oversight

Federal Government's Oversight of Pension and Welfare Funds

Published by the Government Accountability Office on 1990-06-13.

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

                  United States General Accounting OfIke        /q   1 5 ‘/A
                  Testimony


                                                           141572

For Release          FEDERAL GOVERNMENT'S OVERSIGHT OF
On Delivery          PENSION AND WELFARE FUNOS'/
Expected at
9:30 a.m. EDT
Wednesday
June 13, 1990




                     Statement  of
                     Joseph F. Delfico,  Director          of
                        Income Security Issues
                     Human Resources Division
                     Before the
                     Subcommittee    on Oversight
                     Committee   on,Ways and Means
                     House of Representatives




GAO/T-HRD-90-37                                                        GAO Form 160 (12/87)
                                          SUMMARY
The Internal      Revenue Service      (IRS) and Department         of Labor are
responsible     for ensuring     that pension plans,         with about $2
trillion     in assets,    and welfare     benefit    plans comply with the
Employee Retirement        Income Security      Act of 1974 (ERISA).         Their
efforts    have a significant       impact ,on ensuring       that employee
benefit    plans are free of mismanagement,             fraud and abuse that
place plan assets at risk and threaten              plan participants'
benefits.      The effectiveness       of their    oversight     also influences
the potential      for losses by the Pension Benefit             Guaranty
Corporation     (PBGC).
Of particular      concern     to GAO is the effectiveness      of federal
oversight     of employee      benefit    plans that are essential     to the
well-being     of millions       of Americans,    and the government's
potential     exposure    to   underfunding     in pension plans insured     by
PBGC, estimated       to be    between $20 and $30 billion      in specific
large plans.
GAO's preliminary     observations          on the    government's  oversight of
ERISA indicate    that although          progress     has been made, more needs
to be done.
IRS has increased          its examinations          of plan operations,       but
devotes significant            resources     to examining      plans that pose no
risk to the federal            government's       insurance    program,    and places
little      emphasis on examining          plans that are or may be underfunded
and pose a risk to participants                 and the PBGC. Further,           IRS is
finding      violations      in far fewer examinations            than expected
because it is using outdated               criteria      to identify    plans'with
characteristics         that indicate       a high potential         for ERISA
violations.
Labor and IRS have made substantial                   progress     in improving      the
quality     and timeliness      of plan annual report              data that are
essential      to effectively      identifying         violations.        Labor also
adopted a new enforcement            strategy       in December 1986 that
allocated      50 percent     of its enforcement            resources     toward
investigations        of financial      institutions          and welfare     plan service
providers      that Labor characterized            as having high potential             for
fiduciary      abuse.     However, the results            of the new enforcement            1
strategy     have been disappointing.              These investigations           find
fewer violations        and take twice as long to complete as individual
plan investigations.
GAO believes       that recent proposals         by Labor to strengthen         ERISA's
independent      audit   requirements       would improve ERISA oversight          and
enhance the security          of participants'      benefits.     GAO also
believes     that auditors       should be required       to review and report        on
plan management's        assertions      regarding   the effectiveness        of its
internal     control    structure     and compliance      with laws and
regulations,       in addition     to reporting     on the plans'     financial
statements.
Mr.      Chairman         and Members of                the     Subcommittee:
          I am pleased             to be here            today          to discuss          the        federal
government’s              oversight          of’pension              and welfare            benefit           funds.


          The Internal             Revenue        Service            (IRS)       and the         Oepartment              of
Labor       are     responsible            for    ensuring              that     pension         plans,          with        about
$2 trillion              in assets,          and welfare              benefit           plans        comply       with        the
Employee           Retirement           Income       Security            Act of         1974         (ERISA).           Their
efforts       have a significant                       impact        on ensuring            that        employee
benefit       plans        are     free      of mismanagement,                     fraud        and abuse             that
place       plan     assets        at     risk    and threaten                  plan     participants’
benefits.            The effectiveness                   of     their          oversight         also      influences
the     potential          for     losses        by the government’s                       pension         insurance
program,           administered            by the        Pension          Benefit          Guaranty           Corporation
(PBGC) .


          Of particular             concern          to GAO is             the     effectiveness                 of     federal
oversight           of    employee         benefit        plans          that      are     essential             to the
well-being           of millions             of Americans,                and the          government’s
potential           exposure        to underfunding                     in pension          plans        insured             by
PBGC, estimated                  at between          $20 and $30 billion                        in specific              large
plans.


