Federal Pensions
DOL Oversight and Thrift Savings Plan Accountability Gao ID: GAO-03-400 April 23, 2003The Thrift Savings Plan (TSP) is a retirement savings and investment plan for federal employees, governed by the Federal Retirement Thrift Investment Board (the TSP Board). Recent events relating to the TSP Board's contract to upgrade TSP's record keeping system have raised questions about the management of the TSP. In light of the TSP Board's actions relating to the record keeping system and the recent submission of the TSP Board's legislative proposal that would enhance its independence, Congressional requesters asked us to examine federal oversight of the TSP Board. Specifically, our objectives were to (1) describe the Department of Labor's (DOL) oversight authority, under the Federal Employees' Retirement System Act of 1986 (FERSA) and (2) determine the actions DOL has taken in exercising its authority over TSP.
DOL is charged under FERSA with establishing an audit program of TSP and its operations. The audit program is to ensure that TSP assets have been reasonably safeguarded and that appropriate steps have been taken by TSP fiduciaries to comply with FERSA. If DOL finds that the Executive Director or TSP Board members have breached their fiduciary responsibilities, under FERSA, DOL cannot take legal action or obtain monetary penalties against the Executive Director and TSP Board members, although DOL may do so against other TSP fiduciaries. This limitation contrasts with DOL's authority in overseeing private pension plans under the Employee Retirement Income Security Act of 1974 (ERISA), which set certain minimum standards for pension plans sponsored by private employers and gives DOL authority to interpret and enforce those standards. Under ERISA, DOL is allowed to seek remedies to correct fiduciary violations. DOL exercises its authority over the TSP Board through recommendations developed in its audit program, which is contracted to a public accounting firm to perform. DOL makes its recommendations to the TSP Board and service providers. However, the TSP Board is not required to implement DOL's recommendations. Since the inception of the audit program, DOL has made 810 recommendations to the TSP Board and its service providers. According to our analysis of DOL and TSP data, the TSP Board has implemented roughly 95 percent of DOL's recommendations, with the majority of the remaining recommendations scheduled for implementation in 2003. While the TSP Board does not always concur with DOL's recommendations, the TSP Board and DOL have resolved disputed recommendations by developing an alternative to address the disputed reviewed areas. However, DOL has also raised issues of concern to the TSP Board, in addition to making recommendations, where the TSP Board has not resolved the issue with DOL. In these instances, there is no formal process with which to ensure that the TSP Board is held accountable for these actions.
RecommendationsOur recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.
Director: Team: Phone:GAO-03-400, Federal Pensions: DOL Oversight and Thrift Savings Plan Accountability
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Report to Congressional Requesters:
United States General Accounting Office:
GAO:
April 2003:
FEDERAL PENSIONS:
DOL Oversight and Thrift Savings Plan Accountability:
GAO-03-400:
GAO Highlights:
Highlights of GAO-03-400, a report to Congressional Requesters
Why GAO Did This Study:
The Thrift Savings Plan (TSP) is a retirement savings and investment
plan for federal employees, governed by the Federal Retirement Thrift
Investment Board (the TSP Board). Recent events relating to the TSP
Board‘s contract to upgrade TSP‘s record keeping system have raised
questions about the TSP Board‘s management of TSP. In light of the
TSP Board‘s actions relating to the record keeping system and the
recent submission of the TSP Board‘s legislative proposal that would
enhance its independence, you asked us to examine the federal
oversight of the Board. Specifically, our objectives were to (1)
describe the Department of Labor‘s (DOL) oversight authority, under
the Federal Employees‘ Retirement System Act of 1986 (FERSA) and (2)
determine the actions DOL has taken in exercising its authority over
TSP.
What GAO Found:
DOL is charged under FERSA with establishing an audit program of TSP
and its operations. The audit program is to ensure that TSP assets
have been reasonably safeguarded and that appropriate steps have been
taken by TSP fiduciaries to comply with FERSA. If DOL finds that the
Executive Director or TSP Board has breached its fiduciary
responsibilities, under FERSA, DOL cannot take legal action or obtain
monetary penalties against the Executive Director and the TSP Board,
although DOL may do so against other TSP fiduciaries. This limitation
contrasts with DOL‘s authority in overseeing private pension plans
under the Employee Retirement Income Security Act of 1974 (ERISA),
which set certain minimum standards for pension plans sponsored by
private employers and gives DOL authority to interpret and enforce
those standards. Under ERISA, DOL is allowed to seek remedies to
correct fiduciary violations.
