[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]



 
           THE THRIFT SAVINGS PLAN: PUTTING CUSTOMERS FIRST?
=======================================================================

                                HEARING

                               before the

                              COMMITTEE ON
                           GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED EIGHTH CONGRESS

                             FIRST SESSION

                               __________

                             JULY 24, 2003

                               __________

                           Serial No. 108-71

                               __________

       Printed for the use of the Committee on Government Reform


  Available via the World Wide Web: http://www.gpo.gov/congress/house
                      http://www.house.gov/reform









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                     COMMITTEE ON GOVERNMENT REFORM

                     TOM DAVIS, Virginia, Chairman
DAN BURTON, Indiana                  HENRY A. WAXMAN, California
CHRISTOPHER SHAYS, Connecticut       TOM LANTOS, California
ILEANA ROS-LEHTINEN, Florida         MAJOR R. OWENS, New York
JOHN M. McHUGH, New York             EDOLPHUS TOWNS, New York
JOHN L. MICA, Florida                PAUL E. KANJORSKI, Pennsylvania
MARK E. SOUDER, Indiana              CAROLYN B. MALONEY, New York
STEVEN C. LaTOURETTE, Ohio           ELIJAH E. CUMMINGS, Maryland
DOUG OSE, California                 DENNIS J. KUCINICH, Ohio
RON LEWIS, Kentucky                  DANNY K. DAVIS, Illinois
JO ANN DAVIS, Virginia               JOHN F. TIERNEY, Massachusetts
TODD RUSSELL PLATTS, Pennsylvania    WM. LACY CLAY, Missouri
CHRIS CANNON, Utah                   DIANE E. WATSON, California
ADAM H. PUTNAM, Florida              STEPHEN F. LYNCH, Massachusetts
EDWARD L. SCHROCK, Virginia          CHRIS VAN HOLLEN, Maryland
JOHN J. DUNCAN, Jr., Tennessee       LINDA T. SANCHEZ, California
JOHN SULLIVAN, Oklahoma              C.A. ``DUTCH'' RUPPERSBERGER, 
NATHAN DEAL, Georgia                     Maryland
CANDICE S. MILLER, Michigan          ELEANOR HOLMES NORTON, District of 
TIM MURPHY, Pennsylvania                 Columbia
MICHAEL R. TURNER, Ohio              JIM COOPER, Tennessee
JOHN R. CARTER, Texas                CHRIS BELL, Texas
WILLIAM J. JANKLOW, South Dakota                 ------
MARSHA BLACKBURN, Tennessee          BERNARD SANDERS, Vermont 
                                         (Independent)

                       Peter Sirh, Staff Director
                 Melissa Wojciak, Deputy Staff Director
                      Rob Borden, Parliamentarian
                       Teresa Austin, Chief Clerk
              Philip M. Schiliro, Minority Staff Director















                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on July 24, 2003....................................     1
Statement of:
    Corridon, Michelle C., co-chair, FMA-USDA Conference, Federal 
      Managers Association; and Keith Rauschenbach, vice 
      president of Consulting Services, TIAA-CREF................    73
    Saul, Andrew, chairman, Federal Retirement Thrift Investment 
      Board, accompanied by Gary Amelio, Executive Director, 
      Federal Retirement Thrift Investment Board; Edward P. 
      McPherson, Chief Financial Officer, U.S. Department of 
      Agriculture, accompanied by Jerry Lohfink, Acting Director, 
      National Finance Center, U.S. Department of Attorney 
      General; and Alan Lebowitz, Deputy Assistant Secretary for 
      Program Operations, Employee Benefits Security 
      Administration, U.S. Department of Labor...................    28
Letters, statements, etc., submitted for the record by:
    Amelio, Gary, Executive Director, Federal Retirement Thrift 
      Investment Board, information concerning average response 
      time.......................................................    40
    Corridon, Michelle C., co-chair, FMA-USDA Conference, Federal 
      Managers Association, prepared statement of................    77
    Davis, Chairman Tom, a Representative in Congress from the 
      State of Virginia, prepared statement of...................     4
    Davis, Hon. Danny K., a Representative in Congress from the 
      State of Illinois, prepared statement of...................    21
    Davis, Hon. Jo Ann, a Representative in Congress from the 
      State of Virginia, prepared statement of...................    61
    Jefferson, Hon. William, a Representative in Congress from 
      the State of Louisiana, prepared statement of..............    17
    Kelly, Colleen, national president, National Treasury 
      Employees Union, prepared statement of.....................   105
    Lebowitz, Alan, Deputy Assistant Secretary for Program 
      Operations, Employee Benefits Security Administration, U.S. 
      Department of Labor, prepared statement of.................    49
    McPherson, Edward P., Chief Financial Officer, U.S. 
      Department of Agriculture, prepared statement of...........    44
    Moran, Hon. James P., a Representative in Congress from the 
      State of Virginia, prepared statement of...................    12
    Rauschenbach, Keith, vice president of Consulting Services, 
      TIAA-CREF, prepared statement of...........................    95
    Saul, Andrew, chairman, Federal Retirement Thrift Investment 
      Board, prepared statement of...............................    33
    Waxman, Hon. Henry A., a Representative in Congress from the 
      State of California, prepared statement of.................     9

















           THE THRIFT SAVINGS PLAN: PUTTING CUSTOMERS FIRST?

                              ----------                              


                        THURSDAY, JULY 24, 2003

                          House of Representatives,
                            Committee on Government Reform,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 10 a.m., in room 
2154, Rayburn House Office Building, Hon. Tom Davis of Virginia 
(chairman of the committee) presiding.
    Present: Representatives Tom Davis of Virginia, McHugh, 
Souder, Lewis, Jo Ann Davis of Virginia, Carter, Blackburn, 
Waxman, Maloney, Cummings, Kucinich, Davis of Illinois, 
Tierney, Clay, Watson, Van Hollen, Sanchez, Ruppersberger, 
Norton, Bell, Moran of Virginia, and Jefferson.
    Staff present: Peter Sirh, staff director; Melissa Wojciak, 
deputy staff director; Keith Ausbrook, chief counsel; John 
Hunter, David Young, and Randall Kaplan, counsels; David Marin, 
director of communications; Scott Kopple, deputy director of 
communications; Teresa Austin, chief clerk; Joshua E. 
Gillespie, deputy clerk; Jason Chung and Michael Layman, 
legislative assistants; Leneal Scott, computer systems manager; 
Christopher Lu, minority deputy chief counsel; Tania Shand and 
Denise Wilson, professional staff members; Earley Green, 
minority chief clerk; Jean Gosa, minority assistant clerk; and 
Cecelia Morton, minority office manager.
    Chairman Tom Davis. Good morning. A quorum being present, 
the Committee on Government Reform will come to order.
    I ask unanimous consent that Congressman William Jefferson 
and Congressman Jim Moran be permitted to participate in 
today's hearing. Without objection, so ordered.
    I want to welcome everybody to today's hearing on customer 
service and the Thrift Savings Plan, a retirement savings and 
investment plan in which 3 million Federal employees hold 
accounts worth more than $100 billion. We are here to ensure 
that customer service for the Plan meets the highest possible 
standards. We'll examine both the operations of the Plan--
especially recent efforts to upgrade service--and oversight of 
the Plan by the Department of Labor.
    To assist the committee in evaluating the Plans, we'll also 
receive testimony regarding the operation of private plans. On 
June 16, 2003, the Federal Retirement Thrift Investment Board, 
the governing body of the Thrift Savings Plan, launched a new 
recordkeeping system designed to improve service to Plan 
participants. The goal was to make the TSP operate more like 
private sector plans by offering features such as online loan 
applications and daily rather than monthly account 
transactions. However, software glitches have caused the new 
system to be slow and in some cases difficult to access.
    Our committee has received numerous calls from Federal 
employees and retirees that have complained that they have been 
unable to get loans processed, withdraw money, or transfer 
funds. As a result, according to these individuals, home 
purchases have been delayed or ruined and transactions have 
been misplaced, credited to the wrong fund, or deposited into a 
different person's account.
    Although the TSP Web site, tsp.gov, has accepted an 
increasing number of transactions since June 16th, participants 
still spend countless hours trying to access their accounts 
online. The site now advises users to avoid using the system 
during the peak times of 8 a.m. to 4 p.m. Instead, it suggests 
that users log on during the weekends and between midnight and 
6 a.m. on weekdays. But what good is a Web site providing 
access to $113 billion in Plan assets when you have to log on 
at 3 a.m.? I know I don't make my investment decisions in the 
middle of the night. I might do a better job of it if I did, 
but most people don't.
    Dissatisfied with the service of the new online system, 
many have turned to the phone or the mail to conduct 
transactions. The TSP Service Center has been flooded with 
calls and has been unable to handle the volume; consequently, 
few are able to get through to conduct business. Correspondence 
through the mail is often unsatisfactory, as well.
    For all these reasons, customer satisfaction with the new 
TSP system is low. According to a recent poll by the Federal 
Times, 50 percent of those responding found the new system to 
be unusable. Only 6 percent found the new program to be 
effective.
    Let me share some excerpts from letters, phone calls, and 
e-mails that our office has received from TSP customers. A 
participant who developed breast cancer requested a hardship 
withdrawal from her TSP account on June 16th. She calls daily 
to find out about her application but is always disconnected. 
As of yesterday, she has been unable to learn the status of her 
urgent request.
    Another individual applied for a loan from his TSP account 
to pay for his child's college tuition this fall. Following 
weeks of trying to reach a TSP rep to learn the status of the 
application, the individual was told that the loan couldn't be 
processed because he used an old form. The application was 
downloaded from the TSP Web site in May, and there was no 
indication that the form was old or expired.
    Another participant made a loan request over a month ago in 
order to buy a home. This person estimates that he spent more 
than 10 hours on the phone trying to learn the status of his 
application. He's reached the automated system two times. Once 
he was transferred to a busy signal and the other time he was 
disconnected.
    Perhaps what is most frustrating to Federal employees is 
that they have waited for over 6 years for the new system. The 
Thrift Board first hired American Management System in 1997 to 
develop a new recordkeeping program, but schedule delays and 
cost overruns resulted in termination of that contract. The 
Board then contracted with MATCOM International to develop the 
system. When the new Web site opened last month, it immediately 
suffered technical glitches severely limiting the number of 
participants who could access their accounts. Too many loan 
applications and other transactions remained unprocessed after 
several weeks, including those that were in process on June 
16th and had to be resubmitted.
    Today we are going to try to understand the reasons for 
these problems and try to get an idea of when they will be 
solved. The committee intends to learn where participants can 
turn when their transactions aren't being processed. We'll also 
examine whether there's adequate oversight of the management 
and operation of the TSP program.
    Direct management responsibilities fall on the TSP Board 
and its executive director, who are the fiduciaries of the 
Plan. Additionally, the Department of Labor has responsibility 
under the Federal Employees Retirement System Act for 
conducting audits of the TSP program to ensure that fiduciaries 
are faithfully carrying out their duties.
    We have assembled an impressive group of witnesses to help 
us understand these issues. We're going to hear from the 
Federal Retirement Thrift Investment Board and the Department 
of Labor. We'll also hear from the Department of Agriculture's 
National Finance Center, which actually performs all the record 
keeping, account transactions, and loan processing for TSP 
participants.
    In our second panel, we're going to hear from 
representatives of the Federal Managers Association who will 
discuss their members' concerns. We'll also hear from TIAA-CREF 
Retirement Savings Fund that is used by many universities and 
research institutions and has about 2.6 million participants.
    I want to thank all of our witnesses for appearing before 
the committee and I look forward to their testimony.
    [The prepared statement of Chairman Tom Davis follows:]


    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    
    Chairman Tom Davis. I now yield to Mr. Waxman for his 
opening statement.
    Mr. Waxman. Thank you very much, Mr. Chairman. I want to 
thank you for holding this hearing and I want to welcome the 
witnesses to our committee.
    Through the Thrift Savings Plan, 3 million participants are 
saving for their retirements in tax-deferred accounts, with a 
portion of their contributions matched by their agencies. 
Compared to retirement funds in the private sector, the fees 
that TSP charges its participants are minimal. By many measures 
TSP has been a great success for Federal employees. 
Unfortunately, the TSP program has had some serious problems 
adapting to the Internet age, which is the reason for today's 
hearing. Most notably, there have been technical glitches on 
TSP's Web site that have made it difficult for participants to 
gain access to their accounts. Some of these people needed the 
money for house loans and I am disappointed to hear about these 
problems.
    Mutual fund companies and other retirement plans across the 
Nation have been able to set up complex Web sites. I understand 
the TSP system is complicated by the loan transactions that it 
must process. However, Vanguard manages $500 billion in assets 
for 15 million investors, five times as many assets and 
investors as TSP. Vanguard also has 140 funds, compared to the 
5 that TSP has. Yet, Vanguard has had a sophisticated Web site 
for years.
    We're almost 10 years into the Internet revolution, so I am 
hard pressed to understand why TSP is still having problems.
    I'm also interested in learning about the recent settlement 
of litigation between the TSP Board and a private contractor 
called American Management Systems [AMS]. This company was 
hired to improve record keeping on the TSP Web site, but was 
unable to complete its project. I don't know whether this was 
due to poor contract management, incompetence on the part of 
the contractor, or both. I do know that at the end of the day, 
TSP participants are on the hook for $36 million. That's how 
much was paid to AMS for work that was poorly performed or not 
performed at all. That's $36 million that will be deducted from 
the accounts of TSP participants.
    I realize these problems occurred under previous leadership 
at the TSP Board; however, the problem with AMS highlights the 
importance of properly managing outside contractors, an issue 
that this committee is going to be dealing with more and more 
and more. Even the most professional and efficient contractors 
need clear instructions and close supervision. The failure to 
do so in this case resulted in an unfortunate loss for 3 
million Federal employees and retirees.
    As Congress considers proposals to increase privatization 
of the Federal Government, the story of how average Americans 
lost $36 million is worth remembering.
    I look forward to hearing what the witnesses have to say on 
these topics. I hope we learn something so that we don't repeat 
these problems on an even larger scale in other Governmental 
contracts.
    Thank you, Mr. Chairman. I yield back the balance of my 
time.
    Chairman Tom Davis. Thank you very much.
    [The prepared statement of Hon. Henry A. Waxman follows:]



