Employee Benefits Security Administration: Improvements Have Been
Made to Pension Enforcement Program but Significant Challenges	 
Remain (09-JUN-05, GAO-05-784T).				 
                                                                 
Congress passed the Employee Retirement Income Security Act of	 
1974 (ERISA) to address public concerns over the mismanagement	 
and abuse of private sector employee benefit plans by some plan  
sponsors and administrators. The Department of Labor's Employee  
Benefits Security Administration (EBSA) shares responsibility	 
with the Internal Revenue Service and the Pension Benefit	 
Guaranty Corporation for enforcing ERISA. EBSA works to safeguard
the economic interest of more than 150 million people who	 
participate in an estimated 6 million employee benefit plans with
assets in excess of $4.4 trillion. EBSA 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. Recent scandals involving abuses by	 
pension plan fiduciaries and service providers, as well as	 
trading scandals in mutual funds that affected plan participants 
and other investors, highlight the importance of ensuring that	 
EBSA has an effective and efficient enforcement program.	 
Accordingly, this testimony focuses on describing EBSA's	 
enforcement strategy, EBSA's efforts to address weaknesses in its
enforcement program along with the challenges that remain.	 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-05-784T					        
    ACCNO:   A26218						        
  TITLE:     Employee Benefits Security Administration: Improvements  
Have Been Made to Pension Enforcement Program but Significant	 
Challenges Remain						 
     DATE:   06/09/2005 
  SUBJECT:   Accountability					 
	     Employee benefit plans				 
	     Internal controls					 
	     Pensions						 
	     Private sector					 
	     Reporting requirements				 
	     Strategic planning 				 

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GAO-05-784T

United States Government Accountability Office

GAO	Testimony before the Committee on Health, Education, Labor, and
Pensions, U.S. Senate

For Release on Delivery

Expected at 10:00 a.m. EDT EMPLOYEE BENEFITS

Thursday, June 9, 2005

SECURITY ADMINISTRATION

Improvements Have Been Made to Pension Enforcement Program but Significant
                               Challenges Remain

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

GAO-05-784T

[IMG]

June 9, 2005

EMPLOYEE BENEFITS SECURITY ADMINISTRATION

Improvements Have Been Made to Pension Enforcement Program but Significant
Challenges Remain

                                 What GAO Found

EBSA's enforcement strategy is a multifaceted approach of targeted plan
investigations. To leverage its enforcement resources, EBSA provides
education to plan participants and plan sponsors. EBSA allows its regional
offices the flexibility to tailor their investigations to address the
unique issues in the regions, within a framework established by EBSA'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. Participant leads
are still the major source of investigations. EBSA officials told us that
they open about 4,000 investigations into actual and potential violations
of ERISA annually. 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 to educate sponsors in properly managing their
plans and avoiding violations. Finally, EBSA maintains a Voluntary
Fiduciary Correction Program through which plan officials can voluntarily
report and correct some violations without penalty.

EBSA has taken steps to address many of the recommendations we have made
over the years to improve its enforcement program, including assessing the
level and types of noncompliance with ERISA, improving sharing of best
investigative practices, and developing a human capital strategy to better
respond changes in its workforce. EBSA reported a significant increase in
enforcement results for fiscal year 2004, including $3.1 billion in total
monetary results and closing about 4,400 investigations, with nearly 70
percent of those cases resulting in corrections of ERISA violations.
Despite this progress, EBSA continues to face a number of significant
challenges to its enforcement program, including (1) the lack of timely
and reliable plan information, which is highlighted by the fact that EBSA
is currently using plan year 2002 and 2003 plan information for its
computer targeting, (2) restrictive statutory requirements that limit its
ability to assess certain penalties, and (3) the need to better coordinate
enforcement strategies with the Securities and Exchange Commission, which
is highlighted by recent scandals involving the trading practices and
market timing in mutual funds and conflicts of interest by pension
consultants.

Total Monetary Results from EBSA Enforcement Activities for Fiscal Years
2000-2004

                 United States Government Accountability Office

Mr. Chairman and Members of the Committee:

I am pleased to be here today to provide an overview of our past work
reviewing the Department of Labor's Employee Benefits Security
Administration (EBSA) enforcement program. EBSA works to safeguard the
economic interest of more than 150 million people who participate in an
estimated 6 million employee benefit plans with assets in excess of $4.4
trillion. EBSA 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.

