	Background

The Trust was established by statute as a tax-exempt entity to manage  and invest the assets used to pay a portion of Railroad Retirement  Program benefits. The Trust may invest Trust assets in stocks,  bonds and other investment vehicles in a manner similar to other defined  benefit (DB) plans. For example, the report  includes a discussion of the evolution, current status and performance of  the Trust’s investment portfolio. The Annual Management Report also includes  relevant Trust policies such as Trust by-laws, investment guidelines, and  a conflicts of interest policy statement. The Trust Has Commissioned Periodic Performance Audits Since 2002, but Has Not Established a Formal Policy for Such Audits

While not required by law to do so, the Trust has commissioned four  performance audits since the Trust was organized in 2002. Performance Audit Practices of Comparable Entities Can Differ from the Trust in Scope and Frequency

		Most Comparable Entities Are Subject to Multiple Levels of Performance Audits, but the Nature and Frequency of Reviews May Vary

			Subject to Independent External Auditors

Unlike the Trust, most state plans and both federal programs we  contacted are subject to performance audits that can be initiated and  conducted by an independent entity. External audits of these plans can be initiated and  conducted independent of the plans’ governing board and management. State and Federal Audits Cover Certain Areas Not Included in Trust Reviews

Trust performance audits are comparable to state and federal audits in  terms of the breadth of topics reviewed. In some cases, such reviews have  resulted in findings and recommendations in areas that could be relevant  to the Trust. According to Experts, the Trust’s Performance Audit Practices Are Similar to Those of Large Private Sector Plans

According to experts on private sector pensions, the Trust’s practice of  commissioning external firms to conduct performance audits every 2 to 3  years is comparable to the practices of large private sector plans. Both Trust and Board representatives stated that, in their view, the  current oversight is adequate, citing annual mandatory financial audits,  regular reporting and communications between the Board and Trust, and  voluntary periodic Trust-commissioned performance audits. Board officials stated that  such a development would be counter to the Trust’s originating  legislation, and one official stated that externally-initiated audits could  open the door to political influence, stating that audit objectives could be  framed in a way that would pressure the Trust’s investment policies in a  particular direction. Trust representatives also expressed concerns about what they  perceived as an unconstructive, confrontational relationship with the OIG. Require Periodic Audits with External Input on Scope

Key stakeholders—including Board and Trust officials—generally  supported this option. To protect these assets—and the  entity that manages them—from political influence, the Trust was  established independent of the federal government and explicitly  exempted from the title 31 of the U.S. Code, which governs the financial  operations of the federal government and establishes the powers and  duties of GAO. First, while 42  of the 50 state plans we surveyed and both federal agencies we reviewed  are subject to performance audits that are initiated and conducted by  external entities, the Trust is not. Because performance audit policies or the work of the Pension Benefit  Guaranty Corporation, the PBGC Office of Inspector General, the Federal  Retirement Thrift Investment Board, and the Department of Labor’s  Employee Benefit Security Administration are reflected in our report, we  also provided those agencies with a copy of the report for technical  review and comment. What performance audit policies and practices exist for the oversight  of the National Railroad Retirement Investment Trust (Trust)? What performance audit policies apply to comparable organizations,  such as large state public pension plans? What options, if any, could be pursued to improve Trust performance  audit policies and what tradeoffs do stakeholders believe such options  entail? To answer our first question, we reviewed applicable federal laws,  regulations, and Railroad Retirement Board (Board) policies and  procedures regarding oversight of the Trust and the memorandum of  understanding established between the Board, the Trust, the Office of  Management and Budget (OMB), and the Department of the Treasury. We generally obtained  these reports from the website of the states’ Auditors General or  equivalent. These options were based substantially on the  oversight models that apply to state pension plans or comparable federal  agencies, as developed under objective 2. We then interviewed experts  and stakeholders familiar with the Trust—including representatives of the  Board, the Trust, the OIG, and other federal officials, as well as railroad  labor and management—to discuss the potential benefits of establishing  independent performance audits of the Trust.
Why GAO Did This Study

The Trust was established by federal statute effective in 2002 to manage a portion of the assets the Board uses to pay benefits to retired railroad workers, and managed about $25 billion in assets as of 2013. The Trust invests assets in stocks, bonds, and other investment vehicles in a manner similar to that of defined benefit plans. To insulate the Trust from political influence over its investment decisions, the Trust was established independent of the federal government. It is exempted from the federal law that governs the financial operations of the U.S. government and which establishes the duties and powers of the GAO. GAO assessed (1) the performance audit policies and practices that exist for oversight of the Trust; (2) the performance audit policies that apply to comparable organizations, such as large state public pension plans; and (3) what options, if any, could be pursued to improve Trust performance audit policies and what tradeoffs stakeholders believe such options entail.
GAO reviewed applicable federal laws, Trust policies and procedures, and relevant reports such as state, federal, and Trust-commissioned performance audit reports. GAO also interviewed officials of the Board, state and federal pension plans, the state Auditors General, and private plan fiduciary experts.

What GAO Found

Oversight of the National Railroad Retirement Investment Trust (Trust) includes both regular reporting and communications with the Railroad Retirement Board (Board), and periodic performance audits that the Trust has opted to commission; however, no written requirement for such audits exists. The Trust's mandatory annual management report includes financial and descriptive information, including a discussion of the evolution, current status and performance of the Trust's investment portfolio and administrative costs, including investment manager fees. The Trust has also commissioned four external performance audits since its creation—the first in 2004 and the most recent in 2012. These reviews have encompassed a wide range of issues, including the accuracy of monthly reports, compliance with Trust investment manager hiring policies, processes to ensure accuracy of financial recordkeeping and internal controls, adequacy of due diligence procedures, and the role of non-traditional investments.
Performance audit practices of comparable entities can differ from the Trust in scope and frequency. The large majority of state pension plans and two federal programs GAO reviewed that manage investment assets are subject to performance audits that can be initiated and conducted by an external entity, and some of these audits have addressed issues Trust-commissioned audits have not included. Forty-two of the 50 state plans GAO contacted are subject to performance audits that can be initiated and conducted by an external auditor, such as state Auditors General or equivalent, or by offices of internal audit. In some cases, the external auditor reviews the plan annually, while in others, plans are audited less frequently. Both federal programs—the Pension Benefit Guaranty Corporation's single-employer insurance program and the Thrift Savings Plan—are also subject to externally initiated and conducted performance audits. State and federal audits varied in subject and scope, and in some cases, examined issues that Trust-commissioned reviews have not yet included, such as ethics and conflict of interest policies. Experts told GAO that Trust performance audit practices are comparable to those of large private sector plans governed by the Employee Retirement Income Security Act of 1974.
Based on our review of oversight models that apply to state plans and other information, GAO developed several options to enhance the Trust's performance audit practices, and stakeholders identified potential advantages and limitations pertaining to them. For example, the Board's Office of Inspector General (OIG) could be granted authority to conduct performance audits, which would help ensure these reviews are initiated and performed independent of the Trust. However, both Board and Trust officials had reservations about this option, stating that the OIG lacks sufficient expertise in aspects of the Trust investment program, and expressing concerns about what they perceive as an unconstructive working relationship. The Trust's practice of commissioning periodic performance audits could be established as a formal requirement, either through a memorandum of agreement between the key parties, or through a statutory amendment, with external input on subject and scope of the audits. Trust and Board officials stated that this would be a reasonable option, and in early 2014 developed an initial proposal to implement such an agreement.

What GAO Recommends

This report makes no recommendations.