    [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
    
    Chairman Tom Davis. Mr. Moran, I understand you have to run 
to another committee. We had you originally on, so I'll 
recognize you now.
    Mr. Moran. Sure. Thank you very much, Mr. Chairman. The 
appropriations bill that handles Federal employee pay and so on 
is being considered by the full committee so I do have to run 
over there, but I appreciate very much your having this 
hearing. It is amazing the number of issues this committee has 
been able to tackle since you became chairman, all in a 
constructive way. It didn't always have the reputation for 
doing the most constructive things, but boy this has been----
    Chairman Tom Davis. Thank you. You're given additional time 
if you want it. [Laughter.]
    Mr. Moran. This is important--$112 billion Thrift Savings 
Plan. As Mr. Waxman said, the participants are being billed $36 
million for a failed project in modernizing it, enabling people 
to access their information on a daily instead of a monthly 
basis. It was a laudable objective. I represent 82,000 Federal 
employees--you represent nearly the same number--and 10,000 
military employees who are eligible for the Thrift Savings 
Plan. It's very important for them, but I think it is important 
for the entire country. We have Federal employees living all 
over this Nation, and they rely upon the TSP to be not only 
their source of retirement but the way that they borrow money 
to buy homes and other major purchases, so this cannot be 
overstated how important this issue has been to their lives.
    The fact is that they have been going through horrible 
situations and unbelievable difficulty just to access their 
information and to be able particularly to get the services 
that they rely upon.
    You mentioned some examples of your constituents. I'm sure 
you've had constituents that have told you, as one did, that 
they've spoken with 10 different individuals and gotten 10 
different answers.
    We have a constituent that found the home of her dreams and 
on May 23rd of this year she submitted an application for the 
loan against her Thrift Savings balance, faxed all the 
documents June 3rd. She had a July 11th closing on her house. 
She didn't get the money until July 14th, missed the time, lost 
the home. And it's her money that she wanted to borrow. Now, in 
that case family members lent her the money, but, you know, 
that's not the way it is supposed to work. The Post had a 
headline, ``Computer Problems Shake Faith in TSP,'' and that's 
the basic problem, that people are losing faith in the Thrift 
Savings Plan system. It's a crisis of confidence, not just with 
this retirement system but with the Congress as well, and 
that's why this hearing is so important.
    We've got to get to the bottom of the problem. I'm sure 
that you will through this committee. We need to know what 
measures are being taken to address the enormous backlog that 
has now been created. I think specifically, how did it occur? 
When the governing body spent nearly $100 million and more than 
6 years to create an interactive Web site so that participants 
could access their accounts and conduct transactions on a daily 
basis, you would think $100 million and 6 years would have been 
enough. We need to know when they plan on resolving the 
computer glitch so that retirees can use it. Why has it taken 
so long to get a reliable, efficient, and secure system up and 
running? Where do the participants go now to make transactions 
when the computer system is being fixed?
    I understand that most participants are being told to just 
wait until the problem is resolved. Well, it's their money, 
it's their accounts. That's not a satisfactory response.
    The fact is that the bond of trust has been broken and it 
is our collective responsibility to ensure that we restore that 
confidence on the part of Federal employees in the Thrift 
Savings Plan and in Congress' ability to work with the Board to 
fix it.
    This is a serious issue. I really appreciate the committee 
getting into it. We apologize to all those participants who 
have lost homes or have not been able to access their accounts 
because it just hasn't worked for them. Hopefully, we'll fix it 
in a way that it will never be broken again in this manner.
    Again, Mr. Chairman, thank you for having a hearing on it. 
I trust that by the end of this hearing we're going to get the 
right answers and restore confidence to the participants of the 
Thrift Savings Plan.
    Thank you.
    Chairman Tom Davis. Thank you very much.
    [The prepared statement of Hon. James P. Moran follows:]



    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    
    Chairman Tom Davis. Mr. Jefferson, thank you for being 
here, as well.
    Mr. Jefferson. Thank you, Mr. Chairman. I appreciate the 
opportunity to be a part of this hearing this morning.
    I am here for a number of very specific reasons. Some have 
already been stated by those who have spoken before me. I have 
deep concerns about those who are suffering who are 
constituents of the TSP plan, who are working hard to gain 
access and to get responses that they need. Since I happen to 
be, privileged to be I should say, the representative of the 
New Orleans area where the National Finance Center is located, 
which operates the TSP program, I get it in two ways. My 
concern is deep for those people who are constituent members of 
the Plan and who rightly expect to have the services provided 
to them on a timely and efficient, effective basis. I'm also 
concerned about the employees and management there at the NFC 
who have been unduly stressed, many of whom have had to seek 
medical treatment, and who are concerned about their 
reputations being besmirched by the fact that they are put to 
work on a system which literally doesn't work.
    For many years the National Finance Center has ably 
discharged its responsibility under the TSP program and its 
other responsibilities altogether. We haven't had a complaint 
from the general public about how they have worked. In fact, 
we've had work lauded by those who have worked as managers here 
in Washington, who have worked as managers back in the 
district, and those who have generally had the responsibility 
for judging the effectiveness of the organization, itself, all 
have given very good reports. Employees have, therefore, 
enjoyed a wonderful reputation for service delivery, for 
competency.
    We in the Congress have, year after year, dedicated 
tremendous resources to training our people and making sure 
they kept up their responsibilities, and they have done so.
    And so I am very proud of what we have accomplished in New 
Orleans and what the Center has accomplished, what our 
employees have accomplished, and I am deeply concerned about 
their well-being now, as well as that of the people who are 
seeking to get help from the system.
    So I am very pleased that the leadership at the National 
Finance Center and the Thrift Savings Plan have undertaken any 
number of new measures to try and deal with the backlog. I 
understand they have gone to 12-hour days now. I understand 
they're standing around the phone, working weekends as best 
they can, that they have reduced the backlog from 30,000 to now 
some 5,000 in just a few weeks. They are working very hard to 
fix this, but ultimately the technology is failing them.
    The people out there need a response, need an answer, and 
also the employees need to have the pressure off them and to 
have a chance to do their job.
    So I'm curious, as the others are who have spoken, to hear 
the testimony today. I'm curious to understand the logic that 
allowed a flawed computer finance system to go on line, a 
system that contractors and NFC employees knew still did not 
work properly and had bugs 2 days before. In fact, our people 
told them as much. Nonetheless, it was launched on June 16th.
    Congress needs to get the answers. We owe it to the TSP 
members and the hard-working employees of the NFC. More 
importantly, we owe it to the American people to ensure that 
the Government operates efficiently and effectively and their 
money is well spent.
    So thank you, Mr. Chairman. I appreciate the chance to 
speak to you and to participate in this hearing.
    Chairman Tom Davis. Mr. Jefferson, thank you for being with 
us. I know this is a matter of concern to you, and we 
appreciate your leadership on this issue, as well.
    Mr. Jefferson. Thank you very much.
    [The prepared statement of Hon. William Jefferson follows:]



    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    
    Chairman Tom Davis. Mr. Davis.
    Mr. Davis of Illinois. Thank you very much, Mr. Chairman. 
Let me thank you and the ranking member for holding this 
hearing. I'm pleased that the committee is holding the hearing 
on the Thrift Savings Plan because in my estimation it is long 
overdue.
    The TSP is a retirement, saving, and investment plan for 
Federal employees governed by the Federal Retirement Thrift 
Investment Board. In December of last year the TSP had 
approximately 3 million participants and $102.3 billion in net 
assets available for benefits. The TSP is the largest 
retirement, saving, and investment in the Nation, and the 
Congress has held only one oversight hearing in 10 years. The 
lack of oversight of the TSP may be due to the fact that there 
have been few complaints about the TSP until recently, but 
these complaints make it clear how essential it is for the 
committee to monitor more closely the TSP's activities.
    Over the last 25 years, there has been a shift by employers 
from traditional defined benefit pension plans to defined 
contribution plans like the 410(k). The Federal Government made 
the transition in 1987 when it went from the Civil Service 
Retirement System to the Federal Employees Retirement System 
[FERS].
    FERS consists of three elements: one, Social security; two, 
FERS basic annuity; and, three, TSP. The TSP is a key component 
of FERS because workers are unlikely to realize adequate 
retirement income from FERS without fully investing in the TSP.
    In 1997 the Board awarded a contract to American Management 
Systems [AMS], to develop and implement a new recordkeeping 
system for the TSP. In 2001, after several implementation 
delays, the Board terminated the contract and the Board's 
executive director filed a lawsuit against the contractor on 
behalf of TSP. The TSP Board's suit was hampered by questions 
over whether the Board could file suit independently as it had 
done, or whether it was required to sue through the Department 
of Justice.
    Due to cost considerations, the Department of Labor 
questioned the Board's decision to use private representation 
to argue the case. Of course, Representative Tom Davis, Dave 
Weldon, and myself requested that the General Accounting Office 
examine the Department of Labor's oversight authority as it 
pertains to TSP. GAO's report, which was released in April, 
suggested that to strengthen Department of Labor oversight and 
to increase accountability of the TSP Board, Congress would 
consider amending the Federal Employees Retirement Savings Act 
to allow the Department of Labor to have a formal process for 
ensuring that its concerns are addressed by the Board. The 
committee should take this recommendation under serious 
consideration and work with the Board and the Department of 
Labor to ensure the efficient and transparent management of the 
Thrift Savings Plan.
    After terminating its contract with AMS, the Board hired 
Materials, Communication, and Computers, Inc., to complete the 
AMS contract and to develop a modernized recordkeeping system. 
The new system, which went on line on June 16th, was designed 
to allow participation to perform an array of new services on 
the TSP Web site. However, the participants have been 
experiencing problems and delays in accessing the new system in 
this manner. This problem is very troubling, and I hope that it 
will be resolved soon.
    I thank you, Mr. Chairman, again for holding this hearing, 
and I certainly trust that we will find some answers and 
directions as we hear from the witnesses.
    I thank you very much.
    Chairman Tom Davis. Thank you very much.
    [The prepared statement of Hon. Danny K. Davis follows:]



    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    
    Chairman Tom Davis. Do any other Members wish to make 
opening statements?
    [No response.]
    Chairman Tom Davis. If not, we'll proceed to our first 
panel. I invite you to come on up here.
    We have a distinguished panel. We have the Honorable Andrew 
Saul, the chairman of the Federal Retirement Thrift Investment 
Board. Mr. Saul is accompanied by Gary Amelio, the Board's 
Executive Director. Both are relatively new to this. We 
appreciate your being here.
    Next we'll hear from the Honorable Edward McPherson, Chief 
Financial Officer, Department of Agriculture. He is accompanied 
by Jerry Lohfink, who is the Acting Director of the National 
Finance Center.
    And rounding out the first panel is Alan Lebowitz, the 
Deputy Assistant Secretary for Program Operations, Employee 
Benefits Security Administration of the Department of Labor.
    It's the policy of this committee that all witnesses be 
sworn before they testify. If you would rise and raise your 
right hands.
    [Witnesses sworn.]
    Chairman Tom Davis. Thank you very much.
    In order to allow time for more questions and discussion, 
try to limit your opening statement to about 5 minutes. We have 
a light in front; it will be green at the outset of your 
remarks. After 4 minutes it turns orange, and the 5th minute it 
turns red. That will give you an idea. Once it is red, if you 
could try to move to summary--your entire statement is in the 
record and Members or their staffs have read it and have based 
questions on the entire statement, so this will give you an 
opportunity to highlight that.
    Mr. Saul, thanks for being with us. In some sense this has 
been dumped on you and you are kind of sitting there trying to 
solve this, and we just appreciate your being here and trying 
to work with us to get this system up and going.

STATEMENTS OF ANDREW SAUL, CHAIRMAN, FEDERAL RETIREMENT THRIFT 
    INVESTMENT BOARD, ACCOMPANIED BY GARY AMELIO, EXECUTIVE 
DIRECTOR, FEDERAL RETIREMENT THRIFT INVESTMENT BOARD; EDWARD P. 
    MCPHERSON, CHIEF FINANCIAL OFFICER, U.S. DEPARTMENT OF 
  AGRICULTURE, ACCOMPANIED BY JERRY LOHFINK, ACTING DIRECTOR, 
 NATIONAL FINANCE CENTER, U.S. DEPARTMENT OF ATTORNEY GENERAL; 
   AND ALAN LEBOWITZ, DEPUTY ASSISTANT SECRETARY FOR PROGRAM 
  OPERATIONS, EMPLOYEE BENEFITS SECURITY ADMINISTRATION, U.S. 
                      DEPARTMENT OF LABOR

