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Testimony before the Committee on Health, Education, Labor, and 
Pensions, U.S. Senate:

United States Government Accountability Office:

GAO:

For Release on Delivery Expected at 10:00 a.m. EDT:

Thursday, June 9, 2005:

Employee Benefits Security Administration:

Improvements Have Been Made to Pension Enforcement Program but 
Significant Challenges Remain:

Statement of Barbara D. Bovbjerg, Director, Education, Workforce, and 
Income Security Issues:

GAO-05-784T:

GAO Highlights:

Highlights of GAO-05-784T, a testimony before the Committee on Health, 
Education, Labor, and Pensions, U.S. Senate: 

Why GAO Did This Study:

Congress passed the Employee Retirement Income Security Act of 1974 
(ERISA) to address public concerns over the mismanagement and abuse of 
private sector employee benefit plans by some plan sponsors and 
administrators. The Department of Labor’s Employee Benefits Security 
Administration (EBSA) shares responsibility with the Internal Revenue 
Service and the Pension Benefit Guaranty Corporation for enforcing 
ERISA. EBSA works to safeguard the economic interest of more than 150 
million people who participate in an estimated 6 million employee 
benefit plans with assets in excess of $4.4 trillion. EBSA plays a 
primary role in ensuring that employee benefit plans operate in the 
interests of plan participants, and the effective management of its 
enforcement program is pivotal to ensuring the economic security of 
workers and retirees. 

Recent scandals involving abuses by pension plan fiduciaries and 
service providers, as well as trading scandals in mutual funds that 
affected plan participants and other investors, highlight the 
importance of ensuring that EBSA has an effective and efficient 
enforcement program. Accordingly, this testimony focuses on describing 
EBSA’s enforcement strategy, EBSA’s efforts to address weaknesses in 
its enforcement program along with the challenges that remain.  

What GAO Found:

EBSA’s enforcement strategy is a multifaceted approach of targeted plan 
investigations. To leverage its enforcement resources, EBSA provides 
education to plan participants and plan sponsors. EBSA allows its 
regional offices the flexibility to tailor their investigations to 
address the unique issues in the regions, within a framework 
established by EBSA’s Office of Enforcement. The regional offices then 
have a significant degree of autonomy in developing and carrying out 
investigations using a mixture of approaches and techniques they deem 
most appropriate. Participant leads are still the major source of 
investigations. EBSA officials told us that they open about 4,000 
investigations into actual and potential violations of ERISA annually. 
To supplement their investigations, the regions conduct outreach 
activities to educate both plan participants and sponsors. The purpose 
of these efforts is to gain participants’ help in identifying potential 
violations and to educate sponsors in properly managing their plans and 
avoiding violations. Finally, EBSA maintains a Voluntary Fiduciary 
Correction Program through which plan officials can voluntarily report 
and correct some violations without penalty.

EBSA has taken steps to address many of the recommendations we have 
made over the years to improve its enforcement program, including 
assessing the level and types of noncompliance with ERISA, improving 
sharing of best investigative practices, and developing a human capital 
strategy to better respond changes in its workforce. EBSA reported a 
significant increase in enforcement results for fiscal year 2004, 
including $3.1 billion in total monetary results and closing about 
4,400 investigations, with nearly 70 percent of those cases resulting 
in corrections of ERISA violations. Despite this progress, EBSA 
continues to face a number of significant challenges to its enforcement 
program, including (1) the lack of timely and reliable plan 
information, which is highlighted by the fact that EBSA is currently 
using plan year 2002 and 2003 plan information for its computer 
targeting, (2) restrictive statutory requirements that limit its 
ability to assess certain penalties, and (3) the need to better 
coordinate enforcement strategies with the Securities and Exchange 
Commission, which is highlighted by recent scandals involving the 
trading practices and market timing in mutual funds and conflicts of 
interest by pension consultants.

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

[See PDF for image]

[End of figure]

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

To view the full product, including the scope and methodology, click on 
the link above. For more information, contact Barbara Bovbjerg at (202) 
512-7215 or bovbjergb@gao.gov.

[End of section]

Mr. Chairman and Members of the Committee:

I am pleased to be here today to provide an overview of our past work 
reviewing the Department of Labor's Employee Benefits Security 
Administration (EBSA) enforcement program. EBSA works to safeguard the 
economic interest of more than 150 million people who participate in an 
estimated 6 million employee benefit plans with assets in excess of 
$4.4 trillion. EBSA plays a primary role in ensuring that employee 
benefit plans operate in the interests of plan participants, and the 
effective management of its enforcement program is pivotal to ensuring 
the economic security of workers and retirees.

