oversight

Efforts To Implement the Employee Retirement Income Security Act of 1974 by the Department of Labor

Published by the Government Accountability Office on 1977-07-06.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                          DOCUMENT   REU /      /             7

03054 -   A1993073] 4&aE~tE                  U~Qj)i      /7
Efforts to implement the Employee Retirement Income Security Act
of 1974 by the Department of Labor. HD-77-99; B-164292. Jujy 6,
1977. 17 pp. 3 2 appendices (2 pp.).
Report to Sen. Harrison A. Williams, Chairman, Senate Committee
on Human Resources; Sen. Jacob K. Javits, Ranking inority
Member; by Elmer B. Staats, Comptroller General.
Issue Area: Income Security Programs: Programs to Protect
    Workers' Income (1306 .
Contact: Humap Resources Div.
Budget FunctioL: Income Security: General Retirement and
    Disability Insurance (6C1).
Organization Concerned: Department of Labor.
Congressional Relevance: Senate Committee on Human Resources.
    Sen. Jacob K. Javits.
Authority: Employee Retiiement Income Security Act of 1974.
          Members of congressional committees, Department of
Labor officials, and eployee benefit plan administrators are
concerned about problems Labor has experienced in administering
the Employee Retirement Income Security Act of 1974, the first
comprehensive Federal 'aw regulating employee benefits. Specific
concern has been expressed about delays in issirig regulations
and acting on requests for exemptions from prohibited
transactions. Findings/Conclusions: After over 2 years of
program operations, the issue of how Labor should be organized
to carry out its responsibilities has not been resolved. Labor
has not determined the extent to which program inefficiencies
exist and are caused by the organization structure which divides
the responsibility for administering the act between two
separate Labor organizations. Labor also has not determinel the
long-range enforcement needs of the program. Recommendations:
Before making    decision on reorganization, the Secretar of
Labor should assess the efficiency of the present Labor
organizational structure for administering the Employee
Retire .ent Income Security Act and the anticipated size of
future program operations. The Secretary should also closely
monitor the progress in issuing regulations and processing
applications for exemptions from prohibited transactions so that
these tasks can be accomplished without further delay. (SC)
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                         i Me Ohftw of C".Wneio      Rettioea&

%j           1s   REPORT TO THE SENATE COMMITTEE
                  ON HUMAN RESOURCES
  'eD sril


n.~      BY THIE COMPTROLLER GENERAL
  'n-l -OF THE UNITED STATES




                  Efforts To Implement The Employee
                  Retirement Income Security Act
                  Of 1974 By The Department Of Labor
                  'ae Department of Labor assigns its re-
                  sponsibility for administering the Employee
                  Retirement income Security Act to two sep-
                  arate internal organizations. The Department
                  is considering a reorganization based on alle-
                  gations by previous program administrators
                  that this structure is inefficient. However, be-
                  fore making a decision, the Secretary of La-
                  bor should assess the efficiency of the present
                  organizational structure and the anticipated
                  size of future program operations.
                  Although over 2 years have lapsed since pas-
                  sage of the act, the Department has much to
                  do before implementation is complete.
                  Prompt actions by the Department could have
                  helped to reduce implementation problems.
                  The Secretary of Labor should closely moni-
                  tcr the progress in issuing regulations and pro-
                  cessing exemption applications to insure that
                  these tasks are accomplished without further
                  delay.




                  HRD-77~99                                          JULY 6, 1977
              COMPTROLLER GENERAL OP THE UNiTED STATE
                         WASH'g4TON, DC. 24




B-164292



To the Chairman and
  Rankirg Minority Member
Committee on Human Resources
United States Senate

     In response to your August 24, 1976, letter and subse-
quent instructions from the Committee, this report discusses
the Department of Labor's organizational structure and prob-
lems in hiring professional staff for administering the Em-
ployee Retirement Income Security Act of 1974.  It also
discusses the status of regulations and applications for
exemptions from transactions prohibited by the act.

     As directed by your office, we did not obtain written
agency comments.  However,-the contents of the report were
discussed with Department of Labor officials, anC their com-
ments are incorporated where appropriate.

     This report contains recommendations to the Secretary
of Labor on page 17. A you know, section 236 of the Legis-
lative Reorganization Act of 1970 requires the head of a Fed-
eral agency to submit a written statement on actions taken
on our recommendations to the House Committee on Government
Operaticns and the Senate Committee on Governmental Affairs
not later than 60 days after the date of the report and to
the House and Senate Committees on Appropriations with the
agency's first request for appropriations made more than 60
days after t~e date of the report. We will he in touch with
your office in the near future to arrange for release of the
report so that the requirement of section 236 can be set in
motion.



                                        Comptroller General
                                        of the United States
COMPTROLLER GENERAL'S                     EFFORTS TO IMPLEMENT
REPORT TO THE SENATE                      THE EMPLOYEE RETIREMENT
COMMITTEE ON HUMAN                        INCOME SECURITY ACT OF 1974
RESOURCES                                 BY THE DEPARTMENT OF LABOR


            DIGEST
            Members of congressional dommittees, Depart-
            ment of Labor officials, and employee benefit
            plan administrators are concerned about prob-
            lems Labor has experienced in administering
            the Employee Retirement Income Security Act
            of 1974--the first comprehensive Federal law
            regulating employee benefits.

           The purpose of the act is to protect the
           rights of the 35 to 40 million persons partic-
           ipating in private employee pension and wel-
           fare benefit plans. The act is administered
           jointly by the Depart'ents of Labor and Trea-
           sury as well as the nediy created Pension
           Benefit Guaranty Corporation.
           Specific concern has been expressed about de-
           lays in issuing regulations and acting on re-
           quests for exemptions from prohibited trans-
           actions. Geiieriliy, business transactions
           between .the ad'ninistrator or other fiduciary
           of an employee benefit plan and parties who
           have an interest in the plan or its administration
           are prohibited by the act. Exemption from prohibited
           transactions may be granted if, among other things,
           it is in the interest of a plan and its participants.

