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Highlights

To protect workers' retirement security, the requesters asked GAO to assess: 1) What is known about conflicts of interest affecting private sector defined benefit (DB) plans? 2) What procedures does the Pension Benefit Guaranty Corporation (PBGC) have to identify and recover losses attributable to conflicts? 3) What procedures does Employee Benefits Security Administration (EBSA) have to detect conflicts among service providers and fiduciaries for PBGC-trusteed plans? 4) To what extent do EBSA, PBGC, and the Securities and Exchange Commission (SEC) coordinate their activities to investigate conflicts? GAO interviewed experts, including agency officials, attorneys, financial industry representatives, and academics, and GAO reviewed PBGC documentation and EBSA enforcement materials. GAO analyzed Labor, SEC, PBGC, and private sector data, including data on pensions, pension consultants, and rates of return data, and conducted statistical and econometric analyses.

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Recommendations

Matter for Congressional Consideration

Matter Status Comments
Congress may wish to consider amending the Employee Retirement Income Security Act to allow EBSA to recover plan losses against certain types of service providers even if they are not currently considered fiduciaries under ERISA.
Closed - Implemented
With the "Conflicted Investment Advice Prohibition Act of 2009," HR 1988, introduced in April 2009, Congress seeks to amend ERISA in terms of more broadly defining from whom the Department of Labor would be allowed to recover certain plan losses. Specifically, the bill aims to broaden the definition of an "independent investment adviser" to include service providers even if they are not considered, fiduciaries.

