As most readers know, the Thrift Savings Plan (TSP) is a major source of retirement income for many Federal employees. The organization that administers the TSP is the Federal Retirement Thrift Investment Board.
Here are some facts you may not have known though. In the private sector, the Department of Labor (DOL) has responsibility to oversee pension plans. This authority is given to Labor under the Employee Retirement Income Security Act (ERISA). This act sets up standards that must be met by private sector pension plans. The Labor Department enforces those standards and provides a measure of protection for the safety and security of private sector retirement funds. If the Department of Labor concludes that these fiduciary standards have been violated, it can take legal action.
The Labor Department does not have this authority over the Federal Retirement Thrift Investment Board. Instead, there is an informal process under which the Labor Department makes recommendations and the Board and Labor Department work to resolve the problem. If a resolution is not worked out, there is no mechanism established to reach a decision.
The vast majority (about 95%) of recommendations sent to the Thrift Investment Board by the Department of Labor are implemented. But, as is frequently the case with complex organizations, the most contentious issues are the ones that may not get resolved. And, without a process to resolve the dispute, there is the potential to create problems with the retirement money invested by federal employees.
Not surprisingly, it was one of these contentious issues that led to this study by the General Accounting Office. As many readers know, TSP participants cannot update their investments on a daily basis or make routine transactions to their TSP investments on a daily basis. Creating and implementing a system that can safely handle millions of transactions for millions of people is obviously a difficult task.
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 did not follow the schedules required in delivering the new system and was unable to perform the contractual requirements within the time limits of the contract. In 2001, the TSP Board terminated the contract and the Executive Director filed a lawsuit against the company, which is now before the United States Court of Appeals for the District of Columbia.
This issue raised several questions in Congress about the management of the Thrift Savings Plan. While the GAO report does not discuss the issue, the amount of money involved in the development of a new system and the lawsuit could impact the rate of return for investors. The dispute also raised questions about any limits on the role of the Department of Justice in representing Federal agencies in court.
GAO recommends that Congress strengthen the oversight of the Board by the Department of Labor and to consider requiring the Labor Department to establish a formal process for reporting on issues of concern regarding the TSP Board and its Executive Director.