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. 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. 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. 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. 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. Although EBSA regularly targets violations, it does not conduct routine compliance examinations or comprehensive risk assessments to direct its enforcement practices, as do other federal agencies that share similar responsibilities. Rather, the agency relies on various sources for case leads, such as outside complaints and informal targeting of plans, to focus its enforcement efforts. While these leads are important, in addition to undertaking such activities, agencies such as IRS and SEC have developed routine compliance programs to detect violations and identify emerging trends that may warrant further examination by enforcement staff. Moreover, SEC and PBGC have dedicated staff to perform broad risk assessments by analyzing information from multiple sources in order to anticipate, identify, and manage risks to investors and to the pension insurance system. EBSA does not conduct routine compliance examinations—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. 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. Certain statutory obstacles may limit EBSA’s effectiveness in overseeing private sector pension plans. First, the restrictive legal requirements of the 502(l) penalty under ERISA have limited EBSA’s ability to assess penalties and restore plan assets. According to EBSA officials, the penalty discourages parties from quickly settling claims of violations, thereby impeding the restoration of plan assets. Further, EBSA officials stated that in some instances, the penalty can also reduce the amount of money restored to plan participants when a plan sponsor is unwilling to or cannot fully restore assets and pay the penalty. Second, investigators’ access to timely plan data for targeting new case leads is limited by ERISA filing deadlines. As a result, the data can be several years old. In fact, in some cases, investigators were relying on data up to 3 years old to target potential violators. While EBSA is constrained by ERISA’s filing requirements, the agency has taken steps to address processing delays in an effort to provide more timely data to investigators and to improve its targeting efforts. Restrictive 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. 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. 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. 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. 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. 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. 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. 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) 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. 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)

Summary: 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. 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.