          GAO has a number of efforts                               underway           in this        area.           These
include       a financial               audit     of     PBGC and a review                      of     recent
criticisms           made by Labor’s                 Inspector            General          of    the quality                 of
        i)

                                                                1
independent              public      accountant                (IPA)        audits         of        large     employee
benefit        plans.


          Today,         however,          I would           like        to provide             our preliminary
observations              on two areas             you specifically                        requested             us to
assess--       the       effectiveness             of        IRS'        and Labor's              ERISA enforcement
programs.               I will      also     provide            GAO's views                on Labor's             proposals
to enhance           ERISA enforcement                     by strengthening                          IPA audits.


IRS'S       ERISA ENFORCEMENTPROGRAM
          One of         IRS's      primary        missions                is     to enforce             ERISA's         vesting,
participation,               and funding             provisions.                     It    accomplishes                this     by
(1)     reviewing           plan     designs         and        (2) examining                   pension         plan      returns
and operations               for     compliance               with         tax     laws        and regulations.
Although          IRS has increased                  its       examinations                    of plan-operations,
we have questions                   about     the       effectiveness                     of    its      ERISA
enforcement              program.

Enforcement    Resources                    Not Focused
on Underfunded    Plans
          IRS's      ERISA enforcement                     program               is conducted                by about         1,000
revenue       agents         in 7 key district                          offices       nationwide.                 This
represents           about         83 percent           of      the        combined            staff         resources
available          at     IRS and Labor              for        the        oversight            of     ERISA.


          Historically,              most     of     IRS's              ERISA enforcement                     resources         had
been Spent           on reviewing             plan         designs,               rather        than         examining         plan

                                                                    2
operations.             This         was because          of       the     newness        of    ERISA and
frequent        changes         in      the     law that           required        plan        amendments.                In a
March        1979 report,1              we concluded               that     IRS had made little                        effort
to determine            that         plans      were operating                in compliance               with         ERISA,
because        most     of     its      resources         were spent              reviewing          plan            designs.


          IRS subsequently                   increased         the        number of pension                    plan
examinations            it     conducted           annually.               However,        between             1980 and
1986,      examinations               fluctuated          from        about       18,000        to about              28,000
because        changes         to ERISA required                    resources           to be allocated                   to
reviewing           changes          in plan       designs.               When examinations                    fell      to
about      5,000      in      1987,      IRS decided               that     the    number         of plans
examined        was too         low to ensure              a high           degree       of     voluntary
compliance           with      ERISA.           As a result,               IRS redirected                its         resources
so that        55 percent             would      be spent           on examinations                and 45 percent
on reviewing           plan          designs.


        Although             IRS has directed              more resources                  to examinations,                      it
devotes        significant             resources          to examining               plans        that         pose no
risk    to     the    government's               pension           insurance         program,             For example,
in the       last     2 years,           IRS devoted               65 and 68 percent                 of        its
examination           resources              to defined            contribution            plans         that         pose no
risk    to the        government              because,         unlike         defined          benefit          plans,
they    are     not     insured          by PBGC.          Defined            contribution               plans         have


1Internal        Revenue Service Efforts   and Plans to Enforce the
Employee        Retirement Income Security   Act (HRD-79-55,  Mar. 28,                                                        1979).
                                                               3
represented               62 percent                or more of                  IRS's         total         examinations              during
the     last      5 years.                 IRS field             staff           told         us that          these
examinations               have been emphasized                                 because             they     are    easier           for
inexperienced                  agents           to perform.


          IRS intends                 to       increase          the           number of defined                    benefit           plans
it     examines           during           the      next       few years                as part             of a special
revenue          initiative                focused           on plans              with         fewer        than      5
participants.                   This           initiative             is expected                     to generate-up                 to     $800
million         in additional                     tax       revenue             through             1993 by disallowing
plan      sponsors'             tax        deductions                for        plan      contributions                    that      IRS
believes          exceed          ERISA's            funding               limitations.                     In contrast,              IRS's
work plans           place            little         emphasis                  on examining                 plans      that        are      or
may be underfunded                         and pose a risk                       to participants                    and PBGC.