           REORGANIZATION CONSIDERED

           After over 2 years of program operations, the
           issue of how Labor should be organized toscarry
           out it. responsibilities has not been rsolved.
           Presently, two separate Labor organizations
           are responsible for administering the ac.
           Labor is considering reorganization based on
           allegations by previous program administrators
           that this structure has caused confusion, con-
           flicting orders, coordination difficulties,
           and misdirection of effort.

Tear Shet. Upon removal, the report
cover date should be noted hereon                            HRD-77-99
                                      i
GAO found that Labor has not determined the
extent to which program inefficiencies exist
and are caused by the organizational struc-
ture.  Further, Labor has not determined the
long-range enforcement needs of the new pro-
gram. Consideration of these matters in de-
ciding on the organizational. structure could
prevent unneeded or multiple reorganizations.
(See ch. 2 and ch. 5.)

ACTIONS TO IMPLEMENT
LAW NOT YET COMPLETED

Although over 2 years have lapsed since
enactment of the Employee Retirement Income
Security Act, Labor has much to do before
implementation is complete. Of the 53 areas
Labor identified as needing regulations to
implemert the act, only 15 regulations were
issued and another 10 proposed as of March 10,
1977.  Also, although actions were taken
in October and November 1376 to reduce the
backlog of applications for exemptions from
prohibited transactions, over three-fourths
of the 621 applications were awaiting final
action as of March 9, 1977.  (See ch. 4.)

Labor officials have often cited the lack
of sufficient qualified professional per-
sonnel as a primary reason for the delay
in issuing regulations and processing appli-
cations for exemptions from prohibited trans-
actions. However, in December 1975, Labor
was authorized additional positions for these
activities.

GAO found that Labor did not begin'filling
these positions until 10 months later.  Hir-
ing was delayed, in part, because it took
Labor 7 months to define the duties and
qualification requirements of the new posi-
tions. As of March 1977, 40 of the 54 pro-
fes3ional positions authorized were filled.
(See ch. 3.)

Prompt actions by Labor could have helped to
reduce implementation problems.  Labor is
especially subject to criticism for the delays


                        ii
            in hiring sufficient qualifiedi staff.  The
            law is complex, however, and it should be
            recognized that issuing regulations and
            rulings on exemptions result from complicated
            research, legal considerations, and Federal
            procedural requirements which are time consum-
            ing.

            With additional staff, GAO believes that
            L a bor now has the opportunity to quickly
            move forward in issuing regulations and acting
            on applications for exemptions from prohibited
            transactions. However, GAO believes that be-
            cause of delays in taking decisive action to
            resolve problems in the past, the Secretary
            of Labor should closely monitor progress to
            identify and resolve problems.    (See ch. 5.)

            RECOMMENDATIONS

            Before making a decision on reorganization,
            the Secretary of Labor should assess the
            efficiency of the present Labor organizational
            structure for administering the Employee Re-
            tirement Income Security Act and the antici-
            pated size of future program operations. Also,
            the Secretary should closely monitor the
            progress in issuing regulations and processing
            applications for exemptions from prohibited
            transactions so that these tasks are accom-
            plished without further delay.

            GAO discussed the contents of this report
            with Labor officials on May 23, 1977.  They
            concurred that reorganization is being con-
            sidered and agreed that before any decision
            is made, there is a need to evaluate the
            efficiency of the present organizational
            structure.

            Labor said that a contract was awarded on
            May 9, 1977, for a private contractor to
            evaluate field office activities and orga-
            nizational structure. Concurrently, Labor
            will continue compiling data on enforcement
            needs which should provide an additional
            basis for deciding on the appropriate orga-
            nizational structure.


TALr shul                        iii
                         Contents
                                                        Page

DIGEST                                                    i

CHAPTER

   1       INTRODUCTION                                   1
               Background                                 1
               Scope of review                            3

           REORCANIZATION BEING CONSIDERED                4
   2
               Organization development                   4
               Concern over responsibility for
                 field operations                         5
               Reorganization options considered          7

   3       PROBLEMS IN HIRING PROFESSIONAL STLFF          8
               Delays in filling professional
                 positions                                8
               Efforts to obtain excepted hiring
                 authority                               10

   4       STATUS OF REGULATIONS AND EXEMPTIONS          12
               Actions to issue regulations              12
                   Status of regulations                 12
               Actions on applications for exemptions
                 from prohibited transactions            13
                   Progress in processing exemptions     13
                   Actions taken to improve exemption
                     processing                          14

   5       CONCLUSIONS AND RECOMMENDATIONS               16
               Conclusions                               16
               Recommendations                           17

APPENDIX

   I       Letter dated August 24, 1976, from the
             Chairman and the Ranking Minority
             Member of the Senate Committee on
             Labor and Public Welfare                     18

   II      Principal officials of the Department of
             Labor responsible for administering
             activities discussed in this report          20
                       ABBREVIATIONS

CSC     Civil Service Commission

ERISA   Employee Retirement Income Security Act
          of 1974

GAO     General Accounting Office

IRS     Internal Revenue Service

LMSA    Labor-Management Services Administration

ORSE    Office of Regulatory Standards and Exceptions

PWBP    Pension and Welfare Bene       Programs
                           CHAPTER 1

                         INTRODUCTION

     On August 24, 1976, the Chairman and Ranking Minority
Member of the Senate Committee on Labor and Public Welfare
(now the Committee on Human Resources) requested that we e-
view the Department of Labor's organization and management
of its functions under the Employee Retirement Income Secu-
rity Act of 1974 (ERISA).

