DOE Management: Contract Provisions Do Not Protect DOE From Unnecessary
Pension Costs (Chapter Report, 08/26/94, GAO/RCED-94-201).

The Energy Department (DOE) funds the employer retirement contribution
for about 18,300 University of California employees who work at DOE's
three laboratories. Before revisions were made in October 1992, no
limits were placed on the amount of DOE's pension fund contributions and
the university was not required to obtain DOE approval of changes to
pension benefits. Although the University of California retirement plan
reached full funding in 1986, the university regents continued to
require employer contributions until November 1990. This report examines
(1) whether DOE can recover unneeded pension fund payments and (2)
whether the provisions in the revised contracts will allow DOE to
control its future pension costs and prevent unneeded payments. GAO
recommends the renegotiation of several contract provisions to minimize
future payments and better protect the government's interest.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  RCED-94-201
     TITLE:  DOE Management: Contract Provisions Do Not Protect DOE From 
             Unnecessary Pension Costs
      DATE:  08/26/94
   SUBJECT:  Retirement benefits
             Government liability (legal)
             Pension plan cost control
             Employee retirement plans
             Fringe benefits
             Colleges/universities
             Laboratories
             Contractor payments
             Federal/state relations
             Government collections
IDENTIFIER:  University of California Retirement Plan
             CALPERS Health Benefits Program (CA)
             
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Cover
================================================================ COVER


Report to the Chairman, Subcommittee on Oversight and Investigations,
Committee on Energy and Commerce, House of Representatives

August 1994

DOE MANAGEMENT - CONTRACT
PROVISIONS DO NOT PROTECT DOE FROM
UNNECESSARY PENSION COSTS

GAO/RCED-94-201

DOE Management


Abbreviations
=============================================================== ABBREV

  DOE - Department of Energy
  GAO - General Accounting Office
  IRC - Internal Revenue Code
  IRS - Internal Revenue Service
  OIG - Office of Inspector General

Letter
=============================================================== LETTER


B-257092

August 26, 1994

The Honorable John D.  Dingell
Chairman, Subcommittee
 on Oversight and Investigations
Committee on Energy and Commerce
House of Representatives

Dear Mr.  Chairman: 

At your request, we have examined payments made by the Department of
Energy (DOE) to the University of California's retirement plan for
university employees at three DOE laboratories.  Specifically, we
examined (1) whether DOE can recover pension fund payments if they
are unneeded and (2) whether the provisions in revised contracts will
allow DOE to control its future pension costs and prevent unneeded
payments.  As a result of our review, we are recommending the
renegotiation of several contract provisions to minimize future
payments and better protect the government's interest in these
pension funds. 

As arranged with your office, unless you publicly announce its
contents earlier, we will make no further distribution of this report
until 30 days after the date of this letter.  At that time, we will
send copies to the Secretary of Energy.  We will also make copies
available to others upon request. 

This work was performed under the direction of Victor S.  Rezendes,
Director, Energy and Science Issues, who can be reached on (202)
512-3841 if you or your staff have any questions.  Major contributors
to this report are listed in appendix I. 

Sincerely yours,

Keith O.  Fultz
Assistant Comptroller General


EXECUTIVE SUMMARY
============================================================ Chapter 0


   PURPOSE
---------------------------------------------------------- Chapter 0:1

The Department of Energy (DOE) funds the employer retirement
contributions for approximately 18,300 University of California
employees who work at three DOE laboratories.  Before the October
1992 revisions, the terms of DOE's contracts with the university set
no limits on the amount of DOE's pension fund contributions and did
not require the university to obtain DOE's approval of changes to
pension benefits.  Although the University of California Retirement
Plan reached full funding in 1986, when the value of its assets
equaled or exceeded pension liabilities, the university regents--the
trustees of the plan--continued to require employer contributions
until November 1990. 

The Chairman of the Subcommittee on Oversight and Investigations,
House Committee on Energy and Commerce, asked GAO to determine (1)
whether DOE can recover pension fund payments if they are unneeded
and (2) whether the provisions in the revised contracts will allow
DOE to control its future pension costs and prevent such unneeded
payments. 


   BACKGROUND
---------------------------------------------------------- Chapter 0:2

DOE has contracts with private firms and universities to operate its
facilities, such as the contracts with the University of California
for the operation of three DOE laboratories.  DOE pays all the costs
of operating the laboratories, including the employer contributions
for pension benefits for the university employees working at the
laboratories and the annual costs of health benefits for retired
laboratory employees. 


   RESULTS IN BRIEF
---------------------------------------------------------- Chapter 0:3

Although DOE's payments made after the pension fund was fully funded
were unneeded, they cannot be recovered from the university because
they were required by the contracts.  In addition, the unneeded
payments cannot be recovered from the pension fund because federal
law specifies that funds deposited in an approved retirement plan can
be used only for the benefit of the plan's members.  Surplus assets
can revert to the plan's sponsor if a plan is terminated.  However,
terminating a pension plan has costs and disadvantages that could
offset the benefits achieved.  Recently, DOE's Office of Inspector
General reported that it may have identified a possible way that DOE
could use surplus pension funds, without terminating the plan, to
cover its liability for the annual costs of health benefits for
retirees from the laboratories. 

The revised contracts do not allow DOE much control over how the
pension fund's assets are used or minimize DOE's pension fund
contributions.  While the university must advise DOE about changes
that apply to all of the more than 92,000 members of the plan, DOE's
approval is required only for pension benefit changes that are
specific to DOE laboratory employees.  DOE is also required to make
contributions whenever the pension fund's assets are less than 150
percent of current liabilities.  This requirement exceeds DOE's
January 1988 policy standard, which specifies that contributions be
limited to those needed to maintain an equilibrium between assets and
current liabilities.  DOE's contracts with two other universities
contain even fewer cost controls. 


   PRINCIPAL FINDINGS
---------------------------------------------------------- Chapter 0:4


      UNNEEDED PAYMENTS ARE NOT
      RECOVERABLE, BUT DOE COULD
      RECOVER A PORTION OF THE
      FUND SURPLUS
-------------------------------------------------------- Chapter 0:4.1

DOE's payments between the time the pension plan became fully funded
and the time the regents suspended the employer contributions were
not needed to ensure the retirement benefits of laboratory employees. 
The university cannot be compelled to reimburse DOE, because the
payments were required by the contracts in effect at that time, under
which DOE had agreed to fund the pension costs at the rate
established by the university regents.  In addition, in order for a
plan to retain its tax-exempt status, federal law requires that
pension funds be used only for the benefit of the plan's members and
their beneficiaries.  As a result, the unneeded payments cannot be
retrieved from the pension fund. 