          Although             IRS's*special                   emphasis                on small             overfunded             defined
benefit         plans          is expected                  to produce                 significant               revenues,            using
resources           for        this        effort           limits             those      available              to examine                plans
that      may become liabilities                               of     the        PBGC.              This     raises         a question
regarding           the        inherent             conflict               between            IRS's         major     missions.
While         revenue-raising                     initiatives                   should         not         be discouraged,                  IRS
should         determine              how to better                   allocate                its      limited         ERISA
enforcement               resources               to also            ensure            that         participants'                 benefits
are protected                  and thus             reduce           the        risk      of plans            becoming
liabilities               to    PBGC.



                                                                           4
.
    IRS Needs to Improve                                Its
    Examination Selection                                 Procedures
               IRS selects                     plans      for     examination                    using         a computer               program
    that       seeks            to      identify          plans         with         characteristics                    that           indicate           a
    high       potential                 for       ERISA violations.                            IRS developed                  this      profile
    from       almost             18,000          detailed         examinations                        conducted          during              a
    taxpayer           compliance                   measurement                 program            (TCMP) survey                  of plans'
    1978 returns.


               The criteria                     IRS uses          to select                    plans     for     examination                      may
    now be too                  old      to provide             an effective                     means of         targeting.                       IRS
    expected           to        find          violations           in about                   66 percent         of all
    examinations                      selected          using      this             profile.             However,              in each year
    since       1985,             IRS has found                 ERISA violations                         in     less      than          32
    percent           of        its      examinations,                  and in            1989 only             21 percent               of        the
    plans       examined                 had ERISA violations.                                  IRS field         staff           attribute
    the      low violation                      rate      to the         selection                 system's            use of           old
    criteria.to                  identify              plans      for      examination.                        The selection
    criteria           appear                outdated          because              of    the      numerous            changes           in
    ERISA's           provisions                 and plan          characteristics                        since         the      TCMP
    survey.


               IRS plans                 to     implement          an alternative                        selection              system             this
    year       that        it         hopes      will       enable         it        to more quickly                    and accurately
    target        plans               with      a high         potential                 for     ERISA violations.
    Although           we have not                     reviewed          this            plan      in detail,             it     may be
            w
    preferable                  to conducting                  another              TCMP survey,                because           it     would
                                                                                5
likely        cost        less       and produce                results        sooner.            Nevertheless,                 we
believe         IRS's          selection             system        should          include        criteria            that
target        plans          that       pose a potential                    risk        to     the government's
pension         insurance               program             because        of underfunding.


Ensuring            Examination                Quality
           Historically,                  IRS's        national            and regional             offices           reviewed
district            office          operations,                in part       to ensure            that       enforcement
programs            were effective                   and examinations                    met IRS's           quality
standards.                However,             IRS suspended                this        program        in     1985.          At two
of     the    three          district           offices          we visited,                 we found        that       from     1987
through         1989,         neither            the        national        nor     the       regional         office          had
reviewed            the      quality           of any examinations                       to ensure           that       they     were
sufficiently                 thorough           to     identify            ERISA violations.                       At the       other
office,        only          29 examinations                    had been reviewed.


           IRS recently                 initiated             a quality            assurance           program          that     will
review        each district                    office's          employee           plan       operations            every       2
years.         The program                 includes             a review           of    the     quality           of between
50 and 75 examinations.                                If     properly         implemented,                 this     program
could        help     ensure            that      examinations               are        sufficiently               thorough          to
identify            ERISA violations.



3IRS Needs to Assess the                             Impact of Changes
 an How It Approves Plan                             Designs
           IRS expects               to receive               many requests                  from plans            to approve
plan       d&sign         changes         made to comply                   with         the    Tax Reform            Act of
                                                                       6
1986.          To meet        this       demand and continue                                     to devote          most of          its
ERISA enforcement                    resources                   to examinations,                         IRS made several
changes         to     reduce          the        time          spent        reviewing               plan        designs;            First,
plans       were encouraged                       to participate                         in several               "volume
submitter"             programs          that             enable         IRS to approve                         requests         of a
large       number       of plans                 with          standardized                     provisions           without         a
detailed          review        of each.                   Second,                for     plans       that        meet certain
criteria,             IRS intends                 to approve                 plan         designs           without         reviewing
the     plan      language             to ensure                 that        it         complies          with      ERISA.           IRS
expects         that     it     will         approve              up to 75 percent                          of all         such
requests          without           submitting                   them to an agent                         for     a detailed
review         and that         the      great             majority                of     these       will        be plans           with
standardized             provisions.


