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entitled 'Employee Benefits Security Administration: Enforcement
Improvements Made but Additional Actions Could Further Enhance Pension
Plan Oversight' which was released on February 20, 2007.
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Report to the Ranking Minority Member, Committee on Health, Education,
Labor and Pensions, U.S. Senate:
United States Government Accountability Office:
GAO:
January 2007:
Employee Benefits Security Administration:
Enforcement Improvements Made but Additional Actions Could Further
Enhance Pension Plan Oversight:
GAO-07-22:
GAO Highlights:
Highlights of GAO-07-22, a report to the Ranking Minority Member,
Committee on Health, Education, Labor and Pensions, U.S. Senate
Why GAO Did This Study:
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.
What GAO Found:
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.
What GAO Recommends:
GAO recommends that EBSA evaluate its enforcement strategy in light of
other agencies’ strategies, determine how ERISA’s filing deadlines
affect its investigators, increase coordination with SEC, and determine
how attrition affects its operations. EBSA disagreed with our
recommendation to evaluate their strategy in light of other agencies’
strategies, but agreed with the remaining recommendations. Congress
should consider amending 502(l) of ERISA to give DOL greater discretion
to waive the civil penalty, when appropriate.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-07-22].
To view the full product, including the scope and methodology, click on
the link above. For more information, contact Barbara D. Bovbjerg at
(202) 512-7215 or bovbjergb@gao.gov.
[End of section]
Contents:
Letter:
Results in Brief:
Background:
EBSA Has Made Improvements to Its Enforcement Program, but Challenges
Remain:
Unlike Other Agencies, EBSA Does Not Conduct Routine Compliance
Examinations or Comprehensive Risk Assessments:
Statutory Obstacles May Limit EBSA's Ability to Oversee Pension Plans
Effectively:
Conclusions:
Matter for Congressional Consideration:
Recommendations for Executive Action:
Agency Comments and Our Evaluation:
Appendix I: Scope and Methodology:
Appendix II: Comparison of Selected Federal Agencies' Authorities,
Enforcement Practices, Results, and Resources:
Appendix III: Comments from Employee Benefits Security Administration:
Appendix IV: Comments from Securities and Exchange Commission:
Appendix V: GAO Contacts and Acknowledgments:
Related GAO Products:
Tables:
Table 1: Ratio of Investigators, Examiners, or Agents to Regulated
Employee Benefit Plans and Securities Entities:
Table 2: Number of Pension Plans EBSA Reviewed in Fiscal Year 2005:
Table 3: EBSA Actions Taken in Response to GAO Recommendations from
2002 Review:
Table 4: Overall Attrition Rates (Percentages) for EBSA Investigators,
Other EBSA Employees, DOL, and Other Federal Agencies, Fiscal Years
2001-2005:
Figures:
Figure 1: Participants in Defined Benefit and Defined Contribution
Plans, 1980-2002:
Figure 2: Overview of EBSA's Investigative Process:
Abbreviations:
CPDF: Central Personnel Data File:
DFVC: Delinquent Filer Voluntary Compliance:
DOL: Department of Labor:
EBSA: Employee Benefits Security Administration:
EDS: ERISA Data System:
EFAST: ERISA Filing Acceptance System:
ERISA: Employee Retirement Income Security Act:
FTE: full-time equivalent:
IRS: Internal Revenue Service:
OCIE: Office of Compliance Inspections and Examinations:
OIG: Office of Inspector General:
OPM: Office of Personnel Management:
ORA: Office of Risk Assessment:
PBGC: Pension Benefit Guaranty Corporation:
SCEP: Student Career Experience Program:
SEC: Securities and Exchange Commission:
STEP: Student Temporary Employment Program:
VFCP: Voluntary Fiduciary Correction Program:
United States Government Accountability Office:
Washington, DC 20548:
January 18, 2007:
The Honorable Michael B. Enzi:
Ranking Minority Member:
Committee on Health, Education, Labor and Pensions:
United States Senate:
Pensions are a vital source of retirement income for millions of
Americans. According to the Department of Labor (DOL), America's
private sector pension and retirement savings system includes
approximately 730,000 plans with assets totaling roughly $4.9 trillion
and covering over 100 million participants. The Department of Labor's
Employee Benefits Security Administration (EBSA) is the primary agency
responsible for protecting private pension plan participants and
beneficiaries from the abuse or theft of their pension assets by
enforcing the Employee Retirement Income Security Act of 1974 (ERISA),
as amended, which sets certain standards for pension plans sponsored by
private sector employers. Because private sector pensions are second
only to Social Security in providing individuals' retirement income,
effective oversight of the private pension industry's management of
these assets is critical to ensure the economic security of workers,
retirees, and their families.
In 2002, we reported on EBSA's enforcement program and concluded that
certain changes could improve the program's management.[Footnote 1]
Subsequently, we testified before the committee that although EBSA had
made progress in improving its enforcement program, significant
challenges remained.[Footnote 2] In light of prior GAO work, you asked
us to review the actions that EBSA has taken to strengthen its
enforcement program. Specifically, this report assesses (1) the extent
to which EBSA has improved its ability in recent years to enforce and
promote compliance with ERISA, (2) how EBSA's enforcement practices
compare to those of other federal agencies with similar
responsibilities, and (3) what obstacles, if any, affect EBSA's
enforcement of ERISA.