The unneeded payments contributed to the pension fund's current
surplus, however, and federal law allows an employer to recapture
surplus pension assets upon a plan's termination after all
liabilities have been satisfied.  The pension fund had a $1.3 billion
surplus as of July 1, 1993, of which about $235 million is
attributable to DOE operations.  Subject to federal regulation, the
university could spin off separate plans, covering only the
laboratory employees, that could then be terminated.  If the
university refuses to act, however, the surplus could be recovered
only if DOE's relationship with the university is ended and
subsequent arrangements provide for such a recovery.  Terminating a
plan also has other disadvantages.  The amount that can be recovered
will depend on what is left after paying the actual costs--rather
than the estimates used in valuing the pension plan--of providing the
benefits earned by the members.  Finally, if the plan is terminated
and a new plan established, DOE will have to resume pension fund
payments (which could amount to between $100 million and $140 million
per year) for the laboratory employees. 

DOE's Office of Inspector General recently reported that, subject to
certain conditions, some surplus pension funds may be used to pay
postretirement health costs.  For example, pension funds in excess of
125 percent of current liabilities can be transferred once a year to
pay for postretirement health benefits for that year. 


      NEW CONTRACT TERMS DO NOT
      ENSURE DOE'S CONTROL OVER
      USE OF OR CONTRIBUTIONS TO
      THE PENSION FUND
-------------------------------------------------------- Chapter 0:4.2

The contracts with the university before the 1992 revisions did not
require DOE's approval of any changes to the plan.  The revised 1992
contracts require the university to advise DOE of any changes that
apply to the entire plan, but DOE's approval is required only for
changes that are specific to DOE laboratory employees. 

The university regents have made a number of benefit changes that
have significantly reduced the pension fund surplus.  Reducing the
surplus brings closer the point in time when employer contributions
will have to be resumed.  Between July 1, 1990, and July 1, 1993, the
regents approved increased benefits estimated to cost about $1.5
billion, including changes to the cost-of-living formula, a reduction
in the age at which members can retire with maximum benefits, and two
voluntary early retirement programs.  As of July 1, 1993, the surplus
had fallen to $1.3 billion, of which about $235 million was
associated with the DOE laboratory employees.  The regents have
approved benefits that will use an additional $0.6 billion of the
surplus--benefits that have not yet been reflected in the pension
fund valuation. 

DOE's approval was not needed for any of these changes.  A third
voluntary separation program is the only change that has been
approved since the new contracts were signed.  To address concerns
raised by DOE, the university reduced proposed benefit increases
offered to the laboratory employees under this program.  However, the
benefits under the program will still cost over $117,000 per retiree,
and as pointed out by university officials, the university was not
required by the contracts to accede to DOE's wishes. 

Because the revised contracts stop DOE's pension fund contributions
when assets are equal to 150 percent of current liabilities for the
entire fund, DOE could be required to make pension fund contributions
even if the assets associated with its laboratory employees meet the
criterion.  In addition, the 150-percent-of-current-liabilities
criterion in the contract exceeds DOE's policy, which specifies that
contributions should stop when assets are equal to current
liabilities. 

DOE officials said that they have found it impractical to apply the
DOE policy to commingled plans such as the university plan.  Even
though the laboratory employees represent only 20 percent of the
active members of the university's retirement plan, GAO believes that
contributions should be based on the need for funds to cover the
pension liabilities for just those employees.  As illustrated by
recent experience--the latest capital accumulation provisions and the
second and third voluntary separation programs--different budgetary
limitations made it necessary to provide different levels of benefits
to the laboratory and nonlaboratory employees.  In addition, as DOE
itself noted in establishing the funding policy, the additional
50-percent cushion included in the 150-percent-of-current-liabilities
criterion is not needed for the DOE contractors' pension plans, since
DOE must fully fund contractors' pension benefits when a contract
with one of its management and operating contractors is terminated. 
Finally, under the 1992 revised contract, the university is required
to prepare a separate accounting that reflects the portion of the
pension fund attributable to the DOE laboratory employees. 

DOE's contracts with Princeton and Stanford Universities, two other
university contractors with defined benefit plans, also require DOE's
approval only for changes that are specific to employees at the DOE
facilities.  Those contracts also place no limit on DOE's pension
fund contributions. 


   RECOMMENDATIONS
---------------------------------------------------------- Chapter 0:5

While DOE cannot recover unneeded payments, GAO recommends that the
Secretary of Energy evaluate the advantages and disadvantages for all
of the alternatives available to recover surplus pension funds
associated with the laboratory employees and initiate action to
recover the surplus funds if recovery is to the government's
advantage.  GAO further recommends that the Secretary review ongoing
contracts with all management and operating contractors with defined
benefit pension plans to determine if they provide for DOE's approval
of changes to pension benefits and limit DOE's contribution to the
amount needed to maintain an equilibrium between assets and current
liabilities.  GAO also recommends that the Secretary initiate
negotiations with the University of California and other contractors,
as necessary, to revise the contracts to implement these controls
over pension plan changes and DOE's contributions. 


   AGENCY COMMENTS
---------------------------------------------------------- Chapter 0:6

As agreed, GAO did not obtain DOE's written comments on a draft of
this report.  GAO discussed the facts in this report with DOE
officials at headquarters and the Oakland Operations Office,
including the Director of DOE's Office of Procurement, Assessment and
Property, and with contractor officials from the University of
California and the Lawrence Livermore National Laboratory.  With
minor clarifications, these officials generally agreed with the facts
presented.  Although DOE headquarters officials believed that more
emphasis should have been given to the progress they have made in
improving oversight of pension fund activities, they agreed that the
contracts still do not allow DOE to control its pension fund costs. 


INTRODUCTION
============================================================ Chapter 1

The Department of Energy (DOE) has management and operating contracts
with private firms and universities to operate various DOE
facilities, such as its multipurpose research laboratories.  DOE
reimburses the contractors for the overall costs of operating these
facilities, including the employer contributions made to the
retirement plans to provide for the future pension benefits of the
contractor employees. 


   BACKGROUND
---------------------------------------------------------- Chapter 1:1

DOE has contracts with the University of California for the
management and operation of the Lawrence Livermore National
Laboratory and Lawrence Berkeley Laboratory, both in California, and
the Los Alamos National Laboratory in New Mexico.  These
relationships have been in effect for many years; the latest 5-year
contract extensions became effective on October 1, 1992.  The
university employees working at these three DOE laboratories are
members of the University of California Retirement Plan. 

