Federal Retirement Thrift Investment Board
Many Responsibilities and Investment Policies Set by Congress
Gao ID: GAO-07-611 June 21, 2007
The Thrift Savings Plan (TSP), a retirement savings and investment plan for federal workers, held approximately $210 billion in retirement assets for 3.7 million participants, as of February 2007. TSP is managed by the Federal Retirement Thrift Investment Board (FRTIB). In light of questions about TSP oversight, we examined (1) the current structure for overseeing FRTIB, (2) how the statutorily defined fiduciary responsibilities of FRTIB compare to the responsibilities of private plan sponsors and how FRTIB fulfills its responsibilities, (3) how FRTIB's investment policies differ from those of private plan sponsors, and (4) FRTIB's statutory responsibilities to educate plan participants about TSP and other retirement issues and how these responsibilities compare with those of private and state and local government employee plan sponsors.
The Department of Labor (DOL) and Congress oversee FRTIB. In accordance with the law establishing TSP, DOL conducts regular audits to determine the level of compliance with laws and regulations as well as to ensure the efficiency and effectiveness of operations. Congress requires FRTIB to submit its annual budget and other reports, and to undergo an independent financial audit. However, Congress has not held regular FRTIB oversight hearings. Also, DOL does not submit its audit reports directly to Congress, and has not yet been provided with a mechanism to communicate issues of critical concern to Congress. FRTIB's fiduciary duties are similar to those of fiduciaries of private sector plans. To act prudently and solely in the interest of plan participants, FRTIB has implemented policies and practices in several of the areas mentioned in DOL's guidance for private sector plans. However, unlike the law governing private plans, the Federal Employees' Retirement System Act of 1986 (FERSA)--the law that governs the administration of TSP--contains special liability protections for Board members and the Executive Director. FRTIB has less discretion than private sector plan sponsors in setting investment policy because the investment options available to TSP participants are largely outlined in law, whereas private sector plan sponsors are responsible for choosing which investment options to offer participants. TSP's authorizing statute specifies the number and types of funds available to participants, and requires that some of these funds track indexes, which are broad, diversified market indicators. FRTIB chooses the particular indexes for the funds to track, reviews the investment options, and suggests additional funds. Changing TSP investment options requires legislation. FRTIB and the Office of Personnel Management (OPM) are responsible for educating participants about TSP and general retirement issues, while the private and state and local government employee plan sponsors that we interviewed are governed by different rules. By statute, FRTIB is charged with developing educational materials for participants about TSP-specific issues. FRTIB also assists OPM, which is required to provide general retirement education to federal employees and train retirement counselors at federal agencies to provide information to federal employees. Private plan sponsors as well as the state and local government employee plan sponsors that we spoke with are responsible for educating participants about their plans, but often supply general retirement information as well. As the size and complexity of TSP have grown, an appropriate level of oversight of FRTIB is critical to ensuring that federal workers' retirement savings are properly managed. GAO previously recommended that Congress consider amending FERSA to require DOL to establish a formal process by which the Secretary of Labor can report to Congress issues of critical concern about actions of the Executive Director and Board members.
GAO-07-611, Federal Retirement Thrift Investment Board: Many Responsibilities and Investment Policies Set by Congress
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Report to Congressional Requesters:
United States Government Accountability Office:
GAO:
June 2007:
Federal Retirement Thrift Investment Board:
Many Responsibilities and Investment Policies Set by Congress:
GAO-07-611:
GAO Highlights:
Highlights of GAO-07-611, a report to congressional requesters
Why GAO Did This Study:
The Thrift Savings Plan (TSP), a retirement savings and investment plan
for federal workers, held approximately $210 billion in retirement
assets for 3.7 million participants, as of February 2007. TSP is
managed by the Federal Retirement Thrift Investment Board (FRTIB). In
light of questions about TSP oversight, we examined (1) the current
structure for overseeing FRTIB, (2) how the statutorily defined
fiduciary responsibilities of FRTIB compare to the responsibilities of
private plan sponsors and how FRTIB fulfills its responsibilities, (3)
how FRTIB‘s investment policies differ from those of private plan
sponsors, and (4) FRTIB‘s statutory responsibilities to educate plan
participants about TSP and other retirement issues and how these
responsibilities compare with those of private and state and local
government employee plan sponsors.
What GAO Found:
The Department of Labor (DOL) and Congress oversee FRTIB. In accordance
with the law establishing TSP, DOL conducts regular audits to determine
the level of compliance with laws and regulations as well as to ensure
the efficiency and effectiveness of operations. Congress requires FRTIB
to submit its annual budget and other reports, and to undergo an
independent financial audit. However, Congress has not held regular
FRTIB oversight hearings. Also, DOL does not submit its audit reports
directly to Congress, and has not yet been provided with a mechanism to
communicate issues of critical concern to Congress.
FRTIB‘s fiduciary duties are similar to those of fiduciaries of private
sector plans. To act prudently and solely in the interest of plan
participants, FRTIB has implemented policies and practices in several
of the areas mentioned in DOL‘s guidance for private sector plans.
However, unlike the law governing private plans, the Federal Employees‘
Retirement System Act of 1986 (FERSA)”the law that governs the
administration of TSP”contains special liability protections for Board
members and the Executive Director.
FRTIB has less discretion than private sector plan sponsors in setting
investment policy because the investment options available to TSP
participants are largely outlined in law, whereas private sector plan
sponsors are responsible for choosing which investment options to offer
participants. TSP‘s authorizing statute specifies the number and types
of funds available to participants, and requires that some of these
funds track indexes, which are broad, diversified market indicators.
FRTIB chooses the particular indexes for the funds to track, reviews
the investment options, and suggests additional funds. Changing TSP
investment options requires legislation.
FRTIB and the Office of Personnel Management (OPM) are responsible for
educating participants about TSP and general retirement issues, while
the private and state and local government employee plan sponsors that
we interviewed are governed by different rules. By statute, FRTIB is
charged with developing educational materials for participants about
TSP-specific issues. FRTIB also assists OPM, which is required to
provide general retirement education to federal employees and train
retirement counselors at federal agencies to provide information to
federal employees. Private plan sponsors as well as the state and local
government employee plan sponsors that we spoke with are responsible
for educating participants about their plans, but often supply general
retirement information as well.
As the size and complexity of TSP have grown, an appropriate level of
oversight of FRTIB is critical to ensuring that federal workers‘
retirement savings are properly managed. GAO previously recommended
that Congress consider amending FERSA to require DOL to establish a
formal process by which the Secretary of Labor can report to Congress
issues of critical concern about actions of the Executive Director and
Board members.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-07-611].
