Employee Benefits Security Administration: Enforcement
Improvements Made but Additional Actions Could Further Enhance
Pension Plan Oversight (18-JAN-07, GAO-07-22).
The Department of Labor's (DOL) Employee Benefits Security
Administration (EBSA) enforces the Employee Retirement Income
Security Act of 1974 (ERISA), which sets certain minimum
standards for private sector pension plans. On the basis of GAO's
prior work, the Senate Committee on Health, Education, Labor and
Pensions asked GAO to review EBSA's enforcement program.
Specifically, this report assesses (1) the extent to which EBSA
has improved its compliance activities since 2002; (2) how EBSA's
enforcement practices compare to those of other agencies; and (3)
what obstacles, if any, affect ERISA enforcement. To do this, we
reviewed EBSA's enforcement strategy and operations, and
interviewed officials at EBSA, the Internal Revenue Service (IRS)
and the Securities and Exchange Commission (SEC), among others.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-07-22
ACCNO: A64990
TITLE: Employee Benefits Security Administration: Enforcement
Improvements Made but Additional Actions Could Further Enhance
Pension Plan Oversight
DATE: 01/18/2007
SUBJECT: Beneficiaries
Comparative analysis
Employee retirement plans
Investigations by federal agencies
Noncompliance
Pensions
Policy evaluation
Program evaluation
Program management
Risk assessment
Strategic planning
Voluntary compliance
Program goals or objectives
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GAO-07-22
* [1]Results in Brief
* [2]Background
* [3]EBSA Shares the Responsibility for Enforcing ERISA with Othe
* [4]EBSA Has Made Improvements to Its Enforcement Program, but C
* [5]EBSA Has Made Some Progress in Improving Its Enforcement Pro
* [6]EBSA Still Does Not Estimate Overall Industry Compliance, Re
* [7]Unlike Other Agencies, EBSA Does Not Conduct Routine Complia
* [8]EBSA Does Not Conduct Routine Compliance Examinations
* [9]EBSA Has Not Dedicated Staff to Formalized Risk Assessment
* [10]Statutory Obstacles May Limit EBSA's Ability to Oversee Pens
* [11]Restrictive Statutory Requirements Can Impede the Restoratio
* [12]Investigators' Access to Timely Data Limited by ERISA Filing
* [13]Conclusions
* [14]Matter for Congressional Consideration
* [15]Recommendations for Executive Action
* [16]Agency Comments and Our Evaluation
* [17]GAO Contact
* [18]Acknowledgments
* [19]GAO's Mission
* [20]Obtaining Copies of GAO Reports and Testimony
* [21]Order by Mail or Phone
* [22]To Report Fraud, Waste, and Abuse in Federal Programs
* [23]Congressional Relations
* [24]Public Affairs
Report to the Ranking Minority Member, Committee on Health, Education,
Labor and Pensions, U.S. Senate
United States Government Accountability Office
GAO
January 2007
EMPLOYEE BENEFITS SECURITY ADMINISTRATION
Enforcement Improvements Made but Additional Actions Could Further Enhance
Pension Plan Oversight
GAO-07-22
Contents
Letter 1
Results in Brief 2
Background 5
EBSA Has Made Improvements to Its Enforcement Program, but Challenges
Remain 12
Unlike Other Agencies, EBSA Does Not Conduct Routine Compliance
Examinations or Comprehensive Risk Assessments 21
Statutory Obstacles May Limit EBSA's Ability to Oversee Pension Plans
Effectively 25
Conclusions 28
Matter for Congressional Consideration 30
Recommendations for Executive Action 30
Agency Comments and Our Evaluation 30
Appendix I Scope and Methodology 34
Appendix II Comparison of Selected Federal Agencies' Authorities,
Enforcement Practices, Results, and Resources 37
Appendix III Comments from Employee Benefits Security Administration 40
Appendix IV Comments from Securities and Exchange Commission 46
Appendix V GAO Contacts and Acknowledgments 47
Related GAO Products 48
Tables
Table 1: Ratio of Investigators, Examiners, or Agents to Regulated
Employee Benefit Plans and Securities Entities 10
Table 2: Number of Pension Plans EBSA Reviewed in Fiscal Year 2005 11
Table 3: EBSA Actions Taken in Response to GAO Recommendations from 2002
Review 13
Table 4: Overall Attrition Rates (Percentages) for EBSA Investigators,
Other EBSA Employees, DOL, and Other Federal Agencies, Fiscal Years
2001-2005 20
Figures
Figure 1: Participants in Defined Benefit and Defined Contribution Plans,
1980-2002 6
Figure 2: Overview of EBSA's Investigative Process 8
Abbreviations:
CPDF Central Personnel Data File
DFVC Delinquent Filer Voluntary Compliance
DOL Department of Labor
EBSA Employee Benefits Security Administration
EDS ERISA Data System
EFAST ERISA Filing Acceptance System
ERISA Employee Retirement Income Security Act
FTE full-time equivalent
IRS Internal Revenue Service
OCIE Office of Compliance Inspections and Examinations
OIG Office of Inspector General
OPM Office of Personnel Management
ORA Office of Risk Assessment
PBGC Pension Benefit Guaranty Corporation
SCEP Student Career Experience Program
SEC Securities and Exchange Commission
STEP Student Temporary Employment Program
VFCP Voluntary Fiduciary CorrectionProgram
This is a work of the U.S. government and is not subject to copyright
protection in the United States. It may be reproduced and distributed in
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separately.
United States Government Accountability Office
Washington, DC 20548
January 18, 2007
The Honorable Michael B. Enzi
Ranking Minority Member
Committee on Health, Education, Labor and Pensions
United States Senate
Pensions are a vital source of retirement income for millions of
Americans. According to the Department of Labor (DOL), America's private
sector pension and retirement savings system includes approximately
730,000 plans with assets totaling roughly $4.9 trillion and covering over
100 million participants. The Department of Labor's Employee Benefits
Security Administration (EBSA) is the primary agency responsible for
protecting private pension plan participants and beneficiaries from the
abuse or theft of their pension assets by enforcing the Employee
Retirement Income Security Act of 1974 (ERISA), as amended, which sets
certain standards for pension plans sponsored by private sector employers.
Because private sector pensions are second only to Social Security in
providing individuals' retirement income, effective oversight of the
private pension industry's management of these assets is critical to
ensure the economic security of workers, retirees, and their families.
Results in Brief
In 2002, we reported on EBSA's enforcement program and concluded that
certain changes could improve the program's management.1 Subsequently, we
testified before the committee that although EBSA had made progress in
improving its enforcement program, significant challenges remained.2 In
light of prior GAO work, you asked us to review the actions that EBSA has
taken to strengthen its enforcement program. Specifically, this report
assesses (1) the extent to which EBSA has improved its ability in recent
years to enforce and promote compliance with ERISA, (2) how EBSA's
enforcement practices compare to those of other federal agencies with
similar responsibilities, and (3) what obstacles, if any, affect EBSA's
enforcement of ERISA.
1GAO, Pension and Welfare Benefits Administration: Opportunities Exist for
Improving Management of the Enforcement Program, [25]GAO-02-232
(Washington, D.C.: March 2002).
2GAO, Employee Benefits Security Administration: Improvements Have Been
Made to Pension Enforcement Program but Significant Challenges Remain,
[26]GAO-05-784T (Washington, D.C.: June 9, 2005).
To complete our work, we collected and documented information on EBSA's
enforcement strategy, operations, and human capital management practices.
We reviewed EBSA's efforts to address recommendations from our prior work,
focusing on the agency's management of its enforcement program. We
interviewed officials from the Department of Labor's Office of the
Solicitor and Office of Inspector General as well as EBSA's Office of
Participant Assistance, Office of Enforcement, and the Office of the Chief
Accountant. In addition, we visited 6 of EBSA's 10 regional offices in
Atlanta, Boston, Chicago, Kansas City, Philadelphia, and San Francisco,
and 2 of its 5 district offices in Seattle and Washington, D.C., where we
interviewed field office management, regional solicitors, investigators,
and other staff. We selected these offices to represent a diverse
selection of geographic locations and types of investigations conducted in
those offices. To assess the reliability of EBSA's enforcement results
data, we spoke with agency officials about the data quality control
procedures and reviewed relevant documentation. We determined the data
were sufficiently reliable for the purposes of this report. We also
interviewed officials and obtained information from the Internal Revenue
Service (IRS) and the Securities and Exchange Commission (SEC) on the
enforcement practices they use to regulate the pension and securities
industries to determine whether these strategies or practices could be
applicable to EBSA's enforcement program. We also collected information on
the authorities and practices of the Pension Benefit Guaranty Corporation
(PBGC), the agency responsible for insuring defined benefit pension plans.
Finally, we met with representatives from professional organizations that
represent plan participants and entities that conduct audits of pension
plans that EBSA regulates.
We conducted our work between October 2005 and August 2006 in accordance
with generally accepted government auditing standards. Appendix I
discusses our scope and methodology in further detail.
Results in Brief
In 2002, we reported that while EBSA had taken actions to strengthen its
enforcement program, weaknesses existed in EBSA's management of its
enforcement strategy and overall human capital management policies, among
other things, which limited its enforcement program's effectiveness. Since
that review, EBSA has made several improvements to enforce and promote
compliance, in part by increasing coordination among its regional
investigators, instituting better quality controls, and increasing the
return of plan assets to participants through improved participation of
plan sponsors in its voluntary correction programs. In addition, EBSA has
recruited investigators with advanced skills in accounting, finance,
banking, and law that EBSA officials believe are required because of the
technical aspects of ERISA and the changing nature of benefit plans.
Nevertheless, some weaknesses we identified in 2002 remain. Specifically,
EBSA has not developed complete data to adequately assess the nature and
extent of noncompliance that would allow the agency to better focus its
resources on areas of vulnerability, such as pension plan mismanagement.
Without these data, EBSA also relies on performance measures that field
investigators said encourage them to focus on the most obvious
cases--those that are easily corrected--rather than on complex and
emerging violations where the outcome is less certain. In addition, we
found that while some regional offices did routinely attempt to confer
with their respective regional office of the SEC--the agency that oversees
many of the same pension service providers under the securities laws--for
case leads or to consider trends in potential pension violations, others
did not. Last, while EBSA has developed strategies regarding its workforce
needs, the agency's overall attrition rates remain high, and it has taken
limited steps to evaluate the effect such attrition has on its operations.
Unlike other federal enforcement agencies with similar responsibilities,
EBSA does not conduct routine compliance examinations or broad risk
assessments to inform its enforcement efforts. Regarding routine
compliance examinations, EBSA officials said that such examinations would
divert investigators from conducting investigations of alleged violations.
