[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]




 
ADDING A REAL ESTATE INVESTMENT TRUST [REIT] INDEX OPTION TO THE THRIFT 
 SAVINGS PLAN: CONSIDERING THE VIEWS AND ADVISORY ROLE OF THE EMPLOYEE 
                     THRIFT ADVISORY COUNCIL [ETAC]

=======================================================================

                                HEARING

                               before the

                 SUBCOMMITTEE ON THE FEDERAL WORKFORCE
                        AND AGENCY ORGANIZATION

                                 of the

                              COMMITTEE ON
                           GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED NINTH CONGRESS

                             SECOND SESSION

                               __________

                             APRIL 26, 2006

                               __________

                           Serial No. 109-177

                               __________

       Printed for the use of the Committee on Government Reform


  Available via the World Wide Web: http://www.gpoaccess.gov/congress/
                               index.html
                      http://www.house.gov/reform


                                 ______

                    U.S. GOVERNMENT PRINTING OFFICE
29-849                      WASHINGTON : 2006
_____________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpo.gov  Phone: toll free (866) 512-1800; (202) 512ï¿½091800  
Fax: (202) 512ï¿½092250 Mail: Stop SSOP, Washington, DC 20402ï¿½090001

                     COMMITTEE ON GOVERNMENT REFORM

                     TOM DAVIS, Virginia, Chairman
CHRISTOPHER SHAYS, Connecticut       HENRY A. WAXMAN, California
DAN BURTON, Indiana                  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
GIL GUTKNECHT, Minnesota             CAROLYN B. MALONEY, New York
MARK E. SOUDER, Indiana              ELIJAH E. CUMMINGS, Maryland
STEVEN C. LaTOURETTE, Ohio           DENNIS J. KUCINICH, Ohio
TODD RUSSELL PLATTS, Pennsylvania    DANNY K. DAVIS, Illinois
CHRIS CANNON, Utah                   WM. LACY CLAY, Missouri
JOHN J. DUNCAN, Jr., Tennessee       DIANE E. WATSON, California
CANDICE S. MILLER, Michigan          STEPHEN F. LYNCH, Massachusetts
MICHAEL R. TURNER, Ohio              CHRIS VAN HOLLEN, Maryland
DARRELL E. ISSA, California          LINDA T. SANCHEZ, California
JON C. PORTER, Nevada                C.A. DUTCH RUPPERSBERGER, Maryland
KENNY MARCHANT, Texas                BRIAN HIGGINS, New York
LYNN A. WESTMORELAND, Georgia        ELEANOR HOLMES NORTON, District of 
PATRICK T. McHENRY, North Carolina       Columbia
CHARLES W. DENT, Pennsylvania                    ------
VIRGINIA FOXX, North Carolina        BERNARD SANDERS, Vermont 
JEAN SCHMIDT, Ohio                       (Independent)
------ ------

                      David Marin, Staff Director
                Lawrence Halloran, Deputy Staff Director
                       Teresa Austin, Chief Clerk
          Phil Barnett, Minority Chief of Staff/Chief Counsel

     Subcommittee on the Federal Workforce and Agency Organization

                    JON C. PORTER, Nevada, Chairman
JOHN L. MICA, Florida                DANNY K. DAVIS, Illinois
TOM DAVIS, Virginia                  MAJOR R. OWENS, New York
DARRELL E. ISSA, California          ELEANOR HOLMES NORTON, District of 
KENNY MARCHANT, Texas                    Columbia
PATRICK T. McHENRY, North Carolina   ELIJAH E. CUMMINGS, Maryland
JEAN SCHMIDT, Ohio                   CHRIS VAN HOLLEN, Maryland

                               Ex Officio
                      HENRY A. WAXMAN, California

                     Ron Martinson, Staff Director
                Shannon Meade, Professional Staff Member
          Mark Stephenson, Minority Professional Staff Member


