Investigation To Reform Teamsters' Central States Pension Fund Found Inadequate

HRD-82-13: Published: Apr 28, 1982. Publicly Released: Jun 3, 1982.

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For many years, the Teamster's Pension Fund trustees have been the subject of allegations of misuse of the Fund's assets. Therefore, the Department of Labor initiated an investigation of the Fund and, in response to a congressional request, GAO reviewed the Government's investigation.

Labor's objective of having a Government-wide coordinated investigation did not succeed because the Internal Revenue Service (IRS) declined to participate in a joint investigation. Labor's investigation disclosed many alleged significant problems in the former trustees' management of the Fund's operations. However, Labor narrowly focused on the Fund's real estate and collateral loans, ignored other areas of alleged abuse, and left unresolved questions of potential civil and criminal violations. Investigations were not completed even though significant fiduciary violations and imprudent practices were found. The office responsible for the investigations had significant staffing, management, and coordination problems. The flow of investigative information between Labor and the Department of Justice was restricted at times. The investigation's objective to detect information for criminal investigation and prosecution was not entirely successful. Labor and IRS did not require a written agreement in restoring the Fund's tax-exempt status and did not ensure that the Fund's new trustees met stated qualifications. Even after appointing independent investment managers, the Fund's trustees tried to reassert control over the Fund's assets and investments. In addition, the Fund's benefits and administration account was not adequately monitored. As a result, the pension plan is still thinly funded. The Fund's financial soundness has improved by recent investment performance, but it is still thinly funded and has an unfunded liability of $6.05 billion.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: Please call 202/512-6100 for information.

    Recommendation: The Commissioner of Internal Revenue should direct IRS officials to closely monitor the Fund's financial operations to ascertain that the Fund meets the minimum funding standards of the Employee Retirement Income Security Act in 1981 and in the future and, if not, take whatever action is needed to ensure that the Fund meets the Act's requirements.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  2. Status: Closed - Implemented

    Comments: Please call 202/512-6100 for information.

    Recommendation: The Secretary of Labor and the Commissioner of Internal Revenue should direct their investigative staffs to review the trustees' management and use of the benefits and administration account to determine the appropriate reserve the Fund should maintain in the account.

    Agency Affected: Department of Labor

  3. Status: Closed - Implemented

    Comments: Please call 202/512-6100 for information.

    Recommendation: The Secretary of Labor and the Commissioner of Internal Revenue should direct their investigative staffs to review the trustees' management and use of the benefits and administration account to determine the appropriate reserve the Fund should maintain in the account.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  4. Status: Closed - Implemented

    Comments: Please call 202/512-6100 for information.

    Recommendation: The Secretary of Labor and the Commissioner of Internal Revenue should direct their respective investigative staffs to more closely cooperate to prevent coordination problems, duplication between investigators, and giving the Fund an excuse not to cooperate because the Government is not speaking with one voice.

    Agency Affected: Department of Labor

  5. Status: Closed - Implemented

    Comments: Please call 202/512-6100 for information.

    Recommendation: The Secretary of Labor and the Commissioner of Internal Revenue should direct their respective investigative staffs to more closely cooperate to prevent coordination problems, duplication between investigators, and giving the Fund an excuse not to cooperate because the Government is not speaking with one voice.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  6. Status: Closed - Implemented

    Comments: Please call 202/512-6100 for information.

    Recommendation: The Secretary of Labor, in consultation with the Commissioner of Internal Revenue, should take action to require that the proposed reorganization and any other reforms imposed on the Fund be included in a formal written, enforceable agreement signed and agreed to by Labor, IRS, and the Fund's trustees.

    Agency Affected: Department of Labor

  7. Status: Closed - Implemented

    Comments: Please call 202/512-6100 for information.

    Recommendation: The Secretary of Labor, in consultation with the Commissioner of Internal Revenue, should take action to require that the proposed reorganization and any other reforms imposed on the Fund be included in a formal written, enforceable agreement signed and agreed to by Labor, IRS, and the Fund's trustees.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  8. Status: Closed - Implemented

    Comments: Please call 202/512-6100 for information.

    Recommendation: The Secretary of Labor, in consultation with the Commissioner of Internal Revenue, should obtain further written enforceable commitment from the trustees to reorganize the way the Fund handles and controls the employer contributions and its other moneys to remove the trustees' control over any of these funds. The proposed reorganization should provide for: (1) the Fund to employ a financial custodian; (2) IRS and Labor to have a veto power over the selection of the investment manager and financial custodian, if the trustees' selections do not meet the Government's qualifications; and (3) limiting the trustees' roles and responsibilities to establishing overall investment objectives, determining eligibility requirements for pension benefits and employers' contributions, monitoring the investment manager's and the custodian's activities, and administering relevant collective-bargaining requirements.

