Testimony before the Committee on 

Health, Education, Labor, and Pensions, 

U.S. Senate

United States Government Accountability Office

GAO

For Release on Delivery 

Expected at 10:00 a.m. EDT 

Thursday, June 9, 2005 EMPLOYEE BENEFITS 

SECURITY 

ADMINISTRATION 

Improvements Have Been 

Made to Pension 

Enforcement Program but 

Significant Challenges 

Remain 

Statement of Barbara D. Bovbjerg 

Director, Education, Workforce, and Income Security Issues 

GAO-05-784T 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

www.gao.gov/cgi-bin/getrpt?GAO-05-784T.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact Barbara 

Bovbjerg at (202) 512-7215 or 

bovbjergb@gao.gov. 

Highlights of GAO-05-784T, a testimony 

before the Committee on Health, 

Education, Labor, and Pensions, U.S. 

Senate 

June 9, 2005

EMPLOYEE BENEFITS SECURITY 

ADMINISTRATION 

Improvements Have Been Made to 

Pension Enforcement Program but 

Significant Challenges Remain 

EBSA’s enforcement strategy is a multifaceted approach of targeted plan 

investigations. To leverage its enforcement resources, EBSA provides 

education to plan participants and plan sponsors. EBSA allows its regional 

offices the flexibility to tailor their investigations to address the unique 

issues in the regions, within a framework established by EBSA’s Office of 

Enforcement. The regional offices then have a significant degree of 

autonomy in developing and carrying out investigations using a mixture of 

approaches and techniques they deem most appropriate. Participant leads 

are still the major source of investigations. EBSA officials told us that they 

open about 4,000 investigations into actual and potential violations of ERISA 

annually. To supplement their investigations, the regions conduct outreach 

activities to educate both plan participants and sponsors. The purpose of 

these efforts is to gain participants’ help in identifying potential violations 

and to educate sponsors in properly managing their plans and avoiding 

violations. Finally, EBSA maintains a Voluntary Fiduciary Correction 

Program through which plan officials can voluntarily report and correct 

some violations without penalty. 

EBSA has taken steps to address many of the recommendations we have 

made over the years to improve its enforcement program, including 

assessing the level and types of noncompliance with ERISA, improving 

sharing of best investigative practices, and developing a human capital 

strategy to better respond changes in its workforce. EBSA reported a 

significant increase in enforcement results for fiscal year 2004, including $3.1 

billion in total monetary results and closing about 4,400 investigations, with 

nearly 70 percent of those cases resulting in corrections of ERISA violations. 

Despite this progress, EBSA continues to face a number of significant 

challenges to its enforcement program, including (1) the lack of timely and 

reliable plan information, which is highlighted by the fact that EBSA is 

currently using plan year 2002 and 2003 plan information for its computer 

targeting, (2) restrictive statutory requirements that limit its ability to assess 

certain penalties, and (3) the need to better coordinate enforcement 

strategies with the Securities and Exchange Commission, which is 

highlighted by recent scandals involving the trading practices and market 

timing in mutual funds and conflicts of interest by pension consultants. 

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

Congress passed the Employee 

Retirement Income Security Act of 

1974 (ERISA) to address public 

concerns over the mismanagement 

and abuse of private sector 

employee benefit plans by some 

plan sponsors and administrators. 

The Department of Labor’s 

Employee Benefits Security 

Administration (EBSA) shares 

responsibility with the Internal 

Revenue Service and the Pension 

Benefit Guaranty Corporation for 

enforcing ERISA. EBSA works to 

safeguard the economic interest of 

more than 150 million people who 

participate in an estimated 6 

million employee benefit plans with 

assets in excess of $4.4 trillion. 

EBSA plays a primary role in 

ensuring that employee benefit 

plans operate in the interests of 

plan participants, and the effective 

management of its enforcement 

program is pivotal to ensuring the 

economic security of workers and 

retirees. 

Recent scandals involving abuses 

by pension plan fiduciaries and 

service providers, as well as trading 

scandals in mutual funds that 

affected plan participants and other 

investors, highlight the importance 

of ensuring that EBSA has an 

effective and efficient enforcement 

program. Accordingly, this 

testimony focuses on describing 

EBSA’s enforcement strategy, 

EBSA’s efforts to address 

weaknesses in its enforcement 

program along with the challenges 

that remain. 
Page 1 GAO-05-784T 

Mr. Chairman and Members of the Committee: 

I am pleased to be here today to provide an overview of our past work 

reviewing the Department of Labor’s Employee Benefits Security 

Administration (EBSA) enforcement program. EBSA works to safeguard 

the economic interest of more than 150 million people who participate in 

an estimated 6 million employee benefit plans with assets in excess of $4.4 

trillion. EBSA plays a primary role in ensuring that employee benefit plans 

operate in the interests of plan participants, and the effective management 

of its enforcement program is pivotal to ensuring the economic security of 

workers and retirees. 