Congress passed the Employee Retirement Income Security Act of 1974 
(ERISA) to address public concerns over the mismanagement and abuse of 
private sector employee benefit plans by some plan sponsors and 
administrators. ERISA is designed to protect the rights and interests 
of participants and beneficiaries of employee benefit plans and 
outlines the responsibilities of the employers and administrators who 
sponsor and manage these plans. The recent bankruptcies of some large 
corporations and the effects on employees' retirement savings and the 
federal pension insurance program expose certain vulnerabilities in our 
private pension system. Such problems point out the need for 
comprehensive pension reform. Also, recent scandals involving abuses by 
pension plan fiduciaries and service providers, as well as trading 
scandals in mutual funds that affected plan participants and other 
investors highlight the importance of ensuring that EBSA has an 
effective and efficient enforcement program.

Today, I would like to discuss the evolution of EBSA's enforcement 
program and the challenges that remain. GAO has conducted several 
studies of ERISA enforcement issues, and my statement is largely based 
on that work.

In summary, EBSA's enforcement strategy is a multifaceted approach of 
targeted plan investigations supplemented by outreach and education. To 
leverage its enforcement resources to prevent and detect violations and 
promote overall compliance with ERISA, EBSA provides education to plan 
participants and sponsors and allows the voluntary self-correction of 
certain transactions without penalty. EBSA's education program for plan 
participants aims to increase their knowledge of their rights and 
benefits under ERISA. EBSA has taken steps to address many of the 
recommendations we have made over a number of years to improve its 
enforcement program, including assessing the level and types of 
noncompliance with ERISA, improving sharing of best investigative 
practices, analyzing the sources of cases, and developing a human 
capital strategy to better respond changes in its workforce. EBSA 
reported a significant increase in enforcement results for fiscal year 
2004, including $3.1 billion in total monetary results and closing 
nearly 4,400 investigations, with nearly 70 percent of those cases 
resulting in corrections of ERISA violations. Despite this progress, 
EBSA continues to face a number of significant challenges to its 
enforcement program. Such challenges include lack of timely and 
reliable plan information, restrictive statutory requirements that 
limit its ability to assess certain penalties, and the need to better 
coordinate enforcement strategies with the Securities and Exchange 
Commission. As we have previously reported, legislative changes will be 
required to address some of these issues. Furthermore, the Congress 
should consider providing EBSA with additional enforcement tools, such 
as enhanced penalty authority, to meet these challenges. Finally, EBSA 
needs to continue to look for ways to better target investigations to 
leverage its limited resources.

Background:

Three agencies share responsibility for enforcing ERISA: the Department 
of Labor (EBSA), the Department of the Treasury's Internal Revenue 
Service (IRS), and the Pension Benefit Guaranty Corporation (PBGC). 
EBSA enforces fiduciary standards for plan fiduciaries of privately 
sponsored employee benefit plans to ensure that plans are operated in 
the best interests of plan participants. EBSA also enforces reporting 
and disclosure requirements covering the type and extent of information 
provided to the federal government and plan participants, and seeks to 
ensure that specific transactions prohibited by ERISA are not conducted 
by plans.[Footnote 1] Under Title I of ERISA, EBSA conducts 
investigations of plans and seeks appropriate remedies to correct 
violations of the law, including litigation when necessary.[Footnote 2] 
IRS enforces the Internal Revenue Code (IRC) and provisions that must 
be met which give pension plans tax-qualified status, including 
participation, vesting, and funding requirements. The IRS also audits 
plans to ensure compliance and can levy tax penalties or revoke the tax-
qualified status of a plan as appropriate. PBGC, under Title IV of 
ERISA, provides insurance for participants and beneficiaries of certain 
types of tax-qualified pension plans, called defined benefit plans, 
that terminate with insufficient assets to pay promised benefits. 
Recent terminations of large, underfunded plans have threatened the 
long-term solvency of PBGC. As a result, we placed PBGC's single- 
employer insurance program on our high-risk list of programs needing 
further attention and congressional action.[Footnote 3]

ERISA and the IRC require plan administrators to file annual reports 
concerning, among other things, the financial condition and operation 
of plans. EBSA, IRS, and PBGC jointly developed the Form 5500 so that 
plan administrators can satisfy this annual reporting requirement. 
Additionally, ERISA and the IRC provide for the assessment or 
imposition of penalties for plan sponsors not submitting the required 
information when due.

About one-fifth of Americans' retirement wealth is invested in mutual 
funds, which are regulated by the Securities and Exchange Commission 
(SEC), primarily under the Investment Company Act of 1940. The primary 
mission of the SEC is to protect investors, including pension plan 
participants investing in securities markets, and maintain the 
integrity of the securities markets through extensive disclosure, 
enforcement, and education. In addition, some pension plans use 
investment managers to oversee plan assets, and these managers may be 
subject to other securities laws.