To complete our work, we collected and documented information on EBSA's
enforcement strategy, operations, and human capital management
practices. We reviewed EBSA's efforts to address recommendations from
our prior work, focusing on the agency's management of its enforcement
program. We interviewed officials from the Department of Labor's Office
of the Solicitor and Office of Inspector General as well as EBSA's
Office of Participant Assistance, Office of Enforcement, and the Office
of the Chief Accountant. In addition, we visited 6 of EBSA's 10
regional offices in Atlanta, Boston, Chicago, Kansas City,
Philadelphia, and San Francisco, and 2 of its 5 district offices in
Seattle and Washington, D.C., where we interviewed field office
management, regional solicitors, investigators, and other staff. We
selected these offices to represent a diverse selection of geographic
locations and types of investigations conducted in those offices. To
assess the reliability of EBSA's enforcement results data, we spoke
with agency officials about the data quality control procedures and
reviewed relevant documentation. We determined the data were
sufficiently reliable for the purposes of this report. We also
interviewed officials and obtained information from the Internal
Revenue Service (IRS) and the Securities and Exchange Commission (SEC)
on the enforcement practices they use to regulate the pension and
securities industries to determine whether these strategies or
practices could be applicable to EBSA's enforcement program. We also
collected information on the authorities and practices of the Pension
Benefit Guaranty Corporation (PBGC), the agency responsible for
insuring defined benefit pension plans. Finally, we met with
representatives from professional organizations that represent plan
participants and entities that conduct audits of pension plans that
EBSA regulates.
We conducted our work between October 2005 and August 2006 in
accordance with generally accepted government auditing standards.
Appendix I discusses our scope and methodology in further detail.
Results in Brief:
In 2002, we reported that while EBSA had taken actions to strengthen
its enforcement program, weaknesses existed in EBSA's management of its
enforcement strategy and overall human capital management policies,
among other things, which limited its enforcement program's
effectiveness. Since that review, EBSA has made several improvements to
enforce and promote compliance, in part by increasing coordination
among its regional investigators, instituting better quality controls,
and increasing the return of plan assets to participants through
improved participation of plan sponsors in its voluntary correction
programs. In addition, EBSA has recruited investigators with advanced
skills in accounting, finance, banking, and law that EBSA officials
believe are required because of the technical aspects of ERISA and the
changing nature of benefit plans. Nevertheless, some weaknesses we
identified in 2002 remain. Specifically, EBSA has not developed
complete data to adequately assess the nature and extent of
noncompliance that would allow the agency to better focus its resources
on areas of vulnerability, such as pension plan mismanagement. Without
these data, EBSA also relies on performance measures that field
investigators said encourage them to focus on the most obvious cases--
those that are easily corrected--rather than on complex and emerging
violations where the outcome is less certain. In addition, we 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. Last, while EBSA has developed strategies regarding its
workforce needs, the agency's overall attrition rates remain high, and
it has taken limited steps to evaluate the effect such attrition has on
its operations.
Unlike other federal enforcement agencies with similar
responsibilities, EBSA does not conduct routine compliance examinations
or broad risk assessments to inform its enforcement efforts. Regarding
routine compliance examinations, EBSA officials said that such
examinations would divert investigators from conducting investigations
of alleged violations. Instead, EBSA investigators rely on several
sources, such as outside complaints and informal targeting of pension
plans, to focus their enforcement efforts. 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 in their pension plan
documents, and not those violations that are possibly more complex or
hidden. In contrast, IRS and SEC have dedicated compliance examination
programs designed to regularly inspect a company's operations and
financial records for violations and emerging trends that may warrant
further review by enforcement staff. EBSA also has not established a
comprehensive risk assessment function to target enforcement. Instead
of broad risk assessments, EBSA's annual risk evaluations are generally
limited to a risk analysis of frontline investigators' case loads.
Unlike EBSA, SEC and PBGC have dedicated staff to routinely analyze
data from a variety of sources in order to assess risk within the
securities and pension industries in an attempt to better focus agency
resources on areas of greatest risk.
Certain statutory obstacles may limit EBSA's oversight of private
sector pensions. First, the restrictive legal requirements of the
502(l) penalty under ERISA--a civil penalty assessed against a
fiduciary for certain breaches of 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 reduces the
amount of funds returned to pension plans when a plan sponsor is
unwilling or cannot fully restore assets and also pay the penalty.
Second, while EBSA has taken steps to require the electronic submission
and processing of pension plan data, EBSA investigators' access to
timely plan data for targeting new case leads is still limited by ERISA
filing requirements and processing delays that are caused primarily by
the existing paper-based system. As a result, in some cases,
investigators were relying on data up to 3 years old to target
potential violators.
We are making several recommendations to the Department of Labor that
are intended to strengthen EBSA's enforcement program. We are also
asking that Congress consider amending ERISA to give the Department of
Labor greater discretion to waive the civil penalty assessed against
fiduciaries or other persons who violate ERISA in instances where doing
so will facilitate the restoration of plan assets. In response to our
draft report, EBSA disagreed with our recommendation to evaluate the
extent to which it could supplement its current enforcement practices
with strategies used by similar enforcement agencies, such as
conducting routine compliance examinations or dedicating staff for risk
assessment. EBSA noted that because we did not evaluate the
effectiveness of strategies used by the agencies highlighted in our
report, they were concerned that a recommendation to copy one of the
models would be premature given the diversion of investigative
resources it would require. However, we do 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
these agencies as well as many other federal financial regulators. We
recognize and would expect that EBSA's implementation of these standard
practices could vary from that of other regulatory models, given the
nature of its responsibilities. EBSA agreed with our recommendations to
conduct a formal review of the effect that ERISA's filing deadlines
have on its investigative staff; establish formal SEC coordination
groups in its regional offices, where appropriate; and evaluate the
factors affecting staff attrition and take appropriate steps as
necessary. EBSA and SEC comments are reproduced in appendixes III and
IV, respectively.