DOL exercises its authority over TSP through recommendations developed
in its audit program, which is typically contracted to a public
accounting firm to perform. DOL makes its recommendations to the TSP
Board and service providers. However, the TSP Board is not required
to implement DOL‘s recommendations. Since the inception of the audit
program, DOL has made about 810 recommendations to the TSP Board and
its service providers. According to our analysis of DOL and TSP data,
the TSP Board has implemented roughly 95 percent of DOL‘s
recommendations, with the majority of the remaining recommendations
scheduled for implementation in 2003. While the TSP Board does not
always concur with DOL‘s recommendations, in most cases, the TSP Board
and DOL have resolved disputed recommendations by developing an
alternative to address the disputed reviewed areas. However, DOL has
also raised issues of concerns to the TSP Board, in addition to making
recommendations, where the TSP Board has not resolved the issue with
DOL. In these instances, there is no formal process with which to
ensure that the TSP Board is held accountable for these actions.
What GAO Recommends:
To increase accountability of the TSP Board, Congress should consider
amending FERSA to require DOL to (1) report to the Congress the
results of their annual audits, and (2) establish a formal process by
which the Secretary of Labor can report to the Congress issues of
critical concern associated with the actions of the TSP Board and
Executive Director.
www.gao.gov/cgi-bin/getrpt?GAO-03-400
To view the full report, including the scope
and methodology, click on the link above.
For more information, contact Barbara Bovbjerg, Director, Education,
Workforce, Income and Security at (202) 512-7215.
[End of section]
Contents:
Letter:
Results in Brief:
Background:
FERSA Requires DOL to Audit the TSP Board and Its Operations:
DOL Makes Audit Recommendations to the TSP Board but Has No Formal
Process With Which To Ensure That Additional Concerns Are Addressed:
Conclusion:
Matter For Congressional Consideration:
Agency Comments:
Appendix I: Department Of Justice Is Responsible for
Representing Federal Agencies:
Appendix II: Process for TSP Audits:
Appendix III: Comments from the Federal Retirement Thrift Investment
Board:
Table:
Table 1: DOL Recommendations Made Through Its Audit Program:
Figure:
Figure 1: DOL's Typical Audit Program Report Process:
Abbreviations:
AMS: American Management Systems, Inc.
CSRS: Civil Service Retirement System:
DOJ: Department of Justice:
DOL: Department of Labor:
EBSA: Employee Benefits Security Administration:
ERISA: Employee Retirement Income Security Act of 1974:
FERS: Federal Employees' Retirement System:
FERSA: Federal Employees' Retirement System Act of 1986:
NFC: National Finance Center:
TSP: Thrift Savings Plan:
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protection in the United States. It may be reproduced and distributed
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copyrighted materials separately from GAO's product.
United States General Accounting Office:
Washington, DC 20548:
April 23, 2003:
The Honorable Thomas M. Davis III
Chairman
Committee on Government Reform
House of Representatives:
The Honorable Danny K. Davis
Ranking Member
Subcommittee on Civil Service
and Agency Organization
Committee on Government Reform
House of Representatives:
The Honorable Dave Weldon, M.D.
House of Representatives:
The Thrift Savings Plan (TSP) is a retirement savings and investment
plan for federal employees, governed by the Federal Retirement Thrift
Investment Board (the TSP Board). TSP is a defined contribution
retirement plan[Footnote 1] within the Federal Employees' Retirement
System (FERS). Recent events relating to the TSP Board's cancellation
of the contract to upgrade TSP's record keeping system have raised
questions about the management of the TSP. TSP is now involved in court
proceedings related to the contract. In light of the TSP Board's
actions relating to the record keeping system and the recent submission
of the TSP Board's legislative proposal that would enhance its
independence, you asked us to examine federal oversight of the TSP.
Specifically, our objectives were to (1) describe the Department of
Labor's (DOL) oversight authority, under the Federal Employees'
Retirement System Act of 1986 (FERSA) and (2) determine the actions DOL
has taken in exercising its authority over the TSP Board. You also
asked us to discuss the Department of Justice's responsibility in
representing federal agencies in the courts. (See app. I for more
information.):
To determine DOL's oversight authority under FERSA, we analyzed FERSA
and relevant DOL regulations, as well as the TSP Fiduciary Oversight
Program manuals and documentation. We also interviewed officials from
the TSP Board, DOL, and DOL's contracted public accounting firm. To
determine the actions DOL has taken in exercising its authority, we
reviewed and analyzed all audit recommendations since TSP's inception.
We also interviewed officials from DOL and its contracted public
accounting firm about the audit process and how they establish their
audit recommendations.
We conducted our work between November 2002 and April 2003 in
accordance with generally accepted government auditing standards.