     The Chairman and Ranking Minority Member commented that
Labor's Pension and Welfare Benefit Programs (PWBP) has report-
edly encountered difficulties both inside and outside the
Federal Government in hiring personnel with the required ex-
pertise to immediately contribute to the administration of
ERISA. They pointed out that, according to Labor, hiring
could not be acheived under existing Federal personnel regu-
lations.

     The Chairman and Ranking Minority Member were concerned
that Labor had not been able to fill certain positions in
that part of PWBP having the responsibility for acting on re-
quests for exemptions from transactions prohibited by the act.
They stated that failure to act quickly on these requests
could significantly disrupt the normal, nonabusive practices
of employee benefit plans and related industries.  (See app. a.)

     The Chairman and Ranking Minority Member requested that
we determine the nature of hiring problems, steps taken to
resolve the problems, and whether other avenues for solving
the problems (short of legislation) have been exhausted. The
Committee subsequently asked that we also describe:

     -- The present Labor organizational structure for carrying
        out ERISA activities and factors which should be
        considered before deciding whether to reorganize.

     -- The status of the backlog of regulaticis and appli-
        cations for exemptions from rohibited transactions
        and actions taken to reduce the backlogs.

BACKGROUND

     ERISA was enacted on September 2, 1974, and became the
first comprehensive Federal law Legulating private pensions.
The purpose of ERISA is to protect the rights of an estimated
35 to 40 million persons participating in about 1.8 million
private employee benefit plans. The law affects pension plans


                              1
which provide retirement benefits and welfare plans which pro-
vide other types of protective benefits, such as health insur-
ance. Estimated assets of pension plans alone amount to about
$240 billion.
     The impact of employee benefit plans on the people and
economy of America, and the need to regulate such plans was
recognized by the Congress in its enactment of ERISA. Ad-
ministrators of pension and welfare plans are required to dis-
cl-se plan information to participants arid certain Federal
agencies. Also, pensicn and welfare plans are subject to fidu-
ciary standards to help insure that anyone having discretion-
ary control over plan operations acts in the best interest of
plan participants.
      In addition, pension plans are required to conform to
minimum participation, vesting, and funding standards. The
participation standards are to insure that employees are not
required to satisfy unreasonable age or service requirements
before becoming eligible to participate. The vesting and funding
standards are designed to provide greater assurance t.at a
worker will not lose benefits even if he leaves his job and
that funds are available to pay benefits when the employee
reaches normal retirement age.
     To protect employee benefit plan participants, the act
generally prohibits administrators or other fiduciaries from
engaging in business with a party-in-interest. Examples of a
party-in-interest are the employer, a fiduciary of the plan,
or other parties who have an interest in the plan or its
administration.

     Exemptions from prohibited transactions may be granted
if, among other things, they are in the interest of a plan
and its participants. Exemptions can be granted on an individual
application, or if appropriate, a class exemption can be
granted which affects a number of pplications or a practice
common to a particular industry. For example, a class exemption
now being considered by Labor would permit insurance agents
to receive sales commissions on services provided to pension
plans, even though the agents may be parties-in-interest
to the plan-.
     Responsibilities for carrying out the law's provisions
are assigned to Labor, the Department of Treasury, and a new
Government corporation named the Pension Benefit Guaranty
Corporation. The Corporation guarantees payment of certain
vested benefits to participants of defined benefit plans if a
plan terminates without sufficient assets to provide promised
benefits.

                              2
      Labor has the primary responsibility for issuing regula-
tions on and enforcing the reporting, disclosure, and fiduciary
provisions of ERISA. Within Labor, the responsibility for
administering the act is assigned to two separate organiza-
tions--the Pension and Welfare Benefit Programs and the La-
bor-Management Services Administration (LMSA).   PWBP is re-
sponsible for overall program administration and enforcement.
LMSA provides PWBP with field and management support. Field
operations are carried out in 6 regional offices and 24 area
offices throughout the United States and Puerto Rico. ERISA
enforcemenit and technical assistance activities are primarily
carried out by the LMSA area offices. In addition, Labor's
Office of the Solicitor provides legal advice and assistance
to PWBP.

     Treasury's Internal Revenue Service (IRS) has the primary
responsibility for issuing regulations on and enforcing the
participation, vesting, and funding provisions of ERISA. PWBP
and IRS share responsibility for acting on requests for exemp-
tions from prohibited transactions.

     Of the 555 Labor personnel positions authorized during
fiscal year 1977 for administering ERISA, 325 were in WbP,
269 in LMSA, and 61 in Labor's Office of the Solicitor. Of
the 269 positions in LMSA, 239 were in field offices and 30
were at headquarters.

SCOPE OF REVIEW

     We made our review at Labor headquarters in Washington,
D.C., where we reviewed records relating to the organization
established and hiring practices followed for implementing
ERISA. We also examined records relating to Labor's efforts
in developing regulations and acting on requests for exemptions
from prohibited transactions. In addition, we interviewed
Labor headquarters officials and LMSA officials in the Atlanta
and Philadelphia regional and area offices and the San Fran-
cisco regional office. We discussed Labor's hiring practices
with Civil Service Commission (CSC) officials.

     Our review of hiring practices was primarily directed at
the filling of professional positions authorized for PWBP's
Office f Regulatory Standards and Exceptions (ORSE). These
positions require technical expertise aad relate to developing
regulations and processing applications for exemptions from
prohibited transactions.