Congress passed the Employee Retirement Income Security Act of 1974 

(ERISA) to address public concerns over the mismanagement and abuse 

of private sector employee benefit plans by some plan sponsors and 

administrators. ERISA is designed to protect the rights and interests of 

participants and beneficiaries of employee benefit plans and outlines the 

responsibilities of the employers and administrators who sponsor and 

manage these plans. The recent bankruptcies of some large corporations 

and the effects on employees’ retirement savings and the federal pension 

insurance program expose certain vulnerabilities in our private pension 

system. Such problems point out the need for comprehensive pension 

reform. Also, recent scandals involving abuses by pension plan fiduciaries 

and service providers, as well as trading scandals in mutual funds that 

affected plan participants and other investors highlight the importance of 

ensuring that EBSA has an effective and efficient enforcement program. 

Today, I would like to discuss the evolution of EBSA’s enforcement 

program and the challenges that remain. GAO has conducted several 

studies of ERISA enforcement issues, and my statement is largely based on 

that work. 

In summary, EBSA’s enforcement strategy is a multifaceted approach of 

targeted plan investigations supplemented by outreach and education. To 

leverage its enforcement resources to prevent and detect violations and 

promote overall compliance with ERISA, EBSA provides education to plan 

participants and sponsors and allows the voluntary self-correction of 

certain transactions without penalty. EBSA’s education program for plan 

participants aims to increase their knowledge of their rights and benefits 

under ERISA. EBSA has taken steps to address many of the 

recommendations we have made over a number of years to improve its 

enforcement program, including assessing the level and types of 

noncompliance with ERISA, improving sharing of best investigative 
Page 2 GAO-05-784T 

practices, analyzing the sources of cases, and developing a human capital 

strategy to better respond changes in its workforce. EBSA reported a 

significant increase in enforcement results for fiscal year 2004, including 

$3.1 billion in total monetary results and closing nearly 4,400 

investigations, with nearly 70 percent of those cases resulting in 

corrections of ERISA violations. Despite this progress, EBSA continues to 

face a number of significant challenges to its enforcement program. Such 

challenges include lack of timely and reliable plan information, restrictive 

statutory requirements that limit its ability to assess certain penalties, and 

the need to better coordinate enforcement strategies with the Securities 

and Exchange Commission. As we have previously reported, legislative 

changes will be required to address some of these issues. Furthermore, the 

Congress should consider providing EBSA with additional enforcement 

tools, such as enhanced penalty authority, to meet these challenges. 

Finally, EBSA needs to continue to look for ways to better target 

investigations to leverage its limited resources. 

Three agencies share responsibility for enforcing ERISA: the Department 

of Labor (EBSA), the Department of the Treasury’s Internal Revenue 

Service (IRS), and the Pension Benefit Guaranty Corporation (PBGC). 

EBSA enforces fiduciary standards for plan fiduciaries of privately 

sponsored employee benefit plans to ensure that plans are operated in the 

best interests of plan participants. EBSA also enforces reporting and 

disclosure requirements covering the type and extent of information 

provided to the federal government and plan participants, and seeks to 

ensure that specific transactions prohibited by ERISA are not conducted 

by plans.1

 Under Title I of ERISA, EBSA conducts investigations of plans 

and seeks appropriate remedies to correct violations of the law, including 

litigation when necessary.2

 IRS enforces the Internal Revenue Code (IRC) 

and provisions that must be met which give pension plans tax-qualified 

status, including participation, vesting, and funding requirements. The IRS 

also audits plans to ensure compliance and can levy tax penalties or 

revoke the tax-qualified status of a plan as appropriate. PBGC, under Title 

 1

 Certain transactions are prohibited under the law to prevent dealings with parties who 

may be in a position to exercise improper influence over the plan. In addition, fiduciaries 

are prohibited from engaging in self-dealing and must avoid conflicts of interest that could 

harm the plan. 

2

Prior to 1979, there was overlapping responsibility for administration of the parallel 

provisions of Title I of ERISA and the Internal Revenue Code (IRC) by the Department of 

Labor and IRS, respectively. 

Background 
Page 3 GAO-05-784T 

IV of ERISA, provides insurance for participants and beneficiaries of 

certain types of tax-qualified pension plans, called defined benefit plans, 

that terminate with insufficient assets to pay promised benefits. Recent 

terminations of large, underfunded plans have threatened the long-term 

solvency of PBGC. As a result, we placed PBGC’s single-employer 

insurance program on our high-risk list of programs needing further 

attention and congressional action.3

ERISA and the IRC require plan administrators to file annual reports 

concerning, among other things, the financial condition and operation of 

plans. EBSA, IRS, and PBGC jointly developed the Form 5500 so that plan 

administrators can satisfy this annual reporting requirement. Additionally, 

ERISA and the IRC provide for the assessment or imposition of penalties 

for plan sponsors not submitting the required information when due. 