    Agency Affected: Department of Labor

  9. Status: Closed - Implemented

    Comments: Please call 202/512-6100 for information.

    Recommendation: The Secretary of Labor, in consultation with the Commissioner of Internal Revenue, should obtain further written enforceable commitment from the trustees to reorganize the way the Fund handles and controls the employer contributions and its other moneys to remove the trustees' control over any of these funds. The proposed reorganization should provide for: (1) the Fund to employ a financial custodian; (2) IRS and Labor to have a veto power over the selection of the investment manager and financial custodian, if the trustees' selections do not meet the Government's qualifications; and (3) limiting the trustees' roles and responsibilities to establishing overall investment objectives, determining eligibility requirements for pension benefits and employers' contributions, monitoring the investment manager's and the custodian's activities, and administering relevant collective-bargaining requirements.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  10. Status: Closed - Implemented

    Comments: Please call 202/512-6100 for information.

    Recommendation: The Secretary of Labor, in consultation with the Commissioner of Internal Revenue, should obtain an enforceable commitment from the trustees for the Fund to: (1) continue to have an independent investment manager to control and manage the Fund's assets and investments after the present managers' contracts expire in October 1982; and (2) use the same selection criteria and qualifications as in the past should the trustees decide to replace the present investment managers after October 1982.

    Agency Affected: Department of Labor

  11. Status: Closed - Implemented

    Comments: Please call 202/512-6100 for information.

    Recommendation: The Secretary of Labor, in consultation with the Commissioner of Internal Revenue, should obtain an enforceable commitment from the trustees for the Fund to: (1) continue to have an independent investment manager to control and manage the Fund's assets and investments after the present managers' contracts expire in October 1982; and (2) use the same selection criteria and qualifications as in the past should the trustees decide to replace the present investment managers after October 1982.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  12. Status: Closed - Implemented

    Comments: Please call 202/512-6100 for information.

    Recommendation: The Secretary of Labor, in consultation with the Commissioner of Internal Revenue, should require that future Fund trustees meet the criteria and qualifications similar to those established in 1977, closely monitor the selection of future trustees, and veto the selection of a trustee not meeting the criteria.

    Agency Affected: Department of Labor

  13. Status: Closed - Implemented

    Comments: Please call 202/512-6100 for information.

    Recommendation: The Secretary of Labor, in consultation with the Commissioner of Internal Revenue, should require that future Fund trustees meet the criteria and qualifications similar to those established in 1977, closely monitor the selection of future trustees, and veto the selection of a trustee not meeting the criteria.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  14. Status: Closed - Implemented

    Comments: Please call 202/512-6100 for information.

    Recommendation: The Secretary of Labor should direct the Office of the Solicitor to carry out the recommendations in the Kotch-Crino report to honor the memorandum of understanding with Justice by: (1) establishing a more effective written system of referring potential criminal violations to Justice; (2) suggesting a single Justice coordinator for all Fund activities; (3) establishing procedures wherein Justice periodically orients and briefs officials of the Office of the Solicitor; (4) suggesting one designated receiver in Justice for all Fund records; and (5) establishing a system wherein the Office of the Solicitor automatically forwards to Justice pertinent additional records regarding any matter previously referred.

    Agency Affected: Department of Labor

  15. Status: Closed - Implemented

    Comments: Please call 202/512-6100 for information.

    Recommendation: The Secretary of Labor should direct the Office of the Solicitor to establish a more effective system to process referrals of potential criminal violations to Justice.

    Agency Affected: Department of Labor

  16. Status: Closed - Implemented

    Comments: Please call 202/512-6100 for information.

    Recommendation: The Secretary of Labor and the Attorney General should take action to have their December 1978 coordination agreement revised to define the higher officials who should or would resolve litigation strategy problems the working group members cannot resolve or consider reestablishing an Interdepartmental Policy Committee similar to the one established in 1975.

    Agency Affected: Department of Justice

  17. Status: Closed - Implemented

    Comments: Please call 202/512-6100 for information.

    Recommendation: The Secretary of Labor and the Attorney General should take action to have their December 1978 coordination agreement revised to define the higher officials who should or would resolve litigation strategy problems the working group members cannot resolve or consider reestablishing an Interdepartmental Policy Committee similar to the one established in 1975.

    Agency Affected: Department of Labor

  18. Status: Closed - Implemented

    Comments: Please call 202/512-6100 for information.

    Recommendation: The Secretary of Labor should direct the Labor-Management Services Administration (LSMA), during its current investigation at the Fund, to: (1) ensure that the LSMA Chicago staff performing the investigation receives proper training and uses all investigative techniques and procedures, particularly third-party interviews, to detect and develop potential criminal violations for referrals to Justice; and (2) effectively coordinates its investigative efforts with the Office of the Solicitor.

    Agency Affected: Department of Labor

 

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