oversight

Department of Energy: Value of Benefits Paid to Separated Contractor Workforce Varied Widely

Published by the Government Accountability Office on 1997-01-23.

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

                 United States General Accounting Office

GAO              Report to the Subcommittee on Energy
                 and Water Development, Committee on
                 Appropriations, House of
                 Representatives

January 1997
                 DEPARTMENT OF
                 ENERGY
                 Value of Benefits Paid
                 to Separated
                 Contractor Workforce
                 Varied Widely




GAO/RCED-97-33
                       United States
GAO                    General Accounting Office
                       Washington, D.C. 20548

                       Resources, Community, and
                       Economic Development Division

                       B-275540

                       January 23, 1997

                       The Honorable Joseph McDade
                       Chairman
                       The Honorable Vic Fazio
                       Ranking Minority Member
                       Subcommittee on Energy and Water Development
                       Committee on Appropriations
                       House of Representatives

                       Since 1993, the Department of Energy has spent over $609 million to
                       provide benefits to contractor employees separated in workforce
                       restructuring and downsizing efforts at its facilities. Brought on by the end
                       of the Cold War,1 this downsizing has been carried out using the benefits
                       provided by section 3161 of the National Defense Authorization Act for
                       Fiscal Year 1993, which requires Energy to develop plans for minimizing
                       the impact of downsizing on the workforce at affected facilities. The
                       former Chairman and Ranking Minority Member, in a July 18, 1996, letter,
                       expressed concern about the costs associated with Energy’s
                       implementation of these plans, particularly as the costs relate to workers
                       hired after the end of the Cold War. We focused our analysis on the
                       following questions:

                   •   What types and amounts of benefits were provided to separated
                       employees?
                   •   What distinctions did Energy make in determining who should receive
                       these benefits?
                   •   To what extent did the contractors at Energy’s facilities have to rehire
                       workers or replace them with others having similar skills, because the
                       downsizing was not targeted sufficiently to retain critically needed skills?
                   •   What steps has Energy taken to oversee the implementation of the plans?


                       The 23,800 contractor employees separated since 1993 under Energy’s
Results in Brief       workforce restructuring plans have received an average of $25,600 in
                       benefits.2 About 88 percent of the costs were for enhanced retirement
                       incentives or severance pay. Other benefits included extended medical
                       insurance and help with retraining, relocating, and finding new jobs for the


                       1
                        Energy recognizes September 27, 1991, the date of the first announcement of a unilateral reduction in
                       the nation’s nuclear stockpile, as the Cold War’s end.
                       2
                        During this same period, an additional 15,062 employees left who were not eligible for benefits under
                       the plans, either because they worked for subcontractors or because they left through normal attrition.



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affected employees. Although similar benefits were offered at most
facilities, the value of these benefits varied considerably among locations,
reflecting the considerable discretion given to each facility in determining
how best to reduce its workforce. More than half of the workforce
restructuring plans provided more generous severance pay than would
have normally been provided by the contractors under existing contracts,
and almost all plans provided other benefits not normally provided by the
contractors, such as extended medical insurance. Moreover, the benefits
provided under the plans exceeded those that would have been provided
to federal employees in a reduction in force.

Energy’s guidelines provide that the consideration of specific benefits for
contractor employees should take into account both available funding and
whether the employee was hired prior to the end of the Cold War.
However, most plans made no distinction in the benefits provided to
employees hired during the Cold War and those hired after the Cold War
ended. Furthermore, although the act referred only to defense nuclear
facilities, the Secretary of Energy directed that in the interest of fairness,
workforce restructuring plans would be developed for all facilities.3
However, most of the restructuring costs benefited Cold War workers at
defense nuclear facilities.

The preliminary data for fiscal years 1995 and 1996 suggest that Energy’s
facilities have improved their ability to retain critically needed skills
during downsizing. Early restructuring at some facilities resulted in
subsequent hiring to fill vacated critical skill positions. For example, at the
agency’s Fernald, Ohio, facility, almost every position that was vacated
had to be refilled within a year. To retain workers with the skills necessary
to accomplish the new mission at its facilities, Energy subsequently
revised its guidelines to emphasize the importance of workforce planning.
While data are not available on the number of critical skill positions that
were refilled during fiscal years 1993 and 1994, Energy’s preliminary data
for fiscal years 1995 and 1996 indicate that about 2 percent of the positions
vacated had to be refilled. However, since this percentage does not reflect
hiring done below the level of principal contractor, employees with critical
skills may still be leaving the principal contractor and accepting
employment with a subcontractor at the facility.

Energy provides limited oversight over how contractors implement
workforce restructuring plans. According to agency officials, once the

3
 According to the Director, Office of Worker and Community Transition, the authority and funding for
the implementation of nondefense facility plans is contained in Energy’s general authority to
reimburse the contractors for the costs incurred in operating its facilities.



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                 workforce restructuring plans are approved, the responsibility for
                 implementation is left with the contractors; furthermore, little monitoring
                 is done by Energy program personnel. The reviews by Energy’s Office of
                 Inspector General and others of Energy’s early restructuring efforts have
                 identified problems with the awarding of benefits, including the
                 construction of a training and outplacement facility that was not
                 warranted, separated employees’ receiving benefits for which they were
                 not eligible, and retained employees’ receiving educational
                 reimbursements for training not relevant to the facility.