Instead, EBSA investigators rely on several sources, such as outside
complaints and informal targeting of pension plans, to focus their
enforcement efforts. While these sources are important, such methods are
generally reactive and may reveal only those violations that are
sufficiently obvious for a plan participant to detect or those disclosed
by plan sponsors in their pension plan documents, and not those violations
that are possibly more complex or hidden. In contrast, IRS and SEC have
dedicated compliance examination programs designed to regularly inspect a
company's operations and financial records for violations and emerging
trends that may warrant further review by enforcement staff. EBSA also has
not established a comprehensive risk assessment function to target
enforcement. Instead of broad risk assessments, EBSA's annual risk
evaluations are generally limited to a risk analysis of frontline
investigators' case loads. Unlike EBSA, SEC and PBGC have dedicated staff
to routinely analyze data from a variety of sources in order to assess
risk within the securities and pension industries in an attempt to better
focus agency resources on areas of greatest risk.
Certain statutory obstacles may limit EBSA's oversight of private sector
pensions. First, the restrictive legal requirements of the 502(l) penalty
under ERISA--a civil penalty assessed against a fiduciary for certain
breaches of ERISA--have limited EBSA's ability to assess penalties and
restore plan assets. According to EBSA officials, the penalty discourages
parties from quickly settling claims of violations, thereby impeding the
restoration of plan assets. Further, EBSA officials stated that, in some
instances, the penalty reduces the amount of funds returned to pension
plans when a plan sponsor is unwilling or cannot fully restore assets and
also pay the penalty. Second, while EBSA has taken steps to require the
electronic submission and processing of pension plan data, EBSA
investigators' access to timely plan data for targeting new case leads is
still limited by ERISA filing requirements and processing delays that are
caused primarily by the existing paper-based system. As a result, in some
cases, investigators were relying on data up to 3 years old to target
potential violators.
We are making several recommendations to the Department of Labor that are
intended to strengthen EBSA's enforcement program. We are also asking that
Congress consider amending ERISA to give the Department of Labor greater
discretion to waive the civil penalty assessed against fiduciaries or
other persons who violate ERISA in instances where doing so will
facilitate the restoration of plan assets. In response to our draft
report, EBSA disagreed with our recommendation to evaluate the extent to
which it could supplement its current enforcement practices with
strategies used by similar enforcement agencies, such as conducting
routine compliance examinations or dedicating staff for risk assessment.
EBSA noted that because we did not evaluate the effectiveness of
strategies used by the agencies highlighted in our report, they were
concerned that a recommendation to copy one of the models would be
premature given the diversion of investigative resources it would require.
However, we do not suggest that EBSA copy the IRS, PBGC, or SEC models;
rather, we suggest that EBSA consider incorporating enforcement strategies
that are standard practice at these agencies as well as many other federal
financial regulators. We recognize and would expect that EBSA's
implementation of these standard practices could vary from that of other
regulatory models, given the nature of its responsibilities. EBSA agreed
with our recommendations to conduct a formal review of the effect that
ERISA's filing deadlines have on its investigative staff; establish formal
SEC coordination groups in its regional offices, where appropriate; and
evaluate the factors affecting staff attrition and take appropriate steps
as necessary. EBSA and SEC comments are reproduced in appendixes III and
IV, respectively.
Background
In 1974, Congress passed ERISA to protect the rights and interests of
participants and beneficiaries of private sector employee benefit plans.
It outlines the responsibilities of employers and administrators who
sponsor and manage these plans. ERISA also defines fiduciaries as persons
who (1) exercise discretionary authority or control over the management of
a private sector employee benefit plan or the plan's assets, (2) render
investment advice for a fee or other compensation with respect to plan
assets, or (3) have any discretionary authority or responsibility to
administer the plan. Under ERISA, fiduciaries are required to act
prudently and exclusively in the interest of plan participants and
beneficiaries.
ERISA also describes the types of pension plans that private sector
employers may sponsor, which include defined benefit and defined
contribution plans.3 In 1980, defined benefit plans covered approximately
38 million participants, while some 20 million individuals participated in
defined contribution plans. By 2002, the numbers had changed, with roughly
42 million participants covered by defined benefit plans and approximately
65 million participants in defined contribution plans. Figure 1 shows the
shift in participation from defined benefit to defined contribution plans
since 1980.
3Defined benefit pension plans commonly provide a guaranteed monthly
benefit based on a formula that considers salary and years of service to a
company. Under defined contribution plans, employees have individual
accounts to which an employer, an employee, or both can make periodic
contributions. Defined contribution plan benefits are based on
contributions and investment returns (gains and losses).
Figure 1: Participants in Defined Benefit and Defined Contribution Plans,
1980-2002
According to experts, the fact that more workers are now covered by
defined contribution plans rather than defined benefit plans is
significant because the risk associated with providing retirement income
is shifting toward workers and away from employers. Under defined benefit
plans, the employer is typically responsible for funding the plan to cover
promised benefits--accounting for any shortfalls due to market
fluctuations, poor investment decisions, or changing interest rates. In
contrast, under a defined contribution plan, participants are generally
responsible for ensuring that they have sufficiently saved for retirement
and generally make their own investment decisions. As a result, much of
the risk has moved from the employer to the plan participants. Today, with
about one-fifth of Americans' retirement wealth invested in mutual funds,
pension and retirement savings plans have become more dependent on the
investment services industry. These plans now include new investment
vehicles and financial instruments that are more complex and require
specialized knowledge and expertise for prudent decision making.
EBSA Shares the Responsibility for Enforcing ERISA with Other Agencies
EBSA shares responsibility for enforcing ERISA with the IRS and PBGC. EBSA
enforces Title I of ERISA, which specifies, among other standards, certain
fiduciary and reporting and disclosure requirements, and seeks to ensure
that fiduciaries operate their plans in the best interest of plan
participants. EBSA conducts investigations of plan fiduciaries and service
providers and seeks appropriate remedies to correct violations of the law,
and pursues litigation when they determine necessary, as shown in figure
2.
Figure 2: Overview of EBSA's Investigative Process
IRS enforces Title II of ERISA, which provides, among other standards, tax
benefits for plan sponsors and participants, including participant
eligibility, vesting, and funding requirements.4 IRS audits plans to
ensure compliance and can levy tax penalties or revoke tax benefits, as
appropriate. In contrast, PBGC, under Title IV of ERISA, insures benefits
for defined benefit pension plans when companies default on promised
pension benefits. To do so, PBGC collects premiums from plan sponsors and
administers payment of pension benefits in the event that these plans
terminate without sufficient assets to pay all benefits accrued under the
plan to date. Finally, while SEC does not draw authority from ERISA, it is
responsible under securities laws for regulating and examining entities
registered with SEC, such as investment advisers, managers, and investment
companies that often provide services to plans. Additional information on
selected agencies' authorities and enforcement practices is contained in
appendix II.
According to 2002 data, EBSA's oversight authority covers approximately
3.2 million private sector pension and health benefit plans with assets
over $5 trillion and covering more than 150 million participants.5 Of the
3.2 million plans, EBSA reported that approximately 730,000 are pension
plans with assets totaling roughly $4.9 trillion and covering over 100
million participants. EBSA's 385 frontline investigators are primarily
responsible for overseeing these employee benefit plans. In contrast, IRS
and SEC have oversight responsibility for a smaller number of entities.
Specifically, IRS's 389 agents conduct oversight for some 1.3 million
pension, profit-sharing, and stock bonus plans,6 and the SEC's 1,953
investigators and examiners oversee 17,337 registrants, such as investment
advisers and investment companies. Table 1 shows the ratio of
investigators, examiners, or agents to the number of plans and entities
that EBSA, IRS, and SEC regulate.
4To achieve tax benefits, referred to as tax qualified status, plans must
comply with a number of requirements in the Internal Revenue Code
governing the provisions of contributions and benefits. ERISA also
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).
5EBSA also has responsibility for also overseeing other welfare plans,
such as those plans established to provide vacation benefits or child care
services. However, welfare plans with fewer than 100 participants that are
fully insured or otherwise unfunded (hold no assets in trust) are not
required to file annual reports, so estimates must be made based on
surveys. As of July 2006, EBSA could not provide GAO with an estimate of
the total number of these plans, because it had not yet completed an
updated survey of such plans. In past years, EBSA has estimated the number
of health and other welfare plans at 6 million plans.
6IRS's responsibility centers on plans covered by Internal Revenue Code
Section 401(a). EBSA shares some responsibility for the same plans;
focusing on fiduciary responsibility and prohibited transactions.
Table 1: Ratio of Investigators, Examiners, or Agents to Regulated
Employee Benefit Plans and Securities Entities
Ratio of
personnel to
Investigators, Employee benefit regulated plans
Agency examiners, or agents plans/securities entities or entities
EBSA 385 3.2 milliona pension (0.7 1 : 8,000a
million ) and health benefit
plans (2.5 million)
IRS 389 1.3 million pension plans: 1 : 3,000
5500 filers (0.7 million),
5500 EZ filers (0.2 million),
and non-5500 filers (0.4
million)-- Form 5500s include
basic plan information.
SEC 1,953 17,337b includes investment 1 : 9
advisers (9,022), investment
includes 851 companies (1,002), broker
examiners and 1,102 dealers (6,900), transfer
investigators agents (400), self- regulatory
organizations (11), and
clearing agencies (2)
Source: EBSA, IRS, and SEC.
aBecause of data limitations, not all other welfare plans under EBSA's
oversight are included.
bSEC is also responsible for enforcing certain provisions of the federal
securities laws, such as provisions pertaining to fraud, that apply to
entities and individuals that are not subject to broad regulation under
the laws. For fiscal year 2005, cases primarily classified as involving
regulated entities accounted for 32.5 percent of SEC's total actions.
EBSA's field offices conduct investigations to detect and correct
violations of Title I of ERISA and related criminal laws. In fiscal year
2005, EBSA had roughly 7,800 ongoing investigations, of which
approximately 3,400 were newly opened as a result of various source leads,
such as participant complaints, computer targeting, and other agency
referrals. EBSA closed about 4,000 investigations during that year.
EBSA's Participant Assistance staff supplements EBSA's enforcement
activities by helping plan participants obtain retirement and health
benefits that have been improperly denied.7 In fiscal year 2005, this
office conducted roughly 2,000 outreach events to educate participants,
beneficiaries, plan sponsors, and members of Congress about pension plan
rights and obligations, among other topics. In addition, during the same
time, the office reported that its benefits advisers closed about 160,000
inquiries and complaints, some of which resulted in monetary recoveries.8
In those instances where a complaint was not informally resolved, EBSA
officials said that it was referred to the enforcement staff in the field
offices for possible investigation. As a result of such referrals, EBSA
data showed that its investigators closed almost 1,200 investigations in
fiscal year 2005 with monetary results of $130.24 million.
7As of January 31, 2006, EBSA reported that it employed 108 benefits
advisers in the field and the National Office of Participant Assistance.
These positions are generally responsible for responding to participant
complaints and inquiries as well as providing education and outreach to
participants and the regulated community.
Additionally, EBSA's Office of the Chief Accountant is concerned with
employee benefit plans' annual reporting and audit requirements and
enforces those provisions through civil penalties under ERISA.9 Through
their combined efforts, EBSA data indicate that the agency reviewed over
36,000 private sector pension plans in fiscal year 2005. Table 2 shows the
number of plans investigated or contacted by each office.