                              3
                           CHAPTER 2

               REORGANIZATION BEING CONSIDERED

     After over 2 years of ERISA program operations, the
question of how the Department of Labor should be organized
to carry out its ERISA responsibilities has not been resolved.
Under the present Labor organizational structure the responsi-
bility for administering ERISA is assigned to two separate
organizations--the Pension and Welfare Benefit Programs and
the Labor-Management Services Administration. Generally, PWBP
is responsible for establishing overall policy for the admin-
istration and enforcement of ERISA and providing guidance for
carrying out established policies. PWBP is also responsible
for issuing regulations, processing requests for exemptions
from prohibited transactions, and reviewing and processing
enforcement cases and reports filed by pension and welfare
benefit plans. LMSA is responsible for providing PWBP with
field and management operations support.

     Based on allegations by previous administrators of
PWBP that the present structure has caused confusion, con-
flicting orders, coordination difficulties, and a misdirection
of effort, Labor is considering reorganization.  However, the
extent to which these alleged inefficiencies exist and are
caused by the organizational structure has not been determined.
Further, the anticipated long-range organizational needs to
administer the new program have not been determined.

ORGANIZATION DEVELOPMENT

     In November 1974, shortly after enactment of ERISA, the
Secretary of Labor assigned the Department's responsibilities
for administering ERISA to the Assistant Secretary for Labor-
Management Relations, wh. also serves as the administrator
of LMSA.  In addition to administering ERISA, LMSA was respon-
sible for the Federal Labor-Management Relations, Veterans
Reemployment Rights, and Labor-Management Standards Enforce-
ment programs. In December 1974, the Assistant Secretary es-
tablished the Office of Employee Benefits Security (now PWBP)
within LMSA to administer ERISA. In April 1975, the position
of Administrator, PWBP, was established within LMSA to give
the program activities more visibility within the Department.

     In May 1976, the Secretary partially separated ERISA pro-
gram administration from LMSA.  The Secretary delegated respon-
sibility for program administration and policy development to
the Administrator, PWBP, while leaving the directing of field
and management operations and systems services with LMSA.
PWBP and MSA are directly responsible to the Secretary and
Under Secretary of Labor.


                              4
                                                       described
      The segregation of responsibilities was furtherthe LMSA
in LMSA Order 2-7 dated January 21, 1977,   in which
                                               was given respon-
Assistant Administrator for Field Operations components  were
sibility for the field staff and other LMSA
                                                  support op-
given responsibility for management and systems           to
erations. The Office of Field Operations was directed
                                                     field
provide PWBP and LMSA headquarters components with         were
support. The management and systems    support components
                                            components with
directed to provide PWBP and LMSA program          financial,
 information and data processing systems, budget,
and personnel management, and other services.
                                                             to
     The order provided for the Office of Field Operations
                                                 employees as-
consult with PWBP on all issues involving field
                                                   PWBP to fur-
signed to ERISA activities. It also provided for
                                                 these field
nish program management and policy direction to     Any field
employees through the Office of Field  Operations.
office problems were to be discussed  with the Administrator
                                                 of LMSA.
of PWBP and resolved by the Assistant Secretary
                                                         PWBP
     The Office of Field Operations directs LMSA and        Each
field program activities through six regional offices. di-
                                                       and
regional office covers a specific geographical area         Each
rects program operations through  several  area offices.
                                  and provides  technical   as-
area office makes investigations                       out  pro-
sistance to insure compliance and  generally  carries
                                                            per-
gram objectives and priorities. Area office complianceas  PWBP,
innel are assigned, to specific program   areas such
which are referred to as "tracks."
      The chart on the following page illustrates the
                                                   separation
 organizational structure of LMSA and PWBP and the
 of responsibilities for administering ERISA activities.

 CONCERN OVER RESPONSIBILITY
 FOR FIELD OPERATIONS
                                                        about
      Previous administrators of PWBP were concernedprimarily
 the effectiveness of the  organizational structure;
                                                            com-
 of field operations, which is responsible for insuring
                                                  not  under  the
 pliance with ERISA and is  the largest activity
 direct control of PWBP. In   December 1976, the Administrator
 felt that, without direct  authority over ERISA field activi-
 ties, enforcement efforts would founder.
                                                            fiscal
      Available Labor information indicates that during
                                                 were  mainly
 year 1976, ERISA field office track personnel      and technical
 directing their efforts at providing information         of their
 assistance to the public, with only about 19 percent
                                                      gave
 time used for enforcement. On July 2, 1976, PWBP

                               5
 p~~~gj~




           HI~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~m




           ow




Otif

            all
field managers guidelines for setting field office priori-
ties for the remainder of the fiscal year 1976 transition
period and for fiscal year 1977.  The guidelines called for
65 percent of ERISA field office track production time to be
spent on enforcement and 35 percent on public service acti-
vities. This was a major change in irection, considering
the limited ERISA enforcement activities during the first year
and a half of program operations.

     Available Labor information indicates that the EFISA
field office track personnel spent an average of 49 percent
of their time on enforcement activities (such as fiduciary
investigations) during the first uarter of fiscal year
1977. LMSA Atlanta, Philadelphia, and San Francisco regional
office officials said that the abtupt redirection of ERISA
field activities and he lack of ERISA enforcement experience
made it difficult to comply immediately with the new enforce-
ment guidelines.
REORGANIZATION OPTIONS CONSIDERED

     A Department issue analysis paper dated January 12, 1977,
discusses options available to the Secretary on the organiza-
tional location of PWBP.   Other than basically retaining the
present structure, the6 options considered were completely sep-
arating or combining PWBP and LMSA. The analysis pointed out
that either extreme would eliminate the fragmentation of re-
sponsibility under the present structure. The analysis also
considered the number and grade structure of personnel necessary
to implement the different organizational structures. The
analysis did not address whether or not the present structure
was inefficient as alleged or how reorganization would improve
any specific inefficiencies that might exist.

