 15 minutes before this decision was publicly announced. that is not the way to conduct a review. it has enormous implications to our defense and to community interest. i believe it is called stiff- arming. we need to know the analytical matrix that was used to compare all the commands and the agencies that were able to evaluate a major proposed this

establishmen-- disestablishmen. seven weeks ago, we began making multiple requests seeking answers to a variety of decisions. to this point, we have been stonewalled. seven weeks ago, the same week of the.com announcement, i asked for data on the size of dod and apartments? . i believe that is a relevant question -- dod and department staffs. i believe that is irrelevant question. when i was at the pentagon, that would take me an hour. we're still waiting. the department has failed to answer even the most basic questions that have come from

this delegation with respect to cost-benefit analysis that shows what savings would be saved by closing jefcom. we have no information that allows us to qualify the possible effects of this proposal in fiscal and economic implications. congress has been a strong supporter. every day, officials of our communities interact on a multitude of decisions to coordinate actions relating to military facilities. this affects business planning. it affects community planning. it affects real estate values. people are perplexed as to why the process in regard to this proposal is being performed at such contrast.

it leaves the question, on a larger scale, of how bad the dod is. we need facts. today, i filed an amendment to the national defense authorization act that would require the secretary of defense to provide detailed analysis and other assessments that we have requested before the president would close or line any unified combatant command, not simply jifcom. i am also renewing my call to president obama to withhold any final action on this recommendation until we have that sort of information. i know my time is up. let me say one thing.

you once were a step from this committee. is that correct? >> yes sir. >> you worked for senator kennedy as i recall. >> that is correct. >> are you want -- on your way back to the pentagon today, i would ask you to think what mr. lynn would have said to senator kennedy if he had received a phone call saying he had received a bill like this. i think i know what the answer would have been. thank you. >> thank you. i think we ought to give secretary lynn an opportunity, if he wants, to comment. he can either do that now or do that later. the vote has started. but if you want to take an opportunity now to comment if you wish.

>> i would like to comment. secretary webb -- senator webb, former secretary webb, i appreciate that you do not feel that we have shared as much information as you would like. although i think the course you hear is a disagreement over the recommendation. this was not a business case analysis as some have described it. this was a military decision. the secretary consulted with its closest military advisers on the rationale for the joint forces command. there are four central purposes in the unified command plan having to do with a joint many, joint training, joint jobs, and joint experimentation. on the joint manning area, it was duplicative. it was not a value-added function.

the joint forces should be taken out of that appeared on the joint training and a joint doctrine, those continue and we need to maintain our progress maintain our progress in that. i know we disagree on that, but that is the central rationale. we will review implementing that decision. that will determine how much of the billion dollars we may be able to save and how much will need to be continued in order to maintain the joint training, the joint doctrine centers and facilities, some which will continue to stay in the norfolk area. >> if i may, mr. chairman? just as an immediate reaction, there are no decisions of this

magnitude that our military decisions, not in the united states. there are military recommendations to the secretary of defense who then makes a recommendation to the president. those are essentially civilian decisions. i am understand the distinction you're making, but it does not enter the questions that i have. why would relieve pressure from europe -- the reason i stopped is that i know we have to go to a vote and people need to have their questions, but i really would ask that you be more forthcoming, that your department be more forthcoming when we request information so that we can evaluate this. it is not simply whether we disagree. we deserve to make our own evaluation based on information that can only be provided by you. >> i appreciate your request, senator. we met with some of the members of the virginia delegation this morning.

we talked about setting up a meeting with yourself, with the governor, and with other members of the delegation and secretary gets to discuss that. we are establishing a channel in order that information that the delegation feels is crucial to be considered to be considered by the task force that is reviewing implementation of the secretary's recommendation. >> i am asking for basic data. it is the data you can provide in one day. i am glad to be able to have the meetings, but it does not seem that it would take seven weeks for you to tell me how many people are on the staff. >> i will get you the number on the staff. >> we have a series of questions that are data-oriented that clearly could be answered in one day. in seven weeks, we have not gotten any answers. >> i will look into those. the usd question, i was not aware of that. i will look into it and get them

to u.s. and as we can. >> thank you. >> the day will come not to just senator web. obviously, we'll have an interest in this. his frustration reflects the kind of frustration that many of us would have, a lack of feeling a process. i made reference to that in my opening statement. i deny know whether mr. senator web, you were here or not. there is a feeling that it was not adequate year, putting aside for a moment what that data will show. there is an absence here of analysis, not just for senator web, but publicly. it seems to me that it should have been available prior to the decision, not just after the decision. that represents my own views and i think it also represents -- i

am guessing a bit -- many members here who feel that the virginia delegation would be held in the same way. we will take a recess now. we will probably get back here in about 25 minutes. thank you. >> thank you.