Table 2: Number of Pension Plans EBSA Reviewed in Fiscal Year 2005
EBSA Total number of plans reviewed
Enforcement 7,752
Participant Assistance 19,522
Office of the Chief Accountant 9,208
Total 36,482
Source: EBSA
Note: According to EBSA, this information includes all plans subjected to
some type of review by EBSA--not all plans were given a full review--which
included investigations and inquiries into plan activities. For example,
EBSA estimated that about 19,500 plans were reviewed, in part, based on
responses to about 160,000 participant inquiries. Multiple complaints
could be filed for a single plan. Also, according to EBSA, a number of
these reviews targeted service providers, a fact that may have a further
impact on additional plans serviced by these providers.
DOL's Office of the Solicitor supports EBSA regional offices by litigating
civil cases and providing legal support. In fiscal year 2005, the office
litigated 178 of the 258 civil cases referred to it by EBSA. In addition,
EBSA conducts criminal investigations in consultation with the U.S.
Attorneys' offices and in many cases, conducts joint enforcement actions
with other federal, state, and local law enforcement agencies. EBSA
conducted about 200 criminal investigations in fiscal year 2005. As a
result, over 100 plan officials, corporate officers, and pension plan
service providers were indicted.
8We did not independently verify whether the amount reported as a recovery
by EBSA was actually restored to the respective employee benefit plans and
participants.
9The Office of the Chief Accountant comprises three divisions: the
Division of Accounting Services, the Division of Reporting and Compliance,
and the Division of Federal Employees' Retirement Income Security Act of
1986 Compliance.
EBSA Has Made Improvements to Its Enforcement Program, but Challenges Remain
In 2002, we identified several weaknesses in EBSA's management of its
enforcement program, including the lack of a centrally coordinated quality
review process, better coordination needed among its investigators, the
lack of data to assess the nature and extent of noncompliance, and limited
attention to its human capital management, despite the agency's actions to
strengthen the program in prior years. Since our 2002 review, EBSA has
improved its enforcement program. However, several challenges remain. The
agency has promoted coordination among regional investigators, implemented
quality controls, and developed strategies to address its workforce needs.
To promote compliance, EBSA has increased its educational outreach to plan
participants, sponsors, and service providers, and increased participation
in its voluntary correction programs. However, the agency has not fully
addressed concerns from our prior reviews. Specifically, EBSA still has
not (1) developed complete data on the nature and extent of plans'
noncompliance, (2) established a formal coordination protocol with SEC
within its regional offices, and (3) formally evaluated the factors
affecting staff attrition.
EBSA Has Made Some Progress in Improving Its Enforcement Program
In recent years, EBSA has addressed many of the concerns we raised in our
2002 review. As shown in table 3, such improvements include promoting
coordination among regional investigators, implementing quality controls,
and developing strategies to meet its workforce needs.
Table 3: EBSA Actions Taken in Response to GAO Recommendations from 2002
Review
GAO recommendation to Examples of EBSA actions to
GAO observation EBSA address recommendation
Certain requirements, Analyze barriers to EBSA has simplified and
such as notifying plan participation in the expanded the original VFCP
participants of VFCP and explore ways regulation published in
potential violations to reduce them. 2002, which describes how
and levying excise to apply for voluntary
taxes on prohibited correction, the 19
transactions, may categories of transactions
hinder participation in covered, acceptable methods
the Voluntary Fiduciary for correcting violations,
Correction Program and examples of potential
(VFCP). violations and corrective
actions. Applications
received for voluntary
corrections increased from
55 in fiscal year 2002 to
985 in fiscal year 2005.
EBSA had not adequately Develop a In fiscal year 2001, EBSA
estimated the nature of cost-effective conducted a national
employee benefit plans' strategy for assessing compliance study of group
noncompliance with the level and type of health plans' compliance
ERISA provisions. ERISA noncompliance with the new health care
among employee benefit laws in ERISA. In 2003,
plans. EBSA conducted a compliance
study focusing on large
multi-employer health
plans. Currently, the
agency is conducting a
baseline study to determine
the level of compliance
with ERISA requirements on
timely transmission of
employee contributions to
pension plans.
EBSA gave limited Conduct a EBSA conducted an employee
attention to human comprehensive review workforce analysis and an
capital management of the agency's future employee training needs
despite anticipated human capital needs, assessment. In 2003, DOL
workforce and including the size of issued its Human Capital
enforcement workload its workforce, the Strategic Management Plan,
changes. For example, skills and abilities which provided DOL's
the agency had not needed, succession strategies for addressing
considered succession planning challenges, current and projected
planning and workforce and staff deployment skills shortages,
retention, which could issues. anticipated future staffing
undermine the needs, and competency
continuity and requirements to ensure that
effectiveness of its employees possess or
enforcement program. acquire the critical skills
needed to accomplish
program mission and
functions.
EBSA lacked a centrally Develop a closed case In fiscal year 2003, an
coordinated quality quality review process EBSA team composed of
review process to that ensures the Office of Enforcement and
ensure that its independence of field managers developed a
investigations are reviewers and closed case quality review
conducted in accordance sufficiently focuses program. The program
with its investigative on substantive focuses on substantive
procedures. technical case issues. technical issues, and
findings are reported
centrally to the national
office. Although regional
office officials
administering the program
reviewed their own office's
cases for quality, the
program includes procedures
to ensure the independence
of the case reviewer.
EBSA had not routinely Conduct regular EBSA conducted analysis on
analyzed the full range reviews of the sources cases closed in fiscal
of cases investigated of cases that lead to years 2001, 2002, 2003, and
to determine which investigations. 2004. The agency agreed to
sources were the most perform reviews of the
effective in terms of sources of cases that lead
detecting and to investigations on an
correcting violations. annual basis as long as
resources permit.
EBSA did not coordinate Coordinate the sharing EBSA established a Best
the sharing of best of best practices Practices Sharing Team
practices information information among composed of enforcement
among its regions regions relating to staff and regional
regarding case the optimum and most representatives. The agency
selection and productive techniques also developed an intranet
investigative for selecting and site to allow its
techniques. conducting investigators to share best
investigations. practices, such as
investigative plans,
subpoenas, letters, and
investigative guides.
Source: GAO analysis.
As part of its workforce efforts, EBSA has recruited investigators with
advanced skills in accounting, finance, banking, and law that EBSA
believes are required because of the technical aspects of ERISA and the
changing nature of benefit plans. As of September 2005, EBSA employees
were among some of the highest educated within DOL, and EBSA staff data
indicated that investigators have wide-ranging skills and backgrounds
similar to those investigators at IRS and SEC. For example, EBSA reported
that 46 percent of its investigators hold law degrees, with some of these
staff also holding additional degrees or certificates in accounting or
business administration as well as other subject areas. Also, EBSA
reported that 27 percent of its investigators or auditors had
undergraduate degrees in accounting, with several also having skills in
forensic accounting or fraud examination. Several investigators and
auditors had other advanced degrees, such as master's degrees in business
administration, law, and public policy, as well as backgrounds in
securities, taxation, banking, insurance, and employee benefits.
Recognizing a need for fraud examination skills, EBSA now includes a
course on forensic accounting in its basic training of newly hired
investigators, and EBSA data showed that the agency also sent many of its
investigators to the Federal Law Enforcement Training Center over the last
several years to take courses in fraud examination as well as money
laundering and health care fraud.
Since 2002, EBSA has also used several initiatives to recruit its staff.
EBSA recruiters attend a variety of job fairs, college campuses, and other
events to identify and contact applicants with necessary skills. Further,
to provide national office directors and regional directors additional
tools to recruit for all occupations, authority has been delegated to
approve certain human capital flexibilities, such as advances in pay and
payment of travel expenses for employment interviews.
In addition to attending recruitment events, EBSA uses three principal
programs to recruit students from law schools, business schools, and other
specialized disciplines. These programs are the
o Student Career Experience Program (SCEP): designed for students
to work in positions related to their academic field of study
while enrolled in school.10 Upon graduation, interns may convert
to full-time career employees. Since 2002, EBSA has employed
roughly 100 SCEP participants. As of July 2006, EBSA reported that
28 students were participating in the program.
o Student Temporary Employment Program (STEP): designed for the
temporary employment of students ranging from a summer internship
to a period generally not to exceed 1 year. According to
officials, some STEP interns join the SCEP program after the
summer internship ends. Since 2002, EBSA has employed 115 interns
in the STEP program. As of July 2006, EBSA reported that it had 4
participants.
o Federal Career Intern Program: a 2-year internship program that
can result in conversion to career employment. EBSA just recently
began using this program to recruit full-time employees who have
recently obtained an undergraduate or graduate degree. According
to EBSA, the program, which allows the agency to recruit students
outside of the normal hiring process, is much faster and more
streamlined, enabling EBSA to better target candidates. As of July
2006, EBSA reported that 24 students were participating in EBSA's
program and were not yet eligible for conversion.
Furthermore, DOL offers an agencywide Masters of Business Administration
Fellows Program, which is used to recruit business school graduates. This
is a 2-year rotational program, at the end of which fellows may be
converted to career employees. As of 2006, 76 fellows had taken part in
the program across all DOL agencies, including EBSA.
In addition to addressing our prior concerns on the management of the
enforcement program, EBSA has established formal criminal coordinator
positions for each regional office and increased funds returned to
participants through its assistance. With regard to its criminal
coordinators, EBSA created a new position in each regional office, modeled
after its national office coordinator position, to facilitate
relationships with law enforcement agencies at the regional level. The
position works with law enforcement agencies and prosecutors at all levels
to improve the likelihood that criminal violations will be recognized and
appropriately investigated. Regional office officials believe that the
position expands their opportunities for criminal prosecutions. For
example, one regional official said that if the U.S. Attorney's office did
not believe it was cost-effective to prosecute an alleged violation, the
regional coordinator would refer cases to the local district attorney's
office for prosecution. Additionally, several regional office officials
believed that the new position would help them better coordinate their
criminal investigations, ultimately increasing criminal prosecutions.
10To be eligible for the SCEP, students must be enrolled or accepted for
enrollment in a program of study leading to a degree, diploma, or
certificate at an accredited high school, technical or vocational school,
2- or 4-year college or university, or graduate or professional school.
EBSA also continues to provide education to plan participants, sponsors,
and service providers to promote compliance. EBSA's education program is
designed to increase plan participants' knowledge of their rights and
benefits under ERISA. For example, EBSA anticipates that through
education, participants will become more likely to recognize potential
problems and notify EBSA when issues arise. The agency also conducts
outreach to plan sponsors and service providers, in part, about fiduciary
responsibilities and obligations under ERISA. For example, EBSA's benefit
advisers 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. Some outreach activities
include
o briefings to congressional offices, state insurance
commissioners, and other federal, state, and community
organizations;
o fiduciary compliance assistance seminars for employers, plan
sponsors, and practitioners; and
o on-site assistance to dislocated workers facing job loss as a
result of plant closure or layoffs.