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on April 26, 2006...................................     1
Statement of:
    Amelio, Gary A., executive director, Federal Retirement 
      Thrift Investment Board; and Thomas J. Trabucco, director 
      of external affairs, Federal Retirement Thrift Investment 
      Board......................................................    89
        Amelio, Gary A...........................................    89
        Trabucco, Thomas J.......................................    94
    Sauber, James W., chairman, Employee Thrift Advisory Council; 
      and Richard L. Strombotne, Employee Thrift Advisory Council 
      Member.....................................................   126
        Sauber, James W..........................................   126
        Strombotne, Richard L....................................   136
Letters, statements, etc., submitted for the record by:
    Amelio, Gary A., executive director, Federal Retirement 
      Thrift Investment Board, prepared statement of.............    91
    Cummings, Hon. Elijah E., a Representative in Congress from 
      the State of Maryland, prepared statement of...............   159
    Davis, Chairman Tom, a Representative in Congress from the 
      State of Virginia, prepared statement of...................    35
    Davis, Hon. Danny K., a Representative in Congress from the 
      State of Illinois:
        Prepared statement of....................................    30
        Various letters..........................................   145
        Various prepared statements..............................    13
    Norton, Hon. Eleanor Holmes, a Delegate in Congress from the 
      District of Columbia, Federal Times articles...............   107
    Porter, Hon. Jon C., a Representative in Congress from the 
      State of Nevada:
        Exhibits 1-20............................................    38
        Letter dated April 26, 2006..............................   135
        Prepared statement of....................................     7
    Sauber, James W., chairman, Employee Thrift Advisory Council, 
      prepared statement of......................................   139
    Strombotne, Richard L., Employee Thrift Advisory Council 
      Member, prepared statement of..............................   138
    Trabucco, Thomas J., director of external affairs, Federal 
      Retirement Thrift Investment Board, prepared statement of..    96


ADDING A REAL ESTATE INVESTMENT TRUST [REIT] INDEX OPTION TO THE THRIFT 
 SAVINGS PLAN: CONSIDERING THE VIEWS AND ADVISORY ROLE OF THE EMPLOYEE 
                     THRIFT ADVISORY COUNCIL [ETAC]

