prompt_front: You are given two reports by the government agency.



Question: Write a one-page summary of the report 1.

Report 1: CSPF is a defined benefit multiemployer pension plan  Multiemployer plans are often created and maintained through collective bargaining agreements between labor unions and two or more employers, so that workers who move from job to job and employer to employer within an industry can continue to accrue pension benefits within the same plan over the course of their careers  Multiemployer plans are typically found in industries with many small employers such as trucking, building and construction, and retail food sales  In 2017, there were about 1,400 defined benefit multiemployer plans nationwide covering more than 10 million participants  Most multiemployer plans are jointly administered and governed by a board of trustees selected by labor and management  The labor union typically determines how the trustees representing labor are chosen and the contributing employers or an employer association typically determines how the trustees representing management are chosen  The trustees set the overall plan policy, direct plan activities, and set benefit levels (see fig  1)  Multiemployer plans are “prefunded,” or funded in advance, primarily by employer contributions  The employer contribution is generally negotiated through a collective bargaining agreement, and is often based on a dollar amount per hour worked by each employee covered by the agreement  Employer contributions are pooled in a trust fund for investment purposes, to pay benefits to retirees and their beneficiaries, and for administrative expenses  Multiemployer plan trustees typically decide how the trust fund should be invested to meet the plan’s objectives, but the trustees can use investment managers to determine how the trust fund should be invested  Multiemployer plan trust funds can be allocated among many different types of assets, any of which can generally be passively- or actively-managed, domestically or internationally based, or publicly or nonpublicly traded (see table 1)  A plan’s funded percentage is its ratio of plan assets to plan liabilities  Because the amount needed to pay pension benefits for many years into the future cannot be known with certainty due to a variety of economic and demographic factors, including the potential volatility of asset values, estimates of a plan’s funded percentage may vary from year to year  Defined benefit pension plans use a “discount rate” to convert projected future benefits into their “present value ” The discount rate is the interest rate used to determine the current value of estimated future benefit payments and is an integral part of estimating a plan’s liabilities  The higher the discount rate, the lower the plan’s estimate of its liability  Multiemployer plans use an “assumed-return approach” that bases the discount rate on a long-term assumed average rate of return on the pension plan’s assets  Under this approach, the discount rate depends on the allocation of plan assets  For example, a reallocation of plan assets into more stocks and fewer bonds typically increases the discount rate, which reduces the estimated value of plan liabilities, and therefore, reduces the minimum amount of funding required  Looking at the entire “multiemployer system”—the aggregation of multiemployer plans governed by ERISA and insured by PBGC—shows that while the system was significantly underfunded around 2001 and 2009, its funded position has improved since 2009  Specifically, analyses published by the Center for Retirement Research at Boston College and the Society of Actuaries used plan regulatory filings to calculate the funded status for the system and determined that it was approaching 80 percent funded by 2014 after falling during the 2008 market downturn  However, some observers have noted that while many plans are making progress toward their minimum targets, a subset of plans face serious financial difficulties  Multiemployer retirement benefits are generally determined by the board of trustees  The bargaining parties negotiate a contribution rate and the trustees adopt or amend the plan’s benefit formulas and provisions  Decisions to increase benefits or change the plan are also typically made by the board of trustees  Benefit amounts are generally based on a worker’s years of service and either a flat dollar amount or the worker’s wage or salary history, subject to further adjustment based on the age of retirement  CSPF was established in 1955 to provide pension benefits to International Brotherhood of Teamsters union members (Teamsters) in the trucking industry, and it is one of the largest multiemployer plans  In the late 1970s, CSPF was the subject of investigations by the IRS within the U S  Department of the Treasury (Treasury), and by DOL and the U S  Department of Justice (DOJ)  The DOL investigation ultimately resulted in the establishment of a federal court-enforceable consent decree in 1982 that remains in force today  CSPF held more than $4 3 billion in Net Assets at the end of 1982 after the consent decree was established  The plan’s Net Assets peaked at nearly $26 8 billion at the end of 2007 and declined to about $15 3 billion at the end of 2016 (see fig  2)  As of 2016, CSPF reported that it had about 1,400 contributing employers and almost 385,000 participants  The number of active CSPF participants has declined over time  In 2016, 16 percent of about 385,000 participants were active, i e , still working in covered employment that resulted in employer contributions to the plan  In comparison, CSPF reported in 1982 that 69 percent of more than 466,000 participants were active participants  Since the 1980s, CSPF’s ratio of active to nonworking participants has declined more dramatically than the average for multiemployer plans  By 2015, only three of the plan’s 50 largest employers from 1980 still paid into the plan, and for each full-time active employee there were over five nonworking participants, mainly retirees  As a result, benefit payments to CSPF retirees have exceeded employer contributions in every year since 1984  Thus, CSPF has generally drawn down its investment assets  In 2016, CSPF withdrew over $2 billion from investment assets (see fig  3 )  CSPF has historically had fewer plan assets than were needed to fully fund the accrued liability—the difference referred to as unfunded liability  In 1982, we reported that CSPF was “thinly funded”—as the January 1, 1980, actuarial valuation report showed the plan’s unfunded liability was about $6 billion—and suggested that IRS should closely monitor CSPF’s financial status  In 2015, the plan’s actuary certified that the plan was in “critical and declining” status  The plan has been operating under an ERISA-required rehabilitation plan since March 25, 2008, which is expected to last indefinitely  As of January 1, 2017, the plan was funded to about 38 percent of its accrued liability  In September 2015, CSPF filed an application with Treasury seeking approval to reduce benefits pursuant to provisions in the Multiemployer Pension Reform Act of 2014 (MPRA), which is fully discussed later in this section  The application was denied in May 2016 based, in part, on Treasury’s determination that the plan’s proposed benefit suspensions were not reasonably estimated to allow the plan to remain solvent  In 2017, CSPF announced it would no longer be able to avoid the projected insolvency  (See app  II for a timeline of key events affecting CSPF ) As previously mentioned, CSPF was the subject of investigations in the 1970s by IRS, DOL, and DOJ  DOL’s investigation focused on numerous loan and investment practices alleged to constitute fiduciary breaches under ERISA, such as loans made to companies on the verge of bankruptcy, additional loans made to borrowers who had histories of delinquency, loans to borrowers to pay interest on outstanding loans that the fund recorded as interest income, and lack of controls over rental income  As a result of its investigation, DOL filed suit against the former trustees of CSPF and, in September 1982, the parties entered into a consent decree, which remains in force today  The consent decree provides measures intended to ensure that the plan complies with the requirements of ERISA, including providing for oversight by the court and DOL, and prescribes roles for multiple parties in its administration  For example, certain plan activities must be submitted to DOL for comment and to the court for approval, including new trustee approvals and some investment manager appointments  According to DOL, to prevent criminal influence from regaining a foothold of control over plan assets, the consent decree generally requires court-approved independent asset managers—called “named fiduciaries”—to manage CSPF’s investments  CSPF’s trustees are generally prohibited from managing assets; however, they remain responsible for selecting, subject to court approval, and overseeing named fiduciaries and monitoring plan performance  To focus attention on compliance with ERISA fiduciary responsibility provisions, the consent decree provides for a court-appointed independent special counsel with authority to observe plan activities and oversee and report on the plan  (See app  III for additional detail on the key provisions of the consent decree ) In 1974, Congress passed ERISA to protect the interests of participants and beneficiaries of private sector employee benefit plans  Among other things, ERISA requires plans to meet certain requirements and minimum standards  DOL, IRS, and PBGC are generally responsible for administering ERISA and related regulations  DOL has primary responsibility for administering and enforcing the fiduciary responsibility provisions under Part 4 of Title I of ERISA, which include the requirement that plan fiduciaries act prudently and in the sole interest of participants and beneficiaries  Treasury, specifically the IRS, is charged with determining whether a private sector pension plan qualifies for preferential tax treatment under the Internal Revenue Code  Additionally, the IRS is generally responsible for enforcing ERISA’s minimum funding requirements, among other things  ERISA generally requires that multiemployer plans meet minimum funding standards, which specify a funding target that must be met over a specified period of time  The funding target for such plans is measured based on assumptions as to future investment returns, rates of mortality, retirement ages, and other economic and demographic assumptions  Under the standards, a plan must collect a minimum level of contributions each year to show progress toward meeting its target, or the plan employers may be assessed excise taxes and owe the plan for missed contributions plus interest  Minimum contribution levels may vary from year to year due to a variety of economic and demographic factors, such as addressing differences between assumed investment returns and the plan’s actual investment returns  To protect retirees’ pension benefits in the event that plan sponsors are unable to pay plan benefits, PBGC was created by ERISA  PBGC is financed through mandatory insurance premiums paid by plans and plan sponsors, with premium rates set by law  PBGC operates two distinct insurance programs: one for multiemployer plans and another for single- employer plans  Each program has separate insurance funds and different benefit guarantee rules  The events that trigger PBGC intervention differ between multiemployer and single-employer plans  For multiemployer plans, the triggering event is plan insolvency, the point at which a plan begins to run out of money while not having sufficient assets to pay the full benefits that were originally promised when due  PBGC does not take over operations of an insolvent multiemployer plan; rather, it provides loan assistance to pay administrative expenses and benefits up to the PBGC-guaranteed level  According to PBGC, only once in its history has a financial assistance loan from the multiemployer pension insurance program been repaid  In 2017, PBGC provided financial assistance to 72 insolvent multiemployer plans for an aggregate amount of $141 million  For single-employer plans the triggering event is termination of an underfunded plan—generally, when the employer goes out of business or enters bankruptcy  When this happens, PBGC takes over the plan’s assets, administration, and payment of plan benefits (up to the statutory limit)  The PBGC-guaranteed benefit amounts for multiemployer plans and the premiums assessed by PBGC to cover those benefit guarantees are significantly lower than those for single-employer plans  Each insured multiemployer plan pays flat-rate insurance premiums to PBGC based on the number of participants covered  The annual premium rate for plan years beginning in January 2017 was $28 per participant and it is adjusted annually based on the national average wage index  (See app  II for the PBGC premium rates that have been in effect since the consent decree was established in 1982 ) When plans receive financial assistance, participants face a reduction in benefits  For example, using 2013 data, PBGC estimated 21 percent of more than 59,000 selected participants in insolvent multiemployer plans then receiving financial assistance from PBGC faced a benefit reduction  The proportion of participants facing reductions due to the statutory guarantee limits is expected to increase  About 51 percent of almost 20,000 selected participants in plans that PBGC believed would require future assistance were projected to face a benefit reduction  Since 2013, the deficit in PBGC’s multiemployer program has increased by nearly 700 percent, from a deficit of $8 3 billion at the end of fiscal year 2013 to $65 1 billion at the end of fiscal year 2017  PBGC estimated that at of the end of 2016, the present value of net new claims by multiemployer plans over the next 10 years would be about $24 billion, or approximately 20 percent higher than its 2015 projections  The program is projected to become insolvent within approximately 8 years  If that happens, participants who rely on PBGC guarantees will receive only a very small fraction of current statutory guarantees  According to PBGC, most participants would receive less than $2,000 a year and in many cases, much less  We have identified PBGC’s insurance programs as high-risk  This designation was made in part because multiemployer plans that are currently insolvent, or likely to become insolvent in the near future, represent a significant financial threat to the agency’s insurance program  We designated the single-employer program as high-risk in July 2003, and added the multiemployer program in January 2009  Both insurance programs remain on our high-risk list  Multiemployer Pension Plan Amendments Act of 1980 Among other things, the Multiemployer Pension Plan Amendments Act of 1980 (MPPAA) made employers liable for a share of unfunded plan benefits when they withdraw from a plan, unless otherwise relieved of their liability, and strengthened certain funding requirements  An employer that chooses to withdraw from a multiemployer plan may be required to continue to contribute if the plan does not have sufficient assets to cover the plan’s current and known future liabilities at the time the employer withdraws; however, these payments may not fully cover the withdrawing employer’s portion of the plan’s liabilities  In such cases, the employers remaining in the plan may effectively assume the remaining liability  The Pension Protection Act of 2006 The Pension Protection Act of 2006 (PPA) was intended to improve the funding of seriously underfunded multiemployer plans, among other things  It included provisions that require plans in poor financial health to take action to improve their financial condition over the long term and established two categories of troubled plans: (1) “endangered status” or “yellow zone” plans (this category also includes a sub-category of “seriously endangered”), and (2) more seriously troubled “critical status” or “red zone” plans  PPA further required plans in the endangered and critical zones to develop written plans to improve their financial condition, such as by revising benefit structures, increasing contributions, or both, within a prescribed time frame  Multiemployer plans in yellow or red zone status must document their remediation strategies in a written plan, notify plan participants, and report annually on whether scheduled progress has been made  Since the 2008 market decline, the number of participants in endangered and critical plans has generally been decreasing (see fig  4)  The Multiemployer Pension Reform Act of 2014 In response to the funding crisis facing PBGC and multiemployer pension plans, the Multiemployer Pension Reform Act of 2014 (MPRA) made changes to the multiemployer system that were intended to improve its financial condition  Key changes included: Creation of critical and declining status  MPRA created a new category, “critical and declining,” for plans in critical status projected to become insolvent during the current plan year or within any of the 14 succeeding plan years, or in certain circumstances, within any of the 19 succeeding plan years  In 2017, PBGC reported that more than 100 multiemployer plans (more than 7 percent of plans) representing approximately 1 million participants (about 10 percent of participants) have been determined to be “critical and declining ” Permitted reduction of accrued benefits  MPRA permits plans to reduce participants’ and beneficiaries’ accrued retirement benefits if the plan can demonstrate such action is necessary to remain solvent  Plans apply to Treasury for the authority to reduce benefits  Treasury, in consultation with PBGC and DOL, reviews the applications and determines whether the proposed changes would enable the plan to remain solvent  Increased PBGC premiums  MPRA also increased the PBGC premiums for multiemployer plans from $12 to $26 (per participant per plan year) in 2015 and from $26 to $28 in plan year 2017  The annual premium in subsequent years is indexed to changes in the national average wage index  Creation of new framework of rules for partition  Partition allows a multiemployer plan to split into two plans—the original and a successor  Partitions are intended to relieve stress on the original plan by transferring the benefits of some participants to a successor plan funded by PBGC and to help retain participant benefits in the plans at levels higher than the PBGC-guaranteed levels  At the time the consent decree was established in 1982, CSPF had less than half the estimated funds needed to cover plan liabilities (and to pay associated benefits over the lifetime of participants) and it has not attained 100 percent of its estimated funding need since then, according to regulatory filings  CSPF’s 1982 Form 5500 we reviewed shows that the plan was less than 40 percent funded prior to the consent decree becoming effective  Over the next two decades, the plan generally made progress toward achieving its targeted level of funding but was never more than 75 percent funded, and funding has generally deteriorated since its 2002 filing (see fig  5)  Overall, the plan’s unfunded liability increased by approximately $11 2 billion (in inflation-adjusted dollars) between January 1983 and January 2016  As a consequence, participant benefits were never fully secured by plan assets over this period, as measured by ERISA’s minimum funding standards, and the plan consistently needed to collect contributions in excess of those needed to fund new benefit accruals to try to make up for its underfunded status  CSPF officials and other stakeholders identified several factors that contributed to CSPF’s critical financial condition and reflect the challenges faced by many multiemployer plans  For example, like CSPF, many multiemployer plans have experienced financial difficulties due to a combination of investment losses and insufficient employer contributions  In addition to being underfunded prior to the consent decree going into effect, stakeholders identified other specific factors that contributed to CSPF’s critical financial condition, such as trends within the national trucking industry and its workforce, funding challenges and common investment practices of multiemployer plans, and the impact of market downturns on long-term investment performance  Stakeholders also described the effects of the 2007 withdrawal of a key employer, United Parcel Service (UPS), on CSPF’s critical financial condition  Stakeholders we interviewed said changes to the workforce, such as declining union membership rates and changes resulting from industry deregulation, affected CSPF and some other multiemployer plans by reducing the number of workers able to participate in their plans  While the multiemployer structure distributes bankruptcy risk across many employers, for any particular multiemployer plan employers are often concentrated in the same industry, making the plans vulnerable to industry- specific trends and risks  For example, stakeholders noted the impact that the Motor Carrier Act of 1980 had on the trucking industry  Specifically, deregulation of the trucking industry reduced government oversight and regulation over interstate trucking shipping rates  The trucking industry became increasingly dominated by nonunion trucking companies resulting in the bankruptcy of many unionized trucking companies, according to stakeholders  New trucking companies typically did not join multiemployer plans because their labor force was not unionized and this, coupled with the bankruptcy of many contributing employers, contributed to a decrease in active participant populations for many plans serving the industry  As the total number of active participants in a plan declines, the resources from which to collect employer contributions declines proportionally  Stakeholders also said these changes were unforeseeable  Limitations on a plan’s ability to increase contributions mean that a plan has less capacity to recover from an underfunded position or to make up for investment returns that fall short of expectations  A decline in the number of active workers can also accelerate plan “maturity,” as measured by the ratio of nonworking to working participants  Plan maturity has implications for a plan’s investment practices and the time frame over which the plan must be funded  According to PBGC’s data for the multiemployer plans it insures, there were approximately three active participants for every nonworking participant in 1980 (3:1); by 2014, the ratio was approximately one active worker for every two nonworking participants (1:2)  Figure 6 shows the change in the percentages of active and nonworking participants for the multiemployer plans that PBGC insures  CSPF saw an even more dramatic change in its active to nonworking participant ratio from 1982 through 2015  In 1982, there were more than two active workers for every nonworking participant (2:1) and by 2016 that ratio had fallen to approximately one active worker for every five nonworking participants (1:5) (see fig  7)  Because CSPF’s contributing employers were largely trucking companies, stakeholders said this made the fund especially vulnerable to industry-wide shocks  Like the industry as a whole, CSPF was unable to attract new employers to replace exiting employers, in part because of the lack of new unionized employers  CSPF officials said that changes to the trucking industry and its workforce also led to other challenges for the plan  For example, contributions to the plan declined with the shrinking number of active workers  CSPF officials told us they could not significantly increase the contribution rate paid by remaining employers because of the financial hardship it would cause, and as a result, the plan’s ability to recover from its underfunded position was limited  CSPF officials said that this increased the plan’s reliance on investment returns to try to close the gap between its assets and liabilities  Stakeholders we interviewed