DOE Management:

Contract Provisions Do Not Protect DOE From Unnecessary Pension Costs

RCED-94-201: Published: Aug 26, 1994. Publicly Released: Oct 19, 1994.

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Pursuant to a congressional request, GAO reviewed Department of Energy (DOE) pension fund payments for University of California employees at three DOE laboratories, focusing on whether: (1) DOE can recover the payments if they are unneeded; and (2) provisions in revised contracts will allow DOE to control its future pension costs and prevent unneeded payments.

GAO found that: (1) unneeded DOE pension payments cannot be recovered from the university because they are required by the contracts and federal regulations specify that funds deposited in approved retirement plans can only be used for the benefit of the plans' members; (2) although surplus assets can be refunded to the plan's sponsor if the plan is terminated, terminating a pension plan has costs and disadvantages that could offset the benefits achieved; (3) DOE may be able to use the pension fund surpluses by using the funds to pay postretirement health benefit costs; (4) the revised contract terms neither increase DOE ability to control how pension fund assets are used nor minimize DOE pension fund contributions; (5) although the revised contracts require the university to inform DOE of any changes that apply to its 92,000 benefit plan members, DOE approval is required only for pension benefit changes that affect DOE laboratory employees; (6) university administrators have made many benefit changes and reduced the pension fund's surplus by $1.5 billion; (7) although DOE is required to make contributions when pension fund assets are less than 150 percent of current liabilities, this requirement exceeds DOE policy requirements; and (8) DOE pension fund contracts with two other universities include few cost controls and place no limits on DOE contributions.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: As recommended, DOE evaluated the advantages and disadvantages of recovering surplus pension funds. It concluded, however, that it was not in its best interest to do so. Efforts to recover the surplus assets via a plan termination could be delayed several years by lawsuits or time to pass special legislation and, during the delay the surplus could be substantially reduced. In addition, DOE would then be required to pay annual contributions of $140 million. Use of the surplus funds to pay retiree medical benefits would incur a significant cost because all plan participants must be vested immediately.

    Recommendation: The Secretary of Energy should: (1) evaluate the advantages and disadvantages of all of the alternatives available to recover surplus pension funds associated with the laboratory employees; and (2) initiate action to recover the surplus funds if recovery is to the government's advantage.

    Agency Affected: Department of Energy

  2. Status: Closed - Implemented

    Comments: DOE determined that all management and operating contracts where separate site pension plans have been established do require DOE approval for changes to pension benefits. In addition to the three laboratories managed by the University of California, only three facilities with defined benefit plans do not have separate site plans: Stanford Linear Accelerator Center, West Valley Test Facility, and the Waste Isolation Pilot Plant. DOE will continue to establish separate site plans where feasible.

    Recommendation: To improve control over the Department's liability for pension fund contributions, the Secretary of Energy should review ongoing contracts with all management and operating contractors that have defined benefits pension plans to determine if they provide for DOE approval of pension benefit changes and limit the DOE contribution to that needed to maintain an equilibrium between assets and current liabilities.

    Agency Affected: Department of Energy

  3. Status: Closed - Implemented

    Comments: DOE indicated that it will continue to establish separate site pension plans where feasible. DOE also stated that it has initiated discussions with the University of California, the manager of the three laboratories, and Westinghouse, the manager of the Waste Isolation Pilot Plant, about establishing separate plans.

    Recommendation: To improve control over the Department's liability for pension fund contributions, the Secretary of Energy should initiate negotiations with the University of California and other contractors, as necessary, to revise the contracts to implement these controls.

    Agency Affected: Department of Energy

 

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