2001 Annual Performance and Accountability Report

Pension And Welfare Benefit Programs

The goals and measures contained in Employee Benefits Security Administration’s Annual Performance Plan for Fiscal Year 2001 supported those contained in the Employee Benefits Security Administration Fiscal Year 1999 - 2004 Strategic Plan and fall under the Department’s 2nd strategic goal-- A Secure Workforce. Employee Benefits Security Administration’s primary mission is to protect the pension, health and other employee benefits of the over 150 million participants and beneficiaries in excess of 6 million private sector employee benefit plans and $4.8 trillion in assets. Through its program, Employee Benefits Security Administration safeguards and promotes the economic security of workers and families. To accomplish this, Employee Benefits Security Administration has established the following agency goals:

• Deter and correct violations of the relevant statutes. Employee Benefits Security Administration deters and corrects violations of the relevant statutes by identifying civil violations and achieving appropriate correction in a cost-effective manner (i.e. voluntary compliance, administrative proceedings or federal court action); detecting, investigating and referring criminal violations to prosecutorial authorities; ensuring that annual reports are filed timely and accurately; and ensuring that audits of employee benefit plans comply with professional standards.

• Facilitate compliance by plan sponsors, plan officials, service providers and other members of the regulated community. Employee Benefits Security Administration facilitates compliance through the timely issuance of advisory opinions, exemptions, regulations, compliance guides and other issuances designed to assist the regulated community in understanding and complying with its responsibilities under the law, while removing unnecessary impediments and protecting the rights and benefits of participants and beneficiaries. These efforts are supplemented by Employee Benefits Security Administration participation in conferences, symposia, and programs designed to expand an understanding of ERISA’s compliance requirements.

• Assist workers in understanding their rights and protecting their benefits. Employee Benefits Security Administration assists workers in understanding their rights and protecting their benefits by disclosing plan documents; develops publications, news releases, and other educational materials which inform participants of their rights under Federal law; assists in the development of amicus curiae briefs to further participant rights and benefits; and maintains a nationwide participant assistance program which provides written and telephone responses to participant problems and inquiries.

• Encourage the growth of employment-based benefits. As one of the principal agencies with responsibility in the area of pension, health and other employee benefits, Employee Benefits Security Administration plays a leadership role in the development of retirement, health and employee benefits policy. Employee Benefits Security Administration discharges its responsibilities in this area in a variety of forms including, but not limited to, maintaining an active research program; continuing its educational outreach efforts to help plan sponsors and participants understand their rights and obligations as well as the importance of and options for retirement savings and health care benefits; and assisting the Administration, other Federal agencies (e.g. the Departments of Treasury and Health and Human Services, the Internal Revenue Service, and the Pension Benefit Guaranty Corporation, among others) and the Congress in the development and/or review of legislative initiatives affecting employee benefits.

Provide for Secure Pension Plans

Goal 2.1F - Increase by 2.5% per year (to 1,725) the number of closed fiduciary investigations of employee pension plans where assets are restored, prohibited transactions are corrected, participant benefits are restored, or plan assets are protected from mismanagement and risk of future loss is reduced.

Results - The Employee Benefits Security Administration (Employee Benefits Security Administration) exceeded this goal, increasing by 15 percent (to 1,942) the number of pension cases where assets were restored, prohibited actions corrected, participant benefits were restored, or plan assets were protected from mismanagement and the risk of future loss was reduced.

Fiduciary Cases - Pension Plans Cases With Positive Outcomes

Program Description - When a fiduciary’s mismanagement of assets or imprudent administration places pension benefits at risk, Employee Benefits Security Administration acts on behalf of plan beneficiaries to minimize potential loss or to make the plan whole through the restoration of assets. Increasing the number of cases with fiduciary results demonstrates Employee Benefits Security Administration’s success in protecting plan assets.