cited challenges inherent in multiemployer plans’ funding and investment practices, and described how the challenges may have contributed to the critical financial condition of some plans, including CSPF  Stakeholders said that CSPF and many other multiemployer plans have been challenged by employer withdrawals  An employer withdrawal reduces the plan’s number of active worker participants, thereby reducing its contribution base and accelerating plan maturity  A withdrawing employer generally must pay a share of any unfunded benefits  Stakeholders identified several ways in which the withdrawal liability framework could result in a withdrawing employer underpaying its share of an unfunded liability  We have previously reported on the challenges associated with withdrawal liability, including: withdrawal liability assessments are often paid over time, and payment amounts are based on prior contribution rates rather than the employer’s actual withdrawal liability assessment  withdrawal liability payments are subject to a 20-year cap, regardless of whether an employer’s share of unfunded benefits has been fully paid within this 20-year timeframe; plans often did not collect some or all of the scheduled withdrawal liability payments because employers went bankrupt before completing their scheduled payments; and fears of withdrawal liability exposure increasing over time could be an incentive for participating employers to leave a plan and a disincentive for new employers to join a plan; Stakeholders we interviewed also added that the calculation used to determine withdrawal liability may use an investment return assumption that inherently transfers risk to the plan  When exiting employers do not pay their share of unfunded benefits, any remaining and future employers participating in the plan may effectively assume the unpaid share as a part of their own potential withdrawal liability as well as responsibility for the exiting employer’s “orphaned” participants  Participating employers may negotiate a withdrawal if they perceive a risk that the value of their potential withdrawal liability might grow significantly over time  In its MPRA application, CSPF cited employer withdrawals and bankruptcies as a significant challenge for the plan  CSPF reported that after deregulation, the number of contributing employers dropped by over 70 percent  While some of the drop could be due to the consolidation of trucking companies after deregulation, CSPF officials cited several cases in which employers went bankrupt or withdrew from the plan, which reduced the plan’s contribution base and accelerated its maturity  Additionally, when employers went bankrupt, they often did not pay their full withdrawal liability  For example, CSPF said two of its major contributing employers left the plan between 2001 and 2003, and left $290 million of more than $403 million in withdrawal liability unpaid after they went bankrupt  Stakeholders identified funding timeframes as a factor that contributed to the challenges facing many multiemployer plans, including CSPF  ERISA’s minimum funding standards have historically allowed multiemployer plans to amortize, or spread out the period of time for funding certain events, such as investment shortfalls and benefit improvements  For example, CSPF began a 40-year amortization of approximately $6 1 billion in underfunding on January 1, 1981, giving the plan until the end of 2021 to fully fund that amount  Longer amortization periods increase the risk of plan underfunding due to the number and magnitude of changes in the plan’s environment that may occur, such as a general decline in participants or deregulation of an industry  The Pension Protection Act of 2006 shortened amortization periods for single- employer plans to 7 years and the amortization periods for multiemployer plans to 15 years  Shorter amortization periods provide greater benefit security to plan participants by reducing an unfunded liability more rapidly  In addition, shorter amortization periods can be better aligned with the projected timing of benefit payments for a mature plan  However, shorter periods can be a source of hardship for plans with financially troubled contributing employers because they may require higher contributions  According to CSPF officials, CSPF requested and received an additional 10-year amortization extension from the IRS in 2005 after relating that contribution requirements could force participating employers into bankruptcy  One CSPF representative said an amortization extension can also help avoid subjecting the plan’s employers to IRS excise taxes for failing to make required minimum contributions  Stakeholders we interviewed said that certain common investment practices may have played a role in the critical financial condition of CSPF and other mature and declining plans  In general, multiemployer plans invest in portfolios that are expected, on average, to produce higher returns than a low-risk portfolio, such as one composed entirely of U S  Treasury securities  Stakeholders also stated that these investment practices may have been too risky because returns can be more volatile, and the higher expected returns might not be achieved  In addition, the Congressional Budget Office has reported that if “plans had been required to fund their benefit liabilities—at the time those liabilities were accrued—with safer investments, such as bonds, the underfunding of multiemployer plans would have been far less significant and would pose less risk to PBGC and beneficiaries ” Stakeholders also told us that for mature plans like CSPF, these investment practices can pose further challenges  Mature plans, with fewer active employees, have less ability to recoup losses through increased contributions and have less time to recoup losses through investment returns before benefits must be paid  Market corrections, such as those that occurred in 2001 through 2002 and in 2008, can be particularly challenging to mature plans and their participants, especially if a mature plan is also significantly underfunded  Mature plans could mitigate these risks by investing more conservatively, however, the resulting lower expected returns from more conservative investing necessitates higher funding targets and contribution rates, which could be a hardship for employers in an industry with struggling employers  Alternatively, a plan that invests more conservatively may provide lower promised benefits to accommodate the level of contributions it can collect  Lower investment returns from a more conservative investment policy would cost employers more in contributions and could potentially result in employers leaving the plan  Further, investing in a conservative portfolio would be relatively unique among multiemployer plans, and stakeholders said plan managers may feel they are acting in a prudent fashion by investing similarly to their peers  Underfunded plans like CSPF may not see conservative investment as an option if they cannot raise the contributions necessary to fully fund their vested benefits  Officials from CSPF told us that, because they lacked the ability to significantly increase revenue or decrease accrued benefits, the named fiduciaries sought incrementally higher investment returns to meet funding thresholds required by the amortization extension they received in 2005  On the other hand, there are challenges associated with risk bearing investments  In our prior work, we reported that multiemployer plans generally develop an assumed average rate of investment return and use that assumption to determine funding targets, required contributions, and the potential cost of benefit improvements  Experts we interviewed for that report told us that using a portfolio’s expected return to value the cost of benefits increases the risk that insufficient assets could be on hand when needed  They also told us that using the portfolio’s expected return to calculate liabilities could incentivize plans to invest in riskier assets and to negotiate higher benefit levels because the higher returns expected from riskier portfolios can result in lower reported liabilities  Plan Terms Set through Collective Bargaining Stakeholders we interviewed said that plan terms, such as contribution rates, which are set through the collective bargaining process, can create an additional challenge for multiemployer plans  Employers in multiemployer plans generally are not required to contribute beyond what they have agreed to in collective bargaining, and these required employer contributions generally do not change during the term of a collective bargaining agreement  CSPF officials said that up until the early 2000s, plan officials did not request modifications to collective bargaining agreements, such as reallocating contribution dollars, to respond to adverse investment returns  Stakeholders highlighted the effects of market downturns on multiemployer plan assets as another contributing factor to CSPF’s critical financial condition and that of other multiemployer plans  Failure to achieve assumed returns has the effect of increasing unfunded liabilities  For the multiemployer system in aggregate, the average annual return on plan assets over the 2002 to 2014 period was about 6 1 percent, well short of typical assumed returns of 7 0 or 7 5 percent in 2002  Many multiemployer plans were especially impacted by the 2008 market downturn  PBGC estimated that from 2007 to 2009, the value of all multiemployer plan assets fell by approximately 24 percent, or $103 billion, after accounting for contributions to and payments from the plans  Although asset values recovered to some extent after 2009, some plans continued to be significantly underfunded, and stakeholders said this could be due to the contribution base not being sufficient to help recover from investment shortfalls  CSPF’s investment performance since 2000 has reflected performance similar to other multiemployer plans and the plan went from 73 percent funded in 2000 to about 38 percent funded in 2017  While the plan used an assumed rate of return of 7 5 to 8 0 percent per year between 2000 and 2014, our analysis of the plan’s regulatory filings shows that the plan’s weighted-average investment return over this period was about 4 9 percent per year  CSPF officials said the 2008 downturn significantly reduced CSPF’s assets and it was unable to sufficiently recoup those losses when the market rebounded in 2009  Plan assets declined from $26 8 billion at the beginning of 2008 to $17 4 billion at the beginning of 2009, with $7 5 billion of the decline attributable to investment losses  Despite reporting a 26 percent return on assets during 2009, CSPF had only $19 5 billion in assets at the end of 2009 because benefits and expenses exceeded the contributions it collected and because it had fewer assets generating returns for the plan  By the end of 2009, CSPF’s funding target was $35 9 billion but the fund had less than $20 billion that could be used to generate investment returns  If CSPF’s portfolio had returned 7 5 percent per year over the 2000-2014 period, instead of the approximately 4 9 percent we calculated, we estimate that the portfolio value would have exceeded $32 0 billion at the end of 2014, or 91 percent of its Actuarial Accrued Liability  In addition to the factors mentioned that affected many multiemployer plans, stakeholders we interviewed also noted the unique effect of the UPS withdrawal on CSPF  In 2007, UPS negotiated with the International Brotherhood of Teamsters for a withdrawal from CSPF and paid a withdrawal liability payment of $6 1 billion  This payment was invested just prior to the 2008 market downturn  Moreover, the loss of UPS, CSPF’s largest contributing employer, reduced the plan’s ability to collect needed contributions if the plan became more underfunded  A UPS official said that, following the market decline of 2001-2002, the company considered whether it should withdraw from all multiemployer plans because it did not want to be the sole contributing employer in any plan  According to this official, UPS considered the large number of UPS employees in CSPF and the plan’s demographics—such as an older population and fewer employers—in its decision to withdraw  CSPF officials said they did not want UPS to withdraw because its annual contributions accounted for about one-third of all contributions to the plan  CSPF officials also told us that, prior to the UPS withdrawal, they had expected the population of active UPS workers in the plan to grow over time  UPS’ withdrawal of 30 percent of CSPF’s active workers, in combination with the significant market downturn just after UPS withdrew, reflected the loss of working members and investment challenges on a large scale  Additionally, stakeholders noted that although each of the factors that contributed to CSPF’s critical financial condition individually is important, their interrelated nature also had a cumulative effect on the plan  Industry deregulation, declines in collective bargaining, and the plan’s significantly underfunded financial condition all impaired CSPF’s ability to maintain a population of active workers sufficient to supply its need for contributions when investment shortfalls developed  Given historical rules for plan funding and industry stresses, CSPF was unable to capture adequate funding from participating employers either before or after they withdrew from the plan  The plan’s financial condition was further impaired when long-term investment performance fell short of expectations  For an underfunded, mature plan such as CSPF, the cumulative effect of these factors was described by some stakeholders as too much for CSPF to overcome  There have been three distinct periods related to CSPF’s investment policy after the original consent decree took effect: the early period, from the consent decree’s effective date in September 1982 through October 1993, during which named fiduciaries set different investment policies and sold many of CSPF’s troubled assets—mostly real estate; a middle period from November 1993 through early 2017, during which CSPF’s investment policies were consistently weighted towards equities and its asset allocation varied, with notable equity allocation increases occurring from year-ends 1993-1995 and 2000-2002; and the current period, starting in January 2017, during which named fiduciaries and CSPF trustees are moving assets into fixed income ahead of insolvency  Appendix I has a detailed timeline that includes changes to CSPF’s investment policies since the consent decree was established in 1982  The original consent decree placed exclusive responsibility for controlling and managing the plan’s assets with an independent asset manager, called a named fiduciary  Additionally, the original consent decree prohibited CSPF trustees from managing assets or making investment decisions and gave a single named fiduciary the authority to set and change the plan’s investment objectives and policies, subject to court approval (see fig  8)  During this period, two successive named fiduciaries—first Equitable Life Assurance Society of the United States (Equitable) and then Morgan Stanley—set and executed the plan’s investment objectives using similar investment philosophies, but differing investment return goals and target asset allocations (see fig  9)  Both named fiduciaries planned to sell the plan’s troubled real estate assets from the pre-consent decree era  They also limited nonpublicly traded investments to 35 percent of the plan’s assets and set broad allocation targets for new real estate, fixed income, and equity assets  In 1984, Morgan Stanley considered a dedicated bond portfolio in its capacity as the plan’s named fiduciary, but after review, Morgan Stanley decided similar results could be obtained through other investment strategies  In executing these policies, the plan’s asset allocation varied from year to year  Starting in 1987 and in subsequent years during the early period, Morgan Stanley invested a majority of the plan’s assets in fixed income assets—more than half of which were passively managed—and all equity assets were allocated to domestic equity through 1992  By 1989, CSPF officials reported that nearly all troubled real estate assets had been sold and Morgan Stanley’s responsibilities and risk of potential fiduciary liability were reduced, permitting a concomitant reduction in fees paid to the named fiduciary (see fig  10)  During the middle period, CSPF’s investment policy was broad and consistently directed that asset allocations be weighted toward equities  In 1993, Morgan Stanley revised its investment policy statement for CSPF to eliminate asset allocation targets for each asset class and instead specified that the plan invest a majority of assets in equity or equity-type securities and no more than 25 percent in nonpublicly traded assets  After 1999, CSPF’s investment policy under other, successive named fiduciaries continued to be broad and generally specified that the plan should invest a majority of assets in equity or equity-type securities  Specifically J P  Morgan’s and Northern Trust’s consecutive investment policies for part of the plan’s assets continued to specify that a majority of the plan’s assets be invested in equity or equity-type securities and no more than 15 percent be invested in nonpublicly traded assets  Goldman Sachs’ investment policy for another part of the plan’s assets did not specify asset allocation details but indicated slightly higher tolerance for risk in conjunction with its equity portfolio  CSPF trustees said that named fiduciaries considered investing in alternative assets, but instead chose to increase the plan’s allocation to equity assets  The named fiduciaries’ investment policies did not vary significantly over this period because CSPF officials said that the plan’s overarching investment objective of achieving full funding did not change, even though there were key changes to the plan’s investment management structure during this time period  Specifically, starting in 1999, the plan temporarily shifted to a dual named fiduciary structure and increased its use of passively-managed accounts—both described in detail below— changing the named fiduciary structure that had been in place since the original consent decree (see fig  11)  More specifically, the two key changes to the plan’s investment management structure were: A temporary shift to a dual named fiduciary structure  Effective in 1999, CSPF proposed and the court approved allocating plan assets between two named fiduciaries instead of one in order to diversify CSPF’s investment approach, among other things  Both named fiduciaries were in charge of setting and executing separate policies for plan assets they managed—called “Group A” and “Group B” assets—irrespective of the other named fiduciary’s allocations  During this time, the two named fiduciaries were J P  Morgan/Northern Trust and Goldman Sachs  Specifically, J P  Morgan was named fiduciary between 2000 and 2005 and Northern Trust between 2005 and 2007 for “Group A” assets  Goldman Sachs was named fiduciary for “Group B” assets between 2000 and 2010  In 2010, an investment consultant found the performance of two named fiduciaries under the dual named fiduciary structure had been similar and more expensive than it would be under a proposed move back to a single named fiduciary  Accordingly, CSPF officials proposed, and the court approved, consolidation of all assets allocated to named fiduciaries in August 2010, with Northern Trust as the plan’s single named fiduciary  An increased use of passively-managed accounts  Between 2003 and 2010, the portion of assets that named fiduciaries managed declined as the plan moved 50 percent of its assets into three passively-managed accounts  Specifically, in 2003, 20 percent of CSPF’s assets were transitioned into a passively-managed domestic fixed income account to lower the plan’s investment management fees  In addition, both of the named fiduciaries reported that they had not outperformed the industry index for the domestic fixed income assets they managed after they were approved as named fiduciaries in 1999 and 2000 through February 2003  Similarly, in 2007 and 2010, CSPF officials said that two more passively-managed accounts were created to further reduce plan fees  Specifically, in 2007, 20 percent of plan assets were moved into a passively-managed domestic equity account  Then, in 2010, an additional 10 percent of the plan’s assets were allocated to passively-managed accounts—5 percent were allocated to a new passively-managed international equity account and 5 percent were added to the passively-managed domestic equity account  CSPF officials and named fiduciary representatives also said that the plan’s investment policies did not change in response to a couple of the events that contributed to CSPF’s critical financial condition  For example, when UPS withdrew from the plan in December 2007, it paid $6 1 billion in a lump sum to fulfill its withdrawal liability  Consistent with the named fiduciaries’ investment policies during this time period, the majority of this withdrawal payment was invested in equity assets  Specifically, the court approved the UPS withdrawal liability payment to be allocated: $1 billion to Northern Trust to be invested primarily in short-term fixed income assets, $0 9 billion to the passively-managed domestic fixed income account, and $4 2 billion to partially fund the newly created passively- managed domestic equity account  As a result of the 2008 market downturn, the balance of each of CSPF’s accounts—Northern Trust’s named fiduciary account, the passively-managed domestic fixed income and domestic equity accounts, and Goldman Sachs’ named fiduciary account—declined because of investment losses or withdrawals from investment assets to pay benefits and expenses  Some of the declines in each account were reversed by investment gains in 2009  Although the changes made to CSPF’s investment management structure did not lead to investment policy changes during the middle period, they altered the process by which the policy was set and executed  In particular, trustee responsibilities in the policy process grew after CSPF trustees became responsible for developing investment policy statements and selecting and overseeing managers of the passively-managed accounts, subject to court approval  In addition, CSPF officials said the addition of passively-managed accounts between 2003 and 2010 had the effect of creating broad bounds within which the named fiduciary could set the plan’s asset allocation  For example, when the plan moved 20 percent of total plan assets into the passively-managed domestic fixed income account in 2003, this placed an upper bound on the plan’s total equity allocation at 80 percent  Similarly, since 2010 the 30 percent of total plan assets in passively-managed equity accounts has placed a lower bound on the plan’s total equity allocation at 30 percent (see fig  12)  Nevertheless, named fiduciaries maintained the largest role in setting and executing CSPF’s investment policy throughout the middle period  From 1993 to 2003, named fiduciaries managed all of the plan’s investment assets, and from 2003 to 2009, when the plan added two of the current passively-managed accounts, named fiduciaries still held the majority of the plan’s assets  It has only been since 2010 that the assets in passively-managed accounts equaled those managed by the named fiduciary  Furthermore, Northern Trust representatives said they considered the plan’s allocations to passively-managed accounts when developing the objectives and target asset allocations for the assets they managed  Northern Trust representatives also said they discussed the plan’s overall asset allocation with trustees, but the trustees, and ultimately the court, were responsible for the decision to move 50 percent of the plan’s assets into passively-managed accounts  After the 1993 policy change that specified the plan would invest a majority of assets in equity or equity-type securities, CSPF’s asset allocation