senator mccaskill is supposed to be here just a few minutes. i know that you're going to a funeral. when you need to leave, just wave your hand and lead. >> about 10 minutes. >> that will be fine. let me start then while we're waiting for senator mccaskill. the test and evaluation issue, the acquisition reform act so determined to reestablish that position, i think you have already indicated that a robust developmental tests and development capability is important. >> that is correct. >> one of the defense

organizations that the secretary plans to eliminate is the assistant secretary defense for networks and information integration. the department has indicated that the functions currently performed by asdnii will be transferred to the information services agency, cyber command, and other appropriate agencies. secretary lynn, if the department delegates the oversight and management roles in that it currently performs to lower level latencies, is it not a risk that these agencies would be at risk for overseeing themselves? how is the lowest the staff -- how will they osd staff conduct cyber security efforts and other

critical i.t. functions without the resources of the nsdaii? >> we will retain the chief information officer. that individual will have a direct report to the secretary of defense. in terms of the level, you will still have that direct report that the nii has now. with a the steps we're taking, we will give that cio greater resources. we will pull in resources from ,he joint staff's directive specific functions from other areas to unify the i.t. oversight in the department. we think we will end up with a stronger cio. >> dr. carter, the secretary has established a task force on it

reports, studies, and the commission's study group. studies can be reduced to a more efficient little to recommend which boards and committees provided sufficient value. i think a number of you made reference to that part. what i am concerned about are the rumors that the military services science and technology groups could be targeted for those cuts. what is your view of the contributions of the military services science and technology advisor groups in making recommendations for the department's future investments in critical technology areas? >> i know those boards are under review.

as the staff member responsible for the day-to-day shepard day of the science board, i provided that it permission to the group and mr. rangel. we provided them all of our data on the defense science board. they're looking at at and the service science board's. >> secretary lynn, one of the defense components that the secretary plans to eliminate is the business transformation agency, the bta. earlier this year, the department's deputy chief management officer told the committee that the bta plays a crucial role in the business process reform that is needed to reduce waste and inefficiencies in the department's operations.

over the years, the agencies have proved incapable of modernizing their own business systems. to the gao recently reported that programs are running billions of dollars over budget and as much as six years late and bta was assigned to provide needed leadership, expertise, and assistance in that effort. the implication of the elimination of the bta is that the efforts to improve business systems and processes will revert to those who have proven incapable of managing that in the past or will some other entity provide the leadership, eggs 30s, and assistance for which the details early -- leadership, expertise, and assistance for which the bta is currently in charge of? >> the bta was prior to the

creation by congress of the deputy chief officer. the two overlap substantially. as we went through looking to deal later -- to delayer, the conclusion was to eliminate the agency, move over the oversight functions to be dcmo and probably reduce some of the staff resources due to the duplication. but there will still be that oversight function at the the os level, but it will be at the bcmo office. >> is that initiatives of the your familiar with bob and a half -- familiar with you

offhand? you will say later, but the responsibility is clear? >> yes. >> for that responsibility will lie. is the budget likely to reflect -- the 2012 budget, when you submit it -- likely to reflect areas where the inefficiencies have been made? yes? or define areas where funding is proposed to be added? will you be adding this to things in your budget request? >> we are working towards that end. you're talking about track one and the $100 billion. we are looking to do -- there is a lot of churn when you build a

budget. it is not a stretch for as you might think. we're working to sellers to baseline and understand where the shift occurs when they move from overhead to were fighting accounts and we will provide that in the fiscal 2012 budget. >> there will be identified? >> we will do the best can to lighted by -- when you build a budget, there are a lot of changes, defining those things is a data challenge. >> if it is not done in that way with the budgets of mission, would it be done in some other way, like a rack up -- this is what we set out to do and this is what we did not to do and this is what we expect the savings to be? will there be a summary when the decisions are finally made? >> i believe we will submit something with the fiscal 2012 budget.

