    Pension and Welfare Benefits Administration: Opportunities Exist
    for Improving Management of the Enforcement Program (15-MAR-02,
    GAO-02-232).

    The Pension and Welfare Benefits Administration (PWBA) safeguards
    the economic interests of more than 150 million people in six
    million employee benefit plans. To enforce the provisions of the
    Employee Retirement Income Security Act of 1974 (ERISA), PWBA
    investigates employee benefit plans, conducts public education,
    and has begun a new voluntary correction program. Through its
    plan investigations, PWBA detects and corrects violations and has
    a deterrent presence that will prevent future violations. The
    Office of Enforcement prescribes areas for its regions to
    investigate. Regional offices have considerable flexibility in
    implementing PWBA's enforcement strategy by focusing most of
    their investigations on local issues. Although PWBA has taken
    steps to strengthen its enforcement activities, GAO found
    weaknesses in PWBA's enforcement strategy management and
    investigative process, its overall human capital management, and
    its measures for addressing program performance.
    -------------------------Indexing Terms-------------------------
    REPORTNUM:   GAO-02-232
        ACCNO:   A02618
      TITLE:     Pension and Welfare Benefits Administration:
    Opportunities Exist for Improving Management of the Enforcement
    Program
         DATE:   03/15/2002
      SUBJECT:   Employee benefit plans
    	     Human resources utilization
    	     Information resources management
    	     Internal controls
    	     Law enforcement
    	     Performance measures
    	     Quality control
    	     Strategic planning
    	     DOL ERISA Data System
    	     DOL ERISA Filing Acceptance System
    	     PWBA Voluntary Fiduciary Correction
    	     Program

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    GAO-02-232

    United States General Accounting Office

    GAO

    Report to Congressional Committees

    March 2002

    PENSION AND WELFARE BENEFITS ADMINISTRATION

    Opportunities Exist for Improving Management of the Enforcement Program

    GAO-02-232

    Contents

    Letter

    Results in Brief
    Background
    PWBA Uses a Multifaceted Enforcement Strategy
    Weaknesses Identified in Management of Key Areas of

    Enforcement Program Conclusions Recommendations for Executive Action PWBA's
    Comments and Our Evaluation 1

                                                                         2 3 11

    17 30 30 31

    Appendix I Scope and Methodology

    Appendix II PWBA Organization Chart

       Appendix III                       Comments from the Pension and Welfare Benefits
                                                Administration                            39
                                                 GAO Comments                             52
       Appendix IV                  GAO Contacts and Staff Acknowledgments                53
                                                 GAO Contacts                             53

                                             Staff Acknowledgments                        53

    Table

    Table  1: PWBA's  Enforcement-Related Performance  Measures for  Fiscal Year
    2002

    Figures

    Figure 1: Employee Benefit Plan Universe under PWBA's Jurisdiction, 1995 to
    1998 5 Figure 2: Number of Plan Participants under PWBA's Jurisdiction, 1995
    to 1998 6 Figure 3: Total Value of Assets Reported by Pension and Welfare
    Plans under PWBA's Jurisdiction, 1995 to 1998 7 Figure 4: PWBA's Annual
    Appropriations, Fiscal Years 1994 to 2001 8

    Figure 5: PWBA's Full-Time Equivalent Staffing, Fiscal Years 1994

    to 2001  9 Figure 6: PWBA's 10 Regional and 5  District Offices 10 Figure 7:
    Overview  of PWBA's Investigative  Process 14  Figure 8: U.S.  Department of
    Labor, Pension and Welfare Benefits

    Administration 38

    Abbreviations

    EDS ERISA Data System
    EFAST ERISA Filing Acceptance System
    ERISA Employee Retirement Income Security Act of 1974
    IRS Internal Revenue Service
    OPPEM Office of Program Planning, Evaluation, and Management
    PBGC Pension Benefit Guaranty Corporation
    PWBA Pension and Welfare Benefits Administration
    VFC Voluntary Fiduciary Correction

    United States General Accounting Office Washington, DC 20548

    March 15, 2002

    The Honorable Edward M. Kennedy
    Chairman
    The Honorable Judd Gregg
    Ranking Minority Member
    Committee on Health, Education, Labor, and Pensions
    United States Senate

    The Honorable John A. Boehner
    Chairman
    The Honorable George Miller
    Ranking Minority Member
    Committee on Education and the Workforce
    House of Representatives

    The Department of Labor's Pension and Welfare Benefits Administration
    (PWBA) works to safeguard the economic interests of more than 150
    million people in an estimated 6 million employee benefit plans-pension,
    health, and other plans with assets in excess of $5 trillion protected under
    the Employee Retirement Income Security Act of 1974 (ERISA).
    Safeguarding participants' interests in employee benefit plans is especially
    important to their health while working and their income in retirement.
    PWBA plays a primary role in ensuring that employee benefit plans
    operate in the interests of plan participants, and the effective management
    of its enforcement program is pivotal to ensuring the economic security of
    workers and retirees.

    This report, prepared at our own initiative, discusses management issues
    associated with PWBA's enforcement of ERISA. We last reviewed PWBA's
    enforcement program in 19941 and concluded that PWBA needed to take

    steps to strengthen its enforcement program, including evaluating its
    resource allocation methods and main case selection processes. Our
    current review focused on assessing the progress PWBA has made in its
    efforts to improve its enforcement program so that it is effectively
    enforcing compliance with ERISA's employee benefit plan provisions.
    Specifically, our report discusses (1) PWBA's current strategy for

    1 U.S. General Accounting Office, Pension Plans: Stronger Labor ERISA
    Enforcement Should Better Protect Plan Participants, GAO/HEHS-94-157
    (Washington, D.C.: Aug. 8, 1994).

    Results in Brief

    enforcing ERISA's employee benefit plan provisions and (2) the areas in
    which PWBA could improve the management of its enforcement program.

    To perform our work, we conducted over 100 in-depth interviews with staff
    and management in PWBA's headquarters and 5 of PWBA's 10 regional offices.
    We also conducted a nationwide e-mail survey of PWBA's investigative staff
    and their immediate supervisors. In addition, we reviewed internal PWBA
    guidance and documentation, agency performance plans and reports, and
    performance data relevant to PWBA's enforcement activities. Moreover, we
    interviewed key officials at other federal agencies with enforcement
    responsibilities regarding potential best practices and key individuals
    representing private organizations in the employee benefit plan, retired
    persons, and labor communities. We conducted our work between November 2000
    and November 2001 in accordance with generally accepted government auditing
    standards. For further detail on our scope and methodology, see appendix I.

    PWBA's current strategy for enforcing ERISA's employee benefit plan
    provisions is a multifaceted approach of plan investigations supplemented by
    public education and a new voluntary correction program that are carried out
    mainly through its regional offices. Through its plan investigations, PWBA
    seeks not only to detect and correct violations, but also to have a
    deterrent presence that will prevent future violations. The Office of
    Enforcement prescribes the areas of focus for a portion of the regions'
    investigations to address issues of nationwide concern. Regional offices are
    then provided considerable flexibility in implementing PWBA's enforcement
    strategy by focusing the majority of their investigations on local issues.
    To complement its investigative activities, PWBA and its regional offices
    conduct outreach programs to inform plan sponsors, participants, and
    beneficiaries of their rights and responsibilities under ERISA and related
    employee benefit statutes. PWBA also publicly releases the results of its
    civil and criminal litigation against plans with violations to serve as a
    deterrent against future violations. To further enhance compliance, PWBA
    also recently established a Voluntary Fiduciary Correction (VFC) program,
    which allows plan sponsors to correct certain types of violations without
    penalty.

    While PWBA has taken actions to strengthen its enforcement activities since
    our last review in 1994, in our current review we identified areas in which
    PWBA could further improve its enforcement program. In particular, we
    identified weaknesses in PWBA's management of its enforcement strategy and
    investigative process, in its overall human capital management, and in its
    measures for addressing program

    performance. Specifically, weaknesses exist in the Office of Enforcement's
    program oversight and coordination in several key areas of its enforcement
    program. For example, PWBA has not gathered and analyzed information on the
    nature and extent of noncompliance. Lack of such data could undermine its
    enforcement strategy and operations. Although PWBA has taken steps to
    modernize its technology, most investigative staff still do not have
    sufficient and timely access to automated information for researching and
    selecting plans for investigation. Furthermore, PWBA lacks a centrally
    coordinated quality review process to ensure that investigations are
    conducted in accordance with accepted investigative quality standards. With
    regard to human capital management, PWBA has given limited attention to
    addressing key issues, including succession planning and workforce retention
    despite significant anticipated future workforce and workload changes.
    Considering that more than half of PWBA's senior management staff will be
    eligible to retire in the next 5 years, this situation could undermine the
    continuity and effectiveness of its enforcement program. Finally, we also
    found that PWBA's performance measures focus primarily on program outputs,
    such as the number of specific investigations conducted, rather than PWBA's
    impact on improving plans' overall compliance with ERISA.

    The operational weaknesses and broader management issues that we identified
    in PWBA's enforcement program could affect its ability to effectively and
    efficiently carry out its responsibilities for enforcing ERISA's employee
    benefit plan provisions. Accordingly, we are making several recommendations
    intended to strengthen the Office of Enforcement's oversight and to enhance
    PWBA's ability to deploy its resources and better monitor the effectiveness
    of its operations. In its response to our draft report, PWBA acknowledged
    the need for more effective oversight and quality controls, and that there
    is a need to address the internal management issues we raised. PWBA also
    provided additional information on planned and current initiatives that they
    believe address a number of our recommendations. We made revisions to our
    draft report as appropriate.