Results in Brief:
DOL is charged under FERSA with establishing an audit program of TSP
and its operations. The audit program is to ensure that TSP assets have
been reasonably safeguarded and that appropriate steps have been taken
by TSP fiduciaries[Footnote 2] to comply with FERSA. If DOL finds that
the Executive Director or the TSP Board members have breached their
fiduciary responsibilities, under FERSA, DOL cannot take legal action
or obtain monetary penalties against the Executive Director and the TSP
Board members, although DOL may do so against other TSP fiduciaries.
This limitation contrasts with DOL's authority in overseeing private
pension plans under the Employee Retirement Income Security Act of 1974
(ERISA), which sets certain minimum standards for pension plans
sponsored by private employers and gives DOL authority to interpret and
enforce those standards. Under ERISA, DOL is allowed to seek remedies
to correct fiduciary violations.
DOL exercises its authority over the TSP Board through recommendations
developed in its audit program, which is contracted to a public
accounting firm to perform. DOL makes its recommendations to the TSP
Board and its service providers.[Footnote 3] However, the TSP Board is
not required to implement DOL's recommendations. Since the inception of
the audit program, DOL has made 810 recommendations to the TSP Board
and its service providers. According to our analysis, the TSP Board has
implemented roughly 95 percent of DOL's recommendations, with the
majority of the remaining recommendations scheduled for implementation
in 2003. While the TSP Board does not always concur with DOL's
recommendations, the TSP Board and DOL have resolved disputed
recommendations by developing an alternative to address the disputed
reviewed areas. However, DOL has also raised issues of concern to the
TSP Board, in addition to making recommendations, where the TSP Board
has not resolved the issue with DOL. In these instances, there is no
formal process with which to ensure that the TSP Board is held
accountable for these actions.
This report includes a Matter for Congressional Consideration to
require DOL to establish a formal process by which the Secretary of
Labor can report to the Congress issues of critical concern associated
with the actions of the Executive Director and the TSP Board members.
Background:
As of September 30, 2002, the TSP Board reported that the TSP had about
3 million participants and fund balances totaling approximately $96
billion, making it one of the largest retirement savings plans in the
United States. TSP is available to federal and postal employees,
Members of Congress and congressional employees, members of the
uniformed services, members of the Judicial branch and persons covered
by FERS or the Civil Service Retirement System (CSRS).[Footnote 4] TSP
provides federal (and in certain cases, state) income tax deferral on
employee contributions and related earnings. TSP's assets and earnings
on these assets generally cannot be used for any purpose other than
providing benefits to participants and their beneficiaries, and paying
TSP administrative expenses.
Through FERSA, Congress established the Federal Retirement Thrift
Investment Board to administer TSP. The TSP Board is an independent
agency in the Executive Branch of the Government, which oversees and
assumes certain fiduciary and administrative responsibilities, such as
performing its TSP responsibilities solely in the interest of the
participants and beneficiaries of TSP. Similar to fiduciaries of
private pension plans under ERISA, TSP fiduciaries are the persons who
have discretionary control or authority over the management or
administration of the plan, including the management of the plan's
assets. The TSP fiduciaries include the TSP Board's Executive Director
and its five Board members.[Footnote 5] The TSP Board members are
presidential appointees, who appoint the TSP Executive Director. The
chairman and the TSP Board members are appointed to 4-year terms. The
Executive Director and staff are responsible for managing the daily
operations of TSP. The TSP Board members are responsible for
establishing policies for the investment and management of TSP and are
ultimately responsible for the oversight of daily TSP contribution
record keeping and accounting activities.
As a part of administering the TSP, the TSP Board contracted with the
American Management Systems, Inc. (AMS) to develop and implement a new
record keeping system for the TSP in 1997. However, according to the
TSP Board, AMS had consistently failed to adhere to the schedules
established for delivery of the new system and was unable to perform
the contract under a given timetable. As a result, in 2001 the TSP
Board terminated the contract and subsequently the Executive Director
filed a lawsuit on behalf of TSP.[Footnote 6] This lawsuit is presently
before the United States Court of Appeals for the District of Columbia.
FERSA Requires DOL to Audit the TSP Board and Its Operations:
Under FERSA, DOL is charged with establishing a program to carry out
audits to determine the level of TSP compliance with FERSA requirements
relating to fiduciary responsibilities. ERISA is the law that governs
private employer sponsored plans. Although DOL is responsible for
enforcing the fiduciary responsibility provisions for both ERISA and
FERSA, DOL has the authority to bring legal action against all
fiduciaries under ERISA, but does not have such authority over the
Executive Director or TSP Board members under FERSA. However, DOL can
bring legal actions against other non-Board member fiduciaries under
FERSA.