Congress passed the Employee Retirement Income Security Act of 1974
(ERISA) to address public concerns over the 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. The recent bankruptcies of some large corporations and
the effects on employees' retirement savings and the federal pension
insurance program expose certain vulnerabilities in our private pension
system. Such problems point out the need for comprehensive pension reform.
Also, recent scandals involving abuses by pension plan fiduciaries and
service providers, as well as trading scandals in mutual funds that
affected plan participants and other investors highlight the importance of
ensuring that EBSA has an effective and efficient enforcement program.

Today, I would like to discuss the evolution of EBSA's enforcement program
and the challenges that remain. GAO has conducted several studies of ERISA
enforcement issues, and my statement is largely based on that work.

In summary, EBSA's enforcement strategy is a multifaceted approach of
targeted plan investigations supplemented by outreach and education. To
leverage its enforcement resources to prevent and detect violations and
promote overall compliance with ERISA, EBSA provides education to plan
participants and sponsors and allows the voluntary self-correction of
certain transactions without penalty. EBSA's education program for plan
participants aims to increase their knowledge of their rights and benefits
under ERISA. EBSA has taken steps to address many of the recommendations
we have made over a number of years to improve its enforcement program,
including assessing the level and types of noncompliance with ERISA,
improving sharing of best investigative

Background

practices, analyzing the sources of cases, and developing a human capital
strategy to better respond changes in its workforce. EBSA reported a
significant increase in enforcement results for fiscal year 2004,
including $3.1 billion in total monetary results and closing nearly 4,400
investigations, with nearly 70 percent of those cases resulting in
corrections of ERISA violations. Despite this progress, EBSA continues to
face a number of significant challenges to its enforcement program. Such
challenges include lack of timely and reliable plan information,
restrictive statutory requirements that limit its ability to assess
certain penalties, and the need to better coordinate enforcement
strategies with the Securities and Exchange Commission. As we have
previously reported, legislative changes will be required to address some
of these issues. Furthermore, the Congress should consider providing EBSA
with additional enforcement tools, such as enhanced penalty authority, to
meet these challenges. Finally, EBSA needs to continue to look for ways to
better target investigations to leverage its limited resources.

Three agencies share responsibility for enforcing ERISA: the Department of
Labor (EBSA), the Department of the Treasury's Internal Revenue Service
(IRS), and the Pension Benefit Guaranty Corporation (PBGC). EBSA enforces
fiduciary standards for plan fiduciaries of privately sponsored employee
benefit plans to ensure that plans are operated in the best interests of
plan participants. EBSA also enforces reporting and disclosure
requirements covering the type and extent of information provided to the
federal government and plan participants, and seeks to ensure that
specific transactions prohibited by ERISA are not conducted by plans.1
Under Title I of ERISA, EBSA conducts investigations of plans and seeks
appropriate remedies to correct violations of the law, including
litigation when necessary.2 IRS enforces the Internal Revenue Code (IRC)
and provisions that must be met which give pension plans tax-qualified
status, including participation, vesting, and funding requirements. The
IRS also audits plans to ensure compliance and can levy tax penalties or
revoke the tax-qualified status of a plan as appropriate. PBGC, under
Title

1 Certain transactions are prohibited under the law to prevent dealings
with parties who may be in a position to exercise improper influence over
the plan. In addition, fiduciaries are prohibited from engaging in
self-dealing and must avoid conflicts of interest that could harm the
plan.

2Prior to 1979, there was overlapping responsibility for administration of
the parallel provisions of Title I of ERISA and the Internal Revenue Code
(IRC) by the Department of Labor and IRS, respectively.

IV of ERISA, provides insurance for participants and beneficiaries of
certain types of tax-qualified pension plans, called defined benefit
plans, that terminate with insufficient assets to pay promised benefits.
Recent terminations of large, underfunded plans have threatened the
long-term solvency of PBGC. As a result, we placed PBGC's single-employer
insurance program on our high-risk list of programs needing further
attention and congressional action.3

ERISA and the IRC require plan administrators to file annual reports
concerning, among other things, the financial condition and operation of
plans. EBSA, IRS, and PBGC jointly developed the Form 5500 so that plan
administrators can satisfy this annual reporting requirement.
Additionally, ERISA and the IRC provide for the assessment or imposition
of penalties for plan sponsors not submitting the required information
when due.