    The Congress passed ERISA to address public concerns over the

    Background mismanagement and abuse of private sector employee benefit plans
    by some plan sponsors and administrators. ERISA is designed to protect the
    rights and interests of participants and beneficiaries of employee benefit
    plans and outlines the responsibilities of the employers and administrators
    who sponsor and manage these plans.

    Three agencies share responsibility for enforcing the provisions of ERISA:
    the Department of Labor's PWBA, the Department of the Treasury's Internal
    Revenue Service (IRS), and the Pension Benefit Guaranty Corporation (PBGC).
    PWBA enforces ERISA's fiduciary standards for plan fiduciaries of privately
    sponsored employee benefit plans to ensure that plans are operated in the
    interests of plan participants, that reporting and disclosure requirements
    covering the type and extent of information given to the federal government
    and plan participants are met, and that specific transactions prohibited by
    ERISA are not used by plans. Under Title I of ERISA, PWBA conducts
    investigations of plans and seeks appropriate remedies to correct violations
    of the law, including litigation when necessary. The IRS enforces Title II
    of ERISA and provisions that must be met which give plans tax-qualified
    status,2 including participation, vesting, and funding requirements.3 The
    IRS also audits plans to ensure compliance

    and can levy tax penalties or revoke the tax-qualified status of a plan, as
    appropriate. The PBGC, under Title IV of ERISA in contrast, provides an
    insurance safety net for the participants and beneficiaries of defined
    benefit pension plans.4 To do so, PBGC collects premiums from plan

    sponsors and then administers payment of pension benefits for terminated
    insufficient plans.

    Over the last several years, the number of plans, participants, and assets
    within PWBA's enforcement jurisdiction have increased (see figs. 1, 2, and
    3). PWBA's enforcement program includes a wide variety of pension and
    welfare plan sizes and types.5 The majority of pension plans under PWBA's

    jurisdiction are small plans that serve fewer than 100 participants.
    However, the majority of pension plan participants under PWBA's jurisdiction
    are in a relatively small number of large plans that each serve thousands of
    participants. Moreover, since the passage of ERISA in 1974, the types of
    employee benefit plans and the financial transactions for

    2 To achieve tax-qualified status, plans must comply with a number of
    requirements in the Internal Revenue Code governing the provision of
    contributions and benefits.

    3 ERISA includes minimum standards for how employees become eligible to
    participate in pension plans (participation standards), how employees earn a
    nonforfeitable right to their benefits (vesting standards), and how the
    plans are to be funded (funding provisions).

    4 Defined benefit plans pay specific retirement benefits, generally based on
    the number of years of service, earnings, or both. The sponsoring company is
    responsible for ensuring that plan assets are sufficient to pay benefits
    under the plan.

    5 Welfare plans are established and maintained to provide employee health
    benefits, disability benefits, death benefits, prepaid legal services,
    vacation benefits, child care, scholarship funds, apprenticeship and
    training benefits, or other similar benefits.

    which PWBA  must enforce ERISA provisions  have become increasingly complex,
    giving the agency additional enforcement responsibilities.6

    Figure 1: Employee Benefit Plan Universe under PWBA's Jurisdiction, 1995 to
    1998

    800 Number of Plans in Thousands

    700

    600

    500

    400

    300

    0

    1995 1996 1997 1998

    Plan Year

    Pension Plans Welfare Plans

    Note: Data for 1999-2001 are not yet available. Figure excludes insured and
    unfunded welfare plans with fewer than 100 participants, which are exempt
    from federal filing requirements, but for which PWBA has enforcement
    responsibility.

    Source: PWBA.

    6 PWBA's enforcement responsibilities have increased particularly because of
    legislative changes in the health care area. The Consolidated Omnibus Budget
    Reconciliation Act of 1985 (COBRA), which provides for the limited
    continuation of health care coverage for employees and their beneficiaries
    if certain events would otherwise result in a reduction of benefits,
    expanded PWBA's responsibilities under ERISA. Recently, the Health Insurance
    Portability and Accountability Act of 1996 (HIPAA), aimed at making health
    care coverage more portable and secure for employees, and the Newborns' and
    Mothers' Health Protection Act of 1996, the Mental Health Parity Act of
    1996, and the Women's Health and Cancer Rights Act of 1998 added new
    responsibilities to PWBA's education, compliance assistance, and enforcement
    functions.

    Figure 2: Number of Plan Participants under PWBA's Jurisdiction, 1995 to
    1998

    180 Number of Plan Participants in Thousands

    160

    140

    120

    100

    80

    0

    1995 1996 1997 1998 Plan Year

    Covered by Welfare Plans Covered by Pension Plans

    Note: Data for 1999-2001 are not yet available. Figure excludes insured and
    unfunded welfare plans with less than 100 participants, which are exempt
    from federal filing requirements, but for which PWBA has enforcement
    responsibility.

    Source: PWBA.

    Figure 3: Total Value of Assets Reported by Pension and Welfare Plans under
    PWBA's Jurisdiction, 1995 to 1998

    5 Dollars in Millions $4,589,900

    4

    3

    2

    1

    0

    1995 1996 1997 1998

    Plan Year

    Welfare Plans

    Note: Data for 1999-2001 are not yet available. Figure excludes insured and
    unfunded welfare plans with less than 100 participants, which are exempt
    from federal filing requirements, but for which PWBA has enforcement
    responsibility.

    Source: PWBA.

    PWBA's annual appropriations have risen in recent years, from $64 million in
    fiscal year 1994 to $108 million fiscal year 2001 (see fig. 4). PWBA
    earmarks its budget for three broad functions: (1) enforcement and
    compliance activities, which include conducting investigations of potential
    ERISA violations as well as reviews of plans' compliance with fiduciary,
    reporting, and disclosure standards; (2) policy, regulation, and public
    service activities, which include policy development and educational
    outreach programs; and (3) the agency's program oversight activities, which
    include providing internal administrative guidance. The enforcement and
    compliance activities are the main focus of PWBA's operations and account
    for $84 million or more than 75 percent of its budget in fiscal year 2001.

    Figure 4: PWBA's Annual Appropriations, Fiscal Years 1994 to 2001

    120 Dollars Rounded in Millions
    110
    100

    90

    80

    70

    60

    0

    1994 1995 1996 1997 1998 1999 2000 2001
    Fiscal Year

    Source: Budget of the United States Government, fiscal years 1994 to 2001.

    To accomplish its functions, PWBA relies on a relatively small but highly
    skilled and specialized staff.7 Full-time equivalent (FTE) staff levels at

    PWBA have risen from 575 in fiscal year 1994 to 850 in fiscal year 2001
    (see fig. 5).

    7 Many of PWBA's enforcement and compliance employees are attorneys or
    accountants.

    Figure 5: PWBA's Full-Time Equivalent Staffing, Fiscal Years 1994 to 2001

    900 Full-Time-Equivalent Staffing

    800

    700

    600

    500

    0

    1994 1995 1996 1997 1998 1999 2000 2001

    Fiscal Year

    Source: Budget of the United States Government, fiscal years 1994 to 2001.

    Over the years, PWBA has allocated the majority of its FTE increases to its
    enforcement and compliance function. Currently, the enforcement and
    compliance staff represent 80 percent of total PWBA staffing and most work
    in PWBA's 10 regional and 5 district offices (see fig. 6).

                Figure 6: PWBA's 10 Regional and 5 District Offices

    R.I. CONN.

    New York

    N.J.

    DEL. MD.

    Regional Office District Office

                                   Source: PWBA.

    PWBA Uses a Multifaceted Enforcement Strategy

    PWBA's enforcement strategy is a multifaceted approach of targeted plan
    investigations supplemented by providing education to plan participants and
    plan sponsors and a new voluntary correction program for plan officials that
    are carried out mainly by its regional offices. PWBA allows its regions the
    flexibility to tailor their investigations to address the unique issues in
    their regions, within a framework established by PWBA's Office of
    Enforcement. The regional offices then have a significant degree of autonomy
    in developing and carrying out investigations using a mixture of approaches
    and techniques they deem most appropriate. Investigations range from
    responding to participant and others' concerns to developing large-scale
    projects targeted at a specific industry, plan type, or type of violation.
    To supplement their investigations, the regions conduct outreach activities
    to educate both plan participants and sponsors. The purpose of these efforts
    is to gain participants' help in identifying potential violations and
    sponsors' help in properly managing their plans and avoiding violations. The
    regions also process applications for the new Voluntary Fiduciary Correction
    program through which plan officials can voluntarily report and correct some
    violations without penalty.

    PWBA Enforces ERISA Primarily Through Targeted Investigations

    PWBA attempts to maximize the effectiveness of its enforcement efforts to
    detect and correct ERISA violations by targeting specific cases for review.
    In doing so, the Office of Enforcement provides assistance to the regional
    offices in the form of broad program policy guidance, program oversight, and
    technical support. The regional offices then focus their investigative
    workloads to address the needs specific to their region. Investigative staff
    also have some responsibility for selecting cases.

    The Office of Enforcement identifies "national priorities"-areas critical to
    the well being of employee benefit plan participants and beneficiaries
    nationwide-in which all regions must target a portion of their investigative
    efforts. Currently, PWBA's national priorities involve investigating plan
    service providers,8 health benefit issues, and defined contribution pension
    plans.9 Officials in the Office of Enforcement said

    8 Plan service providers are third parties who assist plan sponsors in
    administering or providing other services to the plan.