Background:
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.[Footnote 3] 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.
Figure 1: Participants in Defined Benefit and Defined Contribution
Plans, 1980-2002:
[See PDF for image]
Source: Private Pension Plan Bulletin: Abstract of 1999, 2000, 2001,
and 2002 Form 5500 Annual Reports, Department of Labor.
[End of figure]
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 the Responsibility for Enforcing ERISA with Other Agencies:
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.
Figure 2: Overview of EBSA's Investigative Process:
[See PDF for image]
Source: GAO analysis of EBSA's process.
[End of figure]
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.[Footnote 4] 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.[Footnote 5] 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,[Footnote 6] 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.
Table 1: Ratio of Investigators, Examiners, or Agents to Regulated
Employee Benefit Plans and Securities Entities:
Agency: EBSA;
Investigators, examiners, or agents: 385;
Employee benefit plans/securities entities: 3.2 million[A] pension (0.7
million ) and health benefit plans (2.5 million);
Ratio of personnel to regulated plans or entities: 1 : 8,000[A].
Agency: IRS;
Investigators, examiners, or agents: 389;
Employee benefit plans/securities entities: 1.3 million pension plans:
5500 filers (0.7 million), 5500 EZ filers (0.2 million), and non-5500
filers (0.4 million)--Form 5500s include basic plan information;
Ratio of personnel to regulated plans or entities: 1 : 3,000.
Agency: SEC;
Investigators, examiners, or agents: 1,953; includes 851 examiners and
1,102 investigators;
Employee benefit plans/securities entities: 17,337[B] includes
investment advisers (9,022), investment companies (1,002), broker
dealers (6,900), transfer agents (400), self-regulatory organizations
(11), and clearing agencies (2);
Ratio of personnel to regulated plans or entities: 1 : 9.
Source: EBSA, IRS, and SEC.
[A] Because of data limitations, not all other welfare plans under
EBSA's oversight are included.
[B] SEC is also responsible for enforcing certain provisions of the
federal securities laws, such as provisions pertaining to fraud, that
apply to entities and individuals that are not subject to broad
regulation under the laws. For fiscal year 2005, cases primarily
classified as involving regulated entities accounted for 32.5 percent
of SEC's total actions.
[End of table]
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.[Footnote 7] 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.[Footnote 8] 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.[Footnote
9] 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.
Table 2: Number of Pension Plans EBSA Reviewed in Fiscal Year 2005:
EBSA: Enforcement;
Total number of plans reviewed: 7,752.
EBSA: Participant Assistance;
Total number of plans reviewed: 19,522.
EBSA: Office of the Chief Accountant;
Total number of plans reviewed: 9,208.
EBSA: Total;
Total number of plans reviewed: 36,482.
Source: EBSA:
Note: According to EBSA, this information includes all plans subjected
to some type of review by EBSA--not all plans were given a full review-
-which included investigations and inquiries into plan activities. For
example, EBSA estimated that about 19,500 plans were reviewed, in part,
based on responses to about 160,000 participant inquiries. Multiple
complaints could be filed for a single plan. Also, according to EBSA, a
number of these reviews targeted service providers, a fact that may
have a further impact on additional plans serviced by these providers.
[End of table]
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.
EBSA Has Made Improvements to Its Enforcement Program, but Challenges
Remain:
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.
EBSA Has Made Some Progress in Improving Its Enforcement Program:
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.
Table 3: EBSA Actions Taken in Response to GAO Recommendations from
2002 Review:
GAO observation: Certain requirements, such as notifying plan
participants of potential violations and levying excise taxes on
prohibited transactions, may hinder participation in the Voluntary
Fiduciary Correction Program (VFCP);
GAO recommendation to EBSA: Analyze barriers to participation in the
VFCP and explore ways to reduce them;
Examples of EBSA actions to address recommendation: EBSA has simplified
and expanded the original VFCP regulation published in 2002, which
describes how to apply for voluntary correction, the 19 categories of
transactions covered, acceptable methods for correcting violations, and
examples of potential violations and corrective actions. Applications
received for voluntary corrections increased from 55 in fiscal year
2002 to 985 in fiscal year 2005.
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 to address recommendation: In fiscal year
2001, EBSA conducted a national compliance study of group health plans'
compliance with the new health care laws in ERISA. In 2003, EBSA
conducted a compliance study focusing on large multi-employer health
plans. Currently, the agency is conducting a baseline study to
determine the level of compliance with ERISA requirements on timely
transmission of employee contributions to pension plans.
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 the
agency's 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 to address recommendation: EBSA conducted an
employee workforce analysis and an employee training needs assessment.
In 2003, DOL issued its Human Capital Strategic Management Plan, which
provided DOL's strategies for addressing current and projected skills
shortages, anticipated future staffing needs, and competency
requirements to ensure that employees possess or acquire the critical
skills needed to accomplish program mission and functions.
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 to address recommendation: In fiscal year
2003, an EBSA team composed of Office of Enforcement and field managers
developed a closed case quality review program. The program focuses on
substantive technical issues, and findings are reported centrally to
the national office. Although regional office officials administering
the program reviewed their own office's cases for quality, the program
includes procedures to ensure the independence of the case reviewer.
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 to address recommendation: EBSA conducted
analysis on cases closed in fiscal years 2001, 2002, 2003, and 2004.
The agency 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 to address recommendation: EBSA established a
Best Practices Sharing Team composed of enforcement staff and regional
representatives. The agency also developed an intranet site to allow
its investigators to share best practices, such as investigative plans,
subpoenas, letters, and investigative guides.
Source: GAO analysis.
[End of table]
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.[Footnote 10] 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.