Analysis of Results - During the past year, Employee Benefits Security Administration continued to improve the quality of cases selected for investigation as demonstrated by the continuing increases in the number of cases closed with fiduciary results, a primary strategy for achieving the goal. In Fiscal Year 2001, Employee Benefits Security Administration restored approximately $517 million to pension plans as a result of its investigative efforts — assets that, in the absence of investigative efforts, would have been lost to participants and beneficiaries. Because of the unpredictability of monetary recoveries, past performance is not indicative of future performance in any given year, nor is the trend constantly increasing. However, over the period of several years, the trend has generally been upward.

The data used to measure the achievement of this goal are derived from Employee Benefits Security Administration's Enforcement Management System. The data integrity is high. Office of the Inspector General conducts regular reviews of the Enforcement Management System system and has never questioned the integrity of the data. In addition, individuals not involved directly with the inputting of data or the investigation must approve case openings. Cases with monetary results ultimately receive scrutiny throughout the management hierarchy up to and including national office oversight and review.

Strategies - During Fiscal Year 2001, regional offices continued to employ more effective targeting techniques to increase the number of cases converted from limited reviews to investigations in which possible fiduciary or criminal violations have been identified. Other offices went directly to financial institutions to assist them in identifying plans which may have a delinquent contribution problem or which may have been abandoned by responsible plan officials. In addition, regional offices initiated localized projects to target issues that have been identified as unique or problematic within their jurisdictions. Successful strategies are then shared nationally for consideration by other regions. Lastly, in an effort to better leverage its limited investigative resources, Employee Benefits Security Administration will continue its Case Opening and Results Analysis initiative to refine our efforts at identifying quality cases and their sources.

Goal Assessment and Future Plans - In Fiscal Year 2001, Employee Benefits Security Administration established separate goals for pension and health plan enforcement to reflect increasing responsibilities in the health-related enforcement arena. Employee Benefits Security Administration also set more ambitious targets given its recent experience, while continuing to protect against irregular annual fluctuations by using a two-year rolling average. For Fiscal Year 2002, Employee Benefits Security Administration has raised the targeted performance level to a 5 percent increase over the average number of civil investigations closed during the previous two years with positive, corrective results.

Provide for Secure Health and Welfare Plans

Goal 2.1G - Increase by 2.5% (to 340) per year the number of closed fiduciary investigations of employee health and welfare plans where assets are restored, prohibited transactions are corrected, participant benefits are restored, plan assets are protected from mismanagement and risk of future loss is reduced.

Results - Employee Benefits Security Administration exceeded this goal, increasing by 130 percent (to 782) the number of health and welfare cases where assets were restored, prohibited actions corrected, participant benefits were restored, or plan assets were protected from mismanagement and risk of future loss was reduced.

Fiduciary Cases - Health and Welfare Plans Cases With Positive Outcomes

Program Description - Employee Benefits Security Administration’s role in the health care arena has expanded as a result of the enactment of new legislation that includes regulatory and enforcement requirements to be implemented by Employee Benefits Security Administration. Employee Benefits Security Administration exercises leadership and oversight to protect the interests of participants by ensuring the financial solvency and prudent operations of health plans. When a fiduciary’s mismanagement of assets or imprudent administration places health and welfare benefits at risk, Employee Benefits Security Administration acts on behalf of the plan’s beneficiaries to minimize potential loss of benefits or to make the plan whole through the restoration of assets.

Analysis of Results - The Health Disclosure and Claims initiative played a role in the dramatic increase in health plan investigations closed with positive, corrective results. In recent years, Employee Benefits Security Administration has dedicated substantial enforcement resources to the targeting and investigation of both civil and criminal violations relating to health benefit plans, and the Health Disclosure and Claims initiative has expanded Employee Benefits Security Administration’s sources of information about plans that merit attention. Employee Benefits Security Administration anticipates that the continuation of the Health Disclosure and Claims initiative into Fiscal Year 2002 will again facilitate the effective targeting of health plans at risk, and produce positive investigative results similar to those achieved in Fiscal Year 2001.

In Fiscal Year 2001, Employee Benefits Security Administration restored approximately $68 million to benefit plans or directly to participants as a result of its investigative efforts — assets that, in the absence of investigative efforts, may have been lost. Monetary recoveries may fluctuate significantly and past performance cannot predict future performance in any given year, but recoveries have followed a generally upward trend over the past several years.