EBSA has also increased funds returned to participants through its
assistance. For example, for fiscal year 2002, the Office of Participant
Assistance reported that it had recovered approximately $49 million on
behalf of participants. As of fiscal year 2005, the office reported that
it had increased that amount to about $88 million.
At the same time, EBSA has increased its enforcement results since 2002.
According to EBSA data, in fiscal year 2002, for every dollar invested in
EBSA, the agency's investigators produced about $7.50 in financial
benefits, or roughly $830 million in total monetary recoveries. As of
fiscal year 2005, they were producing just over $12 for every dollar--a
total of $1.6 billion. EBSA officials said that the agency has achieved
these results, in part, because of recent program improvements and with
relatively small increases in staff. Full-time equivalent (FTE) authorized
staff levels increased from 850 in fiscal year 2001 to 875 FTEs in fiscal
year 2006. As of August 2006, 385 of the 875 FTEs were frontline field
investigators.
In addition, EBSA has increased compliance through its Voluntary Fiduciary
Correction Program (VFCP) and its Delinquent Filer Voluntary Compliance
(DFVC) Program. The VFCP allows plan officials to disclose and correct
certain violations without penalty. The program is designed to protect the
financial security of workers by encouraging employers and plan officials
to voluntarily comply with ERISA and allows those potentially liable for
some fiduciary violations under to ERISA to apply for relief from
enforcement actions and certain penalties, provided they meet specified
criteria and follow program procedures. Specifically, plan officials can
correct 19 types of transactions, such as the remittance of delinquent
participant contributions and participant loan repayments to pension
plans. If the regional office determines that the applicant has met the
program's terms, it will issue a "no action" letter to the
applicant--avoiding a potential civil investigation and penalty
assessment. As a result of the program, in fiscal year 2005, EBSA reported
that $7.4 million was voluntarily restored to employee benefit plans.
Furthermore, the DFVC program is designed to encourage plan administrators
to comply with ERISA's filing requirements. According to EBSA data, the
program has increased the number of unfiled annual reports received from
about 3,000 in fiscal year 2002 to over 13,000 in fiscal year 2005.
EBSA Still Does Not Estimate Overall Industry Compliance, Regularly Confer With
SEC Staff on Industry Trends, and Address Retention of Investigators
Despite improvements in its enforcement efforts, EBSA has not completely
addressed several weaknesses we previously identified. Specifically, EBSA
has not systematically estimated the nature and extent of pension plans'
noncompliance, a fact that limits the agency's ability to assess overall
industry compliance with ERISA and measure the effectiveness of its
enforcement program. In 2002, we recommended that EBSA take steps to
develop a cost-effective strategy for assessing the level and type of
noncompliance among employee benefit plans. In response, EBSA stated that
it had established its ERISA Compliance Assessment Committee and had
embarked on a statistical study to gauge health plans' noncompliance with
the provisions of Part 7 of ERISA, dealing with group health plan
requirements.11 Although EBSA has conducted and continues to generate some
statistical studies to measure noncompliance in the pension and health
care industries, its pension compliance data remain limited, focusing on
information such as the timeliness and full remittance of employee
contributions to defined contribution plans. However, as of June 2006,
EBSA officials could not provide an estimated time frame for results of
its timeliness and remittance study. Although EBSA has taken steps, the
agency still did not know the nature and extent of noncompliance within
the pension industry, and its ERISA Compliance Assessment Committee had
not yet planned any additional pension compliance baseline studies.
EBSA's limited noncompliance information may also prevent EBSA from
effectively measuring the overall performance of its enforcement program.
The Government Performance and Results Act of 1993 requires that executive
agencies demonstrate effectiveness through measurable result-oriented
goals. According to the Office of Management and Budget,12 DOL has
selected output measures as proxies to compensate for the difficulty in
measuring overall performance. Since our 2002 review, EBSA's enforcement
program continues to use performance measures that generally focus on how
well the agency is managing and using its resources--such as the number of
specific investigations closed with results--rather than on its overall
impact on the security of employee benefits. Some regional office
officials we visited raised concerns that the current measures and
expected increases to EBSA's performance goals in the coming years would
likely result in an inability to review and conduct more complex cases,
given each office's limited resources and the need to close cases with
results. For example, one of EBSA's performance goals is to close 69
percent of its civil investigations with results in 2006, with planned
increases to that goal of 3 percent per year until 2008--to 75 percent.
Some regional officials stated that meeting the revised performance goal
encourages a focus on cases that are more obvious and easily corrected,
such as those involving employee defined contribution plans, rather than
on investigations of complex and emerging violations where the outcome is
less certain and may take longer to attain. Without data to assess the
extent and nature of noncompliance, as we recommended in 2002, EBSA will
continue not to have effective measures for assessing the overall
effectiveness of its enforcement program.
11Part 7 of ERISA includes requirements on group health plan portability,
access, and renewability, including limitations on the use of preexisting
condition exclusions based on health status.
12The U.S. Office of Management and Budget assists the President in
overseeing the preparation of the federal budget and supervising its
administration of executive branch agencies. Furthermore, the agency
evaluates the effectiveness of agency programs, policies, and procedures;
assesses competing funding demands among agencies; and sets funding
priorities.
In a 2005 testimony, we also noted that EBSA needed to better coordinate
with the SEC on issues related to the securities and pension industries.13
Although the two agencies periodically share information, we found that
EBSA has not yet established a systematic procedure by which its
investigators in all its regional offices can regularly confer with their
respective SEC regional office. Under the securities laws, SEC is subject
to confidentiality restrictions with respect to information it can
disclose to EBSA pertaining to an ongoing investigation, even if the
information pertains to possible violations of ERISA.14 For example, if
SEC investigates a securities trading firm and has reason to believe that
information discovered during the investigation might be of interest to
EBSA investigators, SEC may alert EBSA to their findings. Likewise, EBSA
investigators can alert SEC to information that is discovered during an
ERISA investigation that might be of interest to SEC. However, unlike
EBSA, SEC may not share documentation associated with its findings unless
EBSA submits a written request for information which, if approved, allows
access to any evidence that SEC has obtained during the course of its
investigation.
In an attempt to expedite the information-sharing process, certain EBSA
regional offices, but not all, have established informal working groups of
investigators that regularly meet with SEC investigators to exchange
information. For example, one region has established an "SEC Group," which
regularly meets with SEC investigators to develop case information and
potential leads. In contrast, another region stated that it has very
little contact with SEC and only learns about SEC investigations through
the media. While not all EBSA regional and district offices may have the
same need to interact with SEC because of the nature of the private sector
companies within their jurisdiction, EBSA may not have knowledge of an SEC
investigation involving the same entity in those offices where no working
group exists unless such knowledge is disclosed to the public, therefore
limiting its awareness of potential violations.
13 [27]GAO-05-784T .
14SEC personnel are prohibited from disclosing information obtained as a
result of an examination or investigation without the approval of senior
management at the SEC acting pursuant to delegated authority of the SEC.
Further, EBSA has not developed initiatives to ensure retention of its
investigative staff, despite its improvements in human capital management.
In 2002, we reported that EBSA had one of the highest attrition rates
within DOL. Since our review, we found that EBSA's overall attrition rate
remained high, and in recent years, attrition rates for EBSA's
investigators appear to have risen. Table 4 shows the attrition rates of
EBSA investigators including students that occupy investigator positions
in the GS-1801 series, as compared to the attrition rates of similar
groups.
Table 4: Overall Attrition Rates (Percentages) for EBSA Investigators,
Other EBSA Employees, DOL, and Other Federal Agencies, Fiscal Years
2001-2005
All other
Fiscal EBSA EBSA DOL All other federal
year investigatorsa agencywide employees investigatorsa
2001 7.1 9.4 9.1 5.2
2002 3.3 8.4 8.7 4.3
2003 3.4 7.2 6.7 6.3
2004 5.6 8.9 6.1 5.4
2005 11.2 10.8 8.8 5.2
Source: GAO analysis of OPM's Central Personnel Data File.
aInvestigators represent all designated GS-1801 investigative positions,
including those employed under the student temporary employment program.
EBSA investigators in training (students--GS-1899 series) are not included
in the attrition rate calculations--attrition for 1899 classification is:
62 percent (`01), 83 percent (`02), 63 percent (`03), 54 percent (`04),
and 45 percent (`05). EBSA also hires auditors--classified as a
GS-511--which are a part of the investigative staff. 511 auditors are not
included in the table. We determined the overall attrition rates for this
classification as follows: 10.4 percent (`01), 2.3 percent (`02), 8.6
percent (`03), 9.7 percent (`04), and 7.7 percent (`05).
Specifically, data suggest that EBSA's attrition rates for investigators
have climbed since 2002, and as of 2005, EBSA investigators were leaving
at twice the rate of other federal investigators. In fact, as of fiscal
year 2005, EBSA had lost 102 investigators since fiscal year 2002 for
various reasons, such as resignations and retirement. For example, in
fiscal year 2005, EBSA lost 52 investigators, of which 34 left for
employment outside of the federal government.15 While this may be due in
part to EBSA employing temporary students as entry-level investigators,
between fiscal year 2002 and fiscal year 2005, 58 investigators had left
EBSA for employment outside of the federal government.
15In prior fiscal years, the following number of investigators left EBSA
for various reasons including retirement, resignations, and terminations:
45 (`00) 26 (`01), 13 (`02), 14 (`03), and 23 (`04).
According to regional office officials in several offices we visited,
particularly in major urban areas, they had difficulties retaining newly
hired investigators because of insufficient compensation, and some
believed that these staff used EBSA as a training ground for the private
sector employee benefit plan industry where they could earn higher
salaries. For example, in the San Francisco regional office, officials
reported that the investigator attrition rate has averaged about 13
percent per year, and as of April 2006, officials reported that 50 percent
of their staff had less than 3 years of experience. While other agencies
may face similar attrition problems in such urban areas, EBSA has taken
limited steps to evaluate the impact such attrition has on its operations.
Officials from EBSA's Office of Program Planning, Evaluation and
Management reported that the agency dropped earlier considerations for
retention strategies, such as student loan repayment and retention
bonuses, in view of data that suggest investigators are usually leaving
for much higher salaries elsewhere. Although EBSA has employed exit
surveys, the agency has limited processes to evaluate why its
investigators are leaving the agency, nor has the agency evaluated the
extent to which other retention initiatives may be useful. While EBSA may
be able to recruit new investigators and to fill vacant positions, the
continued turnover requires additional resources for training new staff.
Further, the relative inexperience of new staff may have an adverse effect
on EBSA's enforcement program's efforts.
Unlike Other Agencies, EBSA Does Not Conduct Routine Compliance Examinations or
Comprehensive Risk Assessments
Although EBSA regularly targets violations, it does not conduct routine
compliance examinations or comprehensive risk assessments to direct its
enforcement practices, as do other federal agencies that share similar
responsibilities. Rather, the agency relies on various sources for case
leads, such as outside complaints and informal targeting of plans, to
focus its enforcement efforts. While these leads are important, in
addition to undertaking such activities, agencies such as IRS and SEC have
developed routine compliance programs to detect violations and identify
emerging trends that may warrant further examination by enforcement staff.