                              ----------                              


                       WEDNESDAY, APRIL 26, 2006

                  House of Representatives,
      Subcommittee on Federal Workforce and Agency 
                                      Organization,
                            Committee on Government Reform,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 3:03 p.m., in 
room 2154, Rayburn House Office Building, Hon. Jon C. Porter 
(chairman of the subcommittee) presiding.
    Present: Representatives Porter, Tom Davis, Issa, Marchant, 
McHenry, Schmidt, Davis of Illinois, Norton, Cummings, and Van 
Hollen.
    Staff present: Ronald Martinson, staff director; Chad 
Bungard, deputy staff director/chief counsel; Chad 
Christofferson, legislative assistant; Shannon Meade, 
professional staff member; Patrick Jennings, OPM detailee/
senior counsel; Alex Cooper, legislative assistant; Mark 
Stephenson and Tania Shand, minority professional staff 
members; and Teresa Coufal, minority assistant clerk.
    Mr. Porter. I would like to bring the meeting to order. 
Today we are discussing adding a real estate investment trust 
index option to the Thrift Savings Plan: considering the views 
and advisory role of the Employee Thrift Advisory Council. 
Welcome, everyone. I appreciate you being here today.
    Mark Twain once said, ``Put all your eggs in one basket and 
watch the basket.'' The point is that such a maneuver is risky 
and unwise, and if you are going to do something that foolish, 
you better keep your eye on the basket at all times. 
Unfortunately, under the current leadership, the makeup of the 
Thrift Savings Plan does not provide Federal employees with the 
ability to diversify their funds for retirement. Between 2000 
and 2003, the highest average annual rate of return on any 
stock in the fund in the Thrift Savings Plan was minus 0.1 
percent, while the rate of return on real estate investment 
trusts was near plus 20 percent. During that time period, there 
was no room for diversification, and Federal employees 
throughout the Government lost their hard-earned money. The 
fact that REITs have had a historically low correlation of 
returns to the returns from other TSP funds is important to 
protect an investor from market volatility. This was emphasized 
by a senior analyst for Morningstar in a Washington Post 
article in January in which the analyst was quoted as saying, 
``Real estate stocks do not move in lockstep with the rest of 
the market, and that makes them good portfolio diversifiers.''
    Yale University Endowment Chief Investment Officer David 
Swensen urges a real estate allocation of 20 percent for 
investors, which could be accomplished through investment in 
REIT stocks. This is a complete impossibility in the Thrift 
Savings Plan. While REITs and real estate have performed well 
in recent years, the performance of REITs and real estate over 
the longer term is what makes the case and is the reason why 
well-established retirement savings plans have routinely made a 
significant allocation to commercial real estate investment. 
For the past 30 years, REITs have outperformed the Dow Jones 
Industrials, the NASDAQ Composite, the S&P 500. IBM, the 
sponsor of the largest private sector 401(k) plan in the 
country, offers a distinct REIT option for plan participants 
and told the subcommittee last year that ``we are committed to 
REITs as a core asset class for defined contribution plans . . 
. Their return, volatility, diversification, dividend yield, 
and taxation characteristics make the case.'' IBM is not alone. 
Many large corporations offer distinct REIT options in their 
401(k) plans, including General Motors, Verizon, and Ford Motor 
Co.
    Congressional consideration of the addition of options to 
the Thrift Savings Plan is by no means unprecedented. After 
sufficient congressional consideration, Congress established 
the first three funds to the Thrift Savings Plan when it 
created the Board. In anticipation of the need for more funds 
once the Board got up and running, the ``Joint Explanatory 
Statement of the Committee of the Conference'' stated, ``Should 
additional investment vehicles become desirable, Congress can 
authorize them.'' When crafting the enabling legislation for 
the Thrift Savings Plan, according to the Conference Statement, 
Congress expressed concern about political manipulation by 
Board members--the kind of manipulation and lobbying that the 
Board has been engaging in over the past several months. That 
is why Congress set up the structure of the funds to be 
passively managed by the Board, as opposed to being actively 
managed. The only reference to congressional political 
manipulation in the Conference Statement was a concern, 
rightfully so, about the possibility of some sort of ``raid'' 
on the trust fund by Congress during budget cuts, not about 
Congress selecting new index funds.
    H.R. 1578 is simply about providing choice--not unlike the 
private sector has--to Federal employees and giving them the 
opportunity to diversify their portfolio. It is nothing more. 
It is Congress' responsibility as ultimate fiduciaries of the 
TSP to bring these opportunities within reach of every Federal 
employee. Adding options to the Thrift Savings Plan in an 
effort to enable proper diversification has been a priority of 
this subcommittee long before I was here and for the past 
couple of years starting in July 2004 when then-Subcommittee 
Chairman Jo Ann Davis sent a letter to the Executive Director 