The data used to measure the achievement of this goal are derived from Employee Benefits Security Administration's Enforcement Management System. The data integrity is high. The same system checks are applicable as described in Goal 2.1F.

Goal Assessment and Future Plans - In Fiscal Year 2001, Employee Benefits Security Administration established separate goals for pension and health plan enforcement to reflect increasing responsibilities in the health-related enforcement arena. Employee Benefits Security Administration also set more ambitious targets given its recent experience, while continuing to protect against irregular annual fluctuations by using a two-year rolling average. For Fiscal Year 2002, Employee Benefits Security Administration has raised the targeted performance level to a 5 percent increase over the average number of investigations closed during the previous two years with positive results. The continuation of the Health Disclosure and Claims initiative will permit Employee Benefits Security Administration to revise this goal to better measure the effectiveness of our programs in improving the security of health plans in the 21st century.

Ensure Individuals Receive Promised Benefits

Goal 2.2B - Increase by 2% (to $66 million) benefit recoveries achieved through the assistance of Pension Benefit Advisors.

Results - This goal was not met. With the assistance of Benefit Advisers, Employee Benefits Security Administration recovered approximately $65 million for plan participants in Fiscal Year 2001 just below the target of $66 million.

Benefit Recoveries (Millions of Dollars)

Program Description - Employee Benefits Security Administration directly assists plan participants and beneficiaries in understanding their rights and protecting their benefits via its participant assistance program. The direct restoration or payment of benefits to participants without the need for protracted or costly litigation is a primary objective of Employee Benefits Security Administration.

Analysis of Results - Three external factors beyond Employee Benefits Security Administration’s control contributed to failing to achieve the goal. First, benefit recoveries, by their very nature, are volatile from year-to-year. Second, in Fiscal Year 2000, Employee Benefits Security Administration experienced several large recoveries (in excess of $500,000) that cannot be expected from year-to-year.

Finally, the government-wide hiring freeze resulted in numerous Benefit Adviser positions remaining unfilled for part of the year and this had a direct and adverse impact on recoveries. Notwithstanding these external factors, $65 million is a worthy achievement. More importantly, while monetary benefit recoveries are an important performance indicator, they understate Employee Benefits Security Administration's total customer assistance impact because important outcomes, such as the restoration of health benefits or enhancing an individual’s understanding of the law, do not result in a monetary benefit recovery and therefore cannot be readily quantified. Employee Benefits Security Administration has experienced an increasing amount of call volume related to health benefits and much of the assistance does not result in a monetary benefit recovery. Employee Benefits Security Administration does, however, provide the same high level of service to resolving these matters despite the fact that they do not generate a tangible recovery.

Employee Benefits Security Administration received approximately 173,000 written or telephone inquiries for assistance this year. A rapid and accurate response is critical to protecting workers' benefits and is therefore a meaningful measure of Employee Benefits Security Administration’s performance. Employee Benefits Security Administration responded to 99.3 percent of the written inquiries within 30 days of receipt and responded to 99.9 percent of telephone inquiries by the close of the next business day. Between Fiscal Year 1999 and Fiscal Year 2001, the Employee Benefits Security Administration recovered over $194 million for plan participants as a result of its customer assistance program, an indication that Employee Benefits Security Administration is realizing the full benefits of increased resources, customer assistance staff and the efficiencies of improved technologies. It should also be noted that a significant number of investigations are opened as a result of referrals from the customer service staff.

The data used to measure the achievement of this goal are derived from the Technical Assistance and Inquiry System. During Fiscal Year 2000, Employee Benefits Security Administration implemented a new policy to further ensure consistency and accuracy of the data across regional components. Based on the new policy and on a review by an expert in performance-based management and data analysis, Employee Benefits Security Administration is confident about the data reported. Employee Benefits Security Administration continued to closely monitor the data in Fiscal Year 2001 and plans to do so in Fiscal Year 2002.

Strategies - Employee Benefits Security Administration combines an aggressive outreach and education program to create a knowledgeable consumer who may assist in "policing" his or her own benefit rights with a highly motivated and trained staff of customer assistance experts in the field of pension and health laws. Moreover, the customer assistance staff has access to a wide array of technical experts throughout the Department.