changed significantly  For example, during the middle period the plan’s allocation to equities increased from 37 percent at the end of 1993 to 69 percent at the end of 2002, and its allocation to cash plus fixed income decreased from 63 percent at the end of 1993 to 27 percent at the end of 2002  In particular, Morgan Stanley increased the plan’s allocation to equity assets from 37 percent at the end of 1993 to 63 percent at the end of 1995, with the percentage in equities almost or above 50 percent through the end of 1999  From 1993 through 1999, Morgan Stanley generally decreased the plan’s allocation to fixed income assets and increased its allocation to international equity (reaching a high of about 28 percent of the plan’s assets in 1995), an asset class in which the plan had not previously invested (see fig  13)  After 1999, the plan’s asset allocation continued to be weighted towards equities  After the market downturn in 2001, CSPF trustees told us that J P  Morgan and Goldman Sachs explicitly increased the equity allocation in an attempt to generate higher investment returns and increase the plan’s funded ratio—the plan’s overarching investment objective  Between 2000 and mid-2010, when the plan had two named fiduciaries, equity assets increased from about 58 percent at the end of 2000 to between 66 and 70 percent at the end of 2001 and each year thereafter until the end of 2009, mostly based on the named fiduciaries’ decisions to increase the plan’s allocation to domestic equity assets  When Northern Trust became the sole named fiduciary in 2010, the proportion of equity assets declined from almost 72 percent at the end of 2010 to almost 63 percent at the end of 2016  During this time, Northern Trust generally decreased the plan’s allocation to domestic equity assets, increased the allocation to actively-managed fixed income, and started investing in global infrastructure assets  Northern Trust representatives said CSPF’s recent portfolio had been kept relatively aggressive in an attempt to achieve the returns the plan would need to become fully funded while balancing risk (see fig  14)  CSPF’s deteriorating financial condition precipitated a recent investment policy change that will move plan assets into fixed income and cash equivalent investments ahead of projected insolvency  In early 2017, Northern Trust representatives revised the plan’s investment policy because they, in consultation with the trustees, believed the plan had no additional options to avoid insolvency (see textbox)  This change to the plan’s outlook led to a significant change in the plan’s investment objective, from a goal of fully funding the plan to instead forestalling insolvency as long as possible while reducing the volatility of the plan’s funding  Northern Trust representatives and CSPF officials revised applicable plan investment policy statements and started to gradually transition the plan’s “return seeking assets”—such as equities and high yield and emerging markets debt—to high quality investment grade debt and U S  Treasury securities with intermediate and short-term maturities  Northern Trust’s new investment policy specified the assets under its control would not be invested in nonpublicly traded securities, in order to manage risk and provide liquidity  CSPF Has Limited Options to Achieve Solvency As of March 2018, the Central States, Southeast and Southwest Areas Pension Fund (CSPF) was projected to be insolvent on January 1, 2025  As of July 2017, CSPF officials said that the following measures (in isolation) could help the plan avoid insolvency: 18 percent year-over-year investment returns (infinite horizon), or 250 percent contribution increases (with no employer attrition), or 46 percent across-the-board benefit cut  However, CSPF officials said that investment returns and contribution increases of these magnitudes were untenable, and CSPF’s application to reduce accrued benefits under the Multiemployer Pension Reform Act of 2014 (MPRA) was denied in 2016  CSPF officials and Northern Trust representatives said these asset allocation changes are intended to provide participants greater certainty regarding their benefits and reduce the plan’s exposure to market risk and volatility until it is projected to become insolvent on January 1, 2025 (see fig  15)  Northern Trust is expected to continue to manage 50 percent of the plan’s investment assets until the plan becomes insolvent  While the total amount of assets in the passively-managed accounts will continue to constitute 50 percent of the plan’s assets, the trustees plan to transfer assets from the passively-managed domestic and international equity accounts into the passively-managed domestic fixed income account, which will be gradually transitioned to shorter-term or cash-equivalent fixed-income securities sometime before the end of March 2020 (see fig  16)  CSPF officials said the changes will reduce the amount of fees and transaction costs paid by the plan  Specifically, investment management fees are expected to generally decrease as the plan moves into shorter duration fixed income assets  In addition, Northern Trust’s plan is designed to reduce transaction costs in two ways: (1) in the near term, Northern Trust plans to liquidate “return-seeking assets” so the cash it receives can be used directly to pay benefits, and (2) it plans to synchronize the fund’s benefit payments with the maturity dates of fixed income assets it purchases so cash received can be used directly to pay benefits  Both of these design features are intended to eliminate the need to reinvest assets, which might entail additional transaction costs  Our analysis of available data from several different sources shows the returns on CSPF’s investments and the fees related to investment management and other plan administration activities appear generally in line with similar pension plans or other large institutional investors of similar size  The annual returns on CSPF’s investments in recent decades have generally been in line with the annual returns of a customized peer group provided by the investment consultant Wilshire  The comparison group data is from Wilshire’s Trust Universe Comparison Service (TUCS)—a tool used by CSPF to compare its investment returns to a group of peers  Over the 22 years covered by our analysis, CSPF’s returns were above the median in 12 years and below the median the other 10  Figure 17 illustrates how CSPF’s annual investment returns compare to CSPF’s customized peer group of master trusts with over $3 billion in assets  CSPF’s annual investment returns tended to fluctuate relative to the annual median of the TUCS peer group over the 1995 through 2016 period  For example, in 14 of the 22 years analyzed, its annual return was in the highest or lowest 25 percent of returns (7 years each)  Further, in 3 years, its investment returns fell either within the top 5 percent of returns (1996, 2009) or bottom 5 percent (1998)  In 8 of the 22 years, CSPF’s annual return was within the middle 50 percent of its TUCS peer group  The TUCS data we analyzed also included median portfolio allocations for the group of CSPF’s peers  Table 2 compares CSPF’s asset allocations for selected asset categories to the median allocations of its TUCS comparator group  In 1996, compared to the TUCS medians, CSPF had relatively lower proportions of its assets in both equities and fixed income and a relatively higher proportion in real estate  Twenty years later (2016), CSPF had relatively higher proportions of its assets in both equities and fixed income (about 15 and 7 percentage points, respectively) than the respective medians for its peer group  However, the relatively large difference between CSPF’s 2016 equity allocation and the median allocation of its peer group may be a result of the peers moving into different asset classes  For example, there is a relatively large difference, in the other direction, in the allocation to alternative investments (see table 2)  We did not identify an alternative asset category in CSPF’s asset reports for 2016, but the TUCS comparator group median asset allocation in that year is 11 8 percent of assets  Similar to our findings when comparing the returns on CSPF’s investments to a customized peer group of other large institutional funds, the annual returns on CSPF’s investments in recent decades have also generally been in line with the annual returns for a group of similar multiemployer pension plans  To create a group of comparable plans, we selected plans that had a similar degree of “maturity” to CSPF in 2000, as such plans may face similar cash flow challenges to those facing CSPF  This comparator group ultimately consisted of 15 plans in addition to CSPF  Relative to less mature plans, mature plans generally have a greater proportion of liabilities attributable to retired participants receiving benefit payments and a lower proportion attributable to active participants (i e , workers) earning benefits  Mature plans may have limited capacity to make up for insufficient investment returns through employer contributions  Similar to the comparison against other large institutional fund returns based on TUCS data, our comparison against other mature multiemployer plan returns based on Form 5500 data shows that CSPF’s annual returns fluctuate relative to the median annual return for the mature plan comparator group (see fig  18)  For example, in 12 of the 15 years, CSPF’s annual return was in the highest or lowest 25 percent of returns (7 times high and 5 times low)  In 3 of the 15 years analyzed, CSPF’s annual return fell within the middle 50 percent of the peer group  Overall, from 2000 to 2014, CSPF’s annual return was above the group median return in 9 of the 15 years—and lower than the median return in the other 6 years  Relative to its peers, CSPF’s annual returns performed worst during economic downturns and best in years coming out of such downturns  CSPF’s annual investment return was in the bottom 10 percent of returns in 2001, 2002, and 2008  Alternatively, its annual return was in the top 10 percent of returns from 2003 to 2006, in 2009, and in 2012  Additionally, the dollar-weighted average annual return for CSPF over the 2000 through 2014 period was roughly the same as the median for the mature plan comparison group  Specifically, the dollar-weighted average annual return over this period for CSPF was roughly 4 9 percent, while the median dollar-weighted average annual return over this period among the comparison plans with continuous data was 4 8 percent  Our analysis of investment returns for mature plans compares investment returns for a set of peers that includes only multiemployer defined benefit plans  However, as with the comparison against other large institutional funds, the comparisons against other mature plans are not measures of over- or under-performance relative to an index or benchmark  Similarly, as with the earlier comparison, the analysis does not account for variations in the levels of investment risk taken by the plans  Our analysis of Form 5500 data shows CSPF’s investment fees and administrative expenses were in line with other large multiemployer plans  Plan investment fees and administrative expenses are often paid from plan assets so many plans seek to keep these fees and expenses low  Additionally, investment fees are likely to be related to the value of assets under management, and plans with greater asset values tend to be able to negotiate more advantageous fee rates  According to a pension consultant and a DOL publication, investment management fees are typically a large defined benefit plan’s largest category of expense, but a pension plan also incurs a number of lesser expenses related to administering the plan  Administrative expenses (other than investment fees) may include those for: audit and bookkeeping/accounting services; legal services to the plan (opinions, litigation and advice); administrative services provided by contractors; plan staff salaries and expenses; plan overhead and supplies; and other miscellaneous expenses  These administrative expenses relate to plan operations beyond the management of the assets, including the day-to-day expenses for basic administrative services such as participant services and record keeping  Furthermore, some of these expenses can vary based on the number of participants in the plan  To compare CSPF’s fees and expenses against similarly sized plans, we tallied various investment fee-related and other administrative expenses and compared CSPF to a group of multiemployer defined benefit plans that were among the 19 largest plans in terms of assets as of January 1, 2014  According to CSPF’s 2014 Form 5500, CSPF spent about $46 5 million on investment fees (or $47 6 million in 2016 dollars) and had about $17 4 billion in assets (or $17 8 billion in 2016 dollars) as of the end of the year—resulting in an investment fee expense ratio of about 27 basis points, or 0 27 percent  Over the 2000 to 2014 period, CSPF’s average annual investment fee expense ratio was 34 basis points (0 34 percent) while the median of the averages for our large plan comparison group was 37 basis points (0 37 percent)  While CSPF’s average investment fee expense ratio was below the median for its comparison group over the period we examined, the relationship of CSPF’s annual ratio to the annual median changed over time  CSPF’s annual investment-fee expense ratio was consistently at or above the median from 2000 through 2006, but was below the median thereafter  In addition, CSPF’s average investment fee expenses over the period that followed 2006 were 26 percent less than the average over the period before 2007  (They averaged 39 basis points, or 0 39 percent, from 2000 through 2006 and 29 basis points, or 0 29 percent, from 2007 through 2014 ) Two events may have contributed to this change  First, CSPF introduced the passively-managed accounts beginning in 2003—as noted earlier, and CSPF moved certain assets to those accounts in an effort to reduce fees  Second, the change back to a single named fiduciary, which was suggested as an expense saving move, occurred in the middle of the 2007 to 2014 period analyzed  Figure 19 illustrates how CSPF’s investment fee expense ratio compares to other large plans  Our analysis uses investment fee data reported in the Form 5500 that does not include details about the sources of the fees  Investment fees may be sensitive to a plan’s particular investment strategy and the way assets are allocated  For example, with CSPF, a named fiduciary has responsibility for executing the investment strategy and allocations  According to a representative from Northern Trust—the current named fiduciary—CSPF pays a fee of about 5 basis points for named fiduciary services, and this, combined with investment management fees, is in line with investment fees for other clients (though the overall fees depend on the types of asset allocations and investment strategies)  Figure 20 shows how CSPF’s administrative (or non-investment) expenses compare to those of other large plans on a per participant basis  According to CSPF’s 2014 Form 5500, CSPF spent about $38 million on administrative expenses ($39 million in 2016 dollars)—the third most among the 20 peer plans  However, when these expenses are expressed relative to the number of plan participants, CSPF had per participant expenses of $98 in 2014, which is about 16 percent less than the median of the large comparator group, $117  Over the period studied, CSPF’s administrative expenses per participant were at or above the large comparator median in 3 years (2001, 2004, and 2005), but lower than the median in all other years of the 2000 to 2014 period  CSPF’s administrative expenses were also in line with a broader group of comparators  For example, PBGC reported on 2014 administrative expenses of a population of large multiemployer plans (plans with more than 5,000 participants)  By closely replicating the methodology of that study, we found CSPF’s expenses of $98 per participant in 2014 fell below the median expense rate of $124 dollars per participant but above the lowest quartile of this group of large multiemployer plans  In comparing administrative expenses as a percentage of benefits paid, we found CSPF’s administrative expenses were among the lowest 5 percent of this group of large multiemployer plans  We performed a similar comparison against the peer group of large plans  CSPF had the lowest administrative expense rate among the large plan peer group in 2014, paying administrative expenses at a rate of 1 4 percent of benefits paid  In addition, CSPF’s annual administrative expenses as a percentage of benefits were below the median of our peer group of large plans in all years we reviewed  Our analysis of administrative expenses is highly summarized and does not account for possibly unique sources of administrative expenses  Plans may have unique organizational structures and attribute expenses differently  For example, one plan may contract a significant portion of administrative duties with a third-party, while another plan may administer the plan in-house  According to an actuary we interviewed, most multiemployer plans are administered by a third-party, but the plan’s in- house staff will still retain a number of duties  Additionally, the amount of individual administrative expenses could vary significantly by plan depending on the importance of the related administrative function in the plan’s organization  We provided a draft of the report to the U S  Department of Labor, U S  Department of the Treasury, and the Pension Benefit Guaranty Corporation for review and comment  We received technical comments from the U S  Department of Labor and the Pension Benefit Guaranty Corporation, which we incorporated as appropriate  The U S  Department of the Treasury provided no comments  We will send copies to the appropriate congressional committees, the Secretary of Labor, the Secretary of the Treasury, Director of the Pension Benefit Guaranty Corporation, and other interested parties  This report will be available at no charge on the GAO website at http://www gao gov  If you or your staff have any questions about this report, please contact Charles Jeszeck at (202) 512-7215 or jeszeckc@gao gov or Frank Todisco at (202) 512-2700 or todiscof@gao gov  Mr  Todisco meets the qualification standards of the American Academy of Actuaries to address the actuarial issues contained in this report  Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report  GAO staff who made key contributions to this report are listed in appendix IV  Our objectives were to review: (1) what is known about the factors that contributed to the Central States, Southeast and Southwest Areas Pension Fund’s (CSPF) critical financial condition; (2) what has been CSPF’s investment policy, and the process for setting and executing it, since the consent decree was established; and (3) how has CSPF performed over time, particularly compared to similar pension plans  For all objectives, we reviewed relevant federal laws and regulations, literature, and documentation the U S  Department of Labor (DOL) and CSPF officials provided, including reports prepared by the court- appointed independent special counsel  We interviewed knowledgeable industry stakeholders, participant advocates, CSPF officials, International Brotherhood of Teamsters officials and members, and federal officials— including officials from the Pension Benefit Guaranty Corporation (PBGC), DOL, and the U S  Department of the Treasury (Treasury)  To describe the major factors that led to CSPF’s critical financial condition, we conducted semi-structured interviews and reviewed CSPF documentation, relevant scholarly materials, trade and industry articles, government reports, conference papers, research publications, and working papers  We also collected actuarial, financial, and other data on current and historical measures of plan assets, liabilities, investment performance, and other factors, and performed our own analyses of these data  The data and documentation collected were generally from the plan or agencies that oversee pensions  We determined the information to be generally reliable for the purposes of our objectives  To describe CSPF’s investment policy and the process by which it was set and executed we (1) reviewed CSPF’s investment policy statements, court orders and consent decree amendments, and other documentation provided by CSPF officials; (2) interviewed CSPF officials, including pension plan staff, the board of trustees, and the investment advisor, and representatives of the named fiduciary serving the plan at the time of our review; and (3) summarized certain aspects of CSPF’s assets using year- end performance reports prepared by the named fiduciaries  To describe how CSPF has performed over time compared to similar pension plans, we analyzed investment and fee data from DOL’s Form 5500, the government’s primary source of pension information  We also examined CSPF’s investment returns in comparison to a customized Wilshire Associates’ (Wilshire) Trust Universe Comparison Service (TUCS) benchmark of trusts with $3 billion or more in assets  CSPF provided these data and the data are included in the independent special counsel reports  Wilshire provided supplemental data using the same benchmark specifications  We reviewed three types of documentation provided by CSPF for changes in named fiduciaries; changes in investment policy, strategy, and asset allocation; major issues that affected funding; and how these issues affected CSPF’s investment strategy and policy  Select independent special counsel reports  CSPF officials provided 4th quarter reports for each year from 1982 through 2002 and available quarterly reports from 2003 through 2007  We downloaded all available quarterly reports from 2008 through 2017 from CSPF’s website  Select board of trustee meeting minutes  We requested board of trustee meeting minutes from 1983, 1994-95, 1998-2005, 2007-2010, and 2016 so we could review trustee discussions from the first full year the plan was covered by the 1982 consent decree, the most recent full year; periods that included a recession and/or when the plan’s assets performed poorly; and periods that preceded a change or reappointment of the named fiduciary  CSPF officials selected portions of the trustee meeting minutes from those years that pertained to the following topics: named fiduciary reports concerning investment performance; discussions relating to the amortization extension the Internal Revenue Service (IRS) granted to the plan and the contribution rate increases the plan required of participating employers in an effort to comply with funding targets required as condition of the IRS-approved amortization extension; major amendments to the plan; significant reports concerning the plan’s financial condition; amendments to the consent decree; discussions relating to any inquiries or issues DOL raised; discussions of named fiduciary appointments or resignations; discussions of particularly significant contributing employer delinquencies, bankruptcies, and settlements; and discussions relating to the independent special counsel  In addition to the board of trustee meeting minutes, CSPF officials provided select documentation on similar topics a former secretary of the board of trustees retained (1995 through 2008)  Select correspondence between CSPF and DOL  CSPF officials provided select correspondence with DOL from 1987 through 2017 relating to DOL’s oversight of the plan  CSPF officials said they provided all records of those communications that related to significant, substantive, and nonroutine issues  The correspondence excluded other documents, such as periodic reports concerning asset rebalancing and correspondence related to fairly noncontroversial motions to the consent decree  In addition, DOL provided documentation throughout the course of our engagement, including documentation it provided between September and October 2017 that it had not previously identified as being relevant to our review  We