About one-fifth of Americans’ retirement wealth is invested in mutual 

funds, which are regulated by the Securities and Exchange Commission 

(SEC), primarily under the Investment Company Act of 1940. The primary 

mission of the SEC is to protect investors, including pension plan 

participants investing in securities markets, and maintain the integrity of 

the securities markets through extensive disclosure, enforcement, and 

education. In addition, some pension plans use investment managers to 

oversee plan assets, and these managers may be subject to other securities 

laws. 

EBSA’s enforcement strategy is a multifaceted approach of targeted plan 

investigations supplemented by providing education to plan participants 

and plan sponsors. EBSA allows its regions the flexibility to tailor their 

investigations to address the unique issues in their regions, within a 

framework established by EBSA’s Office of Enforcement. The regional 

offices then have a significant degree of autonomy in developing and 

carrying out investigations using a mixture of approaches and techniques 

they deem most appropriate. Participant leads are still the major source of 

investigations. To supplement their investigations, the regions conduct 

outreach activities to educate both plan participants and sponsors. The 

purpose of these efforts is to gain participants’ help in identifying potential 

 3

See GAO, Pension Benefit Guaranty Corporation Single-Employer Program: Long-Term 

Vulnerabilities Warrant High-Risk Designation, GAO-03-1050SP (Washington, D.C.: Jul. 

23, 2003). 

EBSA Uses a 

Multifaceted 

Enforcement Strategy 
Page 4 GAO-05-784T 

violations and to educate sponsors in properly managing their plans and 

avoiding violations. The regions also process applications for the 

Voluntary Fiduciary Correction Program (VFCP) through which plan 

officials can voluntarily report and correct some violations without 

penalty. 

EBSA attempts to maximize the effectiveness of its enforcement efforts to 

detect and correct ERISA violations by targeting specific cases for review. 

In doing so, the Office of Enforcement provides assistance to the regional 

offices in the form of broad program policy guidance, program oversight, 

and technical support. The regional offices then focus their investigative 

workloads to address the needs specific to their region. Investigative staff 

also have some responsibility for selecting cases. 

The Office of Enforcement identifies national priorities—areas critical to 

the well-being of employee benefit plan participants and beneficiaries 

nationwide—in which all regions must target a portion of their 

investigative efforts. Currently, EBSA’s national priorities involve, among 

other things, investigating defined contribution pension plan and health 

plan fraud. Officials in the Office of Enforcement said that national 

priorities are periodically re-evaluated and are changed to reflect trends in 

the area of pensions and other benefits. 

On the basis of its national investigative priorities, the Office of 

Enforcement has established a number of national projects. Currently, 

there are five national projects pertaining to a variety of issues including 

employee contributions to defined contribution plans, employee stock 

ownership plans (ESOP), and health plan fraud. EBSA’s increasing 

emphasis on defined contribution pension plans reflects the rapid growth 

of this segment of the pension plan universe. In fiscal year 2004, EBSA had 

monetary results of over $31 million and obtained 10 criminal indictments 

under its employee contributions project. EBSA’s most recent national 

enforcement project involves investigating violations pertaining to ESOPs, 

such as the incorrect valuation of employer securities and the failure to 

provide participants with the specific benefits required or allowed under 

ESOPs, such as voting rights, the ability to diversify their account balances 

EBSA Enforces ERISA 

Primarily Through 

Targeted Investigations 
Page 5 GAO-05-784T 

at certain times, and the right to sell their shares of stock.4 Likewise, more 

attention is being given to health plan fraud, such as fraudulent multiple 

employer welfare arrangements (MEWAs).5

 In this instance, EBSA’s 

emphasis is on abusive and fraudulent MEWAs created by promoters that 

attempt to evade state insurance regulations and sell the promise of 

inexpensive health benefit insurance but typically default on their benefit 

obligations.6

EBSA regional offices determine the focus of their investigative workloads 

based on their evaluation of the employee benefit plans in their 

jurisdiction and guidance from the Office of Enforcement. For example, 

each region is expected to conduct investigations that cover their entire 

geographic jurisdiction and attain a balance among the different types and 

sizes of plans investigated. In addition, each regional office is expected to 

dedicate some percentage of its staff resources to national and to regional 

projects—those developed within their own region that focus on local 

concerns. In developing regional projects, each regional office uses its 

knowledge of the unique activities and types of plans in its jurisdiction. 

For example, a region that has a heavy banking industry concentration 

may develop a project aimed at a particular type of transaction commonly 

performed by banks. We previously reported that the regional offices 

spend an average of about 40 percent of their investigative time 

conducting investigations in support of national projects and almost 25 

percentage of their investigative time on regional projects. 