    Mr. Saul. I appreciate the opportunity to address this 
distinguished committee. Good morning, Mr. Chairman and members 
of the committee. My name is Andrew Saul and I serve as 
chairman of the Federal Retirement Thrift Investment Board. I 
am accompanied today by Gary Amelio, the Board's Executive 
Director. My fellow Board members and I serve in a part-time 
capacity. Four Board members are relatively new to our 
positions. Three of us participated in our first Board member 
meeting last December, and our newest member is joining us for 
his first meeting today. The five Board members and the 
Executive Director are fiduciaries and, as such, are required 
to act solely in the interest of the Plan participants and 
beneficiaries.
    In January the Board established an open and orderly 
process through a 5-month nationwide research that resulted in 
the selection of Gary Amelio, a private sector pension and 
investment expert, who began his service as the Executive 
Director just a few weeks ago. We have provided information on 
Gary's extensive experience in these areas to the committee. 
The Board is quite confident that Gary will bring his 22 years 
of private sector experience to result in the betterment of the 
Thrift Savings Plan for the participants.
    In your letter of invitation you asked that I address 
issues in three distinct areas: the new TSP recordkeeping 
system; the settlement of the lawsuits between the agency and 
American Management Systems, Inc.; and potential legislative 
improvements in the TSP. I welcome the opportunity to discuss 
each matter.
    When the new Board members first convened last December, we 
learned that a proposed daily valued recordkeeping system had 
been plagued by a series of delays and a contract termination. 
A new contractor, MATCOM, was already in place at that time, 
having replaced the prior contractor, AMS. After receiving 
detailed briefings, I and the other Board members felt it was 
appropriate to keep moving forward with a goal to deliver to 
Plan participants the improvements first promised in 1997. The 
improvements to which I refer are daily rather than monthly 
valuation of accounts and Web-based transactional ability. This 
upgrade in services for the Plan participants would bring the 
TSP to a comparable status with plans in the private sector.
    The Board received status reports at each of our monthly 
Board meetings, and the new system was put into production just 
1 month ago on June 16, 2003.
    Since that time we have successfully processed large 
numbers of transactions each day and recorded them in the new 
system. However, performance in certain areas has been 
unsatisfactory and requires improvement. I would like to 
discuss both.
    Between June 16th and July 15th, we processed nearly 5 
million new contribution transactions totaling $1.2 billion and 
more than 1 million loan payments to service the almost 800,000 
outstanding TSP loans. New contributions and loan repayments 
have been credited to individual accounts each night. In 
addition, the daily share prices for each of the five 
investment funds have been calculated by the agency and applied 
to these accounts. These functions, which are absolutely 
essential activities, have been and are working just fine.
    We also issued more than 12,000 new loans and 32,000 
withdrawal payments through the new system. On June 16th, we 
processed 59,000 inter-fund transfers on hand at that time and 
nearly 50,000 more in the month that followed.
    One area where we did not anticipate poor performance but 
which initially reduced the opportunity for participants to 
join the advantages of the new system is Web access. Almost 
immediately after we announced the new system implementation, 
Web access became degraded and terribly slow. Only 3,000 to 
5,000 Web transactions could be handled each hour, which was 
less than 1/10 of the volume achieved in stress testing. It 
took more time than we would have liked to identify and solve 
this problem.
    I am pleased to report that we have recently solved this 
problem. Up to 50,000, Web transactions are now being processed 
per hour, a volume that is greater than the highest level ever 
achieved under the previous system. Access is still very slow 
due to high volume between the peak activity hours of 8 a.m. 
and 4 p.m. The Web is much quicker at other times.
    Additional performance improvements are on the way that 
will increase Web volume and further improve online response 
time. One significant problem has greatly impacted a small 
percentage of Plan participants. This problem is largely 
operational in nature and is being resolved through manual data 
entry. The primary group of impacted participants are those who 
have attempted to pay off existing TSP loans in order to apply 
for new loans. In many cases, these individuals already have 
the maximum two loans allowed under the Plan and their loan 
repayments were not processed quickly enough to allow for the 
disbursement of a new second loan as quickly as they wished. 
When a participant pays off an existing loan, his or her check 
must be processed and the loan closed before the new 
application processing can begin. As of late last week, a 
backlog of about 7,000 loan repayment checks remained to be 
manually processed. 2,000 checks transferring funds from other 
plans to the TSP known as roll-overs also required manual 
processing. I call to your attention the fact that this is 
9,000 participant transactions from a universe of 3 million 
participants.
    Additional recordkeeping staff were assigned to data entry 
of these loan repayments. We have also hired contractor support 
at two separate sites to supplement this increased effort. We 
have used the same approach to process the paper loan and 
withdrawal applications which participants had submitted to 
overcome the initial Web access problems. The backlog in this 
area was approximately 70,000 forms as of late last week. The 
manual input process has been hampered by slowness on the Web. 
This is due to heavy volume caused in part by concerned 
participants whose loan checks have been delayed. We expect 
this backlog to be eliminated in 3 to 4 weeks.
    Although the new system has successfully processed a very 
large volume of transactions, these past few weeks were very 
difficult for several thousand participants, primarily those 
seeking to refinance loans. I note that under the previous 
system, processing problems frequently meant the payments would 
be deferred until the following monthly cycle. A check would 
then be mailed to participants. This new system allows us to 
issue payments on any business day rather than once each month 
and do so via electronic fund transfer. We intend to use the 
new system flexibilities to the best advantage as we resolve 
the outstanding loan requests.
    Settlement of lawsuits--the second major unresolved issue 
facing the new Board members when we first met in December was 
the matter of ongoing lawsuits. They involve the termination of 
the first contract to build the new TSP recordkeeping system. 
The Board and our new executive director reviewed the cases at 
length with the agency's General Counsel, solicited advice from 
private attorneys who represented and assisted the agency in 
preparation of the claims, and additionally solicited advice 
from attorneys in the Department of Justice and the opinions of 
the senior agency staff.
    Based on all of that information, the Board supported the 
Executive Director's decision last month to accept the 
settlement offer that netted $5 million for participants. We 
are convinced that this was the correct decision for a number 
of reasons. First, continued litigation left the Thrift Savings 
Plan open to a contract claim by AMS against the agency that 
could have cost participants as much as $58 million. Second, 
continued litigation would consume additional time, money, and 
resources. The agency already had spent approximately $2.7 
million in attorney and expert fees, and continuing the 
litigation would have cost much more. The agency had been 
pursuing the case since July 2001 without reaching the merits 
and we believe it would have taken another year before it could 
be determined whether the agency could proceed independently of 
the Department of Justice. Further, agency personnel devoted 
many hours of work to pursue the litigation, and the demands on 
these personnel would have become more intense as the 
litigation proceeded. Settling allows all agency personnel to 
focus on their principal duty of providing retirement benefits 
for the participants. For these and other reasons, we concluded 
that accepting a settlement that put $5 million back into the 
accounts of TSP participants was the right thing to do.
    After the case was settled, $36 million was charged to 
participant accounts. This reflects the $41 million in 
administrative expenses incurred and paid out of the fund 
during the period 1998 to 2001 that had not been charged to 
participants pending resolution of the lawsuit, minus the $5 
million received as part of the settlement. Charging the 
accounts is consistent with pending recommendations from both 
the General Accounting Office and the Department of Auditors. 
The charge allocated to each participant was approximately 
three basis points and meant that the earnings were reduced 
approximately 30 cents for every $1,000 of account balance.
    Congressman, in order to save time, may I just proceed for 
one more moment in my closing remarks, which I think are very 
pertinent?
    Chairman Tom Davis. OK.
    Mr. Saul. It will just take another moment.
    Chairman Tom Davis. I'll give you some time because I know 
you are kind of on the spot here and we want to make sure you 
have the time.
    Mr. Saul. I appreciate that.
    In closing, I would like to say that the last 6 months have 
been a time of tremendous change at the agency. Due to the 
events that occurred just days before the Senate confirmed the 
new Board members, we immediately had to deal with the issue of 
agency leadership upon our arrival. We also resolved, to the 
benefit of Plan participants and beneficiaries, the 
longstanding lawsuits that left the fund with significant 
potential liability, while diverting agency attention and 
resources. We initiated a new era of openness with our 
statutory auditor, the Department of Labor, and sought and 
obtained the assistance of the Department of Justice without in 
any way diminishing the high fiduciary obligation we have to 
the participants.
    Since arriving, Gary has already contacted the employee 
organizations that comprise the statute Employee Thrift 
Advisory Council in order to communicate ongoing activities and 
to set up an initial meeting as the law provides. He has also 
initiated due diligence reviews with the fund's two largest 
vendors, Barclays and the National Finance Center. We are now 
delivering the promised benefits of the new daily recordkeeping 
system to 3 million participants who want their contributions 
and loan payments processed and account balances updated each 
day.
    Going forward, we are processing transactions via the Web 
and are working through the operational issues that are 
affecting loans, as I described in my statement.
    We expect to have these issues substantially resolved in a 
matter of weeks, and we are confident that the new system will 
provide many years of solid service to all our participants.
    That concludes my prepared remarks.
    I would like to introduce the new TSP Executive Director, 
Gary Amelio, to the committee and request that he provide the 
committee with a brief update regarding the status of 
transaction processing.
    Thank you.
    Chairman Tom Davis. Thank you.
    [The prepared statement of Mr. Saul follows:]



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    Chairman Tom Davis. Before we go ahead, let me just--I'm 
not going to put this letter in the record, but we received a 
letter addressed to our committee from a guy who had his house 
foreclosed on in California because he could not get the 
information from you all. What I'd like to do is give this to 
you and get your assurances that you'll do your best to try to 
correct this. He couldn't get any calls back and still can't 
get anything and his credit rating is ruined. So if I could 
give this to you and you could check that, could I have your 
assurance you'll look at this personally?
    Mr. Saul. Yes. Congressman, I want to assure you we don't 
take these problems, as you know, lightly, the problems that I 
described in my statement, and we will do everything we can and 
we will certainly get back to you and to this person, this 
aggrieved party.
    Chairman Tom Davis. OK. I'll give this to you. Thank you 
very much.
    Mr. Amelio.
    Mr. Amelio. Thank you, Andrew.
    I would like to provide the committee with a brief update 
on the current status of the Plan's transactional activity.
    The Plan currently serves over 3 million participants and 
holds over $113 billion in assets. It is the largest defined 
contribution plan in the world, whether defined by number of 
participants or value of assets. The conversion of a defined 
contribution plan into a daily system is the single most 
sophisticated and technical transformation that any retirement 
plan can undergo. To put this into context, you have today one 
of the largest and most respected private sector vendors, TIAA-
CREF, testifying later. They service 2.6 million participants. 
This represents a half million less participants than the TSP. 
Moreover, the TIAA-CREF participant base actually belonged to 
hundreds if not thousands of individual, unrelated plans which 
have been converted to daily, one plan at a time, over the past 
20 years. The TSP was converted as one single plan.
    I can state without reservation or hesitation that, based 
upon over 20 years of private sector experience in this field, 
it is an incredible accomplishment that the TSP was converted 
without blackout period or other interruption of service to the 
TSP's 3 million participants. The fact that some 10,000 
participants have experienced substantial delays of between 2 
to 6 weeks in receiving loan checks, and have experienced 
further frustration in slow Web site response or activity 
update and busy call center lines, is terrible and we are sorry 
for their anguish. It should be noted, however, that while some 
of these participants have experienced severe hardship, as 
reported to the media and to your offices, the totality of such 
problems represent less than one-third of 1 percent of all Plan 
participants.
    Since becoming operational 40 days ago, the system has 
conducted record numbers of transactions. This past Monday, 
813,000 transactions were conducted. Since June 16th, in excess 
of 400,000 transactions were conducted on each of 20 days. 
Prior to June 16th, the number of transactions processed on a 
given day exceeded 500,000 only once in the Plan's life, that 
being on June 5th of this year.
    This is an incredible increase in capacity performance. 
Even the Web site, which has at times operated sluggishly, has 
performed in an impressive fashion. The average response time, 
which began slowly in the first 15 days of operation with an 
average response time of 20 to 80 seconds, has since improved 
to a daily average not exceeding 5 seconds since July 1st. The 
transaction processing and Web site response numbers are 
illustrated in the two color-coded graphs provided to the 
committee members.
    With respect to the backlog, as of this morning all loan 
repayments have been processed, a reduction of 7,049 
participant transactions, opening for these individuals the 
ability to obtain approval for new loans. Currently, 10,800 new 
loans have been applied for, all believed to be within an 
acceptable 10-day window, 6,500 of which will clear this 
evening.
    While these performance numbers are large and impressive, I 
pledge the agency's continued efforts to improve Web and 
telephone response times and to clear the backlog of 
outstanding loans and rollovers.
    We extend an offer to the members of this committee to see 
one of our representatives after this hearing if they would 
like a demonstration of the Web site or to view their own 
particular TSP account on the Web site.
    Thank you for your attention.
    [The information referred to follows:]



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    Chairman Tom Davis. Thank you.
    Mr. McPherson, thank you for being with us.
    Mr. McPherson. Mr. Chairman, members of the committee, 
thank you for inviting me to focus today on the National 
Finance Center's role in serving the interests of the 
participants in the Thrift Savings Plan.
    As context, the National Finance Center is a valuable, 
successful, strategic asset of the Federal Government that is 
part of the Department of Agriculture. The National Finance 
Center is an operations center whose lines of business 
aggregate to $180 million of service revenue and approximately 
1,600 people.
    There are three lines of business at the National Finance 
Center. First, the Controller Operations Division of the 
National Finance Center performs accounting operations for the 
Department of Agriculture. Second, the National Finance Center 
processes payroll for over 500,000 Federal employees. Third, 
the National Finance Center performs work using systems 
supplied by the Federal Retirement Thrift Investment Board to 
process recordkeeping transactions for the participants in the 
Thrift Savings Plan. Specifically, the work we perform in our 
role of supporting the Board consists of entering data from 
participant transactions received by mail, processing 
participant fund allocations, inter-fund transfers, loan 
agreements and disbursements, processing withdrawals and 
payments to and from participants, and providing telephone 
customer service to participants.
    The Thrift Savings Plan is a highly automated process. The 
work performed by the customer service representatives at the 
National Finance Center is dependent upon having a stable, 
reliable, available computer system designed, developed, and 
implemented by the Thrift Board and its contractors.
    There are three primary elements on which the Thrift 
Investment Board worked with the National Finance Center prior 
to the launch of the new recordkeeping system. One, training 
was conducted on the use of new system capabilities. Second, 
historical data on participant records were prepared for use in 
the new system. Third, computer hardware requirements for the 
new system were provided to us and implemented.
    For several weeks after the Board launched the new system 
on June 16, 2003, limited system functionality of the Web 
access and the component of the system used by customer service 
representatives and transaction processing elements limited the 
ability of the National Finance Center to perform the work I 
have described.
    The central issue of today's hearing is: What actions are 
being taken by the Thrift Investment Board to provide service 
to their customer base of participants? In response, the 
National Finance Center has adapted to the new system by 
working closely with the Board's executives to take specific 
actions, including expanding the length of data entry work 
shifts, augmenting the work force with additional people in 
data entry and telephone service, extending customer service 
hours, and notifying the Board and its contractors of 
corrective actions required. These actions are focused on 
reducing the backlog of work, addressing participant 
informational needs, and doing whatever is possible to assist 
the board in stabilizing the new system.
    I assure you, Mr. Chairman, members of the committee and 
all participants, that the staff of the National Finance Center 
is fully dedicated to working closely with the Board to restore 
service as the National Finance Center has done for the prior 
18 years.
    I appreciate the opportunity to participate today, 
representing the National Finance Center in addressing the 
interest of all participants, and I look forward to addressing 
any other items of particular interest of the committee.
    Chairman Tom Davis. Thank you very much.
    [The prepared statement of Mr. McPherson follows:]