The University of California Retirement Plan was established in 1961. 
Since then, essentially all university employees have been covered by
the retirement plan.\1 The University of California Regents are the
pension fund trustees.  The retirement plan is a defined benefit
plan.  Under a defined benefit plan, employees are promised specific
benefits at retirement funded by contributions from the employer and
the employees plus the income earned from the investment of those
contributions.  Depending on the income earned, the amounts of the
employer's and the employees' contributions are periodically
adjusted.  The benefits provided are determined by formulas that
calculate the pension income on the basis of such factors as the
employee's salary, age, and years of service. 

Under the University of California Retirement Plan, the basic monthly
pension income is a percentage (not to exceed 100 percent) of the
employee's highest average monthly salary over a 3-year period.  This
percentage is determined by the employee's age at retirement.  The
percentage increases from 1.09 percent for every year of service for
members retiring at age 50 to 2.41 percent for members retiring at
age 60.  For example, an employee retiring at age 60 with 30 years of
service would receive 72.3 percent (30 years x 2.41 percent) of his
or her average monthly income.  This basic monthly pension is
adjusted if the retiree is entitled to receive Social Security
benefits.  Employees hired before April 1, 1976, were not required to
participate in Social Security coverage. 

As of July 1, 1993, 18,344 of the 92,093 active members of the
University of California Retirement Plan (or about 20 percent) were
employed at the three DOE laboratories.  In addition, 3,872 of the
23,043 people currently receiving benefits from the University of
California plan (or about 17 percent) had been associated with these
laboratories. 

DOE also pays for the postretirement health benefits for the
university employees who retire from the three laboratories.  In
accordance with DOE's policy, these costs are funded each fiscal year
on a "pay-as-you-go" basis. 


--------------------
\1 Some university employees who were employed before the
establishment of the University of California Retirement Plan,
including 438 employees at the three DOE laboratories as of January
1994, are covered by the older and larger California Public Employees
Retirement System, which covers California's state and local
government employees.  This report does not discuss this plan or the
benefits provided to its members. 


   GROWTH OF THE PENSION FUND
   SURPLUS
---------------------------------------------------------- Chapter 1:2

The value of the retirement plan's assets has grown tremendously over
the last several years, primarily because of favorable investment
conditions, which provided high rates of return and interest income. 
Over the last 7 years, on the average, investment and interest income
accounted for about 88 percent of the pension fund's annual growth. 
The remaining 12 percent in growth was the result of contributions by
the state of California (about 3 percent), DOE (about 2 percent), the
employees (about 3 percent), and other sources (about 3 percent). 

The university employs an actuarial firm to advise the regents about
retirement plan policies and to perform annual valuations of the
plan's assets and liabilities.  According to the annual actuarial
valuations, the retirement plan became fully funded--that is, assets
equaled or exceeded liabilities--at some point between July 1, 1986,
and July 1, 1987.\2 As shown in table 1.1, the pension fund has been
in a surplus situation ever since. 



                          Table 1.1
           
              Pension Fund Surplus, Based on the
                Actuarial Value of Assets and
            Liabilities as of July 1 of Each Plan
                             Year

                    (Dollars in millions)

Plan year                   Assets   Liabilities     Surplus
----------------------  ----------  ------------  ----------
1985                     $ 4,469.6     $ 4,697.9   ($ 228.3)
1986                     $ 5,555.0     $ 5,576.0    ($ 12.0)
1987                     $ 7,104.2     $ 6,385.9     $ 718.3
1988                     $ 8,486.2     $ 6,892.3    $1,593.9
1989                     $ 9,988.7     $ 7,700.7    $2,288.0
1990                     $11,762.3     $ 8,490.4    $3,271.9
1991                     $12,896.0     $ 9,754.3    $3,141.7
1992                     $14,007.4     $11,568.7    $2,438.6
1993                     $15,132.6     $13,827.4    $1,305.1
------------------------------------------------------------
The university and DOE also use other measures for valuing assets and
liabilities, such as the "market value" of assets--the cash value if
sold on a certain date--and "current" liabilities--the cost of
benefits if the plan was terminated on a certain date.  The annual
actuarial reports of the plan include these values, which help the
regents determine the status of the plan under various circumstances. 

As of July 1 each year, the university's actuarial firm reports the
value of the plan's assets and liabilities and projects what these
values will be on June 30 of the following year.  These projections
are then used to determine the amount of contributions that will be
needed during the year to ensure that the defined benefits can be
paid.  However, because of the growth of the retirement plan's
assets, which have had an annualized rate of return of about 14.5
percent over the last 10 years, the actuarial firm recommended and
the university regents adopted lower contribution rates.  Effective
November 1990, the university suspended the employer's contributions. 


--------------------
\2 These values are based on the retirement plan's actuarial
assumptions, which take into account factors such as the present
value of the assets, the expected rate of return on investments, the
value of future contributions, the plan's expenses, and the amount
and timing of benefit payments.  The benefits to be paid are, in
turn, based on factors such as future compensation, cost-of-living
allowances, mortality rates, retirement age, and employment turnover. 


   OFFICE OF INSPECTOR GENERAL'S
   REPORT CRITICAL OF DOE'S
   OVERSIGHT AND CONTROLS OVER
   UNIVERSITY PENSION PLAN
---------------------------------------------------------- Chapter 1:3

In September 1992, the DOE Office of Inspector General (OIG)
criticized DOE's oversight of the university pension fund's
activities, reporting that DOE had not implemented controls to ensure
that its share of assets in the pension fund was adequately
protected.\3 The report concluded that DOE officials were constrained
from implementing DOE's pension fund policies by the terms of the
contracts with the university.  Under the contract terms in effect at
that time, DOE had agreed to abide by whatever pension program
strategy and approach the regents applied to the entire university
work force. 

Because of the contract terms, DOE could not implement its policy to
minimize contributions to the pension plan, and the university was
not required to obtain DOE's approval for changes to the provisions
of the retirement plan.  The Office of Inspector General reported
that, as a result, DOE contributed about $230 million to the fund
after it had reached full funding in 1986, and the university had
unilaterally used about $280 million of surplus pension fund assets
to increase members' retirement benefits. 


--------------------
\3 Report on Pension Fund Activities at Department Laboratories
Managed by the University of California, September 22, 1992
(DOE/IG-0314). 