 4

In 2002, we reported that the financial collapse of the Enron Corporation and other large 

firms and the effects on workers and retirees had raised questions about retirement funds 

being invested in employer securities and the laws governing such investments. We 

recommended that the Congress consider amending ERISA to require plan sponsors to 

provide defined contribution plan participants with an investment education notice that 

includes information on the risks of certain investments such as employer securities and 

the benefits of diversification. See GAO, Private Pensions: Participants Need Information 

on the Risks of Investing in Employer Securities and the Benefits of Diversification, 

GAO-02-943 (Washington, DC: Sept. 6, 2002).

5

A MEWA is a welfare benefit plan or any other arrangement (other than an employee 

welfare benefit plan), which is established or maintained for the purpose of offering or 

providing a welfare benefit to employees of two or more employers. Typically, such 

arrangements often involve small employers that are either unable to find or cannot afford 

the cost of health care coverage for their employees. 

6

 See GAO, Employee Benefits: States Need Labor’s Help Regulating Multiple Employer 

Welfare Arrangements, GAO/HRD-92-40 (Washington, D.C.: Mar. 10, 1992). 
Page 6 GAO-05-784T 

EBSA officials said that their most effective source of leads on violations 

of ERISA is from complaints from plan participants. Case openings also 

originate from news articles or other publications on a particular industry 

or company as well as tips from colleagues in other enforcement agencies. 

Computer searches and targeting of Form 5500 information on specific 

types of plans account for only 25 percent of case openings. In 1994, we 

reported that EBSA had done little to test the effectiveness of the 

computerized targeting runs it was using to select cases. Since then, EBSA 

has scaled down both the number of computerized runs available to staff 

and its reliance on these runs as a means of selecting cases.7

 Investigative 

staff are also responsible for identifying a portion of their cases on their 

own to complete their workloads and address other potentially vulnerable 

areas. 

As shown in figure 1, EBSA’s investigative process generally follows a 

pattern of selecting, developing, resolving, and reviewing cases. EBSA 

officials told us that they open about 4,000 investigations into actual and 

potential violations of ERISA annually. According to EBSA, its primary 

goal in resolving a case is to ensure that a plan’s assets, and therefore its 

participants and beneficiaries, are protected. EBSA’s decision to litigate a 

case is made jointly with the Department of Labor’s Regional Solicitors’ 

Offices. Although EBSA settles most cases without going to court, both the 

agency and the Solicitor’s Office recognize the need to litigate some cases 

for their deterrent effect on other providers. 

 7

See GAO, Pension Plans: Stronger Labor ERISA Enforcement Should Better Protect Plan 

Participants, GAO/HEHS-94-157 (Washington, D.C.: August 8, 1994).
Page 7 GAO-05-784T 

Figure 1: Overview of EBSA’s Investigative Process 

Source: GAO analysis. 
Page 8 GAO-05-784T 

As part of its enforcement program, EBSA also detects and investigates 

criminal violations of ERISA. From fiscal years 2000 through 2004, 

criminal investigations resulted in an average of 54 cases closed with 

convictions or guilty pleas annually. Part of EBSA’s enforcement strategy 

includes routinely publicizing the results of its litigation efforts in both the 

civil and criminal areas as a deterrent factor. 

To further leverage its enforcement resources, EBSA provides education 

to plan participants, sponsors, and service providers and allows the 

voluntary self-correction of certain transactions without penalty. EBSA’s 

education program for plan participants aims to increase their knowledge 

of their rights and benefits under ERISA. For example, EBSA anticipates 

that educating participants will establish an environment in which 

individuals can help protect their own benefits by recognizing potential 

problems and notifying EBSA when issues arise. The agency also conducts 

outreach to plan sponsors and service providers about their ongoing 

fiduciary responsibilities and obligations under ERISA. 

At the national level, EBSA’s Office of Participant Assistance develops, 

implements, and evaluates agency-wide participant assistance and 

outreach programs. It also provides policies and guidance to other EBSA 

national and regional offices involved in outreach activities. EBSA’s 

nationwide education campaigns include a fiduciary education campaign, 

launched in May 2004, to educate plan sponsors and service providers 

about their fiduciary responsibilities under ERISA. This campaign also 

includes educational material on understanding fees and selecting an 

auditor. 

EBSA’s regional offices also assist in implementing national education 

initiatives and conduct their own outreach to address local concerns. The 

regional offices’ benefit advisers provide written and telephone responses 

to participants. Benefit advisers and investigative staff also speak at 

conferences and seminars sponsored by trade and professional groups and 

participate in outreach and educational efforts in conjunction with other 

federal or state agencies. At the national level, several EBSA offices direct 

specialized outreach activities. As with EBSA’s participant-directed 

outreach activities, its efforts to educate plan sponsors and service 

providers also rely upon Office of Enforcement staff and the regional 

offices for implementation. For example, these staff make presentations to 

employer groups and service provider organizations about their ERISA 

obligations and any new requirements under the law, such as reporting 

and disclosure provisions. 