EBSA Uses a Multifaceted Enforcement Strategy:

EBSA's enforcement strategy is a multifaceted approach of targeted plan 
investigations supplemented by providing education to plan participants 
and plan sponsors. EBSA allows its regions the flexibility to tailor 
their investigations to address the unique issues in their regions, 
within a framework established by EBSA's Office of Enforcement. The 
regional offices then have a significant degree of autonomy in 
developing and carrying out investigations using a mixture of 
approaches and techniques they deem most appropriate. Participant leads 
are still the major source of investigations. To supplement their 
investigations, the regions conduct outreach activities to educate both 
plan participants and sponsors. The purpose of these efforts is to gain 
participants' help in identifying potential violations and to educate 
sponsors in properly managing their plans and avoiding violations. The 
regions also process applications for the Voluntary Fiduciary 
Correction Program (VFCP) through which plan officials can voluntarily 
report and correct some violations without penalty.

EBSA Enforces ERISA Primarily Through Targeted Investigations:

EBSA attempts to maximize the effectiveness of its enforcement efforts 
to detect and correct ERISA violations by targeting specific cases for 
review. In doing so, the Office of Enforcement provides assistance to 
the regional offices in the form of broad program policy guidance, 
program oversight, and technical support. The regional offices then 
focus their investigative workloads to address the needs specific to 
their region. Investigative staff also have some responsibility for 
selecting cases.

The Office of Enforcement identifies national priorities--areas 
critical to the well-being of employee benefit plan participants and 
beneficiaries nationwide--in which all regions must target a portion of 
their investigative efforts. Currently, EBSA's national priorities 
involve, among other things, investigating defined contribution pension 
plan and health plan fraud. Officials in the Office of Enforcement said 
that national priorities are periodically re-evaluated and are changed 
to reflect trends in the area of pensions and other benefits.

On the basis of its national investigative priorities, the Office of 
Enforcement has established a number of national projects. Currently, 
there are five national projects pertaining to a variety of issues 
including employee contributions to defined contribution plans, 
employee stock ownership plans (ESOP), and health plan fraud. EBSA's 
increasing emphasis on defined contribution pension plans reflects the 
rapid growth of this segment of the pension plan universe. In fiscal 
year 2004, EBSA had monetary results of over $31 million and obtained 
10 criminal indictments under its employee contributions project. 
EBSA's most recent national enforcement project involves investigating 
violations pertaining to ESOPs, such as the incorrect valuation of 
employer securities and the failure to provide participants with the 
specific benefits required or allowed under ESOPs, such as voting 
rights, the ability to diversify their account balances at certain 
times, and the right to sell their shares of stock.[Footnote 4] 
Likewise, more attention is being given to health plan fraud, such as 
fraudulent multiple employer welfare arrangements (MEWAs).[Footnote 5] 
In this instance, EBSA's emphasis is on abusive and fraudulent MEWAs 
created by promoters that attempt to evade state insurance regulations 
and sell the promise of inexpensive health benefit insurance but 
typically default on their benefit obligations.[Footnote 6]

EBSA regional offices determine the focus of their investigative 
workloads based on their evaluation of the employee benefit plans in 
their jurisdiction and guidance from the Office of Enforcement. For 
example, each region is expected to conduct investigations that cover 
their entire geographic jurisdiction and attain a balance among the 
different types and sizes of plans investigated. In addition, each 
regional office is expected to dedicate some percentage of its staff 
resources to national and to regional projects--those developed within 
their own region that focus on local concerns. In developing regional 
projects, each regional office uses its knowledge of the unique 
activities and types of plans in its jurisdiction. For example, a 
region that has a heavy banking industry concentration may develop a 
project aimed at a particular type of transaction commonly performed by 
banks. We previously reported that the regional offices spend an 
average of about 40 percent of their investigative time conducting 
investigations in support of national projects and almost 25 percentage 
of their investigative time on regional projects.

EBSA officials said that their most effective source of leads on 
violations of ERISA is from complaints from plan participants. Case 
openings also originate from news articles or other publications on a 
particular industry or company as well as tips from colleagues in other 
enforcement agencies. Computer searches and targeting of Form 5500 
information on specific types of plans account for only 25 percent of 
case openings. In 1994, we reported that EBSA had done little to test 
the effectiveness of the computerized targeting runs it was using to 
select cases. Since then, EBSA has scaled down both the number of 
computerized runs available to staff and its reliance on these runs as 
a means of selecting cases.[Footnote 7] Investigative staff are also 
responsible for identifying a portion of their cases on their own to 
complete their workloads and address other potentially vulnerable 
areas. 

As shown in figure 1, EBSA's investigative process generally follows a 
pattern of selecting, developing, resolving, and reviewing cases. EBSA 
officials told us that they open about 4,000 investigations into actual 
and potential violations of ERISA annually. According to EBSA, its 
primary goal in resolving a case is to ensure that a plan's assets, and 
therefore its participants and beneficiaries, are protected. EBSA's 
decision to litigate a case is made jointly with the Department of 
Labor's Regional Solicitors' Offices. Although EBSA settles most cases 
without going to court, both the agency and the Solicitor's Office 
recognize the need to litigate some cases for their deterrent effect on 
other providers.