About one-fifth of Americans' retirement wealth is invested in mutual
funds, which are regulated by the Securities and Exchange Commission
(SEC), primarily under the Investment Company Act of 1940. The primary
mission of the SEC is to protect investors, including pension plan
participants investing in securities markets, and maintain the integrity
of the securities markets through extensive disclosure, enforcement, and
education. In addition, some pension plans use investment managers to
oversee plan assets, and these managers may be subject to other securities
laws.

EBSA's enforcement strategy is a multifaceted approach of targeted plan
investigations supplemented by providing education to plan participants
and plan sponsors. EBSA allows its regions the flexibility to tailor their
investigations to address the unique issues in their regions, within a
framework established by EBSA'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. Participant leads are still the major source
of investigations. 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

3See GAO, Pension Benefit Guaranty Corporation Single-Employer Program:
Long-Term Vulnerabilities Warrant High-Risk Designation, GAO-03-1050SP
(Washington, D.C.: Jul. 23, 2003).

  EBSA Uses a Multifaceted Enforcement Strategy

violations and to educate sponsors in properly managing their plans and
avoiding violations. The regions also process applications for the
Voluntary Fiduciary Correction Program (VFCP) through which plan officials
can voluntarily report and correct some violations without penalty.

    EBSA Enforces ERISA Primarily Through Targeted Investigations

EBSA 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, EBSA's national priorities involve,
among other things, investigating defined contribution pension plan and
health plan fraud. Officials in the Office of Enforcement said that
national priorities are periodically re-evaluated and are changed to
reflect trends in the area of pensions and other benefits.

On the basis of its national investigative priorities, the Office of
Enforcement has established a number of national projects. Currently,
there are five national projects pertaining to a variety of issues
including employee contributions to defined contribution plans, employee
stock ownership plans (ESOP), and health plan fraud. EBSA's increasing
emphasis on defined contribution pension plans reflects the rapid growth
of this segment of the pension plan universe. In fiscal year 2004, EBSA
had monetary results of over $31 million and obtained 10 criminal
indictments under its employee contributions project. EBSA's most recent
national enforcement project involves investigating violations pertaining
to ESOPs, such as the incorrect valuation of employer securities and the
failure to provide participants with the specific benefits required or
allowed under ESOPs, such as voting rights, the ability to diversify their
account balances

at certain times, and the right to sell their shares of stock.4 Likewise,
more attention is being given to health plan fraud, such as fraudulent
multiple employer welfare arrangements (MEWAs).5 In this instance, EBSA's
emphasis is on abusive and fraudulent MEWAs created by promoters that
attempt to evade state insurance regulations and sell the promise of
inexpensive health benefit insurance but typically default on their
benefit obligations.6

EBSA 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 to
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. We previously reported that the
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.

4In 2002, we reported that the financial collapse of the Enron Corporation
and other large firms and the effects on workers and retirees had raised
questions about retirement funds being invested in employer securities and
the laws governing such investments. We recommended that the Congress
consider amending ERISA to require plan sponsors to provide defined
contribution plan participants with an investment education notice that
includes information on the risks of certain investments such as employer
securities and the benefits of diversification. See GAO, Private Pensions:
Participants Need Information on the Risks of Investing in Employer
Securities and the Benefits of Diversification, GAO-02-943 (Washington,
DC: Sept. 6, 2002).

5A MEWA is a welfare benefit plan or any other arrangement (other than an
employee welfare benefit plan), which is established or maintained for the
purpose of offering or providing a welfare benefit to employees of two or
more employers. Typically, such arrangements often involve small employers
that are either unable to find or cannot afford the cost of health care
coverage for their employees.

6 See GAO, Employee Benefits: States Need Labor's Help Regulating Multiple
Employer Welfare Arrangements, GAO/HRD-92-40 (Washington, D.C.: Mar. 10,
1992).