EBSA Uses Education, 

Outreach, and a Voluntary 

Fiduciary Correction 

Program to Supplement Its 

Investigations 
Page 9 GAO-05-784T 

To supplement its investigative programs, EBSA is promoting the selfdisclosure and self-correction of possible ERISA violations by plan 

officials through its Voluntary Fiduciary Correction Program.8

 The purpose 

of the VFCP is to protect the financial security of workers by encouraging 

plan officials to identify and correct ERISA violations on their own. 

Specifically, the VFCP allows plan officials to identify and correct 18 

transactions, such as delinquent participant contributions and participant 

loan repayments to pension plans. Under the VFCP, plan officials follow a 

process whereby they (1) correct the violation using EBSA’s written 

guidance; (2) restore any losses or profits to the plan; (3) notify 

participants and beneficiaries of the correction; and (4) file a VFCP 

application, which includes evidence of the corrected transaction, with the 

EBSA regional office in whose jurisdiction it resides. If the regional office 

determines that the plan has met the program’s terms, it will issue a “no 

action” letter to the applicant and will not initiate a civil investigation of 

the violation, which could have resulted in a penalty being assessed 

against the plan. 

EBSA has taken steps to address many of the recommendations we have 

made over a number of years to improve its enforcement program, 

including assessing the level and types of noncompliance with ERISA, 

improving sharing of best investigative practices, and developing a human 

capital strategy to better respond changes in its workforce. EBSA reported 

a significant increase in enforcement results for fiscal year 2004, including 

$3.1 billion in total monetary results and closing nearly 4,400 

investigations, with nearly 70 percent of those cases resulting in 

corrections of ERISA violations. Despite this progress, EBSA continues to 

face a number of significant challenges to its enforcement program, 

including the lack of timely and reliable plan information, restrictive 

statutory requirements that limit its ability to assess certain penalties, and 

the need to better coordinate enforcement strategies with the SEC. 

EBSA has taken a number of steps, including addressing 

recommendations from our prior reports that have improved its 

enforcement efforts across a number of areas. For example, EBSA has 

continued to refine its enforcement strategy to meet changing priorities 

 8

In April 2005, the Department of labor published in the Federal Register a revised VFCP 

that according to EBSA, simplified and expanded the original program. 

EBSA Has Taken 

Steps to Address 

Weaknesses in Its 

Enforcement 

Program, but 

Significant Challenges 

Remain 

EBSA Has Made Progress 

in Improving Its 

Enforcement Program 
Page 10 GAO-05-784T 

and provided additional flexibility to its regional office to target areas of 

investigations. More recently, EBSA implemented a series of 

recommendations from our 2002 enforcement report that helped it 

strategically manage its enforcement program, including conducting 

studies to determine the level of and type of noncompliance with ERISA 

and developing a Human Capital Strategic Management Plan (see table 1). 9

 9

 See GAO, Pension and Welfare Benefits Administration: Opportunities Exist for 

Improving Management of the Enforcement Program, GAO-02-232 (Washington, DC:

March 15, 2002). 
Page 11 GAO-05-784T 

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

GAO Observation GAO Recommendation to EBSA Examples of EBSA Actions 

EBSA had not adequately estimated the 

nature of employee benefit plans’ 

noncompliance with ERISA provisions. 

Develop a cost-effective strategy for 

assessing the level and type of ERISA 

noncompliance among employee benefit 

plans. 

In fiscal year 2001 conducted national 

compliance study of group health plans’ 

compliance with new health care laws in ERISA. 

In 2003 conducted compliance study focusing on 

large multiemployer health plans. 

Currently conducting baseline study to determine 

the level of compliance with ERISA requirements 

on timely transmission of employee contributions 

to pension plans. 

EBSA had not routinely analyzed the full 

range of cases investigated to determine 

which sources were the most effective in 

terms of detecting and correcting 

violations. 

Conduct regular reviews of the sources 

of cases that lead to investigations. 

Conducted analysis on cases closed in fiscal 

years 2001, 2002, and 2003. 

Agreed to perform reviews of the sources of 

cases that lead to investigations on an annual 

basis as long as resources permit. 

EBSA did not coordinate the sharing of 

best practices information among its 

regions regarding case selection and 

investigative techniques. 

Coordinate the sharing of best practices 

information among regions relating to 

the optimum and most productive 

techniques for selecting and conducting 

investigations. 

Established a Best Practices Sharing Team 

composed of enforcement staff and regional 

representatives. 

Developed an intranet site to allow EBSA 

investigators to share best practices, such as 

investigative plans, subpoenas, letters, and 

investigative guides. 

EBSA lacked a centrally coordinated 

quality review process to ensure that its 

investigations are conducted in 

accordance with its investigative 

procedures. 

Develop a closed case quality review 

process that ensures the independence 

of reviewers and sufficiently focuses on 

substantive technical case issues. 

In fiscal year 2003, an EBSA team composed of 

Office of Enforcement and field managers 

developed a closed case quality review program 

that focuses on substantive technical issues and 

is reported centrally. The program also includes 

procedures to ensure the independence of the 

case reviewer. 