Recommendations for Executive Action

Agency Affected Recommendation Status
Pension Benefit Guaranty Corporation 1. To enhance existing protections of plans and participants, and maintain participant and sponsor confidence in the private DB pension system, as part of its current risk assessment efforts, the Director of the PBGC should develop a pilot project to collect the necessary documents on a select group of trusteed plans to determine the extent to which conflicts of interest may have affected these plans. This pilot project should be undertaken with the assistance of EBSA and in consultation with the SEC. PBGC and EBSA should provide SEC with ideas that would be useful to them on the information SEC could gather during its adviser and broker-dealer examinations.
Closed - Implemented
PBGC began a pilot project to incorporate new processes into its procedures that would, among other things, identify concerns in trusted plans for follow-up. In May 2008, PBGC implemented a Risk Assessment for Fiduciary Breach and/or Conflict of Interest for Plan Asset Audit form that is completed for each trusted plan. The risk assessment is intended to determine early in the auditing life cycle whether there are potential conflicts of interest, fiduciary breaches, or fraud and includes instructions for conducting an enhanced plan asset audit and a new checklist to assess fiduciary breaches and conflicts of interest. Questionable activities or indicators of potential fiduciary breaches or conflicts of interest are coordinated with PBGC's Office of General Counsel and Office of Chief Counsel for further analysis and/or action.
Department of Labor 2. The Secretary of Labor should direct the Assistant Secretary for EBSA to enhance current enforcement by expanding the scope of the new CAP program to include some emphasis on service providers of those high risk plans PBGC deems likely to terminate in the future and plans PBGC-trusteed.
Closed - Not Implemented
The Employee Benefits Security Administration (EBSA) reported that the initial investigations opened under the Consultant/Advisor Project (CAP) were carefully targeted. EBSA reported that many were targeted as a result of the SEC's pension consultant review and because of the carefully structure and design of the CAP project itself. EBSA completed several investigations during this first phase of the project, which taught them the complexity of the financial relationships involved, the large volume of documentation required to be reviewed, and the investigative effort required. CAP will continue in FY 2009 as a national enforcement project, and the primary focus of the project will continue to be the receipt of indirect, undisclosed compensation by fiduciary pension consultants and other investment advisers. As EBSA continues to gain experience, it will consider expanding the project to include those high risk plans PBGC deems likely to terminate in the future and PBGC-trusted plans. EBSA will also continue to provide appropriate support to the PBGC as needed. EBSA continued the Consultant/Adviser Project (CAP) in FY 2011, and the focus remains the receipt of indirect compensation by fiduciary investment advisers and investment managers. At this time EBSA does not plan to shift the focus of CAP to high risk plans because CAP is carefully designed to target service providers rather than plans. Nevertheless, EBSA continues to provide appropriate support to the PBGC as needed.
Employee Benefits Security Administration 3. Building on the existing memorandum of understanding (MOU) between EBSA and PBGC and a recommendation made in our earlier work, the Assistant Secretary of EBSA, the Director of the PBGC, and the Chairman of the SEC should enter into an MOU to facilitate information sharing on conflicts of interest among service providers that either consult or that provide money management services to PBGC-trusteed plans and those likely to terminate in the future.
Closed - Implemented
On July 29, 2008, the Department of Labor's Employee Benefits Security Administration (EBSA) and the Securities and Exchange Commission entered into a Memorandum of Understanding (MOU) setting forth a framework for consultation and exchange of information. The MOU is designed to facilitate the ongoing consultation and communication between EBSA and the SEC concerning matters of mutual interest, including examination findings and trends, enforcement cases, and any other matters that the SEC and DOL staffs believe would be of interest to the other regulators in fulfilling their respective regulatory responsibilities. For example, it calls for facilitating the exchange of examination-related information concerning investment advisers or other firms of mutual interest to the SEC and the DOL. In addition, EBSA, PBGC and SEC met to determine if the three agencies should enter into a separate formal MOU. They determined that information sharing between SEC and PBGC was sufficient, as issues relating to individual cases were raised for follow-up, and there was no need for an additional MOU.
Pension Benefit Guaranty Corporation 4. Building on the existing memorandum of understanding (MOU) between EBSA and PBGC and a recommendation made in our earlier work, the Assistant Secretary of EBSA, the Director of the PBGC, and the Chairman of the SEC should enter into an MOU to facilitate information sharing on conflicts of interest among service providers that either consult or that provide money management services to PBGC-trusteed plans and those likely to terminate in the future.
Closed - Implemented
On July 29, 2008, the Department of Labor's Employee Benefits Security Administration (EBSA) and the Securities and Exchange Commission entered into a Memorandum of Understanding (MOU) setting forth a framework for consultation and exchange of information. The MOU is designed to facilitate the ongoing consultation and communication between EBSA and the SEC concerning matters of mutual interest, including examination findings and trends, enforcement cases, and any other matters that the SEC and DOL staffs believe would be of interest to the other regulators in fulfilling their respective regulatory responsibilities. For example, it calls for facilitating the exchange of examination-related information concerning investment advisers or other firms of mutual interest to the SEC and the DOL. In addition, EBSA, PBGC and SEC met to determine if the three agencies should enter into a separate formal MOU. They determined that information sharing between SEC and PBGC was sufficient, as issues relating to individual cases were raised for follow-up, and there was no need for an additional MOU.
United States Securities and Exchange Commission 5. Building on the existing memorandum of understanding (MOU) between EBSA and PBGC and a recommendation made in our earlier work, the Assistant Secretary of EBSA, the Director of the PBGC, and the Chairman of the SEC should enter into an MOU to facilitate information sharing on conflicts of interest among service providers that either consult or that provide money management services to PBGC-trusteed plans and those likely to terminate in the future.
Closed - Implemented
On July 29, 2008, the Department of Labor's Employee Benefits Security Administration (EBSA) and the Securities and Exchange Commission entered into a Memorandum of Understanding (MOU) setting forth a framework for consultation and exchange of information. The MOU is designed to facilitate the ongoing consultation and communication between EBSA and the SEC concerning matters of mutual interest, including examination findings and trends, enforcement cases, and any other matters that the SEC and DOL staffs believe would be of interest to the other regulators in fulfilling their respective regulatory responsibilities. For example, it calls for facilitating the exchange of examination-related information concerning investment advisers or other firms of mutual interest to the SEC and the DOL. In addition, EBSA, PBGC and SEC met to determine if the three agencies should enter into a separate formal MOU. They determined that information sharing between SEC and PBGC was sufficient, as issues relating to individual cases were raised for follow-up, and there was no need for an additional MOU.

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