   OBJECTIVES, SCOPE, AND
   METHODOLOGY
---------------------------------------------------------- Chapter 1:4

The Chairman, Subcommittee on Oversight and Investigations, House
Committee on Energy and Commerce, requested that we determine (1)
whether DOE can recover payments to the University of California
Retirement Plan if they are unneeded and (2) whether provisions in
the current contracts will allow DOE to control its future pension
costs and prevent unneeded payments. 

We conducted our review at DOE headquarters; at DOE's Oakland
Operations Office in Oakland, California; and at the University of
California's Office of the President, Systemwide Benefits Programs,
also in Oakland, California, from June 1993 through May 1994.  Our
work was done in accordance with generally accepted government
auditing standards. 

We examined DOE's policies on the payment of retirement fund
contributions, the DOE Office of Inspector General's September 1992
report and supporting documentation, and the applicable provisions of
the contracts that were in effect at the time the questioned payments
were made.  We also examined documents describing the policies and
procedures for the retirement plan and actuarial reports showing the
status of the pension fund during this period.  We discussed these
issues with officials of DOE, the University of California, and the
University of California's actuarial firm, Towers, Perrin, Forster,
and Crosby. 

We examined the provisions of the revised contracts, discussed the
effect of the changes with DOE and university officials, and reviewed
selected laws and regulations affecting the recovery of excess
pension funds. 

We also examined two other DOE contracts with nonprofit educational
institutions with defined benefit pension plans to see whether these
contracts provided controls that would protect the government's
interests in these pension funds.  The contracts examined were with
Princeton University, which operates the Princeton Plasma Physics
Laboratory, and Stanford University, which operates the Stanford
Linear Accelerator Center. 

As requested, we did not obtain DOE's written comments on a draft of
this report. 


UNNEEDED PAYMENTS CANNOT BE
RECOVERED; HOWEVER, SURPLUS FUNDS
COULD BE RECOVERED FROM THE PLAN
============================================================ Chapter 2

Before October 1992, the terms of DOE's contracts with the University
of California placed no limit on the amount of DOE's pension fund
contributions.  DOE had agreed to fund contributions for the
laboratory employees at the rates established by the University of
California Regents.  Even though the pension plan became fully
funded--assets equaled or exceeded liabilities--the regents continued
to require employer contributions.  As a result, DOE made retirement
plan contributions that were not needed to ensure the retirement
benefits of the laboratory employees.  Because requiring these
payments was consistent with the contracts, DOE cannot recover these
funds from the university.  The regents did suspend employer
contributions in November 1990, and DOE has made no payments since
that time. 

In addition, DOE cannot recover the unneeded payments from the
pension plan itself, because federal tax law requires that moneys in
the pension fund can be used only for the benefit of the plan's
members.  The unneeded payments, however, contributed to the current
$1.3 billion pension fund surplus--of which $235 million is
associated with the university employees at the three DOE
laboratories.  Federal law does provide that under certain
circumstances surplus assets can revert to the plan's sponsor if the
plan is terminated.  If the university is not willing to terminate
the plan, DOE would have to terminate its relationship with the
university to recover the surplus funds associated with the
laboratory employees.  The opportunity to recover these surplus
funds, however, must be weighed against the disadvantages associated
with terminating a pension plan (or contract with the university) and
the fact that DOE would have to resume pension fund contributions
that could amount to between $100 million and $140 million each year. 

Recently, DOE's Office of Inspector General reported that it may have
identified a potential way for DOE to use surplus pension funds to
pay the costs of postretirement health benefits for employees retired
from the DOE laboratories. 


   DOE'S PAYMENTS WERE REQUIRED BY
   THE CONTRACTS AND CANNOT BE
   RECOVERED
---------------------------------------------------------- Chapter 2:1

Under the contracts with the university in effect before October 1,
1992, DOE had agreed to make pension fund contributions for the
laboratory employees at the rates established by the University of
California Regents.  No other limitation was placed on these pension
fund contributions.  These rates established the employer's
contributions to the pension plan as a percentage of each employee's
salary and applied to employees at all of the university locations
and campuses as well as those at the three DOE laboratories. 

As noted in chapter 1, between July 1, 1986, and July 1, 1987, the
retirement plan became fully funded--that is, the plan's assets
equaled or exceeded the plan's liabilities, on the basis of the
actuarial assumptions.  In fact, by the July 1, 1987, valuation of
the pension fund, the plan had a surplus of more than $700 million. 
Thus, additional contributions were not needed to ensure the
retirement benefits of the plan's participants.  The university
regents adopted progressively lower rates for the employer
contributions, but they did not suspend these contributions until
November 1990.  Although the university's actuary and auditors cited
the large surplus of assets in excess of liabilities--over $3 billion
by the July 1, 1990, valuation--as the reason for suspending
contributions to the retirement plan, the university's Vice President
for Benefit Programs told us that the state's fiscal crisis and its
effect on the university's budget was the primary motivation behind
the regents' decision to discontinue the employer contributions. 

The Office of Inspector General reported that DOE's contributions
totaled about $230 million after the fund reached full funding in
1986.  DOE officials question that amount, since the fund was not
reported to be at full funding until the July 1, 1987, valuation. 
DOE's payments after July 1, 1987, were about $168 million. 
Regardless of the amount, DOE officials told us that they were not
monitoring the surplus level reported by the university. 
Furthermore, the payments were allowable costs because the contracts
required DOE to make them.  As such, the university cannot be
compelled to reimburse DOE. 


   UNLESS THE UNIVERSITY AGREED TO
   A COMPLETE OR PARTIAL PLAN
   TERMINATION, CONTRACT
   TERMINATION WOULD BE REQUIRED
   TO RECOVER PENSION FUNDS
---------------------------------------------------------- Chapter 2:2

For a governmental defined benefit retirement plan to maintain a
tax-exempt status, the plan must comply with the federal exclusive
benefit rule.  This rule requires that the assets of the pension plan
be maintained in a trust that prohibits the use of any part of the
fund, or the fund's income, for any purpose other than the benefit of
the plan's employees and their beneficiaries.  This means that the
assets of the retirement plan are not available for any nonplan
purpose, such as the recovery of unnecessary payments.  Federal law
does allow a government employer to recapture surplus pension assets
upon a government plan's termination if the plan's liabilities to all
participants and beneficiaries are first satisfied.  If the
university took such an action, it could recover any remaining
surplus and thus give DOE the opportunity to recover from the
university that portion of the surplus funds associated with the
laboratory employees.  However, it might not be necessary for the
university to terminate the entire plan to recover the surplus
assets.  Subject to Internal Revenue Code requirements separate plans
covering just the laboratories could be spun off.  The separate plans
covering the DOE laboratory employees could then be terminated and
reconstituted, allowing recovery of any remaining surplus funds once
the liabilities to all participants and beneficiaries are first
satisfied.  A new plan--or separate plans for the different groups
involved--could then be established to provide for the employees'
retirement benefits as they are earned in the future.  A separate
plan may also allow DOE more control over fund payments and surplus
levels. 