EBSA officials said that their most effective source of leads on
violations of ERISA is from complaints from plan participants. Case
openings also originate from news articles or other publications on a
particular industry or company as well as tips from colleagues in other
enforcement agencies. Computer searches and targeting of Form 5500
information on specific types of plans account for only 25 percent of case
openings. In 1994, we reported that EBSA had done little to test the
effectiveness of the computerized targeting runs it was using to select
cases. Since then, EBSA has scaled down both the number of computerized
runs available to staff and its reliance on these runs as a means of
selecting cases.7 Investigative staff are also responsible for identifying
a portion of their cases on their own to complete their workloads and
address other potentially vulnerable areas.

As shown in figure 1, EBSA's investigative process generally follows a
pattern of selecting, developing, resolving, and reviewing cases. EBSA
officials told us that they open about 4,000 investigations into actual
and potential violations of ERISA annually. According to EBSA, its primary
goal in resolving a case is to ensure that a plan's assets, and therefore
its participants and beneficiaries, are protected. EBSA's decision to
litigate a case is made jointly with the Department of Labor's Regional
Solicitors' Offices. Although EBSA 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.

7See GAO, Pension Plans: Stronger Labor ERISA Enforcement Should Better
Protect Plan Participants, GAO/HEHS-94-157 (Washington, D.C.: August 8,
1994).

As part of its enforcement program, EBSA also detects and investigates
criminal violations of ERISA. From fiscal years 2000 through 2004,
criminal investigations resulted in an average of 54 cases closed with
convictions or guilty pleas annually. Part of EBSA's enforcement strategy
includes routinely publicizing the results of its litigation efforts in
both the civil and criminal areas as a deterrent factor.

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

To further leverage its enforcement resources, EBSA provides education to
plan participants, sponsors, and service providers and allows the
voluntary self-correction of certain transactions without penalty. EBSA's
education program for plan participants aims to increase their knowledge
of their rights and benefits under ERISA. For example, EBSA anticipates
that educating participants will establish an environment in which
individuals can help protect their own benefits by recognizing potential
problems and notifying EBSA when issues arise. The agency also conducts
outreach to plan sponsors and service providers about their ongoing
fiduciary responsibilities and obligations under ERISA.

At the national level, EBSA's Office of Participant Assistance develops,
implements, and evaluates agency-wide participant assistance and outreach
programs. It also provides policies and guidance to other EBSA national
and regional offices involved in outreach activities. EBSA's nationwide
education campaigns include a fiduciary education campaign, launched in
May 2004, to educate plan sponsors and service providers about their
fiduciary responsibilities under ERISA. This campaign also includes
educational material on understanding fees and selecting an auditor.

EBSA's regional offices also assist in implementing national education
initiatives and conduct their own outreach to address local concerns. The
regional offices' 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. At the national level, several EBSA offices
direct specialized outreach activities. As with EBSA'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.

To supplement its investigative programs, EBSA is promoting the
selfdisclosure and self-correction of possible ERISA violations by plan
officials through its Voluntary Fiduciary Correction Program.8 The purpose
of the VFCP is to protect the financial security of workers by encouraging
plan officials to identify and correct ERISA violations on their own.
Specifically, the VFCP allows plan officials to identify and correct 18
transactions, such as delinquent participant contributions and participant
loan repayments to pension plans. Under the VFCP, plan officials follow a
process whereby they (1) correct the violation using EBSA's written
guidance; (2) restore any losses or profits to the plan; (3) notify
participants and beneficiaries of the correction; and (4) file a VFCP
application, which includes evidence of the corrected transaction, with
the EBSA regional office in whose jurisdiction it resides. 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.

EBSA has taken steps to address many of the recommendations we have made
over a number of years to improve its enforcement program, including
assessing the level and types of noncompliance with ERISA, improving
sharing of best investigative practices, and developing a human capital
strategy to better respond changes in its workforce. EBSA reported a
significant increase in enforcement results for fiscal year 2004,
including $3.1 billion in total monetary results and closing nearly 4,400
investigations, with nearly 70 percent of those cases resulting in
corrections of ERISA violations. Despite this progress, EBSA continues to
face a number of significant challenges to its enforcement program,
including the lack of timely and reliable plan information, restrictive
statutory requirements that limit its ability to assess certain penalties,
and the need to better coordinate enforcement strategies with the SEC.

