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GAO-08-642R:
United States Government Accountability Office:
Washington, DC 20548:
June 19, 2008:
The Honorable Byron L. Dorgan:
Chairman:
The Honorable Pete V. Domenici:
Ranking Member:
Subcommittee on Energy and Water Development:
Committee on Appropriations:
United States Senate:
The Honorable Peter J. Visclosky:
Chairman:
The Honorable David L. Hobson:
Ranking Member:
Subcommittee on Energy and Water Development:
Committee on Appropriations:
House of Representatives:
Subject: Department of Energy: Information on Its Management of Costs
and Liabilities for Contractors' Pension and Postretirement Benefit
Plans:
For the past 60 years, the Department of Energy (DOE) and its
predecessors have carried out their national security, environmental
cleanup, and research and development missions through management and
operating (M&O) contracts and other site contracts for operations at
DOE-owned facilities. DOE currently has 43 such contracts with private
companies and nonprofit organizations, including universities. Under
the terms of these contracts, DOE reimburses contractors for the costs
of providing pension and postretirement benefits--including health
care, dental, and life insurance benefit plans--for current and former
employees and their beneficiaries. DOE is ultimately responsible for
reimbursing its contractors for allowable pension and postretirement
benefit plan costs, and records a liability or asset in its financial
statements for the funded status--plan obligations less plan assets--of
these benefit plans. When these contracts are recompeted or expire, it
is DOE's policy to ensure the continuation of these benefits--and the
reimbursement of related costs--for incumbent contractor employees and
eligible retirees by, for example, transferring benefit plan
sponsorship responsibilities to a successor contractor or related
company.
DOE's contractors sponsor pension plans for their employees, including
both traditional pension plans, known as "defined benefit" plans, and
401(k) or similar plans, known as "defined contribution" plans. For
defined benefit plans, DOE's private sector contractors must comply
with the Employee Retirement Income Security Act of 1974 (ERISA), which
establishes minimum funding standards for the amounts that private
sector plan sponsors must set aside in advance to pay benefits when
they are due.[Footnote 1] For postretirement health care and other
benefits, DOE's contractors typically do not set aside funds in advance
because, unlike funding pension benefits, there are generally no
requirements and few incentives to do so. As a result, DOE reimburses
contractors on a pay-as-you-go basis for the amount needed to meet the
employer's annual share of these costs, and these benefit obligations
will represent an ongoing liability to DOE. In 2007, DOE's financial
statements reported that contractors contributed $387 million and $334
million to defined benefit pension and postretirement plans,
respectively. In 2007, DOE also reported a net liability of $69.5
million for defined benefit pensions and $10.3 billion for
postretirement benefits. This net liability represents the present
value of the estimated future benefit payments that will be made to
contractor employees and retirees less the assets that have been set
aside to cover these payments.
Since September 1996, DOE Order 350.1, Contractor Human Resource
Management Programs, has set forth DOE's policy for oversight of
contractors' pension and other benefit plans. In particular, Order
350.1 requires that DOE determine whether contractors' benefits costs
are reasonable. To help make this determination, Order 350.1 requires
that contractors benchmark the value or cost of their total benefit
package by conducting either a benefit value or cost study that
compares the value or costs of its total benefit package to those of at
least 15 comparable organizations. DOE Order 350.1 states that if a
contractor's total benefit value or cost study score exceeds 105
percent of its comparison group, DOE may require a corrective action
plan to align the score to the comparison group; however, in the past
DOE has not required several contractors to implement corrective action
plans.
In April 2006, in response to its large and growing pension and
postretirement liabilities for contractor employee benefits, DOE issued
Notice 351.1, Contractor Employee Pension and Medical Benefits Policy.
Under Notice 351.1, DOE would have continued to reimburse contractors
for the allowable benefit costs of existing "incumbent" employees and
eligible retirees, but the Notice would have limited DOE's
reimbursement for new "nonincumbent" employees to the costs of "market-
based" pension and health benefit plans. A pension plan was deemed
"market-based" when, among other things, the plan was a defined
contribution plan. However, in June 2006, DOE suspended this notice and
subsequently decided not to reissue it in response to stakeholder and
congressional concerns. Order 350.1 remains DOE's controlling policy
for reimbursing contractors' pension and postretirement benefit costs.
The joint explanatory statement that accompanies the Consolidated
Appropriations Act, 2008, directed us to assess the adequacy of DOE's
analysis of pension and medical liabilities.[Footnote 2] In response,
and in consultation with your staffs, we are providing information on
(1) DOE's analysis supporting its approval of the April 2006 policy
changes contained in Notice 351.1, (2) DOE's liabilities broken out by
contractors' defined benefit pension and postretirement plan components
and among its M&O and other site contracts, and (3) DOE's recent
actions to manage its future costs and liabilities.
To provide information on DOE's analysis supporting its approval of the
policy changes in Notice 351.1, we reviewed information DOE provided to
us in response to our request for any supporting documentation and
decision documents related to the policy changes. We also interviewed
DOE officials. To provide information on the distribution of DOE's
liabilities for contractor pension and postretirement plans, we
reviewed plan data supporting the components of DOE's liabilities
reported in its fiscal year 2004-2007 financial statements,
documentation of the work performed by independent auditors on DOE's
liabilities for those years, the trends in plan liabilities and costs,
and information DOE provided to us in support of plan changes whose
impact on plan obligations were reflected in fiscal years 2006 and
2007. We also interviewed DOE officials. To provide information on
DOE's actions to manage future liabilities, we reviewed relevant
provisions in recently competed contracts, and we interviewed cognizant
DOE officials. Based on information that DOE provided to us, we also
compiled a list of contractors whose most recent benefit value study
score exceeded 105 percent of the average of their comparison group. In
addition, we reviewed our recent reports on DOE contractors' pension
and postretirement benefits.[Footnote 3]
In doing this work, we limited our review to DOE's policies for
reimbursing allowable contractor benefit costs. We also did not audit
or verify data provided by DOE or its contractors for individual
benefit plan activity and balances, although we determined that these
data were in the aggregate consistent with amounts and other
information in DOE's financial statements and sufficiently reliable for
our purposes. In addition, we did not audit or verify the amount or
timing of payments by DOE to its contractors for allowable benefit
costs or any other costs. Further, the limited number of plan changes
we reviewed did not provide a basis for a conclusion on DOE's internal
controls over benefit plan changes. Our review of DOE's actions to
manage future costs and liabilities did not include identifying all
actions DOE may have taken or evaluating the nature, extent, or effect
of any such actions. Finally, we neither verified the accuracy of the
results of the benefit value studies, nor did we evaluate contractors'
conformance with DOE's requirements and guidance for performing such
studies. We conducted our work from October 2007 through June 2008 in
accordance with generally accepted government auditing standards. These
standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe that
the evidence obtained provides a reasonable basis for our findings and
conclusions based on our audit objectives.
We briefed your staffs on the results of this work on March 3, 2008,
and March 13, 2008. This report transmits the briefing slides, which
consist of high-level talking points and were not designed to represent
an exhaustive review of the issues discussed. (See encl. I.) In a
separately issued report, we are providing you with detailed
information regarding the funded status of individual contractor
pension and other postretirement benefits calculated using DOE-
prescribed actuarial assumptions and the results of individual
contractor benefit value studies performed in accordance with DOE
policy and procedure guidance. Because DOE believes that the funded
status and benefit value scores of contractor benefit plans may be
proprietary, we removed information from this report that could
associate a funded status amount or benefit value score with a
particular facility or contractor.
Results in Brief:
DOE officials told us that the decisions underlying the policy changes
in its April 2006 Notice 351.1 were informed over a period of years by
the trends in cost reimbursements, budgetary uncertainties, and by
consulting actuaries and others, including DOE Inspector General
reports and our reports. The documentation DOE provided us demonstrates
that it recognized the historical and possible future trend of its
liabilities and costs related to contractor benefit plans. However, DOE
officials acknowledged that there was no formal compiled record or
summary analysis of the documentation and factors considered before
Notice 351.1 was issued. We found that the documentation provided to us
contained only limited evidence that DOE had considered policy
alternatives, the sensitivities of stakeholders to the policy choices
reflected in Notice 351.1, or the near-and long-term financial and
mission impacts of the changes made. Further, the decision document
reflecting the Deputy Secretary's approval of Notice 351.1 did not
include the basis on which approval was recommended. However, DOE
officials told us that issuance of the Notice adequately demonstrated
evidence of internal consideration and senior level-approval of Notice
351.1.
As of September 30, 2007, benefit obligations for DOE contractors'
defined benefit pension and postretirement plans were approximately
$27.5 billion and $10.5 billion, respectively. With assets of $27.4
billion and $161.6 million, the resulting net funded status (net
liability) was $69.5 million and $10.3 billion for the pension and
postretirement benefit plans, respectively. The funded status of DOE
contractor benefit plans can change from one year to the next as
benefits accrue and are paid, and due to other factors. The
contractors' methods for funding these benefit costs--generally either
by setting aside funds while employees are working (pension) or on a
pay-as-you-go basis after employees have retired (postretirement
benefits other than pensions)--directly impact the funded status of the
plan. Other factors that can cause the funded status of defined benefit
plans to fluctuate from one year to the next include changes in plan
experience, such as returns on plan assets that are different from what
was assumed, and changes to the benefits that employees receive or the
portion of benefit costs borne by the employer. For example, the net
funded status of contractor pension plans changed from an underfunding
of $4.5 billion in fiscal year 2006 to an underfunding of $69.5 million
in fiscal year 2007 due in large measure to a significant increase in
the returns on plan investments. Because postretirement benefits are
not generally funded in advance of being paid, these benefit
obligations will represent an ongoing liability to DOE. From fiscal
years 1997 to 2007, the net funded status of contractor postretirement
benefits generally declined from an underfunding of $5.0 billion to an
underfunding of $10.3 billion.
Since 2005, DOE has awarded 14 contracts that contain new provisions
designed to limit pension and postretirement benefits for new employees
to no more than 105 percent of comparable organizations. While this
focus on the benefits of new employees is similar to Notice 351.1,
DOE's current policy and practices do not require that contractors
offer defined contribution pension plans to new employees in order for
contractors to be reimbursed for benefit costs. Rather, DOE requires
that new employees receive a total benefits package that does not
exceed the 105 percent benchmark. In so doing, DOE continues to follow
the Order 350.1 provision that could limit reimbursement if a
contractor's total benefit value or cost study score for all benefits
exceeds the 105 percent benchmark of the comparison group, but is
applying this provision primarily to new employees. For contractors
with benefit scores in excess of this benchmark, the contractor may
choose to establish a second tier of benefits for new employees or make
changes to their benefit plans to align with the market. For recently
awarded contracts, contractors at DOE's National Nuclear Security
Administration and Office of Environmental Management facilities have
generally established separate benefit plans for new employees, which
usually do not include a defined benefit pension plan. Recent contracts
awarded by DOE's Office of Science have generally retained a single set
of benefit plans for all contractor employees because the benefit value
scores for these plans were near the 105 percent benchmark. DOE expects
that implementing Order 350.1 in this way will not substantially affect
the department's pension and postretirement benefits costs and
liabilities for the next 20 to 30 years because the requirements are
directed at new employees typically hired at the beginning of their
careers. Incumbent employees--those hired before a contract's award and
eligible retirees--will continue to receive their existing benefits or
a substantial equivalent.