                 To carry out its missions, Energy relies on contractors for the
Background       management, operation, maintenance, and support of its facilities. Since
                 the end of the Cold War, the agency’s mission at its defense nuclear
                 facilities has changed from weapons production to cleanup and
                 environmental restoration, thus necessitating a change in employees’
                 skills. Energy’s facilities have also had to reduce their workforce in
                 response to overall cuts in the federal budget. At the end of fiscal year
                 1996, total employment by contractors at the facilities was estimated at
                 about 110,000, down from a high of nearly 149,000 at the end of fiscal year
                 1992.

                 Section 3161 of the National Defense Authorization Act for Fiscal Year
                 1993 requires that when a change in the workforce at a defense nuclear
                 facility is necessary, Energy must develop a plan for restructuring the
                 contractor workforce. These plans are to be developed in consultation
                 with the appropriate national and local stakeholders, including labor,
                 government, education, and community groups. According to the act,

             •   changes in the workforce should be accomplished to minimize social and
                 economic impacts, should be made only after 120 days’ notice, and should
                 be accomplished, when possible, through the use of retraining, early
                 retirement, attrition, and other options to minimize layoffs;
             •   the Secretary shall submit to the Congress a plan for a defense nuclear
                 facility within 90 days after the date of the 120-day notice, or 90 days after
                 the enactment of the act, whichever is later;
             •   employees shall, to the extent practicable, be retrained for work in
                 environmental restoration and waste management activities;
             •   employees whose employment is terminated shall, to the extent
                 practicable, receive preference in hiring; and




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                        •   Energy should provide relocation assistance to transferred employees and
                            should assist terminated employees in obtaining appropriate retraining,
                            education, and reemployment.

                            In addition to the act’s specific requirements, Energy’s guidelines provided
                            that extended medical insurance should be offered to all separated
                            contractor employees. Moreover, although the act refers only to defense
                            nuclear facilities, the Secretary of Energy determined that in the interest of
                            fairness, the workforce restructuring planning process would be applied at
                            both defense nuclear facilities and nondefense facilities. Although Energy
                            provided guidelines to the field offices, these guidelines were intended to
                            be general and not prescriptive. In order to allow for consultation with
                            local stakeholders and to incorporate the unique needs at each facility,
                            field offices were responsible for developing workforce restructuring
                            plans.

                            Energy’s Office of Worker and Community Transition is responsible for
                            coordinating restructuring efforts, reviewing and approving workforce
                            restructuring plans, and reporting on the status of the plans. As of
                            November 1996, a total of 35 workforce restructuring plans either had
                            been approved or were in draft form. While restructuring occurred at 32 of
                            Energy’s facilities, some facilities had multiple restructuring plans; others
                            had none because few employees were affected, and plans were not
                            required if fewer than 100 employees would be involved. (App. I contains a
                            list of the 32 facilities that reported costs associated with the
                            restructuring.)


                            The workforce restructuring plans generally included similar types of
Similar Types of            separation payments and other benefits. Since 1993, the costs associated
Benefits Offered, but       with these benefits have totaled about $609 million.4 The value of
Amounts Varied              separation payments varied among facilities due to such factors as
                            differences in the method used to calculate severance pay. Other benefits,
Among Locations             including extended medical insurance, educational/training assistance,
                            relocation assistance, and outplacement assistance, were offered at most
                            facilities, and the value of these benefits also varied. These differences in
                            the value of benefits among facilities reflect the nonprescriptive nature of



                            4
                             Data on numbers of employees and costs were provided by the Office of Worker and Community
                            Transition on the basis of preliminary data from Energy field offices and are subject to change. The
                            Office also reported about $40 million for retraining or transfer of retained workers and about
                            $6 million spent on severance payments for subcontractor employees, who were not eligible for
                            benefits under the plans.



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                                      Energy’s guidelines and the emphasis on developing plans at the local
                                      level.


Types and Amounts of                  The workforce restructuring plans included three types of separation
Benefits Provided                     programs: enhanced retirement, voluntary separations, and involuntary
                                      separations. Energy’s goal in workforce restructuring was to encourage
                                      employees to leave through enhanced retirement or voluntary separation
                                      programs and to use involuntary separations only when necessary. The
                                      enhanced retirement programs typically added 3 years to age and service
                                      for the purpose of calculating pension benefits. Some enhanced retirement
                                      programs included an additional incentive payment. The voluntary and
                                      involuntary separation programs usually consisted of a severance payment
                                      based on length of service and base salary. In all, nearly 75 percent of the
                                      employees leaving under the three separation programs accepted
                                      enhanced retirement or voluntary separations (see fig. 1).


Figure 1: Distribution of Separated
Employees by Program                                                                        Involuntary separation (6,237)



                                                                    20.9% •                 Enhanced retirement (4,969)
                                               • 26.2%




                                                          52.9% •                           Voluntary separation (12,576)




                                      Note: For fiscal years 1993-96, there were a total of 23,782 voluntary and involuntary separations
                                      at Energy defense nuclear facilities and nondefense sites.

                                      Source: Prepared by GAO using data provided by Energy.




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                                      Employees leaving under most voluntary and involuntary separation
                                      programs were eligible for additional benefits. These additional benefits
                                      included extended medical insurance, educational/training assistance,
                                      relocation assistance, and outplacement assistance. However, separation
                                      payments accounted for most of the total funds spent on workforce
                                      restructuring. Figure 2 shows that 88 percent of the $609 million in
                                      workforce restructuring costs consisted of separation and enhanced
                                      retirement payments.


