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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