Agency Comments and Our Evaluation:
We provided DOE with a draft of this report for its review and comment.
In written comments, DOE stated that the draft report correctly
reflects the status of departmental policy regarding reimbursement of
contractor employee benefits for its 43 management and operating and
other site contracts. However, DOE disagreed with the implication that
the issuance of Notice 351.1, Contractor Employee Pension and Medical
Benefits Policy, was not based on considered analysis. Specifically,
DOE stated that while the department had not compiled a "formal record"
of its work leading up to the issuance of that Notice, it had provided
us with considerable documentation of its concerns about the growing
liability of DOE for contractor employee benefit costs. DOE noted that
upward trends in its reimbursement of contactor employee benefits and
the department's heightened concern were evidenced by annual actuarial
reports prepared by DOE's contractors, various communications within
DOE, two letters provided to the Congress, and other documents that DOE
had provided to us. DOE believes that in the aggregate, these documents
show that a great deal of considered work and analysis formed the basis
for issuance of Notice 351.1. We disagree. We believe that the
materials that DOE provided did not include a comprehensive assessment
of existing DOE policies, an analysis of the potential impacts of
alternative strategies for managing contractor benefit plan
liabilities, or an indication of the information that DOE management
relied on in developing the Notice 351.1 policy changes. These
materials contained only limited evidence that DOE had considered
policy alternatives, the sensitivities of stakeholders to the policy
choices reflected in Notice 351.1, or the near-and long-term financial
and mission impacts of the changes made despite the importance of these
changes to DOE's policy on contractor employee pension and medical
benefits. For example, not even the decision document reflecting the
Deputy Secretary's approval of Notice 351.1 included the basis on which
approval was recommended. The bottom line is that the connection
between what DOE cites as evidence of its concerns and its policy
changes as reflected in Notice 351.1 is not readily apparent from the
documents DOE provided us. (See encl. X for DOE's comments and our
response.) DOE also provided technical comments, which we have
incorporated as appropriate.
We are sending copies of this report to the Secretary of Energy and
interested congressional committees. We will also provide copies to
others on request. In addition, this report will be available at no
charge on the GAO Web site at [hyperlink, http://www.gao.gov].
If you or your staffs have any questions on the matters discussed in
this report, please contact Mark Gaffigan at (202) 512-3841 or
gaffiganm@gao.gov or Jeanette Franzel at (202) 512-9471 or
franzelj@gao.gov. Contact points for our Offices of Congressional
Relations and Public Affairs may be found on the last page of this
report. Major contributors to this report were Richard Cheston and
Robert Owens (Assistant Directors), Scott Heacock, Scott McNulty, H.
Donald Campbell, Frederick Evans, Aaron Johnson, Alison O'Neill, and
Barbara Timmerman.
Signed by:
Mark E. Gaffigan:
Director, Natural Resources and Environment:
Signed by:
Jeanette M. Franzel:
Director, Financial Management and Assurance:
Enclosures (10):
[End of section]
Enclosure I: Briefing Slides:
Department of Energy: Information on Its Management of Costs and
Liabilities for Contractors’ Pension and Postretirement Benefit Plans:
Subcommittee on Energy and Water Development:
Committee on Appropriations:
United States Senate and House of Representatives:
U.S. Government Accountability Office:
March 2008:
Background: Reimbursement of Contractor Pension and Postretirement
Benefit Costs:
* For the past 60 years, the Department of Energy (DOE) and its
predecessors have carried out their missions through management and
operating (M&O) and other site contracts for operations at DOE-owned
facilities. DOE currently has 43 contracts for these facilities that
cost over $16 billion annually.
* DOE contractors generally provide their employees with pension plans,
health care benefit plans, and other postretirement benefits. DOE
contractors typically offer their employees a traditional pension plan,
known as a “defined benefit” plan, and some contractors offer a
“defined contribution” pension plan, such as a 401(k) plan. Contractors
also offer their employees postretirement benefits other than pensions,
including health care, dental, and life insurance benefits.
* DOE reimburses these contractors for the costs of providing pension
and postretirement benefits to current and former employees and their
beneficiaries. DOE is ultimately responsible for reimbursing its
contractors for the allowable costs of these plans. DOE records a
liability or asset in its financial statements for the funded
status—plan obligations less plan assets—of contractor benefit plans.
* DOE’s policy on the establishment, funding, administration, and
oversight of welfare and pension benefit plans by its contractors is
set forth in Order 350.1, Contractor Human Resource Management
Programs, first issued in September 1996. Order 350.1 requires that
contractor benefit plans meet guidelines set forth in the Federal
Acquisition Regulation and the cost principles of DOE’s own acquisition
regulation in order for benefit costs under cost reimbursement
contracts to be deemed reasonable and allowable and therefore
reimbursable.
* Order 350.1 also requires that contractors perform periodic studies
comparing the value or costs of their employee benefit plans to those
of a group of comparable organizations and that the relative value or
cost of their plans be below certain limits.
* Under Order 350.1, DOE determines whether contractors’ benefits costs
are reasonable and allowable and therefore reimbursable by having
contractors benchmark their total benefit package by using one of the
following:
- Benefit Value Study: compares the value of total benefits offered by
the contractor, such as qualified pension plans and health benefits,
with the value of total benefits of at least 15 comparable
organizations—at most 20 percent of these organizations can be DOE
contractors. A national actuarial consulting firm makes this comparison
every 3 years.
- U.S. Chamber of Commerce Employee Benefit Survey Comparison (cost
study): an annual analysis of the cost of benefits on a per capita
basis compared with the costs reported in the annual U.S. Chamber of
Commerce Employee Benefits Study.
* Order 350.1 states that if the value or cost of a contractor’s total
benefit package exceeds 105 percent of the average of the comparison
group, the DOE contracting officer may require a Corrective Action Plan
that identifies changes that would bring the benefits into conformance
with the comparison group.
* Some DOE contracts currently exceed the 105 percent threshold but do
not have Corrective Action Plans in place. (See encl. II.)
* The allowability of costs incurred by educational institutions,
including benefit costs, are governed by the cost principles in OMB
Circular A-21, Cost Principles for Educational Institutions rather than
DOE Order 350.1. Some universities are the M&O contractors of DOE
laboratories. For example, the University of California operates
Lawrence Berkeley National Laboratory, and Stanford University operates
the Stanford Linear Accelerator Center.
* DOE Order 350.1 states that reimbursable contributions for defined
benefit pension plans shall not exceed the greater of (1) the plan’s
unfunded current liability as defined by the Employee Retirement Income
Security Act of 1974 (ERISA) or (2) the amount required to satisfy the
ERISA minimum funding standard.
* ERISA establishes minimum funding standards for the amounts that plan
sponsors must set aside in order to fund defined benefit pension
obligations. These prefunding requirements apply to private sector DOE
contractors that offer defined benefit pensions.
* Defined benefit pension plans sponsored by state and local
governments, such as the University of California retirement plan, are
exempt from most ERISA requirements. However, these pension plans are
generally governed by state and local laws that also typically provide
for setting aside funds to pay for future pension benefits when they
are due.
* Unlike defined benefit pension plans, there are no federal law
requirements and few incentives for private sector employers to prefund
other postretirement benefits, including postretirement health care
benefit plans. Similarly, there are generally no requirements for state
and local governments to prefund government-sponsored postretirement
benefit plans.
* Typically, plan sponsors do not prefund postretirement health
benefits.DOE contractors generally pay for postretirement health and
other benefit plans on a pay-as-you-go basis (PAYGO). In turn, DOE
reimburses contractors under PAYGO for the amount needed to meet the
employer’s annual share of these costs.
* DOE’s policy in Order 350.1 for both contractor pension and
postretirement benefit plans is to continue to reimburse the costs of
benefits earned by existing plan participants subsequent to contract
termination or expiration, according to the approved benefit plans and
on a funding basis most reasonable to DOE.
* Consistent with Order 350.1, DOE’s M&O and other site contracts also
generally provide that in the event of contract termination or
expiration DOE will provide for benefit continuation and reimbursement
of related costs through the existing contractor or a replacement
contractor.
* For financial accounting purposes, DOE records an expense for the
amount of cost reimbursements to contractors, including benefit plan
costs. DOE also records a liability or asset in its financial
statements for the funded status (plan obligations less plan assets) of
contractor pension and postretirement plans in accordance with
Statement of Financial Accounting Standards (SFAS) No. 158, Employers’
Accounting for Defined Benefit Pension and Other Postretirement Plans.
[Footnote 4]
Background: Trends in the Funded Status of DOE Contractors’ Defined
Benefit Pension and Postretirement Benefits, Fiscal Years 1997-2007:
* From fiscal years 2001 through 2005, the funded status of
contractors’ defined benefit plans declined rapidly. Further, as shown
in figures 1 and 2 on the following pages: [Footnote 5]
- The funded status of defined benefit pensions can fluctuate
significantly from one year to the next. For example, the net funded
status of contractor pension plans changed from an underfunding of $4.5
billion in fiscal year 2006 to an underfunding of $69.5 million in
fiscal year 2007. This change was primarily due to a significant
increase in the returns on plan investments and an increase in the
discount rate used to estimate the current value of expected benefit
payments.
- From fiscal years 1997 to 2007, the net funded status of contractor
postretirement benefits generally declined from an underfunding of $5.0
billion to $10.3 billion. These benefit obligations will represent an
ongoing liability to DOE because, unlike defined benefit pensions,
these benefits generally are not funded in advance of being paid.
Figure 1: Funded Status of DOE Contractors’ Defined Benefit Pension
Plans, Fiscal Years 1997-2007:
[See PDF for image]
This figure is a vertical bar graph depicting the following data:
Year: 1997;
Funded Status of DOE Contractors’ Defined Benefit Pension Plans: $4.1
billion.
Year: 1998;
Funded Status of DOE Contractors’ Defined Benefit Pension Plans: $5.2
billion.
Year: 1999;
Funded Status of DOE Contractors’ Defined Benefit Pension Plans: $8.2
billion.
Year: 2000;
Funded Status of DOE Contractors’ Defined Benefit Pension Plans: $10.2
billion.
Year: 2001;
Funded Status of DOE Contractors’ Defined Benefit Pension Plans: $5.1
billion.
Year: 2002;
Funded Status of DOE Contractors’ Defined Benefit Pension Plans: -$1.0
billion.
Year: 2003;
Funded Status of DOE Contractors’ Defined Benefit Pension Plans: -$3.6
billion.
Year: 2004;
Funded Status of DOE Contractors’ Defined Benefit Pension Plans: -$4.1
billion.
Year: 2005;
Funded Status of DOE Contractors’ Defined Benefit Pension Plans: -$5.7
billion.
Year: 2006;
Funded Status of DOE Contractors’ Defined Benefit Pension Plans: -$4.5
billion;
Year: 2007;
Funded Status of DOE Contractors’ Defined Benefit Pension Plans: -$0.1
billion.
Source: DOE.
[End of figure]
Figure 2: Funded Status of DOE Contractors’ Postretirement Benefit
Plans, Fiscal Years 1997-2007:
[See PDF for image]
This figure is a vertical bar graph depicting the following data:
Year: 1997;
Funded Status of DOE Contractors’ Postretirement Benefit Plans: -$5.0
billion.