To view the full product, including the scope and methodology, click on
the link above. For more information, contact Barbara Bovbjerg at (202)
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[End of section]
Contents:
Letter:
Results in Brief:
Background:
DOL and Congress Oversee FRTIB, but Oversight Has Not Included Regular
Hearings:
TSP's Fiduciaries Have Similar Duties to Those of Private Plan
Fiduciaries, but TSP Board Members and the Executive Director Have
Special Liability Protections:
TSP Fiduciaries Have Limited Discretion over Investment Policy Compared
to Fiduciaries of Private Plans:
FRTIB and Other Federal Agencies Have Responsibility for Educating
Participants on Retirement Issues, and Responsibilities Vary for
Private and State and Local Government Employee Plans:
Conclusion:
Agency Comments and Our Evaluation:
Appendix I: Selection of the Plan Sponsor Comparison Group:
Appendix II: Comments from the Federal Retirement Thrift Investment
Board:
Appendix III: GAO Contact and Staff Acknowledgments:
Table:
Table 1: FERSA and FRTIB Investment Policies for Each TSP Fund:
Abbreviations:
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:
FRTIB: Federal Retirement Thrift Investment Board:
FTCA: Federal Tort Claims Act:
OPM: Office of Personnel Management:
PSCA: Profit Sharing/401(k) Council of America:
TSP: Thrift Savings Plan:
United States Government Accountability Office:
Washington, DC 20548:
June 21, 2007:
The Honorable Susan M. Collins:
Ranking Member:
Committee on Homeland Security and Governmental Affairs:
United States Senate:
The Honorable Tom Davis:
Ranking Member:
Committee on Oversight and Government Reform:
House of Representatives:
As of February 2007, the Thrift Savings Plan (TSP), a retirement
savings and investment plan for federal workers, held approximately
$210 billion in retirement assets for 3.7 million current and former
federal employees. Similar to private sector 401(k) plans, TSP allows
employees to save for retirement by diverting a portion of their pretax
income into investment accounts that can grow tax-free until withdrawn
in retirement. In April 2006, the House Committee on Oversight and
Government Reform held hearings on TSP issues, resulting in concerns
being raised about the adequacy of the current oversight structure of
TSP. The Federal Retirement Thrift Investment Board (FRTIB) is
responsible for day-to-day operations of TSP, and the Department of
Labor (DOL) has some oversight responsibilities, primarily through
conducting audits of TSP's operations. Subsequently, you asked us to
examine (1) the current structure for overseeing FRTIB, (2) how the
statutorily defined fiduciary[Footnote 1] responsibilities of FRTIB
compare to the responsibilities of private plan sponsors and how FRTIB
fulfills its responsibilities, (3) how FRTIB's investment policies
differ from those of private plan sponsors, and (4) FRTIB's statutory
responsibilities to educate plan participants about TSP and other
retirement issues and how these responsibilities compare with those of
private and state and local government employee plan sponsors.[Footnote
2]
To address our objectives, we analyzed provisions of the Federal
Employees' Retirement System Act of 1986 (FERSA),[Footnote 3] which
governs the administration of TSP, and the Employee Retirement Income
Security Act of 1974 (ERISA),[Footnote 4] which governs the
administration of pension plans in the private sector. To examine the
current structure for overseeing FRTIB, as well as our other
objectives, we interviewed DOL officials, and analyzed various
documents from both DOL and FRTIB, including DOL regulations, audit
manuals, and reports. Additionally, to determine how FRTIB's
statutorily defined fiduciary responsibilities compare to the
responsibilities of private plan sponsors, and how FRTIB fulfills its
responsibilities, as well as what FRTIB's investment policies are and
how its policies differ from those of private plan sponsors, we
interviewed representatives of industry associations and reviewed
related documents, including FRTIB memos, policies, Board meeting
minutes, and correspondences, and DOL's guidance to private plan
sponsors. To determine FRTIB's responsibilities for educating plan
participants about TSP and other retirement issues, we examined
information from TSP's Web site, spoke with Office of Personnel
Management (OPM) officials, and reviewed FRTIB documents. To compare
FRTIB's education responsibilities with those of other plan sponsors,
we interviewed representatives of industry associations, and officials
representing sponsors of five defined contribution plans--four state
and local government employee pension plans and one private
plan.[Footnote 5] We selected plan sponsors based on plan assets, plan
type, and absence of fiduciary malfeasance. Appendix I describes the
selection of plan sponsors in greater detail. We also reviewed a 2005
industry survey to obtain additional information about how private plan
sponsors educate their participants.[Footnote 6] We conducted our work
between August 2006 and June 2007 in accordance with generally accepted
government auditing standards.[Footnote 7]
Results in Brief:
DOL and Congress both play roles in overseeing FRTIB. Under TSP's
authorizing statute, DOL is charged with establishing and conducting an
audit program of FRTIB to determine the level of compliance with
requirements relating to fiduciary[Footnote 8] responsibilities and
other transactions.[Footnote 9] According to DOL officials, the audit
program covers all significant aspects of TSP operations, including
FRTIB policy formulation and administration as well as functions
performed by service providers, like record keeping. While FRTIB and
its service providers are not required to implement DOL's audit
recommendations, they have generally implemented a high percentage of
the recommendations. In addition to oversight from DOL, FRTIB--like
other federal agencies--is subject to congressional oversight. While
Congress exercises its legislative oversight authority by holding
occasional hearings and requiring FRTIB to submit routine reports,
oversight has not involved regular hearings. Hearings on FRTIB have
typically been in response to challenges with TSP or proposed
legislative changes. Also, DOL does not submit its audit reports
directly to Congress, nor is there any other specific mechanism in
place through which DOL reports areas of critical concern to Congress.
FRTIB's fiduciary duties are similar to those of fiduciaries of private
sector plans. Both FERSA and ERISA, the statute that governs private
sector pension plans, require fiduciaries to act prudently and solely
in the interest of plan participants and beneficiaries. To fulfill its
fiduciary duties, FRTIB has implemented policies and practices in
several of the areas mentioned in DOL's guidance for private sector
plans. For example, FRTIB selects and closely monitors service provider
companies, which carry out many of TSP's operations, including managing
all but one of the investment funds. However, unlike private plan
fiduciaries, Board members and the Executive Director are not subject
to civil actions by DOL for the breach of their duties or for engaging
in certain transactions. DOL is authorized to bring civil actions
against fiduciaries of private plans and other TSP fiduciaries, such as
the company providing investment management services. However, a 1988
amendment to FERSA exempted Board members and the Executive Director
from DOL's authority to bring such actions.
FRTIB has less discretion than private sector plan sponsors in setting
investment policy; the investment options available to TSP participants
are largely outlined in law, whereas private sector plan sponsors are
responsible for choosing investment options to offer participants.
According to DOL, an important part of the fiduciary duties of acting
prudently and solely in participants' interest involves selecting
investment options. For TSP, FERSA specifies the number and types of
funds, such as one that invests in Treasury securities or in stocks of
large U.S. companies, and requires that some of these funds track
indexes, which are broad, diversified market indicators like the
Standard & Poor's 500. FRTIB, then, may select the particular indexes
for the funds to follow as well as review the investment options and
suggest additional funds. Any change in TSP options, however, requires
legislation. For example, in 1995, the Board submitted a legislative
proposal to add funds for international stocks and for stocks in small
and medium-sized U.S. companies, and Congress amended FERSA the next
year. Unlike FRTIB, private plan sponsors have the authority to choose
which investment options to offer plan participants. Although ERISA and
its regulations require that they offer diversified options, private
plan sponsors can determine, among other things, the number and type of
funds in their plans, and whether to include funds that track a
specific market index or those that specialize in one sector, like
telecommunications.