Figure 2: Distribution of Workforce
Restructuring Costs, in Millions of
Dollars                                                                                    5.8%
                                                                                           Extended medical coverage
                                                                                           ($35.3)

                                                                                           2.7%
                                                                                           Education assistance ($16.4)

                                                                                           0.2%
                                                                                           Relocation assistance ($1.3)

                                                                                           3.2%
                                                                                           Outplacement assistance ($19.2)




                                                       • •
                                                  •




                                                             88.2% •                       Enhanced retirement/separation
                                                                                           payments ($537.1)




                                      Note: Total costs for fiscal years 1993 through 1996 were $609,274,911. Percentages do not total
                                      100 percent due to rounding.

                                      Source: Prepared by GAO using data provided by Energy.




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                                      As shown in table 1, the total average cost of benefits provided to the
                                      23,782 separated employees was $25,619. Average separation payments
                                      ranged from about $37,400 for enhanced retirement to about $15,800 for
                                      involuntary separation.

Table 1: Total and Average Costs of
Separation Payments and Other                                              Number of                                  Average cost per
Benefits, Fiscal Years 1993 Through                                        employees                  Total costs           employee
1996                                  Costs for employees separated with benefits
                                      Separation payments
                                          Enhanced retirement                     4,969             $185,988,167                 $37,430
                                          Voluntary separation                  12,576               252,355,809                   20,066
                                          Involuntary
                                          separation                              6,237               98,787,082                   15,839
                                          Total separation
                                          payments                              23,782               537,131,058                   22,586
                                      Other benefits
                                          Extended medical
                                          coverage                              10,652              $ 35,262,286                  $ 3,310
                                          Educational
                                          assistance                              8,012               16,385,819                    2,045
                                          Relocation assistance                     444                 1,265,637                   2,851
                                          Outplacement
                                                                                        a                                                 a
                                          assistance                                                  19,230,111
                                                                                        a                                                 a
                                          Total other benefits                                        72,143,853
                                      Total costs for
                                      employees separated
                                      with benefits                             23,782              $609,274,911                 $25,619
                                      a
                                       Amounts cannot be calculated because the number of persons who received outplacement
                                      assistance is unknown; in addition, persons receiving a specific other benefit may be included in
                                      more than one category



                                      Source: Data provided by Energy’s Office of Worker and Community Transition..




Value of Benefits Varied              Although most facilities included similar benefits in their workforce
Among Facilities                      restructuring plans, the value of these benefits varied considerably for
                                      several reasons. For separation payments, the variance was generally due
                                      to two factors: differences in the severance pay formula used and the
                                      characteristics of the workforce at a given facility. For example, the
                                      Fernald facility provided severance pay based on service up to a maximum
                                      of 24 weeks’ pay, while Lawrence Livermore National Laboratory provided




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                          2 weeks of pay per year of service to a maximum of 52 weeks. In addition,
                          the value of severance payments at a location varied due to average
                          salaries, length of employment, and the age of the workforce. For
                          example, the average severance payment for voluntary separations ranged
                          from $10,172 at Grand Junction to $42,855 at Portsmouth; for involuntary
                          separations, the average payment ranged from $4,076 at Morgantown to
                          $51,409 at the Naval Petroleum Reserve; and for enhanced retirement, the
                          average benefit ranged from $10,000 at Grand Junction to $78,783 at
                          Pinellas.

                          Similarly, the value of benefits other than separation payments generally
                          varied for two reasons—either because Energy’s guidelines specified a
                          maximum amount for the benefit but allowed discretion in determining
                          the appropriate amount for each facility or because of local variances in
                          the costs of those benefits. For example, almost all plans provided
                          educational and training assistance; the maximum benefit ranged from
                          $2,500 to $10,000. In addition, relocation assistance was offered at most
                          facilities; the maximum reimbursement ranged from $2,000 to $5,000. For
                          extended medical coverage, Energy’s costs included the contractors’ full
                          share of health insurance premiums for the first year following separation.
                          The differences in the value of this benefit were due to the costs of
                          coverage at different locations. For example, the average value of the
                          extended medical coverage ranged from $194 at Grand Junction to $16,084
                          at Pinellas (the Pinellas costs included coverage for retired workers under
                          the plant-closing provisions of the contract).

                          Appendix II summarizes the benefits provided in the 29 workforce
                          restructuring plans at defense nuclear facilities, and appendix III
                          summarizes the benefits provided in 6 workforce restructuring plans at
                          nondefense facilities. Both tables show some of the differences in how
                          these benefits were calculated.


Benefits Exceeded         Section 3161 of the National Defense Authorization Act for Fiscal Year
Amounts That Would Have   1993 authorized benefits such as educational and relocation assistance
Been Awarded Under        that exceeded those that would have been provided under existing
                          contracts at the facilities. In addition, the agency determined that all
Existing Contracts        contractor employees, whether voluntarily or involuntarily separated,
                          should be eligible for extended medical coverage (as shown in table 1, the
                          cost of providing this benefit totaled $35.2 million). The contracts at
                          Energy’s facilities usually provide only severance payments and
                          outplacement assistance; no other benefits are offered. As we reported in



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                        March 1995, these limited benefits are consistent with both federal and
                        private practices.5 Our review of downsizing efforts at 22 private
                        companies and state organizations and 3 foreign governments concluded
                        that many of these organizations offered separation incentives more
                        generous than those generally included in federal “buyout” legislation to
                        encourage employees to resign or retire. The only other benefit frequently
                        offered by these organizations was outplacement assistance. However,
                        most of Energy’s workforce restructuring plans included benefits, such as
                        extended medical coverage and educational assistance, in addition to
                        severance pay and outplacement assistance. In contrast, federal
                        employees who are involuntarily terminated through a reduction in force
                        receive only severance pay based on years of service and an additional
                        10 percent of basic severance for each year an employee is over age 40; the
                        maximum lifetime benefit is 1 year’s annual salary. Under the federal
                        buyout legislation for voluntary separations, the maximum severance pay
                        allowed was $25,000.