DOE cannot unilaterally decide that the pension plan should be
completely or partially terminated; only the university can initiate
the actions needed to terminate the plan.  If the university is not
willing to terminate the plan, DOE would have to terminate its
relationship with the university to achieve any change to the pension
plan's provisions affecting the laboratory employees. 

If the DOE contracts with the university were to be terminated,
several different approaches could be followed.  In the unlikely
event that none of the current employees remain at the laboratories,
the contracts specify that DOE would be liable for the cost of any
portion of the pension benefits earned by the laboratory employees
that exceeded the pension fund's assets attributed to those
employees.  Conversely, the regents would have to reimburse DOE for
the excess when the value of assets attributable to the laboratory
employees is greater than the corresponding liability.  If the
members of the current retirement plan are transferred to a new
contractor hired to operate the facility, the value of assets
associated with the DOE laboratories (less the assets needed to
satisfy the liabilities of pensioners, survivors, terminated vested
members, and active laboratory employees retained by the university)
will be transferred to the successor pension plan.  The successor
plan would have to be terminated and reestablished and the accrued
benefits of all members satisfied before DOE could recover any
remaining surplus pension funds. 

Any changes to the retirement plan would probably be viewed with
suspicion by the affected employees.  Even though federal law is
designed to ensure that all benefits owed the plan's members are
fully satisfied, the uncertainty caused by the action to terminate
the plan would probably have a negative effect on the members'
morale. 

Uncertainty also exists as to the amount that DOE could recover if
the plan were terminated.  The amount recovered would depend on when
the plan was terminated.  In 1990, the surplus was over $3 billion. 
By 1993, the surplus had fallen to just $1.3 billion, in part
because, as discussed in the next chapter, the regents had approved
increased benefits for the plan's members.  Of the current $1.3
billion surplus, only $235 million is associated with the university
employees at the three DOE laboratories.  As noted in chapter 1, the
surplus was calculated using the actuarial value of the plan's
liabilities and is based on various assumptions about such things as
future compensation, cost-of-living allowances, retirement age, and
employee turnover.  The amount available for recovery, however, will
be determined by the actual costs involved in providing annuities to
satisfy the actual liabilities (benefits) owed to members at the time
of the plan's termination and the administrative costs of terminating
and reestablishing the plan. 

Finally, if DOE were able to recover any remaining surplus funds upon
the termination of the plan (or any successor plan), DOE would then
have to resume employer contributions to cover the pension benefits
being earned by the employees at the three laboratories.  DOE has not
made any contributions since November 1990, when the employer
contributions were suspended.  The actual contribution would, of
course, be set by the University of California Regents on the basis
of the actuarial evaluations of what would be needed to cover normal
costs.  Using the data from the July 1, 1993, actuarial reports,
these costs for the laboratory employees totaled over $14O million. 
The university officials pointed out, however, that DOE would not
have to contribute this whole amount because some portion of the
amount would be covered by employee contributions.  The payments,
therefore, could be between $100 million and $140 million each year. 


   OIG REPORTS THAT A PORTION OF
   THE SURPLUS FUNDS MIGHT BE
   AVAILABLE TO OFFSET
   POSTRETIREMENT HEALTH BENEFIT
   COSTS
---------------------------------------------------------- Chapter 2:3

A recent report\1 by DOE's Office of Inspector General identified
another potential alternative that might allow the University of
California Regents to use a portion of the pension fund surplus to
offset current expenses.  The May 1994 report noted that, subject to
certain conditions, some surplus pension funds may be used to pay for
postretirement health benefits.  Since DOE pays these costs as they
are incurred, the use of surplus pension funds would offset the need
for current expenditures. 

The report further states that

  only pension funds that exceed 125 percent of current liabilities
     can be transferred to pay for postretirement health benefits;

  these transfers, which can be made only once a year, must be used
     to pay retirees' health benefits liability for the year of the
     transfer; and

  the transfers must be made in tax years beginning before January 1,
     1996. 

Section 420 of the Internal Revenue Code, enacted in 1990, would
allow the University of California Regents, subject to certain
conditions, including those listed by the Inspector General, to
transfer retirement assets to medical benefit accounts without
adverse tax consequences.  The cost of post-retirement health
benefits for the retirees from the three DOE laboratories amounted to
$40 million during the year ended June 30, 1994. 


--------------------
\1 Report on the Follow-Up Inspection of Selected Aspects of the
Department of Energy's Administration of Post Retirement Health
Benefits, May 5, 1994 (DOE/IG-0348). 


   CONCLUSIONS
---------------------------------------------------------- Chapter 2:4

The previous contracts with the university placed no limitation on
DOE's pension fund contributions.  Consequently, DOE paid unneeded
employer contributions to the fully funded retirement plan for the
university employees at the three DOE laboratories.  Because of the
contract terms and federal law, these unneeded payments cannot be
recovered from either the University of California or the pension
fund itself. 

As allowed by federal law, however, termination of the plan or the
portion associated with the DOE laboratory employees would provide an
opportunity for DOE to recover the remaining surplus pension funds,
which were the result of the unneeded contributions as well as
successful investment decisions.  Termination of the university's
contracts would also allow recovery of remaining surplus assets, in
accordance with the contracts' provisions.  The termination of the
plan would require the agreement of the university or its successor
contractor, and any change could also affect the employees' morale. 
The amount to be recovered will depend on the cost of providing the
benefits owed to the employees as of the date of termination and the
administrative costs involved.  Finally, if the current pension plan
were terminated, DOE would have to resume employer contributions to
the new pension fund that could total from $100 million to $140
million each year. 

Finally, according to the Inspector General's report, transferring a
portion of the surplus to cover current postretirement health benefit
costs might allow DOE to offset current costs.  This would avoid many
of the disadvantages associated with terminating a pension plan. 


   RECOMMENDATIONS
---------------------------------------------------------- Chapter 2:5

We recommend that the Secretary of Energy (1) evaluate the advantages
and disadvantages of all of the alternatives available to recover
surplus pension funds associated with the laboratory employees and
(2) initiate action to recover the surplus funds if recovery is to
the government's advantage. 