completed an on-site file review at DOL in September 2017, and DOL sent us additional electronic documentation in September and October 2017  Overall, we reviewed extensive documentation from DOL—spanning over 10,000 pages of paper-based and electronic files— and spent substantial time cataloging and categorizing it  However, DOL officials reported that certain documentation related to CSPF was no longer available because it had only been retained for the time specified in the records retention policy of the relevant office  We conducted 23 semi-structured interviews with federal agency officials and other stakeholders, including affected parties, and persons knowledgeable about unions, participants and retirees, the trucking industry, collective bargaining agreements, and multiemployer pension plans  We also interviewed three stakeholders with actuarial expertise to specifically understand actuarial standards and procedures  We selected knowledgeable stakeholders based on review of literature and prior GAO work, and recommendations from other stakeholders  We judgmentally selected stakeholders whose expertise coincided with the scope of our objectives and who would be able to provide a broad range of perspectives  In our semi-structured interviews we asked about key factors affecting the plan, the broader regulatory and financial environment in which multiemployer plans operate, and solvency options for plans like CSPF  We reviewed CSPF’s investment policy statements after CSPF entered into a consent decree in 1982, most of which are documented in the consent decree or other court orders  Seven of the investment policy statements were developed by named fiduciaries in consultation with the plan’s board of trustees and four were developed by the trustees  (See fig  21 ) From each investment policy statement, we compiled relevant information on: (1) investment philosophy and plan characteristics considered in developing it, (2) investment return benchmarks, (3) asset allocation, and (4) strategies and assets  See table 3 for select asset allocation information  To describe how CSPF’s investment policy was executed, we compiled information from performance reports prepared by named fiduciaries  We reported CSPF’s asset allocation generally based on the aggregate asset allocation categories CSPF’s named fiduciaries assigned in those reports  CSPF provided these reports for the end of each year 1984 through 2016—except 1992 and 1995, for which it provided reports as of the end of November  Information we compiled included the plan’s: account breakdown (i e , assets in named fiduciary and passively- asset allocation; and investment assets withdrawn to pay benefits and administrative expenses  When possible, we checked the information from year-end performance reports against that in other sources  Specifically, to ensure we captured the vast majority of the plan’s assets in our asset summary we compared the total amount of plan assets named fiduciaries reported with Net Assets reported in CSPF’s Form 5500 filings, available from 1982 through 2016  We generally found these totals to be similar for each year—in most years the difference was about or under 1 percent  Also, named fiduciary performance reports included information on withdrawals from investment assets to meet pension and administrative expense obligations as of the end of each year, except for 1995 and 1999-present  For 1995 through 2016, we compiled this information from independent special counsel reports  For years in which we had overlapping information, 1996 through 1998, we found the reported totals were similar—no more than about 0 6 percent difference in each of those years  Based on our review we believe that the differences were insignificant to our overall analysis and did not impact our findings  To determine investment returns, investment fees, and administrative expenses for CSPF and related comparator group multiemployer defined benefit plans, we analyzed electronic Form 5500 information, the primary, federal source of private pension data  We analyzed information from 2000 through 2014, the most current and complete year at the time we performed our analysis  We began our analysis with 2000 data as data on investment returns and plan fees is primarily found in the Schedule H  Schedule H information was first collected in 1999  But we begin our analysis with 2000 data as electronic data became more reliable the year after the schedule was introduced  We have previously reported on the problems associated with the electronic data of the Form 5500  To mitigate problems associated with the data, we used Form 5500 research data from PBGC  PBGC analysts routinely and systematically correct the raw 5500 data submitted by plans, and PBGC’s Form 5500 research data are thought to be the most accurate electronic versions  Although we did not independently audit the veracity of the PBGC data, we took steps to assess the reliability of the data and determined the data to be sufficiently reliable for our purposes  For example, we performed computer analyses of the data and identified inconsistencies and other indications of error and took steps to correct inconsistencies or errors  A second analyst checked all computer analyses  Funded status is a comparison of plan assets to plan liabilities  One measure of funded status is the funded percentage, which is calculated by dividing plan assets by plan liabilities  Another measure of funded status is the dollar amount of difference between plan assets and plan liabilities; the excess of plan liabilities over plan assets is the unfunded liability (or surplus if assets exceed liabilities)  In this report, we measured funded status using the Actuarial Value of Assets and the Actuarial Accrued Liability, which are the basic measures used to determine the annual required minimum contribution for multiemployer plans under ERISA  We chose these measures because of the consistent availability of data for these measures  There are other ways to measure plan assets and plan liabilities  The Actuarial Value of Assets can be a “smoothed” value that differs from the market value of plan assets  The Actuarial Accrued Liability depends on the choice of actuarial cost method and discount rate, and on whether it is determined on an ongoing plan basis or a plan close-out basis  While different measures of plan assets and liabilities will produce different measures of funded status at any particular point in time, we found that our use of the Actuarial Value of Assets and the Actuarial Accrued Liability was sufficient for our purposes, which included examining the plan’s progress relative to statutory funding standards as well as its trend over time  We developed multiple comparison groups for our analysis  The general rationale behind these comparator groups is to identify plans with similar fundamental characteristics, such as plan size or plan maturity, for purposes of investment return and fee and expense comparisons  We created the following two comparator groups: 1  Large plans (in terms of assets)  We ordered multiemployer defined benefit plans by descending 2014 plan assets (line 2a of the 2014 of the Schedule MB)  Because one of our key analyses of the data involves comparing investment returns across plans, we also limited the comparable plans to those that share a common plan year to CSPF (specifically if they have the same plan year-end of December 31)  We selected the 20 plans that had the largest plan asset values  This includes CSPF, which was the second largest multiemployer plan as of the beginning of 2014  Because these comparator plans are among the largest, they should have similar cost advantages  For example, for investment management services, they should have similar advantages in obtaining lower fees and thus garner greater net returns due to the more favorable fee structures  2  Mature plans (in terms of retiree liability proportions)  We ordered multiemployer defined benefit plans by their similarity to CSPF’s ratio of retiree to total liabilities as of the beginning of calendar year 2000  The ratio of retiree to total liabilities is defined as line 2(b)1(3) of the 2000 Schedule B divided by total liabilities of line 2(b)4(3) of the 2000 Schedule B  To compare retiree to total liability ratios, we created a variable for the absolute value of the difference between CSPF’s ratio and that of a given plan  We ordered the plans by ascending differences in the ratios (excluding any with missing differences)  CSPF was the top plan because its difference is zero by definition  Because one of our key analyses of the data involved comparing investment returns across plans, we also limited the comparable plans to those that shared a common plan year with CSPF (specifically if they have the same plan year-end of December 31)  Of the plans that had the same plan year as CSPF and assets over $300 million, we selected the 20 plans (including CSPF) that had the smallest absolute difference from CSPF in the retiree-to-total liability ratio  Plans with a high ratio of liabilities attributable to retirees will have a relatively large portion of future benefit payments attributable to those that are older and retired  By selecting plans that were similarly mature to CSPF (and had $300 million in assets as of the beginning of 2000), we identified plans that may have had a similar basis for their plan investments, similar cash flow characteristics, or similar potential deviations between time-weighted and dollar-weighted average investment returns over time (see section below entitled “Calculation of Average Investment Return over Multiple Years”)  That is, these plans should have roughly similar cost advantages and similar considerations in their investment objectives such as the balance of cash flows into and out of the fund and the plans’ investment horizons  Similarity in the balance of cash flows is important because it helps to mitigate the influence of plan maturity on the weighted average investment return over multiple years  The year 2000 was used to select the group because the primary purpose of this group is comparison of investment returns for plans that are similarly situated at the beginning of the period being analyzed  Our calculation of investment returns is based on the investment return calculation expressed in the Form 5500 instructions for the Schedule MB  Specifically the instructions of the 2014 Schedule MB state: Enter the estimated rate of return on the current value of plan assets for the 1-year period ending on the valuation date  (The current value is the same as the fair market value—see line 1b(1) instructions ) For this purpose, the rate of return is determined by using the formula 2I/(A + B – I), where I is the dollar amount of the investment return, A is the current value of the assets 1 year ago, and B is the current value of the assets on the current valuation date  Enter rates to the nearest  1 percent  If entering a negative number, enter a minus sign (“ - “) to the left of the number  After preliminary analysis of the variable and consultation with a GAO senior actuary, we determined that Form 5500, Schedule H contains all the information necessary to derive the calculation for years prior to 2008—as far back as 1999 when the Schedule H first came into existence  Additionally, we made adjustments for the timing of cash flows, to the extent indicated by the data  For example, employer and employee contributions that were considered receivable at the end of the prior year and thus included in the Schedule MB calculation were instead included in the year when the plan received the cash for the contribution  Thus, our calculation of annual rate of return is expressed as line items of the 2014 Schedule H to be: 2 * / [[{item1(f)a} – {item 1(b)1(a)} - {item 1(b)2(a)} - {item 1j(a)}] + [{item1(f)b} – {item 1(b)1(b)} - {item 1(b)2(b)} - {item 1j(b)}] – [{item 2d} - {item 2a(3)} – {item 2c}]] Or expressed with expository names as: (2 * (TLINCOME - TOTLCON - OTHERINCOMEW)) / ((TASSTSBY - (ERCONBOY + EECONBOY + OTHER_LIAB_BOY_AMT)) + (TASSTSEY - (ERCONEOY + EECONEOY + OTHER_LIAB_EOY_AMT)) - (TLINCOME - TOTLCON - OTHERINCOMEW)) For purposes of data reliability and validation of our results, we ran permutations of the calculation to see how, if at all, certain items could influence the calculation  In two permutations, we changed the timing of net asset transfers to or from other plans  (This occurs when, for example, there is a plan merger ) A senior actuary determined whether the calculations with/without net asset transfers affected our calculation  If the timing of the net transfer caused the investment return calculation to vary by more than 0 1 percent, we excluded the data for that particular plan in that particular year  We also ran another calculation that did not include “other” income so we could estimate the impact of not adjusting for such information  Historical average investment returns over multiple years can be calculated in at least two different ways  One measure is the “time- weighted” average return, calculated as a geometric average of the annual returns during the period  A time-weighted average measures average investment performance without regard to the order of the annual returns or the impact of different plan circumstances over time  Another measure is the “dollar-weighted” average return–also known as the “internal rate of return” (and also referred to as the “cash flow weighted” return in this report)—which reflects the impact of the plan’s cash flow pattern  The dollar-weighted average return is the rate that, when applied over time to the asset value at the beginning of the period and to each year’s net cash flow into or out of the plan over the period, reproduces the asset value at the end of the period  We calculated dollar-weighted average returns (along with some time- weighted returns for comparison), for both CSPF and for the multiemployer system as a whole, as discussed in the report  We used a market value of plan assets for this purpose  The dollar-weighted average captures the impact of negative cash flow on average investment return  For example, with negative cash flow, investment results in an earlier year can have a bigger impact than investment results in a later year because more money is at stake in the earlier year  Using the same beginning-of-period asset value, and subsequent annual net cash flows into or out of the plan, used in calculating the dollar- weighted average return, we also performed a hypothetical calculation of what CSPF’s end-of-period asset value would have been if the plan had earned 7 5 percent per year instead of its actual return  Conceptually, there are multiple ways to express investment fees, but our analysis used the following two methods for calculating them: Investment fee ratio  Investment fees [line 2i(3) of the 2014 Schedule H] divided by end-of-year net assets [line 1l(b) of the 2014 Schedule H] less receivables [line 1b(1)(b); line 1b(2)(b); and line 1b(3)(b) of the 2014 Schedule H]  Investment fees per participant  Investment fees [line 2i(3) of the 2014 Schedule H] divided by total (end-of-year) participants [line 6f of the 2014 main form]  We define administrative expenses as all other expenses besides investment fees  In part, we used this definition of administrative expenses as it represents the expenses that remain after excluding investment fees  In addition, according to a PBGC analyst, this is the unit of analysis that they also used in their study of administrative expenses  Administrative expense to benefits paid  This is administrative expenses (professional, contract and other) divided by benefits paid  For administrative expenses we derived the value by taking total expenses less investment fees   For benefits paid, we used the 2014 Schedule H, line 2e(1), “Benefit payment and payments to provide benefits directly to participants or beneficiaries, including direct rollovers ” However, if the benefit payment value for such payments is missing or zero, we used the 2014 Schedule H, line 2e(4) “Total Benefit Payments” since the plan may be expressing their benefit payments on another line  Administrative expense per participant  Administrative expenses (professional, contract and other) divided by total (end-of-year) participants   For administrative expenses we derived the value by taking total expenses [line 2i(5) of the 2014 Schedule H] less investment fees [line 2i(3) of the 2014 Schedule H]  PBGC Study on Administrative Expenses PBGC has reported on administrative expenses and included various breakouts of these data in past data book supplements  The calculations of administrative expenses in this report are similar to those used by PBGC  Certain differences may exist because our calculation did not include certain multiemployer plans that reported missing data  Additionally, our population of multiemployer plans included only those plans exclusively associated with defined benefit features  The table below compares our results for plans with 5,000 or more participants, which is a subset of plans analyzed in the PBGC study  Our results used a sample that includes three fewer plans than the PBGC study, but our distributional results were within one-tenth percent for the administrative expense ratio and within $5 of the administrative expenses per participant (see table 4)  Comparing the administrative expenses across reports using other statistics such as the minimum, maximum and standard deviation shows similar results for the PBGC and our analysis (see table 5)  The mean administrative expenses per participant differ by $2 47  This difference is 1 5 percent lower than the PBGC estimate and could be a result of the difference in sample size  We also performed additional analyses as summarized below  We compared CSPF’s annual returns against plans that have the largest assets among multiemployer defined benefit plans (with the same plan year as CSPF) and CSPF’s results against these plans were broadly similar to results for the mature plans (see fig  22)  We compared CSPF’s administrative expenses as a percentage of benefit paid against other large plans  As noted in this report, CSPF has the lowest relative administrative expenses among the comparators in 2014 with administrative expenses at 1 4 percent of benefits (see fig  23)  In addition, CSPF’s administrative expenses as a percentage of benefits were consistently below the median  For our analysis of Wilshire TUCS data, we used two sources of data  Data from 1999 through 2016 was provided by CSPF  CSPF provided reports of their TUCS custom comparison group, master trusts with greater than $3 billion in assets  These data also included the year-end return results for the total fund (also known as the combined fund) as well as returns by subcategory such as a specific named fiduciary or fund  For example, subcategories listed for year-end 2006 included the results for both named fiduciaries (Goldman Sachs and Northern Trust) as well as the passively-managed accounts (then known as the CSSS fund)  The custom comparison groups for the 1999 through 2016 data were determined each year in early-February of the year following the December 31 return results for the prior year  Thus, over time more master trusts were added (or subtracted) depending on the level of assets for the master trusts in that year  For example, the return results for year- end 1999 are determined as of February 10, 2000 and the group of master trusts with more than $3 billion contains 62 observations  The number of trusts in the custom group of master trusts with more than $3 billion generally grew over time with the number peaking with the return results for year-end 2014 (determined as of February 9, 2015), which contains 124 observations  The TUCS data from 1995 through 1998 was provided by Wilshire  The comparison group for these data were not selected each year, but, instead, selected retrospectively  For example, the comparison group of master trusts with more than $3 billion from 1995 through 1998 was selected as of January 9, 2017  There were 99 reported observations in 1995 and 132 observations in 1998  In addition, the 1995 through 1998 TUCS data did not include specific returns for CSPF  We were able to find the annual year-end return in the December (i e  year-end) management report, which for these years was provided by the named fiduciary, Morgan Stanley  Below is a list of selected events that have affected the Central States, Southeast and Southwest Areas Pension Fund (CSPF) as identified through a review of relevant documentation and interviews with stakeholders and agency officials  It is not intended to be an exhaustive list of the events that have impacted CSPF, nor is it intended to include comprehensive descriptions of each event  On September 22, 1982, the Department of Labor (DOL) entered into a court-enforceable consent decree with the Central States Southeast and Southwest Areas Pension Fund (CSPF) to help ensure the plan’s assets were managed for the sole benefit of the plan’s participants and beneficiaries as required by the Employee Retirement Income Security Act of 1974 (ERISA)  The consent decree has been amended several times and currently remains in effect, as amended, under the jurisdiction of the Federal Court for the Northern District of Illinois, Eastern Division  Below is a description of the key parties to and their primary responsibilities under the consent decree  The consent decree defines roles and responsibilities for its parties, including the court, the court-appointed independent special counsel, DOL, the plan and its Board of Trustees, and the independent asset manager, which is called the named fiduciary  The primary role of the court is to oversee and enforce the consent decree  Specifically, the court: appointed an independent special counsel to assist it in administering has approval over the appointment of named fiduciaries and trustees; has approval over the appointment of investment managers of the may, for good cause shown, remove a named fiduciary after 60 days’ notice provided to the named fiduciary and DOL; and may, upon request by the plan, dissolve the consent decree absent good cause shown by DOL why the consent decree should continue in effect  The court-appointed independent special counsel is intended to serve the court by assisting in identifying and resolving issues that arise in connection with the plan’s compliance with the consent decree and Part 4 of Title I of ERISA, and to report on the plan to the court  Specifically, the independent special counsel: has full authority to examine the plan’s activities and oversee and report on the plan’s performance of the undertakings of the consent decree; may, with court approval, employ attorneys, accountants, investigators, and others reasonably necessary and appropriate to aid him in the exercise of his responsibilities; has full access to all documents, books, records, personnel, files, and information of whatever type or description in the possession, custody, or control of the plan; may attend meetings of the plan, including meetings of the board of trustees and any meetings at which plan-related matters are discussed or considered; can petition the court to compel the plan to cooperate with the independent special counsel in the performance of his duties and responsibilities; may consult with DOL, the Internal Revenue Service, and other agencies, as appropriate, but must provide access to DOL upon its request to any documents prepared by the independent special counsel within the exercise of his power; is required to file quarterly reports, as well as any other reports the independent special counsel deems necessary or appropriate, with the court, and provide copies to DOL and the plan; may have other powers, duties, and responsibilities that the court may later determine are appropriate; and cannot be discharged or terminated during the duration of the consent decree except for leave of court, and upon the termination, discharge, death, incapacity, or resignation of an independent special