                        Although the act was silent on the issue of severance pay, Energy’s
                        guidance allowed the use of enhanced severance payments to encourage
                        voluntary separations. The plans varied as to whether they provided
                        severance payments in accordance with the existing contracts. Of the 35
                        plans reviewed, 9 conformed to existing contracts, 8 were unclear as to
                        how severance payments compared to normal contract provisions, and 18
                        provided severance payments that exceeded those normally provided for
                        in the contracts. For example, at Rocky Flats, the existing contractor
                        policy allowed for a maximum of 15 weeks severance pay, while the plan
                        provided a maximum of 52 weeks. At Elk Hills Naval Petroleum Reserve,
                        the enhanced severance pay amounts exceeded the normal severance pay
                        by 41 percent.


                        Although the act referred only to workforce restructuring at defense
Similar Benefits Were   nuclear facilities, the Secretary of Energy determined that in the interests
Generally Provided to   of fairness, the planning process included in the act would apply to all
Cold War and            workforce restructuring. Therefore, the agency generally extended the
                        same benefits to contractor employees at both defense nuclear and
Post-Cold War           nondefense facilities. Workforce restructuring costs were reported for 15
Workers at Defense      nondefense facilities. However, the cost of benefits provided at these
                        facilities accounted for about 7 percent of the total workforce
and Nondefense
Facilities
                        5
                          Workforce Reductions: Downsizing Strategies Used in Selected Organizations (GGD-95-54, Mar. 13,
                        1995).



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                                     restructuring costs reported for fiscal years 1995 and 1996 and primarily
                                     included severance payments and medical coverage.

                                     The act does not specifically mention employees who worked during the
                                     Cold War. However, in its March 1994 guidelines, the Office of Worker and
                                     Community Transition established a “job attachment test” that was to be
                                     used to determine whether an employee qualified as a Cold War worker
                                     and stated that only Cold War workers should be eligible for all benefits.
                                     In practice, most plans made little or no distinction in the benefits offered
                                     to those employees who worked during and after the Cold War. The
                                     largest benefit cost—for severance pay—depended on length of service
                                     and base salary rather than on whether the employee worked during the
                                     Cold War. The two facilities that did make a distinction—Hanford and
                                     Savannah River—provided a lump-sum payment option for voluntary
                                     separations, with larger payments for Cold War workers. For other
                                     benefits, most plans offered the same benefits to all workers regardless of
                                     when they were employed.

                                     Although Energy does not routinely collect data separating costs between
                                     Cold War and post-Cold War workers, four facilities—Hanford, Savannah
                                     River, Oak Ridge, and Rocky Flats—did provide this breakdown of costs.
                                     However, since these data are not normally collected, the contractors at
                                     the facilities were not able in all cases to identify or separate all costs.
                                     According to the data available at these four locations, about 7 percent of
                                     the costs went to post-Cold War workers. Table 2 shows the number of
                                     employees and cost of benefits provided at the four facilities.

Table 2: Comparison of Benefits at
Four Facilities for Cold War and                                    Cold War workers                Post-Cold War workers
Post-Cold War Workers                                            Number of                          Number of
                                                                 employees                  Costs   employees             Costs
                                     Hanford                            2,921      $109,330,500            911      $ 8,333,000
                                     Oak Ridge                          1,916         36,930,025            72          282,714
                                     Rocky Flats                        2,493         50,905,742           704        7,253,710
                                     Savannah River                     3,639         59,833,357           507        4,731,752
                                     Total                            10,969       $256,999,624          2,194      $20,601,176

                                     Source: Data provided by contractors at four facilities.




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                       The limited data available for the early years of restructuring showed
Efforts to Retain      problems in retaining workers with critically needed skills. While Energy
Critical Skills Have   did not collect comprehensive information about rehiring rates during the
Improved               early years, audits at three facilities indicated difficulties in maintaining
                       the workforce necessary to accomplish the mission at the facilities. For
                       example, the agency’s Office of Inspector General reported that during the
                       first restructuring at Fernald, of the 255 separations in fiscal year 1994, all
                       but 14 of the positions had been refilled within 1 year by either the
                       previous employees or ones with similar skills, representing a 95-percent
                       rehire/backfill rate.6 The report concluded that Energy did not (1) require
                       the contractor to perform the skills analysis necessary to identify which
                       employees were needed to perform the current mission and (2) effectively
                       monitor the contractor’s restructuring efforts. In addition, the report
                       stated that continuing to separate and replace employees with critical
                       skills was deemed a material internal control weakness. In response,
                       Energy acknowledged that this restructuring did not accomplish its
                       objectives.

                       Since these early efforts, Energy has taken steps to improve its ability to
                       retain critically needed skills. The agency acknowledged in its report on
                       the restructuring efforts in fiscal years 1993 and 1994 that it was essential
                       for facilities to do more effective workforce planning to identify the
                       critical skills necessary to carry out the new mission. After Energy revised
                       its guidance to emphasize workforce planning, the facilities targeted
                       voluntary separations to retain critical skills and established controls to
                       restrict the rehiring of employees taking voluntary separations. For
                       example, during the fiscal year 1995 restructuring at the Hanford facility,
                       the employees with critical skills were excluded from the voluntary
                       separation program.