EBSA Still Does Not Estimate Overall Industry Compliance, Regularly
Confer With SEC Staff on Industry Trends, and Address Retention of
Investigators:
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.[Footnote 11] 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,[Footnote 12] 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.[Footnote 13] 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.[Footnote 14] 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.
Table 4: Overall Attrition Rates (Percentages) for EBSA Investigators,
Other EBSA Employees, DOL, and Other Federal Agencies, Fiscal Years
2001-2005:
Fiscal year: 2001;
EBSA investigators[A]: 7.1;
EBSA agencywide: 9.4;
All other DOL employees: 9.1;
All other federal investigators[A]: 5.2.
Fiscal year: 2002;
EBSA investigators[A]: 3.3;
EBSA agencywide: 8.4;
All other DOL employees: 8.7;
All other federal investigators[A]: 4.3.
Fiscal year: 2003;
EBSA investigators[A]: 3.4;
EBSA agencywide: 7.2;
All other DOL employees: 6.7;
All other federal investigators[A]: 6.3.
Fiscal year: 2004;
EBSA investigators[A]: 5.6;
EBSA agencywide: 8.9;
All other DOL employees: 6.1;
All other federal investigators[A]: 5.4.
Fiscal year: 2005;
EBSA investigators[A]: 11.2;
EBSA agencywide: 10.8;
All other DOL employees: 8.8;
All other federal investigators[A]: 5.2.
Source: GAO analysis of OPM's Central Personnel Data File.
[A] Investigators represent all designated GS-1801 investigative
positions, including those employed under the student temporary
employment program. EBSA investigators in training (students--GS-1899
series) are not included in the attrition rate calculations--attrition
for 1899 classification is: 62 percent ('01), 83 percent ('02), 63
percent ('03), 54 percent ('04), and 45 percent ('05). EBSA also hires
auditors--classified as a GS-511--which are a part of the investigative
staff. 511 auditors are not included in the table. We determined the
overall attrition rates for this classification as follows: 10.4
percent ('01), 2.3 percent ('02), 8.6 percent ('03), 9.7 percent ('04),
and 7.7 percent ('05).
[End of table]
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.[Footnote 15] 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.
Unlike Other Agencies, EBSA Does Not Conduct Routine Compliance
Examinations or Comprehensive Risk Assessments:
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:
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,[Footnote 16] 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.[Footnote 17] 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.[Footnote 18] 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,[Footnote 19] 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.[Footnote 20]
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.
EBSA Has Not Dedicated Staff to Formalized Risk Assessment:
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.
Statutory Obstacles May Limit EBSA's Ability to Oversee Pension Plans
Effectively:
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 Statutory Requirements Can Impede the Restoration of Plan
Assets:
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.[Footnote 21] 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.[Footnote 22] 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.
Investigators' Access to Timely Data Limited by ERISA Filing Deadlines:
Under ERISA, plan sponsors have up to 285 days to file their annual
Form 5500 reports,[Footnote 23] 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.[Footnote 24] 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.
Conclusions:
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.
Matter for Congressional Consideration:
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.
Recommendations for Executive Action:
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.
Agency Comments and Our Evaluation:
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 [EBSA] 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,[Footnote 25] 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.
Sincerely yours,
Signed by:
Barbara D. Bovbjerg:
Director, Education, Workforce, and Income Security Issues:
[End of section]
Appendix I: Scope and Methodology:
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.[Footnote 26]
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.
[End of section]
Appendix II: Comparison of Selected Federal Agencies' Authorities,
Enforcement Practices, Results, and Resources:
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.
Authorities and Penalties:
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.
Regulated industry;
EBSA: Total employee benefit plans: 3.2 million; Pension plans:
733,000; Health plans: 2.5 million;
IRS: Total pension plans: 1.3 million plans; 724,000 (5500 filers);
221,000 (5500 EZ filers); 353,000 (non-5500 filers);
SEC: Total registered securities entities: 17,337; Investment advisers:
9,022; Investment companies:1,002; Broker/dealers: 6,900; Transfer
agents: 400; Self- regulatory organizations: 11; Clearing agencies: 2.
Offices with enforcement related responsibilities;
EBSA: Office of Enforcement (OE); Office of Participant Assistance
(OPA); Office of the Chief Accountant (OCA);
IRS: Office of Employee Plans (EP);
* Examinations;
* Rulings and Agreements (R&A);
* Employee Plans Compliance Unit (EPCU);
SEC: Division of Enforcement; Office of Compliance Inspections and
Examinations (OCIE); Office of Risk Assessment (ORA).
Practices;
EBSA: Responding to participant complaints (OPA); Investigations (OE);
Voluntary compliance programs (OE, OCA); Reporting and disclosure
audits (OCA);
IRS: Establish compliance baselines for risk assessment (Examinations);
Centralized case selection process (Examinations); Compliance
examinations (Examinations); "Soft contact" compliance programs (EPCU);
Voluntary compliance programs (R&A); Determinations (R&A);
SEC: Investigations (Enforcement); Compliance examination programs
(OCIE); Formalized risk assessment (ORA).
Strategic goals;
EBSA: Enhance pension and health benefit security;
IRS: Enhance enforcement of the tax law;
SEC: Enforce compliance with federal securities laws.
Performance measures;
EBSA: Ratio of closed civil cases with corrected violations to closed
civil cases; Ratio of criminal cases referred for prosecution to total
criminal cases; Applications to voluntary compliance programs; Customer
satisfaction index;
IRS: Timeliness; Examination quality; Examination cases closed; EPCU
compliance contacts; Customer satisfaction;
SEC: Investment advisers and investment companies examined; Percentage
of first enforcement cases filed within 2 years; Enforcement cases
successfully resolved.