    9 For a defined contribution pension plan, the employer establishes an
    individual account for each eligible employee and generally promises to make
    a specified contribution to that account each year. Employee contributions
    are also often allowed or required. The employee's retirement benefits
    depends on the total employer and employee contributions to the account as
    well as the investment gains and losses that have accumulated at the time of
    retirement or withdrawal. Therefore, the employee bears the risk of loss as
    to whether the funds available at retirement will provide a sufficient level
    of retirement income.

    that national priorities are periodically re-evaluated and are changed to
    reflect trends in the area of pensions and other benefits. For example,
    health benefit issues have recently risen in importance due to significant
    changes in health care delivery methods, the aging of the population, and
    PWBA's expanded role in enforcing health plan standards under recent
    legislation aimed at making health care coverage more portable and secure
    for employees. Likewise, PWBA has placed an increasing emphasis on defined
    contribution pension plans, which have become a rapidly growing segment of
    the pension plan universe, because these plans are not guaranteed by PBGC
    and the risk of loss in these plans falls entirely on the individual plan
    participants. According to Office of Enforcement officials, the national
    priorities are also used to help leverage PWBA's investigative staff. For
    example, the emphasis on investigating plan service providers recognizes
    that an abusive practice of one service provider could affect a multitude of
    individual benefit plans and participants. On the basis of its national
    investigative priorities, the Office of Enforcement has established a number
    of national projects. For fiscal year 2001, there were six national projects
    pertaining to a variety of issues, including the timely crediting of
    employee contributions to defined contribution plans and the compliance of
    health plans with recent legislative changes.

    The regional offices determine the focus of their investigative workloads
    based on their evaluation of the employee benefit plans in their
    jurisdiction and guidance from the Office of Enforcement. For example, each
    region is expected to conduct investigations that cover their entire
    geographic jurisdiction and attain a balance among the different types and
    sizes of plans investigated. In addition, each regional office is expected
    to dedicate some percentage of its staff resources to national and regional
    projects-those developed within their own region that focus on local
    concerns. In developing regional projects, each regional office uses its
    knowledge of the unique activities and types of plans in its jurisdiction.
    For example, a region that has a heavy banking industry concentration may
    develop a project aimed at a particular type of transaction commonly
    performed by banks. Currently, regional offices spend an average of about 40
    percent of their investigative time conducting investigations in support of
    national projects and almost 25 percentage of their investigative time on
    regional projects.

    In addition to working cases from the national and regional projects,
    investigative staff are responsible for identifying a portion of their cases
    on their own to complete their workloads and address other potentially
    vulnerable areas. Investigative staff in regions we visited told us that
    these individualized cases often originate from news articles or other
    publications on a particular industry or company as well as tips from

    colleagues in other enforcement agencies. Investigative staff and
    supervisors who responded to our survey indicated that leads from plan
    participants who call or write to the regions' benefit advisers for
    assistance are a major resource in targeting cases. The benefit advisers
    identify situations, including those where a participant's concerns may be
    indicative of broader violations, and refer these cases to the investigative
    staff.

    PWBA's investigative process generally follows a pattern of selecting,
    developing, resolving, and reviewing cases (see fig. 7). In fiscal year
    2001, PWBA expected to complete 6,954 investigations resulting from its
    enforcement activities.10 Of these, 2,065 investigations-about 30

    percent-were expected to be closed with results, such as plan assets being
    restored or protected. According to PWBA, its primary goal in resolving a
    case is to ensure that a plan's assets, and therefore its participants and
    beneficiaries, are protected. PWBA's decision to litigate a case is made
    jointly with the Department of Labor's Regional Solicitors' Offices.
    Although PWBA settles most cases without going to court, both the agency and
    the Solicitor's Office recognize the need to litigate some cases for their
    deterrent effect on other providers. According to PWBA, the decision to
    litigate is based on several factors, including the prospect of obtaining
    meaningful relief as a result of litigation, the nature of the violation,
    and consistency with PWBA's enforcement priorities.

    10 The number of investigations completed in a given year includes
    investigations opened in prior years and closed in the current year.

    Figure 7: Overview of PWBA's Investigative Process

                              Source: GAO's analysis.

    As part of its enforcement program, PWBA also detects and investigates
    criminal violations of ERISA. As a matter of policy, the Office of
    Enforcement requires the regional offices to limit the resources they use
    for criminal investigations to approximately 15 percent, to help maintain
    PWBA's focus on civil violations of ERISA. From fiscal years 1995 through
    2000, criminal investigations resulted in an average of 47 cases closed with
    convictions or guilty pleas annually. Part of PWBA's enforcement strategy
    includes routinely publicizing the results of its litigation efforts in both
    the civil and criminal areas, as a deterrent factor.

    PWBA Uses Education, Outreach, and a Voluntary Fiduciary Correction Program
    to Supplement Its Investigations

    To further leverage its enforcement resources to prevent and detect
    violations and promote overall compliance with ERISA, PWBA provides
    education to plan participants and sponsors and now allows the voluntary
    self-correction of certain transactions without penalty. PWBA's education
    program for plan participants aims to increase their knowledge of their
    rights and benefits under ERISA. The agency also conducts outreach to plan
    sponsors and service providers about their ongoing fiduciary
    responsibilities and obligations under ERISA. Also, PWBA recently initiated
    the VFC program to facilitate corrections by plan officials who want to come
    into compliance with ERISA regarding their past practices and ensure better
    compliance in the future.

    PWBA anticipates that educating participants and beneficiaries about their
    benefits, rights, and PWBA's enforcement authority will establish an
    environment in which individuals can help protect their own benefits by
    recognizing potential problems and notifying PWBA when issues arise. At the
    national level, education and outreach efforts are directed by PWBA's Office
    of Participant Assistance and Communication (OPAC), which develops,
    implements, and evaluates agencywide participant assistance and outreach
    programs and provides policies and guidance to other PWBA national and
    regional offices involved in outreach activities. PWBA's nationwide
    education campaigns include a retirement savings program, launched in July
    1995 and expanded after the passage of the Savings Are Vital to Everyone's
    Retirement Act of 1997,11 which we reported on earlier this year.12 PWBA
    started a similar nationwide effort in 1998 after the passage of health plan
    legislation to assist participants in understanding their medical benefits.
    Both educational campaigns encourage participants

    11 P.L. 105-92, Nov. 19, 1997.

    12  U.S.  General Accounting  Office,  Retirement  Saving: Opportunities  to
    Improve DOL's  SAVER  Act Campaign,  GAO-01-634 (Washington,  D.C.: June 26,
    2001).

    to call PWBA with questions and concerns about their employee-provided
    benefits, such as complaints about late contributions to their pension
    plans. Thus, these national outreach efforts are aimed at protecting
    participants and beneficiaries by giving them the information and means to
    protect themselves.

    PWBA's regional offices also assist in implementing national education
    initiatives and conduct their own outreach to address local concerns. The
    regional offices' approximately 90 benefit advisers provide written and
    telephone responses to participants. Benefit advisers and investigative
    staff also speak at conferences and seminars sponsored by trade and
    professional groups and participate in outreach and educational efforts in
    conjunction with other federal or state agencies.

    PWBA's efforts to educate plan sponsors and plan service providers aim to
    increase these groups' awareness of their responsibilities and rights under
    ERISA and its supporting regulations and procedures. At the national level,
    several PWBA offices direct specialized outreach activities. As with PWBA's
    participant-directed outreach activities, its efforts to educate plan
    sponsors and service providers also rely upon Office of Enforcement staff
    and the regional offices for implementation. For example, these staff make
    presentations to employer groups and service provider organizations about
    their ERISA obligations, and any new requirements under the law, such as
    reporting and disclosure provisions. PWBA staff also attend and make
    presentations at employee benefits seminars and conferences on ERISA.
    Additional outreach activities include developing partnerships with
    professional organizations associated with employee benefits. For example,
    several regional offices plan to work with state accounting societies to
    increase the societies' knowledge of conducting employee benefit plan
    audits.

    To supplement its investigative programs, PWBA is also taking steps to
    promote the self-disclosure and self-correction of possible ERISA violations
    by plan officials through its new VFC program, which went into effect on
    April 14, 2000. The purpose of the VFC program is to protect the financial
    security of workers by encouraging plan officials to identify and correct
    ERISA violations on their own. Specifically, the VFC program allows plan
    officials to identify and correct 13 transactions, such as delinquent
    participant contributions to pension plans and improper expenditures of plan
    funds. Under the VFC program, plan officials follow a process whereby they
    (1) correct the violation using PWBA's written guidance; (2) restore any
    losses or profits to the plan; (3) notify participants and beneficiaries of
    the correction; and (4) file a VFC application, which includes evidence of
    the corrected transaction, with the

    Weaknesses Identified in Management of Key Areas of Enforcement Program

    PWBA regional office in whose jurisdiction it resides.13 If the regional
    office determines that the plan has met the program's terms, it will issue a
    "no action" letter to the applicant and will not initiate a civil
    investigation of the violation, which could have resulted in a penalty being
    assessed against the plan.