Certain requirements, such as notifying 

plan participants of potential violations 

and levying excise taxes on prohibited 

transactions, may hinder participation in 

the VFCP. 

Analyze barriers to participation in the 

VFCP and explore ways to reduce them.

EBSA modified key features of the program, 

eliminating notice requirements to participants, 

and provided a limited excise tax exemption for 

those who participate in the program. 

EBSA gave limited attention to human 

capital management despite anticipated 

workforce and enforcement workload 

changes. For example, the agency had 

not considered succession planning and 

workforce retention, which could 

undermine the continuity and 

effectiveness of its enforcement 

program. 

Conduct a comprehensive review of its 

future human capital needs, including 

the size of its workforce; the skills and 

abilities needed; succession planning 

challenges; and staff deployment issues.

EBSA conducted an employee workforce 

analysis and an employee training needs 

assessment. In 2003, EBSA issued its Human 

Capital Strategic Management Plan. The plan 

identified strategies that address current and 

project skills shortages, anticipated future staffing 

needs, competency requirements to ensure that 

employees possess or acquire the critical skills 

needed to accomplish program mission and 

functions, and the recognition and reward of 

quality performance. 

Source: GAO summary and analysis of EBSA documents. 
Page 12 GAO-05-784T 

EBSA has reported a substantial increase in results from its enforcement 

efforts since our last review. For fiscal year 2004, EBSA closed 4,399 civil 

investigations and reported $3.1 billion in total results, including $2.53 

billion in prohibited transactions corrected and plan assets protected, up 

from $566 million in fiscal year 2002. Likewise, the percentage of civil 

investigations closed with results rose from 58 percent to 69 percent. Also, 

applications received for the VFCP increased from 55 in fiscal year 2002 to 

474 in 2004. EBSA has been able to achieve such results with relatively 

small recent increases in staff. Full-time equivalent (FTE) authorized staff 

levels increased from 850 in fiscal year 2001 to 887 FTEs in fiscal year 

2005. The President’s budget for fiscal year 2006 requests no additional 

FTEs. 

Previously, we and others have reported that ERISA enforcement was 

hindered by incomplete, inaccurate, and untimely plan data.10 We recently 

reported that the lack of timely and complete of Form 5500 data affects 

EBSA’s use of the information for enforcement purposes, such as 

computer targeting and identifying troubled plans.11 EBSA uses Form 5500 

information as a compliance tool to identify actual and potential violations 

of ERISA. Although EBSA has access to Form 5500 information sooner 

than the general public, the agency is affected by the statutory filing 

deadlines, which can be up to 285 days after plan year end, and long 

processing times for paper filings submitted to the ERISA Filing 

Acceptance System. EBSA receives processed Form 5500 information on 

individual filings on a regular basis once a form is completely processed. 

However, agency officials told us that as they still have to wait for a 

sufficiently complete universe of plan filings from any given plan year to 

be processed in order to begin their compliance targeting programs. As a 

result, EBSA officials told us that they are currently using plan year 2002 

and 2003 Form 5500 information for computer targeting. They also said 

that in some cases untimely Form 5500 information affects their ability to 

identify financially troubled plans whose sponsors may be on the verge of 

going out of business and abandoning their pension plans, because these 

 10See, GAO, Employee Benefit Plans: Efforts to Streamline Reporting Requirements and 

Improve Processing of Annual Plan Data, GAO/HEHS-98-45R (Washington, DC: Nov. 14, 

1997).

11See GAO, Private Pensions: Government Actions Could Improve the Timeliness and 

Content of Form 5500 Pension Information, GAO-05-491 (Washington, DC: June 3, 2005).

Untimely and Incomplete 

Plan Information 

Continues to Hinder 

Enforcement Efforts 
Page 13 GAO-05-784T 

plans may no longer exist by the time that Labor receives the processed 

filing or is able to determine that no Form 5500 was filed by those 

sponsors. 