Fiscal year 2005 results;
EBSA: Plans investigated: 7,752[A]; Civil and criminal investigations
closed: 3,978; Closed civil cases with corrected violations: 76%;
Referred criminal cases: 45%; Plans reviewed for violations by OPA:
19,522; Voluntary compliance applications received: 985; Plans reviewed
for completeness by OCA: 9,208; Customer satisfaction index: 67%;
IRS: Examinations closed: 8,230; EPCU compliance contacts: 145[B];
Determinations made: 39,864[B]; Voluntary compliance applications:
1,707[B]; Customer satisfaction for determinations: 61%[B]; Customer
satisfaction for examinations: 70%[B];
SEC: Investment advisers examined: 1,530; Investment companies
examined: 527; Percentage of first enforcement cases filed within 2
years: 65%; Enforcement cases successfully resolved: 99%.
Fiscal year 2005 resources;
EBSA: 2005 appropriation for ERISA enforcement activities:
$131,000,000; Number of investigators: 385; Number of benefits
advisors: 108;
IRS: 2005 appropriation for Office of Employee Plans: $91,230,910;
Number of agents for compliance examinations: 389;
SEC: 2005 appropriation for Division of Enforcement: $316,000,000;
Number of investigators: 1,102; 2005 appropriation for Office of
Compliance Inspections and Examinations: $210,000,000; Number of
examiners for investment advisers and investment companies: 489; Number
of examiners for broker-sealers and self regulatory organizations: 362.
Source: EBSA, IRS, and SEC.
[A] This includes health and pension plans:
[B] This is as of August 2005:
[End of table]
[End of section]
Appendix III: Comments from Employee Benefits Security Administration:
U.S. Department of Labor:
Assistant Secretary for Employee Benefits Security Administration:
Washington, D.C. 20210:
December 19, 2006:
Barbara D. Bovbjerg:
Director, Education, Workforce, and Income Security Issues:
United States Government Accountability Office:
Washington, DC 20548:
Dear Ms. Bovbjerg:
We have reviewed the Government Accountability Office's (GAO) draft
report entitled "Employee Benefits Security Administration: Enforcement
Improvements Made but Additional Actions Could Further Enhance Pension
Plan Oversight" (GAO-07-22). This letter provides our general comments
concerning the draft report; we already have provided technical
comments directly to your staff.
Agency Actions Since the 2002 GAO Report:
We appreciate GAO's recognition of the actions that we have taken since
your last review in 2002 with respect to increasing coordination among
our regional investigators[Footnote 27], obtaining increased
participation in our voluntary correction programs, and recruiting
investigators with advanced skills. As noted in your report, these
steps have enabled EBSA to increase its enforcement results from $830
million in fiscal year 2002 to $1.6 billion in fiscal year 2005. In
fact, fiscal year 2003 through fiscal year 2006 enforcement results are
the highest in the Agency's history, averaging 171% higher than the
preceding four year period from fiscal year 1999 through fiscal year
2002.
While we recognize that overall management and oversight can always be
improved, EBSA has worked diligently to develop an enforcement program
that strives to maximize results obtained with available resources. As
GAO recommended in 2002, our Agency carefully reviews and analyzes the
sources of cases that lead to investigations. This has enabled us to
more effectively select as investigative targets those plans or other
entities that are likely to have engaged in violations of ERTSA. We
also have shared "best practices" among the regions, enabling the
regions to identify the most productive techniques for selecting and
conducting investigations. We have conducted baseline studies on the
level of compliance with ERISA Title I, Part 7, and with our regulation
on the timely deposit of employee contributions to 401(k) plans.
Changes in the Voluntary Fiduciary Correction Program (VFCP) have
removed or lessened barriers to participation, and voluntary
corrections have increased dramatically. Therefore, our investigative
staff is able to focus on more complex issues and on those fiduciaries
who are less willing to correct violations.
Recommendation No. 1: 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.
Given the size of the plan universe that the Agency oversees relative
to its number of investigators, EBSA has focused its available
resources on investigations that we believe will most likely result in
the deterrence, detection and correction of ERISA fiduciary violations.
Your recommendation that we evaluate the usefulness of conducting
"routine compliance examinations" appears to be premised on the
assumption that some number of completely random investigations would
have a significant deterrent effect and could better enable us to
identify emerging areas of noncompliance.
Deterring violations:
We agree that deterring violations is critical; it is so important that
it forms part of our agency's mission statement. However, we disagree
with the premise that investigating randomly-selected plans would have
a greater deterrent effect than our current efforts. Given the size of
the plan universe, and the remote likelihood that a particular plan
would be randomly selected for investigation, a program of routine
compliance examinations could well have the opposite effect. Plan
fiduciaries might take more risks with plan assets, knowing that, under
a random selection, their plan was unlikely to be investigated.
Instead of trying to create a deterrent effect through routine
compliance examinations, we try to create that effect through strategic
deployment of our available investigative resources. Our regional
directors are required, as part of our strategic plan, to establish an
enforcement program that creates a visible EBSA presence throughout
each region, pursuant to national priorities, regional priorities, and
individually selected cases. We also try to create a deterrent effect
by publicizing the results of investigations that are resolved through
litigation. In addition, we try to prevent violations through the
compliance assistance components of our outreach, education, and
assistance program.
Identifying emerging areas of noncompliance:
Your report suggests that routine compliance examinations could enable
EBSA to identify emerging areas of noncompliance. In past years, we
conducted routine compliance examinations as a regular part of our
investigative program. However, this resulted in a low percentage of
cases with violations found and corrected, with no discemable deterrent
effect. Therefore, we began to target plans or other entities with a
high likelihood of having violated ERISA.