Year: 1998;
Funded Status of DOE Contractors’ Postretirement Benefit Plans: -$5.3
billion.
Year: 1999;
Funded Status of DOE Contractors’ Postretirement Benefit Plans: -$4.6
billion.
Year: 2000;
Funded Status of DOE Contractors’ Postretirement Benefit Plans: -$5.4
billion.
Year: 2001;
Funded Status of DOE Contractors’ Postretirement Benefit Plans: -$6.8
billion.
Year: 2002;
Funded Status of DOE Contractors’ Postretirement Benefit Plans: -$8.3
billion.
Year: 2003;
Funded Status of DOE Contractors’ Postretirement Benefit Plans: -$9.7
billion.
Year: 2004;
Funded Status of DOE Contractors’ Postretirement Benefit Plans: -$9.9
billion.
Year: 2005;
Funded Status of DOE Contractors’ Postretirement Benefit Plans: -$11.4
billion.
Year: 2006;
Funded Status of DOE Contractors’ Postretirement Benefit Plans: -$11.3
billion.
Year: 2007;
Funded Status of DOE Contractors’ Postretirement Benefit Plans: -$10.3
billion.
Source: DOE.
[End of figure]
Background: DOE Notice 351.1, Contractor Employee Pension and Medical
Benefits Policy:
* To address its growing liabilities and concerns about market
volatility and cost unpredictability, in fiscal year 2005, DOE
negotiated the terms for three contracts (the Idaho Cleanup Project,
the Advanced Mixed Waste Treatment Project, and the Idaho National
Laboratory) for a single site that limited DOE’s benefit cost
reimbursements for new, or “nonincumbent,” employees to a market-based
benefits package that included defined contribution pension plans.
* In April 2006, DOE issued Notice 351.1, which laid out its policy for
benefit cost reimbursements for all contractors. This notice:
- distinguished between (1) incumbent employees, who were defined as
eligible retirees and employees on the contractor’s payroll prior to
the date a market-based plan is established under the contract, and (2)
new employees hired after this date; and;
- stated that DOE would continue to reimburse contractors for the
allowable benefit costs for existing benefits for incumbent employees,
subject to applicable laws and regulations.
* Notice 351.1 provided that DOE would reimburse contractors for
“market-based” pension and health benefit plans for new employees.
- A pension plan was deemed “market-based” if (1) the pension plan was
a defined contribution plan and (2) the benefit value and per capita
cost of the contractor’s pension plan and the total benefit package did
not exceed the comparison group’s average by more than 5 percent.
- A health plan was deemed “market-based” if the benefit value and per
capita cost of the contractor’s health plan and the total benefit
package did not exceed the comparison group’s average by more than 5
percent.
* DOE stated that Notice 351.1’s goals were to improve DOE’s
stewardship of taxpayer dollars by (1) mitigating the cost growth
associated with benefit liabilities, (2) moderating the volatility and
improving the predictability of DOE’s cost reimbursement obligations
for benefits, (3) ensuring that costs for contractor employee pension
and medical benefits are more consistent with market trends, and (4)
ensuring fairness to incumbent contractor employees.
* DOE suspended Notice 351.1 in June 2006 and decided not to reissue it
in June 2007.
* It is no longer DOE’s policy to (1) limit contractors’ reimbursable
pension benefit costs for new employees’ to defined contribution plans
or (2) compare the value and cost of the individual pension and health
plans of a contractor with those of its comparison group.
* Order 350.1 remains DOE’s controlling policy for reimbursing
contractors’ pension and postretirement benefit costs. DOE continues to
follow the Order 350.1 provision that could limit reimbursement if a
contractor’s total benefit value or cost study score for all benefits
exceeds the 105 percent benchmark of the comparison group, but is
applying this provision primarily to new employees.
Objectives:
The joint explanatory statement that accompanies the Consolidated
Appropriations Act, 2008, directed us to assess the adequacy of DOE’s
analysis of pension and medical liabilities. Our objectives were to
provide information on:
* DOE’s analysis supporting its approval of the April 2006 policy
changes in Notice 351.1;
* DOE’s liabilities broken out by contractors’ defined benefit pension
and postretirement plan components and among its M&O and other site
contracts, and;
* DOE’s recent actions to manage its future costs and liabilities.
Scope and Methodology:
* Regarding DOE’s analysis supporting its approval of the policy
changes contained in Notice 351.1, we reviewed information DOE provided
to us in response to our request for any supporting documentation and
decision documents related to the policy changes. We also interviewed
DOE officials.
* Regarding the distribution of DOE’s liabilities for contractor
defined benefit pension and postretirement plans, we reviewed plan data
supporting the components of DOE’s liabilities reported in its fiscal
year 2004-2007 financial statements, documentation of the work
performed by independent auditors on DOE’s liabilities for those years,
the trends in plan liabilities and costs, and information DOE provided
to us in support of plan changes whose impact on plan obligations were
reflected in fiscal years 2006 and 2007. We also interviewed DOE
officials.
* Regarding DOE’s actions to manage future costs and liabilities, we
reviewed policies for reimbursement of contractor pension and
postretirement benefit costs in DOE Order 350.1 and DOE Notice 351.1.
We also reviewed the employee benefit plan clauses included in M&O and
other site contracts that were awarded between January 2005 and March
2008. We interviewed cognizant DOE officials to determine DOE’s
approach for revising contract clauses for pensions and postretirement
benefits. Based on information that DOE provided to us, we also
compiled a list of contractors whose most recent benefit value study
score exceeded 105 percent of the average of their comparison group.
* We conducted our work from October 2007 through June 2008 in
accordance with generally accepted government auditing standards. These
standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe that
the evidence obtained provides a reasonable basis for our findings and
conclusions based on our audit objectives.
Limitations:
* In doing this work, we limited our review to DOE’s policies for
reimbursing allowable contractor benefit costs.
* We also did not audit or verify data provided by DOE or its
contractors for individual benefit plan activity and balances, although
we determined that these data were in the aggregate consistent with
amounts and other information in DOE’s financial statements and
sufficiently reliable for our purposes. In addition, we did not audit
or verify the amount or timing of payments by DOE to its contractors
for allowable benefit costs or any other costs.
* Further, the limited number of plan changes we reviewed did not
provide a basis for a conclusion on DOE’s internal controls over
benefit plan changes.
* Our review of DOE’s actions to manage future costs and liabilities
did not include identifying all actions DOE may have taken or
evaluating the nature, extent, or effect of any such actions. Further,
we neither verified the accuracy of the results of the benefit value
studies, nor did we evaluate contractors’ conformance with DOE’s
requirements and guidance for the preparation of such studies.
DOE’s Analysis Supporting Approval of Policy Changes in Notice 351.1:
* Because DOE is ultimately responsible for reimbursing its contractors
for allowable pension and postretirement benefit plan costs and records
a liability or asset in its financial statements for the plans’ funded
status, it is important that DOE effectively oversee and monitor these
programs.
* DOE’s responsibility for overseeing and monitoring contractors is
distributed across the organization and includes program, contracting,
legal, financial, and other personnel at headquarters and site offices.
* Standards for Internal Control in the Federal Government (GAO/AIMD-00-
21.3.1) provides guidance for management’s ongoing monitoring of an
organization’s performance and the establishment and implementation of
control activities to ensure that management’s directives are carried
out.
* A program of oversight and monitoring can provide DOE management with
the information necessary to, among other things, establish and adjust
benefit policies, evaluate the effectiveness of cost control and
liability management strategies, and evaluate the near-and long-term
affordability of benefit plans.
* To understand DOE’s process for making changes to contractor benefit
policies, we requested DOE documentation of analyses conducted in
support of the policy changes contained in its April 2006 Notice351.1.
These changes included the limitation that beginning no later than
March 1, 2007, DOE would only reimburse contractors for the cost of
“market-based” benefit programs, as defined in the Notice, for new
employees. Market-based for pension plans meant that the plan was a
defined contribution plan and the costs for the plan did not exceed
market averages by greater than 5 percent. Health benefit plans were
also considered market-based when costs did not exceed market averages
by greater than 5 percent.
* DOE officials told us that the decisions underlying the policy
changes in Notice 351.1 were informed over a period of years by the
trends in cost reimbursements, budgetary uncertainties, and by
consulting actuaries and others, including DOE Inspector General
reports and our reports.
* In response to our request for any supporting documentation and
decision documents related to the April 2006 Notice 351.1, DOE provided
us with information dated as early as March 2005, including internal
memoranda and briefings, tables and calculations of historical and
projected contractor benefit costs and liabilities, and correspondence
with members of Congress and a briefing paper for congressional
committees.
* This documentation demonstrates that DOE recognized the historical
and possible future trend of its liabilities and costs related to
contractor benefit plans.
* However, DOE officials acknowledged that there was no formal,
compiled record or summary analysis of the documentation and factors
considered before Notice 351.1 was issued.
* We found that the documentation provided to us contained only limited
evidence that DOE had considered policy alternatives, the sensitivities
of stakeholders to the policy choices reflected in Notice 351.1, or the
near-and long-term financial and mission impacts of the changes made.
* Further, the decision document reflecting the Deputy Secretary’s
approval of Notice 351.1 did not include the basis on which approval
was recommended. However, DOE officials told us that issuance of the
Notice adequately demonstrated evidence of internal consideration and
senior-level approval of Notice 351.1.
Distribution of DOE’s Liabilities for Contractors’ Defined Benefit
Plans:
* As of September 30, 2007, benefit obligations for DOE contractors’
defined benefit pension and postretirement plans were about $27.5
billion and $10.5 billion, respectively. With assets of $27.4 billion
and $161.6 million, the resulting net funded status (net liability) was
$69.5 million and $10.3 billion for the pension and postretirement
plans, respectively.
Table:
Components of funded status: Benefit obligations[A];
Pension plans: ($27,512.9) million;
Postretirement plans: ($10,318.6) million.
Components of funded status: Assets[B];
Pension plans: $27,443.4 million;
Postretirement plans: $161.6 million.
Components of funded status: Funded status (Net liability);
Pension plans: ($69.5) million;
Postretirement plans: ($10,480.2) million.
Source: GAO analysis of DOE and plan data.
[A] Benefit obligations represent the actuarial present value of
benefits attributable to employee service prior to the valuation date.
[B] Accounting standards require that plan assets, such as equity and
debt securities, be valued at fair value.
[End of table]
* Enclosures III and IV provide the Distribution of the Funded Status
of Defined Benefit Pension and Postretirement Plans for Fiscal Years
2007–2004.
* As discussed in the background section, DOE reimburses its
contractors for allowable pension and postretirement benefit costs.
Contractors’ methods for funding these benefit costs –generally either
by setting aside funds while employees are working (pension) or on a
PAYGO basis after employees have retired (postretirement) –directly
impact the funded status of the plans.
* The funded status –net (liability) or net asset –of DOE contractor
benefit plans can change from one year to the next as benefits accrue
and are paid. The funded status can also change due to other factors,
including:
- the amount of contractor contributions;
- changes in actuarial assumptions, such as the interest rate used to
discount expected future benefits to a present value;
- plan experience, such as actual health care costs and returns on
pension plan investments that are different than what was assumed; and;
- changes to benefits that employees receive or the portion of benefit
costs borne by the employer.