                       According to preliminary data reported for all facilities for fiscal years
                       1995 and 1996, about 2 percent of separated employees have had to be
                       rehired or have their positions backfilled by someone with similar skills. In
                       the explanations accompanying these data, many of these rehires were
                       either employees who had been involuntarily separated and qualified for
                       preferential hiring or collective bargaining employees who had recall
                       rights. However, Energy normally does not track contractor employees
                       below the level of principal contractor and has no data available on hires
                       at most subcontractors. Therefore, separated employees with critical skills



                       6
                       Audit of Workforce Restructuring at Fernald Environmental Management Project (ER-B-96-01,
                       Apr. 23, 1996).



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                       could be rehired by subcontractors at the same facility and would not be
                       reflected in the 2-percent rehire/backfill rate.


                       After Energy approves the workforce restructuring plans, it provides little
Energy Provides        oversight or monitoring of how contractors implement those plans.
Limited Oversight of   According to the Director of the Office of Worker and Community
Plan Implementation    Transition, agency field offices are responsible for monitoring workforce
                       restructuring efforts and for determining if benefits are applied
                       appropriately. However, field offices at the four facilities we visited do
                       little monitoring or oversight of the implementation of the facilities’ plans.
                       When monitoring has been done by either Energy’s Office of Inspector
                       General or internal audit personnel at field offices, their investigations
                       have identified instances of excessive costs or inappropriate benefits.

                       The Office of Worker and Community Transition reviews all restructuring
                       plans to ensure that they conform to Energy’s policy before submitting the
                       approved plans to the Congress. This Office also gathers data from the
                       facilities on the costs of restructuring for annual reporting to the Congress.
                       In addition, the office has revised program guidelines to incorporate
                       lessons learned in early restructuring efforts.

                       At the four facilities we visited, field office personnel told us that the
                       contractor was primarily responsible for implementing the workforce
                       restructuring plan. However, agency personnel do review the contractors’
                       separation programs to ensure consistency with the plan and respond to
                       the contractors’ questions about specific benefit determinations. At one
                       facility, the rehiring of the individuals who accepted enhanced retirement
                       requires approval by the field office manager. However, according to the
                       agency officials responsible for workforce restructuring at the four
                       facilities, they do no detailed review of the costs submitted by the
                       contractors for workforce restructuring.

                       Independent reviews of early restructuring efforts by Energy audit staff
                       have raised questions about the impact of limited monitoring. The
                       Inspector General has issued four reports on workforce restructuring
                       problems and has two ongoing reviews. For example, an August 1995
                       report at Oak Ridge found that the contractor established training
                       programs and an outplacement center that provided few benefits to
                       separated employees, yet cost Energy $8.2 million in fiscal years 1993 and
                       1994 and would cost an additional $15.6 million through fiscal year 1997.7

                       7
                        Audit of Workforce Restructuring at the Oak Ridge Operations Office (ER-B-95-06, Aug. 3, 1995).



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              The report recommended that Energy officials at Oak Ridge evaluate and
              monitor the implementation of the plan to preclude unnecessary
              expenditures.

              In addition, the reviews by an internal audit organization at one facility
              have identified problems and excessive costs associated with workforce
              restructuring. The reviews of restructurings at Rocky Flats that occurred
              in fiscal years 1993 through 1995 identified problems with both separation
              payments and educational and training assistance. For example, one
              review noted that the contractor paid out $0.8 million for voluntary
              separations and then hired workers to fill the vacated positions. In
              addition, another review found voluntary separation payments made to
              ineligible employees that totaled over $93,000. Internal audits also found
              that retained employees were reimbursed for training courses that were
              not relevant to the skills needed at the facility; $200,000 in questionable
              expenses were identified, including $25,000 for helicopter pilot training for
              a retained employee.

              We discussed these concerns with the Director of Energy’s Office of
              Worker and Community Transition. According to the Director, the agency
              shares these concerns and acknowledges that early restructuring efforts
              could have been more effective. The Director added that the Office has
              learned from these experiences and has a two-part strategy in place to
              address these issues. First, to increase the effectiveness of workforce
              restructuring efforts, the Office revises the guidelines annually to reflect
              lessons learned and holds annual meetings to share experiences with field
              office personnel responsible for workforce restructuring plans. In
              addition, although the agency provides limited oversight of the
              implementation of the plans, the Director believes that contract reform
              efforts, including the change to performance-based contracts, will provide
              the appropriate incentives for the contractors to implement the workforce
              plans more effectively.


              Energy has exercised wide discretion in restructuring its contractor
Conclusions   workforce, defining the types and amounts of benefits and who should
              receive those benefits at its defense nuclear facilities and nondefense
              facilities. Through improved guidance and emphasis on workforce
              planning, the agency has taken steps to improve its ability to conduct
              restructuring while meeting critical skill needs at its facilities. However,
              given the lack of tracking of employees below the level of principal
              contractor, it is difficult to determine how effective these steps have been.



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                  In addition, given Energy’s limited oversight of the implementation of
                  restructuring plans, problems with excessive costs or inappropriate
                  benefits, such as those identified by audit organizations, could occur in
                  future restructurings. To address these concerns, Energy has developed a
                  strategy to incorporate lessons learned and to provide incentives for
                  contractors to implement the plans in a cost-effective manner. Since
                  workforce restructuring will continue, the agency needs to ensure that this
                  strategy will be effective in preventing similar problems in the future.