Figure 1: Overview of EBSA's Investigative Process:

[See PDF for image]

Source: GAO analysis.

[End of figure]

As part of its enforcement program, EBSA also detects and investigates 
criminal violations of ERISA. From fiscal years 2000 through 2004, 
criminal investigations resulted in an average of 54 cases closed with 
convictions or guilty pleas annually. Part of EBSA's enforcement 
strategy includes routinely publicizing the results of its litigation 
efforts in both the civil and criminal areas as a deterrent factor.

EBSA Uses Education, Outreach, and a Voluntary Fiduciary Correction 
Program to Supplement Its Investigations:

To further leverage its enforcement resources, EBSA provides education 
to plan participants, sponsors, and service providers and allows the 
voluntary self-correction of certain transactions without penalty. 
EBSA's education program for plan participants aims to increase their 
knowledge of their rights and benefits under ERISA. For example, EBSA 
anticipates that educating participants will establish an environment 
in which individuals can help protect their own benefits by recognizing 
potential problems and notifying EBSA when issues arise. The agency 
also conducts outreach to plan sponsors and service providers about 
their ongoing fiduciary responsibilities and obligations under ERISA.

At the national level, EBSA's Office of Participant Assistance 
develops, implements, and evaluates agency-wide participant assistance 
and outreach programs. It also provides policies and guidance to other 
EBSA national and regional offices involved in outreach activities. 
EBSA's nationwide education campaigns include a fiduciary education 
campaign, launched in May 2004, to educate plan sponsors and service 
providers about their fiduciary responsibilities under ERISA. This 
campaign also includes educational material on understanding fees and 
selecting an auditor.

EBSA's regional offices also assist in implementing national education 
initiatives and conduct their own outreach to address local concerns. 
The regional offices' benefit advisers provide written and telephone 
responses to participants. Benefit advisers and investigative staff 
also speak at conferences and seminars sponsored by trade and 
professional groups and participate in outreach and educational efforts 
in conjunction with other federal or state agencies. At the national 
level, several EBSA offices direct specialized outreach activities. As 
with EBSA's participant-directed outreach activities, its efforts to 
educate plan sponsors and service providers also rely upon Office of 
Enforcement staff and the regional offices for implementation. For 
example, these staff make presentations to employer groups and service 
provider organizations about their ERISA obligations and any new 
requirements under the law, such as reporting and disclosure 
provisions. 

To supplement its investigative programs, EBSA is promoting the self- 
disclosure and self-correction of possible ERISA violations by plan 
officials through its Voluntary Fiduciary Correction Program.[Footnote 
8] The purpose of the VFCP is to protect the financial security of 
workers by encouraging plan officials to identify and correct ERISA 
violations on their own. Specifically, the VFCP allows plan officials 
to identify and correct 18 transactions, such as delinquent participant 
contributions and participant loan repayments to pension plans. Under 
the VFCP, plan officials follow a process whereby they (1) correct the 
violation using EBSA's written guidance; (2) restore any losses or 
profits to the plan; (3) notify participants and beneficiaries of the 
correction; and (4) file a VFCP application, which includes evidence of 
the corrected transaction, with the EBSA regional office in whose 
jurisdiction it resides. If the regional office determines that the 
plan has met the program's terms, it will issue a "no action" letter to 
the applicant and will not initiate a civil investigation of the 
violation, which could have resulted in a penalty being assessed 
against the plan.

EBSA Has Taken Steps to Address Weaknesses in Its Enforcement Program, 
but Significant Challenges Remain:

EBSA has taken steps to address many of the recommendations we have 
made over a number of years to improve its enforcement program, 
including assessing the level and types of noncompliance with ERISA, 
improving sharing of best investigative practices, and developing a 
human capital strategy to better respond changes in its workforce. EBSA 
reported a significant increase in enforcement results for fiscal year 
2004, including $3.1 billion in total monetary results and closing 
nearly 4,400 investigations, with nearly 70 percent of those cases 
resulting in corrections of ERISA violations. Despite this progress, 
EBSA continues to face a number of significant challenges to its 
enforcement program, including the lack of timely and reliable plan 
information, restrictive statutory requirements that limit its ability 
to assess certain penalties, and the need to better coordinate 
enforcement strategies with the SEC.