FRTIB and OPM are responsible for educating participants about TSP and
general retirement issues; private and state and local government
employee pension plan sponsors we spoke with, while governed by
different rules, are responsible for educating participants
specifically about their plans, but often choose to provide employees
with additional retirement information. Under FERSA, FRTIB is
responsible for developing educational materials for participants about
TSP-specific issues, such as descriptions of investment
options.[Footnote 10] For example, FRTIB provides information about TSP
fund options and their past rates of return on its Web site, automated
call line, and in written materials. FRTIB also assists OPM, which is
required to provide general retirement education to federal employees
and ensure that retirement counselors at federal agencies are trained
to provide workers information on topics such as making contributions
or withdrawals from TSP.[Footnote 11] Private sector plan sponsors
under ERISA are required to provide information to participants on the
investment options in their plan, but are not required to provide
general retirement education information, although many plan sponsors
do. For example, the private sector plan sponsor we spoke with
contracts with a service provider to give employees one-on-one
financial and investment counseling. State and local government
employee pension plan sponsors' responsibilities vary based on the
rules governing the plan, but the four plans we studied educated
participants about not only plan-specific issues, but other matters.
For example, the public plans gave participants tools to calculate how
much they will need to save for retirement.
Background:
The Federal Employees' Retirement System Act of 1986 (FERSA) created
TSP to provide options for retirement planning and encourage personal
retirement savings among the federal workforce. Most federal workers
are allowed to participate in TSP, which is available to federal and
postal employees, including members of Congress and congressional
employees and members of the uniformed services, and members of the
judicial branch.[Footnote 12]
As of February 2007, TSP held approximately $210 billion in retirement
assets for 3.7 million current and former federal employees and their
families. Participants may allocate their contributions and any
associated earnings among five investment fund options: the G Fund, F
Fund, C Fund, S Fund, and I Fund.[Footnote 13] Since August 2005, TSP
participants also may choose one of five Lifecycle funds, which
diversify participant accounts among the G, F, C, S, and I Funds, using
investment mixes that are tailored to different time horizons for
retirement and withdrawal. The investment mix of each Lifecycle fund
adjusts quarterly to more conservative investments as the participant
nears retirement.
Pension plans are classified either as defined benefit or as defined
contribution plans. Defined benefit plans promise to provide,
generally, a fixed level of monthly retirement income that is based on
salary, years of service, and age at retirement regardless of how the
plan's investments perform. In contrast, benefits from defined
contribution plans are based on the contributions to and the
performance of the investments in individual accounts, which may
fluctuate in value. Examples of defined contribution plans include
401(k) plans,[Footnote 14] employee stock ownership plans, and profit-
sharing plans.
As with other defined contribution plans, TSP is structured to allow
eligible federal employees to contribute a fixed percentage of their
annual base pay or a flat amount, subject to Internal Revenue Service
limits, into an individual tax-deferred account. Additionally, FERS
participants are eligible for automatic 1 percent contributions and
limited matching contributions from the employing federal agency.
According to FRTIB, TSP provides federal (and in most cases, state)
income tax deferral on contributions and their related earnings,
similar to those offered by many private sector 401(k)-type pension
plans. Participants can manage their accounts and conduct a variety of
transactions similar to those available to 401(k) participants, such as
reallocating contributions, borrowing from the account, making
withdrawals, or purchasing annuities.
Administration of TSP falls under the purview of the Federal Retirement
Thrift Investment Board, an agency established by Congress under FERSA.
FRTIB is composed of five Board members appointed by the President,
with the advice and consent of the Senate.[Footnote 15] They are
authorized to appoint the Executive Director, who hires additional
personnel,[Footnote 16] and an Employee Thrift Advisory Council. The
Employee Thrift Advisory Council is a 15-member council that provides
advice to the Board and the Executive Director on the investment
policies and administration of the TSP.[Footnote 17] The Board is
responsible for establishing policies for the investment and management
of the TSP, as well as administration of the plan. The Executive
Director and staff of FRTIB are responsible for implementing the
Board's policies and managing the day-to-day operations of TSP,
prescribing regulations to administer FERSA, and other duties. The
Board members and the Executive Director serve as plan fiduciaries.
DOL and Congress Oversee FRTIB, but Oversight Has Not Included Regular
Hearings:
The Department of Labor and Congress both play roles in overseeing
FRTIB. As we have previously reported, DOL is charged with conducting
regular compliance audits to determine if the Board is fulfilling its
fiduciary duties and properly safeguarding TSP participants'
assets.[Footnote 18] Congress created FRTIB and has the ability to
change the structure for overseeing FRTIB. As with every federal
agency, Congress may exercise oversight of FRTIB. Currently, Congress
requires FRTIB to submit its budget and other reports regularly, but it
has not typically held hearings unless a challenge has arisen or there
has been a proposed change to legislation. In addition, DOL officials
do not have in place a specific mechanism for sharing their audit
program findings or other issues of concern with Congress.
DOL Oversees FRTIB through Regular Audits:
DOL's oversight of FRTIB is based on a FERSA requirement that the
Secretary of Labor establish an audit program and conduct audits of
FRTIB and its operations.[Footnote 19] DOL compliance audits are
designed to determine whether FRTIB is complying with FERSA and
applicable laws and regulations. This includes whether TSP fiduciaries
are acquiring, protecting, and using plan resources prudently,
efficiently, and solely in the interest of participants and
beneficiaries. The DOL Employee Benefits Security Administration's
(EBSA)[Footnote 20] Office of the Chief Accountant has administered the
audit program since its inception in fiscal year 1988. According to DOL
officials, DOL's audit program reviews all significant activities of
FRTIB, including FRTIB's policy formulation and administration, record
keeping, and other functions handled by service providers under
contract, and functions of federal agencies related to contributions
and employee participation programs. The audits include on-site reviews
of TSP's principal service providers. Because service providers carry
out many day-to-day operations of TSP, from record keeping to
investment management, audits are primarily conducted on TSP's service
providers. DOL officials have developed an audit manual that includes
detailed audit guides, but a firm carries out the audits under contract
with DOL. DOL officials said that their ongoing audit presence for TSP
is greater than its presence for most of the private plans it oversees,
which numbered about 730,000 in 2002.
According to DOL, each year, DOL develops a strategic plan that
identifies how many and which functions it could audit based on risk
and funding. For example, due to FRTIB's increased use of private
contractors to provide call center and other plan services formerly
provided by the U.S. Department of Agriculture's National Finance
Center, two of DOL's five audits in fiscal year 2006 looked at
particular operations of newer providers, including certain internal
controls. DOL officials also said that the number of audits in a given
year is based on the level of funding allocated to the audit program.
Fiscal year 2006 funding for the contract audits was $630,000 and
covered five audits.[Footnote 21]
DOL exercises its authority over FRTIB by making recommendations for
improving operations based on audit findings. DOL officials and the
contract auditor meet with the Board members at least once a year to
highlight significant issues from audits and to present the
department's future compliance audit schedule. DOL's recommendations to
FRTIB and its service providers generally address compliance with FERSA
and FRTIB policies, significant weaknesses in internal controls, or
areas where FRTIB could improve the efficiency and effectiveness of its
operations. For example, during its fiscal year 2005 audit cycle, DOL's
contractor audited one of FRTIB's customer call centers, which is
operated by a contractor. The audit report included recommendations for
FRTIB to implement and enforce policies for information security,
designated as a fundamental internal control by DOL, at the
contractor's sites; establish additional performance measures; and
implement consistent monitoring of call volume at the two call centers.
As of September 2006, DOL considered the first recommendation partially
implemented and the other two recommendations implemented. DOL cannot
compel FRTIB or its service providers to implement its audit
recommendations. However, FRTIB generally had implemented a high
percentage of DOL's audit recommendations.[Footnote 22] According to
DOL and FRTIB officials, this voluntary implementation of audit
recommendations has worked well for them because DOL and FRTIB have a
longstanding and positive working relationship.