    PWBA has taken actions to strengthen its enforcement activities since our
    last review; however, we identified areas in which PWBA could make further
    improvements. Agencies need a strategic management process to position
    themselves to meet future challenges. Such a process should provide agencies
    with a framework for planning, implementing, and evaluating initiatives
    needed to accomplish the organization's mission. Effective program
    oversight, human capital management, and program performance measures are
    three of the ingredients of such a framework. We identified weaknesses at
    PWBA in these functions. Specifically, weaknesses exist in PWBA's program
    oversight and coordination in several key areas of its enforcement program,
    including estimating the nature and extent of plans' noncompliance with
    ERISA for planning purposes and maintaining a centralized review process to
    help ensure that investigations are conducted in accordance with quality
    standards. With regard to human capital management, PWBA has given limited
    attention to key issues, such as succession planning and workforce
    retention, despite anticipated future workforce and workload changes.
    Additionally, the performance appraisal system for investigative staff may
    undermine effective case selection and the quality of investigations.
    Finally, we found that PWBA's performance measures focus primarily on
    program outputs rather than on PWBA's overall impact.

    Weaknesses in Office of Weaknesses exist in PWBA's current program oversight
    and coordination Enforcement's Oversight of the enforcement program by the
    Office of Enforcement in six key areas. of the Enforcement Specifically, we
    found that PWBA

    Program * lacks data on the extent of plans' noncompliance with ERISA,

    * lacks a systematic review to improve its selection of cases,

    * provides limited sharing of "best practices" information,

    13 PWBA's guidance includes a VFC Fact Sheet on its Internet site and
    Federal Register Notice, Volume 65, Number 51, "Voluntary Fiduciary
    Correction Program," March 15, 2000. Also, to be eligible for the VFC
    program, plans and applicants must not be under investigation by PWBA, and
    the application must not contain evidence of potential criminal violations,
    as determined by PWBA.

    *  has limitations  on its  use of  technology for selecting  and developing
    investigations,

    * provides a limited quality review process for closed cases, and

    * has not achieved the level of expected participation in its Voluntary

    Lack of Data on the Extent of Plans' Noncompliance with ERISA May Undermine
    Enforcement Planning Efforts

    Fiduciary Correction program.

    Because the enforcement strategy is implemented through decentralized
    regional offices, the need for central oversight and coordination is
    critical to ensure that the agency is conducting quality investigations that
    cover the range of potential violations and variety of plans within its
    jurisdiction. In short, the Office of Enforcement needs to ensure that it
    has the people, processes, and technology in place to effectively and
    efficiently carry out the enforcement activities.

    To date, PWBA has not systematically estimated the nature and extent of
    employee benefit plans' noncompliance with ERISA provisions. Therefore, PWBA
    cannot ensure that it is accurately identifying the areas in which it needs
    to focus to most efficiently and effectively allocate its limited resources.
    Furthermore, the lack of reliable data on overall plan noncompliance may
    reduce the effectiveness of PWBA's education and outreach programs. For
    example, if PWBA does not know the extent of a certain type of problem, it
    cannot gear its education and outreach to the plan sponsors to help correct
    and prevent further violations. In addition, the lack of such information
    may prevent PWBA from accurately measuring the overall performance of its
    enforcement program.

    In January 2000, PWBA issued a memorandum exploring the feasibility of
    developing a baseline of noncompliance with ERISA for pension plans.
    However, PWBA concluded that such an effort would require PWBA's full
    investigative staff 90 years to fully and accurately complete. PWBA proposed
    estimating the level of noncompliance within the entire pension plan
    population under its enforcement jurisdiction through large samples that
    would allow it to draw conclusions about the plan population with a high
    level of confidence and precision. However, PWBA did not consider analyzing
    the level of noncompliance by using a smaller sample size and a lower, but
    still acceptable, level of precision than it originally considered. Nor did
    PWBA propose targeting specific segments of the plan population-i.e.,
    certain plan types, such as defined contribution pension plans, or specific
    industry categories, such as manufacturing-to incrementally assess the level
    of noncompliance for these areas. Either of these alternatives would likely
    have required less time and resources.

    Currently, PWBA carries out the strategic planning activities for its
    enforcement program based on previous experiences in dealing with

    Lack of Systematic Review to Improve Its Case Selection Processes

    violations of ERISA provisions, as well as perceived and reported areas of
    risk. However, strategic planning based on such an approach may fall short
    in identifying and accounting for the level and range of violations within
    PWBA's enforcement jurisdiction. We believe that PWBA should consider
    alternative, potentially less resource intensive, methods for assessing the
    level of plans' noncompliance. Such an approach could entail systematic and
    periodic reviews based on representative samples of the entire plan
    population or by plan type or industry sector. For example, PWBA could
    perform studies similar in concept to one issued by the IRS in 1998 that
    examined a specific segment of the pension plan population to identify areas
    in which those plans failed to comply with the Internal Revenue Code. PWBA
    has already taken some actions in this regard. For example, in fiscal year
    1999, PWBA undertook a limited survey of a sample of health plans to gauge
    the level of compliance among these plans, which we discussed in a prior
    report.14 PWBA could build upon this approach to

    cover all of the employee benefit plans under its enforcement jurisdiction.
    Such analyses could be more helpful in identifying areas of simple confusion
    or error on the part of plan providers in interpreting ERISA provisions, as
    well as areas consistently vulnerable to fraud and abuse. PWBA could use the
    information from these analyses to enhance its overall enforcement strategy,
    by shifting its resources to areas of greatest need or to specific problem
    areas, as well as enhance its plan provider outreach and education efforts.
    This information would also enable PWBA to develop more effective
    performance measures to better assess its enforcement strategy's impact on
    improving compliance with ERISA.

    PWBA has not routinely analyzed the full range of cases investigated in
    order to determine which sources of cases are most effective in terms of
    detecting and correcting violations. The "sources of cases" are the original
    leads that brought the potential violation to PWBA's attention, such as a
    participant inquiry, a newspaper article, or a national or regional project.
    Such an analysis is critical to assist the regional offices in evaluating
    whether their investigative resources are focused in the most effective and
    efficient areas. Officials in the Office of Enforcement and several regional
    offices we visited told us that PWBA faces an overabundance of work and that
    they must manage multiple workload priorities. However, the effectiveness of
    prior sources of cases is a key piece of information that is

    14 See U.S. General Accounting Office, Private Health Insurance: Federal
    Role in Enforcing New Standards Continues to Evolve, GAO-01-652R
    (Washington, D.C.: May 7, 2001).

    Limited Coordination and Sharing of "Best Practices" Information

    missing from PWBA's current workload priority and resource allocation
    decisions.

    Previously, from fiscal year 1986 through fiscal year 1990, PWBA's Office of
    Policy and Research performed annual sources of cases evaluations that the
    agency says were aimed at ensuring that it was focusing its investigative
    resources on those cases that allowed it to maximize its effectiveness.
    However, the agency discontinued these analyses due to staff shortages. In
    November 2001, however, the Office of Enforcement completed another such
    analysis using data from its fiscal year 1999 investigations. The Office of
    Enforcement plans to perform such analyses on an annual basis, but is
    uncertain whether it will have sufficient resources to do so.

    Our review shows that the Office of Enforcement does not centrally
    coordinate the identification and sharing of best practices information
    among regions regarding case selection and investigative techniques. Limited
    coordination occurs in certain respects, such as the Office of Enforcement's
    provision of audit guides for specific national projects and within some
    regional offices regarding investigative techniques. However, the absence of
    a more formalized centrally managed process could lead to missed
    opportunities to increase the effectiveness of PWBA's enforcement efforts
    and leave the agency vulnerable to duplication of effort by its
    investigative staff.

    Almost half of the investigative staff and their immediate supervisors who
    responded to our survey indicated that best practices information is shared
    within their region, but only on an informal basis. Management and some
    staff in one regional office we visited said that such information was not
    shared because it is considered "proprietary" in that it belongs to the
    individual investigator who developed it. These staff believed that the
    agency's performance appraisal system placed investigative staff in
    competition with each other for pay raises and promotions and that sharing
    an investigator's successful methods would negate their advantage over
    others. Numerous investigative staff told us that, at times, the lack of
    information sharing forced them to "reinvent the wheel" with each new
    investigation, which wasted valuable time and staff resources. Regarding the
    sharing of best practices information across regions, fewer than half of the
    respondents to our survey believed this takes place. During our regional
    office visits, some investigative staff told us that only limited and
    informal sharing takes place because of competition among the regions.

    Representatives from the Office of Enforcement acknowledged that they could
    do a better job disseminating information among regions and

    Weaknesses in Technology Used for Selecting and Developing Investigations

    sharing best practices. However, they said that PWBA lacked the resources to
    conduct a major effort in this area. Currently, the Office of Enforcement
    disseminates information to the regions through annual training seminars
    conducted to explain policy and regulatory changes and quarterly regional
    managers' meetings.

    We found that weaknesses remain in PWBA's use of technology for selecting
    plans to be investigated as well as its technological supports for
    developing information once a case has been opened. PWBA acknowledges that
    heavy reliance on technology is critical to its mission due to the small
    size of its workforce. In 1994, we reported that PWBA had done little to
    test the effectiveness of the computerized targeting runs it was using to
    select cases for investigation. Since then, PWBA has scaled down both the
    number of computerized runs available for staff to use and its reliance on
    these runs as a primary means of selecting cases. Accordingly, only 34
    percent of all respondents to our recent survey indicated that case
    selection via preset computer searches of plan filings15

    was an effective method to identify cases involving ERISA violations.
    Several investigative staff we interviewed also explained that the
    computerized targeting runs were not very effective because source data were
    too old and the computer system did not allow them to customize targeting
    runs. PWBA recognizes these shortcomings and is attempting to improve
    computer-based targeting for investigative staff by developing both a
    quicker processing system for plan filings-the ERISA Filing Acceptance
    System (EFAST)-and a new targeting system-the ERISA Data System (EDS).