Goal Assessment and Future Plans - Employee Benefits Security Administration will maintain this goal in Fiscal Year 2002 as a partial indicator of its success but will review this goal because it fails to adequately measure the total impact of the customer assistance program. The level of benefit recoveries is only a partial indicator of program success and does not measure the impact of answering inquiries, educating the consumer, or responding to the increase in health related questions.

Expand Pension Coverage, Particularly Among Women, Minorities, and Small Business Workers

Goal 2.2C - Increase by 1% the number of workers who are covered by a pension plan sponsored by their employer, particularly women, minorities and workers in small business.

Results - The results exceeded the goal. The number of private wage and salary workers in pension programs increased by 3 percent from 48.3 million in Calendar Year 1999 to 49.7 million in Calendar Year 2000. With respect to those groups where pension coverage has been historically lower, the increase among women was four percent, among minorities six percent, and among workers in small businesses four percent.

Program Description - Employee Benefits Security Administration seeks to improve the financial security of Americans during their retirement years, particularly by expanding coverage to those workers who have historically experienced low pension coverage.

Analysis of Results - Many factors contribute to the expansion of pension coverage, such as the structure and health of the economy (e. g., level of employment and economic growth, labor shortage or surplus sectoral shifts in economic activity) and demographics (aging population, increasing numbers of women and minorities). The significant impact of the economy on this goal makes it difficult to demonstrate Employee Benefits Security Administration’s direct impact.

Strategies - Employee Benefits Security Administration contributes to retirement financial security through aggressive educational strategies, such as the Retirement Savings Education Campaign and Partnerships, targeted public service announcements, promotional cards in tax returns, 800 telephone line, interactive web sites, and videos for small businesses, to name a few. Employee Benefits Security Administration will continue to educate our customers regarding the importance of retirement planning, particularly participation in pension plans.

Goal Assessment and Future Plans - Employee Benefits Security Administration plans to terminate this goal because of the difficulty in evaluating the extent of program influences on the result.

Other Significant Accomplishments

In addition to our results based goals, Employee Benefits Security Administration undertakes other activities that contribute to the accomplishment of our mission. These activities assist us in protecting the economic security of workers and their families. These activities are a balance between other enforcement, compliance assistance and regulatory activities as well as stakeholder education and outreach and exemption processing. Below are noteworthy indicators of our accomplishments in Fiscal Year 2001.

Compliance Assistance/Enforcement - In Fiscal Year 2001, Employee Benefits Security Administration corrected civil violations, either through voluntary compliance or litigation, resulting in monetary recoveries to employee benefit plans or their participants of over $652 million. In addition, enforcement actions in criminal cases resulted in the indictment of 87 individuals for fraudulent behavior related to employee benefit plans.

During this period, Employee Benefits Security Administration continued to focus a significant portion of its resources on the Employer Contribution Project (ECP), the Orphan Plan project, and the Rapid ERISA Action Team (REACT) initiative. In addition, the Voluntary Fiduciary Correction Program (VFCP) completed its first full year of implementation.

The ECP Project, which is ongoing, is designed to curb and prevent abuse in 401(k) and health plans -- both self-funded and insured. From its inception in Fiscal Year 1995 through September 30, 2001, Employee Benefits Security Administration has opened a total of 6,918 investigations (including 6,461 cases opened on 401(k) plans and 457 cases opened on health plans) and recovered over $150.6 million for plan participants. This project has focused the attention of the American public on the importance of their role in ensuring their retirement security.

Employee Benefits Security Administration also began outreach efforts to educate the regulated community on the existence and purpose of the Orphan Plan project. In essence, the initiative assists participants who are in danger of losing their retirement savings where fiduciaries have deserted the plan and abdicated their responsibilities. As a result, participants are unable to exercise any rights they may have under the plan; plan assets are not being actively managed; individual accounts may not be credited properly; and required reports may not be prepared or filed. Employee Benefits Security Administration officials appeared before industry groups and provided timely and pertinent information regarding the project. In addition, the agency met with two large, nationwide service providers and an industry group which were themselves concerned about orphan plans. Employee Benefits Security Administration also began a liaison with the IRS in order to develop expedited procedures for the termination of Orphan plans. During Fiscal Year 2001, Employee Benefits Security Administration closed 150 Orphan Plan cases. Of these, 133 were closed with results, including 122 with monetary results totaling $54.6 million – $37.6 million restored to plans and another $16.8 million paid out directly to plan participants. During this period, 13 fiduciaries were appointed to manage 13 separate plans.