    EBSA Has Taken Steps to Address Weaknesses in Its Enforcement Program, but
    Significant Challenges Remain

EBSA Has Made Progress EBSA has taken a number of steps, including
addressing in Improving Its recommendations from our prior reports that
have improved its Enforcement Program enforcement efforts across a number
of areas. For example, EBSA has

continued to refine its enforcement strategy to meet changing priorities

8In April 2005, the Department of labor published in the Federal Register
a revised VFCP that according to EBSA, simplified and expanded the
original program.

and provided additional flexibility to its regional office to target areas
of investigations. More recently, EBSA implemented a series of
recommendations from our 2002 enforcement report that helped it
strategically manage its enforcement program, including conducting studies
to determine the level of and type of noncompliance with ERISA and
developing a Human Capital Strategic Management Plan (see table 1). 9

9 See GAO, Pension and Welfare Benefits Administration: Opportunities
Exist for Improving Management of the Enforcement Program, GAO-02-232
(Washington, DC: March 15, 2002).

Table 1: Examples of EBSA's Actions in Response to GAO Recommendations to
                        Improve its Enforcement Program

GAO Observation GAO Recommendation to EBSA Examples of EBSA Actions

EBSA had not adequately estimated the Develop a cost-effective strategy
for nature of employee benefit plans' assessing the level and type of
ERISA noncompliance with ERISA provisions. noncompliance among employee
benefit

plans.

In fiscal year 2001 conducted national compliance study of group health
plans' compliance with new health care laws in ERISA.

In 2003 conducted compliance study focusing on large multiemployer health
plans.

Currently conducting baseline study to determine the level of compliance
with ERISA requirements on timely transmission of employee contributions
to pension plans.

EBSA had not routinely analyzed the full Conduct regular reviews of the
sources Conducted analysis on cases closed in fiscal range of cases
investigated to determine of cases that lead to investigations. years
2001, 2002, and 2003.

which sources were the most effective in Agreed to perform reviews of the
sources of terms of detecting and correcting cases that lead to
investigations on an annualviolations. basis as long as resources permit.

EBSA did not coordinate the sharing of Coordinate the sharing of best
practices best practices information among its information among regions
relating to regions regarding case selection and the optimum and most
productive investigative techniques. techniques for selecting and
conducting

investigations.

EBSA lacked a centrally coordinated Develop a closed case quality review
quality review process to ensure that its process that ensures the
independence investigations are conducted in of reviewers and sufficiently
focuses on accordance with its investigative substantive technical case
issues. procedures.

Established a Best Practices Sharing Team composed of enforcement staff
and regional representatives.

Developed an intranet site to allow EBSA investigators to share best
practices, such as investigative plans, subpoenas, letters, and
investigative guides.

In fiscal year 2003, an EBSA team composed of Office of Enforcement and
field managers developed a closed case quality review program that focuses
on substantive technical issues and is reported centrally. The program
also includes procedures to ensure the independence of the case reviewer.

Certain requirements, such as notifying Analyze barriers to participation
in the EBSA modified key features of the program, plan participants of
potential violations VFCP and explore ways to reduce them. eliminating
notice requirements to participants, and levying excise taxes on
prohibited and provided a limited excise tax exemption for transactions,
may hinder participation in those who participate in the program. the
VFCP.

EBSA gave limited attention to human Conduct a comprehensive review of its
EBSA conducted an employee workforce capital management despite
anticipated future human capital needs, including analysis and an employee
training needs workforce and enforcement workload the size of its
workforce; the skills and assessment. In 2003, EBSA issued its Human
changes. For example, the agency had abilities needed; succession planning
Capital Strategic Management Plan. The plan not considered succession
planning and challenges; and staff deployment issues. identified
strategies that address current and workforce retention, which could
project skills shortages, anticipated future staffing undermine the
continuity and needs, competency requirements to ensure that effectiveness
of its enforcement employees possess or acquire the critical skills
program. needed to accomplish program mission and

functions, and the recognition and reward of quality performance.

              Source: GAO summary and analysis of EBSA documents.