CURRENT CONTRACT TERMS DO NOT
ENSURE DOE'S CONTROL OVER USE OF
OR CONTRIBUTIONS TO PENSION FUND
============================================================ Chapter 3

DOE has little control over how funds in the University of California
Retirement Plan are used.  DOE's 1992 revised contracts with the
university still allow the university to change the benefits provided
to all pension plan participants, including those at the DOE
laboratories, without DOE's approval.  DOE's approval is needed only
for changes that are specific to the DOE laboratory personnel.  In
recent years, the university has made numerous retirement plan
changes that have increased the employees' retirement benefits and
decreased the pension fund surplus.  While DOE officials agree that
the existing contracts with the university do not give them the
ability to control proposed pension fund changes that affect all plan
members, they point out that they have made considerable progress in
the past several years in working with the university to adjust
proposed changes affecting the laboratory employees.  Because the
contracts do not require the university to agree to any of DOE's
changes, however, the university is still determining the extent to
which DOE can control pension fund activities and their resulting
costs. 

Although the revised contracts established a limit on DOE's pension
fund payments, DOE's contributions can be required when the
retirement plan's total assets are less than 150 percent of current
liabilities.  This requirement exceeds DOE's policy of limiting
contributions to those necessary to maintain equilibrium between a
plan's assets and liabilities.  In addition, the contract limitation
is determined by the status of the entire plan, not just the portion
associated with the employees at the DOE laboratories.  According to
DOE officials, they have found it impractical to apply the DOE policy
to commingled plans such as the university plan.  However, even
though the DOE laboratory employees are members of the larger
university plan, they have not received the same benefits as
university employees in several recent retirement program changes. 
In addition, the university is required to submit a separate
accounting for the pension fund assets and liabilities related to the
DOE laboratory employees. 


   DOE'S APPROVAL NOT NEEDED FOR
   CHANGES TO THE PENSION PLAN
---------------------------------------------------------- Chapter 3:1

The regents have made a number of changes to the retirement plan
benefits that have reduced the pension fund surplus.  Although DOE's
pension plan policy provides that DOE approval should be required for
any pension plan changes, DOE's earlier contracts with the university
did not include such a requirement.  In addition, the revised
contracts effective October 1, 1992, still do not require the
university to get DOE's approval for any retirement plan changes that
apply to all of the plan's participants.  In these instances, the
contracts specify that the university will advise DOE about the
proposed changes.  The contracts require only that the university get
prior DOE approval for laboratory-specific changes that would
increase the cost of the contracts beyond the cost approved by the
regents for university employees. 


      CHANGES TO RETIREMENT PLAN
      BENEFITS HAVE REDUCED THE
      PENSION FUND SURPLUS
-------------------------------------------------------- Chapter 3:1.1

In recent years, the University of California Regents have made a
number of changes in retirement plan benefits that increased benefits
to employees and reduced the pension fund surplus.  Between July 1,
1990, and July 1, 1993, the latest actuarial valuation of the fund,
the fund surplus fell from $3.3 billion to $1.3 billion, in part
because the regents approved benefit changes that cost an estimated
$1.5 billion.  An additional $0.6 billion in changes has not yet been
reflected in the valuation of the pension fund.  Although these
changes have not increased either DOE's or the university's current
costs, they will bring closer the point at which employer
contributions to the retirement plan will have to be resumed.  As
discussed in chapter 1, DOE makes the employer contributions for
university employees at the three laboratories (about 20 percent of
active members), while the university makes the contributions for the
remaining 80 percent of the members.  Some of the changes will
increase pension costs for all future employees.  The changes
include: 

  Modifying the retirement plan's formula for cost-of-living
     adjustments.  This change was effective July 1, 1992, and is
     estimated to cost about $590 million. 

  Lowering from 63 to 60 the age at which maximum retirement benefits
     could be earned.  This change was effective July 1, 1992, and is
     estimated to cost about $144 million. 

  Increasing the retirement benefits for eligible participants,
     including those at the three DOE laboratories, through capital
     accumulation provisions that credited special retirement
     accounts with amounts equal to specified percentages of the
     employees' salaries.  These accounts, which will also earn
     interest until closed, will provide a pension supplement that
     will be paid to the employees when they leave the university or
     retire.  As shown in table 3.1, this change is estimated to cost
     about $349 million. 



                          Table 3.1
           
            Eligible Employees, Credits Received,
             and Total Cost of the First Capital
                    Accumulation Provision

                    (Dollars in millions)

Eligible employees
include active            Capital accumulation credits
plan members as of  Cost  received
------------------  ----  ----------------------------------
April 1, 1992\a     $169  5 percent of compensation received
                           during the period from January 1,
                           1991, through December 31, 1991
July 1, 1992          89  2.5 percent of compensation
                           received during the period from
                           July 1, 1991, through June 30,
                           1992
July 1, 1993          91  2.5 percent of compensation
                           received during the period from
                           July 1, 1992, through June 30,
                           1993
============================================================
Total               $349
------------------------------------------------------------
\a To be eligible for this first allocation, the employees also had
to have been continuously employed by the university from December
31, 1991, through April 1, 1992. 

In addition, since 1990, three voluntary early retirement programs
have been offered, primarily to reduce the university's work force in
order to deal with the state of California's fiscal constraints and
budgetary crisis.  Each of the incentive programs increased the
retirees' highest average compensation by 7 percent and provided
transition assistance payments of 3 to 6 months' salary.  Additional
service and age credit were also offered.  The first program, which
was offered to all retirement plan members, and the second program,
which was offered only to nonlaboratory employees, provided 5
additional years of service credit.  The third program offered
nonlaboratory employees a combined age and service credit of 8 years,
while laboratory employees were offered a combined age and service
credit of 6 years.\1 Table 3.2 shows the average cost per retiree for
each of the voluntary separation programs. 



                          Table 3.2
           
             Number Eligible, Number Retired, and
              Average Cost per Retiree for Three
             Voluntary Early Retirement Programs

                                     DOE       Other
                              laboratory  university
                               employees   employees   Total
----------------------------  ----------  ----------  ======
First program
------------------------------------------------------------
Number eligible                    1,692       5,814   7,506
Number retired                       609       2,932   3,541
Average cost per retiree\a      $ 64,039    $ 82,810       $
                                                      79,582

Second program
------------------------------------------------------------
Number eligible                    N/A\b       8,434   8,434
Number retired                      N/A\       2,278   2,278
Average cost per retiree\a          N/A\    $ 70,500       $
                                                      70,500

Third program\c
------------------------------------------------------------
Number eligible                    4,424       8,127  12,551
Number retired                     1,779       2,804   4,583
Average cost per retiree\a      $117,488    $128,234  $124,0
                                                          63
------------------------------------------------------------
\a DOE officials point out that retirement costs are funded in part
by employee contributions, in addition to the employer contributions
and investment earnings. 