EBSA Has Made Progress in Improving Its Enforcement Program:

EBSA has taken a number of steps, including addressing recommendations 
from our prior reports that have improved its enforcement efforts 
across a number of areas. For example, EBSA has continued to refine its 
enforcement strategy to meet changing priorities and provided 
additional flexibility to its regional office to target areas of 
investigations. More recently, EBSA implemented a series of 
recommendations from our 2002 enforcement report that helped it 
strategically manage its enforcement program, including conducting 
studies to determine the level of and type of noncompliance with ERISA 
and developing a Human Capital Strategic Management Plan (see table 
1).[Footnote 9]

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

GAO Observation: EBSA had not adequately estimated the nature of 
employee benefit plans' noncompliance with ERISA provisions; 
GAO Recommendation to EBSA: Develop a cost-effective strategy for 
assessing the level and type of ERISA noncompliance among employee 
benefit plans; 
Examples of EBSA Actions: In fiscal year 2001 conducted national 
compliance study of group health plans' compliance with new health care 
laws in ERISA; In 2003 conducted compliance study focusing on large 
multiemployer health plans; Currently conducting baseline study to 
determine the level of compliance with ERISA requirements on timely 
transmission of employee contributions to pension plans.

GAO Observation: EBSA had not routinely analyzed the full range of 
cases investigated to determine which sources were the most effective 
in terms of detecting and correcting violations; 
GAO Recommendation to EBSA: Conduct regular reviews of the sources of 
cases that lead to investigations; 
Examples of EBSA Actions: Conducted analysis on cases closed in fiscal 
years 2001, 2002, and 2003; Agreed to perform reviews of the sources of 
cases that lead to investigations on an annual basis as long as 
resources permit.

GAO Observation: EBSA did not coordinate the sharing of best practices 
information among its regions regarding case selection and 
investigative techniques; 
GAO Recommendation to EBSA: Coordinate the sharing of best practices 
information among regions relating to the optimum and most productive 
techniques for selecting and conducting investigations; 
Examples of EBSA Actions: Established a Best Practices Sharing Team 
composed of enforcement staff and regional representatives; Developed 
an intranet site to allow EBSA investigators to share best practices, 
such as investigative plans, subpoenas, letters, and investigative 
guides.

GAO Observation: EBSA lacked a centrally coordinated quality review 
process to ensure that its investigations are conducted in accordance 
with its investigative procedures; 
GAO Recommendation to EBSA: Develop a closed case quality review 
process that ensures the independence of reviewers and sufficiently 
focuses on substantive technical case issues; 
Examples of EBSA Actions: In fiscal year 2003, an EBSA team composed of 
Office of Enforcement and field managers developed a closed case 
quality review program that focuses on substantive technical issues and 
is reported centrally. The program also includes procedures to ensure 
the independence of the case reviewer.

GAO Observation: Certain requirements, such as notifying plan 
participants of potential violations and levying excise taxes on 
prohibited transactions, may hinder participation in the VFCP; 
GAO Recommendation to EBSA: Analyze barriers to participation in the 
VFCP and explore ways to reduce them; 
Examples of EBSA Actions: EBSA modified key features of the program, 
eliminating notice requirements to participants, and provided a limited 
excise tax exemption for those who participate in the program.

GAO Observation: EBSA gave limited attention to human capital 
management despite anticipated workforce and enforcement workload 
changes. For example, the agency had not considered succession planning 
and workforce retention, which could undermine the continuity and 
effectiveness of its enforcement program; 
GAO Recommendation to EBSA: Conduct a comprehensive review of its 
future human capital needs, including the size of its workforce; the 
skills and abilities needed; succession planning challenges; and staff 
deployment issues; 
Examples of EBSA Actions: EBSA conducted an employee workforce analysis 
and an employee training needs assessment. In 2003, EBSA issued its 
Human Capital Strategic Management Plan. The plan identified strategies 
that address current and project skills shortages, anticipated future 
staffing needs, competency requirements to ensure that employees 
possess or acquire the critical skills needed to accomplish program 
mission and functions, and the recognition and reward of quality 
performance.

Source: GAO summary and analysis of EBSA documents.

[End of table]

EBSA has reported a substantial increase in results from its 
enforcement efforts since our last review. For fiscal year 2004, EBSA 
closed 4,399 civil investigations and reported $3.1 billion in total 
results, including $2.53 billion in prohibited transactions corrected 
and plan assets protected, up from $566 million in fiscal year 2002. 
Likewise, the percentage of civil investigations closed with results 
rose from 58 percent to 69 percent. Also, applications received for the 
VFCP increased from 55 in fiscal year 2002 to 474 in 2004. EBSA has 
been able to achieve such results with relatively small recent 
increases in staff. Full-time equivalent (FTE) authorized staff levels 
increased from 850 in fiscal year 2001 to 887 FTEs in fiscal year 2005. 
The President's budget for fiscal year 2006 requests no additional 
FTEs. 