          IRS's        expectations                  for         high        participation                      in the      volume
submitter             program        may not               be realized.                      As of          April        1990,       only        61
out     of about         7,000          practitioners                        who submit               large         numbers          of
requests          had signed             up,for                 the     program            at      the      three        district
offices         we visited.                  If      high         participation                      is     not     achieved,              many
design         changes        for       non standard                     plans            will       have        to be approved
without         a detailed              review             to meet examination                              goals        and process
the     requests         within          the         270-day             period             specified             by ERISA.                IRS
officials             acknowledge                 that,          in some cases,                      this        could      result          in
plans       receiving           approval                  for     changes                in plan          design         that       do not
comply         with     ERISA.



                                                                         7
          IRS views           the     approval          of plan         designs          as an important
element         of    its     enforcement           program.             Because           of        the    significant
changes         IRS has made in the                     way it     approves              plan         designs,             we
believe         IRS should            develop       a plan        for     evaluating                  the     impact            of
these         changes.


LABOR'S ERISA ENFORCEMENTPROGRAM
          Within        the    Department           of Labor,            the      Pension             and Welfare
Benefits          Administration                (PWBA) is         responsible                  for     enforcing
ERISA.          Labor        focuses      its     enforcement             efforts              on conducting
investigations                to ensure          that     plans         comply          with         ERISA's         fiduciary
provisions            and are         operated          in the     best        interest               of    their
participants.                 Labor     is also          responsible              for     enforcing                 ERISA's
reporting            and disclosure             provisions.


          Early       this     year,     we initiated              an assessment                      of    Labor's             ERISA
enforcement            program,         focusing          on its         efforts           to correct
weaknesses            we had previously                  identified.               Our preliminary
observation             is    that     Labor      has taken             actions          in recent             years            to
address         many of        these     weaknesses.               However,              some problems                     remain
that    diminish             the program's              effectiveness.


Enforcement             Strategy
          In an October               1985 report,           we concluded                  that        Labor         did        not
have a comprehensive,                    consistent,              long-term              strategy            for
          u

                                                             8
enforcing           ERISA.2              -In    response         to our       report,            Labor          adopted         a new
enforcement               strategy             in December           1986.          The strategy                    allocated          50
percent        of     PWBA’s investigative                        resources           to        investigations                  of
significant               issue       cases.            These cases           involve            organizations                  that
Labor       characterized                  as having          high      potential               for         fiduciary        abuse.
These       include           (1)     financial            institutions,              such as banks                     and trust
companies,            that        serve         as pension           plan     trustees,                and      (2)     firms
that      provide           services            to welfare           plans.          The remaining
investigative                time        was     to be spent            on individual                   plans.


          The results               of     Labor’s        ERISA enforcement                      strategy             have been
disappointing.                    Labor’s         assessment            of    the     strategy                indicates          that
significant               issue       investigations                 find     fewer        violations                 and take
twice       as long          to complete                as investigations                  of         individual           plans.


          Several           factors            appear     to have contributed                          to these           results.
First,        Labor         has lacked            adequate           data     to effectively                     target
financial           institutions                 and service            providers           with             a high
potential           for      ERISA violations.                       Second,         investigators                    have not
been provided                standardized                audit       guides     for        investigating
financial           institutions                 and service            providers.                Labor          is working
to     improve        its     targeting            procedures               and complete                the      audit
guides.




2Stroog Leadership  Needed to Improve Management                                                       at     the     Department
o? Labor (GAO/HRD-86-12,  Oct. 21, 1985).
                                                                 9
   ERISA Data Base and Targeting                                      of
   Plans for Investigation
              We and others                  have         reported           that      Labor’s            ERISA enforcement
   has been hindered                      by incomplete,                     inaccurate,                and untimely              plan
   data.          Labor         and IRS have made substantial                                     progress             on these
   problems,             including            increasing               the     amount            of     information            captured
   from       plan       annual          returns,           using          extensive             edit         checks      and follow-
   up contact              with       plans         to     improve          data       completeness                 and accuracy,
   and processing                  return           information               within            60 days after               the    return
   is    filed.