Distribution of DOE’s Liabilities for Contractors’ Defined Benefit
Plans: Pension:
* The net liability of DOE contractors’ defined benefit pension plans
at the end of fiscal year 2007 was $69.5 million. However, as shown in
the table on the next page, 12 plans are overfunded and 34 plans are
underfunded.
- Of the 12 overfunded plans, 11 are sponsored by National Nuclear
Security Administration (NNSA) and Office of Science contractors. These
plans represent 98 percent of the $1.9 billion in pension overfunding,
with the plans for three facilities representing 56 percent of the
total overfunding.
- Of the 34 underfunded plans, 9 are sponsored by Office of
Environmental Management contractors. These plans represent 61 percent
of the $2.0 billion in total pension underfunding, with the plans for
two facilities representing 57 percent of the total underfunding.
* Enclosure V provides the Components of the Funded Status of Defined
Benefit Pension Plans for Fiscal Year 2007.
* Enclosure VI provides the Distribution of the Number of Defined
Benefit Pension Plan Participants as of October 1, 2006.
* Enclosure VII provides the Distribution of the Funded Status of
Defined Benefit Pension Plans by DOE Organization for Fiscal Years
2007–2004.
Table: Components of the Reported Funded Status of DOE’s Contractors’
Defined Benefit Pension Plans and Other Plan Information: Dollars in
millions (except where stated otherwise):
Components of funded status: Benefit obligations;
As of September 30, 2007, All plans: ($27,512.9);
As of September 30, 2007, Overfunded plans: ($16,741.1);
As of September 30, 2007, Underfunded plans: ($10,771.8).
Components of funded status: Assets;
As of September 30, 2007, All plans: $27,443.4;
As of September 30, 2007, Overfunded plans: $18,647.9;
As of September 30, 2007, Underfunded plans: $8,795.5.
Components of funded status: Funded status –Net (liability) asset;
As of September 30, 2007, All plans: ($69.5);
As of September 30, 2007, Overfunded plans: $1,906.8;
As of September 30, 2007, Underfunded plans: ($1,976.3).
Other plan information: Number of plans;
As of September 30, 2007, All plans: 46;
As of September 30, 2007, Overfunded plans: 12;
As of September 30, 2007, Underfunded plans: 34.
Other plan information: Number of participants (active/total, in
thousands)[A];
As of September 30, 2007, All plans: 77.7/180.0;
As of September 30, 2007, Overfunded plans: 28.4/75.0;
As of September 30, 2007, Underfunded plans: 49.3/105.0.
Other plan information: Employer contributions;
As of September 30, 2007, All plans: $387.4;
As of September 30, 2007, Overfunded plans: $1.1;
As of September 30, 2007, Underfunded plans: $386.3.
Other plan information: Employee contributions;
As of September 30, 2007, All plans: $3.0;
As of September 30, 2007, Overfunded plans: $0.2;
As of September 30, 2007, Underfunded plans: $2.8.
Other plan information: Benefit payments;
As of September 30, 2007, All plans: $1,311.5;
As of September 30, 2007, Overfunded plans: $847.6;
As of September 30, 2007, Underfunded plans: $463.9.
Source: GAO analysis of DOE and plan data.
[A] The number of participants are as of October 1, 2006.
[End of table]
Distribution of DOE’s Liabilities for Contractors’ Defined Benefit
Plans: Postretirement:
* DOE’s contractors sponsor various postretirement benefit plans.
According to DOE, as of September 30, 2007, these included health (41
contractors), dental (19 contractors), life insurance (23 contractors),
and Medicare Part B premium reimbursement (5 contractors).
* The net liability of DOE contractors’ postretirement benefit plans at
the end of fiscal year 2007 was $10.3 billion. This figure is net of
$161.6 million in assets, $120.6 million of which is attributable to a
life insurance plan for employees of a single facility.
* Enclosure VIII provides the Distribution of the Funded Status of
Defined Benefit Postretirement Plans by DOE Organization for Fiscal
Years 2007–2004.
Distribution of DOE’s Liabilities for Contractors’ Defined Benefit
Plans: Approval of Plan Changes:
* A key control step in monitoring contractors’ benefit plans is the
requirement that contractors provide DOE with documentation in advance
for its review that shows the impact proposed plan changes have on
employer contributions and relative benefit values, according to DOE
officials.
* To understand DOE’s process for approving plan changes, we reviewed
the documentation supporting four plan changes whose financial effects
were reflected in DOE’s fiscal year 2006 and 2007 financial statements.
For these four plan changes: one increased pension obligations by
almost $4 million (0.2 percent of plan obligations), one reduced
retiree health obligations by $105.8 million (7.8 percent of plan
obligations), and two reduced retiree life insurance obligations by a
total of $112.3 million (5.5 percent of plan obligations).
* DOE provided us with information submitted by contractors to support
plan changes, including the following required by Order 350.1: (1) the
effect of the plan change on the contract net benefit value or per
capita benefit costs, (2) the dollar estimate of savings or costs, and
(3) the basis for determining the estimated savings or costs.
* DOE approved all the requested plan changes in the limited sample
that we reviewed; however, the documentation provided to us did not
clearly reflect the basis on which DOE made its decisions to approve
these plan changes.
DOE’s Actions to Manage Future Contractor Employee Benefit Costs and
Liabilities:
* DOE suspended Notice 351.1 in June 2006. It is no longer DOE’s policy
to restrict reimbursements for contractors’ benefit costs for new
employees only if:
- these employees participate in a “market-based” pension plan, which
the Notice defined as a defined contribution plan; and;
- the benefit value and cost study scores of individual pension and
health benefit plans for these employees do not exceed the 105 percent
benchmark of the comparison group.
* Order 350.1 remains DOE’s controlling policy for reimbursing
contractors’ pension and postretirement benefit costs. In addition,
recent contracts:
- define “market-based” benefits to mean that all new employees’
benefits do not exceed 105 percent of the comparison group’s average
total benefit value and cost study scores, and;
- direct contractors to perform a benefit value study every 2 years and
a cost study annually to determine if contractor employees’ pensions
and benefits are market based.
* DOE has awarded 14 M&O and other site contracts that contain these
new provisions for pension and postretirement benefits. DOE contractors
have used different approaches to conform with DOE’s contract
provisions:
- Contractors with benefit value scores well above the 105 percent
benchmark have generally established two tiers of benefits: one market-
based benefits plan for new employees and the existing plan or an
equivalent for incumbents.
- Contractors with benefit value scores close to the 105 percent
benchmark have generally not established a second tier for new
employees, but rather have slightly modified existing benefits for all
employees. DOE has approved these modified benefits plans.
* Of the 14 contracts with the new provisions, NNSA awarded 2,
Environmental Management awarded 6, and the Office of Science awarded
6. (See encl. IX.)
- The two NNSA contractors have created a new second tier of benefits
for new employees that provide 401(k)-defined contribution pension
plans and eliminate the contractor’s contribution to postretirement
health benefits.
- The six Environmental Management contractors have generally created a
new second tier of benefits for new employees, usually involving a
defined contribution pension plan.
- The six Office of Science contractors generally have not established
a second tier of benefits for new employees. Contractors already had
benefit value scores which were below or slightly over the 105 percent
benchmark.
* DOE’s primary goal is to make employee benefits costs more
predictable because, according to DOE officials, recent fluctuations in
costs for contractors’ employee pension benefits had made it difficult
for DOE to reasonably estimate these costs when developing its annual
budget proposals.
* DOE expects that these new provisions will not substantially affect
pension and postretirement benefits costs and liabilities for the next
20 to 30 years because (1) they are only being included when contracts
are being recompeted and (2) these changes are directed at new
employees. Incumbents—eligible retirees and employees on a contractor’s
payroll before the new contract’s effective date—will continue to
receive their existing benefits, or a substantial equivalent. However,
if the incumbent employees’ total benefits package is over the 105-
percent benchmark, the contractor may be required to submit and
implement a Corrective Action Plan.
[End of enclosure]
Enclosure II: DOE Contracts with Benefit Value Scores that Exceed DOE
Order 350.1's Benchmark of 105 Percent:
Facility: Los Alamos National Laboratory;
Responsible DOE Office: NNSA;
Date of most recent benefit value study[B]: January 2006;
Is a Corrective Action Plan in place? No. DOE reported that the benefit
value score for market-based benefits included both new employee
benefits and some incumbent employee benefits. When incumbent benefits
are removed from the calculation, the benefit value score is below the
105 percent benchmark.
Facility: Lawrence Livermore National Laboratory;
Responsible DOE Office: NNSA;
Date of most recent benefit value study[B]: May 2007;
Is a Corrective Action Plan in place? No. NNSA is waiting for results
of future Benefit Value Study in summer 2008.
Facility: Sandia National Laboratories;
Responsible DOE Office: NNSA;
Date of most recent benefit value study[B]: February 2006;
Is a Corrective Action Plan in place? No. NNSA has requested additional
information on contractor's benefits.
Facility: Hanford site[A];
Responsible DOE Office: Environmental Management;
Date of most recent benefit value study[B]: August 2006;
Is a Corrective Action Plan in place? Yes.
Facility: Oak Ridge Environmental Management;
Responsible DOE Office: Environmental Management;
Date of most recent benefit value study[B]: March 2005;
Is a Corrective Action Plan in place? Yes.
Facility: Argonne National Laboratory;
Responsible DOE Office: Science;
Date of most recent benefit value study[B]: August 2007;
Is a Corrective Action Plan in place? No. Contractor raised employee
contribution to health care premiums instead.
Facility: Fermi National Accelerator Laboratory;
Responsible DOE Office: Science;
Date of most recent benefit value study[B]: June 2007;
Is a Corrective Action Plan in place? Contractor is currently
developing Corrective Action Plan.
Facility: Lawrence Berkeley National Laboratory;
Responsible DOE Office: Science;
Date of most recent benefit value study[B]: June 2006;
Is a Corrective Action Plan in place? No. Contractor is not required to
implement Corrective Action Plan per OMB Circular A-121.
Facility: Thomas Jefferson National Accelerator Facility;
Responsible DOE Office: Science;
Date of most recent benefit value study[B]: November 2007;
Is a Corrective Action Plan in place?: No.
Source: DOE contractor benefit value studies.
[A] The Hanford site includes the following four site contracts: River
Corridor Closure, 222-S Analytical Laboratory Services and Testing,
Project Hanford Management, and River Protection Tank Farm.
[B] We are not providing the reported benefit value scores for these
facilities because DOE believes that this information may be
proprietary.
[End of table]
[End of enclosure]
Enclosure III: Distribution of the Funded Status of Defined Benefit
Pension Plans for Fiscal Years 2007-2004 (Dollars in millions):
Facility number[A]: 1;
Fiscal years: 2007: ($672.49);
Fiscal years: 2006: ($964.96);
Fiscal years: 2005: ($1,175.93);
Fiscal years: 2004: ($987.43).
Facility number[A]: 2;
Fiscal years: 2007: ($457.30);
Fiscal years: 2006: ($632.53);
Fiscal years: 2005: ($688.31);
Fiscal years: 2004: ($622.25).
Facility number[A]: 3;
Fiscal years: 2007: (134.46);
Fiscal years: 2006: ($279.03);
Fiscal years: 2005: ($328.26);
Fiscal years: 2004: ($299.65).