Untimely and Incomplete Plan Information Continues to Hinder 
Enforcement Efforts:

Previously, we and others have reported that ERISA enforcement was 
hindered by incomplete, inaccurate, and untimely plan data.[Footnote 
10] We recently reported that the lack of timely and complete of Form 
5500 data affects EBSA's use of the information for enforcement 
purposes, such as computer targeting and identifying troubled 
plans.[Footnote 11] EBSA uses Form 5500 information as a compliance 
tool to identify actual and potential violations of ERISA. Although 
EBSA has access to Form 5500 information sooner than the general 
public, the agency is affected by the statutory filing deadlines, which 
can be up to 285 days after plan year end, and long processing times 
for paper filings submitted to the ERISA Filing Acceptance System. EBSA 
receives processed Form 5500 information on individual filings on a 
regular basis once a form is completely processed. However, agency 
officials told us that as they still have to wait for a sufficiently 
complete universe of plan filings from any given plan year to be 
processed in order to begin their compliance targeting programs. As a 
result, EBSA officials told us that they are currently using plan year 
2002 and 2003 Form 5500 information for computer targeting. They also 
said that in some cases untimely Form 5500 information affects their 
ability to identify financially troubled plans whose sponsors may be on 
the verge of going out of business and abandoning their pension plans, 
because these plans may no longer exist by the time that Labor receives 
the processed filing or is able to determine that no Form 5500 was 
filed by those sponsors.

The Form 5500 also lacks key information that could better assist EBSA, 
IRS, and PBGC in monitoring plans and ensuring that they are in 
compliance with ERISA. EBSA, IRS and PBGC officials said that they have 
experienced difficulties when relying on Form 5500 information to 
identify and track all plans across years. Although EBSA has a process 
in place to identify and track plans filing a Form 5500 from year to 
year, problems still arise when plans change employer identification 
numbers (EIN) and/or plan numbers. Identifying plans is further 
complicated when plan sponsors are acquired, sold, or merged. In these 
cases, agency officials said that there is an increased possibility of 
mismatching of EINs, plans, and their identifying information. As 
result, EBSA officials said they are unable to (1) verify if all 
required employers are meeting the statutory requirement to file a Form 
5500 annually, (2) identity all late filers, and (3) assess and collect 
penalties from all plans that fail to file or are late. Likewise, PBGC 
officials said that must spend additional time each year trying to 
identify and track certain defined benefit plans so that they can 
conduct compliance and research activities. EBSA officials said they 
are considering measures to better track and identify plans but have 
not reached any conclusions. Our recent report makes a number of 
recommendations aimed at improving the timeliness and content of Form 
5500 that will likely assist EBSA's enforcement efforts.[Footnote 12]

In addition to problems with Form 5500 information, concerns remain 
about the quality of annual audits of plans' financial statements by 
independent public accountants. For many years, we, as well as the 
Department of Labor's Office of Inspector General (OIG), have reported 
that a significant number of these audits have not met ERISA 
requirements. For example, in 1992 we found that over a third of the 25 
plan audits we reviewed had audit weaknesses so serious that their 
reliability and usefulness were questionable. We recommended that the 
Congress amend ERISA to require full-scope audits of employee benefit 
plans and to require plan administrators and independent public 
accountants to report on how effective an employee benefit plan's 
internal controls are in protecting plan assets.[Footnote 13] Although 
such changes were subsequently proposed, they were not enacted. In 
2004, Labor's OIG reported that although EBSA had reviewed a 
significant number of employee benefit plan audits and made efforts to 
correct substandard audits, a significant number of substandard audits 
remain uncorrected. Furthermore, plan auditors performing substandard 
work generally continue to audit employee benefit plans without being 
required to improve the quality of the audits.[Footnote 14] As a 
result, these audits have not provided participants and beneficiaries 
the protections envisioned by Congress. Labor's OIG recommended, among 
other things, that EBSA propose changes to ERISA so that EBSA has 
greater enforcement authority over employee benefit plan auditors.

Restrictive Statutory Requirements Limit Assessment of Fiduciary 
Penalties:

As we have previously reported, restrictive legal requirements have 
limited EBSA's ability to assess penalties against fiduciaries or other 
persons who knowingly participate in a fiduciary breach.[Footnote 15] 
Unlike the SEC, which has the authority to impose a penalty without 
first assessing and then securing monetary damages, EBSA does not have 
such statutory authority and must assess penalties based on damages or, 
more specifically, the restoration of plan assets.[Footnote 16] Under 
Section 502(l), ERISA provides for a mandatory penalty against (1) a 
fiduciary who breaches a fiduciary duty under, or commits a violation 
of, Part 4 of Title I of ERISA or (2) against any other person who 
knowingly participates in such a breach or violation. This penalty is 
equal to 20 percent of the "applicable recovery amount," or any 
settlement agreed upon by the Secretary or ordered by a court to be 
paid in a judicial proceeding instituted by the Secretary. However, the 
applicable recovery amount cannot be determined if damages have not 
been valued. This penalty can be assessed only against fiduciaries or 
knowing participants in a breach who, by court order or settlement 
agreement, restore plan assets. Therefore, if (1) there is no 
settlement agreement or court order or (2) someone other than a 
fiduciary or knowing participant returns plan assets, the penalty may 
not be assessed. For example, last year we reported that ERISA 
presented legal challenges when developing cases related to proxy 
voting by plan fiduciaries, particularly with regards to valuing 
monetary damages.[Footnote 17] As a result, because EBSA has never 
found a violation that resulted in monetary damages, it has never 
assessed a penalty or removed a fiduciary because of a proxy voting 
investigation. Given the restrictive legal requirements that have 
limited the use of penalties for violations of ERISA's fiduciary 
requirements, we recommended that Congress consider amending ERISA to 
give the Secretary of Labor additional authority with respect to 
assessing monetary penalties against fiduciaries. We also recommended 
other changes to ERISA to better protect plan participants and increase 
the transparency of proxy voting practices by plan fiduciaries.

