Cost Accounting:

Department of Energy's Management of Contractor Pension and Health Benefit Costs

AFMD-90-13: Published: Aug 29, 1990. Publicly Released: Aug 29, 1990.

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Pursuant to a congressional request, GAO reviewed Department of Energy (DOE) policies and practices regarding the reimbursement of contractors for the costs of their employees' pension and retiree health plans.

GAO found that: (1) DOE allowed contractors to establish the amount of their contributions to employee plans, as long as the contributions fell within the minimum and maximum guidelines set by law; (2) a 1987 DOE study indicated that 20 contractors had pension assets of $2 billion, about $600 million above the value of the accrued benefits; (3) DOE lacked a formal funding policy regarding contractors' pension plans, and did not systematically determine the allocation of its resources to contractors' pension plans; (4) pension plans that are funded above plan liabilities could lead to such problems as distorted pension costs, program overcharges and undercharges, participant pressure for increased benefits, and the use of pension funds to finance health care costs; (5) DOE required contractors to have site-specific pension plans or to separate accounting for pensions from contractor employees and commercial employees; (6) DOE did not ensure that contractors followed its policy that employees who transfer between plans receive a payment from each plan; (7) DOE policy did not address all aspects of postcontract payments for pension plans; and (8) DOE financial audits of contractors' site-specific plans were limited and resulted in disclaimers of opinion, limiting DOE management oversight and control over pension plan assets.

Status Legend:

More Info
  • Review Pending-GAO has not yet assessed implementation status.
  • Open-Actions to satisfy the intent of the recommendation have not been taken or are being planned, or actions that partially satisfy the intent of the recommendation have been taken.
  • Closed-implemented-Actions that satisfy the intent of the recommendation have been taken.
  • Closed-not implemented-While the intent of the recommendation has not been satisfied, time or circumstances have rendered the recommendation invalid.
    • Review Pending
    • Open
    • Closed - implemented
    • Closed - not implemented

    Recommendations for Executive Action

    Recommendation: The Secretary of Energy should direct the Office of Industrial Relations to ensure that the revised DOE pension order includes a formal funding policy, encourages plan administrators to choose full-scope audits of site-specific pension plans, and addresses issues related to employee transfers and postcontract ad hoc cost-of-living adjustments.

    Agency Affected: Department of Energy

    Status: Closed - Implemented

    Comments: DOE reviewed public comments on its draft order and issued a final order on September 30, 1996. Based on GAO's review of the newly issued DOE Order 350.1, the order is responsive to the recommendation.

    Recommendation: The Secretary of Energy should direct the Office of Industrial Relations to develop additional policies and procedures on settling postcontract retiree health benefits that set forth the criteria for deciding at contract expiration which approach--lump-sum settlement, continued pay-as-you-go reimbursement, or transfer of employees to the successor contractor--should be used.

    Agency Affected: Department of Energy

    Status: Closed - Implemented

    Comments: The policy on postcontract retiree health benefits is included in a new DOE Order 350.1, which was issued on September 30, 1996. Based on GAO's review of the new order, the order is responsive to the recommendation.

    Recommendation: The Secretary of Energy should direct the Office of Industrial Relations to evaluate the resolution process for pension issues and accelerate the resolution of those that are long-standing.

    Agency Affected: Department of Energy

    Status: Closed - Implemented

    Comments: Energy implemented a new tracking process to identify the status of all outstanding pension issues. Also, actuaries are now establishing priority lists which the Office of Industrial Relations uses to identify and accelerate action on long-standing issues. In addition, Energy resolved all pension issues that were over 1-year old.

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