counsel, the court will appoint a successor  Under the consent decree, DOL has an oversight role and may object to certain proposed plan changes  Specifically, DOL: may request and review certain reports provided by the plan and any documents prepared by the independent special counsel in the exercise of his authority; may object to the appointment of proposed trustees, named fiduciaries, investment managers of the passively-managed accounts, and asset custodians; receives notice of proposed changes to the plan’s investment policy statements from the plan; and may object to the dissolution of the consent decree  The plan must operate in full compliance with the consent decree, with ERISA, and with any conditions contained in determination letters it receives from the Internal Revenue Service  Specifically, CSPF, its board of trustees, and its internal audit staff must meet certain requirements  is required to use an independent asset manager known as the named fiduciary; must rebid the named fiduciary role at least once within every 6 years, with the option to extend the appointment for 1 calendar year; may remove a named fiduciary without cause shown on 6 months’ written notice to the named fiduciary and DOL; must cooperate with the independent special counsel in the performance of his duties and responsibilities and with DOL in its continuing investigation and enforcement responsibilities under ERISA; is required to recommend to the court three replacement candidates, agreeable to DOL, to replace an outgoing independent special counsel; and is required to maintain a qualified internal audit staff to monitor its affairs  is required to appoint, subject to court approval, the investment managers of the passively-managed accounts; is prohibited from authorizing any future acquisitions, investments, or dispositions of plan assets on a direct or indirect basis unless specifically allowed by the consent decree; and is required to comply with ERISA fiduciary duties, such as monitoring the performance of the assets of the plan, under Part 4 of Title I of ERISA  is required to review benefit administration, administrative expenditures, and the allocation of plan receipts to investments and administration; and is required to prepare monthly reports setting forth any findings and recommendations, in cooperation with the executive director of the plan, and make copies available to the independent special counsel and, upon request, to DOL and the court  The independent asset managers, known as named fiduciaries, are appointed by the plan’s trustees, subject to court approval, and have exclusive responsibility and authority to manage and control all assets of the plan allocated to them  Specifically, the named fiduciaries: may allocate plan assets among different types of investments and have exclusive authority to appoint, replace, and remove those have responsibility and authority to monitor the performance of their are required to develop, in consultation with the Board of Trustees, and implement investment policy statements for the assets they manage, giving appropriate regards to CSPF’s actuarial requirements  In addition to the individual named above David Lehrer (Assistant Director), Charles J  Ford, (Analyst-in-Charge), Laurel Beedon, Jessica Moscovitch, Layla Moughari, Joseph Silvestri, Anjali Tekchandani, Margaret J  Weber, Adam Wendel, and Miranda J  Wickham made key contributions to this report  Also contributing to this report were Susan Aschoff, Deborah K  Bland, Helen Desaulniers, Laura Hoffrey, Jennifer Gregory, Sheila McCoy, Mimi Nguyen, Jessica Orr, Monica P  Savoy, and Seyda Wentworth  Central States Pension Fund: Department of Labor Activities under the Consent Decree and Federal Law  GAO-18-105  Washington, D C : June 4, 2018  High-Risk Series: Progress on Many High-Risk Areas, While Substantial Efforts Needed on Others  GAO-17-317  Washington, D C : February 15, 2017  Pension Plan Valuation: Views on Using Multiple Measures to Offer a More Complete Financial Picture  GAO-14-264  Washington, D C : September 30, 2014  Private Pensions: Clarity of Required Reports and Disclosures Could Be Improved  GAO-14-92  Washington, D C : November 21, 2013  Private Pensions: Timely Action Needed to Address Impending Multiemployer Plan Insolvencies  GAO-13-240  Washington, D C : March 28, 2013  Private Pensions: Multiemployer Plans and PBGC Face Urgent Challenges  GAO-13-428T  Washington, D C : March 5, 2013  Pension Benefit Guaranty Corporation: Redesigned Premium Structure Could Better Align Rates with Risk from Plan Sponsors  GAO-13-58  Washington, D C : November 7, 2012  Private Pensions: Changes Needed to Better Protect Multiemployer Pension Benefits  GAO-11-79  Washington, D C : October 18, 2010  Private Pensions: Long-standing Challenges Remain for Multiemployer Pension Plans  GAO-10-708T  Washington, D C : May 27, 2010  The Department of Labor’s Oversight of the Management of the Teamsters’ Central States Pension and Health and Welfare Funds  GAO/HRD-85-73  Washington, D C : July 18, 1985  Investigation to Reform Teamsters’ Central States Pension Fund Found Inadequate  HRD-82-13  Washington, D C : April 28, 1982 


Report 2:  Naval War College's Current Strategy Forum  "And if you know a little bit about this business you know that geometry is a tyrant  "You have to be in a tiny little box to have a chance at intercepting that incoming missile  So, we have six ships that could go anywhere in the world, at flank speed, in a tiny little box, defending land " Richardson continued, saying the Navy could be used in emergencies but that in the long term the problem demands a different solution  "It's a pretty good capability and if there is an emergent need to provide ballistic missile defense, we're there," he said  "But 10 years down the road, it's time to build something on land to defend the land  Whether that's AEGIS ashore or whatever, I want to get out of the long-term missile defense business and move to dynamic missile defense " The unusually direct comments from the CNO come amid growing frustration among the surface warfare community that the mission, which requires ships to stay in a steaming box doing figure-eights for weeks on end, is eating up assets and operational availability that could be better used confronting growing high-end threats from China and Russia  The BMD mission was also a factor in degraded readiness in the surface fleet  Amid the nuclear threat from North Korea, the BMD mission began eating more and more of the readiness generated in the Japan-based U S  7th Fleet, which created a pressurized situation that caused leaders in the Pacific to cut corners and sacrifice training time for their crews, an environment described in the Navy's comprehensive review into the two collisions that claimed the lives of 17 sailors in the disastrous summer of 2017  Richardson said that as potential enemies double down on anti-access technologies designed to keep the U S  Navy at bay, the Navy needed to focus on missile defense for its own assets  "We're going to need missile defense at sea as we kind of fight our way now into the battle spaces we need to get into," he said  "And so restoring dynamic maneuver has something to do with missile defense  A June 23, 2018, press report states the following: The threats from a resurgent Russia and rising China―which is cranking out ships like it's preparing for war―have put enormous pressure on the now-aging [U S  Navy Aegis destroyer] fleet  Standing requirements for BMD patrols have put increasing strain on the U S  Navy's surface ships  The Navy now stands at a crossroads  BMD, while a burden, has also been a cash cow that has pushed the capabilities of the fleet exponentially forward over the past decade  The game-changing SPY-6 air and missile defense radar destined for DDG Flight III, for example, is a direct response to the need for more advanced BMD shooters  But a smaller fleet, needed for everything from anti-submarine patrols to freedom-of-navigation missions in the South China Sea, routinely has a large chunk tethered to BMD missions  "Right now, as we speak, I have six multimission, very sophisticated, dynamic cruisers and destroyers―six of them are on ballistic missile defense duty at sea," Chief of Naval Operations Adm  John Richardson said during an address at the recent U S  Naval War College's Current Strategy Forum  "You have to be in a tiny little box to have a chance at intercepting that incoming missile  So we have six ships that could go anywhere in the world, at flank speed, in a tiny little box, defending land " And for every six ships the Navy has deployed in a standing mission, it means 18 ships are in various stages of the deployment cycle preparing to relieve them  The Pentagon, led by Defense Secretary Jim Mattis, wants the Navy to be more flexible and less predictable―"dynamic" is the buzzword of moment in Navy circles  What Richardson is proposing is moving standing requirements for BMD patrols away from ships underway and all the associated costs that incurs, and toward fixed, shore-based sites, and also surging the Navy's at-sea BMD capabilities when there is an active threat     In a follow-up response to questions posed on the CNO's comments, Navy spokesman Cmdr  William Speaks said the Navy's position is that BMD is an integral part of the service's mission, but where long-term threats exist, the Navy should "consider a more persistent, land-based solution as an option " "This idea is not about the nation's or the Navy's commitment to BMD for the U S  and our allies and partners―the Navy's commitment to ballistic missile defense is rock-solid," Speaks said  "In fact, the Navy will grow the number of BMD-capable ships from 38 to 60 by 2023, in response to the growing demand for this capability  "The idea is about how to best meet that commitment  In alignment with our national strategic documents, we have shifted our focus in an era of great power competition―this calls us to think innovatively about how best to meet the demands of this mission and optimize the power of the joint force "    While the idea of saving money by having fixed BMD sites and freeing up multimission ships is sensible, it may have unintended consequences, said Bryan McGrath, a retired destroyer skipper and owner of the defense consultancy The FerryBridge Group  "The BMD mission is part of what creates the force structure requirement for large surface combatants," McGrath said on Twitter after Defense News reported the CNO's comments  "Absent it, the number of CG's and DDG's would necessarily decline  This may in fact be desirable, depending on the emerging fleet architecture and the roles and missions debate underway  Perhaps we need more smaller, multi-mission ships than larger, more expensive ones  "But it cannot be forgotten that while the mission is somewhat wasteful of a capable, multi-mission ship, the fact that we have built the ships that (among other things) do this mission is an incredibly good thing  If there is a penalty to be paid in peacetime sub-optimization in order to have wartime capacity--should this not be considered a positive thing?" McGrath went on to say that the suite of combat systems that have been built into Aegis have been in response to the BMD threat  And indeed, the crown jewels of the surface fleet―Aegis Baseline 9 software, which allows a ship to do both air defense and BMD simultaneously; the Aegis common-source library; the forthcoming SPY-6; cooperative engagement―have come about either in part or entirely driven by the BMD mission     A Navy official who spoke on condition of anonymity, to discuss the Navy's shifting language on BMD, acknowledged the tone had shifted since the 2000s when the Navy latched onto the mission  But the official added that the situation more than a decade later has dramatically shifted  "The strategic environment has changed significantly since the early 2000s―particularly in the western Pacific  We have never before faced multiple peer rivals in a world as interconnected and interdependent as we do today," the official said  "Nor have we ever seen technologies that could alter the character of war as dramatically as those we see emerging around us  China and Russia have observed our way of war and are on the move to reshape the environment to their favor " In response to the threat and Defense Secretary Jim Mattis' desire to use the force more dynamically, the Navy is looking at its options, the official said  "This includes taking a look at how we employ BMD ships through the lens of great power competition to compete, deter and win against those who threaten us " A January 29, 2019, press report states the following: The Navy is looking to get out of the missile defense business, the service's top admiral said today, and the Pentagon's new missile defense review might give the service the off-ramp it has been looking for to stop sailing in circles waiting for ground-based missile launches  This wasn't the first time Adm  John Richardson bristled in public over his ships sailing in "small boxes" at sea tasked with protecting land, when they could be out performing other missions challenging Chinese and Russian adventurism in the South China Sea and the North Atlantic…  "We've got exquisite capability, but we've had ships protecting some pretty static assets on land for a decade," Richardson said at the Brookings Institute  "If that [stationary] asset is going to be a long-term protected asset, then let's build something on land and protect that and liberate these ships from this mission " Japan is already moving down the path of building up a more robust ground-based sensor and shooter layer, while also getting its own ships out to sea armed with the Aegis radar and missile defense system, both of which would free up American hulls from what Richardson on Monday called "the small [geographic] boxes where they have to stay for ballistic missile defense " Another related potential issue for Congress concerns burden sharing—how allied contributions to regional BMD capabilities and operations compare to U S  naval contributions to overseas regional BMD capabilities and operations, particularly in light of constraints on U S  defense spending, worldwide operational demands for U S  Navy Aegis ships, and calls by some U S  observers for increased allied defense efforts  The issue can arise in connection with both U S  allies in Europe and U S  allies in Asia  Regarding U S  allies in Asia, a December 12, 2018, press report states the following: In June, US Navy Chief of Naval Operations (CNO) Admiral John Richardson said during a speech at the US Naval War College that the US Navy should terminate its current practice of dedicating several US Navy warships solely for Ballistic Missile Defense (BMD)  Richardson wanted US warships to halt BMD patrols off Japan and Europe as they are limiting, restrictive missions that could be better accomplished by existing land-based BMD systems such as Patriot anti-missile batteries, the US Terminal High Altitude Area Defense (THAAD) anti-missile system and the Aegis Ashore anti-missile system  In the months since dropping his bombshell, Richardson—and much of the debate—has gone quiet  "My guess is the CNO got snapped back by the Pentagon for exceeding where the debate actually stood," one expert on US naval affairs told Asia Times  But others agree with him  Air Force Lt Gen Samuel A Greaves, the director of the US Missile Defense Agency (MDA), acknowledges Richardson's attempts to highlight how these BMD patrols were placing unwelcome "strain on the (US Navy's) crews and equipment " But there are complications  While it may free US Navy warships for sea-control, rather than land defense, there is a concern that next- generation hypersonic cruise missiles could defeat land-based BMD systems, such as Aegis Ashore, while the US Navy's Aegis-equipped warships offer the advantages of high-speed mobility and stealth, resulting in greater survivability overall  As Japan prepares to acquire its first Aegis Ashore BMD system – and perhaps other systems such as the THAAD system which has been deployed previously in Romania and South Korea – the possibility that the US Navy will end its important BMD role represents abrupt change…  Japan's decision to deploy Aegis Ashore can fill in any gap created by a possible US Navy cessation of BMD patrols  "The land-based option is more reliable, less logistically draining, and despite being horrendously expensive, could be effective in the sense that it provides a degree of reassurance to the Japanese people and US government, and introduces an element of doubt of missile efficacy into [North Korean] calculations," said [Garren Mulloy, Associate Professor of International Relations at Daito Bunka University in Saitama, Japan], adding, however, that these systems could not cover Okinawa  "Fixed sites in Japan could be vulnerable, and the Aegis vessels provide a flexible forward-defense, before anything enters Japanese airspace, but with obviously limited reactions times," Mulloy said  "Aegis Ashore gives more reaction time – but over Japanese airspace "… The silence about this sudden possible shift in the US defense posture in the western Pacific is understandable: it is a sensitive topic in Washington and Tokyo  However, the Trump administration has urged its allies to pay more for their own defense needs and to support US troops deployed overseas  Meanwhile, Tokyo needs to proceed cautiously given the likelihood that neighbors might view a move on BMD as evidence that Tokyo is adopting an increasingly aggressive defense posture in the region  But for them, it is a no-win situation  If the US does ditch the BMD patrol mission, China and North Korea might view the shift as equally menacing given that it greatly enhances the US Navy's maritime warfare capabilities  Another potential issue for Congress is whether to convert the Aegis test facility in Hawaii into an operational land-based Aegis BMD site  DOD's January 2019 missile defense review report states, in a section on improving or adapting existing BMD systems, that Another repurposing option is to operationalize, either temporarily or permanently, the Aegis Ashore Missile Defense Test Center in Kauai, Hawaii, to strengthen the defense of Hawaii against North Korean missile capabilities  DoD will study this possibility to further evaluate it as a viable near-term option to enhance the defense of Hawaii  The United States will augment the defense of Hawaii in order to stay ahead of any possible North Korean missile threat  MDA and the Navy will evaluate the viability of this option and develop an Emergency Activation Plan that would enable the Secretary of Defense to operationalize the Aegis Ashore test site in Kauai within 30 days of the Secretary's decision to do so, the steps that would need to be taken, associated costs, and personnel requirements  This plan will be delivered to USDA&S, USDR&E, and USDP within six months of the release of the MDR  A January 25, 2019, press report states the following: The Defense Department will examine the funding breakdown between the Navy and the Missile Defense Agency should the government make Hawaii's Aegis Ashore Missile Defense Test Center into an operational resource, according to the agency's director  "Today, it involves both Navy resources for the operational crews -- that man that site -- as well as funds that come to MDA for research, development and test production and sustainment," Lt  Gen  Sam Greaves said of the test center when asked how the funding would shake out between the Navy and MDA should the Pentagon move forward with the recommendation  Another potential issue for Congress concerns the potential for ship-based lasers, electromagnetic railguns (EMRGs), and gun-launched guided projectiles (GLGPs, previously known as hypervelocity projectiles [HVPs]) to contribute in coming years to Navy terminal-phase BMD operations and the impact this might eventually have on required numbers of ship-based BMD interceptor missiles  Another CRS report discusses the potential value of ship-based lasers, EMRGs, and GLGPs for performing various missions, including, potentially, terminal-phase BMD operations  Another potential oversight issue for Congress is technical risk and test and evaluation issues in the Aegis BMD program  Regarding this issue, a December 2018 report from DOD's Director, Operational Test and Evaluation (DOT&E)—DOT&E's annual report for FY2018—stated the following in its section on the Aegis BMD program: Assessment • Results from flight testing, high-fidelity M&S, HWIL, and distributed ground testing demonstrate that Aegis BMD can intercept non-separating, simple-separating, and complex-separating ballistic missiles in the midcourse phase  However, flight testing and M&S did not address all expected threat types, ground ranges, and raid sizes  • FTM-45 successfully and fully demonstrated the Aegis BL 9 2 organic engagement capability and corrective action for the previous FTM-29 missile failure  FTM-29 was only partially able to demonstrate EOR capability given the in-flight missile failure  In FTM-29, the Aegis Weapon System supported the SM-3 Block IIA missile and demonstrated bi-directional communication between the SM-3 Block IIA guidance section and the KW until loss of signal at horizon  However, the weapon system did not exercise all aspects of communication after KW eject  DOT&E considers the FTM-29 failure to be an example of a shortfall in conducting ground testing in an operationally representative way, and an example of a deficiency found in OT that DT should have discovered  • The MDA implemented process improvements to better identify, report, and fi x common failures and anomalies identified during SM-3 ground testing prior to flight testing  • SM CTV-03 demonstrated the capability of the Aegis BMD 4 1 upgrade to fi re an SM-6 Dual I missile  The BMD 4 1 build incorporates BL 9 C1 capabilities into the BMD 4 0 baseline  • FS-17 demonstrated the Aegis BMD 4 0 3 capability to interoperate with NATO partners over operational communication architectures during cruise missile and ballistic missile engagements, and to use remote data provided by NATO partners to prosecute remote engagements  JFTM-05 Event 2 demonstrated inter-ship communication between U S  and Japanese destroyers using a realistic communications architecture while prosecuting ballistic missile engagements  Pacific Dragon demonstrated interoperability between U S  Aegis BMD assets, Japanese destroyers, and Republic of Korea naval assets  • Aegis BMD has exercised rudimentary engagement coordination with Terminal High-Altitude Area Defense firing units, but not with Patriot  The MDA plans to include Patriot in FTO-03  MDA ground tests have routinely demonstrated that inter-element coordination and interoperability need improvement to increase situational awareness and improve engagement efficiency  • The MDA has been collaborating with DOT&E and the Under Secretary of Defense (Research and Engineering) to establish an affordable ground testing approach to support assessments of reliability  DOT&E cannot assess SM-3 missile reliability with confidence until the MDA is able to provide additional ground test data that simulates the in-flight environment  DOT&E is working with the MDA to determine if existing ground test venues are able to provide the needed missile reliability data  Recommendations The MDA should: 1  Ensure that ground tests of all SM-3 missile components, sections, and all-up rounds use the same configuration as will be flown in flight tests (i e , "test as you fly")  2  Determine how to properly score acceptance ground test data for production missiles to enable their use in estimating SM-3 reliability  3  Fund and execute high-fidelity M&S RFRs for Aegis BL 9 2 SM-3 Block IIA and SM-6 Dual II scenarios that span the engagement battlespace  Regarding the SM-6 missile, the January 2018 DOT&E report also stated the following: Assessment • As reported in the DOT&E FY18 SM-6 BLK I FOT&E Report, the SM-6 remains effective and suitable with the exception of the classified deficiency identified in the FY13 IOT&E Report  The SM-6 Block 1 satisfactorily demonstrated compatibility with Aegis Weapon System Baseline 9 Integrated Fire Control capability  • In FY17-18, the Navy developed and tested specific software improvements to SM-6 BLK I to mitigate the classified performance problems discovered during IOT&E  As previously reported, testing conducted by the Navy demonstrated the software improvements perform as intended, but did not eliminate them  Recommendation 1  The Navy should continue to improve software based on IOT&E results and verify corrective actions with flight tests  Table 2 summarizes congressional action on the FY2020 request for MDA procurement and research and development funding for the Aegis BMD program  Appendix A  Aegis BMD Flight Tests Table A-1 presents a summary of Aegis BMD flight tests since January 2002  As shown in the table, since January 2002, the Aegis BMD system has achieved 33 successful exo-atmospheric intercepts in 42 attempts using the SM-3 missile (including 4 successful intercepts in 5 attempts by Japanese Aegis ships, and 2 successful intercepts in 3 attempts attempt using the Aegis Ashore system), and 7 successful endo-atmospheric intercepts in 7 attempts using the SM-2 Block IV and SM-6 missiles, making for a combined total of 40 successful intercepts in 49 attempts  In addition, on February 20, 2008, a BMD-capable Aegis cruiser operating northwest of Hawaii used a modified version of the Aegis BMD system with the SM-3 missile to shoot down an inoperable U S  surveillance satellite that was in a deteriorating orbit  Including this intercept in the count increases the totals to 34 successful exo-atmospheric intercepts in 43 attempts using the SM-3 missile, and 41 successful exo- and endo-atmospheric intercepts in 50 attempts using SM-3, SM-2 Block IV, and SM-6 missiles 