Recent Scandals Highlight the Need for Better Coordination with SEC:

Recent events such as the abusive trading practices of late trading and 
market timing in mutual funds and new revelations of conflicts of 
interest by pension consultants highlight the need for EBSA to better 
coordinate enforcement strategies with SEC. Last year we reported that 
SEC and EBSA had separately taken steps to address abusive trading 
practices in mutual funds.[Footnote 18] At the time we issued our 
report, SEC had taken a number of actions to address the abuses 
including:

* charging some fund companies with defrauding investors by not 
enforcing their stated policies on market timing,

* fining some institutions hundreds of millions of dollars (some of 
this money was to be returned to long-term shareholders who lost money 
due to abusive practices),

* permanently barring some individuals from future work with investment 
companies, and:

* proposing new regulations addressing late trading and market timing.

Separate from SEC activities, EBSA began investigating possible 
fiduciary violations at some large investment companies, including 
those that sponsor mutual funds, and violations by plan fiduciaries. 
EBSA also issued guidance suggesting that plan fiduciaries review their 
relationships with mutual funds and other investment companies to 
ensure they are meeting their responsibilities of acting reasonably, 
prudently, and solely in the interest of plan participants. Although 
SEC's proposed regulations on late trading and market timing could have 
more adversely affected some plan participants than other mutual fund 
investors, EBSA was not involved in drafting the regulations because it 
does not regulate mutual funds.

In another example of how EBSA and SEC enforcement responsibilities can 
intersect, SEC recently found that potential conflicts of interest may 
affect the objectivity of advice pension consultants are providing to 
their pension plan clients.[Footnote 19] The report also raised 
important issues for plan fiduciaries who often rely on the advice of 
pension consultants in operating their plans. Recently, EBSA and SEC 
issued tips to help plan fiduciaries evaluate the objectivity of advice 
and recommendations provided by pension consultants.

Concluding Observations:

Americans face numerous challenges to securing their economic security 
in retirement, including the long-term fiscal challenges facing Social 
Security; the uncertainty of promised pension benefits; and the 
potential volatility of the investments held in their defined 
contributions plans. Given these concerns, it is important that 
employees' benefits are adequately protected. EBSA is a relatively 
small agency facing the daunting challenge of protecting over $4 
trillion in assets of pension and welfare benefits for millions of 
Americans. Over the years, EBSA has taken steps to strengthen its 
enforcement program and leverage its limited resources. These actions 
have helped better position EBSA to more effectively enforce ERISA.

EBSA, however, continues to face a number of significant challenges to 
its enforcement program. Foremost, despite improvements in the 
timeliness and content of the Form 5500, information currently 
collected does not permit EBSA and the other ERISA regulatory agencies 
to be in the best position to ensure compliance with federal laws and 
assess the financial condition of private pension plans. Given the ever-
changing complexities of employee benefit plans and how rapidly the 
financial condition of pension plans can deteriorate, it is imperative 
that policymakers, regulators, plan participants, and others have more 
timely and accurate Form 5500 information. In addition, there is a 
legitimate question as to whether information currently collected on 
the Form 5500 can be used as an effective enforcement tool by EBSA or 
whether different information might be needed. Without the right 
information on plans in a timely manner, EBSA will continue to have to 
rely on participant complaints as a primary source of investigations 
rather than being able to proactively identify and target problems 
areas. Second, in some instances, EBSA's enforcement efforts continue 
to be hindered by ERISA, the very law it is charged with enforcing. For 
example, because of restrictive legal requirements, EBSA continues to 
be hindered in assessing penalties against fiduciaries or others who 
knowingly participate in a fiduciary breach. Congress may want to amend 
ERISA to address such limits on EBSA's enforcement authority. Finally, 
the significant changes that have occurred in pension plans, the 
growing complexity of financial transactions of such plans, and the 
increasing role of mutual funds and other investment vehicles in 
retirement savings plans require enhanced coordination of enforcement 
efforts with SEC. Furthermore, such changes raise the fundamental 
question of whether Congress should modify the current ERISA 
enforcement framework. For example, it is important to consider whether 
the current division of oversight responsibilities across several 
agencies is the best way to ensure effective enforcement or whether 
some type of consolidation or reallocation of responsibilities and 
resources could result in more effective and efficient ERISA 
enforcement. We look forward to working with Congress on such crucial 
issues.