Facility number[A]: 4;
Fiscal years: 2007: ($104.18);
Fiscal years: 2006: ($157.21);
Fiscal years: 2005: ($178.46);
Fiscal years: 2004: ($138.77).
Facility number[A]: 5;
Fiscal years: 2007: ($84.06);
Fiscal years: 2006: ($85.79);
Fiscal years: 2005: ($79.42);
Fiscal years: 2004: ($74.05).
Facility number[A]: 6;
Fiscal years: 2007: ($75.35);
Fiscal years: 2006: ($157.72);
Fiscal years: 2005: ($223.45);
Fiscal years: 2004: ($220.83).
Facility number[A]: 7;
Fiscal years: 2007: ($56.56);
Fiscal years: 2006: ($116.32);
Fiscal years: 2005: ($132.57);
Fiscal years: 2004: ($117.77).
Facility number[A]: 8;
Fiscal years: 2007: ($56.02);
Fiscal years: 2006: ($201.67);
Fiscal years: 2005: ($290.49);
Fiscal years: 2004: ($227.56).
Facility number[A]: 9;
Fiscal years: 2007: ($53.80);
Fiscal years: 2006: ($91.73);
Fiscal years: 2005: ($113.90);
Fiscal years: 2004: ($91.33).
Facility number[A]: 10;
Fiscal years: 2007: ($48.15);
Fiscal years: 2006: ($72.48);
Fiscal years: 2005: ($84.82);
Fiscal years: 2004: ($72.29).
Facility number[A]: 11;
Fiscal years: 2007: ($46.24);
Fiscal years: 2006: ($148.93);
Fiscal years: 2005: ($189.88);
Fiscal years: 2004: ($115.76).
Facility number[A]: 12;
Fiscal years: 2007: ($43.41);
Fiscal years: 2006: ($88.65);
Fiscal years: 2005: ($101.82);
Fiscal years: 2004: ($94.95).
Facility number[A]: 13;
Fiscal years: 2007: ($15.60);
Fiscal years: 2006: ($25.32);
Fiscal years: 2005: ($30.34);
Fiscal years: 2004: ($25.82).
Facility number[A]: 14;
Fiscal years: 2007: ($14.37);
Fiscal years: 2006: ($33.81);
Fiscal years: 2005: ($52.48);
Fiscal years: 2004: ($40.59).
Facility number[A]: 15;
Fiscal years: 2007: ($12.03);
Fiscal years: 2006: ($26.80);
Fiscal years: 2005: ($29.66);
Fiscal years: 2004: ($29.92).
Facility number[A]: 16;
Fiscal years: 2007: ($11.45);
Fiscal years: 2006: ($33.49);
Fiscal years: 2005: ($30.08);
Fiscal years: 2004: ($52.18).
Facility number[A]: 17;
Fiscal years: 2007: ($5.77);
Fiscal years: 2006: ($27.20);
Fiscal years: 2005: ($25.81);
Fiscal years: 2004: ($16.22).
Facility number[A]: 18;
Fiscal years: 2007: ($2.88);
Fiscal years: 2006: ($4.63);
Fiscal years: 2005: ($7.43);
Fiscal years: 2004: ($5.60).
Facility number[A]: 19;
Fiscal years: 2007: ($0.03);
Fiscal years: 2006: ($0.08);
Fiscal years: 2005: ($0.13);
Fiscal years: 2004: ($0.18).
Facility number[A]: 20;
Fiscal years: 2007: $0.20;
Fiscal years: 2006: $0.17;
Fiscal years: 2005: $0.18;
Fiscal years: 2004: $0.19.
Facility number[A]: 21;
Fiscal years: 2007: $14.74;
Fiscal years: 2006: ($777.81);
Fiscal years: 2005: ($959.35);
Fiscal years: 2004: ($409.09).
Facility number[A]: 22;
Fiscal years: 2007: $30.18;
Fiscal years: 2006: $18.46;
Fiscal years: 2005: $16.14;
Fiscal years: 2004: $20.40.
Facility number[A]: 23;
Fiscal years: 2007: $105.36;
Fiscal years: 2006: ($105.55);
Fiscal years: 2005: ($183.16);
Fiscal years: 2004: ($137.94).
Facility number[A]: 24;
Fiscal years: 2007: $278.48;
Fiscal years: 2006: $29.49;
Fiscal years: 2005: ($20.30);
Fiscal years: 2004: $10.62.
Facility number[A]: 25;
Fiscal years: 2007: $392.84;
Fiscal years: 2006: ($194.61);
Fiscal years: 2005: ($411.72);
Fiscal years: 2004: ($176.15).
Facility number[A]: 26;
Fiscal years: 2007: $466.19;
Fiscal years: 2006: ($540.55);
Fiscal years: 2005: ($593.87);
Fiscal years: 2004: ($310.48).
Facility number[A]: 27;
Fiscal years: 2007: $536.63;
Fiscal years: 2006: $219.52;
Fiscal years: 2005: $195.21;
Fiscal years: 2004: $118.20.
Facility number[A]: Total;
Fiscal years: 2007: ($69.53);
Fiscal years: 2006: ($4,499.23);
Fiscal years: 2005: ($5,720.11);
Fiscal years: 2004: ($4,117.40).
Source: DOE and plan data.
[A] DOE currently has 43 contracts for operations at DOE-owned
facilities. The names of these facilities and other information that
could identify a particular facility or contractor have been removed
because DOE believes that the plans' funded status may be proprietary.
Further, the funded status of all contractor plans was combined for
purposes of reporting by facility. Consequently, there are facilities
for which the overfunding and underfunding of different plans are
netted even though the assets of one plan generally cannot be used to
pay the benefits and other expenses of another plan. The data in this
enclosure are presented in ascending order based on fiscal year 2007
funded status amounts. Data for facilities with a zero funded status
for each of the fiscal years presented are not reflected in this
enclosure. The facility numbers in this enclosure do not necessarily
correspond to the same facilities as numbered in the report's other
enclosures.
[End of table]
[End of enclosure]
Enclosure IV: Distribution of the Funded Status of Defined Benefit
Postretirement Plans for Fiscal Years 2007-2004: (Dollars in millions):
Facility number[A]: 1;
Fiscal years: 2007: ($1,545.92);
Fiscal years: 2006: ($1,731.87);
Fiscal years: 2005: ($1,704.73);
Fiscal years: 2004: ($1,467.22).
Facility number[A]: 2;
Fiscal years: 2007: ($1,251.09);
Fiscal years: 2006: ($1,407.46);
Fiscal years: 2005: ($1,215.83);
Fiscal years: 2004: ($972.53).
Facility number[A]: 3;
Fiscal years: 2007: ($1,246.11);
Fiscal years: 2006: ($1,388.01);
Fiscal years: 2005: ($1,333.26);
Fiscal years: 2004: ($974.72).
Facility number[A]: 4;
Fiscal years: 2007: ($1,099.62);
Fiscal years: 2006: ($1,153.63);
Fiscal years: 2005: ($1,243.23);
Fiscal years: 2004: ($916.69).
Facility number[A]: 5;
Fiscal years: 2007: ($859.05);
Fiscal years: 2006: ($885.46);
Fiscal years: 2005: ($924.70);
Fiscal years: 2004: ($897.11).
Facility number[A]: 6;
Fiscal years: 2007: ($650.97);
Fiscal years: 2006: ($733.34);
Fiscal years: 2005: ($768.20);
Fiscal years: 2004: ($773.18).
Facility number[A]: 7;
Fiscal years: 2007: ($567.97);
Fiscal years: 2006: ($606.03);
Fiscal years: 2005: ($639.84);
Fiscal years: 2004: ($640.85).
Facility number[A]: 8;
Fiscal years: 2007: ($410.24);
Fiscal years: 2006: ($463.21);
Fiscal years: 2005: ($567.48);
Fiscal years: 2004: ($579.05).
Facility number[A]: 9;
Fiscal years: 2007: ($398.10);
Fiscal years: 2006: ($433.74);
Fiscal years: 2005: ($437.67);
Fiscal years: 2004: ($373.63).
Facility number[A]: 10;
Fiscal years: 2007: ($353.36);
Fiscal years: 2006: ($392.37);
Fiscal years: 2005: ($365.66);
Fiscal years: 2004: ($287.56).
Facility number[A]: 11;
Fiscal years: 2007: ($322.57);
Fiscal years: 2006: ($323.24);
Fiscal years: 2005: ($355.51);
Fiscal years: 2004: ($319.46).
Facility number[A]: 12;
Fiscal years: 2007: ($242.30);
Fiscal years: 2006: ($295.05);
Fiscal years: 2005: ($329.13);
Fiscal years: 2004: ($302.16).
Facility number[A]: 13;
Fiscal years: 2007: ($195.99);
Fiscal years: 2006: ($202.55);
Fiscal years: 2005: ($214.24);
Fiscal years: 2004: ($178.81).
Facility number[A]: 14;
Fiscal years: 2007: ($179.47);
Fiscal years: 2006: ($201.76);
Fiscal years: 2005: ($217.63);
Fiscal years: 2004: ($229.83).
Facility number[A]: 15;
Fiscal years: 2007: ($143.45);
Fiscal years: 2006: ($155.19);
Fiscal years: 2005: ($162.73);
Fiscal years: 2004: ($159.76).
Facility number[A]: 16;
Fiscal years: 2007: ($116.38);
Fiscal years: 2006: ($123.30);
Fiscal years: 2005: ($176.38);
Fiscal years: 2004: ($155.81).
Facility number[A]: 17;
Fiscal years: 2007: ($111.52);
Fiscal years: 2006: ($113.62);
Fiscal years: 2005: ($115.85);
Fiscal years: 2004: ($99.67).
Facility number[A]: 18;
Fiscal years: 2007: ($98.36);
Fiscal years: 2006: ($116.96);
Fiscal years: 2005: ($113.49);
Fiscal years: 2004: ($101.07).
Facility number[A]: 19;
Fiscal years: 2007: ($93.74);
Fiscal years: 2006: ($88.91);
Fiscal years: 2005: ($63.36);
Fiscal years: 2004: ($52.09).
Facility number[A]: 20;
Fiscal years: 2007: ($71.27);
Fiscal years: 2006: ($80.25);
Fiscal years: 2005: ($84.50);
Fiscal years: 2004: ($80.42).
Facility number[A]: 21;
Fiscal years: 2007: ($61.76);
Fiscal years: 2006: ($62.12);
Fiscal years: 2005: $0.00;
Fiscal years: 2004: $0.00.
Facility number[A]: 22;
Fiscal years: 2007: ($59.86);
Fiscal years: 2006: ($84.72);
Fiscal years: 2005: ($86.13);
Fiscal years: 2004: ($78.39).
Facility number[A]: 23;
Fiscal years: 2007: ($58.48);
Fiscal years: 2006: ($83.63);
Fiscal years: 2005: ($100.46);
Fiscal years: 2004: ($86.76).
Facility number[A]: 24;
Fiscal years: 2007: ($54.23);
Fiscal years: 2006: ($56.38);
Fiscal years: 2005: ($61.00);
Fiscal years: 2004: ($54.59).
Facility number[A]: 25;
Fiscal years: 2007: ($41.34);
Fiscal years: 2006: ($43.28);
Fiscal years: 2005: ($42.05);
Fiscal years: 2004: ($37.64).
