EBSA Congressional Testimony

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Statement by
Ann L. Combs
Assistant Secretary for Employee Benefits Security Administration
On
Fiscal Year 2004 Request for
mployee Benefits Security Administration

I appreciate the opportunity to present the Department of Labor’s Fiscal Year (FY) 2004 budget request for the Employee Benefits Security Administration (EBSA), formerly the Pension and Welfare Benefits Administration.

EBSA is responsible for the administration and enforcement of Title I of the Employee Retirement Income Security Act of 1974, as amended (ERISA). ERISA currently governs approximately 730,000 private pension plans and six million private health and welfare plans. EBSA oversees private sector pension, health and other employee benefit plans that hold nearly $4.8 trillion in assets and cover 150 million Americans with a staff of 861 FTE and an FY 2003 appropriation of $116 million.

EBSA and its employees around the country work diligently to protect the interests of American workers, retirees and their families, and support the growth of our private benefits system. EBSA’s top priority is to ensure that pension and health plans are operated in accordance with the law. EBSA employs a comprehensive, integrated approach encompassing programs for enforcement, compliance assistance, interpretive guidance, legislation, and research to protect and advance the health and retirement security of our nation’s workers and retirees.

Protecting Americans’ health and retirement benefits has been brought to the forefront of public policy by recent events. With the recent revelations of corporate and union malfeasance combined with the challenging economy, American workers and their families have heightened concerns about health care and the security of their private pensions. The Bush Administration has a comprehensive agenda of reform proposals to improve and strengthen our retirement and health care systems.

FY 2004 Budget Request

The President’s FY 2004 budget request of $128.6 million and 930 FTE for EBSA includes an increase of $12.3 million and 69 FTE to implement initiatives to enhance employee retirement security and protect health insurance coverage. Increasing the EBSA budget by 10 percent – at a time when other national priorities such as the war on terrorism and homeland security are so compelling – is a reflection of the Bush Administration’s strong commitment to protecting workers’ and retirees’ employment-based benefits.

The President has proposed the following budget enhancements for EBSA that will strengthen the confidence of the American workforce that their retirement savings are secure with these new pension protections:

Employee Benefits and Retirement Security through Enforcement. DOL is requesting a budget enhancement of $6.75 million and 60 FTE to establish six additional groups of investigators and auditors throughout EBSA’s regional offices to conduct civil and criminal investigations.

Nationwide Enforcement Coordination and Targeting Capability. DOL is requesting a budget enhancement of $478,000 and 4 FTE to enhance nationwide enforcement coordination, technical assistance, oversight, and guidance to the Agency’s ten regional and five district offices. EBSA will also implement an enhanced enforcement targeting capability and devote resources to those situations where participants and beneficiaries are most vulnerable to loss of benefits. The agency’s enhanced ability to share best enforcement practices will facilitate the more effective use of resources and improved enforcement results.

Compliance Assistance and Interpretations. DOL is requesting a budget enhancement of $565,000 and 5 FTE to expand its compliance assistance programs designed to improve plan sponsors’ and service providers’ understanding of the complex provisions of ERISA governing their conduct. The program will enhance the frequency and timeliness of interpretive guidance, including advisory opinions, information letters, interpretive bulletins, and field advice bulletins issued by EBSA. The legal environment in which pension and health plans operate is becoming increasingly litigious, making the need for timely guidance more pressing than ever.

Pension and Retirement Security Research. DOL is requesting a budget enhancement of $818,000 to bolster EBSA research programs to identify trends and new developments in ERISA plan investment patterns and ensure the evaluation of potential policy and program initiatives that may be required to effectively protect participants.

Policy Initiatives

Congress made a down payment on a promise to protect workers’ retirement benefits by passing a portion of the President’s Retirement Security Plan last year. The Administration believes that it’s time to pass the remainder of the plan, as described in the President’s FY 2004 budget. The President’s Retirement Security Plan will provide workers with greater confidence, choice and control over their retirement savings. The plan will strengthen workers’ ability to manage their retirement funds by giving them more freedom to diversify their investments, provide better information to workers through improved 401(k) and pension plan statements, and encourage employers to provide their employees with access to professional investment advice.