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    Chairman Tom Davis. Mr. Lebowitz, thanks for being with us.
    Mr. Lebowitz. Good morning Mr. Chairman and members of the 
committee. My name is Alan Lebowitz; I'm Deputy Assistant 
Secretary for Program Operations of the U.S. Department of 
Labor's Employee Benefits Security Administration [EBSA]. I 
appreciate the opportunity to appear before you today to 
discuss the Labor Department's activities in connection with 
the Federal Thrift Savings Plan.
    In addition to its TSP oversight responsibilities, EBSA 
currently oversees approximately 730,000 private sector pension 
plans and millions of private sector health and welfare plans 
that are subject to the Employee Retirement Income Security Act 
of 1974 [ERISA]. The pension plans under our jurisdiction hold 
over $4 trillion in assets and cover more than 45 million 
workers.
    Title I of ERISA establishes the fiduciary standards of 
conduct for persons who administer and manage pension and other 
benefit plans. In addition, it establishes standards for the 
reporting and disclosure of Plan financial and benefit 
information to the Department and to Plan participants.
    In light of the Department's experience and expertise in 
the administration and enforcement of ERISA, Congress charged 
us with administering substantially similar provisions of law 
governing fiduciary conduct for the TSP under the Federal 
Employees Retirement System Act of 1986 [FERSA]. To ensure the 
integrity of the TSP, FERSA established rules for fiduciary 
responsibility, prohibited transactions and bonding 
requirements. These standards are substantially similar to 
rules governing private sector pension plans under ERISA. The 
rules specify that the Board members and Executive Director are 
fiduciaries of the TSP. Accordingly, they and other Plan 
fiduciaries must discharge their responsibilities prudently and 
solely in the interest of participants and beneficiaries.
    As in ERISA, the Secretary has broad authority to 
investigate and audit the activities of the Board and other 
Plan fiduciaries. When FERSA was enacted in 1986, the Secretary 
had the power to bring civil actions against the Plan's 
fiduciaries for breaches of their fiduciary responsibilities. 
This changed in 1988, when Congress amended the act and 
specifically precluded suits by the Secretary against the 
Board's members and Executive Director.
    Though Plan participants and other fund fiduciaries retain 
the right to sue Board members, the amendments do not permit 
any claims for monetary recovery against these individuals. The 
1988 amendments treat actions against the Board for recovery of 
losses to the fund as tort actions against the United States, 
which are defended by the Attorney General; however, nothing 
prevents the Department from bringing an action for recovery 
against other TSP fiduciaries such as investment managers.
    Section 8477(g) of FERSA specifically 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. Under the statute, the Secretary may contract with a 
qualified non-government organization or conduct the audit in 
cooperation with the Comptroller General of the United States. 
The Department has always elected to contract with an 
accounting firm. Currently, KPMG LLP conducts the TSP audits 
under the supervision of the EBSA Chief Accountant.
    To guide the auditors, the Department has developed a 
fiduciary oversight program that uses detailed guides to test 
for compliance.
    In response to recent concerns expressed about access to 
the TSP's Web site, we are planning to review its customer 
service, loan and withdrawal subsystems in next year's audit 
cycle.
    Although FERSA does not require the Board to adopt the 
Department's recommendations, disagreements are rare and 
generally are due to the timing or the form of implementation 
rather than to outright refusal. Since the inception of the 
audit program, the Department has made over 800 recommendations 
that have ranged from legal compliance issues to efficiency 
issues. Of these recommendations, 95 percent have been 
implemented. The remaining recommendations primarily involve 
future controls for the TSP's new recordkeeping system as it 
moves past its June 2003 implementation.
    This high compliance rate with audit recommendations is due 
to the longstanding and positive working relationship between 
the Department and the TSP service providers and fiduciaries; 
however, there have been issues about which the Department and 
the Board have disagreed. These issues arose in the context of 
the Board's 2001 lawsuit against American Management Systems. 
The disagreements included the decision by the Board to retain, 
at considerable expense to the Plan outside counsel to 
represent it in this litigation and the accounting of the costs 
for the failed system's development.
    Though unable to take direct enforcement action on these 
matters, the Department referred its findings to the GAO and 
OMB and discussed these issues with congressional committees of 
jurisdiction, including this committee's Civil Service 
Subcommittee.
    We look forward to working with Executive Director Amelio, 
Chairman Saul and the other Board members, most of whom have 
been recently appointed by the President. We anticipate 
continuance of a free and candid exchange of views that will 
greatly benefit not only the Department in its oversight 
capacity but, most importantly, TSP participants and 
beneficiaries.
    Thank you again, Mr. Chairman, for the opportunity to 
testify before you today. I look forward to working with you 
and members of this committee on this important matter. I would 
be pleased to answer any questions that you may have.
    Chairman Tom Davis. Thank you all.
    [The prepared statement of Mr. Lebowitz follows:]


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    Chairman Tom Davis. I want to thank you all for being here. 
I'm going to do my 5 minutes of questions and then I'm going to 
hand the gavel over to Mrs. Davis, who is the chairman of our 
Civil Service Subcommittee and also has a keen interest in this 
and literally tens of thousands of constituents that are caught 
up in this.
    There are a couple of major questions. This is really for 
Mr. Saul and Mr. Amelio. There have been some severe hardships, 
as I talked about the guy--I'm going to give you his letter--
who lost his house because he couldn't get through. What would 
you say to a participant now? What are they supposed to do when 
the Web site is down, the phone lines are busy and sending 
materials through the mail doesn't get a response? What would 
you do in that situation at this point? What would be your 
advice to them?
    Mr. Amelio. That's perhaps the toughest question we'll get 
today, Congressman.
    Chairman Tom Davis. Don't say, ``Call your Congressman.'' I 
mean, we're busy.
    Mr. Amelio. No, I wouldn't do that.
    Chairman Tom Davis. They're doing it.
    Mr. Amelio. I recognize that. The National Financial 
Service Center has extended its hours in its call center from 6 
a.m. to 6 p.m. I believe that's central time. In addition, the 
Web site is improving access daily. Once this backlog is 
concluded of existing primarily hardship--I'm sorry, 
participant loans and rollover checks, we suspect that the 
telephone access will improve significantly.
    The calls from frustrated participants who cannot access 
their balances take significantly more time than a routine 
business transaction, and that's true in the private sector as 
well as with this Plan. Once we get that backlog through, we 
believe it should open up the telephone response lines 
somewhat.
    We're also going to review with the Service Center when I'm 
down there next week, some other alternatives with respect to 
increased capacity.
    There's also the opportunity to provide comments on the Web 
site, hopefully in a responsible manner, which our staff 
reviews and has the option of getting back to individual 
participants.
    Chairman Tom Davis. But, I mean, you've just been buried on 
this thing, to start out.
    Mr. Amelio. Yes, sir.
    Chairman Tom Davis. And it has been so overwhelming. I just 
wonder, in retrospect as we look at this--and I had some 
dealings with the previous executive director, who was, 
frankly, a pretty hard guy to get along with. I mean, you see 
it by the lawsuits he has filed and the stuff he has--I mean, I 
don't think they actually had a sense of proportion in terms of 
how difficult this was, the enormity of the issue, and rolling 
this out all at once. I just wonder, in retrospect, did we roll 
it out too soon? Should we have done it in stages? Should we 
have had both systems up for a while as a backup? I think 
clearly there was a lot of pressure to move this out because of 
promises by the previous regime but, in retrospect, how could 
we have changed this?
    Mr. Amelio. You know, sometimes----
    Chairman Tom Davis. Recognizing you had nothing to do--I 
mean, literally the system was put up under a previous regime.
    Mr. Saul. I don't think that's completely so. I mean, I 
take responsibility for this and I know Gary does, even though 
we are new on the scene.
    First of all, I want to assure you that this system was not 
just put up willy-nilly . I mean, we spent over $6.5 million in 
parallel testing that the Board approved. Actually, we approved 
over $3 million I believe the number was, additional money this 
spring to be sure that we ran both systems concurrently and 
that the system would actually work when it was turned on June 
16th.
    The problem is, as you know, this is an enormous system, 
very, very complex, and what happens is, even in the parallel 
testing and in the lab phase, once you get into the real world 
there are things that happen that we just didn't realize would 
happen, no matter how much testing we did. And I think that, in 
retrospect, it was the right decision to turn the system on. 
Obviously, we don't take lightly all these people, as you 
mentioned a particular case of somebody that lost their home. I 
mean, this is really serious business and we realize this is 
the substantial part of the retirement of the Federal workers 
and the military, so I want you to be assured that this Board 
and the Executive Director do not take that responsibility 
lightly.
    Chairman Tom Davis. But I guess my question is, in 
retrospect, as we look back, that June start date, what could 
we have done differently, knowing what we know now?
    Mr. Saul. You know, I'm not sure that we could have done 
that much differently. The only thing we might have done is we 
might have had a blackout period.
    Gary, would you like to comment on this, because I know you 
have thoughts about that.
    Mr. Amelio. I would. We've discussed this and I have 
received this inquiry from the media and from other experts. I 
think the only other thing that, when the decision was made, 
could have been done would have been a blackout period. And you 
might be familiar with that from some discussions that went on 
in the media with respect to Enron, where participants were 
prohibited from trading stock in their account. That goes on 
normally.
    Had we engaged in a blackout period back before this Plan 
went into daily, there would have been a moratorium for, let's 
say, a 3-month period, which is fairly standard, whereby 
participants would not have been able to make loan 
applications, hardship withdrawals, or make any kind of 
investment changes, what we call ``inter-fund transfers'' in 
the TSP. That would have impacted all 3 million participants in 
this case by going up and only----
    Chairman Tom Davis. We've had a de facto blackout period 
for some of the applicants right now without one, but I 
understand what you're saying. I mean, obviously a great 
reluctance to do that.
    Mr. Amelio. Yes.
    Chairman Tom Davis. Just the enormity--I mean, what I'm 
hearing is the enormity of this project. Are you satisfied with 
MATCOM----
    Mr. Amelio. Yes.
    Chairman Tom Davis [continuing]. At this point?
    Mr. Amelio. Yes, sir.
    Chairman Tom Davis. OK.
    Mr. Saul. Congressman, we believe that this system is a 
good system. There were mistakes made. There's no question 
about it. We had a lot of problems in the initial startup, but 
as the numbers that Gary has provided the committee today show, 
you can see that the backlog is working down. I think you're 
looking at a 3 or 4 or 5-week period until we get this thing 
cleaned up, and I think then you're going to have a really good 
system that the participants and we can be proud of.
    Chairman Tom Davis. And the last thing I want to say is 
just, I mean, there is some carnage to some of the participants 
that's severe.
    Mr. Saul. Absolutely.
    Chairman Tom Davis. If we can try to give--I mean, losing 
your house is serious--your existing house, not a new house 
that you couldn't get, but there have been a number of 
instances of that. To the extent that we can step in and try to 
mitigate that at this point, I'm going to give you that one 
letter. I don't know. I mean, we just need to give priority 
here to try to--the people that have been the most severely 
impacted, if there's a way they can get through and get 
addressed quickly, and then we move on. I think a year from now 
we may be able to sit back and have a different perspective on 
this.
    I recognize the enormity of this project and the complexity 
of this project, and I'm not sure the previous Board understood 
that all when they started to get in and had some very 
unrealistic dates to try to move it through and got impatient. 
We can look back at that, and we'll have the GAO go through 
that eventually and may be able to come back and there can be 
guidance to other systems but, regardless of that, moving 
ahead, there is some carnage out there that's severe that we 
just need your cooperation in trying to mitigate the damage 
there as we move forward.
    I want to thank you all for being here. I'm going to turn 
the gavel over to Mrs. Davis. Thank you.
    I recognize on this side Mr. Jefferson.
    Mr. Jefferson. Yes. Thank you very much for your 
presentations.
    I want to see if I can be a little more specific than the 
chairman's question was. If a person today applies for a loan 
against their TSP account, a loan for whatever purpose, what 
can that person expect to happen? How might that process work? 
If you apply today, how long might it be before he gets done 
with it? How will the Web site work today for someone? I 
realize there were problems in the past, but I think you are 
saying they have been reduced substantially and now they would 
have a different experience. What would that experience be?
    Mr. Amelio. Generally speaking, Congressman, in an ordinary 
circumstance an individual participant in the TSP that would 
make their loan application through the Web I believe could 
generally expect to receive processing and a check directly 
deposited or a check received within 7 to 10 days, and that 
would be actually, I think, very standard in the industry 
amongst the most accelerated kinds of participants.
    What happened in this particular circumstance, if I may go 
on and elaborate on this answer is, where these hardship cases 
that we're hearing about come up, the TSP is a particularly 
generous plan by national standards. It permits participants to 
have two outstanding loans at a time. You don't typically find 
that in a defined contribution plan. It also permits a 
participant to repay either loan at any time and then 
immediately thereafter refinance another loan.
    What happened here, the cause of the delay was many of 
these participants, a few of whom I've actually spoken to 
directly on the phone--I've taken a few calls, myself--they 
were attempting to repay one loan and immediately get another 
loan, and they were doing it during this conversion process 
when we were moving from the old paper system onto the new 
daily system and had to resubmit new forms and got caught up in 
the backlog.
    Mr. Jefferson. But today--I realize these problems you're 
talking about happened in the past, but today a person could 
experience 7 to 10 days from the time he applied to the time 
they'd get a response and get the matter resolved? Are you 
saying that could happen today, and routinely happen?
    Mr. Amelio. I'm saying it should. It may not. Once this 
backlog gets cleaned out it should work that way. And we're 
also assuming there's no special circumstances--for example, 
someone trying to pay off one loan and immediately----
    Mr. Jefferson. See, the features you're talking about, 
about paying off loans and the multiplicity of loans that are 
authorized, these are features of the program. These are not 
new ideas that this system encountered for the--when you put 
the system together, you knew these were already features and 
therefore it should have accommodated to them, and so I'm just 
trying to see now whether we've resolved it enough.
    You said there's a smaller number of people involved, out 
of 3 million some very small number that have experienced 
problems. Now we've reduced that. I'm just trying to see 
whether we're back to regular order now or whether we still 
have these problems so we can know where we're going forward.
    You say in the next 3 months or so we expect--if we can't 
do it today, you're saying the next 3 months we'll have this 
thing resolved where in 7 to 10 days if somebody applies 
they'll get the loan, routinely get it in, get it out, and it 
will be done?
    Mr. Amelio. I think 3 months is way on the high side. I 
think within the next few weeks we're going to----
    Mr. Jefferson. The next few weeks?
    Mr. Amelio. Yes.
    Mr. Jefferson. That's real good news.
    Now, the last thing is: what is the reason for the slowness 
at the Web site? I understand you've got a backlog and all 
that, but does this Web site have some inherent problems of 
speed? What's the bandwidth involved with this thing?
    Mr. Amelio. I'm the last person that should be commenting 
on IT technical issues, but I will make an attempt to put into 
English what our IT folks have told us. You cannot anticipate 
every single problem, and some of the slowness in the system is 
coming from the overwhelming capacity right now. The purpose of 
your remarks was to highlight for the Members the incredible 
increased activity into the Plan that had never before existed. 
As we've indicated, on 20 of the last 40 days there has just 
been an overwhelming number of transactions which far outstrips 
anything the Plan has seen before.
    The Plan was set up to handle approximately 50,000 
transactions per hour, which itself is a staggering number, and 
we could perhaps do that if that's all we were looking at, but 
we're just flooded. Since we've gone daily, all these 
participants now have a new heightened awareness.
    Mr. Jefferson. I realize I may be asking questions that you 
don't have the technical responsibility for, but one last 
little thing. What about those people who used the old paper 
application and who are still waiting for approval? They're not 
people who are going to come today and apply through the Web 
site; they have an old paper application and they're waiting 
for approval. What about those people?
    Mr. Amelio. As I indicated in my remarks earlier, 
Congressman, on the first loans we have cleared all of the 
repayments of the first loan, which now opens up all 7,000 
participants to have their next loan processed. And right now 
there are--just bear with me for a second--about 13,000 new 
loan applications, and 6,500 of which we plan on clearing this 
very evening. That's almost half right there. And we believe 
all of those to be within this 10-day window.
    Mr. Jefferson. Thank you. I appreciate that, your answers.
    Mr. Amelio. Yes, sir.
    Mrs. Davis of Virginia [assuming Chair]. Thank you, Mr. 
Jefferson.
    I have a question, and I don't know who wants to answer it, 
but were there any options similar to those submitted by the 
Federal Managers Association representative considered before 
launching into this new system?
    Mr. Amelio. I'm advised we haven't seen those.
    Mrs. Davis of Virginia. So you didn't have any other 
options other than the one you went with? Is that the only----
    Mr. Amelio. We haven't seen any options presented.
    Mrs. Davis of Virginia. OK. You know, it's one thing to 
have a problem with people getting answers on electronic 
transaction requests, but how do you explain the folks who have 
sent it by regular postal mail? I have constituents that sent 
things in by mail that haven't been responded to.
    Mr. Amelio. We're working through the backlog. It's just a 
huge volume, and, you know, we're not staffed up for it. We're 
an incredibly lean operation, as has been mentioned. The 
expense ratios of this plan are about 7 basis points, compared 
to about 120 basis points that you would find in the private 
sector. It's a lean, meanly run plan and we're getting to it, 
but it's just a matter of working through the backlog.
    Mrs. Davis of Virginia. I'm advised you probably didn't see 
what the Federal Managers Association suggested, and since they 
haven't testified yet--they're next--maybe you can tell me what 
you think of testing before launching the system, 
grandfathering the loan application system, notifying 
participants about the changes, providing detailed contact 
information for troubleshooting, allowing old and new systems 
to run parallel until all kinks are resolved, providing 
adequate customer service staffing and support, and keeping 
participants informed. Did you do any of these things?
    Mr. Saul. Well, first, let me assure you, as I said to 
Congressman Davis, we spent over $6.5 million parallel testing 
this system. This was not just turned on and said, ``Good luck, 
let's see what happens.'' We went through a tremendous amount 
of testing over months down at the National Finance Center. But 
the fact is, when you go live with a system of this size and 
this complexity, there are things that are bound to occur that 
in a laboratory and testing you just don't see, and there were 
things that we did not anticipate.
    For example, the first couple of weeks, which really set us 
back, the Web access was very slow. We were only able to get 
about 3,000 to 5,000 hits on the Web in the first initial week 
or two of the system.
    Mrs. Davis of Virginia. Why was it slow the first week or 
two?
    Mr. Saul. Technology problems in the system. However, what 
has happened is, in the last 2 weeks now we are up to 
processing up to 60,000, which the system wasn't even really 
designed for. It was designed for 50,000 transactions an hour. 
So by working through the bugs and working through the IT 
problems, we were able to clear up the Web, so that's 
tremendous. I mean, I was on the Web yesterday, Congresswoman, 
in Mr. Amelio's office, and we went out at 2:30 p.m. which is 
the height of high congestion, and we were on within 1 second. 
We went right onto the Web access, Gary's account. And we have 
a demonstration, as a matter of fact, for those that want to 
stay around and see it, where you can put your own PIN number 
in, Social Security number, and access the Web right here and 
you'll see how quickly it goes.
    Yes, there were problems in the beginning. And what happens 
with a system like this is, no matter how much you test it--and 
we did tremendous amount of testing--you just don't foresee all 
the problems.
    Mrs. Davis of Virginia. And I hear what you're saying, and 
I use the Web to access my account to see what the balance is 
and it takes me a very few seconds, but I'm not like a lot of 
my constituents. I don't go on there for loans and I don't go 
on there to transfer things around and all. And I do associate 
myself with you, Mr. Amelio. I'm not probably one to be talking 
about IT because I can turn it on and that's about it. But I 
guess I have a real problem understanding $6.5 million parallel 
testing, and I think your testing showed that you could do 
50,000 hits. I have a hard time grasping what the problem was 
that was $6.5 million to test it, and then the first week you 
turn it on it doesn't work.
    Mr. Saul. You know, again, I'm not an IT person. All I can 
say is that through all the testing certain problems did not 
come out in the testing arena but when the system went live 
they were there. But I think the important thing is to note 
that going forward we believe within 3 to 4 weeks--we showed 
you the numbers on the backlog. They have been worked out 
substantially. We believe in the next 3 to 4 weeks, as we go 
along and thereafter, you're going to see a system come out of 
this that we're going to all be very proud of, and we will 
eliminate all these technological bugs and are eliminating them 
and it's getting better every single day. We just have to have 
some patience here with the system. That's the bottom line.
    Mrs. Davis of Virginia. It's hard for our workers to have 
patience when you're talking about their money and their homes 
and their livelihood.
    Mr. Saul. I understand.
    Mrs. Davis of Virginia. It's tough.
    Mr. Saul. But you know what happens? Look, the Board--the 
most important thing for us is the fiduciary responsibility of 
the employees' money. We understand that and I agree with you 
totally and we don't dismiss this, we don't take this lightly. 
But, unfortunately, what has happened is, as we had these 
problems, it bogged down the system. What happens is it feeds 
on itself, and as we alleviate the backlog of this paper, as 
Mr. Amelio described to you, I think you're going to find the 
help desk, the Web site, everything become freed up for normal 
business. The thing bogged down. It was just overwhelmed in the 
beginning.
    As we work through these problems, I think what you're 
seeing now, what makes me feel confident in the thing is every 
day as we go along now the problems are alleviating themselves. 
It doesn't mean--and I assure you we don't take lightly some of 
these disaster stories that we're hearing about, and I believe 
the Board will have to look at some of these cases in an 
individual way and take a look at them, but we are now seeing a 
vast improvement over where we were a month ago, and I think 
that will continue until the system is up to where it should 
be.
    Mrs. Davis of Virginia. I appreciate that. And I don't want 
to step on my colleague's time, but I do want to ask quickly a 
question for Mr. Lebowitz. What changes do you think could be 
made to improve TSP accountability?
    Mr. Lebowitz. Well, I think when we look back on the most 
recent period, ultimately the issues where we and the Board had 
some disagreement were ultimately addressed. The process is not 
all that clear as to how it is supposed to happen, but it 
happened. It happened after we made our views known to the 
Board and to the staff, made our views known to OMB and to GAO, 
and then came up here and talked to staff people from this 
committee's Subcommittee on Civil Service, and on the Senate 
side, as well.
    Aside from that, over the years that we have been doing 
audits since 1986, we've really not had any areas of concern in 
terms of responsiveness from the TSP Board or from its staff. 
They have been very responsive. So I don't really have any 
specific suggestions at this point. I know we'd be happy to 
work with the committee to develop and give you our views on 
some specific ideas to the extent that you'd like us to.
    Mrs. Davis of Virginia. Thank you, Mr. Lebowitz.
    I'd now like to turn to the ranking member of our 
Subcommittee on Civil Service, Mr. Danny Davis.
    [The prepared statement of Hon. Jo Ann Davis follows:]