                  We sent a draft of this report to the Department of Energy for its review
Agency Comments   and comment. (Energy’s comments appear in app. IV.) Energy generally
                  agreed with the report’s findings and conclusions; however, the agency
                  had two concerns. First, Energy did not agree with the characterization of
                  its workforce restructuring program in the title of the report, stating that
                  similar types of benefits were offered at most facilities. While similar types
                  of benefits were offered at most facilities, the formulas used to calculate
                  severance pay combined with the differences in length of service and base
                  salaries among the facilities resulted in a wide range for the value of these
                  benefits.

                  Second, in connection with the rehiring of separated employees, Energy
                  acknowledged that it does not normally track employees below the level
                  of principal contractor. Furthermore, the agency believes that the
                  reduction in both its overall budget and the number of principal contractor
                  employees would not have occurred if subcontractors were hiring
                  employees separated under the programs. However, reductions in budgets
                  and employment levels are not necessarily good indicators. While
                  reductions in budgets and employment levels have occurred, hiring has
                  continued at most facilities.

                  In addition, Energy forwarded a copy of our draft report to the four sites
                  that we visited. The Richland and Savannah River Operations Offices said
                  that our characterization of Energy’s limited oversight of the
                  implementation of restructuring plans did not apply to them. Both offices
                  believe that they are involved in providing direction to the contractors and
                  then monitoring the results. For example, Savannah River indicated that
                  they closely monitor the cost reports and other data submitted by the
                  contractors. However, as noted in our draft report, the activities
                  performed by these offices did not include detailed reviews of the costs
                  submitted by contractors. The other two facilities had only clarifying
                  comments that we incorporated as appropriate.



                  Page 14                  GAO/RCED-97-33 Benefits Paid to Separated Contract Workers
              B-275540




              To determine the types and amounts of benefits provided to separated
Scope and     employees as well as to determine what distinctions Energy made in
Methodology   determining who should receive these benefits, we relied primarily on data
              provided by the agency’s Office of Worker and Community Transition. The
              data provided by this office relating to the detailed results of workforce
              restructuring at Energy’s facilities for fiscal years 1995 and 1996 were
              preliminary and subject to change, and we did not independently verify the
              data’s accuracy. The data for fiscal years 1993 and 1994 were obtained
              from the first report on workforce restructuring efforts. We reviewed
              section 3161 of the National Defense Authorization Act for Fiscal Year
              1993 and Energy’s guidelines for implementing this legislation. We also
              discussed policies, procedures, and data with officials from the Office of
              Worker and Community Transition. We reviewed 35 final and draft
              workforce restructuring plans covering the restructuring activities at 32 of
              Energy’s facilities. Our summaries of these plans are included in apps. II
              and III and are based on our understanding of the language included in the
              plans; we did not contact the Energy field offices for clarification. At the
              four facilities we visited—Hanford, Oak Ridge, Rocky Flats, and Savannah
              River—contractors provided a breakdown of costs between Cold War and
              post-Cold War workers.

              To determine the extent to which the contractors at Energy’s facilities had
              to rehire or replace workers, and to determine the steps that the agency
              has taken to oversee the implementation of the plans, we interviewed the
              officials responsible for restructuring at the four facilities we visited and
              officials in the Office of Worker and Community Transition. We also
              reviewed narrative explanations accompanying the fiscal years 1995 and
              1996 data provided by that Office, which identified the extent of rehires
              and backfills. We also reviewed reports by Energy’s Office of Inspector
              General and the results of reviews by the Chief Financial Officer at the
              Rocky Flats facility.

              Our review was performed from August through December 1996 in
              accordance with generally accepted government auditing standards.


              As arranged with your office, unless you publicly announce its contents
              earlier, we plan no further distribution of this report for 7 days after the
              date of this letter. At that time, we will send copies to the Secretary of
              Energy. We will also make copies available to others on request.




              Page 15                  GAO/RCED-97-33 Benefits Paid to Separated Contract Workers
B-275540




Please call me at (202) 512-3600 if you or your staff have any further
questions. Major contributors to this report were Jeffrey E. Heil, Carole J.
Blackwell, Gene M. Barnes, William K. Garber, Robert E. Sanchez, Stan G.
Stenersen, and Carrie M. Stevens.




Allen Li
Associate Director, Energy,
  Resources, and Science Issues




Page 16                 GAO/RCED-97-33 Benefits Paid to Separated Contract Workers
Page 17   GAO/RCED-97-33 Benefits Paid to Separated Contract Workers
Contents



Letter                                                                                                1


Appendix I                                                                                           20

Energy Facilities
Reporting Workforce
Restructuring Costs
Appendix II                                                                                          21

Summary of Benefits
Provided Under
Section 3161 in 29
Workforce
Restructuring Plans
for Defense Nuclear
Facilities
Appendix III                                                                                         24

Summary of Benefits
Provided in Six
Workforce
Restructuring Plans
for Nondefense
Facilities
Appendix IV                                                                                          25

Comments From the
Department of Energy
Tables                 Table 1: Total and Average Costs of Separation Payments and                    7
                         Other Benefits, Fiscal Years 1993 Through 1996
                       Table 2: Comparison of Benefits at Four Facilities for Cold War               10
                         and Post-Cold War Workers




                       Page 18                GAO/RCED-97-33 Benefits Paid to Separated Contract Workers
          Contents




Figures   Figure 1: Distribution of Separated Employees by Program                        5
          Figure 2: Distribution of Workforce Restructuring Costs, in                     6
            millions of dollars