Facility number[A]: 26;
Fiscal years: 2007: ($29.14);
Fiscal years: 2006: ($34.37);
Fiscal years: 2005: ($23.50);
Fiscal years: 2004: ($26.88).
Facility number[A]: 27;
Fiscal years: 2007: ($17.98);
Fiscal years: 2006: ($24.10);
Fiscal years: 2005: ($20.52);
Fiscal years: 2004: ($13.01).
Facility number[A]: 28;
Fiscal years: 2007: ($13.39);
Fiscal years: 2006: ($19.41);
Fiscal years: 2005: ($20.76);
Fiscal years: 2004: ($19.49).
Facility number[A]: 29;
Fiscal years: 2007: ($9.14);
Fiscal years: 2006: ($10.02);
Fiscal years: 2005: ($10.99);
Fiscal years: 2004: ($10.61).
Facility number[A]: 30;
Fiscal years: 2007: ($8.10);
Fiscal years: 2006: ($9.38);
Fiscal years: 2005: ($9.55);
Fiscal years: 2004: ($7.83).
Facility number[A]: 31;
Fiscal years: 2007: ($8.00);
Fiscal years: 2006: ($9.44);
Fiscal years: 2005: ($18.05);
Fiscal years: 2004: ($12.37).
Facility number[A]: 32;
Fiscal years: 2007: ($5.61);
Fiscal years: 2006: ($7.27);
Fiscal years: 2005: ($12.81);
Fiscal years: 2004: ($9.52).
Facility number[A]: 33;
Fiscal years: 2007: ($4.71);
Fiscal years: 2006: ($5.41);
Fiscal years: 2005: ($4.74);
Fiscal years: 2004: ($3.79).
Facility number[A]: 34;
Fiscal years: 2007: ($0.06);
Fiscal years: 2006: ($0.12);
Fiscal years: 2005: ($0.16);
Fiscal years: 2004: ($0.19).
Facility number[A]: 35;
Fiscal years: 2007: $10.64;
Fiscal years: 2006: $9.57;
Fiscal years: 2005: $9.70;
Fiscal years: 2004: $10.24.
Facility number[A]: Total;
Fiscal years: 2007: ($10,318.64);
Fiscal years: 2006: ($11,336.03);
Fiscal years: 2005: ($11,434.44);
Fiscal years: 2004: ($9,912.45).
Source: DOE and plan data.
[A] DOE currently has 43 contracts for operations at DOE-owned
facilities. The names of these facilities and other information that
could identify a particular facility or contractor have been removed
because DOE believes that the plans' funded status may be proprietary.
The data in this enclosure are presented in ascending order based on
fiscal year 2007 funded status amounts. Data for facilities with a zero
funded status for each of the fiscal years presented are not reflected
in this enclosure. The facility numbers in this enclosure do not
necessarily correspond to the same facilities as numbered in the
report's other enclosures.
[End of table]
[End of enclosure]
Enclosure V: Components of the Funded Status of Defined Benefit Pension
Plans for Fiscal Year 2007: (Dollars in millions)
Facility number[A]: 1;
Funded status: Benefit obligation: ($2,126.58);
Funded status: Assets: $1,454.09;
Funded status: Net: ($672.49).
Facility number[A]: 2;
Funded status: Benefit obligation: ($1,555.38);
Funded status: Assets: $1,098.08;
Funded status: Net: ($457.30).
Facility number[A]: 3;
Funded status: Benefit obligation: ($1,103.29);
Funded status: Assets: $968.83;
Funded status: Net: ($134.46).
Facility number[A]: 4;
Funded status: Benefit obligation: ($450.11);
Funded status: Assets: $345.93;
Funded status: Net: ($104.18).
Facility number[A]: 5;
Funded status: Benefit obligation: ($62.37);
Funded status: Assets: ($21.69);
Funded status: Net: ($84.06).
Facility number[A]: 6;
Funded status: Benefit obligation: ($471.56);
Funded status: Assets: $396.21;
Funded status: Net: ($75.35).
Facility number[A]: 7;
Funded status: Benefit obligation: ($437.27);
Funded status: Assets: $380.71;
Funded status: Net: ($56.56).
Facility number[A]: 8;
Funded status: Benefit obligation: ($829.44);
Funded status: Assets: $773.42;
Funded status: Net: ($56.02).
Facility number[A]: 9;
Funded status: Benefit obligation: ($361.78);
Funded status: Assets: $307.98;
Funded status: Net: ($53.80).
Facility number[A]: 10;
Funded status: Benefit obligation: ($315.85);
Funded status: Assets: $267.70;
Funded status: Net: ($48.15).
Facility number[A]: 11;
Funded status: Benefit obligation: ($723.47);
Funded status: Assets: $677.23;
Funded status: Net: ($46.24).
Facility number[A]: 12;
Funded status: Benefit obligation: ($338.34);
Funded status: Assets: $294.93;
Funded status: Net: ($43.41).
Facility number[A]: 13;
Funded status: Benefit obligation: ($61.15);
Funded status: Assets: $45.55;
Funded status: Net: ($15.60).
Facility number[A]: 14;
Funded status: Benefit obligation: ($121.22);
Funded status: Assets: $106.85;
Funded status: Net: ($14.37).
Facility number[A]: 15;
Funded status: Benefit obligation: ($65.87);
Funded status: Assets: $53.84;
Funded status: Net: ($12.03).
Facility number[A]: 16;
Funded status: Benefit obligation: ($86.02);
Funded status: Assets: $74.57;
Funded status: Net: ($11.45).
Facility number[A]: 17;
Funded status: Benefit obligation: ($37.36);
Funded status: Assets: $31.59;
Funded status: Net: ($5.77).
Facility number[A]: 18;
Funded status: Benefit obligation: ($19.23);
Funded status: Assets: $16.35;
Funded status: Net: ($2.88).
Facility number[A]: 19;
Funded status: Benefit obligation: ($0.03);
Funded status: Assets: $0.00;
Funded status: Net: ($0.03).
Facility number[A]: 20;
Funded status: Benefit obligation: ($0.42);
Funded status: Assets: $0.62;
Funded status: Net: $0.20.
Facility number[A]: 21;
Funded status: Benefit obligation: ($5,012.96);
Funded status: Assets: $5,027.70;
Funded status: Net: $14.74.
Facility number[A]: 22;
Funded status: Benefit obligation: ($110.47);
Funded status: Assets: $140.65;
Funded status: Net: $30.18.
Facility number[A]: 23;
Funded status: Benefit obligation: ($1,338.10);
Funded status: Assets: $1,443.46;
Funded status: Net: $105.36.
Facility number[A]: 24;
Funded status: Benefit obligation: ($1,561.92);
Funded status: Assets: $1,840.40;
Funded status: Net: $278.48.
Facility number[A]: 25;
Funded status: Benefit obligation: ($3,624.98);
Funded status: Assets: $4,017.82;
Funded status: Net: $392.84.
Facility number[A]: 26;
Funded status: Benefit obligation: ($5,349.04);
Funded status: Assets: $5,815.23;
Funded status: Net: $466.19.
Facility number[A]: 27;
Funded status: Benefit obligation: ($1,348.72);
Funded status: Assets: $1,885.35;
Funded status: Net: $536.63.
Facility number[A]: Total;
Funded status: Benefit obligation: ($27,512.93);
Funded status: Assets: $27,443.40;
Funded status: Net: ($69.53).
Source: DOE and plan data.
[A] DOE currently has 43 contracts for operations at DOE-owned
facilities. The names of these facilities and other information that
could identify a particular facility or contractor have been removed
because DOE believes that the plans' funded status may be proprietary.
Further, the funded status of all contractor plans was combined for
purposes of reporting by facility. Consequently, there are facilities
for which the overfunding and underfunding of different plans are
netted even though the assets of one plan generally can not be used to
pay the benefits and other expenses of another plan. The data in this
enclosure are presented in ascending order based on net funded status
amounts. Data for facilities with a zero funded status for each of the
fiscal years presented are not reflected in this enclosure. The
facility numbers in this enclosure do not necessarily correspond to the
same facilities as numbered in the report's other enclosures.
[End of table]
[End of enclosure]
Enclosure VI: Distribution of the Number of Defined Benefit Pension
Plan Participants as of October 1, 2006:
Facility number[A]: 1;
Active: 6,611;
Retired, disabled, and other beneficiaries: 4,552;
Terminated, vested, and other: 9,509;
Total: 20,672.
Facility number[A]: 2;
Active: 9,123;
Retired, disabled, and other beneficiaries: 5,068;
Terminated, vested, and other: 3,937;
Total: 18,128.
Facility number[A]: 3;
Active: 9,655;
Retired, disabled, and other beneficiaries: 6,261;
Terminated, vested, and other: 1,682;
Total: 17,598.
Facility number[A]: 4;
Active: 6,913;
Retired, disabled, and other beneficiaries: 5,282;
Terminated, vested, and other: 2,832;
Total: 15,027.
Facility number[A]: 5;
Active: 4,825;
Retired, disabled, and other beneficiaries: 7,654;
Terminated, vested, and other: 1,808;
Total: 14,287.
Facility number[A]: 6;
Active: 7,476;
Retired, disabled, and other beneficiaries: 4,381;
Terminated, vested, and other: 1,698;
Total: 13,555.
Facility number[A]: 7;
Active: 5,087;
Retired, disabled, and other beneficiaries: 4,241;
Terminated, vested, and other: 1,058;
Total: 10,386.
Facility number[A]: 8;
Active: 4,784;
Retired, disabled, and other beneficiaries: 3,714;
Terminated, vested, and other: 1,529;
Total: 10,027.
Facility number[A]: 9;
Active: 2,707;
Retired, disabled, and other beneficiaries: 4,852;
Terminated, vested, and other: 1,476;
Total: 9,035.
Facility number[A]: 10;
Active: 2,409;
Retired, disabled, and other beneficiaries: 3,215;
Terminated, vested, and other: 2,497;
Total: 8,121.
Facility number[A]: 11;
Active: 0;
Retired, disabled, and other beneficiaries: 3,976;
Terminated, vested, and other: 3,796;
Total: 7,772.
Facility number[A]: 12;
Active: 3,754;
Retired, disabled, and other beneficiaries: 1,530;
Terminated, vested, and other: 1,297;
Total: 6,581.
Facility number[A]: 13;
Active: 2,933;
Retired, disabled, and other beneficiaries: 1,327;
Terminated, vested, and other: 1,116;
Total: 5,376.
Facility number[A]: 14;
Active: 2,275;
Retired, disabled, and other beneficiaries: 1,282;
Terminated, vested, and other: 1,114;
Total: 4,671.
Facility number[A]: 15;
Active: 2,827;
Retired, disabled, and other beneficiaries: 899;
Terminated, vested, and other: 548;
Total: 4,274.
Facility number[A]: 16;
Active: 3,018;
Retired, disabled, and other beneficiaries: 835;
Terminated, vested, and other: 272;
Total: 4,125.
Facility number[A]: 17;
Active: 996;
Retired, disabled, and other beneficiaries: 636;
Terminated, vested, and other: 466;
Total: 2,098.
Facility number[A]: 18;
Active: 31;
Retired, disabled, and other beneficiaries: 656;
Terminated, vested, and other: 787;
Total: 1,474.
Facility number[A]: 19;
Active: 841;
Retired, disabled, and other beneficiaries: 148;
Terminated, vested, and other: 448;
Total: 1,437.