FERSA Requires DOL or DOL's Designee to Audit the TSP Board:
FERSA was designed to protect the rights and interests of TSP
participants and prescribes the responsibilities of the Executive
Director and the TSP Board members. FERSA requires the Secretary of
Labor to carry out audits of the TSP Board and its operations.[Footnote
7] DOL's audits are to ensure that TSP assets have been reasonably
safeguarded and that appropriate steps have been taken by TSP
fiduciaries to comply with FERSA. Through its audit program, DOL
determines whether TSP fiduciaries have complied with FERSA and the TSP
Board regulations relating to FERSA. DOL also determines whether TSP
fiduciaries are acquiring, protecting, and using TSP resources
economically, efficiently, and solely in the interest of TSP
participants and beneficiaries. DOL's Employee Benefits Security
Administration's (EBSA) Office of Chief Accountant administers this
program on behalf of the Secretary of Labor.
FERSA specifically requires that DOL's audit program ensure compliance
with FERSA requirements relating to fiduciary responsibilities and
prohibited activities of fiduciaries. TSP fiduciaries are required to
perform their responsibilities in the interest of participants and
beneficiaries for the exclusive purpose of providing benefits to
participants and their beneficiaries and defraying the reasonable
expenses of administering TSP. Other fiduciary responsibilities
include:
* Using the care, skill, prudence, and diligence under the prevailing
circumstances that a prudent individual acting in a like capacity and
familiar with such matters would use in the conduct of an enterprise of
a like character and with like objectives.
* To the extent permitted by law, diversifying the investments of the
fund so as to minimize the risk of large losses, unless under the
circumstances it is clearly prudent not to do so.
DOL is also required to determine TSP fiduciary's compliance with
FERSA's prohibited transaction provisions. Prohibited transactions
include a fiduciary dealing with TSP assets in his or her own interest
or for his or her account. Other prohibited transactions relate to
fiduciaries engaging in transactions involving TSP on behalf of a party
or representing a party whose interests are adverse to the interest of
TSP or the interests of its participants or beneficiaries.[Footnote 8]
DOL Cannot Take Legal Actions Against the Executive Director Or a TSP
Board Member Under FERSA, but Can Take Legal Actions Against Any
Fiduciary Under ERISA:
DOL is responsible for enforcing fiduciary responsibility provisions of
both ERISA and FERSA.[Footnote 9] Although FERSA requires DOL to audit
TSP, it does not grant DOL the authority to take legal or other
measures against the Executive Director or a TSP Board member if such
fiduciaries are found to have violated FERSA requirements. Under a 1988
amendment[Footnote 10] to FERSA, the Secretary of Labor cannot initiate
a civil action against the Executive Director or a TSP Board member.
Because of this lack of enforcement authority, DOL cannot bring legal
actions against the Executive Director or a TSP Board member to enforce
FERSA fiduciary provisions. However, the Secretary of Labor can
initiate a civil action against other persons who are fiduciaries of
TSP but only for fiduciary breaches.[Footnote 11]
ERISA sets minimum standards for pension plans sponsored by private
employers and gives DOL the authority to interpret and enforce certain
minimum standards for private pension plans sponsored by private
employers. Under ERISA, DOL is allowed to seek remedies to correct
fiduciary violations of ERISA, including using litigation when
necessary. Plan fiduciaries under ERISA must avoid conflicts of
interest whereby they or parties that manage or provide services to the
plan could benefit from the fiduciary's actions. Fiduciaries who do not
follow ERISA principles regarding prohibited activities may be
personally liable for any losses to the plan, or for restoring any
profits made through improper use of the plan's assets. According to
DOL, its primary goal in litigating a case is to ensure that a plan's
assets, and therefore, its participants and beneficiaries, are
protected.
DOL Makes Audit Recommendations to the TSP Board but Has No Formal
Process With Which To Ensure That Additional Concerns Are Addressed:
DOL exercises its authority over the TSP Board through recommendations
developed in its audit program, which is contracted to a public
accounting firm to perform. DOL makes its recommendations to the TSP
Board and service providers and since inception has made 810
recommendations to the TSP Board and its service providers. The TSP
Board is not required to implement DOL's recommendations and does not
always agree with DOL's recommendations, although they have implemented
approximately 95 percent of DOL's recommendations with the majority of
the remaining recommendations scheduled for implementation in 2003.
However, if DOL has concerns with the Executive Director or a TSP Board
member's actions there is no formal process by which to ensure the
Executive Director and TSP Board members are held accountable for their
actions.
