DOE's cost for retiree benefits rapidly rising

The Department of Energy's benefit costs for retired contractor employees is rising quickly and could hit $1.7 billion next year, according to a Government Accountability Office report to Congress.

"DOE will likely continue to face significant challenges managing the costs of those benefits and mitigating their impact on funding available for the department's mission activities," the report said.

DOE spends about 90 percent of its budget on contracts, including contracts with companies that do Hanford environmental cleanup and operate Pacific Northwest National Laboratory in Richland.

From fiscal 2000 to fiscal 2010, DOE's annual costs for reimbursing contractor pension contributions ranged from a low of $43 million in 2001 to a high of $750 million in 2009, according to the report. The costs more than doubled from 2008-09, driven in large part by a drop in the interest rate used by contractors to calculate their pension plan liabilities, as well as poor asset performance due to market declines.

At the same time, reimbursement costs for its contractors' other postretirement benefits -- primarily health care benefits -- grew by 10 percent to $389 million. Postretirement rates grew steadily at an average annual rate of 8 percent and are projected to rise at a slightly higher rate of 9 percent over the next five years, according to the report.

The report acknowledged that DOE has limited influence over contractor pension and other postretirement benefit costs under contractor-sponsored plans.

DOE encourages contractors to make investment decisions that reduce volatility. But DOE's role is limited to oversight, and it does not provide guidance on how to do so or dictate how contractors should allocate plan assets, according to the report.

At Hanford, DOE also has moved as contracts are up for bid to require that under new contracts new workers be offered 401(k)-style plans rather than traditional pension plans that guarantee set payments each month.

DOE has conducted a comprehensive review of contractor pensions and should perform a similar review of other contractor retiree benefits, the GAO said. It should include an evaluation of options for improving oversight and better managing the cost of those benefits, it said.

-- Annette Cary: 582-1533; acary@tricityherald.com

This story was originally published June 7, 2011 at 12:00 AM with the headline "DOE's cost for retiree benefits rapidly rising."