As part of the Administration’s commitment to expanding health insurance coverage, the Department strongly supports the enactment of association health plan (AHP) legislation. More than 41 million Americans lack health insurance, and fully 85 percent of the uninsured are in working families – with most working at firms with fewer than 100 employees. The difficulties that small businesses face in trying to offer quality, affordable health insurance explain a significant part of America’s problem in dealing with uninsured workers and their families. Small firms employ 42 percent of all workers, yet these workers and their families comprise 60 percent of the working uninsured. AHPs are aimed squarely at assisting these workers and their families.

An AHP is an arrangement where a group of small employers join together through a bona fide association to purchase or provide health insurance coverage for their employees, under the protective umbrella of ERISA. AHPs would give small employers many of the economic and legal advantages currently enjoyed by large employers. EBSA stands ready to work with members of Congress to help pass and administer legislation that expands access to affordable quality health insurance coverage for working Americans and their families.

Expanding evaluation efforts is an important response to findings of last year’s Performance Assessment Rating Tool (PART). EBSA is continuing to work on other PART findings that include the development of outcome-oriented performance measures with appropriate annual targets.

Enforcement

EBSA has a strong track record in protecting employee benefits through the identification, correction, and deterrence of violations. The 2004 request includes an enhancement of $7.2 million and 64 FTE to allow EBSA to enforce ERISA and its broad jurisdiction over health, retirement and other employer-provided benefit plans, including expanded responsibilities EBSA has taken on in recent years through legislative initiatives. EBSA has effectively leveraged its enforcement resources by emphasizing targeting and deterrence. Targeting allows EBSA to focus its resources on issues and individuals where the most serious potential for ERISA violations exist and on situations and at-risk populations that present the greatest potential for harm. Deterrence is obtained through the continuing effectiveness of EBSA’s enforcement program as well as our compliance assistance programs described below.

In FY 2002, EBSA opened 4,904 civil cases and closed 4,925 civil cases. This is an increase of 42 civil cases opened and 163 civil cases closed over FY 2001. Fifty-eight percent of civil cases closed (or 2,877 civil cases) were closed with results during FY 2002. During FY 2002, EBSA made 241 referrals to the Solicitor of Labor for litigation. After a referral for litigation is made, we are often successful in obtaining voluntary compliance by the violating party, so many of these referrals did not result in contested litigation. In FY 2002, litigation was filed on 104 cases, an increase of 31 filings over the prior fiscal year.

In FY 2002, there were 155 criminal cases opened, 154 criminal cases closed, and 134 individuals were indicted in connection with EBSA’s criminal investigations. Forty-nine criminal cases were closed with convictions/guilty pleas and an additional 20 criminal cases were closed with other restitution or sentencing results during FY 2002.

The financial impact of EBSA’s investigations on plans and participants is impressive. Total monetary results for all investigations in FY 2002 were $832 million, a record for the agency. These results include the value of corrective actions that EBSA obtained to correct prohibited transactions (nearly $398 million returned to plans), money restored to the plan or plan participants to correct losses resulting from a fiduciary breach (nearly $190 million), EBSA intervention that resulted in securing appropriate safeguards to protect at-risk plan assets and reduce the risk of future losses ($168 million), and benefits recovered on behalf of individual plan participants (nearly $77 million). The new resources requested for FY 2004 should result in an additional 19 percent of civil and criminal cases being investigated and $69 million more being restored, protected or recovered in pension and health plan assets compared to FY 2003 estimates.

Compliance Assistance

Enforcement actions will always be a cornerstone of our mission to assure benefit security. However, a cooperative approach that encourages the regulated community to comply with the law in the first instance is also a critical component of our program. Compliance assistance is directed to the vast majority of the regulated community that is law-abiding and wants to do the right thing, and the 2004 request includes an enhancement of $1.4 million and 5 FTE to carry out compliance assistance activities. With these resources, EBSA will continue to support a number of assistance programs to foster compliance with the law and protect participants and beneficiaries from losses.