    According to PWBA officials, EDS will provide investigative staff with
    enhanced targeting and research capabilities over previous PWBA systems. For
    example, staff will have the ability to perform ad hoc or customized
    inquiries to probe certain plan types, transactions, and employers in a
    specific sector directly from their computer. Previously, investigative
    staff were required to send requests for these types of inquiries to the
    Office of Enforcement for processing. In addition, EDS will have a selection
    of preset targeting runs to assist in case selection. Enforcement officials
    also plan to evaluate the preset targeting runs

    15 Pension, welfare, and fringe benefit plans are generally required to file
    an annual report on their financial condition, investments, and operations
    called the Form 5500 Annual Return/Report of Employee Benefit Plan. The
    Department of Labor, IRS, and PBGC jointly develop and maintain the Form
    5500 series so employee benefit plans could satisfy annual reporting
    requirements under Title I and Title II of ERISA and under the Internal
    Revenue Code.

    formerly available under its predecessor systems and, where appropriate,
    integrate them into EDS.

    Despite PWBA's efforts, the agency may not fully benefit from EDS in the
    near future because of delays in the implementation of EFAST, which supplies
    the underlying data. In August 2000, EFAST began preliminary operations,
    such as document scanning, to process plan year 1999 filings. However, due
    to system development delays, complete plan data from that year and
    subsequent filing years are still not available electronically for
    investigative staff use. According to PWBA officials, by the end of fiscal
    year 2002 the system should be operating so that complete filing data are
    online and accessible to investigative staff within 1 year of receipt by
    PWBA. Meanwhile, investigative staff told us they often compensate for the
    lack of internal computer-targeting tools by using public domain databases
    that contain basic information from more recent plan filings for their
    research. Delays in the implementation of the EFAST system may also affect
    IRS enforcement and PBGC regulatory activities, which are dependent on EFAST
    plan filing data. Until EFAST is fully implemented, PWBA's ability to
    provide timely and quality plan filing data remains a concern and a
    potential area for further evaluation.

    Weaknesses also exist in PWBA's provision of external databases to
    investigative staff for collecting and researching information to develop
    cases. According to investigative staff, databases containing legal,
    economic, and corporate demographic information are a useful research tool.
    However, 63 percent of the investigative staff and 83 percent of the
    supervisors responding to our survey indicated that they do not have
    adequate or timely access to Internet databases that are needed to perform
    their work. Several investigative staff in the regions we visited told us
    that they used the Internet to gain access to a wide range of information
    sources to develop case leads and conduct investigations, such as news
    stories about economic events and activities of major employers in their
    region. However, according to officials in PWBA's Office of Information
    Management, access to several of these databases is limited to a set number
    of investigative staff in each region mainly due to cost. For example, in
    two regional offices we visited staff told us that only select individuals
    had access to key research databases, which meant that all investigative
    staff inquiries were passed through them. According to staff we spoke with,
    this process was both time-consuming and cumbersome.

    Closed Case Review Process Our review also found that PWBA lacks a centrally
    coordinated quality

    May Not Adequately Ensure review process to ensure that its investigations
    are conducted in

    Work Quality accordance with its investigative procedures. Government
    auditing standards and GAO internal control principles emphasize the
    importance

    of having a quality control process to ensure that audits and other reviews
    of government operations are conducted in a manner to help improve the
    performance of those operations. In 1999, the Office of Enforcement formally
    assigned the responsibility for performing quality assurance reviews on
    closed cases to its regional offices. However, the Office of Enforcement
    does not provide procedures or guidance for the regions responsible for
    conducting such reviews.

    We contacted all 10 regions and found that three regions did not have a
    quality review process for examining closed cases while others had only a
    limited process. Management officials at the seven regional offices with
    closed case review programs told us that the results of their reviews are
    used for quality improvement and staff development purposes. However, we
    believe that regional policies and procedures for conducting these reviews
    may limit their utility in assessing the quality of investigations. First,
    auditing and internal control standards require that officials performing
    quality control reviews should be organizationally independent of the unit
    being reviewed but this was not the case in the regional offices. A lack of
    independence creates potential biases in case selection and review that
    could limit the value of PWBA's quality assurance efforts. In regions with
    review programs, the associate or deputy regional directors, officials who
    are not fully independent of the work, conduct the quality reviews. In one
    region we found that group supervisors, who are even closer to the
    performance of investigations, select cases to be reviewed, a practice
    performed by associate or deputy regional directors in the six other
    locations. Second, management in regions with review programs noted that
    their closed case reviews were administrative in nature and generally
    focused on whether case procedures and forms had been documented. While this
    type of internal control activity has value, PWBA's reviews rarely address
    the technical merits of cases. We found that only one region's review
    process evaluated substantive technical case issues. Third, we found
    variation in how regions captured and reported the results of their reviews.
    Management officials in five of the seven regions with review programs
    provide written reports documenting their findings to the regional director,
    while officials in the sixth and seventh regional offices convey their
    results orally to staff in regional training and verbally to the regional
    director, respectively. The Office of Enforcement does not require the
    regions to report their findings and thus cannot ensure the quality of
    PWBA's investigations nationwide.

    An effective quality control system is important considering that PWBA's
    enforcement resources are already highly leveraged and it will face
    increasing future workload challenges. Thus it is essential that PWBA's
    quality control system ensure the independence of individuals responsible

            Low Participation in Voluntary Fiduciary Correction Program

    for closed case quality reviews. In addition to addressing administrative
    issues, these reviews should focus on substantive technical case issues to
    provide more assurance that established policies, procedures, and
    investigative standards are followed. Such a system should also include
    mechanisms to provide constructive feedback to staff and to make any
    necessary improvements in program policies and operations.

    PWBA has not realized the level of participation in the VFC program that it
    expected at the program's inception. When PWBA announced the program, it
    anticipated that up to 700 plans would apply for and use the program within
    its first year. As of July 2001-approximately 15 months after the program's
    inception-PWBA reported that only 37 plans had submitted 60 applications for
    this program. PWBA officials acknowledged that the VFC program is a "work in
    progress," and they are optimistic that it will expand and thus contribute
    to the effectiveness of the enforcement program. Specifically, PWBA believes
    that the voluntary correction of violations through the program will be less
    costly than direct intervention and will allow the agency to further
    leverage its limited investigative resources. PWBA officials also told us
    that the number of VFC program applications received alone does not fully
    capture the benefits of this program, because some plan sponsors may use the
    program's guidance to correct possible ERISA violations without filing an
    application with PWBA. While employee benefit industry officials cite
    benefits of the VFC program, such as the absence of user fees or penalties,
    they expressed concern that some of the program's current requirements
    hinder participation. For example, the program requires plan officials to
    notify all plan participants of the potential violation and the ensuing
    correction, a step they are not required to follow when they are subject to
    a traditional PWBA investigation. Benefit experts also cited PWBA's
    requirement to refer plans to the IRS for the levying of an excise tax on
    each prohibited transaction corrected as another potential barrier.16 Given
    PWBA's

    expectations of the VFC program to promote overall compliance with ERISA and
    leverage its enforcement resources, we believe that PWBA needs to closely
    monitor and analyze the barriers to participation in the program and the
    program's effect on its enforcement strategy.

    16 PWBA's VFC Program Notice states that section 3003(c) of ERISA obligates
    Labor to report prohibited transactions to the IRS. Under section 4975 of
    the Internal Revenue Code, the IRS may levy a 15-percent excise tax on
    prohibited transactions.

    Human Capital Management Has Received Limited Attention

    Our review showed that PWBA has given limited attention to human capital
    management despite anticipated workforce and enforcement workload changes.
    Although PWBA has developed training and mentoring programs for its new
    staff, it has only begun to consider the larger issues of workforce
    planning, including succession planning and workforce retention. This
    situation could undermine the continuity and effectiveness of the
    enforcement program because more than half of the PWBA senior management
    staff present on September 30, 2000, will be eligible to retire in the next
    5 years. Finally, our review found that PWBA's current performance appraisal
    system for investigative staff may be causing unintended, undesirable
    behaviors regarding the selection and prioritization of cases as well as the
    sharing of best practices.

    Human capital management functions are carried out by the Office of Program
    Planning, Evaluation, and Management (OPPEM). OPPEM has recently begun to
    look into the issues that drive workforce planning, but it has not
    implemented plans to prepare for the retirement of many of PWBA's managers
    or to help ensure the retention of highly qualified employees. Similar to
    the rest of the federal government, PWBA faces the possible retirement of
    many of its employees in the near future, especially at the senior
    management level. This situation could compromise PWBA's ability to manage
    its enforcement program efficiently and effectively. By fiscal year 2006, 21
    percent of PWBA's employees agency wide and 55 percent of PWBA's senior
    managers will be eligible to retire. In addition, PWBA faces recruitment and
    retention problems. The agency ended fiscal year 2000 unable to fill 8
    percent of its authorized positions, including its national criminal
    coordinator position, which remained unfilled as of the end of November
    2001. PWBA's attrition rate is also one of the highest within the Department
    of Labor. In fiscal year 2001, PWBA's rate of attrition was 9.7 percent
    compared with Labor's overall rate of 7.6 percent.