Moreover, SEC and PBGC have dedicated staff to perform broad risk
assessments by analyzing information from multiple sources in order to
anticipate, identify, and manage risks to investors and to the pension
insurance system.
EBSA Does Not Conduct Routine Compliance Examinations
EBSA does not conduct routine compliance examinations--evaluations of a
company's books, records, and internal controls--limiting its ability to
detect and deter violations. Rather than conduct such examinations, EBSA
relies on several sources for case leads. For example, EBSA uses
participant complaints and other agency referrals as sources of
investigative leads and to detect potential violations. Moreover, EBSA
identifies leads, in part, through informal targeting efforts by
investigators, primarily using data reported by plan sponsors on their
Form 5500 annual returns. While these sources are important, such methods
are generally reactive and may reveal only those violations that are
sufficiently obvious for a plan participant to detect or those disclosed
by plan sponsors on their Form 5500s,16 and not those violations that are
possibly more complex or hidden. Nevertheless, EBSA officials raised
concerns that conducting such examinations would divert resources from
EBSA's current enforcement practices.
In contrast, IRS and SEC use such examinations in an effort to detect
violations or identify weaknesses that could lead to violations. IRS's
Office of Employee Plans administers a compliance examination program to
detect violations of tax laws related to pension plans. According to
agency officials, IRS dedicates eight staff members for selecting entities
for examinations, and IRS uses a risk-based process for selecting and
scoping such examinations. If a violation is detected during an
examination, IRS can subsequently levy penalties and excise taxes on the
violators.17 In fiscal year 2005, the Office of Employee Plans closed
8,230 examinations. Similarly, SEC's Office of Compliance Inspections and
Examinations (OCIE) detects violations of securities laws through its
examination program.18 OCIE examines advisers, investment companies,
broker-dealers, and other registered entities to evaluate their compliance
with the federal securities laws, to determine if they are operating in
accordance with disclosures made to investors, and to assess the
effectiveness of their compliance control systems. SEC conducted 2,056
examinations of investment advisers and investment companies in fiscal
year 2005.
16ERISA requires that most pension plan sponsors file an annual report
called the Form 5500, which is a major source of information about the
plan and provides a key compliance tool for identifying and targeting
potential violations. The 5500 is the primary source of detailed pension
plan information and is used by EBSA, IRS, and PBGC for compliance,
research, and public disclosure purposes. Information collected on the
form includes basic plan identifying information as well as detailed plan
information, including assets, liabilities, insurance and financial
transactions, audited financial statements, and for defined benefit plans,
an actuarial statement.
17An excise tax applies to certain types of distributions from qualified
plans. According to IRS, about 16,000 plans owed excise taxes totaling
roughly $129 million for various violations, including failure to meet
certain funding standards, excess fringe benefits, and failure to protect
liquidity shortfalls between December 2004 and November 2005.
IRS also uses examinations in an attempt to identify emerging areas of
noncompliance and analyze compliance risk levels among specific types of
pension plans. IRS plans to use this information in its risk-based
examination selection process, similar to recommendations that we made to
EBSA in 2002. As part of this effort, IRS, which has a similar resource
level to EBSA, is in the process of conducting examinations to develop
compliance baselines for 79 market segments it identified based on
business sector and plan type. For example, IRS is developing separate
baseline compliance levels for 401(k) plans, defined benefit plans,
employee stock ownership plans,19 and profit-sharing plans in the
construction industry. IRS officials expect the baselines to be completed
by the end of fiscal year 2007. Likewise, SEC, which has fewer entities to
oversee and more resources than EBSA, attempts to use its examination
program to identify emerging trends. In addition to its other examination
types, SEC conducts sweep examinations--compliance examinations that focus
on specific industry issues among a number of registrants--to remain
informed of securities industry developments. For example, SEC initiated a
sweep examination of several pension plan service providers to identify
conflicts of interest between the providers and the plan sponsors.20
Furthermore, because of the number of EBSA investigators relative to
employee benefit plans, EBSA's presence in the pension industry is
limited, therefore decreasing the possibility that a plan may be
investigated. A compliance examination program, in part, is designed to
establish a presence by regularly reviewing entities' operations, thereby
likely creating a deterrent to noncompliance. For example, IRS officials
said that they believe that their program deters violations from occurring
because they select many plans for review each year based on established
risk criteria. Because fiduciaries are unsure when IRS's agents may review
their activities, IRS officials believe that the agency has created an
environment that encourages compliance. Likewise, EBSA officials believe
that their voluntary compliance programs are also successful at deterring
violations, because employers and fiduciaries want to disclose and correct
violations instead of being investigated and prosecuted. However, given
the ratio of employee benefit plans to investigators, EBSA's limited
presence may create an incentive for fiduciaries or plan sponsors to take
compliance lightly, even though EBSA attempts to deter violations through
its correction programs and publicizing its enforcement results.
18SEC's examination program includes three main types of
examinations--cause, routine, and sweep. Cause examinations are initiated
for a specific reason, such as an investor complaint of an alleged
violation. Routine examinations, compliance examinations initiated on a
risk-based cycle, are the most common. SEC conducts sweep examinations,
which focus on specific industry issues rather than a specific registrant,
to examine specific risk areas.
19An employee stock ownership plan is a retirement plan into which the
company contributes its stock for the benefit of the company's employees.
With such plans, employees do not buy or hold the stock directly.
20U.S. Securities and Exchange Commission. Staff Report Concerning
Examinations of Select Pension Consultants (Washington, D.C.: May 16,
2005).
EBSA Has Not Dedicated Staff to Formalized Risk Assessment
Although EBSA's enforcement strategy emphasizes targeting violations and
protecting plan participants at risk, EBSA has no staff dedicated to
conduct broad risk assessments of multiple sources of information,
including, but not limited to, investigations, academic research,
compliance studies, and other market data. While the agency attempts to
identify areas of risk through its efforts in establishing its national
priorities and projects, this effort ultimately relies on regional
investigators to identify developing problems--generally in the course of
their existing investigations. EBSA's Strategic Enforcement Plan directs
EBSA to establish national investigative priorities to ensure that its
enforcement program focuses on areas critical to the well-being of
employee benefit plans. On the basis of these priorities, EBSA annually
develops national and regional projects based on unique or problematic
issues identified within a region's geographic jurisdiction in accordance
with its strategic plan. Depending on the prevalence of a specific problem
across regions, it can be elevated to a national project. For example,
EBSA has recently implemented a national project focusing on pension
consulting services, called the Consultant/Advisor Project, which is aimed
at identifying plan service providers, particularly investment advisers,
who may have a conflict of interest that could affect the objectivity of
the advice they provide their pension plan clients. However, because EBSA
relies primarily on identifying risk through its investigations and
targeting, which offer no systematic, analytic process for anticipating
new types of violations before they become pervasive, its risk assessment
approach may be limited.
Unlike EBSA, some federal agencies, such as SEC and PBGC, have dedicated
staff to analyzing information from multiple sources to assess external
risk within their regulated industries. Once risks are identified, the
agencies develop and focus their enforcement strategies to mitigate and
manage them. In 2004, SEC established the Office of Risk Assessment (ORA)
to coordinate the SEC's risk management program. While relatively small,
ORA serves as the agency's risk management resource and works with other
SEC departments to identify and manage risks. According to ORA officials,
the office's five staff identify and assess areas of concern through
expert analysis, such as new and resurgent forms of fraud and illegal
activities. For instance, ORA worked in conjunction with OCIE to develop a
database to collect and catalog such issues within the securities industry
in order to evaluate risk to investors. OCIE then uses this database to
select cases for its examination program. Also, PBGC has dedicated one
employee--supported by staff in various departments--for risk assessment
within its Department of Insurance Supervision and Compliance. PBGC
officials believe this has strengthened its operational capability to
identify and monitor risks to its pension insurance program, including
macroeconomic factors, industry-specific risks, and matters relating to
specific plan sponsors. PBGC officials also stated that these efforts play
a role in PBGC's financial reporting processes, including valuing its
benefit liabilities and determining whether liabilities associated with
distressed plans should be classified as liabilities in PBGC's financial
statements, as required by generally accepted accounting principles.
Statutory Obstacles May Limit EBSA's Ability to Oversee Pension Plans
Effectively
Certain statutory obstacles may limit EBSA's effectiveness in overseeing
private sector pension plans. First, the restrictive legal requirements of
the 502(l) penalty under ERISA have limited EBSA's ability to assess
penalties and restore plan assets. According to EBSA officials, the
penalty discourages parties from quickly settling claims of violations,
thereby impeding the restoration of plan assets. Further, EBSA officials
stated that in some instances, the penalty can also reduce the amount of
money restored to plan participants when a plan sponsor is unwilling to or
cannot fully restore assets and pay the penalty. Second, investigators'
access to timely plan data for targeting new case leads is limited by
ERISA filing deadlines. As a result, the data can be several years old. In
fact, in some cases, investigators were relying on data up to 3 years old
to target potential violators. While EBSA is constrained by ERISA's filing
requirements, the agency has taken steps to address processing delays in
an effort to provide more timely data to investigators and to improve its
targeting efforts.
Restrictive Statutory Requirements Can Impede the Restoration of Plan Assets
Restrictive legal requirements have limited EBSA's ability to assess
penalties against fiduciaries or other persons who knowingly participate
in a fiduciary breach, and the penalty provision under Section 502(l) of
ERISA has delayed and in certain instances prevented the restoration of
funds to pension plans. Under ERISA, EBSA must assess penalties based on
monetary damages, or more specifically, the restoration of plan assets.21
Section 502(l) of ERISA requires EBSA to assess a 20 percent penalty
against a fiduciary who breaches a fiduciary duty under, or commits a
violation of, Part 4 of Title I of ERISA or against any other person who
knowingly participates in such a breach or violation, and the penalty is
20 percent of (1) the "applicable recovery amount," (2) the amount of any
settlement agreed upon by the Secretary, or (3) the amount ordered by a
court to be paid in a judicial proceeding instituted by the Secretary.
However, the penalty can only be assessed against fiduciaries or knowing
participants in a breach by court order or settlement agreement.
Therefore, if there is no settlement agreement, or court order, or if
someone other than the fiduciary or knowing participant returns plan
assets, EBSA cannot assess the penalty.
In those instances where EBSA does pursue formal settlement, officials
stated that the penalty can discourage parties from quickly settling
claims of violations, because violators almost always insist on resolving
all of EBSA's claims in one settlement package, including both the amount
to be paid to the plan and the amount paid in the form of a penalty. In
many of these cases, violators have contested the penalty, in turn
delaying settlement and impeding restoration of plan assets.
In addition, officials stated that the penalty can, in some instances,
reduce the amount of money restored to the plan participant when a plan
sponsor is unwilling to or cannot fully restore assets and pay the
penalty. Currently, EBSA has limited discretion to waive or reduce the 20
percent penalty in situations where it reduces the funds returned to the
plan.22 Because ERISA requires the penalty to be paid to the U.S.