EBSA has reported a substantial increase in results from its enforcement
efforts since our last review. For fiscal year 2004, EBSA closed 4,399
civil investigations and reported $3.1 billion in total results, including
$2.53 billion in prohibited transactions corrected and plan assets
protected, up from $566 million in fiscal year 2002. Likewise, the
percentage of civil investigations closed with results rose from 58
percent to 69 percent. Also, applications received for the VFCP increased
from 55 in fiscal year 2002 to 474 in 2004. EBSA has been able to achieve
such results with relatively small recent increases in staff. Full-time
equivalent (FTE) authorized staff levels increased from 850 in fiscal year
2001 to 887 FTEs in fiscal year 2005. The President's budget for fiscal
year 2006 requests no additional FTEs.

Untimely and Incomplete Plan Information Continues to Hinder Enforcement
Efforts

Previously, we and others have reported that ERISA enforcement was
hindered by incomplete, inaccurate, and untimely plan data.10 We recently
reported that the lack of timely and complete of Form 5500 data affects
EBSA's use of the information for enforcement purposes, such as computer
targeting and identifying troubled plans.11 EBSA uses Form 5500
information as a compliance tool to identify actual and potential
violations of ERISA. Although EBSA has access to Form 5500 information
sooner than the general public, the agency is affected by the statutory
filing deadlines, which can be up to 285 days after plan year end, and
long processing times for paper filings submitted to the ERISA Filing
Acceptance System. EBSA receives processed Form 5500 information on
individual filings on a regular basis once a form is completely processed.
However, agency officials told us that as they still have to wait for a
sufficiently complete universe of plan filings from any given plan year to
be processed in order to begin their compliance targeting programs. As a
result, EBSA officials told us that they are currently using plan year
2002 and 2003 Form 5500 information for computer targeting. They also said
that in some cases untimely Form 5500 information affects their ability to
identify financially troubled plans whose sponsors may be on the verge of
going out of business and abandoning their pension plans, because these

10See, GAO, Employee Benefit Plans: Efforts to Streamline Reporting
Requirements and Improve Processing of Annual Plan Data, GAO/HEHS-98-45R
(Washington, DC: Nov. 14, 1997).

11See GAO, Private Pensions: Government Actions Could Improve the
Timeliness and Content of Form 5500 Pension Information, GAO-05-491
(Washington, DC: June 3, 2005).

plans may no longer exist by the time that Labor receives the processed
filing or is able to determine that no Form 5500 was filed by those
sponsors.

The Form 5500 also lacks key information that could better assist EBSA,
IRS, and PBGC in monitoring plans and ensuring that they are in compliance
with ERISA. EBSA, IRS and PBGC officials said that they have experienced
difficulties when relying on Form 5500 information to identify and track
all plans across years. Although EBSA has a process in place to identify
and track plans filing a Form 5500 from year to year, problems still arise
when plans change employer identification numbers (EIN) and/or plan
numbers. Identifying plans is further complicated when plan sponsors are
acquired, sold, or merged. In these cases, agency officials said that
there is an increased possibility of mismatching of EINs, plans, and their
identifying information. As result, EBSA officials said they are unable to
(1) verify if all required employers are meeting the statutory requirement
to file a Form 5500 annually, (2) identity all late filers, and (3) assess
and collect penalties from all plans that fail to file or are late.
Likewise, PBGC officials said that must spend additional time each year
trying to identify and track certain defined benefit plans so that they
can conduct compliance and research activities. EBSA officials said they
are considering measures to better track and identify plans but have not
reached any conclusions. Our recent report makes a number of
recommendations aimed at improving the timeliness and content of Form 5500
that will likely assist EBSA's enforcement efforts.12

In addition to problems with Form 5500 information, concerns remain about
the quality of annual audits of plans' financial statements by independent
public accountants. For many years, we, as well as the Department of
Labor's Office of Inspector General (OIG), have reported that a
significant number of these audits have not met ERISA requirements. For
example, in 1992 we found that over a third of the 25 plan audits we
reviewed had audit weaknesses so serious that their reliability and
usefulness were questionable. We recommended that the Congress amend ERISA
to require full-scope audits of employee benefit plans and to require plan
administrators and independent public accountants to report on how
effective an employee benefit plan's internal

12 See GAO-05-491.

controls are in protecting plan assets.13 Although such changes were
subsequently proposed, they were not enacted. In 2004, Labor's OIG
reported that although EBSA had reviewed a significant number of employee
benefit plan audits and made efforts to correct substandard audits, a
significant number of substandard audits remain uncorrected. Furthermore,
plan auditors performing substandard work generally continue to audit
employee benefit plans without being required to improve the quality of
the audits.14 As a result, these audits have not provided participants and
beneficiaries the protections envisioned by Congress. Labor's OIG
recommended, among other things, that EBSA propose changes to ERISA so
that EBSA has greater enforcement authority over employee benefit plan
auditors.