of the Federal Retirement Thrift Investment Board Gary Amelio 
requesting advice on potentially adding a REIT index option to 
the Thrift Savings Plan. Mr. Amelio responded by briefing 
subcommittee staff the next month. At that briefing, Amelio 
expressed concern with the addition of a REIT index fund to the 
Thrift Savings Plan at that time mostly because of the Board's 
focus on rolling out lifecycle funds. He did state, however, 
that if he were called upon to add another option to a 
retirement plan with the same funds as those in the TSP, the 
first thing he would add would be a REIT index fund option.
    After several months of correspondence between the Board, 
the subcommittee, and outside experts, the Board maintained 
their opposition to the addition of a REITs index fund since, 
according to the Board in January of last year, the ``funds 
currently offered by the TSP are sufficient for the 
construction of risk-optimized portfolios appropriate for TSP 
participants.'' This statement is clearly untrue. Simply ask 
some of the participants in the TSP--which, by the way, does 
not happen currently by the Board--including some of my 
colleagues up here on the dais who probably lost some money in 
the TSP between 2000 and 2003 because there was no opportunity 
to sufficiently diversify their portfolio.
    The problem is that the TSP managers are not asking plan 
participants for their opinion. According to a 2005 GAO report, 
``TSP managers said that they have not surveyed participants 
since the early 1990's'' and GAO found that ``because TSP 
relies on customer complaints as an indicator of participant 
satisfaction, its managers do not have the information 
necessary to determine the degree to which participants are 
satisfied with the services.'' GAO further found that the ``TSP 
managers' reliance on complaints does not take into account 
participants who are dissatisfied and have not complained or do 
not know where to complain[.]'' Participants are left with the 
burdensome task of sending letters to the TSP managers 
themselves or the call center. This GAO finding belies 
Executive Director Amelio's claims at last year's hearing that 
he gets a great deal of feedback based on letters he received 
when the TSP suffered a significant recordkeeping problem.
    The GAO also found that the Employee Thrift Advisory 
Council is equally unhelpful in assisting the TSP managers in 
understanding the needs and wants of the participants. The GAO 
found that ``while some ETAC representatives provide TSP 
managers with feedback on draft TSP publications, legislative 
initiatives, and other issues, ETAC representatives do not 
systematically solicit feedback from their constituents. Some 
ETAC representatives may receive sporadic feedback from 
participants, but ETAC does not conduct surveys of plan 
participants.'' I thought we were in a democracy. Apparently we 
are not. GAO concluded, therefore, that ``the extent to which 
participants within the represented agencies and employee 
organizations provide feedback to the ETAC representative is 
unclear.''
    This ambiguity was demonstrated this past month when ETAC 
voted on a resolution opposing the addition of a REIT index 
fund at the present time. According to a letter to the 
subcommittee from the Senior Executives Association, one of the 
ETAC members that the SEA appointed to the Council at an ETAC 
meeting took a position not held by the SEA itself. Thus, not 
only did that member not survey any members of the SEA, it took 
a position antithetical to the SEA policy. A further indication 
that ETAC was not acting in a full representative fashion when 
it considered the resolution on the addition of a REIT index 
fund was demonstrated when the Board's Executive Director Gary 
Amelio, who is not an ETAC member, recommended language to the 
Council that was ultimately adopted stating that the 
``development of a new fund must come from an independent 
process developed by the Plan's fiduciaries.'' I mention the 
problems with ETAC not to criticize the employee groups, who 
are doing what they can with a broken process and who are 
forced to take action and make recommendations without the 
benefit of good tools for gathering important information from 
the Federal employees they serve. I do join GAO with the 
criticism of ETAC being the primary tool to get supposed 
employee feedback. It simply can't do the job.
    In its recommendations for executive action, GAO proposed 
that the Federal Retirement Thrift Investment Board direct the 
Executive Director to ``(1) develop a systematic effort to 
assess TSP participants' overall satisfaction with the services 
provided and (2) institutionalize the routine collection of 
information and systematic assessment of industry trends and 
innovations.'' According to GAO, ``the Board disagreed with our 
recommendation regarding the implementation of an evaluation 
effort to assess the level of customer satisfaction . . . As we 
state in our report, the private sector plan managers that we 
spoke with believe that direct, ongoing participant feedback is 
needed to respond to the changing needs of plan participants. 
Without obtaining more frequent feedback from participants, TSP 
managers cannot determine what improvement would best satisfy 
participants' needs.'' Understanding what a Federal employee 
really wants in the Thrift Savings Plan is clearly an issue 
with the Plan's current managers.
    After hearing the Board's concerns and discussing the bill 