Department of the Treasury, if insufficient funds exist to restore plan
assets and pay the penalty, plan assets may not be completely restored.
For example, if a plan sponsor is found to have breached its fiduciary
duty and the amount involved is $1,000,000 and the sponsor has only
$900,000 left in its possession, the amount returned to the plan
participants will be $720,000 (80 percent), and a penalty of $180,000 (20
percent) will be paid to the U.S. Treasury.
21EBSA can also seek removal of a fiduciary for breaches of fiduciary duty
or seek other sanctions.
22The Secretary of Labor may waive or reduce the penalty if: (1) the
fiduciary or other person acted reasonably and in good faith, or (2)
because of severe financial hardship.
Investigators' Access to Timely Data Limited by ERISA Filing Deadlines
Under ERISA, plan sponsors have up to 285 days to file their annual Form
5500 reports,23 limiting EBSA investigators' access to timely information
necessary for targeting new case leads. In addition, as we reported in
2005, processing delays and the time necessary to correct errors can
result in a further delay of up to 120 days after a plan's year
end--increasing the potential delay to over 400 days.24 As a result, in
2006, EBSA investigators were generally relying on information from 2003
and 2004 to target violations. Because of these delays, fiduciaries may
have more time to misappropriate plan assets, causing harm to participants
for long periods before violations are identified.
Unlike IRS, which supplements its 5500 reviews with risk-based compliance
examinations, EBSA relies primarily on the 5500 data maintained in its
ERISA Data System (EDS) for performing its targeting efforts. According to
officials, EDS provides EBSA investigators with about 30 pre-designed,
standard programs as well as an ad hoc query capability to target pension
plans that are perceived to have an increased likelihood of violations.
For example, investigators stated that, historically, some construction
contractors have established pensions for workers involved with a
particular project and then abandoned the plan at the project's completion
without fully funding the plan. In this scenario, investigators can use
EDS ad hoc query capability to obtain data on such plans. However, because
of untimely information, plans could already be abandoned before EBSA
investigators identified these types of violations.
While EBSA is constrained by ERISA's filing requirements, the agency has
taken steps to address processing delays in an effort to obtain more
timely information to improve its targeting efforts. In its fiscal year
2007 appropriation request, DOL requested funding for an updated
electronic filing system--known as EFAST2--with the goal of expediting the
Form 5500 filing process in two ways. First, EFAST2 is designed so that it
will not accept Form 5500 data submissions unless they pass a series of
edit checks. EBSA officials stated that the change should reduce errors
and processing times. Second, EFAST2 should capture data from prior year
filings in a manner that officials believe will be more conducive to
analysis than the current ERISA Filing Acceptance System (EFAST). This new
system is intended to replace the current process, where approximately 98
percent of Form 5500s are filed using paper forms, with the remainder
filed electronically through EFAST. EBSA officials stated that the current
paper filings take more than three times longer to process than electronic
filings and have nearly twice as many errors. To address these issues,
EBSA recently issued a regulation requiring the electronic filing of all
Form 5500s for plan years beginning on or after January 1, 2008. EBSA
officials believe that the new requirements and system features will
provide EBSA with more timely data.
23A plan has 210 days from the end of the plan year to file the 5500, and
plans may apply for an extension of an additional 2 1/2 months.
24GAO, Private Pensions: Government Actions Could Improve the Timeliness
and Content of Form 5500 Pension Information, [28]GAO-05-491 (Washington,
D.C.: June 2005).
Conclusions
EBSA is a relatively small agency facing the daunting challenge of
safeguarding the retirement assets of millions of American workers,
retirees, and their families. Since our 2002 review, EBSA has taken a
number of steps to strengthen its enforcement program and leverage its
resources in an effort to implement its enforcement strategy. The agency
has directed the majority of its resources toward enforcement and has
decentralized its investigative authority to the regions, allowing its
investigators more flexibility to focus on issues pertinent to their
region. Yet despite these improvements, EBSA's ability to protect plan
participants against the misuse of pension plan assets is still limited,
because its enforcement approach is not as comprehensive as those of other
federal agencies, and generally focuses only on what it derives from its
investigations.
While it has employed some proactive measures, such as computerized
targeting of pension plan documents, EBSA remains largely reactive in its
enforcement approach, thus potentially missing opportunities to address
problems before trends of noncompliance are well established. Currently,
EBSA does not have the institutional capacity to comprehensively identify
and evaluate evidence of potential risk to participants before emerging
violations become pervasive. Although EBSA evaluates risk through the
development of its annual national and regional projects, the agency does
not conduct routine compliance examinations, which could add a key piece
to the foundation on which to base its broad risk analyses. Further, the
agency does not systematically draw on outside sources of information,
such as academic studies and industry experts, nor does it formally assess
risk on an ongoing basis, as similar agencies do. As a result, EBSA is
restricted in its ability to detect new and emerging trends or weaknesses
that may occur throughout the entire pension industry. However, even if
EBSA were to conduct such examinations and collect additional information,
it would not be in a position to identify overarching problems from these
data, because it does not have a dedicated workforce for such efforts.
We understand that dedicating staff for the purpose of identifying risks
may require trade-offs among EBSA's competing priorities. Given that EBSA
investigators are tasked with the responsibility for overseeing roughly
3.2 million private pension and health benefit plans, such trade-offs must
be considered carefully, and may involve the inclusion of other offices
within the agency. Nevertheless, a formal risk assessment function can be
conducted with modest staff allocations, as demonstrated by the PBGC and
SEC risk assessment functions. Furthermore, if EBSA officials believe that
these trade-offs would adversely affect its enforcement operations, the
agency has the option of seeking additional resources from Congress, if
necessary. However, such a request should only occur after the agency has
explored and achieved all available efficiencies within its existing
resource allocations. Whatever approach is ultimately taken, it is
critical that EBSA take steps to employ a more assertive enforcement
approach, or a portion of the pension industry will, in essence, continue
to lack effective oversight.
While EBSA is considering such options, it is vital that the agency
further explore opportunities to strengthen its existing enforcement
program. Although EBSA and SEC periodically coordinate efforts on multiple
issues, the agencies must explore opportunities to identify questionable
activities through a more systematic coordination effort throughout their
regional offices. While we recognize that not all EBSA regional and
district offices may have the same need to interact with SEC, access to
information that SEC has obtained about potential violations could save
investigative resources for both agencies and may also expedite the
prosecution of fiduciaries who are violating the law. EBSA must also
explore all possibilities to retain skilled staff so that it does not have
to spend its limited resources on training new staff, and minimize the
loss of institutional experience. Additionally, even though EBSA has taken
steps to address the Form 5500 processing delays, EBSA investigators'
access to timely plan information necessary for targeting new case leads
is still limited by ERISA's filing deadline. Moreover, opportunities to
expedite settlements and restore funds to pension plans may be lost by the
fact that EBSA has little authority, under current law, to waive a
mandatory penalty when it prevents fully restoring assets to participants.
At a time when the retirement of millions of Americans is imminent, it is
more important than ever to take all possible measures to protect their
pension assets.
Matter for Congressional Consideration
To strengthen DOL's ability to protect pension plan assets, Congress
should consider amending section 502(l) of ERISA to give DOL greater
discretion to waive the civil penalty assessed against a fiduciary or
other person who breaches or violates ERISA in instances where doing so
would facilitate the restoration of plan assets.
Recommendations for Executive Action
To improve overall compliance and oversight, we recommend that the
Secretary of Labor direct the Assistant Secretary of Labor, EBSA, to
o evaluate the extent to which EBSA could supplement its current
enforcement practices with strategies used by similar enforcement
agencies, such as routine compliance examinations and dedicating
staff for risk assessment, and
o conduct a formal review to determine the effect that ERISA's
statutory filing deadlines have on investigators' access to timely
information and the likely impact if these deadlines were
shortened.
Direct the Office of Enforcement to
o establish, where appropriate, formal SEC coordination groups in
the regional offices, similar to those already in place in some
EBSA regions.
Direct the Office of Program Planning, Evaluation and Management to
o evaluate the factors affecting staff attrition and take
appropriate steps, as necessary. Such an effort might include a
market-based study to assess comparable private sector
compensation within specific geographic locations and include
recommendations for modifying pay structures, if appropriate.
Agency Comments and Our Evaluation
We obtained written comments on a draft of this report from the Acting
Assistant Secretary for the Employee Benefits Security Administration,
Department of Labor, and from the Director of Enforcement, for the
Securities and Exchange Commission. EBSA and SEC's comments are reproduced
in appendix III and appendix IV, respectively. EBSA and SEC, as well as
IRS and PBGC, also provided technical comments, which were incorporated in
the report where appropriate.
EBSA agreed with three of the four recommendations we made to the
Secretary of Labor to strengthen EBSA's enforcement program. EBSA
disagreed with our recommendation to evaluate the extent to which the
agency could supplement its current enforcement practices with other
enforcement strategies, such as conducting routine compliance examinations
and dedicating staff for risk assessment. While EBSA agreed that it should
continue to evaluate its enforcement practices on an on-going basis, the
agency stated that it would be premature to emulate the SEC and IRS models
because GAO did not assess the effectiveness of these models. However, our
report does not suggest that EBSA copy the IRS, PBGC, or SEC models;
rather, we suggest that EBSA consider incorporating enforcement strategies
that are standard practice at many federal financial regulators, such as
the federal banking regulators that constitute the Federal Financial
Institutions Examination Council as well as at IRS and SEC. Further, we
have highlighted the potential benefit of these enforcement strategies in
prior GAO work. We recognize and would expect that EBSA's implementation
of these standard practices could vary from other regulatory models, given
the nature of its responsibilities. We continue to believe that these
practices could have merit for EBSA and therefore deserve further
consideration.
In addition, EBSA commented that our recommendation to evaluate the extent
to which it could supplement its investigations with routine compliance
examinations appeared to be premised on the assumption that "some number
of completely random investigations would have a significant deterrent
effect and could better enable [EBSA] to identify emerging areas of
noncompliance." We do not believe that completely random investigations
are appropriate, nor do we recommend that EBSA conduct them. Rather, EBSA
should consider developing a compliance examination program that uses
risk-based criteria to target larger or higher-risk pension plans with the
goal of examining these plans more frequently. Based on these criteria,
EBSA could select a sample of plans to review each year which may identify
emerging areas of noncompliance with modest resource allocations.
EBSA noted that it has conducted routine compliance examinations in the
past as part of its investigative process, an action that it concluded
resulted in a low number of cases with violations. We believe that
examinations and investigations are two distinct enforcement practices.
Specifically, compliance examinations should not only detect potential
violations and deter noncompliance, but also identify mismanagement or
questionable practices that may warrant additional scrutiny by
investigators. Investigations are generally conducted in response to
possible violations, which can be identified through compliance
examinations and other sources. We believe that when used together,
routine compliance examinations and investigations can provide a better
enforcement capability than investigations alone.