it may be as you described or something else. but when we submit the 2012 budget, we will submit our conclusions. >> does the department intend to extend the -- for the long term? >> we will retain it to the extent and for the amount of time and in a character that is supportive of what we think we need in the field. whether that becomes a standing organization independent of the conflict we are in, i think it would be something that we would take a serious look at. there are elements of jazz radijaiedo. we have taken several looks to

make sure we need each of those pieces for the function we think is essential today. >> other rapid response programs and organizations, in addition to that one, is there opportunities that you see for cost efficiencies through consolidation of those kinds of rapid response organizations? >> i will turn this over to- quarter. he had a big hand in this. but from my perspective as a war fire, part of the discussion we had today about jifcom is about isr-cutting, things like and other agencies. the cost-cutting activities have had a significant impact on our ability to do what we're doing in the field, to do it in a way that is coherent so we do not have four different solutions for the same problem.

to the extent that they can continue to do that, that is some of what jifcom has been able to do for us. we have built these horizontal activities to cover down on those types of things that they called joint. in reality, they're also standards and able to work in the interagency and with allies. it has been very effective and very efficient. to the extent that they continue to do that and are evaluated as being as such, we will try to retain them. >> senator mccaskill is here. secretary lynn, which kept him as long as we could, but yes to go to the funeral. >> that is fine. i was sprinting to get your. >> we know you were. we were aware of the fact that you were coming. >> just one note. court just as general corporat

cartwright said. in this fight, we're looking for efficiencies. but the principal objective in looking at these organizations is to provide rapid and responsive support to the war fire. said key is effectiveness. we are still not there where we should be in terms of being able to rapidly and actually respond to the needs of the war fighter in the acquisitions system and the logistics system. this is something that we work together with every day. the other thing is truly being responsive. jaiedo wasat supposed to do. a lot of it is done now by the

personal attention of general cartwright and myself and many others at the top. >> thank you. senator mccaskill. >> thank you, mr. chairman. i appreciate your indulgence so that i have time to have some questions. secretary carter, as a former auditor, i feel your pain at the number of reports that have been developed and that no one reads. it is very common, when you have to make a hard decision, that it is easier to do a report. most of the time, the call for studies and reports that comes from this place is in lieu of making it hard decision. just to give one example where a general cartwright might disagree is on jera -- on jroc.

it has not been a check on acquisition. when we look into it, was hard pressed to find an example for the various branches were not, ok, i will give you this if you give me that. in an effort to do with that, i offered two amendments on the defense authorization that would deal with the problem of the jroc being a batch crashing organization as opposed to an organization that was holding grudges accountable in terms of the acquisition process -- holding branches accountable in terms of the acquisition process. the amendment that went through allows the cocoms to have some

input in the process. the other amendment that did not go through is the one that would give you, secretary card, the ability to have some check and balance over the jroc. general corrected all like that. once i pass that in the defense authorization, he said why do we not do a study? i think that is the kind of decision that actually magnifies the problem. i think the right call was to have somebody overseeing this or have some kind of input into it and i thought the undersecretary of defense for acquisition was the right person. so let me ask the question, how is theporatcartwright, study going and what kind of assurances can you give me that jroc is doing what it is

supposed to be doing? >> there is a mischaracterization, and we can disagree about that, but the city came out and give this information that we have given back to the congress. one puts the vice chairman in a decision position similar to a service acquisition chief. in other words, i am accountable for those decisions. it brings other members in and it allows us to bring the cocoms in in an authoritative way. no. 3, it brings in an authority for the test community. for example, i can give you the performance you want or the

metrics you want, number two, -- we want common or similar representations of the decisions that are made wharepresent whate customer wants and not what they want to give them is an acquisition and resources. you have a common group of people that can be held accountable for those decisions from birth to death appeared >> you may have been right and i may have been wrong. i am definitely wrong with some frequency. but i want to know, ongoing, what we could not find was a place where jroc did where it was supposed to. we could not find a place where it stop anything. the idea here is that you're supposed to catch things that will not work, that will be too expensive, that you have to

figure out why, the to up to make sure requirements -- 90% of this is requirements. that is why the cocoms are supported. let me move on to contracting. wartime contract has been stovepipe. mostly, it is because it can be. in a lack of competition, it is a huge part of the problem. i agreed with senator mccain that some of the problem is a lot of competition among defense contractors for the big step. but there really is no excuse for a lot of the services contracts. we're not talking about a lot of capitalization costs for these service contracts. but, once again, what you see is a lack of competition. there is not a good excuse for a lack of competition. that, secretary carter, is where