The Form 5500 also lacks key information that could better assist EBSA, 

IRS, and PBGC in monitoring plans and ensuring that they are in 

compliance with ERISA. EBSA, IRS and PBGC officials said that they have 

experienced difficulties when relying on Form 5500 information to identify 

and track all plans across years. Although EBSA has a process in place to 

identify and track plans filing a Form 5500 from year to year, problems still 

arise when plans change employer identification numbers (EIN) and/or 

plan numbers. Identifying plans is further complicated when plan sponsors 

are acquired, sold, or merged. In these cases, agency officials said that 

there is an increased possibility of mismatching of EINs, plans, and their 

identifying information. As result, EBSA officials said they are unable to 

(1) verify if all required employers are meeting the statutory requirement 

to file a Form 5500 annually, (2) identity all late filers, and (3) assess and 

collect penalties from all plans that fail to file or are late. Likewise, PBGC 

officials said that must spend additional time each year trying to identify 

and track certain defined benefit plans so that they can conduct 

compliance and research activities. EBSA officials said they are 

considering measures to better track and identify plans but have not 

reached any conclusions. Our recent report makes a number of 

recommendations aimed at improving the timeliness and content of Form 

5500 that will likely assist EBSA’s enforcement efforts.12

In addition to problems with Form 5500 information, concerns remain 

about the quality of annual audits of plans’ financial statements by 

independent public accountants. For many years, we, as well as the 

Department of Labor’s Office of Inspector General (OIG), have reported 

that a significant number of these audits have not met ERISA 

requirements. For example, in 1992 we found that over a third of the 25 

plan audits we reviewed had audit weaknesses so serious that their 

reliability and usefulness were questionable. We recommended that the 

Congress amend ERISA to require full-scope audits of employee benefit 

plans and to require plan administrators and independent public 

accountants to report on how effective an employee benefit plan’s internal 

 12 See GAO-05-491. 
Page 14 GAO-05-784T 

controls are in protecting plan assets.13 Although such changes were 

subsequently proposed, they were not enacted. In 2004, Labor’s OIG 

reported that although EBSA had reviewed a significant number of 

employee benefit plan audits and made efforts to correct substandard 

audits, a significant number of substandard audits remain uncorrected. 

Furthermore, plan auditors performing substandard work generally 

continue to audit employee benefit plans without being required to 

improve the quality of the audits.14 As a result, these audits have not 

provided participants and beneficiaries the protections envisioned by 

Congress. Labor’s OIG recommended, among other things, that EBSA 

propose changes to ERISA so that EBSA has greater enforcement 

authority over employee benefit plan auditors. 

As we have previously reported, restrictive legal requirements have limited 

EBSA’s ability to assess penalties against fiduciaries or other persons who 

knowingly participate in a fiduciary breach.15 Unlike the SEC, which has 

the authority to impose a penalty without first assessing and then securing 

monetary damages, EBSA does not have such statutory authority and must 

assess penalties based on damages or, more specifically, the restoration of 

plan assets.16 Under Section 502(l), ERISA provides for a mandatory 

penalty against (1) a fiduciary who breaches a fiduciary duty under, or 

commits a violation of, Part 4 of Title I of ERISA or (2) against any other 

person who knowingly participates in such a breach or violation. This 

penalty is equal to 20 percent of the “applicable recovery amount,” or any 

settlement agreed upon by the Secretary or ordered by a court to be paid 

in a judicial proceeding instituted by the Secretary. However, the 

applicable recovery amount cannot be determined if damages have not 

been valued. This penalty can be assessed only against fiduciaries or 

 13Under ERISA, investments held by certain regulated institutions, such as banks and 

insurance companies, may be excluded from the scope of a plan audit. The resulting lack of 

audit work can result in an auditor disclaiming an opinion on the plan’s financial 

statements. See GAO, Employee Benefits: Improved Plan Reporting and CPA Audits Can 

Increase Protection under ERISA, GAO/AFMD-92-14 (Washington, D.C.: April 9, 1992) and 

Employee Benefits: Limited Scope Audit Exemption Should Be Repealed, 

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

14See U.S. Department of Labor Office of Inspector General–Office of Audit, EBSA Needs 

Additional Authority to Improve the Quality of Employee Benefit Plan Audits. 

(Washington, D.C.: Sept. 30, 2004). 

15See GAO/HEHS-94-157. 

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

sanctions. 

Restrictive Statutory 

Requirements Limit 

Assessment of Fiduciary 

Penalties 
Page 15 GAO-05-784T 

knowing participants in a breach who, by court order or settlement 

agreement, restore plan assets. Therefore, if (1) there is no settlement 

agreement or court order or (2) someone other than a fiduciary or 

knowing participant returns plan assets, the penalty may not be assessed. 

For example, last year we reported that ERISA presented legal challenges 

when developing cases related to proxy voting by plan fiduciaries, 

particularly with regards to valuing monetary damages. 17 As a result, 

because EBSA has never found a violation that resulted in monetary 

damages, it has never assessed a penalty or removed a fiduciary because 

of a proxy voting investigation. Given the restrictive legal requirements 

that have limited the use of penalties for violations of ERISA’s fiduciary 

requirements, we recommended that Congress consider amending ERISA 

to give the Secretary of Labor additional authority with respect to 

assessing monetary penalties against fiduciaries. We also recommended 

other changes to ERISA to better protect plan participants and increase 

the transparency of proxy voting practices by plan fiduciaries. 