\b N/A = Not applicable. 

\c Does not include faculty members who have until July 1, 1994, to
retire. 

The $450 million cost of the first and second voluntary early
retirement programs was reflected in the pension fund's July 1, 1993,
valuation.  The cost of the third program--which was estimated to
total about $545 million as of July 1, 1993--has not yet been applied
in calculating the pension fund's valuation. 

In addition to the third voluntary separation program, the regents
have also approved two other capital accumulation provisions,
estimated to cost about $70 million.  Of this amount, about $21
million has not yet been reflected in the valuation of the pension
fund.  These provisions were designed to offset a salary reduction
caused by the state of California's budget shortfall.  Since the DOE
laboratory employees were not affected by the salary reduction, they
are not eligible to receive these two capital accumulation
provisions. 

The regents have also approved a redirection of employees'
contributions from the defined benefit plan to a supplemental plan
(in which participation had formerly been voluntary).  Effective
November 1, 1990, when the employer contributions were discontinued,
the university regents reduced some employees' contributions and
began depositing a portion of the remaining contributions in the
supplemental plan.  Since July 1, 1993, none of the employees'
contributions have been deposited in the defined benefit plan.  The
funds in the supplemental plan will provide the employees with
additional benefits upon retirement.  While we could not quantify the
impact of this change on the pension fund surplus, the employees'
contributions into the defined benefit plan fell from more than $87
million during the plan year ending June 30, 1990, to just over $14
million during the plan year ending June 30, 1993. 


--------------------
\1 Several laboratory employees, however, have initiated a class
action suit claiming unfair treatment because they were not offered
the same benefits as the other university employees in the third
voluntary separation program. 


      ALTHOUGH NOT REQUIRED TO DO
      SO, THE UNIVERSITY REDUCED
      SOME PROPOSED BENEFITS
-------------------------------------------------------- Chapter 3:1.2

According to DOE officials, the requirement in the revised contracts
that the university advise DOE about proposed changes means that the
university must provide adequate notice and allow DOE an opportunity
to negotiate changes it believes are needed.  The officials believe
that they have made considerable progress in the past several years
in getting the university to adjust proposed changes to reflect DOE's
concerns. 

For example, the third voluntary early retirement program is the only
plan change adopted since the revised contracts were signed.  DOE had
objected to the university's proposed program because some of the
provisions were more generous than the provisions offered by other
DOE contractors, and they were concerned that essential scientific
expertise might be lost through these retirements.  Because of the
loss of needed expertise, the university had to rehire many
laboratory retirees after previous early retirement programs,
sometimes for extensive periods of time.\2 The university gave DOE
certain assurances that rehiring of the voluntary retirees would be
limited.  The rehiring restrictions included the following:  (1) no
retirees will be rehired for 3 months after their retirement, the
time period covered by the transition payment; (2) any retirees
rehired will not be employed full time; (3) retirees cannot be paid
more than 85 percent of their pay rate at retirement; and (4) the
cumulative payroll for all rehires at each laboratory cannot exceed
15 percent of the payroll for all retirees at that laboratory at the
time of their retirement.  The university also reduced the additional
credit offered to the laboratory employees for the number of years of
age and service that would be used to determine retirement income. 
While this change reduced the cost of the early retirement program
for the laboratory employees, as shown in table 3.2, the average cost
per employee was still $117,488 for the 1,779 laboratory employees
who accepted the early retirement offer.  In addition, because DOE's
approval is not required by the contract, the university is
determining the extent to which DOE can control pension fund
activities and their resulting cost.  While the university made
several changes to the proposed program, the university's Assistant
Vice President for Benefit Programs pointed out that the university
is not required by the contracts to accede to DOE's wishes. 


--------------------
\2 In 1993, the Inspector General reported that in fiscal year 1992
the Livermore Laboratory had rehired--at a cost of over $3
million--over 220 of the employees who had retired under voluntary
separation programs.  In fact, 15 employees who retired under a
December 1990 special incentive retirement program were still
employed at the time of the Inspector General's review. 


   CONTRIBUTION LIMIT IN NEW
   CONTRACTS STILL REQUIRES HIGHER
   PAYMENTS THAN DOE'S POLICY
---------------------------------------------------------- Chapter 3:2

The most recent contracts with the university for the operation of
the three DOE laboratories continue to require DOE to fund the
employer's cost of the university pension plan at the rates
established by the regents.  The contracts do, however establish a
limit on what DOE must pay by providing that "the DOE funded
contribution shall not exceed the full funding limit as defined in
the IRC [Internal Revenue Code] section 412." Section 412 essentially
limits the amount of tax-deductible pension plan contributions that
an employer can make to a qualified defined benefit plan to those
necessary to maintain the plan's assets equal to 150 percent of
current liabilities.\3 As of July 1, 1993, the pension plan's assets
exceeded 150 percent of the current liabilities by about $825
million.  Since, as a nontaxable entity, the university is not paying
federal income taxes, the IRC limitation is applicable only because
it is specified as the funding limit in the contracts with DOE. 

DOE's contributions under this funding limitation will still exceed
DOE's policy.  DOE's January 1988 policy is to minimize payments to
contractors' pension plans.  Specifically, DOE's policy states that
the primary funding objective should be for contractors to maintain
asset levels necessary to satisfy benefits earned to date (that is,
current liabilities).  Therefore, according to the policy, if it is
anticipated that the value of a plan's assets will exceed the current
liability at the end of a plan year, DOE should not make any
contributions during that year. 

In addition, the IRC's limitation on retirement contributions is
computed on the entire fund, not just the portion of the fund
associated with the DOE employees.  If the value of the assets for
the entire retirement plan is less than 150 percent of the current
liabilities, DOE could be required to resume contributions, even if
the assets associated with any or all of the laboratories exceed 150
percent of current liabilities. 

According to officials in DOE's Office of Procurement, Assessment and
Property, they have found it impractical to apply the DOE policy to
commingled plans such as the university plan.  Because they have
agreed to allow the laboratory employees to be members of the
university's retirement plan, they believe that they have to follow
the policies set by the university for the entire plan.  However, DOE
noted in establishing its pension fund contribution policy that the
IRC limit is too high for the DOE contractors' pension plans because
it provides an additional 50-percent cushion that is not needed.  DOE
based this decision on the fact that DOE must fully fund contractors'
pension benefits if a contract with one of its management and
operating contractors is terminated.  In addition, recent
experience--the latest capital accumulation provisions and the second
and third voluntary separation programs--has shown that it is
sometimes necessary to provide a different level of benefits to the
laboratory and nonlaboratory employees.  Finally, the university is
also required by the latest contracts to prepare a separate
accounting that reflects the portion of the pension fund attributable
to the DOE laboratory employees. 