DOL Exercises Its Authority Through Recommendations Made Through Its
Audit Program:
DOL exercises its authority over the TSP Board through recommendations
developed in its audit program, which is performed by auditors of a
public accounting firm.[Footnote 12] These auditors report solely to
DOL and do not report to the TSP Board. The auditors' primary
responsibility is conducting fiduciary audits, which include audits of
TSP and its service providers. Although the Executive Director and TSP
Board members are ultimately responsible for managing TSP, they
implement their fiduciary responsibility through third party contracts
with service providers that actually carry out the day-to-day
operations of TSP, such as record keeping of and investing TSP funds.
Consequently, audits are primarily conducted on TSP's service
providers.
DOL, in directing its contract auditors, determines the audits to be
done each year. Auditing officials said that issues from previous
audits and issues confronting TSP's service providers usually determine
the types of audits performed. DOL officials stated that they also
present any relevant concerns that they think the auditors should
address based on issues DOL identified during its investigations of
private pension plans. Once DOL approves the audits, DOL and the
auditors meet with the TSP Board to inform them of the number of audits
that will be conducted and the topics each review will address for the
coming year. Arrangements are then made with the appropriate TSP
service provider, informing them of the audit. DOL has spent roughly
$350,000 to $750,000 per year on TSP audits over the last 5 years.
Funding for the TSP contract has varied based on DOL's other
contracting needs. See appendix II for more information on the audit
report process.
DOL reviews auditor's recommendations and once approved, presents the
recommendations to the TSP Board and its service providers. DOL
officials said that recommendations are made when the potential for
significant improvement in operations and performance is substantiated
by audit findings. In addition, DOL makes recommendations that affect
compliance with FERSA and TSP Board policies and improve management
controls when significant instances of noncompliance are noted or
significant weaknesses in controls are found.
As of November 1, 2002, the TSP Board's recommendation status report
noted that 810 audit recommendations have been made to the TSP Board
and its service providers. The TSP Board classifies DOL's
recommendations into three categories (1) NFC recommendations that
relate to some component of the record keeping system, (2) TSP Board
audit recommendations that relate to the administrative component of
the TSP Board and service providers, and (3) recommendations made
jointly to NFC and the TSP Board. As shown in table 1, the majority of
the recommendations have been made to NFC.
Table 1: DOL Recommendations Made Through Its Audit Program:
Focus of Recommendation: NFC; Number of recommendations: 497;
Percentage of all recommendations made to each entity: 61.
Focus of Recommendation: TSP Board; Number of recommendations: 219;
Percentage of all recommendations made to each entity: 27.
Focus of Recommendation: Joint NFC and TSP Board; Number of
recommendations: 94; Percentage of all recommendations made to each
entity: 12.
Focus of Recommendation: Total; Number of recommendations: 810;
Percentage of all recommendations made to each entity: 100.
Source: GAO's analysis of the TSP Board and DOL data.
[End of table]
DOL reports that the TSP Board has implemented about 95 percent of
DOL's recommendations. To keep track of the reviews and recommendations
over the years, the TSP Board has maintained an extensive database
outlining the overall status of all audits and recommendations, issued
by DOL, to ensure that all recommendations are addressed. DOL has also
maintained its own database. However, both DOL and TSP Board officials
recognized that there are discrepancies in the number of open versus
closed recommendations in each of their databases.
According to the TSP Board, 10 recommendations are open.[Footnote 13]
Using TSP Board numbers, the TSP Board has implemented approximately 99
percent of all recommendations. However, DOL reports that 41
recommendations are open and using DOL numbers, approximately 95
percent of all recommendations have been implemented, with the majority
of the remaining recommendations scheduled for implementation in
2003.[Footnote 14] Both the TSP Board and DOL officials say that the
discrepancy is due to the time lapse that exists between the TSP
Board's implementation of the recommendations and DOL's follow-up
review. Once the TSP Board or the service provider implements the
recommendations, the TSP Board will close the outstanding
recommendations. However, DOL will maintain the recommendations as open
until an additional review is conducted of TSP or its service
providers, ensuring that the TSP Board has addressed the audit
recommendations to the auditor's satisfaction.
The TSP Board and its service providers are not statutorily required to
implement any of DOL's audit recommendations. According to the DOL and
TSP officials, this voluntary process has generally worked well since
the audit program's inception. TSP officials have said that if in their
opinion a recommendation has merit, the TSP Board adopts it; otherwise,
the TSP Board does not implement it. Although the TSP Board does not
always concur with DOL's recommendations, the TSP Board and DOL have
resolved disputed recommendations by developing an alternative to the
proposed recommendation.
No Formal Process Exists to Ensure Accountability of the Executive
Director and TSP Board Members:
DOL has raised issues of concern to the Executive Director and TSP
Board members outside its routine TSP compliance audit reporting
process. The Executive Director and TSP Board members have not always
agreed with DOL, and while the TSP Board members maintain the issue is
resolved, from DOL's perspective the concern has not been addressed. In
these instances, since FERSA does not provide DOL with a formal process
to resolve issues of dispute, there is no process by which DOL can
ensure that the Executive Director and TSP Board members are held
accountable for their actions.