Restrictive Statutory Requirements Limit Assessment of Fiduciary Penalties

As we have previously reported, restrictive legal requirements have
limited EBSA's ability to assess penalties against fiduciaries or other
persons who knowingly participate in a fiduciary breach.15 Unlike the SEC,
which has the authority to impose a penalty without first assessing and
then securing monetary damages, EBSA does not have such statutory
authority and must assess penalties based on damages or, more
specifically, the restoration of plan assets.16 Under Section 502(l),
ERISA provides for a mandatory penalty against (1) a fiduciary who
breaches a fiduciary duty under, or commits a violation of, Part 4 of
Title I of ERISA or (2) against any other person who knowingly
participates in such a breach or violation. This penalty is equal to 20
percent of the "applicable recovery amount," or any settlement agreed upon
by the Secretary or ordered by a court to be paid in a judicial proceeding
instituted by the Secretary. However, the applicable recovery amount
cannot be determined if damages have not been valued. This penalty can be
assessed only against fiduciaries or

13Under ERISA, investments held by certain regulated institutions, such as
banks and insurance companies, may be excluded from the scope of a plan
audit. The resulting lack of audit work can result in an auditor
disclaiming an opinion on the plan's financial statements. See GAO,
Employee Benefits: Improved Plan Reporting and CPA Audits Can Increase
Protection under ERISA, GAO/AFMD-92-14 (Washington, D.C.: April 9, 1992)
and Employee Benefits: Limited Scope Audit Exemption Should Be Repealed,

GAO/T-AIMD-98-75 (Washington, D.C.: February 12, 1998).

14See U.S. Department of Labor Office of Inspector General-Office of
Audit, EBSA Needs Additional Authority to Improve the Quality of Employee
Benefit Plan Audits. (Washington, D.C.: Sept. 30, 2004).

15See GAO/HEHS-94-157.

16EBSA can also seek removal of a fiduciary for breaches of fiduciary duty
or seek other sanctions.

knowing participants in a breach who, by court order or settlement
agreement, restore plan assets. Therefore, if (1) there is no settlement
agreement or court order or (2) someone other than a fiduciary or knowing
participant returns plan assets, the penalty may not be assessed. For
example, last year we reported that ERISA presented legal challenges when
developing cases related to proxy voting by plan fiduciaries, particularly
with regards to valuing monetary damages. 17 As a result, because EBSA has
never found a violation that resulted in monetary damages, it has never
assessed a penalty or removed a fiduciary because of a proxy voting
investigation. Given the restrictive legal requirements that have limited
the use of penalties for violations of ERISA's fiduciary requirements, we
recommended that Congress consider amending ERISA to give the Secretary of
Labor additional authority with respect to assessing monetary penalties
against fiduciaries. We also recommended other changes to ERISA to better
protect plan participants and increase the transparency of proxy voting
practices by plan fiduciaries.

Recent Scandals Highlight the Need for Better Coordination with SEC

Recent events such as the abusive trading practices of late trading and
market timing in mutual funds and new revelations of conflicts of interest
by pension consultants highlight the need for EBSA to better coordinate
enforcement strategies with SEC. Last year we reported that SEC and EBSA
had separately taken steps to address abusive trading practices in mutual
funds.18 At the time we issued our report, SEC had taken a number of
actions to address the abuses including:

o  	charging some fund companies with defrauding investors by not
enforcing their stated policies on market timing,

o  	fining some institutions hundreds of millions of dollars (some of this
money was to be returned to long-term shareholders who lost money due to
abusive practices),

o  	permanently barring some individuals from future work with investment
companies, and

17See GAO, Pension Plans: Additional Transparency and Other Actions Needed
in Connection with Proxy Voting, GAO-04-749 (Washington, D.C.: August 10,
2004).