--------------------
\3 IRC section 412(c)(7)(A) defines the full-funding limitation as
the excess of the lesser of (1) 150 percent of current liability or
(2) the accrued liability (including normal cost) under the plan,
over the lesser of (1) the fair market value of the plan's assets or
(2) the value of such assets determined under the plan's actuarial
method.  The current liabilities are the plan's liabilities to the
employees and their beneficiaries measured as if the pension plan had
been terminated at that specific point in time.  The accrued
liabilities are based on the projected benefits expected to be earned
by retirement and assume that the employees will continue to work and
earn higher salaries.  Because the accrued liabilities are generally
greater than 150 percent of the current liabilities, the full-funding
limit is generally referred to as 150 percent of the current
liabilities. 


   SIMILAR PROBLEMS EXIST WITH
   OTHER DOE CONTRACTS
---------------------------------------------------------- Chapter 3:3

DOE's contracts with two other nonprofit educational institutions
with defined benefit plans--Princeton University for the operation of
the Princeton Plasma Physics Laboratory and Stanford University for
the operation of the Stanford Linear Accelerator Center--also have
deficiencies.  First, the contracts provide that these institutions
must advise DOE of any changes that affect all of the plans' members
but are required to get DOE's approval for only those changes that
are specific to laboratory employees. 

These contracts also do not contain any limit on the pension fund
contribution to be paid by DOE.  In DOE's contract with Princeton
University, DOE agreed to pay the pension costs for the plan's
laboratory participants at the rate established by the university. 
The Stanford University contract, which is similarly worded, simply
requires DOE to pay the pension cost for the plan's participants
under the contract.  As with the previous University of California
contracts, these contract provisions (1) provide no limit on
contributions that can be required from DOE by the universities and
(2) do not provide DOE with the authority to enforce its pension plan
policies, such as limiting contributions to those necessary to
maintain equilibrium between the plan's assets and current
liabilities. 

Our examination of the latest actuarial reports for the laboratory
segments of the Princeton and Stanford pension plans shows that DOE
is making contributions to both funds.  Because the Stanford plan's
liabilities associated with the laboratory are well in excess of the
plan's associated assets, it is appropriate under DOE's policy to
continue contributions until liabilities and assets are in
equilibrium.  However, DOE's contributions to the Princeton plan,
which had about $3.4 million of laboratory-associated assets in
excess of liabilities at the beginning of the 1993 plan year, are (1)
not necessary to ensure the laboratory employees' benefits and (2)
exceed DOE's contribution policy.  While the fully funded status of
the plan is acknowledged in the actuary report, Princeton required
DOE to contribute $718,000 for the plan year ending June 30, 1993.\4


--------------------
\4 When the employees currently covered by Princeton's defined
benefit plan are transferred to Princeton's defined contribution plan
in 1994, DOE will no longer be making payments to the defined benefit
plan. 


   CONCLUSIONS
---------------------------------------------------------- Chapter 3:4

While DOE believes it has made progress in working with the
university to get proposed benefits changed to reflect DOE's
concerns, current contracts still allow the university to make
changes that affect all participants in the retirement plan,
including those at the DOE laboratories, without DOE's approval. 
Between 1990 and 1993, the university made changes to the retirement
plan that used up $1.5 billion of the pension fund surplus. 
Additional changes, which are estimated to cost about $0.6 billion,
have not been reflected in the latest fund valuations. 

This erosion of the pension fund surplus has shortened the time until
DOE will have to resume its employer contributions.  In addition,
even though these benefit increases do not affect DOE's current costs
because they are covered by the pension fund surplus, changes such as
reducing the age at which members can receive maximum benefits have
obligated DOE to provide future employees with these increased
benefits.  DOE's contracts with two other educational institutions
with defined benefit plans contain similar deficiencies. 

The new contracts between DOE and the university still require larger
payments than those that are required under DOE's pension fund
policy.  DOE's contracts with two other educational institutions with
defined benefit plans place no limit on the amount of DOE's employer
pension contributions.  DOE officials believe that it is impractical
to impose DOE's pension funding policy on commingled plans such as
the University of California plan.  However, we do not see why DOE
should follow the contribution policy the university established for
the rest of its employees when (1) the larger funding cushion is not
needed for the DOE laboratory employees because DOE is required to
fully fund contractors' pension benefits if a contract is terminated,
(2) the DOE laboratory employees have not always been given the same
benefits as the other university employees, and (3) the university is
already required to provide a separate accounting of the pension fund
activities for the DOE laboratory employees. 


   RECOMMENDATIONS
---------------------------------------------------------- Chapter 3:5

To improve control over the Department's liability for pension fund
contributions, we recommend that the Secretary of Energy (1) review
ongoing contracts with all management and operating contractors that
have defined benefit pension plans to determine if they provide for
DOE's approval of pension benefit changes and limit DOE's
contribution to that needed to maintain an equilibrium between assets
and current liabilities and (2) initiate negotiations with the
University of California and other contractors, as necessary, to
revise the contracts to implement these controls. 


MAJOR CONTRIBUTORS TO THIS REPORT
=========================================================== Appendix I


   RESOURCES, COMMUNITY, AND
   ECONOMIC DEVELOPMENT DIVISION
   WASHINGTON, D.C. 
--------------------------------------------------------- Appendix I:1

Jim Wells, Associate Director
Doris E.  Cannon, Assistant Director
Joanne E.  Weaver, Assignment Manager


   SAN FRANCISCO, CALIFORNIA
--------------------------------------------------------- Appendix I:2

Larry J.  Calhoun, Regional Management Representative
James L.  Ohl, Evaluator-in-Charge
Brad C.  Dobbins, Site Senior


   OFFICE OF GENERAL COUNSEL
--------------------------------------------------------- Appendix I:3

Michael G.  Burros, Attorney Advisor


   HEALTH, EDUCATION, AND HUMAN
   SERVICES DIVISION
--------------------------------------------------------- Appendix I:4

John W.  Wood, Actuary

RELATED GAO PRODUCT

Cost Accounting:  Department of Energy's Management of Contractor
Pension and Health Benefit Costs (GAO/AFMD-90-13, Aug.  29, 1990). 