Recently, DOL strongly expressed concerns about certain actions taken
by the Executive Director and TSP Board members. For example, DOL had
concerns about the authority of TSP Board members to pursue a lawsuit
against the company contracted by the TSP Board to upgrade the TSP
record keeping system. DOL sought to convince the TSP Board members of
the seriousness of the matter and persuade the Executive Director and
TSP Board members to take corrective steps prior to DOL opening an
audit or investigation. In response, both the Executive Director and
TSP Board members took issue with DOL's authority to question the TSP
Board's actions and continued to pursue its litigation. In addition,
DOL for years has informally recommended that the TSP Board establish
its own internal audit function that would report directly to the
Executive Director and TSP Board members. Although the Executive
Director and TSP Board members evaluated establishing their own
internal audit function, they have not done so and consider the matter
to be closed.
Given the absence of enforcement authority under FERSA, the Executive
Director and TSP Board members are not held accountable for their
actions when they disagree with DOL. Although the TSP Board is required
under the Inspector General Act Amendments of 1988 [Footnote 15] to
send its annual audit reports to Congress specifying any actions taken
by the TSP Board including summaries of significant audit findings, DOL
cannot require the Executive Director or TSP Board members to take
specific actions if the TSP Board declines to address DOL's concerns.
Conclusion:
FERSA established the governance structure of the TSP and ensured that,
through an audit program under DOL, fiduciary compliance would be
monitored. FERSA, however, allows the Executive Director and TSP Board
members to be the final decision makers on the proper governance of TSP
with limited external oversight. Amending FERSA to allow DOL to have a
formal process, to ensure its concerns are resolved, could help ensure
that actions by the Executive Director or TSP Board members, which DOL
deems inappropriate, are addressed.
Matter For Congressional Consideration:
To strengthen DOL oversight and to increase accountability of the TSP
Board, Congress should consider amending FERSA to require DOL to
establish a formal process by which the Secretary of Labor can report
to the Congress issues of critical concern about actions of the
Executive Director and TSP Board members.
Agency Comments:
We provided a draft of this report to the Federal Retirement Thrift
Investment Board, the Department of Labor, and the Department of
Justice (DOJ) for their review and comment. We received written
comments from the Federal Retirement Thrift Investment Board, which are
reprinted in Appendix III. The Federal Retirement Thrift Investment
Board generally agreed with our findings and conclusions. DOL and the
TSP Board also provided technical comments on the draft. We
incorporated each agency's comments as appropriate.
As agreed with your offices, unless you publicly announce its contents
earlier, we plan no further distribution of this report until 30 days
after its issue date. At that time, we will send copies of this report
to the Secretary of Labor, the Federal Retirement Thrift Investment
Board, and the Department of Justice. We will also make copies
available to others on request. In addition, the report will be
available at no charge on the GAO Web site at http://www.gao.gov.
If you have any questions concerning this report, please contact me at
(202) 512-7215 or George Scott at (202) 512-5932. Other major
contributors include Richard Burkard, Tamara Cross, Patrick DiBattista,
Kim Granger, Jason Holsclaw, and Roger Thomas.
Barbara D. Bovbjerg
Director, Education, Workforce and Income Security Issues:
Signed by Barbara D. Bovbjerg
[End of section]
Appendix I: Department Of Justice Is Responsible for Representing
Federal Agencies:
Generally, the Department of Justice (DOJ) has responsibility for
representing federal agencies in the courts. Unless otherwise
authorized by law, the conduct of litigation involving any federal
agency is reserved to the DOJ.[Footnote 16] Moreover, an agency
generally may not employ an attorney for the conduct of litigation in
which the agency is a party, but must refer the matter to DOJ.[Footnote
17] DOJ officials we spoke with told us that they consider themselves
to have broad authority to represent the federal government in court,
regardless of the particular facts or circumstances. The officials
stated that in most cases an agreement can be reached with the agency
and DOJ as to whether or not to pursue a particular case; however, if
an agreement cannot be reached, the Attorney General makes the final
decision.
