Pensions overseer urged to act more like SEC, IRS

WASHINGTON—Labor Department investigators should conduct routine examinations to ensure pension plans are complying with federal regulations, according to a report by the Government Accountability Office.

Currently, the Employee Benefits Security Administration, the Department of Labor's enforcement agency, launches investigations chiefly for complaints alleging wrongdoing.

The GAO report, released Feb. 20, recommended that EBSA supplement its current enforcement program with the same sort of routine compliance examinations used by other federal agencies, including the Internal Revenue Service and the Securities and Exchange Commission.

According to the report, EBSA's failure to routinely review the books, records and internal controls of benefit plans was "limiting its ability to detect and deter violations."

Complicating EBSA's mission, according to the GAO, is a lack of staff. The enforcement agency has 385 investigators to oversee 3.2 million benefits plans, a ratio of 1:8,000. The SEC, in comparison, has 1,953 examiners and investigators to oversee 17,337 entities under its jurisdiction, a 1:9 ratio, according to the GAO.

"Given the ratio of employee benefit plans to investigators, EBSA's limited presence may create an incentive for fiduciaries or plan sponsors to take compliance lightly," the report said.

But in a Dec. 19, 2006, letter of response attached to the GAO report, Bradford P. Campbell, acting assistant secretary of labor—who reviewed the report before it was released—said EBSA officials disagreed that a compliance examination program would provide a bigger deterrent than the agency's existing enforcement efforts.

Limited resources

"Given the size of the plan universe that the agency oversees relative to its number of investigators, EBSA has focused its available resources on investigations that we believe will most likely result in the deterrence, detection and correction of ERISA fiduciary violations," Mr. Campbell said.

Plan sponsors would also balk at a new inspection program, according to Eric Keller, an ERISA attorney with Paul, Hastings, Janofsky & Walker L.L.P., Washington. "Any audit is not an event that a client looks forward to," Mr. Keller said.

Along with conducting compliance examinations, the GAO report recommended EBSA "take appropriate steps" to reduce the number of investigators it is losing.

The report said 52, or 11.2%, of EBSA's investigators left their jobs in 2005, with 34 of those leaving to work outside the government. It said the attrition rate for investigators for all other federal agencies that same year was 5.2%.

Also in its report, the GAO recommended that Congress approve a law to make it easier for the Labor Department to waive civil penalties against plan fiduciaries for violations "in instances where doing so would facilitate the restoration of plan assets."

It also urged the EBSA to take additional steps to better coordinate enforcement efforts with the SEC.

Among the impediments to EBSA enforcement, according to the report, is that plan sponsors have up to 285 days to file their annual Form 5500 reports. Along with additional delays associated with department processing of the forms and other factors, EBSA investigators can be forced to rely on data that's two or more years old.

"Because of these delays, fiduciaries may have more time to misappropriate plan assets, causing harm to participants for long periods before violations are identified," the report said.

GAO said the EBSA had made some improvements in its enforcement program since 2002, when the GAO last examined the agency's program for Congress.

"Yet despite these improvements, EBSA's ability to protect plan participants against the misuse of pension plan assets is still limited because its enforcement approach is not as comprehensive as those of other federal agencies and generally focuses only on what it derives from its investigations," GAO said.

"While it has employed some proactive measures such as computerized targeting of pension plan documents, EBSA remains largely reactive in its enforcement approach, thus potentially missing opportunities to address problems before trends of non-compliance are well established," according to the report.

Doug Halonen is a reporter for Pensions & Investments, a sister publication of Business Insurance.