Recent events such as the abusive trading practices of late trading and 

market timing in mutual funds and new revelations of conflicts of interest 

by pension consultants highlight the need for EBSA to better coordinate 

enforcement strategies with SEC. Last year we reported that SEC and 

EBSA had separately taken steps to address abusive trading practices in 

mutual funds.18 At the time we issued our report, SEC had taken a number 

of actions to address the abuses including: 

• charging some fund companies with defrauding investors by not 

enforcing their stated policies on market timing, 

• fining some institutions hundreds of millions of dollars (some of this 

money was to be returned to long-term shareholders who lost money 

due to abusive practices), 

• permanently barring some individuals from future work with 

investment companies, and 

 17See GAO, Pension Plans: Additional Transparency and Other Actions Needed in 

Connection with Proxy Voting, GAO-04-749 (Washington, D.C.: August 10, 2004). 

18See GAO, Mutual Funds: SEC Should Modify Proposed Regulations to Address Some 

Pension Plan Concerns, GAO-04-799 (Washington, D.C.: July 9, 2004). 

Recent Scandals Highlight 

the Need for Better 

Coordination with SEC 
Page 16 GAO-05-784T 

• proposing new regulations addressing late trading and market timing. 

Separate from SEC activities, EBSA began investigating possible fiduciary 

violations at some large investment companies, including those that 

sponsor mutual funds, and violations by plan fiduciaries. EBSA also issued 

guidance suggesting that plan fiduciaries review their relationships with 

mutual funds and other investment companies to ensure they are meeting 

their responsibilities of acting reasonably, prudently, and solely in the 

interest of plan participants. Although SEC’s proposed regulations on late 

trading and market timing could have more adversely affected some plan 

participants than other mutual fund investors, EBSA was not involved in 

drafting the regulations because it does not regulate mutual funds. 

In another example of how EBSA and SEC enforcement responsibilities 

can intersect, SEC recently found that potential conflicts of interest may 

affect the objectivity of advice pension consultants are providing to their 

pension plan clients. 19 The report also raised important issues for plan 

fiduciaries who often rely on the advice of pension consultants in 

operating their plans. Recently, EBSA and SEC issued tips to help plan 

fiduciaries evaluate the objectivity of advice and recommendations 

provided by pension consultants. 

Americans face numerous challenges to securing their economic security 

in retirement, including the long-term fiscal challenges facing Social 

Security; the uncertainty of promised pension benefits; and the potential 

volatility of the investments held in their defined contributions plans. 

Given these concerns, it is important that employees’ benefits are 

adequately protected. EBSA is a relatively small agency facing the 

daunting challenge of protecting over $4 trillion in assets of pension and 

welfare benefits for millions of Americans. Over the years, EBSA has taken 

steps to strengthen its enforcement program and leverage its limited 

resources. These actions have helped better position EBSA to more 

effectively enforce ERISA. 

EBSA, however, continues to face a number of significant challenges to its 

enforcement program. Foremost, despite improvements in the timeliness 

and content of the Form 5500, information currently collected does not 

permit EBSA and the other ERISA regulatory agencies to be in the best 

 19See SEC, Staff Report Concerning Examinations of Select Pension Consultants, The 

Office of Compliance Inspections and Examinations (Washington, D.C.: May 16, 2005). 

Concluding 

Observations 
Page 17 GAO-05-784T 

position to ensure compliance with federal laws and assess the financial 

condition of private pension plans. Given the ever-changing complexities 

of employee benefit plans and how rapidly the financial condition of 

pension plans can deteriorate, it is imperative that policymakers, 

regulators, plan participants, and others have more timely and accurate 

Form 5500 information. In addition, there is a legitimate question as to 

whether information currently collected on the Form 5500 can be used as 

an effective enforcement tool by EBSA or whether different information 

might be needed. Without the right information on plans in a timely 

manner, EBSA will continue to have to rely on participant complaints as a 

primary source of investigations rather than being able to proactively 

identify and target problems areas. Second, in some instances, EBSA’s 

enforcement efforts continue to be hindered by ERISA, the very law it is 

charged with enforcing. For example, because of restrictive legal 

requirements, EBSA continues to be hindered in assessing penalties 

against fiduciaries or others who knowingly participate in a fiduciary 

breach. Congress may want to amend ERISA to address such limits on 

EBSA’s enforcement authority. Finally, the significant changes that have 

occurred in pension plans, the growing complexity of financial 

transactions of such plans, and the increasing role of mutual funds and 

other investment vehicles in retirement savings plans require enhanced 

coordination of enforcement efforts with SEC. Furthermore, such changes 

raise the fundamental question of whether Congress should modify the 

current ERISA enforcement framework. For example, it is important to 

consider whether the current division of oversight responsibilities across 

several agencies is the best way to ensure effective enforcement or 

whether some type of consolidation or reallocation of responsibilities and 

resources could result in more effective and efficient ERISA enforcement. 

We look forward to working with Congress on such crucial issues. 

Mr. Chairman, this concludes my statement. I would be happy to respond 

to any questions you or other members of the committee may have. 

For further information, please contact me at (202) 512-7215. Other 

individuals making key contributions to this testimony included Joseph 

Applebaum, Kimberley Granger, Raun Lazier, George Scott, and Roger 

Thomas. 

Contact and 

Acknowledgments 

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