think there's real, real money. i just urge you to bring to us, in this effort, how not only you are looking at contacting any mac process, but how your drilling down on contacting in -- looking at contacting in a macro sense, but how you are drilling down on, attracting in troop support. because of my party background, i think it is conservative to say that we have had $100 billion go up in smoke in iraq from that contacting. it is not as if there were not competing people that could have been brought in. it was just easier not to. i urge you to keep us posted on how your integrating that kind of contract in into the contract the reforms. finally, mr. chairman, if i have your indulgence to go work for just one more thing.

>> you can take your time. this is your second round. there is no one else here who was waiting. >> ok, great. the audits. i tried to count of how many auditors you all have working in the defense sector. whether it is through i.t. or dcaa or gao, i quit counting at 30,000. 30,000 people are tasked with some auditing function within the department of defense and sometimes with a little hangover into the department of state, depending on that. you are getting plenty of reports. the question is who is consuming them and whether or not you all have a strategy on consuming audits and following up on audits?

i would ask you, secretary carter, to address that. are you comfortable and confident that the millions upon millions upon millions of dollars of work going is actually being embraced by the department? >> i would like to address that and also your first two points, if i may. >> let me interrupt secretary carter if i can. >> cemetery mccaskill, can you close? i have to leave. i really only have this auditing area to finish up with. >> thank you, both. >> with respect to what it's, two comments -- with respect to audits, two comments -- the dcaa does not report to me.

the part i can speak to is, at the earlier stage, particularly in contingency contract, you are right. in contingency contracting in iraq, in the early years, we did not have the trade craft and the controls that were appropriate. we recognize that. one of the first things that secretary gates said to me when he heard me to this job was that he wanted to make sure that we learned the lessons in iraq and that we apply them in afghanistan. we're really trying to do that. i would like to get our contacting system in afghanistan to a point where we do not need -- we will still need to be audited, but we will pass an audit easily. that means having contracting officers in adequate numbers to do the work right. it means having contracting

officer representatives there to make sure that the work is done right on each contract. it means reducing the use of cash. we have been using -- we have been assiduously working on the list that you are working down in afghanistan and have made considerable progress in each of those areas. we are not where i think we should be. >> let me acknowledge your progress. you have made progress. >> thank you. i think we have. we're not there yet. confecting officers, for example, we have about 86% or 87% fill rate right now occurred it should be 100%. , whichetter than 43% t it was a year ago or so.

in all through the chain, i do think we need to improve. i absolutely agree with you, senator, on the value to be had from improving how we manage services. it is a scenario where we have not -- it is just an area where we have not paid a lot of attention. a lot of the people that are managing those activities are doing it at the margins of the real function that they are trying to accomplish. it is unable or for what they do. -- is an enabler for what they do. i think a great savings can be had there across the services spend. that is half the money. that is half the money. two hundred billion dollars a year -- even if we can get a few

percentage points of improvement every year, that is exactly what secretary gates he wants. that is money that we do not have to ask the taxpayer for and then we can take and reallocate to the war fighting capabilities. >> i hope that you can get senator mccain the list. i hope you can reduce the number of reports your sending to us. and i hope we get used to reading audit reports. i know that some of this is not in your portfolio. some of this is in secretary hills portfolio. some of it is in other places. those 30,000 daughters, i do not think their work has been taken seeress -- those 30,000 auditors, i do not think their work has been taken seriously. i am willing to bet that you have not spent a lot of time looking at that issue. you know dcaa and gao and ig's,

but most people do not know that ig's in the military are not ordinary ig's. they report to the military. and we do not know that you are paying attention to what they're saying in the active forces because we never get to see the report. let me close with an example of how, if you would spend more time and energy being differential to the auditing community within the department of defense, i think we would get higher quality in terms of some of the work being done and the people who are attracted to the work. that is essential. i never now three letters to the president about the special inspector general over afghanistan.