ground_truth: Multiemployer plans are collectively bargained pension agreements often between labor unions and two or more employers. CSPF is one of the nation's largest multiemployer defined benefit pension plans, covering about 385,000 participants. Since 1982, the plan has operated under a court-enforceable consent decree which, among other things, requires that the plan's assets be managed by independent parties. Within 7 years, CSPF estimates that the plan's financial condition will require severe benefit cuts. GAO was asked to review the events and factors that led to the plan's critical financial status and how its investment outcomes compare to similar plans. GAO describes (1) what is known about the factors that contributed to CSPF's critical financial condition; (2) what has been CSPF's investment policy, and the process for setting and executing it, since the consent decree was established; and (3) how CSPF's investments have performed over time, particularly compared to similar pension plans. GAO reviewed relevant federal laws and regulations; interviewed CSPF representatives, International Brotherhood of Teamsters officials and members, federal officials, and knowledgeable industry stakeholders; reviewed CSPF documentation including investment policy statements and board of trustee meeting minutes; and analyzed investment returns and fees from required, annual pension plan filings and from consultant benchmarking reports. The Central States, Southeast and Southwest Areas Pension Fund (CSPF) was established in 1955 to provide pension benefits to trucking industry workers, and is one of the largest multiemployer plans. According to its regulatory filings, CSPF had less than half the estimated funds needed to cover plan liabilities in 1982 at the time it entered into a court-enforceable consent decree that provides for oversight of certain plan activities. Since then, CSPF has made some progress toward achieving its targeted level of funding; however, CSPF has never been more than 75 percent funded and its funding level has weakened since 2002, as shown in the figure below. Stakeholders GAO interviewed identified numerous factors that contributed to CSPF's financial condition. For example, stakeholders stated that changes within the trucking industry as well as a decline in union membership contributed to CSPF's inability to maintain a healthy contribution base. CSPF's active participants made up about 69 percent of all participants in 1982, but accounted for only 16 percent in 2016. The most dramatic change in active participants occurred in 2007 when the United Parcel Service, Inc. (UPS) withdrew from the plan. At that time, UPS accounted for about 30 percent of the plan's active participants (i.e. workers). In addition, the market declines of 2001 to 2002 and 2008 had a significant negative impact on the plan's long-term investment performance. Stakeholders noted that while each individual factor contributed to CSPF's critical financial condition, the interrelated nature of the factors also had a cumulative effect on the plan's financial condition. Both CSPF's investment policy and the process for setting and executing it have changed several times since the consent decree was established in 1982. The original consent decree gave an independent asset manager—called a named fiduciary—exclusive authority to set and change the plan's investment policies and manage plan assets, and prohibited CSPF trustees from managing assets or making investment decisions. Initially, the named fiduciaries sold the troubled real estate assets acquired during the pre-consent decree era. Subsequent changes include the following: In 1993, the named fiduciaries started to increase investment in equities, and their policies continued to direct that asset allocations be weighted toward equities until early 2017. Between 2003 and 2010, the court approved three plan decisions to move a total of 50 percent of CSPF's assets into passively-managed accounts (passive management typically seeks to match the performance of a specific market index and reduce investment fees). An early-2017 investment policy change precipitated by CSPF's deteriorating financial condition will continue to move plan assets into fixed income investments ahead of projected insolvency, or the date when CSPF is expected to have insufficient assets to pay promised benefits when due. As a result, assets will be gradually transitioned from “return-seeking assets”—such as equities and emerging markets debt—to high-quality investment grade debt and U.S. Treasury securities with intermediate and short-term maturities. The plan is projected to become insolvent on January 1, 2025. CSPF officials and named fiduciary representatives said these changes are intended to reduce the plan's exposure to market risk and volatility, and provide participants greater certainty prior to projected insolvency. GAO found that CSPF's investment returns and expenses were generally in line with similarly sized institutional investors and with demographically similar multiemployer pension plans. For example, GAO's analysis of returns using the peer group measure used by CSPF known as the Wilshire Associates' Trust Universe Comparison Service (TUCS), showed that CSPF's annual investment returns since 1995 were above the median about as many times as they were below. Similarly, comparing CSPF's returns to a peer group of similar multiemployer defined benefit plans using federally required annual reports found that CSPF's annual investment returns were in line with those of its peers. Specifically, CSPF's annual returns were above the median nine times and below it six times—and CSPF's overall (dollar-weighted) average annual return from 2000 through 2014 was close to that of the peer median average return of 4.8 percent. In addition, GAO found that CSPF's investment fees and other administrative expenses have also been in line with other large multiemployer plans. For example: CSPF's investment fees as a percentage of assets were about 9 percent lower than the median of large defined benefit multiemployer plans over the 2000 through 2014 period—though much of that difference is accounted for by a relative reduction in investment fees since 2007. CSPF's investment fees as a percentage of assets were, on average, about 34 basis points (or 0.34 percent). CSPF's administrative expenses related to the day-to-day operations of the plan have also been in line with other large multiemployer plans. CSPF's administrative expenses per participant were below the median for large defined benefit multiemployer plans for 12 of the 15 years over the 2000 through 2014 period. As of 2014, CSPF's administrative expense was $98 per participant, which is about 16 percent less than the median for large defined benefit multiemployer plans. GAO is not making recommendations in this report.

prompt_front: You are given two reports by the government agency.



Question: Write a one-page summary of the report 2.



Report 2: VA’s mission is to promote the health, welfare, and dignity of all veterans in recognition of their service to the nation by ensuring that they receive medical care, benefits, social support, and lasting memorials  In carrying out this mission, the department operates one of the largest health care delivery systems in America, providing health care to millions of veterans and their families at more than 1,500 facilities  The department’s three major components—the Veterans Health Administration (VHA), the Veterans Benefits Administration (VBA), and the National Cemetery Administration (NCA)—are primarily responsible for carrying out its mission  More specifically, VHA provides health care services, including primary care and specialized care, and it performs research and development to improve veterans’ needs  VBA provides a variety of benefits to veterans and their families, including disability compensation, educational opportunities, assistance with home ownership, and life insurance  Further, NCA provides burial and memorial benefits to veterans and their families  Collectively, the three components rely on approximately 340,000 employees to provide services and benefits  These employees work in VA’s Washington, D C  headquarters, as well as 170 medical centers, approximately 750 community-based outpatient clinics, 300 veterans centers, 56 regional offices, and more than 130 cemeteries situated throughout the nation  The use of IT is critically important to VA’s efforts to provide benefits and services to veterans  As such, the department operates and maintains an IT infrastructure that is intended to provide the backbone necessary to meet the day-to-day operational needs of its medical centers, veteran- facing systems, benefits delivery systems, memorial services, and all other systems supporting the department’s mission  The infrastructure is to provide for data storage, transmission, and communications requirements necessary to ensure the delivery of reliable, available, and responsive support to all VA staff offices and administration customers, as well as veterans  According to department data as of October 2016, there were 576 active or in-development systems in VA’s inventory of IT systems  These systems are intended to be used for the determination of benefits, benefits claims processing, and access to health records, among other services  VHA is the parent organization for 319 of these systems  Of the 319 systems, 244 were considered mission-related and provide capabilities related to veterans’ health care delivery  For example, VHA’s systems provide capabilities to establish and maintain electronic health records that health care providers and other clinical staff use to view patient information in inpatient, outpatient, and long-term care settings  VistA serves an essential role in helping the department to fulfill its health care delivery mission  Specifically, VistA is an integrated medical information system for all veterans’ health information  It was developed in-house by the department’s clinicians and IT personnel and has been in operation since the early 1980s  As such, the system has long been vital to helping ensure the quality of health care received by the nation’s veterans and their dependents  VistA is comprised of more than 200 applications that assist in the delivery of health care and perform other important functions within the department, including financial management, enrollment, and registration  Some of these applications have been in operation for over 30 years and, according to VA, have become increasingly difficult and costly to maintain  As such, the department has expended extensive resources to modernize the system and increase its ability to allow for the viewing or exchange of patient information with the Department of Defense (DOD) and private sector health providers  In addition, as we recently reported, VHA has unaddressed needs that indicate its current health IT systems, including VistA, do not fully support the organization’s business functions  Specifically, about 39 percent of all requests related to health IT needs have remained unaddressed after more than 5 years  Electronic health records are particularly crucial for optimizing the health care provided to veterans, many of whom may have health records residing at multiple medical facilities within and outside the United States  Taking steps toward interoperability—that is, collecting, storing, retrieving, and transferring veterans’ health records electronically—is significant to improving the quality and efficiency of care  One of the goals of interoperability is to ensure that patients’ electronic health information is available from provider to provider, regardless of where it originated or resides  Since 2007, VA has been operating a centralized organization, the Office of Information and Technology (OI&T), in which most key functions intended for effective management of IT are performed  This office is led by the Assistant Secretary for Information and Technology—VA’s Chief Information Officer (CIO)  The office is responsible for providing strategy and technical direction, guidance, and policy related to how IT resources are to be acquired and managed for the department, and for working closely with its business partners—such as VHA—to identify and prioritize business needs and requirements for IT systems  Among other things, OI&T has responsibility for managing the majority of VA’s IT-related functions, including the maintenance and modernization of VistA  As of 2016, OI&T was comprised of more than 15,000 staff, with more than half of these positions filled by contractors  For fiscal year 2018, the department’s budget request included nearly $4 1 billion for IT  The department requested approximately $359 million for new systems development or modernization efforts, approximately $2 5 billion for maintaining existing systems, and approximately $1 2 billion for payroll and administration  For example, in its fiscal year 2018 budget submission, the department requested appropriations to support five IT portfolios, including the development and operations and maintenance for programs and projects related to the: Medical portfolio, which provides technology solutions to deliver modern, high-quality medical care capabilities to veterans ($944 2 million); Benefit portfolio, which addresses the technology needs managed by the Veterans Benefit Administration ($296 9 million); Memorial Affairs portfolio, which provides support for the modernization of applications and services for National Cemeteries at 133 locations nationwide ($24 5 million); Corporate portfolio, which consists of back office operations supporting the major business lines and department management ($270 6 million); and Enterprise IT, which provides the underlying infrastructure to enable the other portfolios to operate and includes such things as cybersecurity, data centers, cloud services, telephony, enterprise software, and data connectivity ($1 289 billion)  In 2015, we designated VA Health Care as a high-risk area for the federal government and, currently, we continue to be concerned about the department’s ability to ensure that its resources are being used cost- effectively and efficiently to improve veterans’ timely access to health care  In part, we identified limitations in the capacity of VA’s existing systems, including the outdated, inefficient nature of certain systems and a lack of system interoperability—that is, the ability to exchange and use electronic health information—as contributors to the department’s IT challenges related to health care  These challenges present risks to the timeliness, quality, and safety of the health care  While we recently reported that the department has begun to demonstrate leadership commitment to addressing IT challenges, more work remains  Also, in February 2015, we added Improving the Management of IT Acquisitions and Operations to our list of high-risk areas  Specifically, federal IT investments too frequently fail or incur cost overruns and schedule slippages while contributing little to mission-related outcomes  We have previously testified that the federal government has spent billions of dollars on failed IT investments, including, for example, VA’s Scheduling Replacement Project, which was terminated in September 2009 after spending an estimated $127 million over 9 years; and its Financial and Logistics Integrated Technology Enterprise program, which was intended to be delivered by 2014 at a total estimated cost of $609 million, but was terminated in October 2011 due to challenges in managing the program  This high-risk area highlighted several critical IT initiatives in need of additional congressional oversight, including (1) reviews of troubled projects; (2) efforts to increase the use of incremental development; (3) efforts to provide transparency relative to the cost, schedule, and risk levels for major IT investments; (4) reviews of agencies’ operational investments; (5) data center consolidation; and (6) efforts to streamline agencies’ portfolios of investments  We noted that agencies’ implementation of these initiatives was inconsistent and that more work remained to demonstrate progress in achieving IT acquisition and operation outcomes  We also recently issued an update to our high-risk report and noted that, while progress has been made in addressing the high-risk area of IT acquisitions and operations, significant work remains to be completed  For example, we noted, among other things, that additional work was needed to establish action plans for federal agencies to modernize or replace obsolete systems  Specifically, we pointed out that many federal systems use outdated software languages and hardware, which has increased spending on operations and maintenance of technology investments  VA was among a handful of departments with one or more archaic legacy systems  As discussed in our recent report on legacy systems used by federal agencies, we identified 2 of the department’s systems as being over 50 years old, and among the 10 oldest investments and/or systems that were reported by 12 selected agencies  Personnel and Accounting Integrated Data (PAID)—This 53-year old system automates time and attendance for employees, timekeepers, payroll, and supervisors  It is written in Common Business Oriented Language (COBOL), a programming language developed in the late 1950s and early 1960s, and runs on IBM mainframes  Benefits Delivery Network (BDN)—This 51-year old system tracks claims filed by veterans for benefits, eligibility, and dates of death  It is a suite of COBOL mainframe applications  Ongoing uses of antiquated systems, such as PAID and BDN, contribute to agencies spending a large, and increasing, proportion of their IT budgets on operations and maintenance of systems that have outlived their effectiveness and are consuming resources that outweigh their benefits  Accordingly, we have recommended that VA identify and plan to modernize or replace its legacy systems  The department concurred with our recommendation and stated that it plans to retire and replace PAID with the Human Resources Information System Shared Service Center in 2017  The department also stated that it has general plans to roll the capabilities of BDN into another system and to retire BDN in 2018  Congress enacted federal IT acquisition reform legislation (commonly referred to as the Federal Information Technology Acquisition Reform Act, or FITARA) in December 2014  This legislation was intended to improve agencies’ acquisitions of IT and enable Congress to monitor agencies’ progress and hold them accountable for reducing duplication and achieving cost savings  The law applies to VA and other covered agencies  It includes specific requirements related to seven areas, including data center consolidation and optimization, agency CIO authority, and government-wide software purchasing  Federal data center consolidation initiative (FDCCI)  Agencies are required to provide the Office of Management and Budget (OMB) with a data center inventory, a strategy for consolidating and optimizing their data centers (to include planned cost savings), and quarterly updates on progress made  The law also requires OMB to develop a goal for how much is to be saved through this initiative, and provide annual reports on cost savings achieved  Agency CIO authority enhancements  CIOs at covered agencies are required to (1) approve the IT budget requests of their respective agencies, (2) certify that IT investments are adequately implementing incremental development, as defined in capital planning guidance issued by OMB, (3) review and approve contracts for IT, and (4) approve the appointment of other agency employees with the title of CIO  Government-wide software purchasing program  The General Services Administration is to develop a strategic sourcing initiative to enhance government-wide acquisition and management of software  In doing so, the law requires that, to the maximum extent practicable, the General Services Administration should allow for the purchase of a software license agreement that is available for use by all executive branch agencies as a single user  Expanding upon FITARA, the Making Electronic Government Accountable by Yielding Tangible Efficiencies Act of 2016, or the “MEGABYTE Act,” further enhanced CIOs’ management of software licenses by requiring agency CIOs to establish an agency software licensing policy and a comprehensive software license inventory to track and maintain licenses, among other requirements  In June 2015, OMB released guidance describing how agencies are to implement FITARA  This guidance is intended to, among other things: assist agencies in aligning their IT resources with statutory establish government-wide IT management controls that will meet the law’s requirements, while providing agencies with flexibility to adapt to unique agency processes and requirements; clarify the CIO’s role and strengthen the relationship between agency CIOs and bureau CIOs; and strengthen CIO accountability for IT costs, schedules, performance, and security  In our draft report that is currently with VA for comments, we discuss the history of VA’s efforts to modernize its health information system, VistA  These four efforts—HealtheVet, the integrated Electronic Health Record (iEHR), VistA Evolution, and the Electronic Health Record Modernization (EHRM)—reflect varying approaches that the department has considered to achieve a modernized health care system over the course of nearly two decades  The modernization efforts are described as follows  In 2001, VA undertook its first VistA modernization project, the HealtheVet initiative, with the goals of standardizing the department’s health care system and eliminating the approximately 130 different systems used by its field locations at that time  HealtheVet was scheduled to be fully implemented by 2018 at a total estimated development and deployment cost of about $11 billion  As part of the effort, the department had planned to develop or enhance specific areas of system functionality through six projects, which were to be completed between 2006 and 2012  Specifically, these projects were to provide capabilities to support