Facility number[A]: 20;
Active: 0;
Retired, disabled, and other beneficiaries: 653;
Terminated, vested, and other: 774;
Total: 1,427.
Facility number[A]: 21;
Active: 216;
Retired, disabled, and other beneficiaries: 522;
Terminated, vested, and other: 281;
Total: 1,019.
Facility number[A]: 22;
Active: 172;
Retired, disabled, and other beneficiaries: 263;
Terminated, vested, and other: 488;
Total: 923.
Facility number[A]: 23;
Active: 549;
Retired, disabled, and other beneficiaries: 108;
Terminated, vested, and other: 195;
Total: 852.
Facility number[A]: 24;
Active: 332;
Retired, disabled, and other beneficiaries: 143;
Terminated, vested, and other: 342;
Total: 817.
Facility number[A]: 25;
Active: 112;
Retired, disabled, and other beneficiaries: 33;
Terminated, vested, and other: 212;
Total: 357.
Facility number[A]: 26;
Active: 51;
Retired, disabled, and other beneficiaries: 0;
Terminated, vested, and other: 52;
Total: 103.
Facility number[A]: 27;
Active: 0;
Retired, disabled, and other beneficiaries: 8;
Terminated, vested, and other: 0;
Total: 8.
Facility number[A]Total;
Active: 77,697;
Retired, disabled, and other beneficiaries: 62,239;
Terminated, vested, and other: 40,214;
Total: 180,150.
Source: DOE and plan data.
[A] DOE currently has 43 contracts for operations at DOE-owned
facilities. The names of these facilities and other information that
could identify a particular facility or contractor have been removed
because DOE believes that the number of plan participants may be
proprietary. Further, the participants of all contractor plans were
combined for purposes of reporting by facility. The data in this
enclosure are presented in descending order based on total
participants. Data for facilities with a zero funded status for each of
the fiscal years presented are not reflected in this enclosure. The
facility numbers in this enclosure do not necessarily correspond to the
same facilities as numbered in the report's other enclosures.
[End of table]
[End of enclosure]
Enclosure VII: Distribution of the Funded Status of Defined Benefit
Pension Plans by DOE Organization for Fiscal Years 2007-2004:
[See PDF for image]
This figure is a vertical bar graph depicting the following data
(dollars in millions):
Fiscal year: 2007;
Office of Environmental Management: ($1,206);
NNSA: $838;
Office of Science: $512;
Other: ($214).
Fiscal year: 2006;
Office of Environmental Management: ($1,722);
NNSA: ($2,139);
Office of Science: ($121);
Other: ($517).
Fiscal year: 2005;
Office of Environmental Management: ($2,009);
NNSA: ($2,802);
Office of Science: ($257);
Other: ($651).
Fiscal year: 2004;
Office of Environmental Management: ($1,738);
NNSA: ($1,555);
Office of Science: ($210);
Other: ($614).
Source: GAO analysis of Department of Energy and plan data.
[End of figure]
[End of enclosure]
Enclosure VIII: Distribution of the Funded Status of Defined Benefit
Postretirement Plans by DOE Organization for FY 2007-2004:
[See PDF for image]
This figure is a vertical bar graph depicting the following data
(dollars in millions):
Fiscal year: 2007;
Office of Environmental Management: ($2,451);
NNSA: ($4,592);
Office of Science: ($1,874);
Other: ($1,401).
Fiscal year: 2006;
Office of Environmental Management: ($2,746);
NNSA: ($5,048);
Office of Science: ($2,026);
Other: ($1,516).
Fiscal year: 2005;
Office of Environmental Management: ($2,897);
NNSA: ($4,929);
Office of Science: ($2,138);
Other: ($1,470).
Fiscal year: 2004;
Office of Environmental Management: ($2,648);
NNSA: ($3,962);
Office of Science: ($1,909);
Other: ($1,393).
Source: GAO analysis of Department of Energy and plan data.
[End of figure]
[End of enclosure]
Enclosure IX: DOE's Contracts that Contain the New Pension and
Postretirement Benefit Provisions:
These contracts contain language defining market-based benefits to mean
that new employees' total benefits do not exceed 105 percent of the
comparison group's average total benefit value score along with
directing that the contractors conduct a benefit value study every 2
years and a cost study annually.
Responsible DOE Office: NNSA;
Facility: Los Alamos National Laboratory;
Award date: June 1, 2006.
Responsible DOE Office: NNSA;
Facility: Lawrence Livermore National Laboratory;
Award date: May 8, 2007.
Responsible DOE Office: Environmental Management;
Facility: Portsmouth Remediation;
Award date: January 10, 2005.
Responsible DOE Office: Environmental Management;
Facility: Portsmouth Infrastructure;
Award date: March 16, 2005.
Responsible DOE Office: Environmental Management;
Facility: Paducah Infrastructure;
Award date: March 16, 2005.
Responsible DOE Office: Environmental Management;
Facility: Paducah Remediation;
Award date: December 27, 2005.
Responsible DOE Office: Environmental Management;
Facility: West Valley Demonstration Project;
Award date: June 29, 2007.
Responsible DOE Office: Environmental Management;
Facility: Savannah River Site;
Award date: January 10, 2008.
Responsible DOE Office: Science;
Facility: Oak Ridge Institute for Science and Education;
Award date: December 21, 2005.
Responsible DOE Office: Science;
Facility: Thomas Jefferson National Accelerator Facility;
Award date: April 14, 2006.
Responsible DOE Office: Science;
Facility: Argonne National Laboratory;
Award date: July 31, 2006.
Responsible DOE Office: Science;
Facility: Fermi National Accelerator Laboratory;
Award date: November 1, 2006.
Responsible DOE Office: Science;
Facility: Ames Laboratory;
Award date: December 4, 2006.
Responsible DOE Office: Science;
Facility: Oak Ridge Protective Services;
Award date: May 3, 2007.
Source: DOE.
Note: Since January 2005, DOE has awarded eight additional management
and operating (M&O) or other site contracts that do not contain both of
DOE's new pension and postretirement benefit provisions: the Idaho
Advanced Mixed Waste Treatment Plant, Idaho Cleanup Project, Idaho
National Laboratory, Nevada Test Site M&O, Nevada Test Site protective
services, the Hanford 222-S Analytical Laboratory Services and Testing,
Hanford River Corridor Closure, and Lawrence Berkeley National
Laboratory. As of March 2008, DOE was competing five additional
contracts that contain these new pension and postretirement benefit
provisions: Hanford Mission Support, Hanford Plateau Remediation,
Hanford Tank Operations, Savannah River Liquid Waste Contract, and
National Renewable Energy Laboratory.
[End of table]
[End of enclosure]
Enclosure X: Comments from the Department of Energy:
Note: GAO comments supplementing those in the report text appear at the
end of this enclosure.
Department of Energy:
Washington, DC 20585:
May 15, 2008:
Mr. Mark E. Gaffigan:
Director:
Natural Resources and Environment:
U.S. Government Accountability Office:
441 G Street, NW:
Washington, DC 20548:
Re: GAO Review of Department of Energy (DOE) Reimbursement of
Contractor Employee Benefits:
Dear Mr. Gaffigan:
Thank you for the opportunity for the DOE to review the draft letter
and accompanying enclosures from the Government Accountability Office
(GAO) to the Chairmen and Ranking Members of the Senate and House
Subcommittees on Energy and Water Development ("GAO Letter"). In
addition to the draft GAO Letter, we also have reviewed the draft
slides that GAO used to brief the subcommittees in March 2008 ("GAO
Slides").
Pursuant to discussions between our staff members, we have provided
suggested comments on these documents. Many of these suggestions were
meant to clarify information presented as well as make the presentation
of the same information in various places consistent. We also provided
comments in the text of the letter to explain some suggestions.
In addition, pursuant to agreement with your office, GAO will redact
information as agreed on by GAO and DOE in draft Enclosures Ill, IV, V,
VI and on page 22 of the GAO Slides for versions of these documents
made publicly available. This is because these documents contain
information that may be considered confidential and/or proprietary and
thus may not be available to the public because it may be protected by
one or more exemptions under the Freedom of Information Act. GAO also
agrees that any unredacted versions of these documents that are
submitted to Congress will contain appropriate markings to the effect
that the marked information being submitted may be considered
confidential and/or proprietary and should not be further disseminated.
[See comment 1]
Further, please be advised that for draft Enclosures VII and VIII, DOE
did not verify the funded status of pension and Post Retirement
Benefits (PRB) plans by program. For financial statement purposes, DOE
compiles individual contractor pension and PRB benefit plan information
by contractor plan rather than by program. [See comment 2]
DOE would also like to point out that throughout the draft GAO Letter,
the accompanying enclosures and the draft GAO Slides, the "funded
status" of DOE contractor defined benefit pension plans is reported as
a single amount, both for each site and for the Department as a whole
for Fiscal Years (FY) 2004-2007. It is misleading to report the funded
status as a single amount for DOE sites at which one or more
contractors sponsor more than one defined benefit pension plan. For
example, where a site has two defined benefit pension plans, one of
which is overfunded and the other is underfunded, reporting the funded
status only as a single amount is misleading because the overfunding of
one defined benefit pension plan cannot be used to offset the
underfunding of a separate defined benefit pension plan. Thus, netting
the two amounts is not an accurate reflection of DOE's obligation
relating to the funded status of the underfunded plan. [See comment 3]
On a larger scale, for example, in Enclosure III, the FY 2007 funded
status for the total of DOE contractor defined benefit pension plans
(i.e., underfunding of $69.53M) represents the net of the aggregate of
the underfunded plans totaling approximately $2 billion and the
aggregate of overfunded plans totaling approximately $1.9 billion.
Another example is on page 2 of the draft GAO Letter which references
"a net liability of $69.5M for defined benefit pensions ...." Though
DOE also discloses the funded status for the total of contractor
defined benefit plans, I want to make clear that the Department cannot
offset underfunding in one contractor defined benefit pension plan with
overfunding in another contractor defined benefit pension plan.
Therefore, the true amount of underfunding of DOE's contractor defined
benefit pension plans for FY2007 is approximately $2 billion, not
$69.53 million. The Department is concerned that without additional
explanation, readers of the GAO report may believe that the
Department's total reported liability for DOE contractor defined
benefit pension plans in FY 2007 is $69.53 million instead of
approximately $2 billion.
Overall, the Department believes that the draft report correctly
reflects the status of Departmental policy regarding reimbursement of
contractor employee benefits for 43 Management and Operating (M&O) and
other site contracts. However, as discussed below, the Department
disagrees with the draft report's implication that the issuance on
April 27, 2006, of DOE Notice 351.1, Contractor Employee Pension and
Medical Benefits Policy, was not based on considered analysis. [See
comment 4]
The Department's main concern with the proposed draft GAO Letter and
draft GAO Slides are the descriptions of the basis for the issuance of
DOE Notice 351.1, Contractor Employee Pension and Medical Benefits
Policy on page 5 of the draft GAO Letter and page 20 of the draft GAO
Slides. Under "Results in Brief' on page 5 of the draft GAO Letter, the
first sentence states that "DOE officials told us that the decisions
underlying the policy changes in it's April 2006 Notice 351.1 were
formed over a period of years by the trends in cost reimbursements,
budgetary uncertainties, and by consulting actuaries and others,
include DOE Inspector General reports and our reports." This is a
correct statement. However, we do not agree with GAO's conclusion that
there is only "limited evidence" that DOE had considered policy
alternatives, the sensitivities of stakeholders and the near- and long-
term financial and mission impacts of the proposed changes. While it is
true that the Department did not compile a "formal record" of its work
leading up to issuance of DOE Notice 351.1, the Department provided GAO
with considerable evidence that DOE Notice 351.1 was the result of
documented long-standing Departmental concerns about the growing
liability of the Department for contractor employee benefit costs.