          Abbreviations

          COBRA      Consolidated Omnibus Budget Reconciliation Act of 1985
          GAO        General Accounting Office


          Page 19                 GAO/RCED-97-33 Benefits Paid to Separated Contract Workers
Appendix I

Energy Facilities Reporting Workforce
Restructuring Costs

Defense Facilities      Argonne National Laboratory
                        Brookhaven National Laboratory
                        Fernald Environmental Management Project Site 8
                        Hanford Site8
                        Idaho National Engineering Laboratory8
                        Kansas City Plant8
                        Lawrence Livermore National Laboratory8
                        Los Alamos National Laboratory8
                        Mound Facility8
                        Nevada Test Site8
                        Oak Ridge Site (Oak Ridge National Laboratory, Y-12 Plant, K-25 Site)8
                        Pinellas Plant8
                        Portsmouth Gaseous Diffusion Plant
                        Rocky Flats Plant8
                        Ross Aviation8
                        Sandia National Laboratory
                        Savannah River Site8


Nondefense Facilities   Ames Laboratory
                        Bettis Atomic Power Laboratory
                        Fermi National Accelerator Laboratory
                        General Atomics
                        Grand Junction Site8
                        Knolls Atomic Power Laboratory
                        Lawrence Berkeley National Laboratory8
                        Morgantown Energy Technology Center
                        National Renewable Energy Laboratory
                        Naval Petroleum Reserve8
                        Pittsburgh Energy Technology Center
                        Princeton Plasma Physics Laboratory8
                        Strategic Petroleum Reserve8
                        Western Environmental Technology Center
                        Yucca Mountain




                        8
                         Facilities with one or more workforce restructuring plans.



                        Page 20                          GAO/RCED-97-33 Benefits Paid to Separated Contract Workers
Appendix II

Summary of Benefits Provided Under
Section 3161 in 29 Workforce Restructuring
Plans for Defense Nuclear Facilities

Benefit/number of plans          Examples of range of benefit                    Distinctions made
Separation payments
Enhanced retirement— 18 plans    Typical enhanced retirement programs added None.
                                 3 years to age and pension credited service
                                 for calculating pension benefits.           Most enhanced retirement offerings would not
                                                                             be available to employees hired after 9/27/91
                                 Oak Ridge allowed the addition of only 2    because of minimum years of service
                                 years to both age and pension credited      requirements.
                                 service.

                                 The Mound plan allowed an employee, if at
                                 least age 49, to retire with an unreduced
                                 pension if age and years of service totaled
                                 80. In addition, there was a one-time payment
                                 of 3 months of current base pay plus 1.25
                                 percent of base pay for each year of service.
Voluntary separation— 26 plans   Severance pay calculations were usually         Three plans had lump-sum payment options
                                 based on length of service and base salary. A   that varied on the basis of whether employees
                                 limited number of plans provided payments in    were hired before or after 9/27/91. For
                                 addition to severance pay. Examples include     example, two plans provided employees
                                 60 days’ notice pay (Kansas City), $3,500       hired prior to this date with the option of a
                                 termination bonus (Idaho Protection             $15,000 payment, while employees hired after
                                 Technology), and transition assistance equal    this date received $7,500.
                                 to 3 months base salary (Mound).
                                                                                 The remaining plans made no distinction.
                                 Fernald’s fiscal year (FY) 1994 plan provided
                                 severance pay up to a maximum of 24 weeks
                                 of pay for employees with 15 or more years of
                                 service.

                                 Fernald’s FY 1995 plan provided separation
                                 pay based on length of service up to 50
                                 weeks of pay for employees with 35 or more
                                 years of service. Employees also received a
                                 lump-sum payment of $15,000.

                                 Lawrence Livermore National Laboratory
                                 provided 2 weeks of pay for each year of
                                 service up to a maximum of 52 weeks pay.
                                                                                                                  (continued)




                                     Page 21                     GAO/RCED-97-33 Benefits Paid to Separated Contract Workers
                                       Appendix II
                                       Summary of Benefits Provided Under
                                       Section 3161 in 29 Workforce Restructuring
                                       Plans for Defense Nuclear Facilities




Benefit/number of plans            Examples of range of benefit                     Distinctions made
Involuntary separation— 27 plans   Most severance pay calculations were based       In one plan, employees hired after 9/27/91
                                   on years of service and base salary.             were not eligible to receive separation
                                                                                    payments.
                                   In 10 plans, severance pay was the same as
                                   for voluntary separations.                       The remaining plans made no distinction.

                                   Ross Aviation allowed only 2 weeks of pay in
                                   lieu of notice for involuntary separations.

                                   Los Alamos National Laboratory used two
                                   severance schedules, depending on overall
                                   length of service. One provided from 1 week
                                   of pay for employees with less than 1.5 years
                                   of service up to a maximum of 52 weeks of
                                   pay. The other provided from 2 weeks of pay
                                   for employees with less than 2 years of
                                   service up to a maximum of 39 weeks.
Other 3161 benefits
Medical benefits—25 plans          All plans that included extended medical         In six of the plans, employees hired after
                                   coverage used the Displaced Workers              9/27/91 were not eligible for extended
                                   Medical Benefits program. For the first year,    medical coverage.
                                   the company continues to pay its normal
                                   contribution to health insurance; for the        The remaining plans made no distinction.
                                   second year, the separated worker pays
                                   one-half the Consolidated Omnibus Budget
                                   Reconciliation Act of 1985 (COBRA) rate and
                                   for the third and subsequent years, the full
                                   COBRA rate. The COBRA rate is equal to the
                                   full premium for group insurance plus an
                                   administrative surcharge.