Congress, however, has created a number of exceptions to DOJ's control
over agency litigation, and has authorized, to varying degrees, certain
executive, legislative, and independent agencies to conduct litigation
on their own behalf. This grant of authority to agencies has in some
instances been broad, as in the case of the Federal Deposit Insurance
Corporation (FDIC). By statute, FDIC may sue or represent itself,
"through its own attorneys, in any court of law or equity, State or
Federal."[Footnote 18] Often, however, Congress limits the authority of
the agency to sue only under a particular program or for a limited
purpose.[Footnote 19] Moreover, when Congress authorizes agencies to
represent themselves, it may require that the agency consult or obtain
the concurrence of DOJ.[Footnote 20]
[End of section]
Appendix II: Process for TSP Audits:
Before each audit, DOL's Employees Benefits Security Administration's
(EBSA) Chief Accountant notifies the Federal Retirement Thrift
Investment Board's Executive Director of the proposed entity that will
be audited and instructs the Executive Director to notify the proposed
auditee of the pending field visit for purposes of arranging an
entrance conference. Upon arrival at the entity to be audited, the
independent auditors are responsible for conducting audits in
accordance with our Government Auditing Standards and DOL's Audit
Program Manuals. DOL's independent auditors may perform one of four
types of audits, full scope, limited scope, restricted scope, and
special project reviews.[Footnote 21] After the entrance conference,
the independent auditing firm conducts fieldwork and drafts a report of
its findings. Figure 1 highlights the individual steps taken by each
entity in the auditing process, including the auditee, the independent
auditors, DOL, and the TSP Board.
Figure 1: DOL's Typical Audit Program Report Process:
[See PDF for image]
[End of figure]
After audits are completed, recommendations are made to the TSP Board
and the auditee. DOL reviews all recommendations made before they are
presented to the TSP Board. The process works in such a way that the
auditors draft recommendations based, in part, on the service
provider's input throughout the audit fieldwork. The auditors then
provide DOL with their findings and recommendations. Once DOL approves
the recommendations, an exit conference is held with the service
provider. Auditing and DOL officials said that DOL generally agrees
with the auditor's recommendations and because the service provider
acknowledges all recommendations prior to the actual exit conference,
no substantive disagreements are generally voiced. According to DOL
officials, the recommendations may sometimes be modified if the same
objective can be obtained through a more efficient procedure than what
the original recommendation states. If this occurs, an additional draft
report is prepared by the auditors and sent to DOL and to the service
providers. The service provider is requested to respond, in writing, to
the reported recommendations within 30 days of receiving the revised
draft report. If the draft report contains anything potentially
affecting other DOL offices (e.g., DOL's Solicitor's Office), a copy is
also forwarded for their comment. Written comments are then advanced to
EBSA's Office of Federal Employee Retirement System Act (FERSA)
Compliance, where it is reviewed and then forwarded to the auditors for
inclusion in the final report.
The final report of an audit is usually sent to EBSA's Chief Accountant
within 90 days of the exit conference with a service provider. At that
time, the Chief Accountant will sign the transmittal to the final
report indicating his/her concurrence with the recommendations. The
Chief Accountant will then provide the final report, including all
audit recommendations, to the TSP Board's Executive Director. The TSP
Board's Executive Director is then requested to formally respond to DOL
within 30 days of receiving the report. After the TSP Board review the
recommendations, it is given the opportunity to comment on the
findings. TSP Board officials said that there are times when the TSP
Board does not concur with the audit recommendations. However, they
said when this occurs, a consensus is reached on an alternative way of
addressing the issue that satisfies the auditors. Eventually, the TSP
Board's Executive Director presents all audit recommendations to the
TSP Board members at a regularly scheduled monthly meeting.
[End of section]
Appendix III: Comments from the Federal Retirement Thrift Investment
Board:
THRIFT SAVINGS PLAN:
FEDERAL RETIREMENT THRIFT INVESTMENT BOARD 1250 H Street, NW
Washington, DC 20005:
April 21, 2003:
HAND-DELIVERED:
Ms. Barbara D. Bovbjerg, Director Education, Workforce, and Income
Security Issues:
U. S. General Accounting Office Washington, DC 20548:
Dear Ms. Bovbjerg:
Thank you for the opportunity to comment on the draft of your report
entitled "Federal Pensions: Accountability Needed to Better Oversee the
Thrift Savings Plan." The Executive Director (Acting) has separately
submitted technical comments which we hope are useful in finalizing it.
Your report describes the extensive Department of Labor (DOL) audit
program currently in place for the Thrift Savings Plan. Although the
Federal Retirement Thrift Investment Board already formally reports all
audit activity (including DOL's) to the Congress every year, to the
extent that the additional re-porting you recommend is not duplicative,
we believe it could enhance confidence in the program. While it is
critical that the independence of the Board and the obligation of the
fiduciaries to act solely in the interest of Plan participants and
beneficia-ries not be in any way reduced, opening the DOL audit process
to even more oversight in no way jeopardizes these imperatives.