we now have an independent review of his work by a team of auditors, a peer review, and it says that it is mostly lacking. and probably the whip cream and the cherry on this particular situation is that here is somebody that is supposed to be the eyes and ears, looking at contacting any major way in afghanistan, and he hire someone on a no-bid contract for $95,000 for two months' work. first of all, how do you decide that somebody's worth $45,000 per month of public money? how do you side that that is the one? and there is no process there. this is the special inspector general in afghanistan reconstruction, hiring some for $95,000 for two months' work. and you wonder why the public thinks we have lost our minds.

that is not being accountable. the person he hired formally was the dod ig with a lot of blemishes. we're not talking about somebody that does not come with his own baggage. the special inspector general over afghanistan should be fired today. when you have an independent counsel of auditors saying that the special injector -- the special inspector general in afghanistan that law enforcement authority should be removed from them because they do not have the proper authorities in budget proper process is in place, this is a problem. i know that you are not in a position to remove the special inspector general. but beginning in march 2009, we have tried to point out to the administration that this special inspector general in afghanistan is not up to the job. after what happened in iraq, i

would like you, secretary card, to go back to the pentagon and said that there are some people of other that will not give up until we have a change in leadership and the special inspector general in afghanistan because i know the kind of respect the president has for the secretary gates. secretary dick and i know that if secretary gates waiting on this, we kick -- and i know that, if secretary gates weighs in on this, we would get some changes. i am happy to give either one of you an opportunity to respond to what i have said. i am venting in this public place because i want to and because i can and because it is wrong. we have real work to do in terms of oversight in a contract in afghanistan. we do not have time, frankly, to be dealing with someone who has not shown that they are up to the job. i would like to propose that we

have one special inspector general over all contingencies and i would like your responses to that proposal. we would roll into one office that would be permanent a special inspector general to do with any contingency operations that the military was actively involved in so that you have continuity in terms of the expertise on contingency contract, continuity in lessons learned, continuity in terms of the staff that felt committed to that particular activity as opposed to how long will we be around and do we need to hit my start to another moving target? do you think that would be something that would be welcome in terms of your job responsibilities, secretary carter? one inspector general for all contingencies? >> i will take that back. i hear you loud and clear. i will take that back to the department for consideration, the idea of 1 overall. >> we have a lot of good people who learned a lot in iraq.

and we're trying to recreate the same kind of office in afghanistan. it seems to me we are missing opportunities here. certainly, the lessons learned, documents from iraq and done by the special inspector general, should be required reading for any commander and i hope it is. i hope everyone is reading it greg martinson's books are very important for the commanders in afghanistan. that lessons learned from iraq, i think that is important reading for everyone there. i do want to acknowledge that the progress has been made. i want to believe that everyone there is capable of very independent decisions and say no to their dear friends and their colleagues. i just think that the environment is a difficult environment to say no to one another. if you are confident that we

made progress on that, i look for to visiting with you all about that. and i am willing to acknowledge that the step by wanted to take was a step too far. >> we're willing to continue that dialogue. we certainly owe to you and to the american people to ensure that we understand the implications of what we ask from the institution and the government at large in these intricate complex is paired it is not purely -- complex is. it is not a purely business decision. they're usually in the minority. on the auditors, i think you have the right attributes. what i do not have in my own knowledge that is the control. but how do we make sure that those lessons and that continuity is move from one place to the next and that we do

not have six months or whatever spin up time to learn the job out in the field and that we have the size and construct to be able to manage the spanish control -- the spanic control. >> thank you. i appreciate what secretary gates is trying to do. it will take a kind of focus and concentration and not giving up. this will not be easy. there will be all kinds of things, including a bunch of folks who set up here, who will tried to throw out roadblocks, depending on what it is that you're trying to shrink or make more efficient. but i, for one, and a big admirer of the process that secretary gates is undergoing. i think it is absolutely essential. i think that we can have and maintain the finest military in the world and still be much more

efficient with taxpayer dollars in the process. i look forward to being helpful in any way i can. i think you both for waiting until i got back to have this meeting with you. the hearing is adjourned. >> tonight, i discussion on the role of limited government. that is followed at 930 with c- span is q&a, examining the new british coalition government. later, at 10:30 p.m. eastern, a discussion on redistricting and whether a class, rather than race, should be used when redrawing congressional boundaries. >> today, we are adopting a set of high-level rules of the road that strikes the right balance between these imperatives. >> last week, the federal communications commission adopted the first-ever regulations for broadband internet service. tonight, how the new rules may fe