              PWBA has developed                         a computerized                   system          to use the           improved
  data      base         to target            plans,          financial              institutions,                  and service
’ providers              for      investigation.                     Despite           this       progress,              we are
  concerned              that      the       system         may miss           plans          with       significant
  weaknesses.                   Certain        data         in the          annual         reports             reflecting          the
  funded          status          of defined              benefit           plans         are     not         included       in the
  system          data         base    for     1988 plan               returns,            the        first       year      to be
   included          in the           improved            data       base.           As a result,                 Labor      can not
   identify          underfunded               defined              benefit          plans        for         investigation.
  This        information              is critical                  to ensuring               that       these       plans        have
  not      committed              ERISA violations                     that         may    place         plan      assets         and
  participants’                   benefits           at     risk,          and that           they       do not        end up
  becoming           liabilities               to        PBGC and the                taxpayers.




                                                                       10
.   .




        Small Staff                Size
        Relative   to              Plan      Universe
                  Labor       has an ERISA enforcement                           staff     of about             200,      or about
        1 for       every          4,500      pension          plans.         At this       staffing            level,         Labor
        investigates                less      than      1 percent         of     the     plan     universe             each year.
        Despite        the         growth      in the          number of pension                 and welfare              plans
        since        1984,         and the       assets          they    hold,         PWBA's field             investigative
        staff       remains           under      200.          Labor's        fiscal      year      1991 budget
        requests           133 additional                staff        members for          ERISA enforcement.
        Although           this       increase,          if      approved,         is a step           in the          right
        direction,            it      is unclear              whether     the      additional           staff          and
        improvements                in targeting               will     be enough         to ensure             that      Labor       can
        provide        an effective               deterrent             to ERISA violations.                       The small
        amount        of     federal          resources           available            to enforce         ERISA heightens
        the      importance               of annual           IPA plan        audits.


        VIEWS ON LABOR'S PROPOSALS ON PLAN AUDITS
                  ERISA requires                administrators                 of employee           benefit             plans       with
        100 or more participants                              to engage,         on behalf         of plan
        participants,                an IPA to conduct                   an annual         audit       of       the      plan's
        financial            statements           and certain             required         schedules             contained             in
        the     annual        report.


                  Labor's           Inspector         General           has expressed             concern          that        IPA
        audits       are      not         as effective            as they        could     be in ensuring                    the
        finanFia1           soundness           of    employee           benefit         plans     because             (1)
        substantial                plan     assets       can be excluded                 from     audit     coverage,                (2)
                                                                         11
auditors        are      not        required          to test         for        compliance         with         ERISA,         and
(3)      violations,           if     found,          are    not      reported          to Labor           for
enforcement             action.


          In response               to the         Inspector          General’s             recommendations,
Labor       recently          proposed           two legislative                   changes         in   ERISA’s            audit
requirements--             to eliminate                limited         scope         audits        and to require
auditors         to obtain            peer       reviews.             Labor         is also        working          with        the
American         Institute            of Certified                 Public         Accountants           (AICPA)            to
develop        procedures             on compliance                 testing          and direct            reporting               of
violations             to regulators.


          Labor’s        proposals             for     strengthening                 audit      requirements,                   as
well      as requiring               plan      management             to     report         on internal             controls
and compliance                with      laws and regulations,                         should          improve           ERISA
oversight         and enhance                the      security         of participants’                    benefits.
Additional             recommendations                 for     improving             ERISA oversight                    may
result       from       our    current           review        of     IPA audits             of employee                benefit
plans.


The Need for             Full-Scope              Audits
          ERISA allows               plan      administrators                    to exclude         assets          that        are
held      by regulated               financial           institutions,                such as banks                 and
insurance         companies,                from      the    scope          of    IPA audits.              Instead            of
examining         the      financial               institution’s                 records,       the     auditor            can,
by rebulation,                accept         the      institution’s                certification                 that      the

                                                                 12
statement          of assets          received         by the             plan      is accurate.                    -As a
result,       significant             amounts         of plan             assets         are     not     audited.             The
Inspector          General       recently            found         that     nearly          half        the      IPA audits
it    reviewed        had such a scope                 limitation.


          Labor     has proposed             amending              ERISA to repeal                     the     limited
scope      exemption.            Although            we have          not        evaluated             the     specific
details       of     the     proposal,          we agree            that         full-scope             audits         should
be required           for     employee          benefit            plans.