    [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
    
    Mr. Davis of Illinois. Thank you very much, Madam 
Chairwoman.
    Mr. Saul, we know that hindsight is often different than 
oversight, and that with hindsight you can sometimes make some 
assessments and understand some things better than you 
understood them before. In your opinion, who was responsible 
for the problem with the AMS contract? Was it the contractor or 
was it the agency's management of the contract, or perhaps was 
it some of both?
    Mr. Saul. Congressman, as you know, I took over as chairman 
of the agency after Senate confirmation in December 2002. At 
that point in time, as you know, the agency was imbedded in 
various litigation that I think was embarrassing not only to 
the agency but to a lot of people here in Washington and 
government. Also, this litigation was taking a tremendous 
amount of time, and I think taking the focus off our staff and 
providing a first-class retirement system for our employees. So 
the Board and I took a very, very serious look at this thing 
and, for the reasons that I said in my presentation, we felt it 
was very important to re-engage the Justice Department and to 
resolve this matter and put it in the past.
    Obviously, I wasn't here and I'm not shifting off blame by 
making that statement. I was not here to see what happened and 
I really can't comment. All I can tell you is, it was a pretty 
bleak picture, and it certainly was nothing for this agency to 
be proud of. But at the point in time that we came in, the new 
Board and Mr. Amelio, the most important thing for us was to 
get this behind us, go on, get the new system in, and get the 
agency focused back onto being a first-class retirement system 
for our Federal employees and the military.
    Mr. Davis of Illinois. But in order to take corrective 
action and to try and prevent from reoccurring or from ever 
happening again what had taken place, are there some things 
that you think that the former Board could have done 
differently that may not have gotten us to this situation that 
we can certainly now take advantage of and make use of those 
experiences so that we don't have to go down this road again?
    Mr. Saul. I can only comment on the experiences that we're 
now having with the new system development with MATCOM. I 
wasn't there, as I said. I don't know what went on with AMS and 
the other Board and the other executives at the agency. 
However, I can tell you I felt that, when we came in in 
December and we reviewed--meaning myself and my fellow Board 
members--the MATCOM situation, which is the new contractor, and 
we spent extensive time with our staff, with the technical 
people, we felt this was a system that was worthy to go forward 
with. It was way along in development; it was 4 months from 
going live, or 5 months from going live. And the one thing that 
myself and my fellow Board members did was to be sure that we 
spent enough money parallel testing, to be sure that our people 
in the National Finance Center had the necessary support so we 
didn't have a debacle, because we realized what a huge 
undertaking putting this new system in was.
    So I think, to answer your question, it is a matter of 
monitoring what goes on, to be on top of it. And, 
unfortunately, look, as much as we were on top of it, as much 
money as we spent, we've made mistakes, too. I mean, there's no 
question about it. You can't say we haven't. There has been 
serious disruption. But the important thing is, here, as 
opposed to the AMS situation, the MATCOM, I think we have a 
very--I know we have a very good system that's going to do the 
job that we spent the money on, and if we are patient with it--
and I know it is tough to say ``patient'' when people are 
having all these kind of problems--I think we will get what we 
want. AMS, from my understanding, the system itself was flawed 
from the beginning.
    Mr. Davis of Illinois. Thank you.
    Mr. McPherson, what steps are you taking to assist the 
agency, some of the concrete things that you are suggesting and 
recommending and working with them to work through?
    Mr. McPherson. Well, a number of actions specifically. 
Because the lines of communication with Andrew Saul and Gary 
Amelio and their staff and their contractors are very good, 
we're able to give very specific suggestions and take actions 
on a continuous basis, things such as specifically, in the area 
of data entry, which is key to handling the transactions, we've 
expanded the day shift to run from 6 a.m. to 6 p.m. We've 
established an evening shift from 7:30 p.m. to midnight. On the 
data entering of checks, the Board has hired some additional 
contract staff. We've expanded some of the telephone service. 
We've proposed to the staff an increase in incoming thrift line 
capacity, things like suggesting commercial capacity from 375 
lines to 900 lines and expanding the telephone service hours 
effective July 23rd, yesterday, from 7:45 a.m. to 4:40 p.m., 
and hired additional staff. So there have been a number of 
things from the operational work flow, particularly from the 
men and women who are doing the work using the system that 
we've taken very quickly, and that's the way we have been 
working. It's a very good, healthy working relationship and 
support them together to get out of this posture and restore 
service as quickly as possible.
    Mr. Davis of Illinois. I am, indeed, pleased to hear that, 
and I thank you very much, Madam Chairwoman.
    Mrs. Davis of Virginia. Thank you, Mr. Davis.
    Ms. Watson.
    Ms. Watson. I am just learning this system. Thank you, 
Madam Chairwoman. I'm going to take the information, and I 
think my colleagues are raising the pertinent questions, so 
this is an educational session for me. Thank you for coming and 
responding.
    Mr. Saul. Thank you.
    Mrs. Davis of Virginia. Thank you, Ms. Watson.
    Mr. Van Hollen.
    Mr. Van Hollen. Thank you, Madam Chairwoman. I want to 
thank all of the witnesses for being here this morning and 
Chairman Tom Davis for calling this hearing.
    I represent an area right outside of Washington, the Eighth 
District in Maryland. We received sort of an emergency alert 
from our District office in Rockville just a few days ago 
saying that they wanted to make me aware of how serious the TSP 
problem is for our constituents. I'm receiving an average of 8 
to 10 letters a day talking about very serious situations. I 
have a couple of letters here from constituents. One is a 
retired Marine Corps officer who says his home is in 
foreclosure, he's desperately trying to seek access to his TSP 
funds. They say there's nothing they can do because of some new 
computer program. I managed computer programs that paid veteran 
benefits. I know there are ways to ensure people get their 
money.
    There's another person who had been planning for a long 
time to buy a house, tried to access TSP funds for the purposes 
of the loan, and is unable to do it, and he says, ``The 
contract has to be placed on Wednesday, July 23, 2003--'' this 
is yesterday. He has been working on this issue since May. He 
ran into problems in June. The computer system told him one 
thing 1 day and another thing. The next day the information was 
gone.
    This really is an urgent, urgent matter. I guess I 
apologize for being a little late after Chairman Tom Davis' 
opening statement and some of the initial questions, but one 
question: is there any kind of triage system? I mean, there are 
some people who clearly need access now. I'm sure there are 
many, many people requesting loans. But do we have a system 
that can help people who are really in emergency situations? 
And if not, who do we deal with? I mean, because it should not 
be the case, and it is the case apparently that the only way to 
get through is through their Member of Congress. I mean, people 
are trying to get on the phone lines directly, just can't get 
answers to their phone calls. They can't get through so they 
are calling Members of Congress. We're trying to work through 
these problems, but there's a lot of frustration out there. I 
guess my immediate question is: there are some people who have 
problems today, like July 23rd, Wednesday, and the next coming 
week. How do we deal with them as a priority matter?
    Mr. Amelio. Congressman, that's one of the sticky wicket 
questions. I have given the numbers with respect to the 
declining group of the hardship cases that we're working on, 
and we believe that all of those cases that have become 
significantly delinquent are being cleared out. In fact, I gave 
the distinction to the committee between those paying off their 
first loan and refinancing their second, which might be the 
case you're talking about, and that they should all be brought 
to date in a very, very short order.
    As a general comment, there is no special treatment of any 
participant. I've only been down here a few weeks, and the 
first thing that I've become aware of are all the ethical rules 
that we're all required to follow, and by and large things are 
processed as they come in and as folks get through the Web site 
and through the call center, and there is no special 
prioritization for someone who has a hardship. As you can 
imagine, everybody has a--their situation is a hardship in 
their own mind, and many of them are, but there is no special 
process for someone who might be losing a home versus someone 
who is paying tuition, education. I believe we might actually 
be violating the law if we tried to give special preference to 
certain participants.
    I'm on weak ground when I say that, but when I've raised 
that issue with our General Counsel's office, I believe we have 
to treat all the participants equally and fairly.
    Mr. Van Hollen. I guess the issue here is there are some 
people who began--tried to access the system a while ago. They 
were not able to get through, or for some reason they accessed 
the system before some other people and their information was 
lost. I just--who is dealing with this sort of at the personal 
level? I mean, it seems to me, given this emergency situation, 
have you rededicated certain staff to dealing with these on a 
manual basis, because I think we've really got to step up, 
maybe bring in some--I don't know what resources you can bring 
to bear, but a lot of people are facing very serious 
situations. A lot of people are unable to go through with their 
transactions today, tomorrow, and the next day. And I'm just 
trying to get a sense from you as to how we make sure that 
people's long-term plans don't collapse because of a computer 
problem.
    Mr. Amelio. We have rededicated a variety of resources to 
resolving the problem of these hardship cases. The center in 
New Orleans has rededicated a lot of its existing staff toward 
resolving these problems, whether it is by answering the 
telephone, as well as substantially in doing the manual data 
input which was created by this backlog to get these situations 
resolved. In addition to the substantial resources that the 
Service Center is throwing at it, we have supplemented that on 
a temporary short-term basis by engaging our outside vendor to 
open in two separate geographic locations backup support for 
the limited purpose of doing manual data input into the system 
to resolve the backlog.
    As a result, and as I mentioned a little bit earlier, the 
backlog--and most of these hardship cases come from 
participants who have two outstanding loans and who are trying 
to repay one and refinance a second. We have now finished 
completely, as of this morning, entering the data that would 
enable the records to be updated for all participants who are 
paying off their first loan. That's down to zero right now. And 
that will now enable about 7,000 of these participants to go 
ahead and apply for and get approved a second loan, which 
should take, you know, in the 5 to 7 days to actually get the 
proceeds, which is ordinary business cycle. And we have, out of 
about 13,000-some applications, I believe 6,500 of those 
applications will be cleared this evening and the processing 
will move on.
    So this backlog and these hardship cases should disappear 
in the very, very short-term future here.
    Mr. Saul. Congressman, I'd just like to add something, 
please. What happened is we didn't just sit around, obviously. 
When we saw this backlog getting to the situation that it was 
in, we said--as Mr. Amelio stated, we set up two separate 
remote sites from New Orleans from the National Finance Center 
to help us cut through this backlog. Unfortunately, the mistake 
that was made here was that we probably waited a week or so too 
long to set up these backup sites so that the situation became 
dire when, if these backup sites were set up probably a week or 
10 days before that, we wouldn't have had these severe hardship 
cases that you're talking about. But since we set up these 
backup sites, if you look at the numbers that Mr. Amelio gave 
today--and they are statistics. They're not--you know, you're 
dealing with real people, and I understand that--I think you 
will find that a lot of these problems have been resolved and 
we are really getting current now.
    But I want to assure you that we just didn't sit there and 
let the situation erode. We spent a tremendous amount of money 
and a lot of effort to set up these two remote sites that Mr. 
Amelio mentioned in his statement.
    Mr. Van Hollen. Thank you. I look forward to working with 
you in the days ahead to make sure that we can resolve these 
particular cases that are coming to our attention.
    Mr. Amelio. Thank you.
    Mr. Saul. And we don't take this lightly. I want you to 
understand that, Congressman. I mean, this is serious business 
and we understand that.
    Mr. Van Hollen. Thank you.
    Thank you, Madam Chairwoman.
    Mrs. Davis of Virginia. Mr. Van Hollen, if you wouldn't 
mind, I'd like to hear Mr. Lohfink answer your question.
    Mr. Lohfink. Thank you. How are we dealing personally with 
the tragedies and the issues that are facing our participants? 
We're dealing with them with every available ounce of energy 
that the people have. We've added staff. You've heard that. 
We've added hours. We continue to work through all the data 
entry issues with the backlogs. I believe, just to give you an 
idea, now that system performance is being obtained, to give 
you just an idea, the first 31 days, in spite of all of the 
people we threw at it, we were only able to process about 
38,000 transactions in those 31 days. Now that the system is 
responding well, we're able to process 50,000 transactions in 
the last 7 days. So what you are able to, I think, see through 
those numbers is that now that system responsiveness and 
availability issues are, for the most part, behind us, we now 
have an ability to respond promptly and effectively with the 
participants.
    Mr. Van Hollen. OK. Well, I hope it is prompt and effective 
because, as I say, I've got some cases that we were--in the 
last couple days have come in, and so they haven't been dealt 
with yet and we need to resolve them quickly. These are people 
who are facing very serious situations.
    Thank you.
    Mrs. Davis of Virginia. Thank you, Mr. Van Hollen.
    Mr. Clay.
    Mr. Clay. Thank you, Madam Chairwoman. And let me thank the 
panel for being here today.
    Let me share with you a case of one of my constituents in 
St. Louis, MO, who wanted to borrow money from herself, money 
that she had saved because she wanted to buy a new house. She 
applied to the TSP for a loan; however, the promised loan 
packet containing all of the necessary documents to process the 
loan never arrived. She called the TSP and reported her 
concern. The TSP in response asked her to complete a form and 
fax it back to them to report the error. She immediately 
complied. The error report was filled out and promptly mailed 
back to TSP marked ``priority mail.''
    Ten days later she still had not received a verification. 
She was told that her application could not be found and was 
advised to resubmit.
    The constituent did as she was advised and faxed the copy 
of her previously mailed application. She followed up by 
calling the TSP to verify that they were in receipt of the 
information. The TSP representative indicated that they were in 
receipt of the requested information and would walk it over to 
the processing department immediately.
    When asked when the loan would be disbursed, the reply was, 
``July 3, 2003, or sooner but not later.'' She scheduled a 
closing date based on her communication with TSP, and the dates 
passed without receiving a check. On July 1st she was told that 
the loan was approved and it would be disbursed on July 2nd or 
3rd, 2003. On July 3rd, 2003, she was told that TSP was in the 
process of changing the computer system and that her loan would 
be processed under the new system. She was later told that her 
loan could not be processed because there were two applications 
on file.
    She first applied on May 19, 2003, and still has not 
received her loan.
    To make matters worse, you know, many participants have 
complained that too often the TSP phone lines have been busy 
and attempts to send applications via U.S. mail to your office 
have also yielded no response.
    I guess the question is: is there a real problem with 
customer service? Do you need more staff? And is this a lack of 
manpower issue? And anybody on the panel can try to tackle it.
    Mr. Amelio. Congressman, we don't believe there is a 
manpower issue, and there's certainly not a systems issue here. 
This is a problem that was created--it's operational in 
nature--as a result of the conversion of such a massive plan 
and going from a paper-based submission system into the daily 
Web environment. A backlog has been created. This individual is 
one of those folks that got caught up in it, 1 of about 9,000 
individuals that got caught up. We're working through the 
backlog, and within the next couple of weeks that backlog will 
be completely eliminated. I say a couple of weeks because we 
want to set the expectation bar higher. We're hopeful it will 
be in substantially less time than that.
    We're not claiming that there's any shortage of resources; 
it's a matter that it was a massive undertaking. This was one 
of those glitches in the system, and we're trying to work 
through it, and we will. We're almost to the completion of that 
process.
    Mr. Clay. Mr. Amelio, the online system, I mean, is one 
thing, but what about the problems that this constituent had 
getting faxes through and dealing with the U.S. mail? I mean, 
what is that indicative of in your shop? I mean, if they can't 