Congress' Oversight of FRTIB Has Not Involved Regular Hearings:
Congress has not required FRTIB or DOL to testify regularly before
Congress on TSP operations, although it does receive routine reports
from FRTIB. As with other federal agencies, Congress may exercise
oversight of FRTIB by investigating agency operations, holding
hearings, issuing subpoenas, and requiring the agency to submit
performance or financial reports. Congressional committees have
typically held hearings on TSP when a challenge has arisen or when
there was a proposed change to legislation. For example, FRTIB
officials were asked to testify in response to customer service issues
with TSP in 2003 and in response to abusive trading practices in the
private sector in 2004. In the 20 years since TSP has been in
existence, FRTIB estimates it has been called to testify approximately
a dozen times. Most recently, Board members and the Executive Director
provided testimony in 2005 and 2006 about adding a new fund to TSP's
investment options. According to DOL officials, Congress does not
require DOL to meet with committee staff or testify about TSP or its
audit findings on a regular basis. DOL has testified at least three
times on its audit program --in 1994, 2003, and 2004.
Congress requires FRTIB to submit its budget and to have an independent
financial audit each year, performed under contract by a public
accounting firm. FRTIB also provides a list of each audit report,
including DOL's compliance audits, and summaries of any particularly
significant findings, to Congress each year, as required by the
Inspector General Act of 1978.[Footnote 23] The 2006 summary contained
little information about audit recommendations. DOL is not required to
submit its audit reports directly to Congress, and Congress has not
asked DOL to share its audit findings on a regular basis through
hearings or meetings with committee staff. Consequently, Congress may
be unaware of concerns DOL may have. In a 2003 report, we noted that
there have been times when DOL has had issues of concern with FRTIB
outside of its audit findings. We recommended that Congress consider
amending FERSA to require DOL to establish a formal process by which
the Secretary of Labor can report to Congress areas of critical concern
about the actions of the Executive Director and Board members, but no
changes have yet been made.[Footnote 24]
TSP's Fiduciaries Have Similar Duties to Those of Private Plan
Fiduciaries, but TSP Board Members and the Executive Director Have
Special Liability Protections:
FRTIB's fiduciary duties are similar to those of private sector plan
fiduciaries, and FRTIB has adopted various policies and practices to
fulfill these responsibilities, but unlike private plan fiduciaries,
Board members and the Executive Director have special liability
protections. Both FERSA and ERISA require fiduciaries to act prudently
and solely in the interest of plan participants and beneficiaries.
However, unlike ERISA, FERSA does not authorize DOL to bring civil
action against Board members or the Executive Director for the breach
of their duty, whereas DOL can take such actions against fiduciaries of
private plans and other TSP fiduciaries. Congress amended FERSA to
provide special liability protections for the Board members and the
Executive Director, given the potential assets of TSP and concerns
about the availability of fiduciary insurance.
FRTIB Fiduciary Duties Are Similar to Private Plan Fiduciary Duties,
and FRTIB Has Adopted Policies and Practices to Fulfill Its Duties:
FRTIB and private plan fiduciaries have similar fiduciary duties. TSP's
authorizing statute, FERSA, and ERISA set the overarching requirements
for fiduciaries to act prudently and solely in the interest of plan
participants and beneficiaries.[Footnote 25] That is, fiduciaries must
exercise an appropriate level of care and diligence given the scope of
the plan and act for the exclusive benefit of plan participants and
beneficiaries, rather than for their own or another party's gain. In
addition, FERSA and ERISA specifically prohibit fiduciaries from
engaging in certain transactions that that could raise questions about
their ability to fulfill their duties, unless certain safeguards are
met or waivers are granted by DOL.[Footnote 26] For TSP, the statute
specifically lists Board members, the Executive Director, and any
person who has or exercises discretionary authority or control over the
management or disposition of TSP assets as fiduciaries.[Footnote 27]
FRTIB has adopted a range of policies and practices that are similar to
those that private plans should follow to carry out these broad duties.
DOL has issued guidance for private plans describing important policies
and practices to fulfill fiduciary responsibilities. While the guidance
is not specifically designed for TSP, FRTIB has implemented policies
and practices for several of the areas in DOL's guidance.[Footnote 28]
For example, FRTIB has policies and practices for selecting and
monitoring service providers, as well as measuring investment
performance. Because private service providers perform many of TSP's
operations, including record keeping for participant accounts and
investment management of all funds but one, these areas are important
for acting prudently and solely in the interest of participants and
beneficiaries. Specifically:
* FRTIB generally uses a competitive process in order to select
qualified service providers at a reasonable cost. According to FRTIB,
contracts for major activities undergo review and competition at least
every 5 years. While we did not review its procurement documentation,
DOL reviews the selection and monitoring of service providers as part
of its compliance audit program.[Footnote 29]
* FRTIB noted that it uses several approaches to monitor service
providers. FRTIB has included performance measures in certain service
providers' contracts. Also, since 2004, FRTIB has reviewed quarterly
financial reports for most of its major private providers, including
financial statements, credit scores, and overall viability.[Footnote
30] FRTIB further noted that it monitors providers through daily
contact with them, periodic on-site visits, and reports from the
provider, such as monthly and annual reports from the annuity vendor.
* FRTIB also reviews its performance measures monthly, including the
investment performance of each fund. The company providing investment
management services must provide monthly reports to FRTIB showing how
closely each option is tracking its underlying index. A measure of the
difference between the performance of the TSP fund and the underlying
index is known as the "tracking error," and by contract, the investment
manager must report the amount and reasons for the error. Because the
investment manager is allocated fiduciary responsibility by contract,
given the manager's control of plan assets, this measurement of
performance is essential for both FRTIB and the investment manager to
act prudently and ensure that the investment manager is not trading
needlessly or for self-gain.[Footnote 31]
DOL Can Take Civil Action against Private Plan Fiduciaries but Cannot
Do So against TSP Board Members and the Executive Director:
The Secretary of Labor can take civil action against private plan
fiduciaries. Under ERISA, DOL is allowed to seek remedies if
fiduciaries of private plans do not fulfill their fiduciary duties,
including using litigation when necessary.[Footnote 32] 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. For example, DOL has brought legal actions or filed briefs
against private plan fiduciaries for investing imprudently in company
stock, not investing exclusively for participants' benefit, and failing
to monitor appointed fiduciaries.
DOL cannot bring civil actions against Board members or the Executive
Director for breaching their plan duties or engaging in prohibited
transactions. FERSA allows DOL to bring civil actions against any
fiduciary, such as the investment manager, other than a Board member or
the Executive Director. While DOL was initially authorized under FERSA
to bring civil actions against any TSP fiduciary,[Footnote 33] a 1988
amendment established an exception from such actions for Board members
and the Executive Director.[Footnote 34] The 1988 amendment was passed,
in part, in response to FRTIB's concerns about obtaining fiduciary
insurance. According to the then-Executive Director, it would be
difficult to buy adequate insurance for these TSP fiduciaries, as FRTIB
officials expected TSP to become the largest plan of its kind in the
country.[Footnote 35] Congress took this action in the face of concerns
that, without protection, Board members would resign and that they
would be hard to replace.