Mr. Chairman, this concludes my statement. I would be happy to respond 
to any questions you or other members of the committee may have.

Contact and Acknowledgments:

For further information, please contact me at (202) 512-7215. Other 
individuals making key contributions to this testimony included Joseph 
Applebaum, Kimberley Granger, Raun Lazier, George Scott, and Roger 
Thomas.

FOOTNOTES

[1] Certain transactions are prohibited under the law to prevent 
dealings with parties who may be in a position to exercise improper 
influence over the plan. In addition, fiduciaries are prohibited from 
engaging in self-dealing and must avoid conflicts of interest that 
could harm the plan.

[2] Prior to 1979, there was overlapping responsibility for 
administration of the parallel provisions of Title I of ERISA and the 
Internal Revenue Code (IRC) by the Department of Labor and IRS, 
respectively.

[3] See GAO, Pension Benefit Guaranty Corporation Single-Employer 
Program: Long-Term Vulnerabilities Warrant High-Risk Designation, GAO-
03-1050SP (Washington, D.C.: Jul. 23, 2003).

[4] In 2002, we reported that the financial collapse of the Enron 
Corporation and other large firms and the effects on workers and 
retirees had raised questions about retirement funds being invested in 
employer securities and the laws governing such investments. We 
recommended that the Congress consider amending ERISA to require plan 
sponsors to provide defined contribution plan participants with an 
investment education notice that includes information on the risks of 
certain investments such as employer securities and the benefits of 
diversification. See GAO, Private Pensions: Participants Need 
Information on the Risks of Investing in Employer Securities and the 
Benefits of Diversification, GAO-02-943 (Washington, DC: Sept. 6, 2002).

[5] A MEWA is a welfare benefit plan or any other arrangement (other 
than an employee welfare benefit plan), which is established or 
maintained for the purpose of offering or providing a welfare benefit 
to employees of two or more employers. Typically, such arrangements 
often involve small employers that are either unable to find or cannot 
afford the cost of health care coverage for their employees. 

[6] See GAO, Employee Benefits: States Need Labor's Help Regulating 
Multiple Employer Welfare Arrangements, GAO/HRD-92-40 (Washington, 
D.C.: Mar. 10, 1992).

[7] See GAO, Pension Plans: Stronger Labor ERISA Enforcement Should 
Better Protect Plan Participants, GAO/HEHS-94-157 (Washington, D.C.: 
August 8, 1994).

[8] In April 2005, the Department of labor published in the Federal 
Register a revised VFCP that according to EBSA, simplified and expanded 
the original program.

[9] See GAO, Pension and Welfare Benefits Administration: Opportunities 
Exist for Improving Management of the Enforcement Program, GAO-02-232 
(Washington, DC: March 15, 2002). 

[10] See, GAO, Employee Benefit Plans: Efforts to Streamline Reporting 
Requirements and Improve Processing of Annual Plan Data, GAO/ HEHS-98-
45R (Washington, DC: Nov. 14, 1997).

[11] See GAO, Private Pensions: Government Actions Could Improve the 
Timeliness and Content of Form 5500 Pension Information, GAO-05-491 
(Washington, DC: June 3, 2005).

[12] See GAO-05-491.

[13] Under ERISA, investments held by certain regulated institutions, 
such as banks and insurance companies, may be excluded from the scope 
of a plan audit. The resulting lack of audit work can result in an 
auditor disclaiming an opinion on the plan's financial statements. See 
GAO, Employee Benefits: Improved Plan Reporting and CPA Audits Can 
Increase Protection under ERISA, GAO/AFMD-92-14 (Washington, D.C.: 
April 9, 1992) and Employee Benefits: Limited Scope Audit Exemption 
Should Be Repealed, GAO/T-AIMD-98-75 (Washington, D.C.: February 12, 
1998).

[14] See U.S. Department of Labor Office of Inspector General-Office of 
Audit, EBSA Needs Additional Authority to Improve the Quality of 
Employee Benefit Plan Audits. (Washington, D.C.: Sept. 30, 2004). 

[15] See GAO/HEHS-94-157.

[16] EBSA can also seek removal of a fiduciary for breaches of 
fiduciary duty or seek other sanctions.

[17] See GAO, Pension Plans: Additional Transparency and Other Actions 
Needed in Connection with Proxy Voting, GAO-04-749 (Washington, D.C.: 
August 10, 2004).

[18] See GAO, Mutual Funds: SEC Should Modify Proposed Regulations to 
Address Some Pension Plan Concerns, GAO-04-799 (Washington, D.C.: July 
9, 2004).

[19] See SEC, Staff Report Concerning Examinations of Select Pension 
Consultants, The Office of Compliance Inspections and Examinations 
(Washington, D.C.: May 16, 2005).