    OPPEM officials have acknowledged the importance of addressing attrition and
    future retirement needs. To that end, OPPEM recently collected data from
    regional management on the skill mix needed to perform the future work of
    the agency. OPPEM has not yet implemented the steps necessary to facilitate
    employee retention and the smooth succession of senior staff, but
    anticipates using the collected data to develop specific strategies to
    ensure a skilled workforce in the future. In addition, OPPEM has begun to
    consider potential actions within its control to address the upward trend in
    attrition, including the adoption of retention bonuses and pay banding.
    OPPEM also recently developed an exit survey to better understand the
    reasons why employees are leaving the agency. Nevertheless, PWBA still lacks
    a comprehensive human capital plan or strategy that is linked to its current
    and future workforce needs.

    Sound human capital management practices dictate that organizations should
    periodically engage in strategic planning and analyses to better position
    themselves to meet future challenges. Our prior work on human capital
    management planning also suggests that strategies should be linked to
    current and future human capital needs, including the size of the workforce;
    its deployment across the organization; and the knowledge, skills, and
    abilities needed by agencies. Staff deployment, both geographically and
    organizationally, should also enhance mission accomplishment and provide for
    efficient, effective, and economical operations.17

    In addition, PWBA's performance appraisal system may serve as a disincentive
    to conducting quality casework and sharing best practices information and,
    therefore, has the potential to undermine the agency's enforcement program.
    In 1997, PWBA added a dimension to its rating system that evaluates
    investigative staff on the number of cases closed during the year.
    Investigative staff receive a set amount of points for closing a case based
    on the type of case and how it was resolved. The rating form used to
    calculate the points for cases closed does not include points for case
    complexity, number of violations found, or number of participants and
    beneficiaries affected. However, supervisors can grant additional
    discretionary points to investigators based on the above factors. Although
    the point minimum is only one dimension in the rating system, we believe
    that it may act as a disincentive in some cases in that staff are not
    motivated to complete a range of investigations that includes plans of
    different sizes and degrees of complexity. During field visits,
    investigative staff and their supervisors expressed concern about the
    point-rating system. In addition, 50 percent of all the investigative staff
    and their immediate supervisors who responded to our survey believed the
    rating system to be ineffective at motivating staff to initiate and complete
    a wide range of investigations. Among supervisors responding to our survey,
    more than one-third noted that the rating system is ineffective. Only 21
    percent of all survey respondents believed the system to be effective.
    Respondents who believed the rating system to be ineffective were generally
    concerned that the current system (1) placed too much emphasis on quantity,
    rather than the quality of work performed; (2) caused investigative staff to
    focus more heavily on less complex plans and to perform more investigations
    of small plans; and (3) placed too much emphasis on monetary results. We
    believe that PWBA could strengthen its rating system by better incorporating
    case complexity into the point scale

    17  U.S.  General  Accounting  Office,   Human  Capital:  A  Self-Assessment
    Checklist for Agency Leaders, GAO/OGC-00-14G (Washington, D.C.: Sept. 2000).

    and considering additional measures to account for the overall impact of the
    case on plan participants and beneficiaries.

    PWBA's current rating system for investigative staff also lacks a teamwork
    dimension. As previously noted, enforcement staff engage in only limited
    sharing of best practices both within and across PWBA's regions. Our prior
    work on human capital management has found that leading organizations foster
    cultures in which individual employees interact, support, and learn from
    each other as a means of contributing to the high performance of their peers
    and their organization as a whole.18 Thus,

    PWBA may foster greater sharing of best practices among its investigative
    staff and enhance the effectiveness of its overall enforcement program by
    adding a teamwork dimension.

    Finally, we identified a productivity requirement used by one region we
    visited which supplements PWBA's rating system for investigative staff and
    may have implications for case quality. This region requires its
    investigative staff annually to process 30 cases and to refer 2 cases to
    Labor's Regional Solicitor for litigation. Investigators we spoke with in
    that region and respondents to our survey indicated that this additional
    requirement sometimes causes them to focus on less complex cases rather than
    those that may take longer to resolve. Management in that regional office
    explained that the "30/2" standard was a goal for staff to strive toward and
    not a requirement. However, an internal regional memorandum we obtained
    indicated that this standard is tied to the "timeliness" performance
    standard in the rating system. Officials in the Office of Enforcement told
    us that they were unaware of any additional "unofficial" expectation being
    established in the region.

    Performance Measurement System Provides Limited Assurance of Overall Program
    Effectiveness

    While PWBA's performance goals and measures have evolved over time, several
    still do not help PWBA assess the impact of its enforcement program on
    improving overall compliance with ERISA. Performance measures that are
    included in agencies' annual performance plans should indicate progress
    towards their goals and should be objective, measurable, and quantifiable.
    PWBA's program performance measures fall short of this requirement in that
    they generally focus on how well it is managing and using its resources-such
    as the number of specific investigations conducted-rather than on PWBA's
    overall impact on improving the security of employee benefits.

    18 GAO/OCG-00-14G.

    The performance measures that PWBA uses to track progress towards meeting
    its enforcement goals have improved since it published its first strategic
    plan in fiscal year 1999. For example, beginning in fiscal year 2001, PWBA
    began to use separate measures for pension and welfare plans related to
    deterring and correcting violations of relevant statutes. We had reported
    that the previously combined measures could have masked poor performance in
    one of these areas and hindered PWBA's efforts to monitor and measure two
    distinct workloads. Also since its first strategic plan, PWBA has increased
    the numeric performance target goals for several of its enforcement-related
    workloads, which shows that the agency is attempting to increase
    productivity. For example, from fiscal year 1999 to fiscal year 2002, PWBA
    increased its target for the percentage of civil investigations closed with
    corrected violations from about 16 percent to nearly 36 percent. In
    addition, several of PWBA's enforcement-related performance measures have a
    quality component and focus on actual results achieved, such as closed
    investigations where assets or participant benefits are restored. These
    quality-focused measures provide a useful framework for management to
    communicate its investigative priorities and may serve as an incentive for
    supervisors and investigative staff to pursue the most productive case
    leads.

    Despite these changes, room for improvement remains in PWBA's current
    enforcement-related performance measures (see table 1). PWBA continues to
    aggregate performance measures for separate program activities into a single
    overall measure, which makes it difficult to assess performance. For
    example, for closed fiduciary investigations of pension and health plans,
    PWBA aggregates and reports the number of cases with four types of
    results-(1) restored assets, (2) corrected prohibited transactions, (3)
    recovered participant benefits, and (4) plan assets protected from
    mismanagement and risk of future loss is reduced. As a result, assessing
    whether the goal is actually being met may be difficult, because success in
    one of the four elements may obscure failure in another.19

    19 We previously criticized this performance measure in our assessment of
    Labor's fiscal year 2002 annual performance plan. See U.S. General
    Accounting Office, Department of Labor: Status of Achieving Key Outcomes and
    Addressing Major Management Challenges, GAO-01-779 (Washington, D.C.: June
    15, 2001).

      Table 1: PWBA's Enforcement-Related Performance Measures for Fiscal Year
                                        2002

                             Performance measure Target

    Increase by 5 percent per year the number of closed civil investigations
    1,993
    of employee pension plans where assets are restored, prohibited
    transactions are corrected, participant benefits are recovered, or plan
    assets are protected from mismanagement and risk of future loss is
    reduced.

    Increase by 5 percent per year the number of closed civil investigations 620
    of employee health and welfare plans where assets are restored,
    prohibited transactions are corrected, participant benefits are recovered,
    or plan assets are protected from mismanagement and risk of future loss
    is reduced.

    Increase by 3 (to 10) the number of closed fiduciary investigations where
    plan assets are protected by filing a proof of claim or adversary complaint
    in a bankruptcy action.

    Increase by  1 percent per year  the ratio of closed  civil cases with 51.83
    percent corrected violations to total civil cases closed.

    Increase by .25 percent per year the ratio of criminal cases referred for
    43.41 percent prosecution to United States Attorneys or to State prosecutors
    to total criminal cases closed.

    Increase by  2 percent  benefit recoveries for  individuals achieved through
    $67 million the assistance of Benefit Advisers.

    Source: PWBA's fiscal year 2002 Revised Final Annual Performance Plan.

    In addition, some of PWBA's performance measures may not be sufficiently
    defined to help ensure that the agency properly tracks its achievements. For
    example, PWBA's fiscal year 2000 measure to track the assistance provided by
    benefit advisers aims to increase by 2 percent the amount of their benefit
    recoveries-the dollar value of benefits returned to participants. In its
    fiscal year 2000 performance report, PWBA stated that it met this goal.
    However, in this assessment PWBA also counted benefits protected-the dollar
    value of benefits prevented from being lost, which typically involve health
    plans. Thus, it was unclear whether PWBA met its goal as originally defined.
    This characterization of the goal persists in PWBA's fiscal year 2001 and
    2002 annual performance plans.

    Finally, our review identified the need for additional measures to more
    fully assess the effectiveness of the enforcement program. About one-third
    of all survey respondents indicated that PWBA needed additional measures
    than those currently being used to assess the enforcement functions. These
    survey respondents and investigative staff we spoke with in the regions
    generally noted that PWBA's existing measures placed too much emphasis on
    numbers of investigations conducted and monetary recoveries and too little
    emphasis on the number of plan participants and beneficiaries helped by
    PWBA's enforcement program. For example, a

    relatively simple pension plan case could lead to millions of dollars in
    recoveries but help few participants whereas a complex welfare plan case may
    yield little in monetary recoveries but substantially help many
    participants. However, PWBA does not currently have any annual performance
    plan measures that track the number of employee benefit plan participants
    helped by PWBA's enforcement efforts.