With regard to plan participants' recourse, participants can take civil
action against private plan fiduciaries and all FRTIB fiduciaries,
including Board members and the Executive Director.[Footnote 36] Under
ERISA, available remedies include awards for plan losses through
monetary damages and restoring any profits made from a fiduciary's
improper use of plan assets.[Footnote 37] Fiduciaries of private plans
may guard against the legal risks of personal liability by having
fiduciary liability insurance, which the fiduciary, the plan, or the
employer may purchase.[Footnote 38] Fiduciary liability insurance
provides reimbursement for costs related to legal actions for breach of
their fiduciary responsibilities, including the costs of defending and
settling actions or awards of monetary damages. DOL officials said that
although fiduciaries of private pension plans may have insurance to
largely insulate them from the personal risks associated with their
personal liability as fiduciaries, they still face financial risks in
certain circumstances due to policy limits or exclusions. For example,
fiduciary liability insurance often includes coverage exceptions for
intentional harm, criminal acts, or self-dealing.
Similarly, under FERSA, TSP participants or beneficiaries may bring
civil actions against Board members or the Executive Director, as well
as other TSP fiduciaries, for breaching their plan duties or engaging
in prohibited transactions. The 1988 amendment provided that any such
claims against a Board member or the Executive Director will be
defended by the Attorney General of the United States and, if he
certifies that the Board member or Executive Director was acting as a
TSP fiduciary, deemed claims under the Federal Tort Claims Act
(FTCA).[Footnote 39] As a result, rather than any monetary relief
awarded in such cases being paid personally by any Board member or
Executive Director who may commit a breach (or through applicable
fiduciary liability insurance), it would be paid out of the Judgment
Fund established to pay claims under the FTCA.[Footnote 40] According
to DOL officials, treating claims against a Board member or the
Executive Director in this way provides TSP participants with a greater
ability to obtain monetary relief than that available to participants
in other pension plans. In addition, DOL officials told us that without
the special liability protections, DOL could be in the unusual position
of suing FRTIB--another federal entity--and receiving assistance with
prosecutions from the Department of Justice, which is also responsible
for defending Board members or the Executive Director.
TSP has been relatively free from any allegations that TSP fiduciaries
have breached their fiduciary duties or engaged in prohibited
transactions. DOL and FRTIB officials were aware of only one civil
claim against the Board, which is currently pending in federal district
court.[Footnote 41]
TSP Fiduciaries Have Limited Discretion over Investment Policy Compared
to Fiduciaries of Private Plans:
The Board has less discretion than private sector plan sponsors in
setting investment policy because the investment options available to
TSP participants are largely outlined in law, whereas private sector
plan sponsors are responsible for choosing which investment options to
offer participants. FRTIB may select the particular indexes for the
funds to follow as well as review the investment options and suggest
additional funds. However, Congress must amend FERSA to approve a
change in TSP investment options offered to participants.
FERSA Prescribes TSP Investment Options:
FRTIB has limited discretion in setting investment policy because FERSA
largely sets the investment options available to TSP participants. DOL
and FRTIB officials noted that FERSA serves as TSP's overall investment
policy. FERSA states that FRTIB shall establish a government securities
investment fund, fixed income investment fund, a common stock index
investment fund, a small capitalization stock index investment fund,
and an international stock index investment fund.[Footnote 42] For the
index funds, FERSA states that the Board shall invest in a portfolio
designed to replicate the performance of a commonly recognized index
for that fund. For the government securities investment fund, FERSA
states that the Secretary of the Treasury is authorized to issue
special interest-bearing obligations of the United States for the
purchase by TSP. FERSA has other investment policy provisions, such as
who can exercise voting rights associated with the ownership of stocks
held by TSP.[Footnote 43]
FRTIB has developed individual policies for each fund. These policies,
which FRTIB reaffirms quarterly, provide the rationale for selecting
the fund's investments. Factors influencing the policies include the
level of risk and return, low costs, and the legislative history of
FERSA. A consultant to FRTIB reported in January 2006 that the indexes
that FRTIB selected were appropriate and changes to certain indexes
would not be cost-effective. Table 1 shows FERSA requirements and
FRTIB's policies for each fund.
Table 1: FERSA and FRTIB Investment Policies for Each TSP Fund:
Fund: G Fund;
FERSA requires the Fund to be invested in: Treasury securities
specially issued to TSP with a maturity determined by the Executive
Director that provide the generally higher interest rates of securities
with a term of at least 4 years;
FRTIB policies call for investing the Fund in: Short-term securities
(that mature in 1 to 4 days).
Fund: F Fund;
FERSA requires the Fund to be invested in: Fixed-income securities;
FRTIB policies call for investing the Fund in: An index including bonds
and asset-backed securities to track the Lehman Brothers U.S. Aggregate
Index.
Fund: C Fund;
FERSA requires the Fund to be invested in: A portfolio that tracks a
broad index representing the U.S. stock market;
FRTIB policies call for investing the Fund in: An index of stocks of
large to medium-sized companies to track the Standard & Poor's 500
Index.
Fund: S Fund;
FERSA requires the Fund to be invested in: A portfolio that tracks a
broad index representing U.S. stocks not included in the C Fund;
FRTIB policies call for investing the Fund in: An index of stocks in
small and medium-sized companies not represented in the Standard &
Poor's 500 to track the Dow Jones Wilshire 4500 Completion Index.
Fund: I Fund;
FERSA requires the Fund to be invested in: A portfolio that tracks a
broad index representing international stock markets outside of the
United States;
FRTIB policies call for investing the Fund in: An index of the stock
markets of the developed world outside of the United States and Canada
to track the Morgan Stanley Capital International Europe, Australasia,
and Far East Index.
Source: GAO analysis.
[End of table]
In the past, FRTIB has periodically conducted a major review of its
investment policy and suggested additional funds for TSP to Congress
besides the initial G, F, and C Funds. FRTIB's process for reviewing
and suggesting additional funds has included investment analysis,
consideration of industry practices, and communication with Congress
and the Employee Thrift Advisory Council, which represents
participants. For example, in the early 1990s, FRTIB analyzed possible
funds to add to the lineup of options for participants to invest in,
based on factors like diversification, risk and return, cost, and
administrative issues. It submitted a legislative proposal in 1995 to
add funds for international stocks (the I Fund) and for stocks in small
and medium-sized U.S. companies (the S Fund), and Congress amended
FERSA in 1996 accordingly.[Footnote 44] In 2005, FRTIB introduced
Lifecycle funds without an amendment to FERSA because it determined
that the Lifecycle funds are combinations of the five existing funds
tailored to different time horizons for withdrawal. FRTIB developed
these funds partly based on its analysis of inefficient participant
behavior whereby participants were not periodically shifting, or
rebalancing, their investment portfolio or diversifying their balances
among the five funds, which the Lifecycle funds would do automatically
for the participant. In 2005, given congressional interest in having
FRTIB study the desirability of adding new funds, FRTIB hired an
outside consultant to analyze the existing TSP options, who recommended
in 2006 that FRTIB not add any additional funds to the plan. According
to FRTIB, having relatively few TSP options based on broad-based
indexes encourages participation and limits costs.
Private Plan Sponsors Have Greater Discretion to Select Investment
Options:
Private plans under ERISA have considerable latitude in selecting
investment options for their plans. According to DOL, an important part
of the fiduciary duties of acting prudently and solely in participants'
interest involves selecting investment options. ERISA requires plan
fiduciaries to use prudence in selecting and monitoring funds for
participants, and to offer diversified funds. Within these parameters,
private plans can offer a wide array of options for participants.