Targeting is done through a variety of techniques, many of which you
identified in your report. Investigations are now opened mainly as a
result of different targeting methods, including specified projects
(both regional and national), analyses of Form 5500s, referrals from
other agencies, and participant complaints. We believe that these
methods of selecting cases have been very successful, and have enabled
us to fully meet the GPRA goals by which the Department and OMB measure
the success of our enforcement program. The percentage of
investigations with violations corrected has steadily increased over
the years. In fiscal year 2005, over 75% of our civil cases closed
resulted in corrected violations and approximately 45% of our criminal
cases were referred for prosecution.
It should be noted that all investigations include a review of general
records, such as the plan document, financial statements, claims
procedures (for health plans), timing of contributions (when there are
participant contributions), and the like. Therefore, even if an
investigation initially focuses on a specific issue, every plan
investigated does get an overall review. This approach enables us to
identify emerging areas of noncompliance and is aimed at achieving our
goal of protecting the pensions of workers' and their families.
You correctly identified participant complaints as a significant source
of investigations, and they certainly assist us in our risk assessment
activities. As participants become more computer savvy, and their
pension and health insurance information becomes more available
electronically, participants are able to identify problems such as
delinquent contributions almost immediately. We also receive valuable
information from employee benefits professionals. Investigators,
supervisors, and managers, both in the field and in the national
office, regularly attend industry events. This gives EBSA staff the
opportunity to speak with professionals, and these professionals will
often identify potential problems within their particular field. In
fact, many of our employees' performance standards require that they
keep abreast of changes in the industry. In addition, when we conduct
our annual evaluation of our enforcement strategy, we incorporate
information concerning trends in the economy, such as the rate of
employer bankruptcies; findings by other agencies, such as the SEC's
Pension Consultant Project; and Departmental policy concerns.
Dedicating staff to risk assessment:
While we have not formally labeled it as a "risk assessment program,"
EBSA has a process in place for administering our enforcement program
which has many of the same characteristics as the specific risk
assessment process described in the draft report.
On the national level, we identify broad topic areas where we believe
plan participants and beneficiaries are most susceptible to actual loss
of benefits. Long-tern policy goals are articulated in the Strategic
Enforcement Plan (StEP); the three current investigative priorities,
designed to protect at-risk populations, are plan service providers,
health care plans, and defined contribution pension plans. Once the
broad framework has been established, initiatives are developed to
support these priorities. There are two types of initiatives: national
projects, which are directly based on the StEP goals; and regional
projects, which are localized investigative projects undertaken by
individual EBSA regional offices. These regional initiatives may focus
on a narrower part of an existing StEP goal or may explore a new area
where benefit plans may be at risk. In addition, regions conduct
investigations that are not part of an existing national or regional
initiative, based on case selection guidance issued by the Office of
Enforcement. This guidance directs the regions to target cases
throughout their geographic areas, to concentrate on larger plans, and
to target a variety of ERISA issues. In this manner, EBSA
systematically draws upon the talents of its investigators and managers
to evaluate and analyze areas of risk in the employee benefits field,
integrating their professional judgment and considerable experience
into our enforcement program planning and management process.
In each annual planning cycle, the information developed through
investigations is analyzed at both the regional and national levels,
and is used to develop new initiatives and/or investigative priorities.
If a region finds enough cases with a similar compliance problem, the
region may decide to conduct a regional initiative on that issue.
Similarly, if more than one region finds a high rate of noncompliance
in similar regional initiatives, or if a single regional initiative
finds a high rate of noncompliance on an issue that is likely to affect
plans nationwide, the Agency may decide to develop a new national
initiative. In addition, information developed through the enforcement
program has pointed out the need for new regulations. It is also used
to help prioritize the development of compliance assistance workshops
and publications. In short, the enforcement program has a systematic
and integrated approach toward identifying at-risk populations,
developing initiatives to address those risks at both the national and
regional levels, providing a structured way for investigators and field
managers to identify new and emerging risks, and incorporating these
findings into not only the strategic plans for the enforcement program,
but also the strategic plans for the whole Agency.
We agree that we should continue to evaluate our enforcement practices
on an ongoing basis. Identifying successful practices used by similar
enforcement agencies would, of course, be helpful. However, although
you recommended conducting routine compliance examinations and
dedicating staff for risk assessment, as is done in certain other
agencies, we note that GAO ". . . did not evaluate the effectiveness of
these agencies' compliance examination, enforcement, or risk assessment
programs." (Page 32) The draft report mentions that (1) the IRS will
not complete its first round of benchmark assessments until 2007, (2)
the SEC program also is fairly new, and (3) while "IRS officials said
that they believe that their [routine compliance examinations] program
deters violations from occurring. . .", no evidence of such a deterrent
value is presented. (Page 22) As these programs have not been fully
evaluated and their effectiveness has not been determined, we are
concerned that a recommendation to copy one of these models is
premature, given the diversion of investigative resources it would
require.
However, we will work to identify successful, proven risk assessment
practices in other enforcement agencies and determine if they can be
integrated into EBSA's enforcement program.
Recommendation No. 2: 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.
As you noted, ERISA's filing deadlines are established by statute.
Congress has amended ERISA many times since 1974 and has not changed
these deadlines. Most recently, in enacting the Pension Protection Act
of 2006, Congress made some changes to filing requirements but left the
basic deadlines as they were. You noted in the report GAO-05-491,
Private Pensions, that the "current statutory filing requirements are .
intertwined with other statutory deadlines relating to private pension
plans," including the date that final contributions for minimum funding
purposes (defined benefit plans) can be made, which is 30 days before
the final date the 5500 can be filed. (Pages 21-22) GAO spoke with
service providers and plans sponsor representatives who expressed their
view that the current statutory time frame (210 days after the end of
the plan year) is necessary.