VA’s Health Data Repository and Patient Financial Services System, as well as the Laboratory, Pharmacy, Imaging, and Scheduling functions  In June 2008, we reported that the department had made progress on the HealtheVet initiative, but noted issues with project planning and governance  In June 2009, the Secretary of Veterans Affairs announced that VA would stop financing failed projects and improve the management of its IT development projects  Subsequently, in August 2010, the department reported that it had terminated the HealtheVet initiative  In February 2011, VA began its second modernization initiative, the iEHR program, in conjunction with DOD  The program was intended to replace the two separate electronic health record systems used by the two departments with a single, shared system  Moreover, because both departments would be using the same system, this approach was expected to largely sidestep the challenges that had been encountered in trying to achieve interoperability between their two separate systems  Initial plans called for the development of a single, joint system consisting of 54 clinical capabilities to be delivered in six increments between 2014 and 2017  Among the agreed-upon capabilities to be delivered were those supporting laboratory, anatomic pathology, pharmacy, and immunizations  According to VA and DOD, the single iEHR system had an estimated life cycle cost of $29 billion through the end of fiscal year 2029  However, in February 2013, the Secretaries of VA and DOD announced that they would not continue with their joint development of a single electronic health record system  This decision resulted from an assessment of the iEHR program that the secretaries had requested in December 2012 because of their concerns about the program facing challenges in meeting deadlines, costing too much, and taking too long to deliver capabilities  In 2013, the departments abandoned their plan to develop the integrated system and stated that they would again pursue separate modernization efforts  In December 2013, VA initiated its VistA Evolution program as a joint effort of VHA and OI&T that was to be completed by the end of fiscal year 2018  The program was to be comprised of a collection of projects and efforts focused on improving the efficiency and quality of veterans’ health care by modernizing the department’s health information systems, increasing the department’s data exchange and interoperability with DOD and private sector health care partners, and reducing the time it takes to deploy new health information management capabilities  Further, the program was intended to result in lower costs for system upgrades, maintenance, and sustainment  According to the department’s March 2017 cost estimate, VistA Evolution was to have a life cycle cost of about $4 billion through fiscal year 2028  Since initiating VistA Evolution in December 2013, VA has completed a number of key activities that were called for in its plans  For example, the department delivered capabilities, such as the ability for health providers to have an integrated, real-time view of electronic health record data through the Joint Legacy Viewer, as well as the ability for health care providers to view sensitive DOD notes and highlight abnormal test results for patients  VA also initiated work to standardize VistA across the 130 VA facilities and released enhancements to its legacy scheduling, pharmacy, and immunization systems  In addition, the department released the enterprise Health Management Platform, which is a web- based user interface that assembles patient clinical data from all VistA instances and DOD  Although VistA Evolution is ongoing, VA is currently in the process of revising its plan for the program as a result of the department recently announcing its pursuit of a fourth VistA modernization program (discussed below)  For example, the department determined that it would no longer pursue additional development or deployment of the enterprise Health Management Platform—a major VistA Evolution component— because the new modernization program is envisioned to provide similar capabilities  In June 2017, the VA Secretary announced a significant shift in the department’s approach to modernizing VistA  Specifically, rather than continue to use VistA, the Secretary stated that the department plans to acquire the same electronic health record system that DOD is implementing  In this regard, DOD has contracted with the Cerner Corporation to provide a new integrated electronic health record system  According to the Secretary, VA has chosen to acquire this same product because it would allow all of VA’s and DOD’s patient data to reside in one system, thus enabling seamless care between the department and DOD without the manual and electronic exchange and reconciliation of data between two separate systems  The VA Secretary added that this fourth modernization initiative is intended to minimize customization and system differences that currently exist within the department’s medical facilities, and ensure the consistency of processes and practices within VA and DOD  When fully operational, the system is intended to be the single source for patients to access their medical history and for clinicians to use that history in real time at any VA or DOD medical facility, which may result in improved health care outcomes  According to VA’s Chief Technology Officer, Cerner is expected to provide integration, configuration, testing, deployment, hosting, organizational change management, training, sustainment, and licenses necessary to deploy the system in a manner that meets the department’s needs  To expedite the acquisition, in June 2017, the Secretary signed a “Determination and Findings,” which noted a public interest exception to the requirement for full and open competition, and authorized VA to issue a solicitation directly to the Cerner Corporation  According to the Secretary, VA expects to award a contract to Cerner in December 2017, and deployment of the new system is anticipated to begin 18 months after the contract has been signed  VA’s Executive Director for the Electronic Health Records Modernization System stated that the department intends to incrementally deploy the new system to its medical facilities  Each facility is expected to continue using VistA until the new system has been deployed at that location  All VA medical facilities are anticipated to have the new system implemented within 7 to 8 years after the first deployment  Figure 1 shows a timeline of the four efforts that VA has pursued to modernize VistA since 2001  For iEHR and VistA Evolution, the two modernization initiatives for which VA could provide contract data, the department obligated approximately $1 1 billion for contracts with 138 different contractors during fiscal years 2011 through 2016  Specifically, the department obligated approximately $224 million and $880 million, respectively, for contracts associated with these efforts  Of the 138 contractors, 34 of them performed work supporting both iEHR and VistA Evolution  The remaining 104 contractors worked exclusively on either iEHR or VistA Evolution  Funding for the 34 contractors that worked on both iEHR and VistA Evolution totaled about $793 million of the $1 1 billion obligated for contracts on the two initiatives  Obligations for contracts awarded to the top 15 of these 34 contractors (which we designated as key contractors) accounted for about $741 million (about 67 percent) of the total obligated for contracts on the two initiatives  The remaining 123 contractors were obligated about $364 million for their contracts  The 15 key contractors were obligated about $564 million and $177 million for VistA Evolution and iEHR contracts, respectively  Table 1 identifies the key contractors and their obligated dollar totals for the two efforts  Additionally, we determined that, of the $741 million obligated to the key contractors, $411 million (about 55 percent) was obligated for contracts supporting the development of new system capabilities, $256 million (about 35 percent) was obligated for contracts supporting project management activities, and $74 million (about 10 percent) was obligated for contracts supporting operations and maintenance for iEHR and VistA Evolution  VA obligated funds to all 15 of the key contractors for system development, 13 of the key contractors for project management, and 12 of the key contractors for operations and maintenance  Figure 2 shows the amounts obligated for each of these areas  Further, based on the key contractors’ documentation, for the iEHR program, VA obligated $102 million for development, $65 million for project management, and $10 million for operations and maintenance  For the VistA Evolution Program, VA obligated $309 million for development, $191 million for project management, and $64 million for operations and maintenance  Figure 3 shows the amounts obligated for contracts on the VistA Evolution and iEHR programs for development, project management, and operations and maintenance  In addition, table 2 shows the amounts that each of the 15 key contractors were obligated for the three types of contract activities performed on iEHR and VistA Evolution  Industry best practices and IT project management principles stress the importance of sound planning for system modernization projects  These plans should identify key aspects of a project, such as the scope, responsible organizations, costs, schedules, and risks  Additionally, planning should begin early in the project’s lifecycle and be updated as the project progresses  Since the VA Secretary announced that the department would acquire the same electronic health record system as DOD, VA has begun planning for the transition from VistA Evolution to EHRM  However, the department is still early in its efforts, pending the contract award  In this regard, the department has begun developing plans that are intended to guide the new EHRM program  For example, the department has developed a preliminary description of the organizations that are to be responsible for governing the EHRM program  Further, the VA Secretary announced in congressional testimony in November 2017, a key reporting responsibility for the program—stating that the Executive Director for the Electronic Health Records Modernization System will report directly to the department’s Deputy Secretary  In addition, the department has developed a preliminary timeline for deploying its new electronic health record system to VA’s medical facilities, and a 90-day schedule that depicts key program activities  The department also has begun documenting the EHRM program risks  Beyond the aforementioned planning activities undertaken thus far, the Executive Director stated that the department intends to complete a full suite of planning and acquisition management documents to guide the program, including a life cycle cost estimate and an integrated master schedule to establish key milestones over the life of the project  To this end, the Executive Director told us that VA has awarded two program management contracts to support the development of these plans to MITRE Corporation and Booz Allen Hamilton  According to the Executive Director, VA also has begun reviewing the VistA Evolution Roadmap, which is the key plan that the department has used to guide VistA Evolution since 2014  This review is expected to result in an updated plan that is to prioritize any remaining VistA enhancements needed to support the transition from VistA Evolution to the new system  According to the Executive Director, the department intends to complete the development of its plans for EHRM within 90 days after award of the Cerner contract, which is anticipated to occur in December 2017  Further, beyond the development of plans, VA has begun to staff an organizational structure for the modernization initiative, with the Under Secretary of Health and the Assistant Secretary for Information and Technology (VA’s Chief Information Officer) designated as executive sponsors  It has also appointed a Chief Technology Officer from OI&T, and a Chief Medical Officer from VHA, both of whom are to report to the Executive Director  VA’s efforts to develop plans for EHRM and to staff an organization to manage the program encompass key aspects of project planning that are important to ensuring effective management of the department’s latest modernization initiative  However, the department remains early in its modernization planning efforts, many of which are dependent on the system acquisition contract award, which has not yet occurred  The department’s continued dedication to completing and effectively executing the planning activities that it has identified will be essential to helping minimize program risks and guide this latest electronic health record modernization initiative to a successful outcome—one which VA, for almost two decades, has yet to achieve  Beyond managing its system modernization efforts, such as VistA, VA has to ensure the effective implementation of the IT acquisition requirements called for in FITARA  Pursuant to FITARA, in August 2016, the Federal CIO issued a memorandum that announced the Data Center Optimization Initiative (DCOI)  According to OMB, this new initiative supersedes and builds on the results of FDCCI, and is also intended to improve the performance of federal data centers in areas such as facility utilization and power usage  Among other things, DCOI requires 24 federal departments and agencies, including VA, to develop plans and report on strategies (referred to as DCOI strategic plans) to consolidate inefficient infrastructure, optimize existing facilities, improve security posture, and achieve costs savings  Further, the memorandum establishes a set of five data center optimization metrics and performance targets intended to measure agency’s progress in the areas of (1) server utilization and automated monitoring, (2) energy metering, (3) power usage effectiveness, (4) facility utilization, and (5) virtualization  The guidance also indicates that OMB is to maintain a public dashboard that will display consolidation-related costs savings and optimization performance information for the agencies  However, in a series of reports that we issued from July 2011 through August 2017, we noted that, while data center consolidation could potentially save the federal government billions of dollars, weaknesses existed in several areas, including agencies’ data center consolidation plans, data center optimization, and OMB’s tracking and reporting on related cost savings  Further, we previously reported that VA’s progress toward closing data centers, and realizing the associated cost savings, lagged behind that of other covered agencies  More recently, VA reported a total inventory of 415 data centers, of which 39 had been closed as of August 2017  While the department anticipates another 10 data centers will be closed by the end of fiscal year 2018, these closures fall short of the targets set by OMB  Specifically, even if VA meets all of its planned targets for closure, it will only close about 9 percent of its tiered data centers and about 18 7 percent of its non-tiered data centers by the end of fiscal year 2018, which is short of the respective 25 and 60 percent targets set by OMB  Further, while VA has reported $23 61 million in data center-related cost savings and avoidances for 2012 through August 2017, the department does not expect to realize further savings from the additional 10 data center closures in the next year  In addition, in August 2017 we reported that agencies needed to address challenges in optimizing their data centers in order to achieve cost savings  Specifically, we noted that, according to the 24 agencies’ data center consolidation initiative strategic plans as of April 2017, most agencies were not planning to meet OMB’s optimization targets by the end of fiscal year 2018  As of February 2017, VA reported meeting one of the five data center optimization metrics related to power usage effectiveness  Also, the department’s data center optimization strategic plan indicates that the department plans to meet three of the five metrics by the end of fiscal year 2018  Further, while OMB directed agencies to replace manual collection and reporting of metrics with automated tools no later than fiscal year 2018, VA had only implemented automated tools at 6 percent of its data centers  OMB has emphasized the need to deliver investments in smaller parts, or increments, in order to reduce risk, deliver capabilities more quickly, and facilitate the adoption of emerging technologies  In 2010, it called for agencies’ major investments to deliver functionality every 12 months and, since 2012, every 6 months  Subsequently, FITARA codified a requirement that agency CIOs certify that IT investments are adequately implementing incremental development, as defined in the capital planning guidance issued by OMB  Later OMB guidance on the law’s implementation—issued in June 2015—directed agency CIOs to define processes and policies for their agencies which ensure that they certify that IT resources are adequately implementing incremental development  Between May 2014 and November 2017, we reported on agencies’ efforts to utilize incremental development practices for selected major investments  In November 2017, we noted that agencies reported that 62 percent of major IT software development investments were certified by the agency CIO as using adequate incremental development in fiscal year 2017, as required by FITARA  VA’s CIO certified the use of adequate incremental development for all 10 of its major IT investments  However, VA had not yet updated the department’s policy and process for the CIO’s certification of major IT investments’ adequate use of incremental development, in accordance with OMB’s guidance on the implementation of FITARA as we recommended  The department stated that it plans to address our recommendation to establish a policy and that the policy is targeted for completion in 2017  Federal agencies engage in thousands of licensing agreements annually  Effective management of software licenses can help organizations avoid purchasing too many licenses that result in unused software  In addition, effective management can help avoid purchasing too few licenses, which results in noncompliance with license terms and causes the imposition of additional fees  Federal agencies are responsible for managing their IT investment portfolios, including the risks from their major information system initiatives, in order to maximize the value of these investments to the agency  OMB developed a policy that requires agencies to conduct an annual, agency-wide IT portfolio review to, among other things, reduce commodity IT spending  Such areas of spending could include software licenses  We previously identified seven elements that a comprehensive software licensing policy should address: identify clear roles, responsibilities, and central oversight authority within the department for managing enterprise software license agreements and commercial software licenses; establish a comprehensive inventory (at least 80 percent of software license spending and/or enterprise licenses in the department) by identifying and collecting information about software license agreements using automated discovery and inventory tools; regularly track and maintain software licenses to assist the agency in implementing decisions throughout the software license management life cycle; analyze software usage and other data to make cost-effective provide training relevant to software license management; establish goals and objectives of the software license management consider the software license management life-cycle phases (i e , requisition, reception, deployment and maintenance, retirement, and disposal phases) to implement effective decision making and incorporate existing standards, processes, and metrics  We previously made recommendations to VA to (1) develop an agency- wide comprehensive policy for the management of software licenses that includes guidance for using analysis to better inform investment decision making, (2) employ a centralized software license management approach that is coordinated and integrated with key personnel, (3) establish a comprehensive inventory of software licenses using automated tools, (4) track and maintain a comprehensive inventory of software licenses using automated tools and metrics, (5) analyze agency-wide software license data to identify opportunities to reduce costs and better inform investment decision making, and (6) provide software license management training to appropriate personnel  Consistent with our recommendation, in July 2015, VA issued a comprehensive software licensing policy that addressed weaknesses we previously identified  The department also issued a directive that documents VA’s software license management policy and responsibilities for central management of agency-wide software licenses, consistent with our recommendations  By implementing our recommendations, VA should be better positioned to consistently and cost-effectively manage software throughout the agency  In August 2017, the department also provided documentation showing that it had generated a comprehensive inventory of software licenses using automated tools for the majority of agency software license spending or enterprise-wide licenses  This inventory can serve to reduce redundant applications and help identify other cost saving opportunities  Further, the department implemented a solution to analyze agency-wide software license data, including usage and costs  This solution should allow VA to identify cost saving opportunities and inform future investment decisions  In addition, the department has provided information indicating that appropriate personnel receive software license management training  In conclusion, VA has made extensive use of numerous contractors and has obligated more than $1 billion for contracts that supported two of four VistA modernization programs that the department has initiated  VA has recently begun the fourth modernization program in which it plans to replace VistA with the same commercially available electronic health record system that is used by DOD  However, the department’s latest modernization effort is in the early stages of planning and is dependent on the system acquisition contract award in December 2017  VA’s completion and effective execution of plans will be essential to guiding this latest electronic health record modernization initiative to a successful outcome  Beyond VistA, the department continues to make progress on key FITARA-related initiatives  Although the department has made progress in the area of software licensing, additional actions in the areas of data center consolidation and optimization, as well as incremental system development can better position VA to effectively manage its IT  We plan to continue to monitor the department’s progress on these important activities  Chairman Hurd, Ranking Member Kelly, and Members of the Subcommittee, this completes my prepared statement  I would be pleased to respond to any questions that you may have  If you or your staffs have any questions about this testimony, please contact David A  Powner at (202) 512-9286 or pownerd@gao gov  Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this testimony statement  GAO staff who made key contributions to this statement are Mark Bird (Assistant Director), Jacqueline Mai (Analyst in Charge), Justin Booth, Chris Businsky, Rebecca Eyler, Paris Hawkins, Valerie Hopkins, Brandon S  Pettis, Jennifer Stavros-Turner, Eric Trout, Christy Tyson, Eric Winter, and Charles Youman  This is a work of the U S  government and is not subject to copyright protection in the United States  The published product may be reproduced and distributed in its entirety without further permission from GAO  However, because this work may contain copyrighted images or other material, permission from the copyright holder may be necessary if you wish to reproduce this material separately 
