Employee Benefits Security Administration: Enforcement Improvements Made but Additional Actions Could Further Enhance Pension Plan Oversight
Published: 2007-01-18T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The Department of Labor's (DOL) Employee Benefits Security Administration (EBSA) enforces the Employee Retirement Income Security Act of 1974 (ERISA), which sets certain minimum standards for private sector pension plans. On the basis of GAO's prior work, the Senate Committee on Health, Education, Labor and Pensions asked GAO to review EBSA's enforcement program. Specifically, this report assesses (1) the extent to which EBSA has improved its compliance activities since 2002; (2) how EBSA's enforcement practices compare to those of other agencies; and (3) what obstacles, if any, affect ERISA enforcement. To do this, we reviewed EBSA's enforcement strategy and operations, and interviewed officials at EBSA, the Internal Revenue Service (IRS) and the Securities and Exchange Commission (SEC), among others.
section_title: What GAO Found
paragraphs: In March 2002, we identified weaknesses in EBSA's enforcement program, despite the agency's actions to strengthen it. Since that time, EBSA has, among other things, promoted coordination among regional investigators and increased participation in its voluntary correction programs, as we recommended. EBSA also has recruited investigators with advanced skills in accounting, finance, banking, and law that officials believe are necessary due to ERISA's technicalities. Yet some weaknesses identified in 2002 remain. Specifically, EBSA still has not adequately assessed the nature and extent of ERISA noncompliance, even though it has taken steps to do so. Without these data, EBSA is not positioned to focus its resources on key areas of noncompliance nor have adequate measurable performance goals to evaluate its impact on improving industry compliance. We also found that while some regional offices did routinely attempt to confer with their respective regional office of the SEC--the agency that oversees many of the same pension service providers under the securities laws--for case leads or to consider trends in potential pension violations, others did not. Lastly, EBSA's overall attrition rates remain high, with many investigators leaving for employment outside the federal government, yet EBSA has taken limited steps to evaluate the effect such attrition has on its operations. EBSA does not conduct routine compliance examinations and broad, ongoing risk assessments to focus its enforcement efforts like other agencies. Rather, investigators rely on various sources for case leads, such as participant complaints, agency referrals, and computer targeting. While such sources are important, this approach generally limits EBSA to leads discerned by participants and other government agencies or those disclosed by plan sponsors, and not those more complex or hidden. Further, EBSA also has not established a comprehensive risk assessment function. Instead of broad risk assessments, EBSA's annual risk evaluations are generally limited to a risk analysis of frontline investigators' case loads. In contrast, in addition to such activities, IRS and SEC incorporate routine compliance programs in an attempt to detect violations and identify emerging trends that may warrant enforcement action. Also, the SEC and Pension Benefit Guaranty Corporation have dedicated staff to regularly analyze information from various sources, such as investigations and academic research. Certain statutory obstacles also limit EBSA's oversight of private sector pension plans. First, restrictive legal requirements have limited EBSA's ability to assess penalties against fiduciaries and can impede the restoration of plan assets. DOL officials said that the 502(l) penalty under ERISA discourages quick settlement and can reduce the amount of funds returned to pension plans. Second, EBSA investigators' access to timely information necessary for identifying potential violations is limited by ERISA's filing requirements. Even though EBSA is taking steps to address processing delays, in 2006, investigators were relying on information up to 3 years old to target new case leads in some cases.

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