get through by mail or fax, I mean, and she's not trying to go 
on line, but she's trying to access customer service. I mean, 
what is that indicative of?
    Mr. Amelio. She's gotten caught up in this backlog. It's 
just a huge influx into the system as we've gone daily, what's 
called in the industry a ``spike period''--a lot of high 
visibility, 3 million participants looking at this new system, 
everyone trying to get on the system at once to see how it 
works, and it has resulted in a huge backlog that's generated. 
Once we work through it, we anticipate these kind of problems 
will dissipate and won't exist any more.
    Mr. Clay. Thank you very much.
    Mrs. Davis of Virginia. Mr. Carter, do you have any 
questions?
    Mr. Carter. Yes. Thank you, Madam Chairwoman.
    I have a lady. You're hearing these horror stories, but 
this lady heard about this hearing, we were in the process of 
helping her, and she specifically asked that I talk to you 
about this. Her name is Mary Atwood. She's in Bassdrop, TX. She 
works for the IRS. Mary made an application in May for a loan 
to move her mobile home off of a more-expensive piece of 
property to a piece of property she could afford. She's having 
a lot of financial trouble. She was told, ``No problem. Five to 
7 days we'll have this processed, so you don't have to worry. 
You have plenty of time until June,'' when she had to move it. 
Well, she heard nothing. She made phone calls and couldn't get 
answers. On June 9th, she called back and they said they were 
having computer problems but it would only be another 5 to 7 
days.
    She borrowed the money to make this move from her church 
because she was now off that property, with an easy promise 
that certainly by the end of the month it would be there.
    On June 17th she called and they told her she never made an 
application for a loan, that she would have to re-apply, so she 
re-applied again, another promise of 5 to 7 days.
    She called the hotline. She talked to individuals. Always 
the promise of 5 to 7 days. At the end of 5 to 7 days, again, 
``You never made a loan, never made an application.'' She redid 
it again. At that time she contacted my office. By July 11th 
she contacted my office. My office began to experience exactly 
the same response as this individual did--people who didn't 
know what we were talking about, didn't know which individual 
could help us, and ultimately the person, a lady named 
Jeanette, actually worked on it. Her first response was, ``The 
lady never made an application for a loan.''
    OK. We pressed her further. She went back in and ultimately 
found out she had actually made three applications for the 
loan. At this point in time she is living on a property without 
hot water with her small child. She's a single parent. She has 
used all of her resources. She owes her church for the cost of 
the move, and as of yesterday there was still no response from 
you on the application of the loan.
    Now, I've listened to what you have to say about computers, 
and, you know, I used to work for the State government of 
Texas, and I used to be a district judge, and I've heard people 
blame computers a lot, and my question is always the same. This 
Government ran a long time without computers. We took care of 
people a long time with paper pushing. And if you're going to 
have to shut down a computer and you're going to have it shut 
down for a period of time, it starts harming people's lives and 
people get foreclosed like there, then why can't you push the 
paper like we used to and go back to having an alternative 
system that at least takes care of people in this kind of 
desperate situation? And why make promises that you know you're 
not going to keep and cause people to be put in a bad 
situation?
    Why not say, ``We think we can process it in 5 to 7 days, 
but we're having a hard time and it might--this whole system 
might collapse, lady. You'd better look some place else.'' At 
least she has been told, instead of keep dangling 5 to 7 days 
out for three applications and being told. To me that's 
breaching a fiduciary relationship you never with your customer 
by telling them something that you know you're not going to 
perform on.
    And then, after all that comes to our Round Rock office, my 
chief of staff gets a notice from your organization that tells 
him, ``Your withdrawal request is denied.'' Well, the problem 
is he never made a withdrawal request and he wants to know who 
is making a withdrawal request on his account. And he tried to 
find out, and they couldn't find out who had made a withdrawal 
request or really they couldn't even find a withdrawal request. 
Well, you know, that's the idiot computer talking on its own, 
I'm assuming. But, you know, it panics you when somebody says 
the withdrawal request on your account is denied and you're the 
only guy that's supposed to be withdrawing and you didn't make 
such a request. You're wanting to know who is making that 
request on your account.
    So these are the kind of glitches that seems like to me 
humanity can take care of if you get a little more humanity in 
your customer service, and that's kind of what I wanted to 
know. Where did we fall down by treating humans like humans and 
not let the computer treat them like other computers? That's 
what irritates the hell out of me when I see that.
    My lady is still out there in Bassdrop without hot water, 
and I'm going to give this to you, and I'm expecting to see 
something done about it.
    A couple of other questions. This online system, does it 
provide participants with timely information like the timely 
information I was just talking about that the computer may be 
on the glitch and it won't be 5 to 7 but 10 to 20 days? Is it 
going to give timely information out to the status of loans and 
applications? Is it going to be--now is it capable of doing 
that? And if the computer system is telling someone 5 to 7 
days, is it going to be backed up with an online system that 
says, ``We're processing your loan. It will take 5 to 7 days''? 
Is it now up and working? You said it is. Is it?
    Mr. Saul. Congressman, may I address some of your concerns, 
if I might, please.
    First of all, I think you are right to be upset, and 
certainly this lady has suffered, like some of these other 
people, some real hardships here.
    Mr. Carter. Yes.
    Mr. Saul. And it was not--we have not come here to blame 
the computer, as you said. I really don't think that the 
technology is----
    Mrs. Davis of Virginia. Excuse me, Mr. Saul. Could you pull 
your microphone up a little closer to you? We can't hear you.
    Mr. Saul. Yes. I don't think that for the most part this is 
a technological problem. I think we got buried by a tremendous 
amount of manual data that came in during the conversion that 
had to be inputted into the system, and I think you're right. I 
think you really hit the nail on the head, Congressman. It is a 
people thing. I think where we failed is, we did not have 
enough of the backup support to be able to enter a lot of this 
paperwork into the system.
    If you go on the system right now, as I did yesterday, this 
morning, you go into the Web site, you'll get instant access. 
It is unbelievable how fast the thing works, considering what's 
going on. The problem is we got buried by a ton of paperwork, 
and, using your words, the old human way, that's where this 
thing has failed.
    And what we have done to address these problems--and we did 
not take this lightly, I assure you, this is a disaster, what 
we have done is contract two separate human sites away from the 
National Finance Center to help them get through this tough 
conversion period and get us caught up. We have a site down 
here in Virginia at MATCOM, who is the software manufacturer 
for this system, and we have a site down at Sun Guard in 
Birmingham, AL, another one of the component manufacturers to 
the system. Because we set up these other two sites with human 
people there entering the stuff, we have been able to give you 
the report that we gave you today showing that these loan 
application delays have really virtually gone down to zero.
    The mistake that we made--and I accept responsibility for 
it--is when this thing was backing up the paperwork part of it, 
we did not throw enough resources. And when I say 
``resources,'' meaning going out at that point and setting up 
these extra off-center sites of human beings that were able to 
enter the stuff into the system.
    So I agree with you. I don't think this is to blame the--
yes, there were glitches in the technology. The Web started 
slow when it came up. We corrected those problems. We've 
identified 170 bugs in the system, but nothing that's going to 
take the system down or make it crap out. So these problems are 
being addressed step by step. But the problem we have was, 
you're right, a human problem. We just did not have enough 
people to enter all this paperwork. And we're getting on top of 
it now. It's not going to help this lady down in Texas at this 
point, you know. She's suffered a lot. I hope she's in this 
group that have been cleaned up now and that she's now in the 
system. If not, we're going to have to address this thing.
    But no apologies for this. I think this thing was screwed 
up. We should have done a better job on this initial data entry 
conversion thing. But I don't want you to think that this is a 
technological thing or we're blaming technology on it.
    Gary, did you want to say something?
    Mr. Amelio. I would like to add something, Congressman. I 
don't in any way mean to trivialize any of the individual 
hardship cases that we've heard today. They're tragic, and I 
wish that I could personally do something to help each one of 
those individuals. It's terrible. But what happens in a 
circumstance like this is things get taken out of context, and 
we've got some of these real horror stories, and it sounds like 
there's this crisis. And, as I mentioned in my text--and I know 
you've been here since the beginning and you've patiently 
listened to all of this testimony--we've got over 3 million 
participants, and we are talking about some egregious 
circumstances, but it is a limited number. We brought this Plan 
literally into the 20th century. If you look in the private 
sector, whether it is for-profit corporations, Taft-Hartley 
funds, or even the nonprofit world, which you're going to hear 
about a little later, they've all been daily for the last two 
decades. This Plan has been operating in the dark ages in the 
sense that it was not daily. And that's not a criticism; it's 
just such a huge process to move it onto daily. This had to be 
done, and I think it was done appropriately. I know there has 
been some very significant damage to some individuals, but if 
we try to take this thing off daily you'd be looking at 2.99999 
million participants I think that would get incredibly 
aggravated. I think they probably are pleased for the most part 
with what is going on. And, of course, they're not being 
highlighted because they're not the, I guess, you know, making 
the squeaky wheel right now. It's these egregious 
circumstances. We're trying to deal with them. Believe me, we 
want to get them cleared up.
    Mr. Carter. I understand that, but when your baby takes a 
cold shower every morning it's very important to you.
    Mr. Amelio. Yes, sir.
    Mr. Saul. It is.
    Mr. Amelio. Yes, sir.
    Mr. Carter. Thank you.
    Mrs. Davis of Virginia. If my colleague will bear with me 
for a minute, just to followup on Mr. Carter and Mr. Clay, 
hearing both of them say that they have constituents who filled 
out loan applications and they're told they are being 
processed, and no, we don't have it and do another one--and I'm 
assuming these are hard copies and not on the computer--and our 
committee staff has heard complaints that the old loan form 
available on the TSP Web site was being disregarded if it was 
submitted after June 1st and no notice was given to the people, 
so people thought they had loan applications in because they 
used the old form, and apparently instructions were given to 
the staff maybe to ignore those loan applications. I guess I 
want to hear an answer to that from Mr. McPherson or Mr. 
Lohfink.
    Mr. McPherson. Well, I'm going to ask Jerry Lohfink to 
address the timing of any shift in forms and the communications 
from the Board to the National Finance Center as to the 
processing within these particular windows.
    Mr. Lohfink. Following direction from the Board, when the 
system came up June 16th we were instructed not to process old 
forms. Basically, the old forms did not contain the data layout 
necessary to enter into the new system. At that time, we were 
directed to instruct participants to then submit a loan 
application on a new form, so we--that is exactly what has 
transpired which has affected people, that the data from the 
old form, you can't transcribe over. There's missing 
components. So in order to process within the new system, we 
needed to have all of that data.
    Mrs. Davis of Virginia. And I'll just say, Mr. Lohfink, for 
the people who are trying to buy houses, my prior profession 
was a real estate broker, and I can tell you that wouldn't hold 
water with not being able to go to closing because your bank or 
what have you changed forms and you've got to start all over 
again. So I think that's a pretty weak--I know it's the 
accurate response, but I think it is pretty weak, and I think 
it is really unfair to participants.
    Mr. Tierney.
    Mr. Tierney. No questions, Madam Chairwoman.
    Mrs. Davis of Virginia. I have one final question. One of 
the staff just went to try and access the account on TSP and it 
says, ``Due to system maintenance, this part of the TSP Web 
site is currently unavailable. We apologize for the 
inconvenience. You may still be able to check your account 
balance by clicking on the link below or you can try back again 
later.'' Why are we doing maintenance in the middle of the day 
between 11:30 a.m. and 12?
    Mr. Amelio. We have to ask the ``techie'' here. Excuse me.
    Mr. Saul. We don't know. The only thing we can say--I just 
talked to our manager of IT, and the only thing he said is that 
it is possible that for a moment the system was down, but if 
they go back in again it should be back up. We have no 
understanding or knowledge why at that particular time that 
would happen. If we try it again let's see. Maybe there was a 
moment that it was down for some particular reason, but if we 
try it again it should work.
    Mrs. Davis of Virginia. Well, we're going to go ahead and 
go on and try and start the next panel, and maybe in the 
meantime we'll get the staff to try and access this again.
    Mr. Van Hollen. Madam Chairwoman, if I could just make one 
final point.
    Mrs. Davis of Virginia. Sure.
    Mr. Van Hollen. On that issue, you've raised a point. A lot 
of people put their applications in a while ago and then were 
later told that they had to put a new application in. Now, how 
come that person who may have applied earlier and has been 
waiting months is now farther back in line than somebody who 
applied for a loan more recently. Isn't that right? I mean, 
that's--a lot of people, they applied originally. They said 
they were assured no problems, it's going to go through.
    Mr. Saul. It's possible. You're right. It could happen.
    Mr. Van Hollen. So, I mean, you've got to go back and find 
these people who have been sitting around for a long time. I 
just want to--one other thing. There's a constituent who had 
been assured, ``No problem. We're going to be able to get this 
processed very quickly,'' who, on the basis of that assurance, 
went forward, signed the contract, and therefore was obligated 
to come up with the funding. And as a result of the failure to 
be able to access the funds, was forced to put, instead of 5 
percent down--they couldn't put the 5 percent. They had to put 
3 percent down. They had to ``borrow money from my family, sell 
what few stocks I had saved, and put toward my retirement, and 
raise the extra cash on hand for closing. For the next 30 years 
I am paying a higher mortgage interest rate and additional 
finance charges for my home because of the TSP shutdown,'' and 
the person goes on and on.
    I don't know. It's a long-term issue how you are going to 
deal with people who were essentially promised that their loans 
were going to be processed on time who, as a result of that, 
have suffered financial damage. I guess we're going to be 
living with that issue possibly for a much longer time.
    I thank you, Madam Chairwoman.
    Mrs. Davis of Virginia. Just before I let you guys go, a 
closing question, Mr. Lebowitz, if I could. What areas will the 
Department of Labor concentrate on in its next audit cycle for 
the TSP Board? Will you review the new recordkeeping system? 
And how about customer service?
    Mr. Lebowitz. Madam Chairwoman, we will be specifically 
looking at customer service and the withdrawal and loan 
subsystems. This will be with the next fiscal year when the new 
audit cycle will begin, but those three areas are specifically 
going to be reviewed in depth.
    Mrs. Davis of Virginia. Thank you, Mr. Lebowitz. I look 
forward to seeing that review. And thank you, gentlemen, for 
being here today and being so patient for our long questions. 
Thank you very much.
    If we could get the second panel of witnesses to come 
forward, we're going to try and start, but I'm just going to 
warn you we possibly will have a series of votes here around 12 
or 12:15 p.m., and those votes may take us out of here for 
about an hour, so we'll go ahead and try and get started, get 
you sworn in, and try to get the opening statements.
    While you're coming forward, I would like to thank you for 
taking the time from your busy schedules to appear today. I 
welcome Michelle Corridon from the Federal Managers Association 
and Keith Rauschenbach from TIAA-CREF. I hope I got all that 
right.
    It is the policy of this committee that all witnesses be 
sworn in before they testify, so if you would please rise and 
raise your right hands.
    [Witnesses sworn.]
    Mrs. Davis of Virginia. Thank you. Please be seated, and 
let the record reflect that they answered in the affirmative.
    In order to allow time for more questions and discussion, 
if you could please summarize your testimony in 5 minutes it 
would be appreciated, and all of your written statements will 
be made part of the record.
    Again, I'd like to thank our witnesses for appearing today, 
and I'd also like to thank the staff for working on this 
hearing.
    We'd like to begin with Ms. Corridon.