The Voluntary Fiduciary Correction Program (VFCP) is designed to encourage employers to voluntarily comply with ERISA by self-correcting certain violations of the law. This program was expanded and improved on April 29, 2002, when EBSA expanded VFCP with significant additional incentives for fiduciaries and others to correct certain ERISA violations. VFCP now offers participating plan sponsors excise tax relief in the form of a class exemption for certain transactions, as well as other improvements. Since the program’s inception in early 2000, the Department has received 218 applications affecting over 169,000 participants and verified that approximately $9.8 million has been restored to plans. Participation in the program has grown significantly since the program was expanded on April 29, 2002. Since then, the Department has received 122 applications affecting over 114,700 participants. During this eleven-month time period, monetary results verified for closed applications was $5 million. The expanded VFCP has accounted for over 55 percent of total applications, and 67 percent of participants affected.

The Delinquent Filer Voluntary Compliance Program (DFVC) provides plan administrators the opportunity to file delinquent Form 5500 filings at greatly reduced civil penalty amounts. In March 2002, the DFVC program was revised, further reducing the penalties with the introduction of a per plan cap. The revisions capped the maximum per plan penalty at $4,000 for large plans and at $1,500 for small plans. Penalties for small plans sponsored by non-profit 501(c)(3) organizations are capped at $750. The former penalty structure had no maximum amount. Since revision of the program, over 9,500 filings have been received, compared to just 1,400 during the same period in 2001. The response to these changes has been overwhelmingly positive and has directly enhanced reporting and disclosure compliance, allowing EBSA to better carry out its enforcement and compliance assistance responsibilities.

EBSA has unveiled a new compliance assistance program to help employers and health plans fulfill their obligations under the various health laws. The Health Insurance Portability and Accountability Act (HIPAA) Compliance Assistance Program (H-CAP), launched on March 25, 2003, will help the benefits community address specific compliance issues. EBSA developed H-CAP to improve compliance by partnering with the regulated community to address problem areas. The H-CAP initiative is a three-pronged program that includes new publications targeted to assist group health plans and health insurers comply with these health laws, a new section of the EBSA Website dedicated to health law material, and sponsorship of compliance assistance workshops around the country.

Participant Assistance

For FY 2004, the President requests $106.7 million and 800 FTE for the EBSA Enforcement and Participant Assistance budget activity. Resources from this activity also support 108 dedicated staff who serve as Benefits Advisors to assist participants and beneficiaries who are experiencing a problem with an employee benefit plan. This program has proven to be very effective in resolving individual participant benefit disputes. In FY 2002, our Benefits Advisors recovered $49 million in benefits on behalf of participants and beneficiaries through informal resolution of individual complaints and responded to 184,000 inquiries for participants who had not been able to resolve their benefits disputes.

Our Benefits Advisors recover benefits on behalf of participants and beneficiaries as part of an informal resolution process. They are often able to resolve disputes and obtain promised benefits on behalf of a participant or beneficiary by explaining the requirements of ERISA to a plan administrator or other responsible party. Other times they serve as an independent source of reliable information about ERISA by answering questions posed by plan sponsors, plan administrators, and service providers to plans. Further, consumers have greater access to EBSA services through the efficiencies of improved technologies, including a toll-free telephone number system.

While Benefit Advisors seek the informal resolution of benefit disputes, if they become aware that repeated complaints have been made with respect to a particular plan, or when there is information indicating a suspected fiduciary breach, the matter is referred to the Office of Enforcement for investigation. In FY 2002, 1,300 investigations were opened as a result of referrals from Benefits Advisors, which accounts for 27 percent of EBSA’s 4,904 enforcement cases.

Close coordination between Benefits Advisors and investigative staff enhances EBSA’s ability to resolve benefit disputes. Direct benefit recoveries from investigations continue to increase steadily, further demonstrating that an experienced, professional Benefits Advisor staff achieves positive results for participants in the nation’s pension and health plans.

Conclusion

Mr. Chairman and members of the Committee, this budget reflects the strong commitment of the Bush Administration and this Congress to improving the lives of America’s working families by protecting their employee benefits and retirement security. This committee’s support for our program has been and will continue to be essential in that effort.