The current Board members have made openness and hands-on review the
hallmarks of our tenure. We meet in person each month and are carefully
reviewing all major agency activities. When we met with Department of
Labor officials at our January meeting, we made it clear that we wanted
to hear about any and all matters of concern. The extensive Department
of Labor audits program must be managed through an orderly process.
However, if a pressing issue is identified, even if the audit process
is not complete or the issue is beyond its normal scope, we want to
hear about it right away.
Thank you again for the opportunity to comment.
Signed for Andrew M. Saul, Chairman.
[End of section]
FOOTNOTES
[1] Under a defined contribution plan, employees have individual
accounts to which the employer, employees, or both can make periodic
contributions. Defined contribution plan benefits are based on the
contributions to and the investment returns (gains and losses) on
individual accounts.
[2] A fiduciary is a person who has discretionary control or authority
over the management or administration of a plan, including management
of plan assets.
[3] Service providers include such entities as the National Finance
Center (NFC), Barclays Global Investments (the investment manager),
Metropolitan Life that issues TSP's annuities, and federal agencies
that are responsible for providing processes and procedures for federal
employees to participate in TSP through their agency.
[4] CSRS is a retirement plan for federal employees and covers
employees hired prior to January 1, 1984. It is a defined benefit plan,
a plan that specifies the benefit to be received at retirement by the
participant. Employees hired after December 31, 1983, are not eligible
for coverage in CSRS, but participate in either FERS or another CSRS
Plan.
[5] There are also non-Board member fiduciaries that include entities
such as TSP's service providers and the NFC.
[6] The TSP Board's litigation was initiated by the Executive Director
who has subsequently resigned from the TSP Board.
[7] DOL usually audits the TSP Board and its operations annually.
[8] In addition, other prohibited transactions include a fiduciary
receiving consideration for his or her own personal account from any
party dealing with sums credited to TSP in connection with a
transaction involving TSP assets; engaging in transactions with any
person whom the fiduciary knows to be a party in interest; and causing
TSP to own any assets outside the jurisdiction of the district courts
of the United States.
[9] Congress designed ERISA to protect the rights and interests of
private pension plan participants and beneficiaries and outlined the
responsibilities of the employers and administrators who sponsor and
manage these plans.
[10] Pub. L. No. 100-238 (1988).
[11] Any fiduciary other than the Executive Director or TSP Board
member who breaches his fiduciary responsibility, duty, or obligation,
as set out in FERSA, shall be personally liable to TSP for any losses
resulting from each breach or violation and will be responsible for
restoring to TSP any profits made through use of TSP assets, and shall
be subject to such other equitable or remedial relief a court may
consider appropriate. These fiduciaries may also be removed for a
fiduciary breach.
[12] FERSA allows DOL to contract out its reviews using qualified
nongovernmental organizations, such as an accounting firm, or in
cooperation with the Comptroller General of the United States, as the
Secretary of Labor considers appropriate.
[13] Six recommendations pertain to NFC and four recommendations
pertain to the TSP Board.
[14] DOL auditors classify the 41 open recommendations into three
categories: (1) 23 recommendations such as recommendations related to
security access and controls address fundamental controls, which focus
on significant procedures or processes that have been designed and
operated to reduce the risk that material intentional or unintentional
processing errors could occur; (2) 12 recommendations that address less
critical controls, which concentrate on procedures and processes that
augment fundamental controls; and (3) 6 recommendations that address
enhancing efficiency and effectiveness of specific processes, methods,
and internal controls.
[15] Pub. L. 100-504.
[16] 28 U.S.C. 516, 519.
[17] 5 U.S.C. 3106.
[18] 12 U.S.C. 1819(a). FDIC v. Irwin, 727 F. Supp. 1073 (N.D. Tex.
1989), aff'd on other grounds, 916 F.2d 1051 (5TH Cir. 1990).
[19] 7 U.S.C. 216 (authorizing the Secretary of Agriculture to enforce
certain orders in District Court).
[20] 29 U.S.C. 663, authorizing the Solicitor of Labor to represent the
Department of Labor for certain purposes, subject to the control of the
Attorney General.
[21] A full scope review includes determining the overall adequacy and
effectiveness of applicable procedures and controls, examining
significant changes in the applicable procedures, and determining the
status of prior year recommendations. The full scope review includes
statistical samples and resulting conclusions inferable to the entire
system tested. The limited scope review focuses primarily on the status
of all open prior recommendations, and may also incorporate analyzing a
nonstatistical sample of transactions. Restricted scope reviews utilize
only certain audit program guides within the TSP Fiduciary Oversight
Program, and perhaps will include nonstatistical sampling procedures.
On occasion, the auditors will also perform a number of special
projects, usually at the specific request of DOL. Special projects
address a particular area of focus, which is not covered by the TSP
Fiduciary Oversight audit program guide.
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