Internal          Control       and Compliance
          Labor      is working          with        the     AICPA in             its     revision             of    the
industry          audit      guide      applicable            to      ERISA audits                 to clarify               and
strengthen          audit       requirements               concerning               internal            controls            and
compliance          with       ERISA.        We believe               strengthening                    plan
management’s              reporting         requirements                  should         also      be considered.


          Plan     administrators               should        be responsible                     for     establishing
sound      internal          controls        and complying                  with         ERISA and regulations.
We have       long        advocated       management                reporting             requirements                 that
assess      the     effectiveness               of    internal             controls             and compliance                with
laws      and regulations.                Accordingly,                    we believe             that         as a part           of
the    annual        independent          audit        of     financial                 statements,              the     auditor
should      be required              to report         on plan             management’s                 assertions
regarding          the      effectiveness             of     its      internal            control             structure           and



                                                             13
.   .




        compliance            with        laws          and regulations,                 in addition               to   issuing         an
        opinion        on the          financial                statements.


                  We believe              that          requiring          the     auditor          to review           and publicly
        report       on plan          management’s                   report        on internal              controls,
        including           controls              for      compliance             with     laws and regulations,
        significantly                enhances              the      reliability           and credibility                  of     the
        report       and results                  in     improved          internal          controls.


                  Our opinion              on the           need for           management            reporting           and auditor
        review       is driven             by three              fundamental             beliefs.


                  First,       the        federal           government,             as insurer              of defined           benefit
        pension        plans,         faces             a significant              potential           liability          should
        plans      with       large        unfunded              liabilities             terminate.                Requiring
        auditors           to review             plan       management             reports          would      help      protect         the
        federal        government’s                     interests         and ensure            that        plans       maintain
        strong       internal             controls,              adhere        to laws         and regulations,                  ‘and
        properly           report         their          financial          condition.


                  Second,          plan      administrators                    have a fiduciary                    responsibility
        to operate           plans         in the           best       interests          of plan           participants.
        Requiring           plan      administrators                     to report           to the         regulators           on
        their      responsibilities                       for      establishing              and maintaining                an
        efEective           internal             control            structure,           including           controls           for
        compl\ance           with         laws          and regulations,                 and on the            effectiveness                 oE

                                                                           14
*




    their        internal          controls          would         help     ensure          that      controls          are     being
    maintained.


              Third,         the    accounting             profession              has a responsibility                        to
    protect         plan       participants,               and the          government’s                  and the
    taxpayers’              interests,          when auditing                    an employee              benefit       plan.
    Therefore,              the    profession             should          take     a proactive               role      in
    assisting           plans       and the          regulators             in     identifying,               preventing,
    and correcting                 problems          in    financial              reporting           and internal
    controls.              Because         regulators              have     come to             increasingly            rely         on
    “off-site”             monitoring           using        reported             financial           information,              it        is
    imperative             that     this       information                be accurate,              comprehensive,                   and
    reliable.              The accounting                 profession              is     in a unique            position             to
    provide         this      assurance.


    Direct         Reporting
              Given        the     potential           liability            to     the     government               as an
    insurer         of defined             benefit         plans,          we believe              that      Labor      should            be
    informed,           particularly              of major           fraud         or serious              fiduciary
    violations,              directly          and promptly.                     The plan          administrator               should
    be responsible                 for     reporting           violations                identified           by the        auditor
    to Labor.              However,         the      auditor         should            report       the      violations              if
    the     plan       administrator              does       not     fulfill            this       responsibility.




                                                                     15
-*       .

     ‘
4




             Peer      Review
                       Labor     has proposed            that      IPAs obtain                 a peer       review        every      3
             years      to be qualified               to conduct              ERISA audits.                Currently,             not
             all      IPAs performing           ERISA audits                  must         undergo       peer     reviews.           Peer
             review         is essentially            the     verification                  by other       accountants              that
             an accountant           or firm          has a system              of quality               controls         that
             provides          reasonable       assurance              that     audits             are   conducted         within
             established          standards.


                      The peer       review       program          is the            cornerstone           of     the     accounting
             profession’s           quality       assurance             mechanism.                  Because       the     federal
             government          is exposed           to potentially                  tremendous           losses         from      its
             pension         insurance        program,          serious         consideration                 should       be given
             to requiring          mandatory           peer      reviews             for     all     auditors        of    insured
             plans.


                      Mr.     Chairman,        this     completes              my     statement.                I would      be happy
             to answer          any questions           at      this      time.




                                                                         16