As noted in your report, EBSA is working on decreasing the time to
process Form 5500s. We have requested funding for an updated electronic
filing system-known as EFAST2-which would greatly reduce the processing
time. In addition, EBSA will require the electronic filing of Form 5500
beginning with the 2008 filing cycle. We believe these new requirements
and system features will provide our investigators with more timely
data.
We will adopt your recommendation and undertake a review of a sample of
cases opened on Form 5500 information. We will attempt to determine
whether the outcome of these cases would have been impacted by an
earlier filing of the Form 5500.
Recommendation No. 3: Establish, where appropriate, formal SEC
coordination groups in the regional offices, similar to those already
in place in some EBSA regions.
All EBSA field offices have contact with the SEC. As we understand it,
the securities laws limit the ability of the SEC to disclose
investigative information to other enforcement agencies, including
EBSA. However, we have worked with the SEC staff to put in place a
formal system under which they can disclose and we can obtain
information from the SEC's investigative files. We have effective
coordination with the SEC at the national level. For example, EBSA and
the SEC jointly issued the compliance assistance tool, "Selecting and
Monitoring Pension Consultants - Tips for Plan Fiduciaries." We also
coordinated with the SEC regarding their findings under the Pension
Consultants Project. The SEC shared their investigative files to assist
us with our investigations of selected pension consultants. Over the
years, the SEC has provided us with a number of leads, some of which
have led to investigations and monetary results.
EBSA has formed successful relationships with several other
governmental agencies, such as the federal financial institutions
regulatory agencies, state insurance commissioners, and local
prosecutors. We fully recognize the importance of establishing
effective working relationships with other agencies, and will continue
to do so. Accordingly, we agree with the recommendation and will
continue to work with our colleagues at the SEC to put into place
regional coordination groups.
Recommendation No. 4: 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.
EBSA employees are among the most highly educated within DOL. Our
investigators have wide-ranging skills and backgrounds, which are
needed for the diverse plans we investigate. Although we would like to
retain all of our highly skilled staff, some attrition is inevitable
given the wages private sector employers offer for these specialized
skills. EBSA's attrition rates for 2001-2004 are generally lower than
the comparative groups. We do agree that there has been an increase in
the rates for the past two years. Because we would like to retain our
highly-qualified investigators, the EBSA Office of Program Planning,
Evaluation and Management will further evaluate staff attrition in the
enforcement program to identify trends and potentially contributing
factors.
We have implemented a number of recruiting initiatives, such as
offering both undergraduate and graduate students the opportunity to
work for EBSA while attending school. This program is successful in
helping us find talented new employees. However, the inclusion of these
persons hired under the student temporary employment program in Table 4
on page 19 makes our overall attrition rate appear higher than is the
case for our career employees. In addition, the tables do not include
the GS-511 auditors, who have the same function as our investigators.
If these figures were revised, we believe the numbers would show a
lower and more accurate attrition rate.
Conclusion:
The Employee Benefits Security Administration is dedicated to
protecting the employer-provided benefits of American workers,
retirees, and their families. We will continue to improve our
enforcement program to deter, detect and correct violations of ERISA.
We appreciate having bad the opportunity to review and comment on this
draft report. Please do not hesitate to contact us if you have
questions concerning this response or if we can be of further
assistance.
Sincerely,
Signed by:
Bradford P. Campbell:
Acting Assistant Secretary:
[End of section]
Appendix IV: Comments from Securities and Exchange Commission:
United States Securities And Exchange Commission:
Washington, D.C. 20549:
Division of Enforcement:
Linda Chatman Thomsen:
Director:
(202) 551-4894:
(202) 772-9279 (fax):
thomsenl@Sec.gov:
December 13, 2006:
Barbara D. Bovbjerg:
Director:
Education, Workforce, and Income Security Issues:
U.S. Government Accountability Office:
441 G Street, N. W.
Washington, DC 20548:
Re: GAO Report Entitled "Employee Benefits Security Administration:
Enforcement Improvements Made but Additional Actions Could Further
Enhance Pension Plan Oversight" (GAO-07-22), dated January 2007:
Dear Ms. Bovbjerg:
Thank you for sharing with us a copy of the Government Accountability
Office's report entitled "Employee Benefits Security Administration:
Enforcement Improvements Made but Additional Actions Could Further
Enhance Pension Plan Oversight" (GAO-07-22), dated January 2007. We
were glad to assist GAO by meeting with your staff and providing
information in connection with the preparation of the report.
While none of the recommendations in the report apply directly to the
SEC, GAO recommends that the Secretary of Labor direct the Assistant
Secretary of Labor, Employee Benefits Security Administration (EBSA),
to direct EBSA's 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. We have enjoyed a
collegial and cooperative relationship with EBSA in the past, and look
forward to continuing and developing that relationship through the
establishment of these groups.
If I can be of any further assistance, please contact me or have your
staff contact Joan McKown, Chief Counsel, who can be reached at 202-
551-4933.
Sincerely,
Signed.
[End of section]
Appendix V: GAO Contacts and Acknowledgments:
GAO Contact:
Barbara D. Bovbjerg, (202) 512-7215:
Acknowledgments:
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.
[End of section]
Related GAO Products:
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):
FOOTNOTES
[1] GAO, Pension and Welfare Benefits Administration: Opportunities
Exist for Improving Management of the Enforcement Program, GAO-02-232
(Washington, D.C.: March 2002).