EBSA commented that the process it uses to identify risk has many of the
same characteristics as the risk assessment process described in our
report, and that EBSA investigators gather valuable information from
employee benefit professionals. Our report recognizes that EBSA evaluates
risk through its efforts in annually establishing its national priorities
and projects by reviewing its investigations. However, we believe that
EBSA's risk assessment efforts fall short of practices used by other
agencies because the agency lacks staff dedicated to continuously
monitoring the private sector pension industry and bases its current risk
assessment approach primarily on its investigative findings. According to
GAO's Standards for Internal Controls,25 agencies should establish an
assessment of the risks the agency faces from both internal and external
sources. For example, agencies should have mechanisms in place to
anticipate, identify, and react to risks presented by changes, including
economic, industry, and regulatory changes, that can affect the
achievement of agency goals and objectives. Although EBSA has taken some
steps to do this, certain patterns of risk may go undetected because EBSA
does not have staff dedicated to evaluating risk across the entire
industry, even though such an effort would not require extensive resources
as our report highlights. If EBSA were to supplement its existing
enforcement efforts with staff dedicated to continuously reviewing
information from multiple sources, such as its investigators' interviews
with employee benefits professionals, findings by other agencies,
compliance studies, and academic research, the agency could better
anticipate, identify, and react to risk as it emerges, rather than after
established patterns of risk are detected during its annual planning
process. We continue to believe that by relying primarily upon the
identification of risks through its investigations and the existing
targeting process, some emerging trends or abuse could go undetected.
25GAO. Internal Control Management and Evaluation Tool. GAO-01-1008G
(Washington, D.C.: August 2001).
As we agreed with your office, unless you publicly announce its contents
earlier, we plan no further distribution of this report until 30 days
after its issue date. At that time, we will send copies of this report to
the Secretary of Labor, the Commissioner of the IRS, the Chairman of the
SEC, and other interested parties. We will also make copies available to
others on request. If you or your staff have any questions concerning this
report, please call me at (202) 512-7215. Key contributors are listed in
appendix V.
Sincerely yours,
Barbara D. BovbjergDirector, Education, Workforce, and Income Security
Issues
Appendix I: Scope and Methodology
To determine the steps that the Employee Benefits Security Administration
(EBSA) has taken in recent years to enforce and promote Employee
Retirement Income Security Act of 1974 (ERISA) compliance, we collected
and documented information on EBSA's enforcement strategy, operations, and
human capital management practices. We reviewed EBSA's efforts to address
recommendations from our prior work, focusing on the agency's management
of its enforcement program. To document the management of EBSA's
enforcement program, we collected and reviewed EBSA's policies, such as
its Strategic Enforcement Plan, Enforcement Manual, and regional Program
Operating Plans. In addition, we obtained EBSA's enforcement results for
fiscal years 2001-2005. EBSA maintains these results in its Enforcement
Management System. This system was designed to support not only strategic
policy decisions, but also day-to-day management of investigator
inventories and activities. To verify the reliability of EBSA's
enforcement results data, we interviewed officials from EBSA's Office of
Technology and Information Services and corroborated the data with system
documentation and the systems that produced the data. We reviewed the data
for obvious inconsistency errors and completeness. From this review, we
determined that the EBSA-supplied data were sufficiently reliable for the
purposes of this report and account for EBSA's enforcement results. We
also used data from the 2002 and 2004 waves of the Health and Retirement
Study to examine retirement income by source at the median because of the
presence of extreme outliers. The rank order of Social Security and
pensions and annuities is the same when evaluated at the mean or median.
We also interviewed officials from the Department of Labor's (DOL) Office
of the Solicitor, and Office of Inspector General, as well as EBSA's
Office of Enforcement, Office of Participant Assistance, and Office of the
Chief Accountant. In addition, we selected and visited EBSA's regional and
district offices in Atlanta, Boston, Chicago, Kansas City, Philadelphia,
San Francisco, Seattle, and Washington, D.C., where we interviewed EBSA
field office management, regional solicitors, staff, and investigators. We
selected these offices based on geographic location and the number and
types of investigations conducted. Further, we met with representatives
from professional organizations that represent entities regulated by EBSA
and plan participants and conduct audits of pension plans.
In addition, we collected and examined information on EBSA enforcement
initiatives, the results of its prior internal reviews, and studies
performed by the DOL Office of Inspector General (OIG). To determine the
statutory restrictions that limit the sharing of information between EBSA
and the Securities and Exchange Commission (SEC), we interviewed EBSA
investigators, managers, and attorneys. We also interviewed officials at
SEC and reviewed the applicable securities laws that govern the sharing of
information related to SEC investigations. Finally, we reviewed past GAO
work on SEC and consulted the teams within GAO that regularly review SEC
operations.
Moreover, to verify claims by regional offices that offices were
experiencing high rates of attrition, we analyzed data from the Office of
Personnel Management's Central Personnel Data File (CPDF). Using these
data, we identified the newly hired investigators and followed them over
time to see how many left EBSA. We identified all new hires for fiscal
years 2000 through 2005 by using personal action codes for accessions and
career conditional positions. Next, we determined whether these
individuals had personnel activity indicating they had separated from
EBSA. Separations (attritions) included resignations, retirements,
terminations, and deaths. For more on the reliability of the CPDF, see
GAO's report on the topic.1
To determine the overall attrition rates for EBSA investigators (not just
new hires), we analyzed data from the CPDF for fiscal years 2000 to 2005.
For each fiscal year, we counted the number of employees with personnel
actions indicating they had separated from EBSA. We did include
investigators in training, who are classified as GS-1801 investigators,
because these individuals draw down on EBSA's overall full-time
equivalents and play an important part of its hiring process. We divided
the total number of separations for each fiscal year by the average of the
number of permanent employees in the CPDF as of the last pay period of the
fiscal year before the fiscal year of the separations and the number of
permanent employees in the CPDF as of the last pay period of the fiscal
year of separations. To place the attrition rates for EBSA investigators
in context, we compared EBSA's attrition rates to those for employees in
other occupations and agencies (EBSA employees, all other DOL, and all
other employees in the executive branch of the federal government.)
To identify how EBSA practices compare to those of other agencies, we
interviewed officials from SEC, the Internal Revenue Service (IRS), and
the Pension Benefit Guaranty Corporation. We selected these agencies given
their responsibilities in regulating different segments of the private
sector pension industry. To identify the types of authorities and
practices that these agencies used, we collected and reviewed
documentation from ERISA, the Securities Exchange Act of 1934, the
Investment Advisors Act of 1940, and the Investment Company Act of 1940,
as well as prior GAO reports. However, we did not evaluate the
effectiveness of these agencies' compliance examination, enforcement, or
risk assessment programs. From this review, we conducted a comparative
analysis to identify what types of authorities and practices other
agencies might have that EBSA did not--a detailed comparison can be found
in appendix II.
1GAO, OPM's Central Personnel Data File: Data Appear Sufficiently Reliable
to Meet Most Customer Needs, GAO/GGD-98199 (Washington, D.C.: Sep. 30,
1995).
Furthermore, we identified statutory obstacles within ERISA that limit
EBSA's ability to enforce ERISA--the inefficient nature of Section 502(l)
of ERISA and the lack of timely information for investigators resulting
from annual reporting deadlines. To identify these obstacles, we
interviewed several former and current EBSA investigators, reviewed past
GAO and DOL OIG reports on ERISA enforcement, and collected and reviewed
various documents to corroborate the testimonial evidence obtained.
Specifically, to determine EBSA's authority to waive a penalty that, in
certain situations, reduces the amount of assets returned to plan
participants, we interviewed EBSA investigators and other officials that
assess and collect the penalty. We also reviewed the relevant section of
ERISA, which requires the Secretary of Labor to assess the penalty under
Section 502(l). We obtained and reviewed information regarding the number
of times the penalty was assessed and the total amount collected as a
result of the penalty. Finally, we obtained and reviewed court decisions
that involved the assessment of the 502(l) penalty. Furthermore, to
determine the timeliness of the information--provided on the Form
5500--that EBSA investigators use for targeting purposes, we interviewed
EBSA investigators and management to identify the ways in which 5500 data
are used to identify potential violations. We also reviewed a past GAO
report that thoroughly reviewed the Form 5500 and the processes that
contribute to the length of time between a plan's year end and the time
when the information is available for use by investigators. Additionally,
we obtained and reviewed system documentation on the ERISA Data System
(EDS)--the system that EBSA uses to store and query the 5500 information.
Finally, we interviewed EBSA personnel that are involved in developing
EFAST2, a new electronic filing system that will purportedly enable all
5500s to be filed electronically for reporting years beginning on or after
January 1, 2008.
Appendix II: Comparison of Selected Federal Agencies' Authorities,
Enforcement Practices, Results, and Resources
The Employee Benefits Security Administration, the Internal Revenue
Service, and the Securities and Exchange Commission are responsible for
enforcing laws designed to protect pension plan participants and other
securities investors. A comparison of the agencies' authorities,
responsibilities, and enforcement practices shows that EBSA lacks certain
authorities compared to those of other agencies and uses different
practices.
Authorities and Penalties
Title I of ERISA provides the Secretary of Labor, through EBSA, the
authority to investigate and enforce the requirements and standards of
Title I. Civil penalties of up to $1,100 per day may be assessed for
certain violations of reporting and disclosure obligations and a 20
percent penalty on an applicable recovery amount may be assessed related
to a fiduciary breach. There are a number of fairly particularized
penalties under ERISA that EBSA can impose. Unlike IRS and SEC, EBSA does
not have the enforcement authority to disband, suspend, or take any
effective action against a plan auditor for substandard audits of employee
benefit plan, because plan auditors are not considered fiduciaries under
ERISA.
Title II of ERISA, which amended the Internal Revenue Code (the Code) to
parallel many of the Title I rules, is administered by IRS. The principal
responsibility under the Code for IRS is to determine that plans meet
certain tax qualification requirements as specified in the Code. IRS has
broad authority to revoke certain tax benefits to plan sponsors if they do
not meet these requirements. IRS can also assess certain penalties for
failure to file or furnish certain information required to be filed with
the agency pertaining to plans.
SEC, under federal securities laws, has broad authority to enforce and
regulate the sale of securities and disclosure of information concerning
these securities. SEC has authority, under its regulations, to maintain
fair and orderly securities markets and requires specified disclosures of
corporate financial statements. SEC, through civil penalties and fines,
may enforce the securities laws to ensure compliance and may impose
penalties ranging from $5,000 to $500,000 per violation, or in some cases
the amount of pecuniary gain to the defendant as a result of the
violation. Also, if SEC finds substandard audit work, it has the authority
to bar, censure, or suspend auditors responsible for such work.