                                   All but one plan provided this coverage to
                                   both voluntary and involuntary separations,
                                   provided the employee had no alternate
                                   coverage through other employment or a
                                   spouse’s medical plan.

                                   Two plans—Pinellas and Kansas
                                   City—provided coverage for up to a year at
                                   no cost, in accordance with existing
                                   agreements.
                                                                                                                        (continued)




                                       Page 22                      GAO/RCED-97-33 Benefits Paid to Separated Contract Workers
                                       Appendix II
                                       Summary of Benefits Provided Under
                                       Section 3161 in 29 Workforce Restructuring
                                       Plans for Defense Nuclear Facilities




Benefit/number of plans            Examples of range of benefit                       Distinctions made
Educational/training—28 plans      Most of the plans provided for up to $10,000       In five of the plans, employees hired after
                                   in educational assistance over a period of 4       9/27/91 were not eligible for educational
                                   years for both voluntary and involuntary           assistance. In three additional plans,
                                   separations. Mound provided the maximum            employees who were involuntarily separated
                                   for degree programs and up to $5,000 for job-      and hired after 9/27/91 were not eligible for
                                   specific programs.                                 this benefit.

                                   Fernald provided different benefits for
                                   voluntary and involuntary separations—
                                   $10,000 for voluntary and $5,000 for
                                   involuntary. In addition, Lawrence Livermore
                                   National Laboratory restricted these benefits
                                   to voluntary separations only.
Relocation—28 plans                All but one plan (Los Alamos Cafeteria)            Four plans provided relocation assistance
                                   provided relocation assistance. The amount         only to employees hired before 9/27/91. Three
                                   provided ranged from $2,000 to $5,000; the         additional plans provided relocation
                                   Kansas City plan provided reimbursement for        assistance for involuntary separations only to
                                   “reasonable and actual” relocation expenses.       employees hired before 9/27/91. The
                                                                                      remaining plans made no distinction.
Outplacement assistance—29 plans   All of the plans included a provision for          One plan restricted outplacement assistance
                                   outplacement assistance, which was                 to those employed as of 9/27/91, and one
                                   available for both voluntary and involuntary       plan restricted this benefit for involuntary
                                   separations. At most sites, an outplacement        separations of those employed as of 9/27/91.
                                   resource center was established to provide
                                   assistance to workers of all contractors on the    The remaining plans made no distinction.
                                   site.

                                       Note: In addition to these benefits, certain plans provided other benefits such as child care
                                       assistance (Fernald), subsistence grants of up to $500 per month while attending school (Rocky
                                       Flats), or 1 year’s life insurance (Idaho Protection Technology).




                                       Page 23                        GAO/RCED-97-33 Benefits Paid to Separated Contract Workers
Appendix III

Summary of Benefits Provided in Six
Workforce Restructuring Plans for
Nondefense Facilities

Benefit/number of plans            Examples of range of benefit
Separation payments
Enhanced retirement— 1 plan        Princeton Plasma Physics Laboratory provided, for those eligible for retirement (age 55
                                   with at least 10 years service), a one-time incentive payment based on length of service
                                   up to 11 months of pay—no years were added to age and service for pension
                                   calculation.
Voluntary separation—5 plans       Severance pay normally calculated on the basis of base pay and length of service.

                                   Strategic Petroleum Reserve offered 2 weeks of base pay per year of service with a
                                   maximum payment of $25,000.

                                   Princeton Plasma Physics Laboratory included severance pay for nonexempt
                                   employees from 2 to 30 weeks for 25 years; exempt employees received from 1 to 15
                                   months of pay for 25 years.
Involuntary separation— 4 plans    Severance pay normally calculated on the basis of base pay and length of service.

                                   National Institute for Petroleum and Energy Research allowed 20 percent of base salary
                                   with all benefits or 25 percent of base salary with medical coverage only.

                                   Princeton Plasma Physics Laboratory included severance pay for nonexempt
                                   employees of 2 to 30 weeks for 25 years; exempt employees received from 1 to 15
                                   months of pay for 25 years.
Other benefits
Medical benefits—4 plans           All plans that offered extended medical coverage did so using Displaced Workers
                                   Medical Benefits: employee pays share of premium as if active employee for first year;
                                   one-half Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) rate for
                                   second year; and full COBRA rate for third and subsequent years.
Educational/training—3 plans       Maximum benefit ranges from $3,000 to $10,000 over maximum of 4 years.
Relocation—2 plans                 Maximum of $5,000, if relocation costs not reimbursed by receiving employer.
Outplacement assistance—5 plans    Resource center established to provide outplacement assistance to all separated
                                   employees.
                                  Note: Includes Elk Hills Naval Petroleum Reserve, Princeton Plasma Physics Laboratory, Grand
                                  Junction Site, Strategic Petroleum Reserve, National Institute for Petroleum and Energy Research,
                                  and West Valley Demonstration Project.




                                  Page 24                         GAO/RCED-97-33 Benefits Paid to Separated Contract Workers
Appendix IV

Comments From the Department of Energy




              Page 25   GAO/RCED-97-33 Benefits Paid to Separated Contract Workers
Appendix IV
Comments From the Department of Energy




Page 26                   GAO/RCED-97-33 Benefits Paid to Separated Contract Workers
           Appendix IV
           Comments From the Department of Energy




(308688)   Page 27                   GAO/RCED-97-33 Benefits Paid to Separated Contract Workers
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