Unlike TSP, private plans can decide, among other things, the number
and types of funds, whether to include funds that specialize in one
sector, like telecommunications, or those that track a specific market
index. Besides funds tracking a specific market index, which are one
kind of passively managed funds, private plans can offer actively
managed options, in which the investment manager selects particular
investments trying to obtain higher than average returns. Private plan
sponsors also may offer employer stock.[Footnote 45] Further, private
plans can also offer features like a self-directed brokerage option,
which allows participants to invest in individual stocks or mutual
funds.
Given that private plans have greater discretion than TSP to select
options, many private plans have adopted an investment policy statement
to guide their decision-making process. According to a 2005 industry
survey,[Footnote 46] 79 percent of responding plans had an investment
policy statement. While these statements are not required by ERISA, DOL
has issued regulations about written statements of investment policy.
The regulations note that a statement may set guidelines about
investment decisions for the investment manager.[Footnote 47] According
to one industry association, besides clarifying the intended goals and
performance of the plan, the statement--which may include the process
for selecting, monitoring, and altering investments--can guide future
decisions and limit liability by showing that fiduciaries are following
a prudent process.
FRTIB and Other Federal Agencies Have Responsibility for Educating
Participants on Retirement Issues, and Responsibilities Vary for
Private and State and Local Government Employee Plans:
FRTIB, OPM, and staff of employing federal agencies have responsibility
for educating TSP participants about their retirement plan and other
retirement issues, and responsibilities vary for private and state and
local government employee plans. FRTIB has responsibility for providing
information to TSP plan participants to facilitate informed decision
making about what level of contribution to make and how to invest those
contributions. OPM is required to establish a training program for all
retirement counselors and to develop, in consultation with FRTIB, a
retirement financial literacy and education strategy for federal
employees.[Footnote 48] Retirement counselors are employed by federal
agencies, and they provide employees with information on their
retirement benefits, including information about TSP. ERISA requires
private retirement plan sponsors to provide certain documents to
participants, such as a summary plan description, but many plans
provide more information than is required.[Footnote 49] State and local
government employee plans' education requirements vary, but all of the
plans we studied are required to provide participants with benefit
statements. They also make other types of information available to
participants, such as tools for calculating retirement needs.
FRTIB Develops TSP-Specific Educational Materials, and OPM Provides
General Retirement Education:
FERSA requires FRTIB to provide participants with periodic statements
about their accounts and a summary description of the plan's investment
options to facilitate informed decision making.[Footnote 50] To further
inform participants about the plan, FRTIB provides additional
information, such as how to roll over or transfer funds from other
plans into TSP, information on agency matching contributions, TSP's
loan program, and the monthly returns of TSP funds and their related
indexes. FRTIB provides this information on TSP's Web site. According
to FRTIB, the TSP Web site is its primary method for communicating with
participants, but information is also available by telephone, and in
written materials. The TSP Web site also includes a retirement
calculator that participants can use to estimate how much they will
need to save each year to meet their retirement goals, and a quarterly
newsletter. For example, the newsletter's January 2007 feature article
was titled "Pension Reform Law Benefits TSP Participants," and included
information about provisions in the Pension Protection Act of 2006 that
apply to TSP. In addition to the educational materials available on the
TSP Web site, FRTIB occasionally sends mailings to TSP participants.
For example, mailings were sent to participants raising awareness about
the new Lifecycle funds.
OPM is responsible for providing general retirement education to
federal employees, including TSP participants, and it does this
primarily through training retirement counselors at federal agencies,
who provide federal employees with information on retirement benefits,
including TSP. Retirement counselors' roles were expanded with passage
of the Thrift Savings Plan Open Elections Act of 2004.[Footnote 51] To
implement the act, OPM's training will include information about
retirement financial literacy and education. According to information
provided by OPM, it will provide comprehensive training on the tools
and resources it is developing, such as the retirement readiness index,
an age-based profile containing information about an employee's state
of readiness according to various dimensions. As of April 2007, OPM had
produced and made available on its Web site a retirement video.
According to OPM, the video provides an overview of critical
information federal employees need to know as they plan for their
retirement. OPM is required to consult with FRTIB about its
implementation of the act. In addition to retirement counselors,
federal agencies have TSP agency coordinators that, among other things,
inform eligible employees of TSP options and benefits, maintain TSP
informational materials, and respond to inquiries from active
employees. TSP officials offer training to agency coordinators.
Sometimes individuals serve as both agency coordinators and retirement
counselors.
Private Plan Sponsors Are Responsible for Informing Participants about
Their Plans, and Responsibilities Vary for State and Local Government
Employee Plan Sponsors:
The Employee Retirement Income Security Act of 1974 (ERISA) requires
plan sponsors to give plan participants in writing the information they
need to know about their retirement benefit plans, including plan
rules, financial information, and documents on the operation and
management of the plan. ERISA requires sponsors of private retirement
plans to make available to participants the following:
* an annual report, which is a summary of an annual financial report
that most plans must file with the Department of Labor;
* a summary plan description, which provides information about what the
plan provides and how it operates, such as when an employee can begin
to participate, how service and benefits are calculated, when benefits
become vested, when and in what form benefits are paid, and how to file
a claim for benefits; and:
* account statements one or more times per year or upon
request.[Footnote 52]
A 2005 industry survey found that many private plan sponsors provide
additional educational information, not required under ERISA, for such
purposes as increasing employee participation, increasing satisfaction
with their plans, and improving asset allocation.[Footnote 53] They
provide this information through enrollment kits, seminars and
workshops, fund performance sheets, newsletters, retirement
calculators, and Internet and intranet sites. For example, the private
plan sponsor we spoke with provides one-on-one financial and investment
counseling to its employees through a service provider. Additionally,
almost half of the plans that responded to the industry survey
indicated that they offer participants investment advice.
State and local government employee pension plan sponsors are required
to educate their participants in a manner consistent with the state or
local requirements and plan documents that govern their plans. Each of
the four plans we studied require that a statement be sent to
participants periodically or at the participant's request. At least two
of the plan sponsors provide participants with summary plan
descriptions, and at least one plan sponsor requires that participants
be sent an annual report. Local and state officials expressed the
importance of providing plan participants with information on a broad
range of services and topics, for example, how to make contributions
and the array of investment options. Each plan sponsor provides some
information on its Web site; such information may include answers to
frequently asked questions, forms, and information about investment
options and retirement planning conferences. All of the officials we
spoke with provide some type of general retirement information or non-
plan-specific information to participants, such as retirement
calculators. Three of the plan sponsors make general retirement
information available to their participants through service providers.
Conclusion:
Through FERSA, Congress established FRTIB to administer TSP and charged
DOL with establishing a program to carry out audits to determine the
level of TSP compliance with FERSA requirements. According to DOL, its
audit findings and recommendations provide details on all significant
aspects of TSP operations, from the management of TSP investments to
the information security of participants' data, and can also shape
future oversight of FRTIB and its service providers. Although FRTIB is
required by law to provide Congress each year with a list of audits,
including summaries of significant DOL audit findings, there have been
times when DOL has had issues of concern with FRTIB outside of its
audit findings. In such instances, DOL has no formal process to
communicate its issues of dispute. Consequently, we previously
recommended that Congress amend FERSA to require DOL to establish a
formal process by which it can report to Congress issues of critical
concern.
Historically, communications between congressional committees of
jurisdiction with FRTIB and DOL have been limited. Although Congress
has occasionally held hearings where DOL and FRTIB officials have
testified, such hearings are held irregularly, usually in response to a
particular issue, such as abusive trading practices or when Congress
was considering legislative changes to FERSA, such as adding an
additional fund to TSP's investment options.