[2] GAO, Employee Benefits Security Administration: Improvements Have
Been Made to Pension Enforcement Program but Significant Challenges
Remain, GAO-05-784T (Washington, D.C.: June 9, 2005).
[3] Defined benefit pension plans commonly provide a guaranteed monthly
benefit based on a formula that considers salary and years of service
to a company. Under defined contribution plans, employees have
individual accounts to which an employer, an employee, or both can make
periodic contributions. Defined contribution plan benefits are based on
contributions and investment returns (gains and losses).
[4] To achieve tax benefits, referred to as tax qualified status, plans
must comply with a number of requirements in the Internal Revenue Code
governing the provisions of contributions and benefits. ERISA also
includes minimum standards for how employees become eligible to
participate in pension plans (participation standards), how employees
earn a nonforfeitable right to their benefits (vesting standards), and
how the plans are to be funded (funding provisions).
[5] EBSA also has responsibility for also overseeing other welfare
plans, such as those plans established to provide vacation benefits or
child care services. However, welfare plans with fewer than 100
participants that are fully insured or otherwise unfunded (hold no
assets in trust) are not required to file annual reports, so estimates
must be made based on surveys. As of July 2006, EBSA could not provide
GAO with an estimate of the total number of these plans, because it had
not yet completed an updated survey of such plans. In past years, EBSA
has estimated the number of health and other welfare plans at 6 million
plans.
[6] IRS's responsibility centers on plans covered by Internal Revenue
Code Section 401(a). EBSA shares some responsibility for the same
plans; focusing on fiduciary responsibility and prohibited
transactions.
[7] As of January 31, 2006, EBSA reported that it employed 108 benefits
advisers in the field and the National Office of Participant
Assistance. These positions are generally responsible for responding to
participant complaints and inquiries as well as providing education and
outreach to participants and the regulated community.
[8] We did not independently verify whether the amount reported as a
recovery by EBSA was actually restored to the respective employee
benefit plans and participants.
[9] The Office of the Chief Accountant comprises three divisions: the
Division of Accounting Services, the Division of Reporting and
Compliance, and the Division of Federal Employees' Retirement Income
Security Act of 1986 Compliance.
[10] To be eligible for the SCEP, students must be enrolled or accepted
for enrollment in a program of study leading to a degree, diploma, or
certificate at an accredited high school, technical or vocational
school, 2-or 4-year college or university, or graduate or professional
school.
[11] Part 7 of ERISA includes requirements on group health plan
portability, access, and renewability, including limitations on the use
of preexisting condition exclusions based on health status.
[12] The U.S. Office of Management and Budget assists the President in
overseeing the preparation of the federal budget and supervising its
administration of executive branch agencies. Furthermore, the agency
evaluates the effectiveness of agency programs, policies, and
procedures; assesses competing funding demands among agencies; and sets
funding priorities.
[13] GAO-05-784T.
[14] SEC personnel are prohibited from disclosing information obtained
as a result of an examination or investigation without the approval of
senior management at the SEC acting pursuant to delegated authority of
the SEC.
[15] In prior fiscal years, the following number of investigators left
EBSA for various reasons including retirement, resignations, and
terminations: 45 ('00) 26 ('01), 13 ('02), 14 ('03), and 23 ('04).
[16] ERISA requires that most pension plan sponsors file an annual
report called the Form 5500, which is a major source of information
about the plan and provides a key compliance tool for identifying and
targeting potential violations. The 5500 is the primary source of
detailed pension plan information and is used by EBSA, IRS, and PBGC
for compliance, research, and public disclosure purposes. Information
collected on the form includes basic plan identifying information as
well as detailed plan information, including assets, liabilities,
insurance and financial transactions, audited financial statements, and
for defined benefit plans, an actuarial statement.
[17] An excise tax applies to certain types of distributions from
qualified plans. According to IRS, about 16,000 plans owed excise taxes
totaling roughly $129 million for various violations, including failure
to meet certain funding standards, excess fringe benefits, and failure
to protect liquidity shortfalls between December 2004 and November
2005.
[18] SEC's examination program includes three main types of
examinations--cause, routine, and sweep. Cause examinations are
initiated for a specific reason, such as an investor complaint of an
alleged violation. Routine examinations, compliance examinations
initiated on a risk-based cycle, are the most common. SEC conducts
sweep examinations, which focus on specific industry issues rather than
a specific registrant, to examine specific risk areas.
[19] An employee stock ownership plan is a retirement plan into which
the company contributes its stock for the benefit of the company's
employees. With such plans, employees do not buy or hold the stock
directly.
[20] U.S. Securities and Exchange Commission. Staff Report Concerning
Examinations of Select Pension Consultants (Washington, D.C.: May 16,
2005).
[21] EBSA can also seek removal of a fiduciary for breaches of
fiduciary duty or seek other sanctions.
[22] The Secretary of Labor may waive or reduce the penalty if: (1) the
fiduciary or other person acted reasonably and in good faith, or (2)
because of severe financial hardship.
[23] A plan has 210 days from the end of the plan year to file the
5500, and plans may apply for an extension of an additional 2½ months.
[24] GAO, Private Pensions: Government Actions Could Improve the
Timeliness and Content of Form 5500 Pension Information, GAO-05-491
(Washington, D.C.: June 2005).
[25] GAO. Internal Control Management and Evaluation Tool. GAO-01-1008G
(Washington, D.C.: August 2001).
[26] GAO, OPM's Central Personnel Data File: Data Appear Sufficiently
Reliable to Meet Most Customer Needs, GAO/GGD-98199 (Washington, D.C.:
Sep. 30, 1995).
[27] Whenever the term "investigators" is used, it also includes GS-511
auditors who perform the same functions.
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