The upward trends in DOE's reimbursement of contractor employee
benefits are well evidenced by the Statement of Financial Accounting
Standards (SFAS) No. 87, "Employers Accounting for Pensions," and SFAS
No.106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions" (both as amended by SFAS No. 158, "Employers' Accounting for
Defined Benefit Pension and Other Postretirement Plans") reports which
are provided each year by contractors to the Department and which were
made available to the GAO for review. Among other documents, GAO was
provided with a copy of a briefing package for the Secretary of Energy
dated March 1, 2005, entitled: "Overview: DOE Contractor Pension and
Post Retirement Benefit Liability." Among other information included in
that package was a chart entitled "DOE Contractor Pension & Post
Retirement Benefits Unfunded Projected Benefit Obligation Trend FY92-
FY04." It also included a chart entitled "Current DOE Costs for Pension
Contributions and PRB Expenses" fiscal year for the years 2000 through
2004 and estimated costs for 2005 and 2006.
GAO was also provided a copy of a letter dated August 10, 2005, from
Secretary Bodman to Senator Pete V. Dominici, Chairman of the Senate
Committee on Energy and Natural Resources, that referenced the
Department's comprehensive assessment of Departmental policies
regarding pension benefits and post-contract retiree medical benefits
and the decision to develop "an overall long-term strategy to mitigate
liability growth in existing plans and channel new contractor employees
into cost predictable plans that are more consistent with current
industry practice and trends." We also provided GAO with a copy of a
briefing paper dated January 27, 2006, prepared for the Senate Energy
and Natural Resources Committee and the Senate Energy and Water
Development Subcommittee, entitled "DOE Facility Management Contractor
Benefit Costs & Long Term Liabilities," which demonstrate that the
Department - and Congress - were aware of and concerned about these
long-term liabilities. In addition, we provided GAO with a February 18,
2006, memorandum from the Director of the Office of Management to then
Deputy Secretary Clay Sell, which stated as its purpose at the
beginning "to report on the status of the Department's initiative to
effect changes in contractor employee pension/health benefits policy."
All of these documents show that a great deal of considered work and
analysis formed the basis for issuance of DOE Notice 351.1.
We would also like to make two other comments. DOE does not "exempt"
contracts from a Corrective Action Plan. [See comment 5] As noted on
page 5 of the draft GAO Slide "Background: Reimbursement of Contractor
Pension and Postretirement Benefit Costs," pursuant to DOE Order 350.1
the Contracting Officer has discretion to determine whether such a plan
is necessary. See also page 3 of the draft GAO Letter. In addition, the
draft GAO Letter on page 6 discusses why the funded status of
contractor employee defined benefit pension plans may fluctuate
significantly from year to year. However, a key reason for such
fluctuations is missing, which is that the market may go down
significantly and unpredictably as well as up. [See comment 6]
If you have any questions about the above information, please do not
hesitate to contact me at 202-287-1310.
Sincerely,
Signed by:
Edward R. Simpson:
Director:
Office of Procurement and Assistance Management:
The following are GAO's comments on the Department of Energy's letter
dated May 15, 2008.
GAO Comments:
1. In response to DOE's concern that the funded status and benefit
value scores of contractor benefit plans may be proprietary, we have
redacted from this report information that could associate a funded
status amount or benefit value score with a particular facility or
contractor.
2. We understand that for financial reporting purposes DOE compiles
benefit plan information by contractor and not by program. We also
understand that DOE did not verify our mathematical aggregation of the
funded status of benefit plans according to the program offices
responsible for overseeing the contractors that sponsor these plans.
Our aggregations of funded status were based on a list of facilities
and contractors and their associated program offices that DOE provided
us. Although we did not audit or verify data provided by DOE or its
contractors for individual benefit plan activity and balances, we did
determine that plan data were, in the aggregate, consistent with
amounts and other information in DOE's financial statements and,
therefore, sufficiently reliable for our purposes.
3. We disagree with DOE's comment that it is misleading to report the
funded status of DOE contractor defined benefit pension plans as a
single amount. The funded status amounts we report represent a
disaggregation of amounts previously reported by DOE for its
contractors' pension and postretirement benefit plans in financial
statements required by the Chief Financial Officers Act. Our reporting
of funded status amounts for these liabilities by DOE facility and by
DOE program provide accurate information at a point in time - subject
to any limitations that may exist in the underlying data - on such
amounts at the level it is presented. Further, the briefing slides
present the benefit obligations, assets, and funded status of
contractor pension plans separately for overfunded plans and
underfunded plans at September 30, 2007 (see encl. I). This
presentation clearly shows that the contractor pension benefit
obligations to which DOE is committed to funding total $27.5 billion
and that 34 of 46 contractor pension plans are underfunded by a total
of almost $2 billion. We state in our report that we determined that
these data were sufficiently reliable for our purposes. However, to
address DOE's concern, we clarified enclosures III and V to state that
the funded status of all contractor plans were combined for purposes of
reporting by facility and that assets of one plan generally cannot be
used to pay the benefits and other expenses of another plan.
4. Regarding DOE's disagreement with the implication that the issuance
of Notice 351.1 was not based on considered analysis, we continue to
believe that the materials that DOE provided to us contained only
limited evidence that DOE had considered policy alternatives, the
sensitivities of stakeholders to the policy choices reflected in Notice
351.1 or the near-and long-term financial and mission impacts of the
changes made. (See the Agency Comments and Our Evaluation section.) Not
even the decision document reflecting the Deputy Secretary's approval
of Notice 351.1 included the basis on which approval was recommended.
The bottom line is that the connection between what DOE cites as
evidence of its concerns and its policy changes as reflected in Notice
351.1 is not readily apparent from the documents DOE provided us as
shown by the following three items and by the timing of DOE's actions.
First, DOE provided us with copies of contractor-prepared actuarial
reports that, according to the department, amply document the upward
trends in DOE's reimbursement of contractor employee benefits. However,
the actuarial reports DOE provided to us consisted largely of
historical quantitative information. The reports prepared by DOE's
contractors demonstrated that DOE had a process for routinely compiling
information necessary for its annual financial statements. Second, DOE
provided us with March 2005 briefing slides used for a presentation to
the Secretary of Energy entitled "Overview: DOE Contractor Pension and
Post Retirement Benefit Liability" that included two charts with
benefit program data. However, these two charts, as with the rest of
the information in the briefing document, principally provided
background and historical data and a listing of possible approaches for
managing contractor benefit liabilities. No explanation was provided of
how these data and approaches were considered in making the policy
choices as reflected in Notice 351.1. Third, DOE provided us an August
10, 2005, letter from the Secretary of Energy to the Chairman of the
Senate Committee on Energy and Natural Resources that referred to a
comprehensive assessment of departmental policies regarding pension
benefits and post-contract retiree medical benefits and the decision to
develop "an overall long-term strategy to mitigate liability growth in
existing plans and channel new contractor employees into cost
predictable plans that are more consistent with current industry
practice and trends." However, DOE did not provide us with evidence of
a completed comprehensive assessment.
Overall we found that the documentation that DOE provided to us was not
responsive to our targeted request for documentation of analyses
conducted in support of the policy changes contained in Notice 351.1.
We found limited evidence of what should have been a process of
thorough analysis of such an important issue as changes to DOE policy
on contractor employee pension and medical benefits. We were provided
historical accounting and actuarial information, general information
about benefit program issues from industry specialists, DOE responses
to queries from elected officials, and DOE internal briefing documents
that provided overview information on contractors' pension and other
postretirement benefit plans. However, the documents provided to us did
not include a comprehensive assessment of existing DOE policies, an
analysis of the potential impacts of alternative strategies for
managing contractor benefit plan liabilities, or an indication of the
information that senior DOE management may have relied on when
developing the policy changes contained in Notice 351.1. As stated in
our report, the documentation that DOE provided to us demonstrates that
DOE recognized the historical and possible future trend of its
liabilities and costs related to contractor benefit plans. However, we
found no linkage between this basic awareness and the actions taken by
DOE in Notice 351.1. Finally, the timing of DOE's actions on this
matter is inconsistent with its assertion that considerable work and
analyses was the basis for issuance of Notice 351.1. Two months after
its April 2006 issuance, DOE suspended Notice 351.1. About 9 months
later, in March 2007, DOE issued a notice in the Federal Register
seeking for the first time public comment on DOE Contractor Employee
Pension and Medical Benefits Challenge. In response to stakeholder and
congressional concerns, DOE decided not to reissue Notice 351.1 in June
2007.
5. We have revised the report to state that a DOE contracting officer
may require a Corrective Action Plan if the value of an M&O
contractor's benefit plans exceeds the 105-percent threshold set forth
in Order 350.1.
6. We disagree with DOE's comment that we omitted market volatility as
a key reason why defined benefit pension plans may fluctuate
significantly from year to year. We have clearly cited market
volatility as a reason for fluctuations in the funded status of DOE
contractor defined benefit pension plans, both up and down. For
example, the briefing slides state that the funded status of
contractors' defined benefit plans declined rapidly from 2001 through
2005 and that the funded status of defined benefit pensions can
fluctuate significantly from one year to the next (see encl. I). The
briefing slides also state that the funded status of such plans can
change from one year to the next due to factors that include "returns
on pension plan investments that are different than what was assumed."
[End of enclosure]
Footnotes:
[1] DOE Order 350.1 states that reimbursable contractor costs for
defined benefit pension plans shall not exceed the greater of (1) the
plan's unfunded current liability as defined by ERISA or (2) the amount
required to satisfy the ERISA minimum funding standard. Defined benefit
pension plans sponsored by state and local governments, such as the
University of California retirement plan, are exempt from most ERISA
requirements. State and local laws generally govern these plans and
typically require sponsors to set aside minimum amounts of funds for
future pension payments when they are due.
[2] Pub. L. No. 110-161, 121 Stat. 1844 (2007).
[3] GAO, Department of Energy: Certain Postretirement Benefits for
Contractor Employees Are Unfunded and Program Oversight Could be
Improved, [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-04-539]
(Washington, D.C.: Apr. 15, 2004) and Department of Energy: Additional
Opportunities Exist for Reducing Laboratory Contractors' Support Costs,
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-05-897] (Washington,
D.C.: Sept. 9, 2005).
[4] DOE implemented SFAS No. 158 in fiscal year 2007. This standard
amends SFAS No. 87, Employers’ Accounting for Pensions, and SFAS No.
106, Employers’ Accounting for Postretirement Benefits Other Than
Pensions. Prior to this standard the liability or asset an entity was
required to report on its financial statements did not include certain
deferred costs or credits, obligations or assets, and losses or gains.
[5] The amounts for each fiscal year in figures 1 and 2 reflect the net
funded status of DOE contractors’ benefit plans as required by SFAS No.
158.
[End of section]
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