Congress created TSP as one of the basic elements of a new retirement
system for federal workers. Since its inception, TSP has grown to
become one of the largest defined contribution plans in the country,
affecting the retirement of millions of current and former federal
employees. As the size and complexity of TSP have grown, an appropriate
level of oversight of FRTIB is critical to ensuring that federal
workers' retirement savings are properly managed.
Agency Comments and Our Evaluation:
We provided a draft of this report to the Federal Retirement Thrift
Investment Board (FRTIB), the Department of Labor (DOL), and the Office
of Personnel Management (OPM) for review and comment. FRTIB suggested
that the report will be useful to the continued improvement of the TSP,
and expressed appreciation for our constructive approach in conducting
the review. Both FRTIB and DOL provided technical comments, which we
have incorporated where appropriate. FRTIB's written comments are
reproduced in appendix II.
As agreed with your staff, 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 Executive Director of FRTIB, the Secretary of DOL, and the
Director of OPM, appropriate congressional committees, and others who
are interested. We will also make copies available to others upon
request. In addition, the report will be available at no charge on
GAO's Web site at http://www.gao.gov. If you have any questions about
this report, please call me at (202) 512-7215. Contact points for our
Offices of Congressional Relations and Public Affairs may be found on
the last page of this report. Key contributors are listed in appendix
III.
Barbara D. Bovbjerg, Director:
Education, Workforce, and Income Security Issues:
[End of section]
Appendix I: Selection of the Plan Sponsor Comparison Group:
To compare the Federal Retirement Thrift Investment Board's (FRTIB)
education responsibilities with those of other plan sponsors, we
reviewed documents and interviewed officials representing sponsors of
five defined contribution plans--four government employee pension plans
and one private plan. The plans we studied were selected from a list of
the 200 largest U.S. employee retirement plans as reported by Pensions
& Investments, a trade journal for plan sponsors and other investors,
as of September 30, 2005. Plans were selected based on three criteria-
-plan assets, plan type, and absence of fiduciary malfeasance. TSP is
the largest defined contribution plan in the nation. The plans we
studied, while having significantly fewer assets than TSP, were among
the largest in total defined contribution plan assets. The five plans
had assets ranging from approximately $3 billion to $21 billion. The
plans we studied, like TSP, are participant directed, that is,
investors make investment decisions and plan fiduciaries may receive
limited liability from the results of these decisions.[Footnote 54]
Additionally, we reviewed Pension & Investments Online and LexisNexis,
and could find no citations over the last 2 years for fiduciary
malfeasance for the five plans we studied.
The four government employee pension plans we studied are a state
supplemental 401(k) plan, a state 401(k) plan for all newly hired
employees, a university plan that includes a 401(a) plan and a tax
deferred 403(b) plan, and a large city supplemental deferred
compensation plan with a 401(k) plan. The private plan was a Fortune
100 company. We contacted seven private pension plans, but only one
agreed to speak with GAO staff. The private plan sponsor we spoke with
was willing to participate in our study, and its characteristics may or
may not reflect the characteristics of other private pension plans. The
interviews we conducted with plan sponsors are solely for illustrative
purposes and are not generalizable.
[End of section]
Appendix II: Comments from the Federal Retirement Thrift Investment
Board:
Federal Retirement Thrift Investment Board:
1250 H Street, NW:
Washington, DC 20005:
June 4, 2007:
Ms. Barbara Bovbjerg:
Director, Education, Workforce, and Income Security Issues:
Government Accountability Office:
Washington, DC 20548:
Dear Ms. Bovbjerg:
This is in response to your email of May 24, 2007, transmitting, for
our comment, the Government Accountability Office (GAO) draft report
entitled "Federal Retirement Thrift Investment Board: Many
Responsibilities and Investment Policies Set by Congress". The report
is dated June 21, 2007, and will be issued to the Ranking Minority
Member, Committee on Oversight and Government Reform, House of
Representatives.
We would like to express our appreciation for the GAO's considered
review of the voluminous data and reports provided by Federal
Retirement Thrift Investment Board (Agency).
We note that there are no recommendations directed to the Agency in
this report. However, attached are some technical suggestions that we
believe may clarify parts of the discussion.
Thank you once again for the constructive approach that the GAO took in
conducting this review of the Thrift Savings Plan (TSP). The
information developed as a result of your review is useful to the
continued improvement of the TSP.
Sincerely,
Signed by:
Gregory T. Long:
Executive Director:
Enclosure:
[End of section]
Appendix III: GAO Contact and Staff Acknowledgments:
GAO Contact:
Barbara D. Bovbjerg (202) 512-7215 or bovbjergb@gao.gov:
Staff Acknowledgments:
In addition to the contact named above, the following individuals made
important contributions to this report: Tamara Cross, Assistant
Director; Ramona Burton; Lara Laufer; Patrick Bernard; Matthew
Saradjian; Roger Thomas; Rachael Valliere; Walter Vance; and Craig
Winslow.
FOOTNOTES
[1] A plan fiduciary includes a person who has discretionary control or
authority over the management or administration of a retirement plan,
including the plan's assets.
[2] Private and public sector employers may sponsor pension plans for
their employees. A plan sponsor may include an employer, employee
organization, or both. Generally, the plan sponsor has ultimate
responsibility for the plan.
[3] 5 U.S.C. §§ 8401-8479.
[4] 29 U.S.C. §§ 1001-1461.
[5] Seven private pension plans were contacted, but only one agreed to
speak with GAO staff.
[6] The survey was conducted by the Profit Sharing/401(k) Council of
America (PSCA). PSCA's survey results are based on responses from 1,106
plan sponsors that have profit-sharing plans, 401(k) plans, or a
combination of both and represent 1 to 5,000-plus employees. The survey
was mailed or faxed to respondents and conducted from March 2006 to May
2006. The survey provides a snapshot as of the end of 2005. The survey
response rate was 21 percent. PSCA is a national, nonprofit association
of 1,200 companies and their 6 million plan participants. According to
PSCA, it represents the interests of its members to federal policy
makers and offers assistance with profit sharing and 401(k) plan
design, administration, investment, compliance, and communication.
[7] For information about FRTIB's administrative expenses see GAO,
Federal Retirement Thrift Investment Board: Due Diligence over
Administrative Expenses Should Continue and Be Broadened, GAO-07-541
(Washington, D.C.: May 14, 2007).
[8] TSP fiduciaries include the five Board members, the Executive
Director, any person who has or exercises discretionary authority or
control over the management or disposition of TSP assets, and anyone
who would be considered a fiduciary under ERISA. 5 U.S.C. § 8477(a)(3).
Under ERISA, a fiduciary is generally anyone to the extent he or she
exercises any discretionary authority or control over plan management
or any authority or control over the management or disposition of plan
assets, renders investment advice respecting plan money or property for
a fee or other compensation, or has discretionary authority or
responsibility for plan administration. 29 U.S.C. § 1002(21)(a).
[9] 5 U.S.C. § 8477(g)(1).
[10] 5 U.S.C. § 8439(c).
[11] 5 U.S.C. § 8350 and § 8350 note.
[12] FERSA created the Federal Employees' Retirement System (FERS). As
part of FERS, TSP is part of the current three-part retirement system
for federal employees--Social Security benefits, the basic benefit
plan, and TSP. OPM trains retirement counselors about each part of the
plan. Prior to FERS, most federal employees were covered by the Civil
Service Retirement System.
