[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
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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?
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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:]
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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:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
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:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
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