    STATEMENTS OF MICHELLE C. CORRIDON, CO-CHAIR, FMA-USDA 
      CONFERENCE, FEDERAL MANAGERS ASSOCIATION; AND KEITH 
 RAUSCHENBACH, VICE PRESIDENT OF CONSULTING SERVICES, TIAA-CREF

    Ms. Corridon. Madam Chairwoman and members of the 
committee, my name is Michelle Corridon. On behalf of the 
200,000 executives, managers, and supervisors in the Federal 
Government whose interests are represented by the Federal 
Managers Association, I would like to thank you for inviting us 
to present our views regarding the Thrift Savings Plan's new 
online recordkeeping system and the problems that have occurred 
since its launch on June 16, 2003.
    I currently serve as co-chair of the FMA-USDA Conference 
and have been an employee of USDA Rural Development for 15 
years. My statements, however, are on my own in my capacity as 
a member of FMA and do not represent the official views of the 
Department of Agriculture.
    On June 16, 2003, the TSP launched its long-awaited online 
recordkeeping system. TSP participants numbering approximately 
3 million saw this as the end of a journey that began in May 
1997 with the award of a system contract to American Management 
Systems. Since May 1997 Plan participants have experienced a 
change in contractor, the filing of a lawsuit on behalf of Plan 
participants against AMS, a countersuit from AMS, and, since 
October 2000, no fewer than five delays in implementation.
    The launch of the new system was to provide TSP 
participants with many of the benefits and flexibilities 
available to private sector 410(k) plan participants. 
Unfortunately, what was supposed to be hailed as a success has 
been far from that.
    From the time the new online system was launched on June 
16th, there have been more instances of problems than 
achievements. When FMA sent a request to its membership for 
input on the new system, we received an avalanche of comments, 
some positive, most very negative. The majority of complaints 
about the new online system involved participants' inability to 
simply access the new system. Our members reported slow log-in 
times, complete inability to access the system, and instances 
of being kicked off the system in the middle of attempting to 
process a request. Many members complained about the lack of 
updated information provided on TSP's main Web site. While 
there are messages alerting participants of difficulties, there 
was no information given on the status of resolving the 
problems. In fact, the same popup message about the status of 
the system was posted for weeks.
    In addition to problems accessing the system, more serious 
problems have occurred for participants who wanted to take 
advantage of the new system loan-filing feature, which is 
supposed to allow participants to begin the loan application 
process on line. Many members have tried to use the online 
system to no avail, and then attempted to fill out paper copies 
of necessary forms only to discover weeks later that there was 
still no record of their request or even confirmed receipt of 
their applications.
    Because of the difficulties in completing the loan 
application and approval process, many participants have been 
unable to secure lower interest rates and have suffered 
financial losses. Others have not been able to pay contractors 
completing renovation work on homes, while some have not been 
able to complete the purchase of homes.
    While complaints of the TSP initially involved the new 
online recordkeeping system, the frustration felt by Plan 
participants does not stop there. In the absence of being able 
to access the online system, many participants have tried to 
use the TSP help line, Thriftline, or reach the TSP via fax or 
mail only to find that there have been a glut of problems 
through those alternative routes, as well.
    Thriftline, which is not a toll-free call but a long 
distance phone charge for most Plan participants, has been 
overwhelmed with recent activity. Our members have reported 
waiting over 20 minutes to be connected to a live person, only 
to be cutoff by the system. That fate has occurred only when 
Plan participants have been able to avoid the busy signal.
    Members have tried calling at various times to avoid high-
traffic calling hours, but even that has not been successful 
for some. For participants who have been unable to connect to a 
TSP representative, many have been told that their transactions 
have not been processed or they should refile an application 
and send it via fax. This has resulted in a backlog of data 
entry work for TSP employees. Because participants have sent 
numerous requests for the same transactions, there are likely 
to be duplicative actions taken, which only lead to a greater 
lag time, more work for TSP representatives, and ultimately 
more problems for participants.
    We are aware that the Federal Retirement Thrift Investment 
Board [FRTIB] has taken steps to try and resolve these issues--
for example, by adding additional phone lines to Thriftline and 
by hiring new employees to complete data entry work that has 
been backlogged. We have confidence that these problems will be 
addressed and the backlogs will diminish with time.
    FMA members understand new systems such as this often 
encounter some initial minor technical problems, but in this 
case it has been a lot to swallow when the system has taken 
years to get on line and, more gravely, involves participants' 
savings.
    Madam Chairwoman, you have asked for our members to offer 
ideas on how a similar situation could have been avoided or 
should be avoided in the future. We have received a number of 
suggestions, including: Conduct wider testing before launching 
the system to 3 million participants. Grandfather the loan 
application system for loans submitted prior to June 16th. Do 
not return the applications to participants, but complete the 
process under the old format. When a change in the system is 
approaching, advise how the changes may affect you prior to the 
official launch of the system. Provide more detailed contact 
information for troubleshooting--names, titles, phone numbers, 
fax numbers, e-mail addresses, mailing addresses. Allow the old 
and new systems to run parallel until all of the kinks with the 
new system are resolved. Provide adequate customer service 
staffing to handle inquiries. Provide customer support through 
e-mail. Keep participants informed every step of the way and as 
early as possible.
    Many of the comments that FMA received in our response for 
input focused on the settlement between FRTIB and AMS and its 
impact on Plan participants. As you might expect, Madam 
Chairwoman, this assessment was not warmly received by our 
members, and most, if not all, Plan participants. There was 
little information provided to participants about the lawsuit, 
and even less information about the settlement prior to the 
announcement of the settlement itself. Naturally, there have 
been questions regarding accountability and who should be 
responsible for the AMS contract.
    In conclusion, Madam Chairwoman, more and clearer 
information should have been disseminated to TSP participants. 
Perhaps the new online recordkeeping system was not adequately 
publicized and Plan participants had expectations that were too 
high; perhaps not. In either case, regularly informing the 
masses about the latest status of a system would have at least 
mitigated the anger and frustration our members and other 
participants are experiencing.
    It is critical that Plan participants regain their trust in 
the TSP system and those who oversee it. The TSP is one of the 
few remaining models of excellence in the way of Federal 
benefits. It has long been a recruitment tool, and with the 
pending retirement of so many Federal workers in the next few 
years, it must be looked to once again as one of the advantages 
of Federal employment.
    I would like to thank you, Madam Chairwoman, for providing 
FMA an opportunity to present our views. We at FMA look forward 
to working with you and other Members of Congress to ensure the 
problems with the TSP are resolved and Federal employees will 
soon regain complete confidence in the Plan.
    This concludes my prepared remarks.
    I'd also like to direct the members of the committee to the 
addendum to the testimony, which includes specific comments 
from our
members.
    I would be glad to answer any questions you and members of 
the committee may have.
    Mrs. Davis of Virginia. Thank you, Ms. Corridon.
    [The prepared statement of Ms. Corridon follows:]