[13] The G Fund, managed by FRTIB, is composed of short-term
nonmarketable government securities issued exclusively for the Thrift
Savings Fund. The remaining four funds are managed by Barclays Global
Investors and are structured to track large index funds, which are debt
or equity portfolios composed of bonds or stocks of a large number of
different companies. The first of these funds, the Fixed Income Index
Investment Fund, or F Fund, is a bond market fund primarily invested in
the Barclays U.S. Debt Index designed to track the Lehman Brothers U.S.
Aggregate Index. The second fund, the C Fund, is TSP's large-company
stock fund. It is invested in the Barclays Equity Index Fund and tracks
the Standard & Poor's 500 Index. The Small Capitalization Stock Index
Investment Fund, or S Fund, is invested in Barclays Extended Market
Index Fund and is managed to track the Dow Jones Wilshire 4500
Completion Index. The I Fund is the TSP's international stock index
fund and is invested in Barclays EAFE Index Fund (Europe, Australasia,
and Far East) and holds shares of major companies and industries in the
European, Australian, and Asian stock markets.
[14] Named after section 401(k) of the Internal Revenue Code, 401(k)
plans allow workers to save for retirement by diverting a portion of
their pretax income into an investment account that can grow tax-free
until withdrawn in retirement. 26 U.S.C. § 401(k).
[15] 5 U.S.C. § 8472(b) and (c).
[16] 5 U.S.C. § 8474.
[17] 5 U.S.C. § 8473.
[18] GAO, Federal Pensions: DOL Oversight and Thrift Savings Plan
Accountability, GAO-03-400 (Washington, DC: Apr. 23, 2003).
[19] 5 U.S.C. § 8477(g). Specifically, FERSA directs the Secretary of
Labor to establish a program to carry out audits to determine the level
of compliance with the act's fiduciary standards and prohibited
transactions. The Secretary may perform the audit, contract with a
qualified non-government organization, or may conduct the audit in
cooperation with the Comptroller General of the United States.
According to DOL, the department has always elected to contract with a
reputable accounting firm.
[20] EBSA is also responsible for enforcing provisions of ERISA, which
governs private pension plans.
[21] If additional funds become available, DOL officials said that the
contract auditors can perform more audits. For example, when increased
funding became available for fiscal year 2002 audits, DOL reviewed the
U.S. Treasury's calculation of the interest rate for the specially
issued Treasury securities held in the G Fund. While not all plan
activities are addressed every year, audit officials noted that the
audit program covers most activities over an approximately 3-year
cycle.
[22] In 2003, we reported that FRTIB implements approximately 95
percent of DOL recommendations. GAO-03-400.
[23] 5 U.S.C. App. 3, § 8G(h)(2)(B).
[24] See GAO-03-400.
[25] 5 U.S.C. § 8477(b) and 29 U.S.C. § 1104(a). Additional
responsibilities of fiduciaries required by both statutes include
diversifying plan investments and paying only reasonable plan expenses.
[26] 5 U.S.C. § 8477(c) and 29 U.S.C. §§ 1106 and 1108.
[27] 5 U.S.C. § 8477(a)(3).
[28] We recently recommended benchmarking cost and performance of
FRTIB's individual activities against other entities or standards. See
GAO-07-541.
[29] DOL's most recently completed audit of FRTIB's procurement and
selection of providers was published in 2003; it found that the
procurement practices and controls complied with FERSA's provisions
about fiduciary responsibility and prohibited transactions and
contained no recommendations.
[30] The annuity vendor was not included in the quarterly financial
reviews until April 2007.
[31] In 2006, DOL issued its most recent audit of the TSP investment
manager. The audit contained no recommendations and found appropriate
investment management operations, including compliance with provisions
about transactions prohibited by FERSA.
[32] 29 U.S.C. § 1132.
[33] Pub. L. No. 99-335, § 101(a), 100 Stat. 514, 582.
[34] Pub. L. No. 100-238, § 133(a), 101 Stat. 1744, 1760-62.
[35] Currently, TSP holds the most assets of any defined contribution
plan in the United States.
[36] Under ERISA and FERSA, participants can bring civil actions to,
among other things, enjoin any fiduciary from acts or practices that
will constitute a fiduciary breach.
[37] These remedies are also available to DOL when taking civil action
against private plan fiduciaries.
[38] 29 U.S.C. § 1110. If the plan purchases fiduciary liability
insurance, however, it must provide for recourse by the insurer against
any breaching fiduciaries. Both ERISA and FERSA require the purchase of
another financial instrument, fidelity bonds, which protect the plan
against dishonest acts like fraud. 29 U.S.C. § 1112 and 5 U.S.C. §
8478.
[39] 5 U.S.C. § 8477(e)(4)(B) and (C).The FTCA waives sovereign
immunity to permit parties injured by tortuous acts of the federal
government or its employees to bring legal claims for damages. 28
U.S.C. §§ 1346 and 2671-2680.
[40] 31 U.S.C. § 1304. In 1987, GAO determined that the Judgment Fund
was available to pay tort claims against FRTIB that did not involve
losses from the TSP or the payment of benefits. 67 Comp. Gen. 142 (Dec.
15, 1987).
[41] That case was brought by the founding Executive Director and a
former Board member, who also served later as Executive Director. It
involves allegations regarding personnel changes made when new Board
members were appointed in 2002 and has resulted as yet in only one
reported decision, which addresses only a collateral procedural issue.
Cavanaugh v. Saul, 233 F.R.D. 21 (D.D.C. 2005).
[42] 5 U.S.C. § 8438.
[43] 5 U.S.C. § 8438(f).
[44] Thrift Savings Investment Funds Act of 1996, Pub. L. No. 104-208,
tit. I, § 102, 110 Stat. 3009, 3009-372--3009-373.
[45] Recently enacted ERISA requirements apply to employer stock in
such cases. For example, all plan participants must be allowed to
diversify out of employer stock purchased through their own elective
deferrals and after-tax contributions. 29 U.S.C. § 1054(j).
[46] The 49th Annual Survey of Profit Sharing and 401(k) Plans.
[47] 29 C.F.R. § 2509.94-2.
[48] 5 U.S.C. § 8350 and § 8350 note. Agencies generally refer to
retirement counselors and other retirement education staff as benefits
officers.
[49] 29 U.S.C. § 1021.
[50] 5 U.S.C. § 8439(c).
[51] Pub. L. No. 108-469, § 2, 118 Stat. 3891, 3892.
[52] 29 U.S.C. §§ 1021-1025. ERISA requires plan sponsors to provide
summary plan descriptions to participants within 90 days of being
covered by the plan, then every 5 or 10 years, depending on changes.
[53] The 49th Annual Survey of Profit Sharing and 401(k) Plans.
[54] Special fiduciary rules contained in Department of Labor
regulations protect plan fiduciaries from liability for individuals'
investment decisions with respect to plans that provide participant-
directed investments. These special fiduciary rules for plans with
participant-directed investments are set forth pursuant to section
404(c) of the Employee Retirement Income Security Act. There are
certain requirements that must be satisfied in order for these special
rules to apply to plans that provide for participant-directed
investments. Among other requirements, plans must offer participants at
least three investment options and information about and investment
instructions with respect to each of the investment options, and allow
participants to exercise independent control over their investments.
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