    Conclusions

    Recommendations for Executive Action

    PWBA is a relatively small agency facing the daunting challenge of
    safeguarding the economic interests of millions of Americans by overseeing
    the providers of employee benefit plans. Over the years, PWBA has taken
    steps to strengthen its enforcement program and leverage its resources. The
    agency has placed the majority of its resources into its enforcement
    program, decentralized its investigative authority to the regions, and made
    improvements in technology. All these actions contributed to what is,
    overall, a well-run program. However, we found that PWBA currently provides
    limited national oversight and coordination in key areas that have the
    potential to impede the operations and overall effectiveness of its
    enforcement program over the long term. Thus, it is important that PWBA take
    steps as soon as possible to improve weaknesses in its case selection
    analyses, best practices sharing, and quality assurance processes. In the
    longer term, PWBA needs to readdress whether and how it can better assess
    the level of noncompliance with ERISA and take steps to link this assessment
    with its human capital initiatives and resource allocation decisions. The
    ever-changing complexities of employee benefit plans and their financial
    transactions coupled with the imminent retirement of a large portion of
    PWBA's workforce heighten the need for PWBA to act more strategically to
    ensure that it designs the most efficient and effective enforcement program
    to address its workloads.

    To improve the agency's management of the enforcement program, we recommend
    that the Secretary of Labor direct the Assistant Secretary of Labor, PWBA,
    to take the following actions:

    Direct the Office of Enforcement to improve its oversight role in key areas.

    * Develop a cost-effective strategy for assessing the level and type of
    ERISA noncompliance among employee benefit plans. Such a strategy should
    include an assessment of the feasibility of using sampling and/or segmenting
    the plan universe to allow PWBA to determine the level of noncompliance with
    an acceptable level of confidence.

    * Institutionalize and conduct regular reviews of the sources of cases that
    lead to investigations.

    * Coordinate the sharing of "best practices" information among regions
    relating to the optimum and most productive techniques for selecting and
    conducting investigations.

    * Develop a closed case quality review process that ensures the independence
    of reviewers and sufficiently focuses on substantive technical case issues.

    * Monitor and analyze the barriers to participation in the Voluntary
    Fiduciary Correction program and explore ways to reduce them.

    Direct the Office of Program Planning, Evaluation, and Management to improve
    PWBA's human capital functions.

    * Conduct a comprehensive review of PWBA's future human capital needs,
    including the size and shape of the workforce; the knowledge, skills, and
    abilities needed; succession planning challenges; and staff deployment
    issues.

    * Reevaluate the performance rating system for enforcement staff to ensure
    that case complexity and teamwork issues receive sufficient emphasis.

                                   PWBA's Comments
                                 and Our Evaluation

    We provided a draft of this report to PWBA for review and comment. PWBA's
    comments are included in appendix III, followed by our brief response to
    some inaccuracies in PWBA's January 31, 2002, comment letter. PWBA also
    provided additional technical comments on our draft report, which we
    incorporated where appropriate. In its response to our draft report, PWBA
    acknowledged the need for more effective oversight and quality controls, and
    that there is a need to address the internal management issues we raised.
    PWBA also provided additional information on planned and current initiatives
    that they believe address a number of our recommendations. PWBA disagreed
    with one of our observations that its aggregation of performance measures
    for separate program activities into a single overall measure makes it
    difficult to assess performance. Our reply to PWBA follows below. We
    acknowledge PWBA's continuing efforts to improve its ERISA enforcement
    program but believe that implementing our recommendations will further
    strengthen the program.

    In response to our recommendation that PWBA develop a cost-effective
    strategy for assessing the level and type of ERISA noncompliance among
    employee benefit plans, PWBA cited an ongoing project to gauge health plans'
    compliance with ERISA. PWBA noted that upon compiling the results of this
    project, it would gauge the use of such reviews. We revised our report to
    reflect this initiative. We acknowledge PWBA's efforts in this

    area but believe that PWBA could build upon this existing work to better
    assess the level and type of ERISA noncompliance for the entire plan
    universe, including pension and welfare plans, under its enforcement
    jurisdiction.

    Regarding our recommendation that PWBA institutionalize and conduct regular
    reviews of the sources of cases that lead to investigations, PWBA responded
    that it completed a Case Opening and Results Analysis 1999 Baseline Study in
    November 2001, and that it will produce similar reports in future years. We
    revised our report to reflect that PWBA had completed this analysis. As we
    noted in our report, PWBA's last sources of cases analysis was performed in
    1990, and we believe that conducting such analyses on a regular, more
    frequent basis is important to evaluating whether PWBA's investigative
    resources are focused in the most effective and efficient areas. We believe
    that the results of these reviews will also help assist PWBA's future
    workload and resource allocation decisions.

    In response to our recommendation that PWBA coordinate the sharing of "best
    practices" information among regions for selecting and conducting
    investigations, PWBA noted that sharing among senior field managers does
    occur and cited various activities in place to foster information sharing.
    However, PWBA agreed to find ways to address the problem to the extent that
    it exists. Our survey results indicate that PWBA may need to take actions to
    foster staff-to-staff information sharing. Considering that more than half
    of the investigative staff that responded to our nationwide survey felt that
    formal sharing across regions does not occur, PWBA should take additional
    steps to assess how best practices sharing among regions- including at the
    staff level-can be improved.

    In response to our recommendation that PWBA improve its closed-case quality
    review process to ensure reviewer independence and that substantive
    technical issues are addressed, PWBA agreed that a quality review program is
    important. However, PWBA stated that given its organizational structure,
    none of its components are totally independent of the enforcement process.
    PWBA agreed to discuss our findings with its Regional Directors and explore
    possible modifications and improvements. PWBA also noted that it has a
    number of processes for reviewing staff work products and case summaries
    during ongoing assignments. We are aware of PWBA's product review process as
    depicted in Figure 7 of our draft report. However, we found that only one
    region's closed-case quality assurance review process addressed substantive
    technical case issues to ensure that established policies, procedures, and
    investigative standards are followed. Given the importance of independent
    and substantive quality

    assurance reviews to ensuring the integrity of its enforcement program, we
    believe that PWBA needs to address the deficiencies noted.

    Regarding our recommendation that PWBA monitor and analyze the barriers to
    participation in the Voluntary Fiduciary Correction (VFC) program, PWBA told
    us that it is assessing potential barriers, including the VFC's general
    notice and excise tax reporting requirements. These requirements were noted
    as potential barriers to participation in our draft report. Given PWBA's
    stated expectations for the VFC program-which include allowing PWBA to
    leverage its investigative resources and the correction of violations in a
    less costly manner than via its direct intervention-ongoing attention to
    this program is needed to increase participation over current levels.

    PWBA cited various current and planned activities related to human capital
    management and succession planning in response to our recommendation that it
    conduct a comprehensive review of its future human capital needs. However,
    the activities PWBA cited are primarily stand-alone efforts and are not
    linked to an agency-wide assessment of potential changes in PWBA's future
    workload and workforce. Although PWBA's human capital initiatives have
    value, PWBA still lacks a comprehensive human capital plan or strategy that
    is linked to its current and future workforce needs. Human capital
    management planning strategies should be linked to current and future
    workforce needs, including the size of the workforce; its deployment across
    the organization; and the knowledge, skills, and abilities needed by staff.
    PWBA's attention to human capital management is critical, in part, because
    by fiscal year 2006, 21 percent of PWBA's employees' agency-wide and 55
    percent of PWBA's senior managers will be eligible to retire. As we
    reported, this situation could compromise PWBA's ability to manage its
    enforcement program efficiently and effectively.

    In response to our recommendation that PWBA reevaluate the performance
    rating system for enforcement staff to ensure that case complexity and
    teamwork issues receive sufficient emphasis, PWBA stated that it would
    provide a copy of our report to union officials representing its field staff
    and ask them to assist in determining whether the performance standards
    should be revised. PWBA also reported that for the one region we identified
    as having a productivity requirement that supplemented PWBA's rating system
    for investigative staff, it has retracted that requirement. This provision
    required investigative staff annually to process 30 cases and to refer 2
    cases to Labor's Regional Solicitor for litigation.

    Although we did not make any recommendations on PWBA's annual performance
    plan (APP) goals and measures, PWBA raised various concerns about our
    observations in this area.

    * PWBA disagreed with our assessment that aggregating four separate and key
    measures of results for closed investigations makes it difficult to assess
    performance. PWBA stated that these activities are all linked to the desired
    outcome of secure benefits and that further separation of the data was not
    appropriate or necessary. However, PWBA acknowledged that it does internally
    monitor these component measures separately for management purposes. Despite
    PWBA's position, we continue to believe that the aggregation of measures for
    separate program activities into a single overall measure makes it difficult
    to assess performance because success in one of the four elements may
    obscure failure in another.

    * Regarding PWBA's measure to track recoveries by benefit advisers, PWBA
    stated that it modified its fiscal year 2001 performance report by adopting
    the generic term "recovery" for this measure in place of "recovered or
    protected," as previously used. PWBA further stated that the term "recovery"
    in actuality is a function of "benefits restored" plus "benefits protected."
    We still do not believe that PWBA's revision sufficiently improves the
    clarity of this measure. Benefit recoveries-lost benefits actually returned
    to participants-are distinct from benefits protected, which include benefits
    that are threatened but not actually lost.