     Also, the anticipated size of Labor's future program
operations to administer ERISA was not considered in the
analysis. Although PWBP has redirected its existing field
efforts toward greater enforcement, overall enforcement needs
have not been assessed.  Enforcement will become increasingly
important in protecting employee benefit plan participants.




                              7
                          CHAPTER 3

             PPOBLEMS-IN'HIRING-PROFESSIONAL-STAFF

     The Pension and Welfare Benefit Programs' Office of
Regulatory Standards and Exceptions (ORSE) is responsible for
issuing regulations and opinions to clarify the provisions of
the Employee Retirement Income Security Act. ORSE is also
responsible for acting on requests for exemptions from trans-
actions prohibited by the act. Members of congressional com-
mittees, Labor officials, end employee benefit plan adminis-
trators were concerned aboi t ORSE's slow progress in issuing
regulations and processing requests for exemptions.   (See
ch. 4.)

     Labor officials have often cited the lack of sufficient
qualified professional personnel as a primary reason for re-
gulation and exemption processing problems. Labor officials
have also contended that the kinds and numbers of staff neces-
sary to carry out ORSE responsibilities could not be obtained
through normal civil service competitive hiring prac ices.

     Until December 1975, ORSE was allocated a total of 22
professional positions. On December 18, 1975, the Congress
authorized additional positions for PWBP, resulting in 41
additional professional positions being allocated to ORSE,
and bringing the total number of professional positions in
ORSE to 63. Subsequently, this number was reduced to 54 when
5 professional positions were reprogramed to other PWBP of-
fices ad 4 were converted to clerical positions within ORSE.
     Although the Congress authorized additional professional
personnel positions for ORSE activities, hiring did not begin
until 10 months later. We found that Labor took 7 months to
define the duties and qualification requirements of the new
positions. As of March 3, 1977, 40 of the 54 authorized ORSE
professional positions had been filled. We also found that
Labor's efforts to obtain authority for hiring outside the
normal civil service competitive system were not successful.
The positions were filled through the normal civil service
competitive hiring process.
DELAYSIN FILLING PROFESSIONAL POSITIONS
     The Civil Service Commission requires an agency to pre-
pare position descriptions and qualification standards before
hiring. A position description describes ta principle duties,
responsibilities, and supervisory relationships of a position.
A qualification standard is a writen statement of job


                              8
requirements such as experience, training, and ability.
cruited applicants are evaluated against the qualification
standards to identify the most qualified applicant fcr a posi-
tion.

     Although OSE was allocated 41 additional professional'
positions in December 1975, formal development of position
descriptions ad qualification standards did not begin until
March i976--3 months later. Cn February 11, 1976, Labor
decided to contract for the development of position descrip-
tions and qualification standards because of insufficient re-
sources to perform this task. On March 29, 1976, Labor awarded
a contract to a private individual for the development of 38
descriptions and standards for the 41 new professional posi-
tions. The contract, which was to be completed by May 13, 1976,
called for descriptions and standards for several specialized
positiors, such as real estate specialist', actuary, corporate
financial analyst, tax specialist, and pension and welfare
benefit plan administration analyst.

     The contract pointed out that PWBP had an urgent need
for these position descriptions and qualifications standards
and that the target date for filling the positions was May 976.
A PWBP official said that development of position descriptions
and qualification standards was delayed partially because of
the need to consider the organizational structure of ORSE and
the types of experience and skills needed to carry out ORSE
responsibilities. Also, the time required to prepare and
award the contract contributed to the delay.

     In May 1976, Labor decided to fill most of the 41 profes-
sional positions using L generalist job series entitled "Em-
ployee Benefit Plan Specialist" rather than the multiple spe-
cialist job series. Accordingly, the contract completion date
was extended to June 18, 1976, to permit the contractor to de-
velop the generalist series and complete the position descrip-
tions and qualification standards for several selected spe-
cialist positions such as actuaries.

     To qualify for the generalist job series, applicants
needed general experience or education in business administra-
tion, finance, law, economics, accounting, or related fields.
The generalist job series would also require experience in the
administration, development, or analysis of employee pension
and welfare benefit plains or funds. A PWBP official said that
they decided to use a generalist job series to enhance recruit-
ment. According to the official, the generalist job series
would attract applicants who have a broad range of experience,
including experience in the employee benefit plan area.



                              9
     According to Labor officials, the position packages pro-
vided by the contractor by June 18, 1976, had to be revised
by Labor personnel to more accurately reflect the duties and
responsibilities of the positions. The qualification standards
for the generalist ob series were presented to CSC on July
30, 176, over 7 months after th- positions were authorized
by the Congress. CSC approved tie qualification standards on
August 6, 1976.
     Before approval of the qualification standards, Labor had
received applications from over 660 persons who were qualified
for the ORSE positions. As soon as CSC approved the qualifi-
cation standards, Labor requested CSC to rate, register, and
certify the eligibility of the applicants. This was completed
by September 30, 1976, and the first job offers were made on
October 22.