The goal of the REACT initiative is to protect the rights and benefits of plan participants in an expedited manner when the plan sponsor faces severe financial hardship or bankruptcy and the assets of the employee benefit plan are in jeopardy. Employee Benefits Security Administration targets cases which meet these criteria and promptly intervenes when a fiduciary breach is uncovered. Due to the tight time frames and the intricacies of the bankruptcy laws, plan assets and employee benefits are often lost because of the plan fiduciaries’ failure to timely identify pension plan contributions that have not been paid to the trust. Under REACT, Employee Benefits Security Administration responds to the plan sponsor’s bankruptcy by ensuring that all available legal actions have been taken to preserve pension plan assets. The agency also began an outreach program to educate bankruptcy trustees on ERISA and their responsibilities to the plans of the bankrupt sponsor. In addition, Employee Benefits Security Administration posted information on its web site to assist individuals if their employer files for bankruptcy and/or they lose their jobs. During Fiscal Year 2001, the REACT initiative opened over 400 investigations, resulting in over $5.8 million in monetary results.

In Fiscal Year 2001, benefit plan sponsors around the country used the Voluntary Fiduciary Correction Program to correct potential violations of ERISA and to restore losses to plans. The benefits community analyzed the Program in numerous published articles. In addition, benefits organizations, such as bar association committees, invited agency staff to describe the Program. Employee Benefits Security Administration also discussed the Program at regional and national outreach events. After reviewing public comments and developing options, Employee Benefits Security Administration revised the Voluntary Fiduciary Correction Program by reducing some requirements and adding an additional transaction. Specifically, a general notice provision was eliminated, as were several documentation requirements. An additional transaction was included that permits restoration of delinquent participant contributions to welfare benefit plans. The agency also drafted a Proposed Class Exemption permitting relief from an excise tax on prohibited transactions. Since implementing the Voluntary Fiduciary Correction Program on April 14, 2000, Employee Benefits Security Administration has received 69 applications, involving 72 transactions, and has verified that $4.5 million has been restored to plans through September 30, 2001. The transactions affected nearly 48,000 participants.

Customer Assistance - Employee Benefits Security Administration responded to approximately 170,000 inquiries received through telephone calls, letters, electronic correspondence and in person visits. More than 3,300 of these inquiries resulted in some type of benefit recovery such as a benefit payment or reinstatement of health care coverage under COBRA. The benefit recoveries involving a monetary amount approached $65 million. Outreach efforts to plan participants in Fiscal Year 2001, included participation in rapid response meetings to educate participants affected by plant closings about their retirement and health care options. Employee Benefits Security Administration also developed and revised approximately 30 publications designed to provide participants and beneficiaries information on their rights under ERISA.

Employee Benefits Security Administration conducted four conferences in New York, Louisiana, Los Angeles and Ohio designed employers and plan professionals in understanding requirements of the Health Insurance Portability and Accountability Act (HIPAA) and other health benefits laws. Employee Benefits Security Administration’s field offices also worked with organizations such as the Small Business Administration, Small Business Development Centers and various state and congressional offices to conduct numerous seminars and training sessions designed to provide compliance assistance information. In addition, Employee Benefits Security Administration prepared educational publications to assist employers including one designed to help employers avoid the most common pitfalls in complying with HIPAA and other recent health care laws. Frequently asked questions were also prepared and published on Employee Benefits Security Administration’s Website Home Page to provide guidance to employers and plan sponsors in the wake of the September 11th terrorist attacks. Finally Employee Benefits Security Administration worked closely with the Department to develop and implement a web based correspondence system and database that allows employers, plan sponsors, plan fiduciaries and participants and beneficiaries to contact Employee Benefits Security Administration electronically with questions, complaints and concerns.

