We  also analyzed a sample of ongoing DB plans associated with the 13  consultants that, as of year-end 2004, had assets of $183.5 billion for these  plans, while average assets were $155.3 million. Additional analysis found  that the DB plans using these 13 consultants had annual returns that were  generally 1.3 percent lower than those that did not. Because many factors  can affect returns, and data and modeling limitations limit the ability to  generalize and interpret the results, this finding, while suggestive, should  not be considered as proof of causality between consultants and lower  rates of return. In particular, the 13  consultants:  in 2006, had over $4.5 trillion in U.S. assets under advisement, including  private DB and defined contribution (DC) plan assets, as well as public  pension plan and other types of assets;     provided advisory services to 36 percent (9 out of 25) of the largest  plan sponsors, in terms of claims, currently trusteed by PBGC since  2000;    provided advisory services to 14 percent (12 out of 86) of the plan  sponsors that were trusteed by the PBGC in 2005; and    provided advisory services to 24 percent (1009 out of 4203) of the  sponsors of ongoing DB plans between the years 2000 and 2004. Specifically, we conducted an  econometric analysis using ongoing DB plans and SEC study data on  pension consultants that either adequately disclosed their conflicts of  interest and those who did not. Independent experts and  officials stated that though a typical first step to identify harm related to a  conflict of interest is to examine a plan’s investment returns, determining  whether any financial harm is caused to an individual pension plan by a  conflict of interest requires a detailed forensic audit. PBGC’s Current Policy and Procedures Are Not Focused on Detecting Conflicts of Interest among Service Providers

As a creditor and a trustee of a sponsor’s terminated plan, PBGC’s policies  and procedures are designed to review a plan’s assets and liabilities and  recover any shortfall. PBGC has pursued cases against plan fiduciaries in an effort to seek such  recoveries. According to a PBGC 2004 annual report,  more than 90 percent of the participants and beneficiaries of single  employer plans that were trusteed by the agency received their full  promised plan benefits. EBSA’s Enforcement Strategy Does Not Include Procedures That Focus on Conflicts of Interest Involving PBGC Trusteed Plans or High Risk Plans Likely to Terminate

Though EBSA’s enforcement program is concerned with conflicts of  interest affecting all private sector pension plans, the agency does not  have a specific focus on plans that are trusteed by PBGC or ongoing high  risk plans that PBGC identifies as most likely to terminate. EBSA Has No Specific Enforcement Strategy for PBGC-Trusteed Plans or Plans that PBGC Deems Likely to Terminate

While EBSA’s enforcement program does include a focus on conflicts of  interest affecting all private sector pension plans, agency officials told us  they have no specific procedures for detecting conflicts that may have  involved plans that have been trusteed by PBGC or may be trusteed in the  future. EBSA Officials Cite ERISA as Constraint in Pursuing Conflicts of Interest

EBSA’s ability to recover plan losses related to conflicts of interest by a  service provider is largely limited by the extent to which the service  provider was functioning as a fiduciary under ERISA. Different Agency Responsibilities Tend to Reinforce Limited Collaboration among EBSA, SEC, and PBGC

To some extent, differences in each agency’s roles and responsibilities  affect the level of collaboration regarding conflicts of interest among the  three agencies. Agency Comments and Our Evaluation

We obtained comments from the acting Assistant Secretary for the  Employee Benefits Security Administration, the Deputy Director of the  Pension Benefit Guaranty Corporation, and the Director of Compliance  Inspections and Examinations for the Securities and Exchange  Commission. Using the Labor’s 5500 data, GAO used the  SEC information to identify 983 pension plans associated with these 13  pension consultants and 39 pension plans associated with the 11 pension  consultants found to have less significant disclosure issues. 1, 2, . .
Why GAO Did This Study

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.

What GAO Found

A conflict of interest typically exists when someone in a position of trust, such as a pension consultant, has competing professional or personal interests. Though data are limited on the prevalence of conflicts involving plan fiduciaries and consultants, a 2005 SEC staff report examining 24 registered pension consultants identified 13 that failed to disclose significant conflicts. GAO's analysis found that, in 2006, these 13 consultants had over $4.5 trillion in U.S. assets under advisement. GAO also analyzed a sample of ongoing DB plans associated with the 13 consultants that, as of year-end 2004, had total assets of $183.5 billion and average assets of $155.3 million. Additional sample analysis showed that the DB plans using these 13 consultants had annual returns generally 1.3 percent lower than those that did not. Because many factors can affect returns, and data as well as modeling limitations limit the ability to generalize and interpret the results, this finding should not be considered as proof of causality between consultants and lower rates of return, although it suggests the importance of detecting the presence of conflicts among pension plans. Whether specific financial harm was caused by a conflict of interest is difficult to determine without a detailed audit. As a creditor and a trustee of terminated plans, PBGC's policies and procedures are oriented toward the likely recovery of assets, rather than explicitly focusing on losses associated with conflicts of interest involving service providers. Although PBGC has broad legal authority to recover losses attributable to conflicts of interest, PBGC officials told us that the agency limits its pursuit of cases to those in which the recovery will likely exceed the cost of bringing a case to court successfully. While monetary recoveries by PBGC may improve the agency's financial position, they generally have little effect on participant benefits because most affected participants already receive their full benefits promised by their plans. According to PBGC, more than 90 percent of all beneficiaries of PBGC trusteed plans received their full promised plan benefit. While EBSA's enforcement program is concerned with conflicts of interest affecting all private pension plans, it does not have specific procedures for plans trusteed or likely to be trusteed by PBGC. EBSA has recently initiated the Consultant/Advisor Project (CAP) to focus on conflicts among service providers, though it includes no specific focus on high risk or terminated plans. Moreover, existing law limits EBSA's efforts to pursue conflicts and redress for financial harm when certain service providers are either not fiduciaries under the Employee Retirement Income Security Act (ERISA) or did not knowingly act in concert with a fiduciary. Coordination among EBSA, PBGC, and the SEC on conflicts of interest is primarily informal, in part because of agencies' different responsibilities. The agencies' investigative activities for conflicts of interest tend to operate independently. Differences in agency missions pose challenges to the three agencies' developing a coordinated focus to pursue conflicts of interest affecting individual pension plans.