     As of March 3, 1977, 40 of the 54 ORSE professional posi-
tions had been filled, including 36 appointed under the genera-
list job series. Hiring action was underway for another nine
positions, and was expected to begin for two others. Selec-
tion of three ORSE division chiefs was being withheld pending
appointment of a new PWBP administrator.
EFFORTS TO OBTAIN'EXCEPTED
HIRING AUTHORITY

     Before position descriptions and qualification standards
had been developed, Labor officials contended that previous
recruitment ano selection efforts through normal CSC competi-
tive hiring practices had not provided enough staff members
with the kinds of expertise needed to carry ut ORSE responsi-
bilities. The officials contended that excepted hiring autho--
ity was necessary if ORSE was to obtain the personnel needed
to adequately perform its assigned functions.
     Excepted hiring authority refers to those positions which
have been taken out of the competitive system by Federal stat-
utes, y the President, or by CSC. CSC can except positions
if it determines that the duties of any position are such
that competitive examinations are impractical. Competitive
examinations may consist of a written test or an evaluation
of applicants' educational background and experience. If
granted excepted hiring authority, an agency can fill posi-
tions without such competitive examinations.
     CSC procedures require that an agency's request for ex-
cepted iring authority include a detailed statement of why


                             10
the agency concluded that holding any examination to fill the
positions is impractical.

     Labor did not request excepted hiring authority from CSC.
Instead, the Secretary of Labor, in a letter dated pril 9,
1976, requested the Director of the Office of Management and
Budget to support and, if necessary, intervene in obtaining
excepted hiring authority from CSC for the ORSE professional
positions. The Secretary emphasized the critical need for
the staff and the inability to obtain sufficient qualified
personnel through the normal competitive hiring process. Ac-
cording to Labor officials, the OffJ e of Management and Budget
never responded in writing to this request.

     Labor officials did not contend that it was impractical
to examine applicants for the ORSE professional positions, but
that there was a scarcity of personnel within the Federal
Government with the desired skills and expertise. According
to CSC officials, scarcity of personnel within the Fderal
Government is not a valid reason for granting excepted hiring
authority.

     In May 1976, Labor officials decided that customary CSC
competitive hiring practices would be used to fill the vacant
positions.




                             11
                           CHAPTER 4

              STATUS OF REGULATIONS AND EXEMPTIONS

     Members of congressional committees, Labor officials,
and employee benefit plan administrators have expressed con-
cern about the delays in issuing regulations covering ERISA
provisions and acting on requests for exemptions from trans-
actions prohibited by ERISA.  We found that Labor has taken
a number of actions to reduce the delays.

     Labor's actions to hire staff for issuing regulations and
processing exemption requests are discussed n chapter 3. The
status of Labor's efforts to implement regulations and process
requests for exemptions from prohibited transactions follows.
ACTIONS TO ISSUE
REGULATIONS

     Regulations are intended to provide employee benefit plan
administrators with guidelines and timeframes for complying
with ERISA requirements, thus helping to protect the interests
and rights of private employee benefit plan participants. PWBP
is generally responsible for issuing regulations on and enforc-
*ng the ERISA fiduciary, reporting, and disclosure provisions.
Although IRS is generally responsible for issuing regulations
on and enforcing EISA participation, vesting, and funding
provisions, PBP is responsible for issuin4 regulations which
provide minimum standards on how an employee's service time
will be computed for determining vesting and participation
rights. Labor's Office of the Solicitor provides legal advice
and assistance to PWBP on regulations. To reduce duplication
and the compliance burden of employee benefit plan administra-
tors, PWBP and IRS are required to consult and coordinate their
related regulation activities.
     Regulations cover one or more specific provisions of
ERISA anc vary in significance and complexity. Regulations
are proposed and published in the Federal Register for public
corment, and then issued after considering the comments. Al-
though proposed regulations are subject to change, they do
provide employee benefit plan administrators with tentative
guidelines for complying with ERISA.
Status of regulations
     PWBP has identified at least 53 areas where regulations
are needed to implement ERISA. As of March 10, 1977, 15 of


                              12
                                    and another 10 proposed
the 53 regulations had been issued
                                          on complex legisla-
for public comment. Issuing regulationstime-consuming process.
                                    and
tive requirements is a complicated        year 1977, 24 regula-
                               of  fiscal
PWBP estimates that by the-end
                                      and by the end of fiscal
tions will be issued and 9 proposed,      and 26 proposed.
year 1978, 27 regulations will be  issued

ACTIONS ON APPLICATIONS FOR
EXEMPTIONS FROM PROHIBITED
TRANSACTIONS
                                             are not misused and
      To insure that pension plan assets employee benefit plan
                                          of
are administered in the best interest                    from engag-
                                     administrators
participants, ERISA prohibits plan          Fo   example,  plan ad-
ing in certain business transactions.assetu in their own in-
ministrators may not deal with plan party having an interest
                                    a
terest or engage in business with               the employer of plan
in the plan. Parties-in-interest include
                                      and certain other persons
participants, plan administrators,             with the plan. Pro-
having a direct or indirect relationship or leasing of prop-
hibited transactions include the selling   a plan and a party-in-
erty and the lending of money between
 interest.
                                                   of the Treasury
       ERISA permits Labor and the Department                trans-
                                         from   prohibited
 to administratively grant exemptions                 established
 actions.   Exemptions are to prevent disrupting
                                        interest of the plan and
 business practices which are in the
                                          exemptions are filed with
 plan participants. Applications for          to consult and coor-
 PWBP an' IRS, who are required by ERISA
 dinate their exemption processing activities.
                                                  established on
       Procedures for processing exemptions,
                                       to be given an opportunity
 April 28, 1975, require applicants
                                        their views before a final
 for a conference to further present              The procedures also
 decision is made to deny the application. an exemption be
                                        grant
 provide that a proposed decision to that interested persons
 published in the Federal Register   so
                                         is made.
  can comment before a final decision
  Progress in processing exemptions
                                            applications had
      As of October 1, 1976, 499 exemption      applications had
                                       of these
 been filed with Labor and IRS. Many
 been pending for over a year and some as long as 2 years.
                                        applications had been
 However, exemptions affecting only 17
                                       been denied, 48 had been
 granted. Although no exemptions had



                                13
                                                     the appli-
closed administratively when they were withdrawn by
cant or found to be covered by other provisions of ERISA.
                                                             had
      As of March 9, 1977, the total number of applications
                    Exemptions affecting 23 applications had
increased to 621.
been  granted, 38 applications had been denied, and another 92
                                                    the status
closed administratively. The following table shows
                                                         9,
of exemption processing as of October 1, 1976 and March
1977.