with outside experts, I, along with Representative Chris Van 
Hollen and full committee Chairman Tom Davis, introduced H.R. 
1578, a bill that now has 169 cosponsors, ranging from House 
Minority Leader Nancy Pelosi to House Majority Leader John 
Boehner. This is not a partisan bill but, rather, a bipartisan 
effort that boasts 71 Democrats and 98 Republican cosponsors, 
all of whom want to provide Federal employees with the 
opportunity to further diversify their portfolios. A week after 
introduction, the subcommittee held a broad-based hearing on 
the merits of adding a REITs index fund as an option to the 
TSP.
    At that hearing over a year ago, Executive Director Amelio 
told the subcommittee that ``the Board members and I have 
decided to engage a reputable investment consulting firm to 
assist in analyzing various investment-related plan issues,'' 
including REITs, and he specifically requested that ``any 
consideration of legislation be delayed at least until after 
the appropriate review by the plan's fiduciaries.'' However, 
the Board took no effort at that time to act on its promise to 
the subcommittee. A month after the hearing, in response to the 
subcommittee's question for the record with regard to when the 
study of all possible additions to the TSP would be made 
available, the Board made no time commitment and indicated that 
it would study the options on its own timetable. In July, both 
the Senate and the House sent separate letters to the Board 
requesting a written report on additional investment options to 
the TSP by January 1, 2006--months after our initial hearing. 
The House letter emphasized the importance of a timely report 
so that it could act on the Board's recommendations to this 
Congress. The Board responded to the letters in August stating 
that it expected to select an investment consultant by 
September 2005. Although the Board expressed no intention on 
meeting the Senate and the House deadline of January 2006, it 
did not indicate that the study would be completed after 
Congress adjourned sine die.
    In January, the TSP Board's staff told Government Reform 
Committee staff that it had contracted with Ennis Knupp and 
Associates to conduct a four-part evaluation of the TSP and, 
notwithstanding repeated congressional requests that the study 
of additional options be completed with sufficient time to 
consider legislation in the 109th Congress, the TSP staff 
revealed that such study would be the fourth and final part of 
the contract and would probably not be completed until after 
Congress adjourned sine die and possibly not until 2007. A 
March 2006 Government Executive article correctly characterized 
the Board's actions, ``TSP administrators already have voiced 
their discontent with the addition of a REIT fund, and have 
stalled its progress by hiring an outside consultant who will 
review a range of possible funds by the end of 2006.'' At an 
April Board meeting, Board Member Thomas Fink even recognized 
that the decision to call in a consultant to review existing 
TSP funds and investment policy probably created a perception 
on the Hill that the Board is stalling on legislation in hopes 
that the REIT proposal will fade.
    The Board's unresponsiveness and stall tactics to delay the 
study--a study that they requested and we agreed to--of 
investment options to the Thrift Savings Plan can no longer be 
tolerated. We cannot have another period, like we did between 
2000 and 2003, where Federal employees lost thousands of 
potential dollars. As the Federal Government seeks to modernize 
its recruitment and retention tools to keep pace with the 
private sector, additional investment options are important in 
accomplishing this goal. According to the Board's own figures, 
the percentage of private companies offering five or less 
options, like the TSP, dropped from 7 percent to 1 percent from 
1999 to 2003. Conversely, the average number of investment 
options available today in all private sector 401(k) plans is 
18 and is 20 for private sector 401(k) participants with 5,000 
or more participants. As the number of investment options 
rises, employees can diversify their assets and protect their 
investments from dramatic volatility in the market.
    This subcommittee has been studying the addition of a REIT 
index fund for almost 2 years, including holding two 
congressional hearings and engaging in numerous discussions and 
correspondence with the Board and outside experts. Although it 
could have been helpful to have had an additional study 
conducted by the Board's consultant, the Board does not see the 
TSP's lack of diversification as a problem and has, therefore, 
not responded to Congress' expressed desire to expand options 
this Congress. Nonetheless, the subcommittee's study of the 
addition of a REIT index fund to the TSP reveals that it is the 
next best option to the Thrift Savings Plan and would provide 
significant diversification benefits. Burton Malkiel, a 
professor of economics at Princeton University, was recently 
quoted in Government Executive as stating that ``The Federal 
Thrift Savings Plan serves as an excellent model for well-
designed retirement plans . . . it could be improved, however, 
by including an additional class in the mix of funds--real 
estate investment trusts.'' I, and at least 169 other 
congressional members, agree.
    I would like to thank our witnesses for being here today.
    [The prepared statement of Hon. Jon C. Porter follows:]

