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) Rta lD i -"a to Re MU. sd aehode the Ossrsl Umemag Off exrept eon the bases of pemo pprva9 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 .a. ;~ ^. O M &M. dX%.ld PrMN. . LaG.a w. y.. . .MON, as A MIa. . s . PA. G WWC. -UM. &srw ma . CAU. N& . . ......... - Met fflrs[ C ON IM-34 . . O U090,T. STO.Open _ a irueua w c ·.. rARs 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
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)