Report 2:  Naval War College's Current Strategy Forum  "And if you know a little bit about this business you know that geometry is a tyrant  "You have to be in a tiny little box to have a chance at intercepting that incoming missile  So, we have six ships that could go anywhere in the world, at flank speed, in a tiny little box, defending land " Richardson continued, saying the Navy could be used in emergencies but that in the long term the problem demands a different solution  "It's a pretty good capability and if there is an emergent need to provide ballistic missile defense, we're there," he said  "But 10 years down the road, it's time to build something on land to defend the land  Whether that's AEGIS ashore or whatever, I want to get out of the long-term missile defense business and move to dynamic missile defense " The unusually direct comments from the CNO come amid growing frustration among the surface warfare community that the mission, which requires ships to stay in a steaming box doing figure-eights for weeks on end, is eating up assets and operational availability that could be better used confronting growing high-end threats from China and Russia  The BMD mission was also a factor in degraded readiness in the surface fleet  Amid the nuclear threat from North Korea, the BMD mission began eating more and more of the readiness generated in the Japan-based U S  7th Fleet, which created a pressurized situation that caused leaders in the Pacific to cut corners and sacrifice training time for their crews, an environment described in the Navy's comprehensive review into the two collisions that claimed the lives of 17 sailors in the disastrous summer of 2017  Richardson said that as potential enemies double down on anti-access technologies designed to keep the U S  Navy at bay, the Navy needed to focus on missile defense for its own assets  "We're going to need missile defense at sea as we kind of fight our way now into the battle spaces we need to get into," he said  "And so restoring dynamic maneuver has something to do with missile defense  A June 23, 2018, press report states the following: The threats from a resurgent Russia and rising China―which is cranking out ships like it's preparing for war―have put enormous pressure on the now-aging [U S  Navy Aegis destroyer] fleet  Standing requirements for BMD patrols have put increasing strain on the U S  Navy's surface ships  The Navy now stands at a crossroads  BMD, while a burden, has also been a cash cow that has pushed the capabilities of the fleet exponentially forward over the past decade  The game-changing SPY-6 air and missile defense radar destined for DDG Flight III, for example, is a direct response to the need for more advanced BMD shooters  But a smaller fleet, needed for everything from anti-submarine patrols to freedom-of-navigation missions in the South China Sea, routinely has a large chunk tethered to BMD missions  "Right now, as we speak, I have six multimission, very sophisticated, dynamic cruisers and destroyers―six of them are on ballistic missile defense duty at sea," Chief of Naval Operations Adm  John Richardson said during an address at the recent U S  Naval War College's Current Strategy Forum  "You have to be in a tiny little box to have a chance at intercepting that incoming missile  So we have six ships that could go anywhere in the world, at flank speed, in a tiny little box, defending land " And for every six ships the Navy has deployed in a standing mission, it means 18 ships are in various stages of the deployment cycle preparing to relieve them  The Pentagon, led by Defense Secretary Jim Mattis, wants the Navy to be more flexible and less predictable―"dynamic" is the buzzword of moment in Navy circles  What Richardson is proposing is moving standing requirements for BMD patrols away from ships underway and all the associated costs that incurs, and toward fixed, shore-based sites, and also surging the Navy's at-sea BMD capabilities when there is an active threat     In a follow-up response to questions posed on the CNO's comments, Navy spokesman Cmdr  William Speaks said the Navy's position is that BMD is an integral part of the service's mission, but where long-term threats exist, the Navy should "consider a more persistent, land-based solution as an option " "This idea is not about the nation's or the Navy's commitment to BMD for the U S  and our allies and partners―the Navy's commitment to ballistic missile defense is rock-solid," Speaks said  "In fact, the Navy will grow the number of BMD-capable ships from 38 to 60 by 2023, in response to the growing demand for this capability  "The idea is about how to best meet that commitment  In alignment with our national strategic documents, we have shifted our focus in an era of great power competition―this calls us to think innovatively about how best to meet the demands of this mission and optimize the power of the joint force "    While the idea of saving money by having fixed BMD sites and freeing up multimission ships is sensible, it may have unintended consequences, said Bryan McGrath, a retired destroyer skipper and owner of the defense consultancy The FerryBridge Group  "The BMD mission is part of what creates the force structure requirement for large surface combatants," McGrath said on Twitter after Defense News reported the CNO's comments  "Absent it, the number of CG's and DDG's would necessarily decline  This may in fact be desirable, depending on the emerging fleet architecture and the roles and missions debate underway  Perhaps we need more smaller, multi-mission ships than larger, more expensive ones  "But it cannot be forgotten that while the mission is somewhat wasteful of a capable, multi-mission ship, the fact that we have built the ships that (among other things) do this mission is an incredibly good thing  If there is a penalty to be paid in peacetime sub-optimization in order to have wartime capacity--should this not be considered a positive thing?" McGrath went on to say that the suite of combat systems that have been built into Aegis have been in response to the BMD threat  And indeed, the crown jewels of the surface fleet―Aegis Baseline 9 software, which allows a ship to do both air defense and BMD simultaneously; the Aegis common-source library; the forthcoming SPY-6; cooperative engagement―have come about either in part or entirely driven by the BMD mission     A Navy official who spoke on condition of anonymity, to discuss the Navy's shifting language on BMD, acknowledged the tone had shifted since the 2000s when the Navy latched onto the mission  But the official added that the situation more than a decade later has dramatically shifted  "The strategic environment has changed significantly since the early 2000s―particularly in the western Pacific  We have never before faced multiple peer rivals in a world as interconnected and interdependent as we do today," the official said  "Nor have we ever seen technologies that could alter the character of war as dramatically as those we see emerging around us  China and Russia have observed our way of war and are on the move to reshape the environment to their favor " In response to the threat and Defense Secretary Jim Mattis' desire to use the force more dynamically, the Navy is looking at its options, the official said  "This includes taking a look at how we employ BMD ships through the lens of great power competition to compete, deter and win against those who threaten us " A January 29, 2019, press report states the following: The Navy is looking to get out of the missile defense business, the service's top admiral said today, and the Pentagon's new missile defense review might give the service the off-ramp it has been looking for to stop sailing in circles waiting for ground-based missile launches  This wasn't the first time Adm  John Richardson bristled in public over his ships sailing in "small boxes" at sea tasked with protecting land, when they could be out performing other missions challenging Chinese and Russian adventurism in the South China Sea and the North Atlantic…  "We've got exquisite capability, but we've had ships protecting some pretty static assets on land for a decade," Richardson said at the Brookings Institute  "If that [stationary] asset is going to be a long-term protected asset, then let's build something on land and protect that and liberate these ships from this mission " Japan is already moving down the path of building up a more robust ground-based sensor and shooter layer, while also getting its own ships out to sea armed with the Aegis radar and missile defense system, both of which would free up American hulls from what Richardson on Monday called "the small [geographic] boxes where they have to stay for ballistic missile defense " Another related potential issue for Congress concerns burden sharing—how allied contributions to regional BMD capabilities and operations compare to U S  naval contributions to overseas regional BMD capabilities and operations, particularly in light of constraints on U S  defense spending, worldwide operational demands for U S  Navy Aegis ships, and calls by some U S  observers for increased allied defense efforts  The issue can arise in connection with both U S  allies in Europe and U S  allies in Asia  Regarding U S  allies in Asia, a December 12, 2018, press report states the following: In June, US Navy Chief of Naval Operations (CNO) Admiral John Richardson said during a speech at the US Naval War College that the US Navy should terminate its current practice of dedicating several US Navy warships solely for Ballistic Missile Defense (BMD)  Richardson wanted US warships to halt BMD patrols off Japan and Europe as they are limiting, restrictive missions that could be better accomplished by existing land-based BMD systems such as Patriot anti-missile batteries, the US Terminal High Altitude Area Defense (THAAD) anti-missile system and the Aegis Ashore anti-missile system  In the months since dropping his bombshell, Richardson—and much of the debate—has gone quiet  "My guess is the CNO got snapped back by the Pentagon for exceeding where the debate actually stood," one expert on US naval affairs told Asia Times  But others agree with him  Air Force Lt Gen Samuel A Greaves, the director of the US Missile Defense Agency (MDA), acknowledges Richardson's attempts to highlight how these BMD patrols were placing unwelcome "strain on the (US Navy's) crews and equipment " But there are complications  While it may free US Navy warships for sea-control, rather than land defense, there is a concern that next- generation hypersonic cruise missiles could defeat land-based BMD systems, such as Aegis Ashore, while the US Navy's Aegis-equipped warships offer the advantages of high-speed mobility and stealth, resulting in greater survivability overall  As Japan prepares to acquire its first Aegis Ashore BMD system – and perhaps other systems such as the THAAD system which has been deployed previously in Romania and South Korea – the possibility that the US Navy will end its important BMD role represents abrupt change…  Japan's decision to deploy Aegis Ashore can fill in any gap created by a possible US Navy cessation of BMD patrols  "The land-based option is more reliable, less logistically draining, and despite being horrendously expensive, could be effective in the sense that it provides a degree of reassurance to the Japanese people and US government, and introduces an element of doubt of missile efficacy into [North Korean] calculations," said [Garren Mulloy, Associate Professor of International Relations at Daito Bunka University in Saitama, Japan], adding, however, that these systems could not cover Okinawa  "Fixed sites in Japan could be vulnerable, and the Aegis vessels provide a flexible forward-defense, before anything enters Japanese airspace, but with obviously limited reactions times," Mulloy said  "Aegis Ashore gives more reaction time – but over Japanese airspace "… The silence about this sudden possible shift in the US defense posture in the western Pacific is understandable: it is a sensitive topic in Washington and Tokyo  However, the Trump administration has urged its allies to pay more for their own defense needs and to support US troops deployed overseas  Meanwhile, Tokyo needs to proceed cautiously given the likelihood that neighbors might view a move on BMD as evidence that Tokyo is adopting an increasingly aggressive defense posture in the region  But for them, it is a no-win situation  If the US does ditch the BMD patrol mission, China and North Korea might view the shift as equally menacing given that it greatly enhances the US Navy's maritime warfare capabilities  Another potential issue for Congress is whether to convert the Aegis test facility in Hawaii into an operational land-based Aegis BMD site  DOD's January 2019 missile defense review report states, in a section on improving or adapting existing BMD systems, that Another repurposing option is to operationalize, either temporarily or permanently, the Aegis Ashore Missile Defense Test Center in Kauai, Hawaii, to strengthen the defense of Hawaii against North Korean missile capabilities  DoD will study this possibility to further evaluate it as a viable near-term option to enhance the defense of Hawaii  The United States will augment the defense of Hawaii in order to stay ahead of any possible North Korean missile threat  MDA and the Navy will evaluate the viability of this option and develop an Emergency Activation Plan that would enable the Secretary of Defense to operationalize the Aegis Ashore test site in Kauai within 30 days of the Secretary's decision to do so, the steps that would need to be taken, associated costs, and personnel requirements  This plan will be delivered to USDA&S, USDR&E, and USDP within six months of the release of the MDR  A January 25, 2019, press report states the following: The Defense Department will examine the funding breakdown between the Navy and the Missile Defense Agency should the government make Hawaii's Aegis Ashore Missile Defense Test Center into an operational resource, according to the agency's director  "Today, it involves both Navy resources for the operational crews -- that man that site -- as well as funds that come to MDA for research, development and test production and sustainment," Lt  Gen  Sam Greaves said of the test center when asked how the funding would shake out between the Navy and MDA should the Pentagon move forward with the recommendation  Another potential issue for Congress concerns the potential for ship-based lasers, electromagnetic railguns (EMRGs), and gun-launched guided projectiles (GLGPs, previously known as hypervelocity projectiles [HVPs]) to contribute in coming years to Navy terminal-phase BMD operations and the impact this might eventually have on required numbers of ship-based BMD interceptor missiles  Another CRS report discusses the potential value of ship-based lasers, EMRGs, and GLGPs for performing various missions, including, potentially, terminal-phase BMD operations  Another potential oversight issue for Congress is technical risk and test and evaluation issues in the Aegis BMD program  Regarding this issue, a December 2018 report from DOD's Director, Operational Test and Evaluation (DOT&E)—DOT&E's annual report for FY2018—stated the following in its section on the Aegis BMD program: Assessment • Results from flight testing, high-fidelity M&S, HWIL, and distributed ground testing demonstrate that Aegis BMD can intercept non-separating, simple-separating, and complex-separating ballistic missiles in the midcourse phase  However, flight testing and M&S did not address all expected threat types, ground ranges, and raid sizes  • FTM-45 successfully and fully demonstrated the Aegis BL 9 2 organic engagement capability and corrective action for the previous FTM-29 missile failure  FTM-29 was only partially able to demonstrate EOR capability given the in-flight missile failure  In FTM-29, the Aegis Weapon System supported the SM-3 Block IIA missile and demonstrated bi-directional communication between the SM-3 Block IIA guidance section and the KW until loss of signal at horizon  However, the weapon system did not exercise all aspects of communication after KW eject  DOT&E considers the FTM-29 failure to be an example of a shortfall in conducting ground testing in an operationally representative way, and an example of a deficiency found in OT that DT should have discovered  • The MDA implemented process improvements to better identify, report, and fi x common failures and anomalies identified during SM-3 ground testing prior to flight testing  • SM CTV-03 demonstrated the capability of the Aegis BMD 4 1 upgrade to fi re an SM-6 Dual I missile  The BMD 4 1 build incorporates BL 9 C1 capabilities into the BMD 4 0 baseline  • FS-17 demonstrated the Aegis BMD 4 0 3 capability to interoperate with NATO partners over operational communication architectures during cruise missile and ballistic missile engagements, and to use remote data provided by NATO partners to prosecute remote engagements  JFTM-05 Event 2 demonstrated inter-ship communication between U S  and Japanese destroyers using a realistic communications architecture while prosecuting ballistic missile engagements  Pacific Dragon demonstrated interoperability between U S  Aegis BMD assets, Japanese destroyers, and Republic of Korea naval assets  • Aegis BMD has exercised rudimentary engagement coordination with Terminal High-Altitude Area Defense firing units, but not with Patriot  The MDA plans to include Patriot in FTO-03  MDA ground tests have routinely demonstrated that inter-element coordination and interoperability need improvement to increase situational awareness and improve engagement efficiency  • The MDA has been collaborating with DOT&E and the Under Secretary of Defense (Research and Engineering) to establish an affordable ground testing approach to support assessments of reliability  DOT&E cannot assess SM-3 missile reliability with confidence until the MDA is able to provide additional ground test data that simulates the in-flight environment  DOT&E is working with the MDA to determine if existing ground test venues are able to provide the needed missile reliability data  Recommendations The MDA should: 1  Ensure that ground tests of all SM-3 missile components, sections, and all-up rounds use the same configuration as will be flown in flight tests (i e , "test as you fly")  2  Determine how to properly score acceptance ground test data for production missiles to enable their use in estimating SM-3 reliability  3  Fund and execute high-fidelity M&S RFRs for Aegis BL 9 2 SM-3 Block IIA and SM-6 Dual II scenarios that span the engagement battlespace  Regarding the SM-6 missile, the January 2018 DOT&E report also stated the following: Assessment • As reported in the DOT&E FY18 SM-6 BLK I FOT&E Report, the SM-6 remains effective and suitable with the exception of the classified deficiency identified in the FY13 IOT&E Report  The SM-6 Block 1 satisfactorily demonstrated compatibility with Aegis Weapon System Baseline 9 Integrated Fire Control capability  • In FY17-18, the Navy developed and tested specific software improvements to SM-6 BLK I to mitigate the classified performance problems discovered during IOT&E  As previously reported, testing conducted by the Navy demonstrated the software improvements perform as intended, but did not eliminate them  Recommendation 1  The Navy should continue to improve software based on IOT&E results and verify corrective actions with flight tests  Table 2 summarizes congressional action on the FY2020 request for MDA procurement and research and development funding for the Aegis BMD program  Appendix A  Aegis BMD Flight Tests Table A-1 presents a summary of Aegis BMD flight tests since January 2002  As shown in the table, since January 2002, the Aegis BMD system has achieved 33 successful exo-atmospheric intercepts in 42 attempts using the SM-3 missile (including 4 successful intercepts in 5 attempts by Japanese Aegis ships, and 2 successful intercepts in 3 attempts attempt using the Aegis Ashore system), and 7 successful endo-atmospheric intercepts in 7 attempts using the SM-2 Block IV and SM-6 missiles, making for a combined total of 40 successful intercepts in 49 attempts  In addition, on February 20, 2008, a BMD-capable Aegis cruiser operating northwest of Hawaii used a modified version of the Aegis BMD system with the SM-3 missile to shoot down an inoperable U S  surveillance satellite that was in a deteriorating orbit  Including this intercept in the count increases the totals to 34 successful exo-atmospheric intercepts in 43 attempts using the SM-3 missile, and 41 successful exo- and endo-atmospheric intercepts in 50 attempts using SM-3, SM-2 Block IV, and SM-6 missiles 

ground_truth: The use of IT is crucial to helping VA effectively serve the nation's veterans and, each year, the department spends billions of dollars on its information systems and assets. However, VA has faced challenges spanning a number of critical initiatives related to modernizing its major systems. To improve all major federal agencies' acquisitions and hold them accountable for reducing duplication and achieving cost savings, in December 2014 Congress enacted federal IT acquisition reform legislation (commonly referred to as the Federal Information Technology Acquisition Reform Act , or FITARA). GAO was asked to summarize its previous and ongoing work regarding VA's history of efforts to modernize VistA, including past use of contractors, and the department's recent effort to acquire a commercial electronic health record system to replace VistA. GAO was also asked to provide an update on VA's progress in key FITARA-related areas, including (1) data center consolidation and optimization, (2) incremental system development practices, and (3) software license management. VA generally agreed with the information upon which this statement is based. For nearly two decades, the Department of Veterans Affairs (VA) has undertaken multiple efforts to modernize its health information system—the Veterans Health Information Systems and Technology Architecture (known as VistA). Two of VA's most recent efforts included the Integrated Electronic Health Record (iEHR) program, a joint program with the Department of Defense (DOD) intended to replace separate systems used by VA and DOD with a single system; and the VistA Evolution program, which was to modernize VistA with additional capabilities and a better interface for all users. VA has relied extensively on assistance from contractors for these efforts. VA obligated over $1.1 billion for contracts with 138 contractors during fiscal years 2011 through 2016 for iEHR and VistA Evolution. Contract data showed that the 15 key contractors that worked on both programs accounted for $741 million of the funding obligated for system development, project management, and operations and maintenance to support the two programs (see figure). VA recently announced that it intends to change its VistA modernization approach and acquire the same electronic health record system that DOD is implementing. With respect to key FITARA-related areas, the department has reported progress on consolidating and optimizing its data centers, although this progress has fallen short of targets set by the Office of Management and Budget. VA has also reported $23.61 million in data center-related cost savings, yet does not expect to realize further savings from additional closures. In addition, VA's Chief Information Officer (CIO) certified the use of adequate incremental development for 10 of the department's major IT investments; however, VA has not yet updated its policy and process for CIO certification as GAO recommended. Finally, VA has issued a software licensing policy and has generated an inventory of its software licenses to inform future investment decisions. GAO has made multiple recommendations to VA aimed at improving the department's IT management. VA has generally agreed with the recommendations and begun taking responsive actions.