Exemption Processing - The exemption program facilitates meritorious investment transactions for pension plans which would otherwise be prohibited under ERISA. During Fiscal Year 2001, 158 cases were closed compared to 173 in Fiscal Year 2000. Many of these were highly complex, requiring careful attention to develop appropriate safeguards and conditions to address potential conflicts of interest or other issues which may increase the risk of loss to plans. Some of these cases were well over one year old, due to a number of factors. Often, these delays are caused by an applicant’s inability to submit information or to implement appropriate safeguards. Employee Benefits Security Administration has implemented measures designed to decrease the overall processing time for complex, as well as non-complex, cases. These measures include:

• Earlier review of new exemption applications with the goal of identifying issues and/or a lack of information which may delay the successful completion of the case

• Earlier telephone contacts and conferences to discuss how outstanding issues can be addressed

• More frequent reminders to applicants regarding the need for submitting additional information promptly to the Department for consideration by appropriate staff

• Quicker drafting of relevant documents for review by supervisors and, whenever possible, shortening the length of notices which must be published in the Federal Register

• Facilitating earlier determinations by appropriate Department decision-makers once the record necessary for an exemption is complete. Employee Benefits Security Administration continues to dedicate resources to eliminating the more complex and aged cases from the inventory which will, over time, reduce the average processing time for exemptions.

With respect to class exemptions, Employee Benefits Security Administration proposed an exemption that permits parties in interest with respect to employee benefit plans to make interest free loans or other extensions of credit to such plans. The proposed exemption, if adopted, would permit certain interest free loans with repayment periods of up to 120 days to address plan liquidity needs arising in connection with the September 11, 2001 terrorist attacks.

Future Adjustments

In Fiscal Year 2001, we began reporting separate measures for pension and health enforcement to reflect our increasing responsibilities in the health related enforcement arena. Employee Benefits Security Administration will continue to set more ambitious targets given our recent experience. In fact, in Fiscal Year 2002, our target goals will be increased from 2.5% to 5%. In addition, to protect against irregular fluctuations, we will continue to utilize a two-year rolling average which also facilitates establishing ambitious goals. To demonstrate the impact of this approach, in Fiscal Year 1999, Employee Benefits Security Administration had a goal of obtaining 778 cases closed with corrective results. The goal in Fiscal Year 2002 is 2,613, an increase of 236%. Further details as to our adjustments may be found in the Department’s Fiscal Year 2001 Annual Accountability and Performance Report as well as its Fiscal Year 2002 and Fiscal Year 2003 Annual Performance Plans.

We will also continue to aggressively pursue education and outreach, in general, and will continue to target those groups who have historically shown a low rate of pension coverage -- women, minorities, and workers in small businesses. However, we will be eliminating a goal that measures pension coverage because Employee Benefits Security Administration cannot reasonably demonstrate its direct impact on the result. During Fiscal Year 2001 we did participate in the National Performance Review’s American Customer Satisfaction Index to better understand the effectiveness of our customer service program. We are currently considering whether to continue our participation or to redirect our resources to other similar efforts at evaluation. Finally, in partnership with the Department and Gallup, Employee Benefits Security Administration also conducted a limited evaluation of certain targeted educational materials via focus groups. This preliminary evaluation of the materials was an effort to ascertain whether Employee Benefits Security Administration’s materials are helpful and understandable and provide the necessary information for individuals to make informed decisions about their retirement savings strategies. We are currently analyzing the results of this effort.

In Fiscal Year 2002, Employee Benefits Security Administration, in partnership with the department, intends to undertake evaluations of its education and outreach, customer service, and enforcement strategies. These three interrelated activities provide the backbone to many of Employee Benefits Security Administration's performance measures and provide valuable intelligence to Employee Benefits Security Administration's compliance assistance efforts. This work will provide valuable insight as to which strategies are producing the most positive impact. As a result, Employee Benefits Security Administration will be positioned to leverage its limited resources in the most effective and meaningful way.

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