      Applications           Oct. 1, 1976       Mar. 9, 1977

Granted                         a/1 7                a/23
                                  -                    38
Denied
Administratively closed           48                   92
Proposed for approval               5                b/89
Tentatively denied                69                   85
Backlog                          360                  294

     Total                          499               621
                                                            A
a/Includes 13 applications covered by 2 class exemptions.
                                                          a
  class exemption can affect a number of applications or
  practice common to a particular industry.
                                                 class exemp-
b/Includes 83 applications covered by 5 proposed
  tions.

Actions taken to improve exemption processing
      According to Labor officials, aside from complex legis-
 lation and the diverse business-practices involved, delays
 in processing exemption applications were caused by
      -- coordination problems between PWBP and IRS and

      -- insufficient qualified staff (see ch. 3).

      In recognition of the need for improved interagency
                                      into a Memorandum of
 coordination, PWBP and IRS entered This
 Understanding on October  4, 1976.        memorandum provided
                                                applications and
 specific procedures for processing exemption step.
 established time limits  for each  processing        Further,
                                                 timeframes for
 on October 20, 1976, PWBP and IRS established
 processing certain class exemptions.




                               14
                                                     2, 1976,
    Also, the Under Secretary of Labor, on November
                                               reduce the
called for immediate actions to substantially
growing backlog within 6 months.   In addition to processing
                                                 and Labor, he
the class exemption priorities agreed to by IRS
directed that, by the end of April  1977:

                                                     action on
     -- The Office of the Solicitor recommend final
        at least 50 applications.
                                                    applications.
     -- PWBP recommend final action on at least 35         the
        The Office of Solicitor was to review and approve
                                                          PWBP
        35 applications for final action. Additionally,
                                               individual pending
        was directed to take action on the  80
                                       be  covered by the class
        applications which appeared to
       exemption priorities agreed to by IRS and Labor.




                              15
                           CHAPTER 5

                CONCLUSIONS AND RECOMMENDATIONS

CONCLUSIONS

      Although over 2 years have lapsed since enactment of the
     oyee Retirement Income Security Act, the Department of
    ,r has much to do before implementation is complete. Many
regulations on standards imposed by ERISA have not been issued
 nid PWBP officials estimate that all regulations will not be
issued until after fiscal year 1978. Also, although action was
taken in October and November 1976 to reduce the backlog of
applications for exemptions from prohibited transactions, over
three-fourths of the applications are awaiting final action.
Further, the issue of how Labor should be organized t3 carry
out its ERISA responsibilities has not been resolved.

      Prompt actions by Labor could have helped to reduce
ERISA implementation problems. Labor is especially subject
to criticism for the delays in hiring sufficient qualified
staff--a primary cause of the slow progress in issuing regula-
t;.ons and processing exemption applications.

     It should be recognized, however, that ERISA is a complex
legislative package that took about 10 years to develop. Fur-
ther, issuance of regulations and rulings on exemptions result
from complex matters which involve time-consuming research,
legal considerations, and Federal procedural requirements.

      With its additional hired staff, we believe Labor now
has the opportunity to quickly move forward in issuing regula-
tions and acting on applications for exemptions from prohi-
bited transactions. However, because of past delays in taking
decisive action to resolve problems, the Secretary of Labor
should closely monitor progress to identify and resolve prob-
lems.

      Allegations by previous PWBP administrators that the pre-
sent organizational structure for administering ERISA is in-
efficient has led Labor to consider reorganization. However,
Labor has not determined the extent to which these alleged
inefficiencies exist or are caused by the organizational struc-
ture.

      We could not determine whether reorganization is needed
 or what form it should take. The short time that the present
 organizational structure has been operating--less than a year--
 coupled with a recent major redirection of field office efforts


                             16
towards enforcement, provides little data to accurately mea-
sure the structure's efficiency. The increased enforcement
during the first 3 months of fiscal year 1977, however, in-
dicates a positive response by Labor-Management Services Ad-
ministration field offices to comply with PWBP program goals.

     Further, pension program enforcement neees have not been
developed. A determination of these needs could have a sub-
stantial effect on the size of future Labor operations to
administer ERISA.

     Although we agree that the responsibility in the   present
organizational structure is divided, this should not,   in our
opinion, form the basis for a decision to reorganize.    Consid-
etation of identified management and program problems   and anti-
cipated long-range organizational needs could prevent   unneeded
or multiple reorganizations.

RECOMMENDATIONS

     We recommend that the Secretary of Labor, before making
a decision on reorganization, assess the efficiency of the
present structure for administering ERISA and the anticipated
size of future ERISA program operations. We also recommend
tha. the Secretary closely monitor the progress in issuing
regulations and processing applications for exemptions from
prohibited transactions to see that these tasks are accomp-
lished without further delay.



      We discussed this report with Labor officials on May 23,
1977.   They agreed that reorganization is being considered and
said that, before any decision is made, the efficiency of the
present organizational structure should be evaluated.    In this
:egard,   '-ey said that a contract was awarded on May 9, 1977,
for a t lvate contractor to evaluate LMSA field office activi-
ties and organizational structure. Concurrently, PWBP will
continue compiling data on enforcement needs which should pro-
vide an additional basis for deciding on the appropriate or-
ganizational structure.