    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    
    Mrs. Davis of Virginia. Mr. Rauschenbach, welcome. Thank 
you for being patient today.
    Mr. Rauschenbach. Madam Chairwoman and members of the 
committee, I am pleased to have the opportunity to tell you the 
story of TIAA-CREF's evolving customer service model. My name 
is Keith Rauschenbach, and I'm the vice president of eastern 
division for TIAA-CREF. We've learned many lessons in managing 
and administering one of the world's largest financial services 
organizations. With approximately $280 billion in assets under 
management, TIAA-CREF serves over 2.6 million education and 
research employees at about 11,000 institutions.
    TIAA-CREF's commitment to selling and servicing quality 
products at a fair price to a growing customer base has 
compelled us to evolve our delivery and service methods over 
time. With a non-commissioned sales force that is smaller than 
most of our competitors, we've remained at the top of our 
industry. Our success lies in the effective use of three key 
communications methods: strategic use of direct contact with 
our participants, increased use of sophisticated telephone 
systems, and, finally, Internet-based systems.
    Although TIAA-CREF has been in business for 85 years, 
combining a clear vision of our service model with the use of 
available technology and an emphasis on training has kept us 
going strong into the 21st century.
    TIAA-CREF's customer service platform relies heavily on 
cutting edge technology, but we haven't lost sight of the value 
of face-to-face contact with our participants. TIAA-CREF has 23 
local offices staffed by nearly 300 consultants around the 
country. These consultants are dedicated to working face-to-
face with institutions and their employees.
    TIAA-CREF's toll-free telephone counseling center has been 
pivotal to the success of our customer service model. Non-
commissioned, individual consultants are available from 8 a.m. 
to 10 p.m. Eastern Time Monday through Friday and from 9 a.m. 
to 6 p.m. Eastern Time on Saturdays. What started as a staff of 
10 consultants has grown to nearly 340 telephone consultants 
operating out of three sites--Charlotte, Denver and New York. 
This structure allows us to serve more people and work with 
multiple time zones, providing for business continuity in the 
case of weather emergencies or catastrophic events.
    During 2002, consultants in the Center fielded 
approximately 1.8 million calls. All calls were answered within 
39 seconds. Only 4 percent of our callers abandoned their 
attempt to reach us. The average length of a call was 
approximately 7.5 minutes, and our total call processing time 
was roughly 11 minutes.
    Before the success of our toll-free telephone counseling 
center, TIAA-CREF was already giving customers transactional 
ability through our automated telephone service created in the 
early 1980's. No doubt you are familiar with automated phone 
systems. Callers use their telephone keypad to execute certain 
transactions and request specific information.
    TIAA-CREF's automated telephone service is available 24 
hours a day, 7 days a week. During 2002 just over 2 million 
calls were received by the automated system. Another 805,000 
were fielded by one of the representatives staffing the 
automated telephone service.
    Turning to our Web site, those in the education and 
research arena were among the first to embrace the Internet as 
a valuable research and communications tool, so it was only 
natural for TIAA-CREF to be on the Web. Not only did TIAA-CREF 
increase information available to participants by launching our 
own Web site in 1996, but we also enabled participants to do 
business with us through the Internet.
    On the Web, clients can effect a variety of transactions, 
including transfers among their TIAA-CREF accounts and loan 
requests. In fact, this Web access has allowed the loan process 
to be reduced from a couple of weeks to less than 5 days, 
typically.
    Among the new customer support initiatives we're looking at 
in the immediate future is augmenting Web browsing and 
traditional e-mail with real-time instant messaging. Over the 
first 6 months of 2003, participants made over 10 million 
secure inquiries. That's 50 percent more than in the same 
timeframe in 2002. And, in addition, they completed 275,000 
secure transactions during the first 6 months of this year.
    Before I close, I should also acknowledge here the 
importance of TIAA-CREF's emphasis on training, on-the-job 
monitoring, and client surveys. Details of these elements were 
included in my written statement. They each serve to ensure 
that our points of client contact measure up to the 
expectations of our current and prospective clients.
    To successfully serve our customers, we rely on all these 
systems--direct contact, telephone systems, and the Internet. 
Knowing and responding to the needs of our customers in a way 
that works for them reinforces their confidence in TIAA-CREF. 
The trust our clients have in the integrity of TIAA-CREF and 
our focus on them is one of our most valued and valuable 
assets.
    Thank you for giving me the opportunity to share TIAA-
CREF's experiences in increasing customer access with you. I am 
pleased to answer any questions you might have on my testimony.
    Mr. Tom Davis of Virginia [resuming Chair]. Thank you very 
much.
    [The prepared statement of Mr. Rauschenbach follows:]



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    Chairman Tom Davis. Ms. Corridon, let me start with you. 
Did the Board communicate with your members in preparing for 
the launch of the new program?
    Ms. Corridon. No, sir.
    Chairman Tom Davis. Never heard from them?
    Ms. Corridon. No.
    Chairman Tom Davis. Do you feel that service has improved 
since June 16th?
    Ms. Corridon. No, sir.
    Chairman Tom Davis. You have seen nothing to indicate that?
    Ms. Corridon. We understand that they are trying and that 
they've added the additional phone lines, but the harm that has 
been done to our membership so far is still very difficult to 
deal with.
    Chairman Tom Davis. Regarding the AMS lawsuit that was 
filed by the Board, what is your organization's view about the 
Board's acquisition of private counsel as opposed to allowing 
the Justice Department to represent it?
    Ms. Corridon. Just a second.
    Chairman Tom Davis. Sure. And let me explain, too, to make 
sure you understand, this had the Plan participants then 
footing the bill, as opposed to the Treasury footing the bill.
    Ms. Corridon. Yes, sir. There was never any information 
shared with us about the proposed settlement with AMS.
    Chairman Tom Davis. OK. And in terms of their acquiring 
private counsel, which means Plan participants paid for it as 
opposed to having the Justice Department do it, which would 
have been paid for separately, I take it that's not a good 
thing and you're not in favor of that, either?
    Ms. Corridon. We're concerned about the settlement and its 
effect on the Plan participants and their account balances.
    Chairman Tom Davis. OK. But also my question really goes 
more to the fact that in suing on this the Board hired its own 
lawyer, and with that they used Plan money as opposed to the 
Justice Department handling it.
    Ms. Corridon. Yes, sir. We're concerned about that, also.
    Chairman Tom Davis. OK. Thank you.
    Mr. Rauschenbach, what are the advantages and disadvantages 
of having a blackout period when a pension plan is going 
through a transformation?
    Mr. Rauschenbach. Well, sir, we have not had blackout 
periods in interactions that we've had with our institutions. 
When they've chosen to move from one provider with their plan 
assets to another, as soon as we get the money it has been 
participating. When our customers on an institutional basis may 
choose to elect another provider, the assets under that plan 
don't typically move on a wholesale basis, so we haven't had 
exposure to blackout periods.
    Chairman Tom Davis. OK. And let me just ask you again, Ms. 
Corridon, would they have been better off, now, in retrospect, 
waiting a month or two to try to get this ready, than rushing 
it to June and having it work more smoothly, I mean, in 
retrospect?
    Ms. Corridon. One of our suggestions was, if they were 
going to institute the new system, to run the old and new 
systems concurrently and, therefore, probably alleviate some of 
the problems that they've encountered.
    Chairman Tom Davis. OK. Mr. Rauschenbach, let me ask you 
this. How much do you estimate you save by having your Web site 
available for customer transactions as compared to the face-to-
face means and by telephone calls?
    Mr. Rauschenbach. Well, by virtue of having Web access, we 
have been basically able to hold our head count relatively flat 
while at the same time increasing our accessibility to 
customers and our ability to effect transactions. As I 
mentioned a short while ago, we have had participants effect 
275,000 transactions over the first 6 months of this year on 
our Web center, and we were able to do that without having any 
increases this year in our head count.
    Chairman Tom Davis. And from what you've heard about the 
TSP Web site startup, what would you advise the TSP Board to do 
to address these problems now that are encountered by 
customers? What would you do now if you were there?
    Mr. Rauschenbach. Well, frankly, I don't know a whole lot 
about the functionality under the TSP's Web site, but maybe 
what I can do is offer some of our experiences as an 
organization. As we've started up different functionality on 
our Web site, we've monitored it very closely to determine 
whether or not it is causing delays in other aspects of the Web 
site. If that has been the case, we've backed out of that 
portion of the Web site and let our customers know that it is 
temporarily unavailable. Doing that ensures that we are able to 
maintain our service standards on all other elements of our Web 
site.
    One of the things that I did hear in the testimony today 
was the fact that on the TSP Web site there is now, as I 
understand it, an indication if there are particular hours that 
are better to try to get through to the Web site if the Web 
site is experiencing difficulties. Letting the customer know 
right up front about those kinds of things, I think, does help 
to relieve a lot of the frustration.
    Chairman Tom Davis. If it's not an emergency, that kind of 
thing?
    Mr. Rauschenbach. Right.
    Chairman Tom Davis. Thank you very much.
    Mr. Davis.
    Mr. Davis of Illinois. Thank you very much, Mr. Chairman.
    Ms. Corridon, you testified, of course, it is known that 
many of the Plan participants suffered financial losses as well 
as other kinds of displeasure and discomfort. Do you feel that 
they should be compensated for those losses in any way?
    Ms. Corridon. Well, ultimately Plan participants should not 
be penalized by the botched contract and being charged for that 
settlement. As for their hardship in getting their loans and 
other requests processed so they could buy houses and so forth, 
definitely those people should be moved to the front of the 
line. They should not be treated as it comes in. I feel very 
strongly about that--the idea that if you applied in May and it 
is still June or July, that you should be moved to the front of 
the line.
    Mr. Davis of Illinois. So you're saying that individuals 
who actually suffered losses should recoup those--I mean, 
that's what I would call not being penalized--and that 
individuals who were not able to complete their transactions 
and all should be able to move to the front of the line?
    Ms. Corridon. Yes, sir.
    Mr. Davis of Illinois. Have you discussed these suggestions 
and plans with the new Board?
    Ms. Corridon. We have not had the opportunity to have that 
discussion.
    Mr. Davis of Illinois. Have you submitted them to them in 
any kind of way, sent them some correspondence saying, ``Here's 
what we think you ought to be looking at or some of the things 
that you ought to be considering as you revamp the operation?''
    Ms. Corridon. Well, the last ETAC meeting was in January 
2002, so we haven't had an opportunity to have that discussion 
with them. And the next one is not scheduled until September 
2003.
    Mr. Davis of Illinois. So they may not be aware of some of 
these recommendations that you've got?
    Ms. Corridon. That is correct.
    Mr. Davis of Illinois. OK. Mr. Rauschenbach, let me ask you 
if--and while it is difficult to speculate about what somebody 
else may or may not do, but you can deal on the basis of your 
own experiences, it seems to me that communication has been a 
real part of your success and the success of your operation. Do 
you feel that there may be some better way for the Thrift Board 
to communicate or have a different or better way, better line, 
more effective communication with its Plan participants so that 
they get a different sense of knowing what is taking place and 
what is going on?
    Mr. Rauschenbach. Congressman, I'd love to tell you that 
we've never had any service shortfalls on our side, but that 
wouldn't be true. In instances where we have experienced 
scrapes, if you will, one of the things that we've attempted to 
do after the fact is to acknowledge it frankly and to ensure 
that we communicate to our customers not only what the issues 
were but what we've done to correct the issues. Those kinds of 
apologies, if you will, after the fact have tended to be 
responded to in a very positive way by many of our customers in 
those rare instances where we have had those kind of issues 
arise.
    Mr. Davis of Illinois. And let me ask you, do you feel that 
fiduciary impact that may be caused by an agency or an operated 
entity or the managers should be borne somehow or another by 
the entity and not by the individual members who may suffer as 
a result of that?
    Mr. Rauschenbach. We've always felt that it was important 
for us to do the right thing by our customers, and that means 
that we are ultimately accountable and responsible for the 
caliber of service that they experience. They shouldn't be the 
ones that are caught in the middle, if you will.
    One of the things that we have done over the years to 
ensure that we try to keep things on track and in the right 
kind of pipeline for our customers is establish a corporate 
workflow system that allows us to identify what came to us when 
so that we can do first-in/first-out, and in instances where we 
become aware of a situation that requires immediate attention 
for a hardship of some sort, we do our very best to try and 
move that to the front of the line.
    Mr. Davis of Illinois. And so that means you are in 
agreement with some of the suggestions and recommendations made 
by Ms. Corridon?
    Mr. Rauschenbach. I think that would be fair to say, but, 
again, I have to observe I don't know enough details about TSP 
to understand all of the approaches that they are taking at 
this point in time. It's only what I've heard today, sir.
    Mr. Davis of Illinois. Well, thank you both, and thank you, 
Mr. Chairman.
    Chairman Tom Davis. Mr. Davis, thank you.
    Let me just thank both of you for being here, and let me 
just ask one more question, Mr. Rauschenbach. What procedures 
do you have in place when participants encounter customer 
service problems with your Web site?
    Mr. Rauschenbach. Well, when they experience a Web site 
issue they can send an e-mail to us. They also have access 
through our toll-free numbers. And we have within our 
organization a group that we call ``participant relations'' 
that fields customer complaints, and that tends to be a very 
good body for trying to get things back on track again.
    Chairman Tom Davis. Well, thank you both. I want to thank 
all our witnesses for appearing today, and I want to thank the 
staff for arranging this. We're going to keep the record open 
for 2 weeks to allow witnesses to include any further relevant 
information or thoughts that might occur to you, into the 
record.
    I ask unanimous consent to insert into the record a 
statement from Colleen Kelly, the national president of the 
National Treasury Employees Union. Without objection, so 
ordered.
    [The prepared statement of Ms. Kelly follows:]



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    Chairman Tom Davis. Thank you very much. The hearing is 
adjourned.
    [Whereupon, at 12:22 p.m., the committee proceeded to other 
matters.]
    [Additional information submitted for the hearing record 
follows:]


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