    * Regarding our observation that PWBA does not measure the number of
    employee benefit plan participants helped by its enforcement efforts, PWBA
    replied that emphasizing participant numbers could skew the enforcement
    program strongly in favor of investigating large plans and leave many
    small-and medium-sized plans without sufficient oversight. Our draft report
    did not state that PWBA emphasize such measures, but rather that PWBA may
    need additional measures to fully assess the effectiveness of its
    enforcement program.

    We are sending copies of this report to the secretary of labor, the
    assistant secretary of PWBA, and other interested parties. Copies will be
    made available to others upon request. This report is also available on
    GAO's homepage at http://www.gao.gov.

    If you have questions concerning this report please contact me at (202)
    512-7215, or Daniel Bertoni at (202) 512-5988. Other major contributors are
    listed in appendix IV.

    Barbara D. Bovbjerg Director, Education, Workforce, and Income Security
    Issues

    Ap ndi I: S d Meth dol

                          Appendix I: Scope and Methodology

    This appendix describes our approach for collecting and analyzing data and
    for interviewing officials to document the management of the enforcement
    program at the Pension and Welfare Benefits Administration (PWBA). The
    objectives of our review were to determine (1) PWBA's current strategy for
    enforcing the Employee Retirement and Income Security Act's (ERISA) employee
    benefit plan provisions and (2) what areas PWBA could improve in the
    management of its enforcement program.

    We conducted our review at PWBA headquarters in Washington, D.C., and 5 of
    10 regional offices: Boston, Massachusetts; Philadelphia, Pennsylvania;
    Kansas City, Missouri; Dallas, Texas; and San Francisco, California. We
    selected the regional offices based on the following range of criteria: (1)
    geographic distribution-dispersed across the nation; (2) geographic coverage
    areas-mixture of small, medium, and large jurisdictions; (3) industry
    sectors covered; (4) workload levels; (5) performance indicators-mixture of
    low, medium, and high levels of performance results; (6) type of regional
    projects; (7) regional management-long-tenure managers versus managers
    recently reassigned from the national office; and (8) best practices
    used-locations known for innovative approaches. We also conducted a
    nationwide survey of PWBA's investigative staff and their immediate
    supervisors. In addition, we reviewed internal guidance and documentation,
    agency performance plans and reports, and performance data relevant to
    PWBA's enforcement activities. We also visited PWBA's contractor-run
    computer facility for the ERISA Filing and Acceptance System (EFAST) in
    Lawrence, Kansas. Furthermore, we interviewed key officials at other federal
    agencies with enforcement responsibilities regarding potential best
    practices as well as representatives from the nongovernmental employee
    benefits, retired persons, and labor communities. We conducted our work from
    November 2000 through November 2001 in accordance with generally accepted
    government auditing standards.

    Identification of  PWBA' s We  interviewed and surveyed  PWBA management and
    staff,  as  well as   Current  Enforcement  reviewed  and analyzed  relevant
    documentation from PWBA and the

    Department  of   Labor's  Office   of  the  Inspector  General   (OIG).  To
    identifyStrategy and Areas for the current enforcement strategy and identify
    areas  for  improvement,  we  Improvement   reviewed  available PWBA  policy
    guidance, internal studies, OIG reports,

    budget documents, performance and workload trend data, and other

    internal documents.

                         Appendix I: Scope and Methodology

    Interviews with PWBA Managers and Staff

    To document the management of PWBA's enforcement program, including the
    agency's enforcement strategy and areas for managerial improvement, we
    conducted in-depth interviews with more than 100 PWBA employees. These
    included senior managers at PWBA's headquarter offices as well as senior
    managers, group supervisors, investigative staff and auditors, and benefit
    advisers at each of the five regional offices. We gathered the information
    using structured interview guides. In order to provide a degree of
    consistency across the agency, our interview guides included general
    questions applicable to all employees regarding agency procedures and
    policies, as well as specific questions tailored to each individual's
    particular position or area of expertise.

    Survey of Investigative Staff and Supervisors

    To collect additional data on PWBA's management of its enforcement program,
    we surveyed PWBA's entire investigative staff and their immediate
    supervisors-a total of 375 individuals. Of this number, 267 (approximately
    71 percent) responded to the e-mail survey-representing all of PWBA's
    regional offices nationwide. To help gather accurate, unbiased data, survey
    respondents were assured anonymity. The survey questions reflected much of
    the content of the interview guides administered during field visits to
    headquarters and regional staff. Questions were designed to ascertain the
    effectiveness of various aspects of PWBA's management, including written
    guidance, quality assurance, enforcement priority areas, national office
    evaluations of the enforcement program, case targeting, benefit adviser
    leads, technological supports, sharing of "best practices" information,
    training supports, and the rating system.

    Interviews with Representatives from Other Federal Agencies and
    Nongovernmental Organizations

    In order to place PWBA's management of its enforcement program in larger
    context, we conducted interviews both with key officials from other federal
    agencies having enforcement responsibilities and individuals representing
    private organizations devoted to employee benefit and labor issues. We
    conducted interviews with officials from the Securities and Exchange
    Commission and from the Department of the Treasury's Internal Revenue
    Service to discuss their general enforcement strategies and any applicable
    best practices. We also solicited the opinions of experts from various
    external groups representing the pension industry, retired persons, and
    labor organizations-such as the American Benefits Council, the American
    Society of Pension Actuaries, the American Association for Retired Persons,
    and the American Federation of Labor and Congress of Industrial
    Organizations.

    Ap di II: PWBA O i ti Ch t

                        Appendix II: PWBA Organization Chart

    Figure 8: U.S. Department of Labor, Pension and Welfare Benefits
    Administration

                                   Source: PWBA.

                              Ap diIII: C f the P i d

    Appendix III: Comments from the Pension and Welfare Benefits Administration

    Note: GAO comments supplementing those in the report text appear at the end
    of this appendix.

    See comment 1 on page 52.

    Appendix III: Comments from the Pension and Welfare Benefits Administration

    Appendix III: Comments from the Pension and Welfare Benefits Administration

    Appendix III: Comments from the Pension and Welfare Benefits Administration

    Appendix III: Comments from the Pension and Welfare Benefits Administration

    Appendix III: Comments from the Pension and Welfare Benefits Administration

    Appendix III: Comments from the Pension and Welfare Benefits Administration

    Appendix III: Comments from the Pension and Welfare Benefits Administration

    Appendix III: Comments from the Pension and Welfare Benefits Administration

    Appendix III: Comments from the Pension and Welfare Benefits Administration

    Appendix III: Comments from the Pension and Welfare Benefits Administration

    See comment 2 on page 52.

    Appendix III: Comments from the Pension and Welfare Benefits Administration

    Appendix III: Comments from the Pension and Welfare Benefits Administration

    Appendix III: Comments from the Pension and Welfare Benefits Administration

    GAO Comments

    1. In its response letter PWBA incorrectly depicted our prior work on its
    enforcement program. PWBA stated, "As GAO recommended in 1994, the agency
    has delegated a great deal of independence to the Regional Directors." While
    our 1994 report, Pension Plans: Stronger Labor ERISA Enforcement Should
    Better Protect Plan Participants, GAO/HEHS-94-157 (Washington, D.C.: Aug. 8,
    1994), contained three recommendations to improve Labor's ERISA enforcement
    program, we did not recommend that PWBA delegate independence to its
    Regional Directors. In the context of our 1994 recommendation that PWBA
    increase the use of penalties authorized by ERISA by establishing procedures
    to routinely review referrals of potential violators from the Internal
    Revenue Service, we did state that PWBA use "...decentralized legal staff to
    help assess prohibited transaction penalties when warranted."

    2. In commenting on our assessment of PWBA's performance rating
    findings on its agency performance plan measures to a discussion of their
    rating system-e.g., that about one third of survey respondents believed PWBA
    needed additional agency performance measures to assess its enforcement
    functions. The example PWBA referred to is not related to its performance
    rating system but to our survey finding that PWBA may need additional
    measures to more fully assess the effectiveness of its enforcement program.
    We based this conclusion on our review and analysis of PWBA's measures and
    our nationwide survey of its investigative staff and supervisors. About
    one-third of those surveyed noted that additional measures were needed to
    assess the enforcement functions; about 40 percent felt that current
    measures were adequate; and about 26 percent submitted a "do not know"
    response. Although one-third of staff responding is not a majority, this
    seemed an important observation by a significant number of people
    knowledgeable about PWBA's operations. Respondents and investigative
    regional staff we spoke with generally noted that PWBA's measures placed too
    much emphasis on numbers of investigations conducted and monetary recoveries
    and too little emphasis on the number of plan participants and beneficiaries
    helped by PWBA's enforcement program.

    Appendix IV: GAO Contacts and Staff Acknowledgments

    GAO Contacts

    Staff Acknowledgments

    (130005)

    Barbara Bovbjerg, (202) 512-7215
    Daniel Bertoni, (202) 512-5988
    R. Elizabeth O' Toole, (202) 512-3050

    In addition to those named above, Frank F. Putallaz, George A. Scott,
    Aonghas St-Hilaire, Roger J. Thomas, and Anthony J. Wysocki made key
    contributions to this report.

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