EBSA IRS SEC
Regulated industry Total employee Total pension Total registered
benefit plans: plans: 1.3 securities
million plans entities: 17,337
3.2 million
724,000 (5500 Investment
Pension plans: filers) advisers: 9,022
733,000
221,000 (5500 EZ Investment
Health plans: filers) companies:1,002
2.5 million 353,000 (non-5500 Broker/dealers:
filers) 6,900
Transfer agents:
400
Self-regulatory
organizations: 11
Clearing agencies:
2
Offices with Office of Office of Division of
enforcement related Enforcement (OE) Employee Plans Enforcement
responsibilities (EP)
Office of Office of
Participant o Examinations Compliance
Assistance (OPA) o Rulings and Inspections and
Agreements Examinations
Office of the (R&A) (OCIE)
Chief Accountant o Employee
(OCA) Plans Office of Risk
Compliance Assessment (ORA)
Unit (EPCU)
Practices Responding to Establish Investigations
participant compliance (Enforcement)
complaints (OPA) baselines for
risk assessment Compliance
Investigations (Examinations) examination
(OE) programs (OCIE)
Centralized case
Voluntary selection process Formalized risk
compliance (Examinations) assessment (ORA)
programs (OE,
OCA) Compliance
examinations
Reporting and (Examinations)
disclosure audits
(OCA) "Soft contact"
compliance
programs (EPCU)
Voluntary
compliance
programs (R&A)
Determinations
(R&A)
Strategic goals Enhance pension Enhance Enforce compliance
and health enforcement of with federal
benefit security the tax law securities laws
Performance Ratio of closed Timeliness Investment
measures civil cases with advisers and
corrected Examination investment
violations to quality companies examined
closed civil
cases Examination cases Percentage of
closed first enforcement
Ratio of criminal cases filed within
cases referred EPCU compliance 2 years
for prosecution contacts
to total criminal Enforcement cases
cases Customer successfully
satisfaction resolved
Applications to
voluntary
compliance
programs
Customer
satisfaction
index
Fiscal year 2005 Plans Examinations Investment
results investigated: closed: 8,230 advisers examined:
7,752a 1,530
EPCU compliance
Civil and contacts: 145b Investment
criminal companies
investigations Determinations examined: 527
closed: 3,978 made: 39,864b
Percentage of
Closed civil Voluntary first enforcement
cases with compliance cases filed within
corrected applications: 2 years: 65%
violations: 76% 1,707b
Enforcement cases
Referred criminal Customer successfully
cases: 45% satisfaction for resolved: 99%
determinations:
Plans reviewed 61%b
for violations by
OPA: 19,522 Customer
satisfaction for
Voluntary examinations:
compliance 70%b
applications
received: 985
Plans reviewed
for completeness
by OCA: 9,208
Customer
satisfaction
index: 67%
Fiscal year 2005 2005 2005 2005 appropriation
resources appropriation for appropriation for for Division of
ERISA enforcement Office of Enforcement:
activities: Employee Plans: $316,000,000
$131,000,000 $91,230,910
Number of
Number of Number of agents investigators:
investigators: for compliance 1,102
385 examinations: 389
2005 appropriation
Number of for Office of
benefits Compliance
advisors: 108 Inspections and
Examinations:
$210,000,000
Number of
examiners for
investment
advisers and
investment
companies: 489
Number of
examiners for
broker-sealers and
self regulatory
organizations: 362
Source: EBSA, IRS, and SEC.
aThis includes health and pension plans
bThis is as of August 2005
Appendix III: Comments from Employee Benefits Security Administration
Appendix IV: Comments from Securities and Exchange Commission
Appendix V: GAO Contacts and Acknowledgments
GAO Contact
Barbara D. Bovbjerg, (202) 512-7215
Acknowledgments
The following team members made key contributions to this report: David
Lehrer, Assistant Director; Jason Holsclaw; David Eisenstadt; Joe
Applebaum; Kevin Averyt; Susan Bernstein; Sharon Hermes; Annamarie Lopata;
Jean McSween; Michael Morris; Lisa Reynolds; Roger Thomas; Dayna Shah; and
Gregory Wilmoth.
Related GAO Products
Mutual Fund Industry: SEC's Revised Examination Approach Offers Potential
Benefits, but Significant Oversight Challenges Remain. [29]GAO-05-415
(Washington, D.C.: August 2005).
Private Pensions: Government Actions Could Improve the Timeliness and
Content of Form 5500 Pension Information. [30]GAO-05-491 (Washington,
D.C.: June 2005).
Employee Benefits Security Administration: Improvements Have Been Made to
Pension Enforcement Program but Significant Challenges Remain.
[31]GAO-05-784T (Washington, D.C.: June 2005).
Mutual Fund Trading Abuses: Lessons Can Be Learned from SEC Not Having
Detected Violations at an Earlier Stage. [32]GAO-05-313 (Washington, D.C.:
April 2005).
Securities and Exchange Commission Human Capital Survey. [33]GAO-05-118R
(Washington, D.C.: November 2004).
Pension Plans: Additional Transparency and Other Actions Needed in
Connection with Proxy Voting. [34]GAO-04-749 (Washington, D.C.: August
2004).
Mutual Funds: Additional Disclosures Could Increase Transparency of Fees
and Other Practices. [35]GAO-04-317T (Washington, D.C.: January 2004).
Answers to Key Questions about Private Pension Plans. [36]GAO-02-745SP
(Washington, D.C.: September 2002).
Private Pensions: IRS Can Improve the Quality and Usefulness of Compliance
Studies. [37]GAO-02-353 (Washington, D.C.: April 2002).
Pension and Welfare Benefits Administration: Opportunities Exist for
Improving Management of the Enforcement Program. [38]GAO-02-232
(Washington, D.C.: March 2002).
Securities and Exchange Commission: Human Capital Challenges Require
Management Attention. [39]GAO-01-947 (Washington, D.C.: September 2001).
Financial Services Regulators: Better Information Sharing Could Reduce
Fraud. [40]GAO-01-478T (Washington, D.C.: March 2001)
(130532)
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Highlights of [48]GAO-07-22 , a report to the Ranking Minority Member,
Committee on Health, Education, Labor and Pensions, U.S. Senate
January 2007
EMPLOYEE BENEFITS SECURITY ADMINISTRATION
Enforcement Improvements Made but Additional Actions Could Further Enhance
Pension Plan Oversight
The Department of Labor's (DOL) Employee Benefits Security Administration
(EBSA) enforces the Employee Retirement Income Security Act of 1974
(ERISA), which sets certain minimum standards for private sector pension
plans. On the basis of GAO's prior work, the Senate Committee on Health,
Education, Labor and Pensions asked GAO to review EBSA's enforcement
program. Specifically, this report assesses (1) the extent to which EBSA
has improved its compliance activities since 2002; (2) how EBSA's
enforcement practices compare to those of other agencies; and (3) what
obstacles, if any, affect ERISA enforcement. To do this, we reviewed
EBSA's enforcement strategy and operations, and interviewed officials at
EBSA, the Internal Revenue Service (IRS) and the Securities and Exchange
Commission (SEC), among others.
[49]What GAO RecommendsGAO recommends that EBSA evaluate its enforcement
strategy in light of other agencies' strategies, determine how ERISA's
filing deadlines affect its investigators, increase coordination with SEC,
and determine how attrition affects its operations. EBSA disagreed with
our recommendation to evaluate their strategy in light of other agencies'
strategies, but agreed with the remaining recommendations.
Congress should consider amending 502(l) of ERISA to give DOL greater
discretion to waive the civil penalty, when appropriate.
In March 2002, we identified weaknesses in EBSA's enforcement program,
despite the agency's actions to strengthen it. Since that time, EBSA has,
among other things, promoted coordination among regional investigators and
increased participation in its voluntary correction programs, as we
recommended. EBSA also has recruited investigators with advanced skills in
accounting, finance, banking, and law that officials believe are necessary
due to ERISA's technicalities. Yet some weaknesses identified in 2002
remain. Specifically, EBSA still has not adequately assessed the nature
and extent of ERISA noncompliance, even though it has taken steps to do
so. Without these data, EBSA is not positioned to focus its resources on
key areas of noncompliance nor have adequate measurable performance goals
to evaluate its impact on improving industry compliance. We also found
that while some regional offices did routinely attempt to confer with
their respective regional office of the SEC--the agency that oversees many
of the same pension service providers under the securities laws--for case
leads or to consider trends in potential pension violations, others did
not. Lastly,
EBSA's overall attrition rates remain high, with many investigators
leaving for employment outside the federal government, yet EBSA has taken
limited steps to evaluate the effect such attrition has on its operations.
EBSA does not conduct routine compliance examinations and broad, ongoing
risk assessments to focus its enforcement efforts like other agencies.
Rather, investigators rely on various sources for case leads, such as
participant complaints, agency referrals, and computer targeting. While
such sources are important, this approach generally limits EBSA to leads
discerned by participants and other government agencies or those disclosed
by plan sponsors, and not those more complex or hidden. Further, EBSA also
has not established a comprehensive risk assessment function. Instead of
broad risk assessments, EBSA's annual risk evaluations are generally
limited to a risk analysis of frontline investigators' case loads. In
contrast, in addition to such activities, IRS and SEC incorporate routine
compliance programs in an attempt to detect violations and identify
emerging trends that may warrant enforcement action. Also, the SEC and
Pension Benefit Guaranty Corporation have dedicated staff to regularly
analyze information from various sources, such as investigations and
academic research.
Certain statutory obstacles also limit EBSA's oversight of private sector
pension plans. First, restrictive legal requirements have limited EBSA's
ability to assess penalties against fiduciaries and can impede the
restoration of plan assets. DOL officials said that the 502(l) penalty
under ERISA discourages quick settlement and can reduce the amount of
funds returned to pension plans. Second, EBSA investigators' access to
timely information necessary for identifying potential violations is
limited by ERISA's filing requirements. Even though EBSA is taking steps
to address processing delays, in 2006, investigators were relying on
information up to 3 years old to target new case leads in some cases.
References
Visible links
25. http://www.gao.gov/cgi-bin/getrpt?GAO-02-232
26. http://www.gao.gov/cgi-bin/getrpt?GAO-05-784T
27. http://www.gao.gov/cgi-bin/getrpt?GAO-05-784T
28. http://www.gao.gov/cgi-bin/getrpt?GAO-05-491
29. http://www.gao.gov/cgi-bin/getrpt?GAO-05-415
30. http://www.gao.gov/cgi-bin/getrpt?GAO-05-491
31. http://www.gao.gov/cgi-bin/getrpt?GAO-05-784T
32. http://www.gao.gov/cgi-bin/getrpt?GAO-05-313
33. http://www.gao.gov/cgi-bin/getrpt?GAO-05-118R
34. http://www.gao.gov/cgi-bin/getrpt?GAO-04-749
35. http://www.gao.gov/cgi-bin/getrpt?GAO-04-317T
36. http://www.gao.gov/cgi-bin/getrpt?GAO-02-745SP
37. http://www.gao.gov/cgi-bin/getrpt?GAO-02-353
38. http://www.gao.gov/cgi-bin/getrpt?GAO-02-232
39. http://www.gao.gov/cgi-bin/getrpt?GAO-01-947
40. http://www.gao.gov/cgi-bin/getrpt?GAO-01-478T
48. http://www.gao.gov/cgi-bin/getrpt?GAO-07-22
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