18See GAO, Mutual Funds: SEC Should Modify Proposed Regulations to Address
Some Pension Plan Concerns, GAO-04-799 (Washington, D.C.: July 9, 2004).

o  proposing new regulations addressing late trading and market timing.

Separate from SEC activities, EBSA began investigating possible fiduciary
violations at some large investment companies, including those that
sponsor mutual funds, and violations by plan fiduciaries. EBSA also issued
guidance suggesting that plan fiduciaries review their relationships with
mutual funds and other investment companies to ensure they are meeting
their responsibilities of acting reasonably, prudently, and solely in the
interest of plan participants. Although SEC's proposed regulations on late
trading and market timing could have more adversely affected some plan
participants than other mutual fund investors, EBSA was not involved in
drafting the regulations because it does not regulate mutual funds.

In another example of how EBSA and SEC enforcement responsibilities can
intersect, SEC recently found that potential conflicts of interest may
affect the objectivity of advice pension consultants are providing to
their pension plan clients. 19 The report also raised important issues for
plan fiduciaries who often rely on the advice of pension consultants in
operating their plans. Recently, EBSA and SEC issued tips to help plan
fiduciaries evaluate the objectivity of advice and recommendations
provided by pension consultants.

Americans face numerous challenges to securing their economic security in
retirement, including the long-term fiscal challenges facing Social
Security; the uncertainty of promised pension benefits; and the potential
volatility of the investments held in their defined contributions plans.
Given these concerns, it is important that employees' benefits are
adequately protected. EBSA is a relatively small agency facing the
daunting challenge of protecting over $4 trillion in assets of pension and
welfare benefits for millions of Americans. Over the years, EBSA has taken
steps to strengthen its enforcement program and leverage its limited
resources. These actions have helped better position EBSA to more
effectively enforce ERISA.

EBSA, however, continues to face a number of significant challenges to its
enforcement program. Foremost, despite improvements in the timeliness and
content of the Form 5500, information currently collected does not permit
EBSA and the other ERISA regulatory agencies to be in the best

19See SEC, Staff Report Concerning Examinations of Select Pension
Consultants, The Office of Compliance Inspections and Examinations
(Washington, D.C.: May 16, 2005).

    Concluding Observations

position to ensure compliance with federal laws and assess the financial
condition of private pension plans. Given the ever-changing complexities
of employee benefit plans and how rapidly the financial condition of
pension plans can deteriorate, it is imperative that policymakers,
regulators, plan participants, and others have more timely and accurate
Form 5500 information. In addition, there is a legitimate question as to
whether information currently collected on the Form 5500 can be used as an
effective enforcement tool by EBSA or whether different information might
be needed. Without the right information on plans in a timely manner, EBSA
will continue to have to rely on participant complaints as a primary
source of investigations rather than being able to proactively identify
and target problems areas. Second, in some instances, EBSA's enforcement
efforts continue to be hindered by ERISA, the very law it is charged with
enforcing. For example, because of restrictive legal requirements, EBSA
continues to be hindered in assessing penalties against fiduciaries or
others who knowingly participate in a fiduciary breach. Congress may want
to amend ERISA to address such limits on EBSA's enforcement authority.
Finally, the significant changes that have occurred in pension plans, the
growing complexity of financial transactions of such plans, and the
increasing role of mutual funds and other investment vehicles in
retirement savings plans require enhanced coordination of enforcement
efforts with SEC. Furthermore, such changes raise the fundamental question
of whether Congress should modify the current ERISA enforcement framework.
For example, it is important to consider whether the current division of
oversight responsibilities across several agencies is the best way to
ensure effective enforcement or whether some type of consolidation or
reallocation of responsibilities and resources could result in more
effective and efficient ERISA enforcement. We look forward to working with
Congress on such crucial issues.

Mr. Chairman, this concludes my statement. I would be happy to respond to
any questions you or other members of the committee may have.

Contact and For further information, please contact me at (202) 512-7215.
Other individuals making key contributions to this testimony included
JosephAcknowledgments Applebaum, Kimberley Granger, Raun Lazier, George
Scott, and Roger Thomas.

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