     Pending the final organizational structure decision we
were advised that the new PWBP administrator--appointed on
May 23, 1977--will be responsible to the Assistant ecre-
tary for Labor-Management Relations rather than directly to -
the Secretary of Labor.




                             17
APPENDIX I                                                                                                         APPENDIX I


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                                                                                                    August 24, 1976



            The Honorable Elmer Staats
            Comptroller General of the United States
            General Accounting Office
            441 G Street
            Washington, D. C. 20548
            Dear General Staats:
                   This is to request that the General Accounting Office
            conduct a study of the Department of Labor's organization
            and management of its functions under the Employment Retire-
            ment Income Security Act of 1974 (ERISA) and report its find-
            ings directly to us as soon as is feasible. We need the
            information such a study will provide so that we may make
            a reasoned judgment whether further legislation is called
            for in this area.
                   Specifically, the Labor Department's Office of Employee
            Benefit Security has reportedly encountered difficulties in
            hiring qualified personnel from both inside and outside the
            Federal Government, with the requisite expertise to immediately
            contribute to the Department's effort to administer ERISA.
            We need to know the precise nature of the Department's prob-
            lems and the steps which have already been taken by the
            Department in an effort to resolve these problems. We also
            need to know whether the Department has ccnpletely exhausted
            all already-existing avenues short of legislation.
                   As you know, ERISA provides Federal regulation aimed
            at protecting the retirement and welfare rights of American
            workers, retirees and their beneficiaries. In affording this
            protection, ERISA regulates private pension plans which affect
            in significant ways different parts of the Nation's economy
            not previously covered in one statute, including, for example,
            labor-management collective bargaining relations, and the
            securities, banking and insurance industries.




                                                                                          18
APPENDIX I                                                     APPENDIX I




          Because of the breadth'of the coverage provided in
    ERISA, Congress delegated the initial responsibility of
    interpreting and admirnistering its provisions to three
    Federal agencies --      the Labor and Treasury Departments and
    the Internal Revenue Service. Obviously, these agencies
    cannot be expected to fulfill their responsibilities under
    ERISA if they are unable to hire the necessary expert per-
    sonnel.
           It was of great concern to us therefore, when wL learned
     that the Labor Department, for example, has not been abe'
     to fill certain positions in that part of its program with
     responsibility for review and action upon requests for ex-
     emptions from statutory prohibitions which could otherwise
     significantly disrupt normal, nonabusive practices by employee
     benefit plans and related industries. The positions in ques-
     tion require expertise and familiarity with investment prac-
     tices and the kinds of transactions typically carried out
     by such entities if the exemption applications are to receive
     adequate, full consideration. According to the Department,
     it has been 'its experience that persons with the necessary
     background are extremely scarce within the Federal Government,
   ....
     and, in the limited instances where they are available, hir-
     ing cannot be achieved under existing Federal personal regu-
     lations.
          In view of our strong support of the overall pension
    reform legislation, and in the spirit of affording the agencies
    who are charged with the operation of this program, every
    opportunity to achieve successful and efficient administra-
    tion, we request that GAO conduct this study.
              With best wishes,
          /             ..                      ,:Sincerely,


      arrison A. Williams, J                 Jacob K. Javits
     Chairman                            .   Ranking Minority MIember




                                    19
APPENDIX II                                         APPENDIX II
                      PRINCIPAL OFFICIALS OF

                     THE DEPARTMENT OF LABOR

                 RESPONSIBLE FOR ADMINISTERING

              ACTIVITIES DISCUSSED IN THIS REPORT


                                       Tenure of office
                                      From            To
SECRETARY OF LABOR:
     Ray Marshall                    a-n. 1977      Present
     William J. Usery, Jr.         Feb. 1976        Jan. 1977
     John T. Dunlop                Mar.   1975      Jan. 1976
     Peter J. Brennan              Feb. 1973        Mar.  1975
UNDER SECRETARY OF LABOR:
     Robert J. Brown               Mar.    1977     Present
     Vacant                        Jan.    1977     Mar. 1977
     Michael H. Moskow             May     1976     Jan.  1977
     Robert 0. Aders               Sept.   1975     May   1976
     Vacant                        Feb.    1975     Sept. 1975
     Richard F. Shubert            May     1973     Feb. 1975
ASSISTANT SECRETARY FOR
  LABOR-MANAGEMENT
  RELATIONS:
     Francis X. Burkhardt          Mar.    1977     Present
     Bernard E. DeLury             Apr.    1976     Feb. 1977
     Paul J. Fasser                Apr.    1973     Apr. 1976
ADMINISTRATOR, PENSION AND
  WELFARE BENEFIT PROGRAMS: 1/
     Ian David Lanoff              May     1977     present
     J. Vernon Ballard (acting)    Jan.    1977     May   1977
     William J. Chadwick           Oct.    1976     Jan. 1977
     James D. Hutchinson 2/        June    1975     Oct. 1976
     J. Vernon Ballard (acting)    Dec.    1974     June 1975
I/The Office of Employee Benefit Security was established on
  December 16, 1974, to administer the Department of Labor's
  responsibility under the Employee Retirement Income Security
  Act of 1974. The activities of the Office were originally
  directed by the Director, Office of Employee Benefit Security.
  In April 1975, the position of Administrator, Pension and
  Welfare Benefit Programs was established to direct the ac-
  tivities of the Office. In May 1976, the title of the Office
  of Employee Benefit Security was officially changed to the
  Pension and Welfare Benefit Programs.

2/First Administrator of Pension and Welfare Benefit Programs.

                             20