    [GRAPHIC] [TIFF OMITTED] T9849.001
    
    [GRAPHIC] [TIFF OMITTED] T9849.002
    
    [GRAPHIC] [TIFF OMITTED] T9849.003
    
    [GRAPHIC] [TIFF OMITTED] T9849.004
    
    [GRAPHIC] [TIFF OMITTED] T9849.005
    
    Mr. Porter. Noting that we do have a quorum present, I 
would like to also introduce Ranking Minority Member Mr. Davis.
    Mr. Davis of Illinois. Thank you very much, Mr. Chairman, 
and I want to thank you for agreeing to hold this second 
hearing on the possible addition of a real estate investment 
[REIT] fund to the Thrift Savings Plan [TSP]. As you know, last 
month, the Democratic members of the subcommittee requested 
that such a hearing be held to discuss the merits of adding a 
REIT fund to the TSP and to hear the views of the Employee 
Thrift Advisory Council [ETAC]. While I am pleased that this 
hearing is being held, I must admit that I am indeed 
disappointed that only one of our witnesses, ETAC Chairman Jim 
Sauber, was invited to testify and that the scope of the 
hearing seems to center more on ETAC and the Thrift Board's 
decisionmaking process, rather than on why ETAC took the 
extraordinary step of passing a resolution in opposition to 
H.R. 1578, the Real Estate Investment Thrift Savings Act.
    To ensure that the members of the Thrift Board remain aware 
of the interests and concerns of the Thrift Plan participants 
and beneficiaries, ETAC was created in the TSP's authorizing 
legislation. ETAC represents over 2.6 million Federal employees 
and retirees, and several ETAC representatives have served on 
ETAC since the TSP's inception in 1986.
    When a bill is opposed by the people it is supposed to 
benefit, this subcommittee has an obligation to research the 
issue further. Therefore, to gain a more comprehensive 
understanding of this issue, I request that the written 
statements of Terrence Duffy, chairman of the Board of the 
Chicago Mercantile and House need to the TSP Board; Frank 
Cavanaugh, the first Executive Director and CEO of the Board; 
and Mike Miles, an independent certified financial planner 
licensee and registered employee benefits consultant, be 
submitted for the record. And I ask consent to have these items 
submitted.
    Mr. Porter. Without objection.
    Mr. Davis of Illinois. Thank you very much, Mr. Chairman.
    [The information referred to follows:]

    [GRAPHIC] [TIFF OMITTED] T9849.006
    
    [GRAPHIC] [TIFF OMITTED] T9849.007
    
    [GRAPHIC] [TIFF OMITTED] T9849.008
    
    [GRAPHIC] [TIFF OMITTED] T9849.009
    
    [GRAPHIC] [TIFF OMITTED] T9849.010
    
    [GRAPHIC] [TIFF OMITTED] T9849.011
    
    [GRAPHIC] [TIFF OMITTED] T9849.012
    
    [GRAPHIC] [TIFF OMITTED] T9849.013
    
    [GRAPHIC] [TIFF OMITTED] T9849.014
    
    [GRAPHIC] [TIFF OMITTED] T9849.015
    
    [GRAPHIC] [TIFF OMITTED] T9849.016
    
    [GRAPHIC] [TIFF OMITTED] T9849.017
    
    [GRAPHIC] [TIFF OMITTED] T9849.018
    
    [GRAPHIC] [TIFF OMITTED] T9849.019
    
    [GRAPHIC] [TIFF OMITTED] T9849.020
    
    [GRAPHIC] [TIFF OMITTED] T9849.021
    
    Mr. Davis of Illinois. Given the scope of the hearing and 
the markup to follow, the key questions that need to be 
addressed are: Why REITs? And why now? Why isn't the 
subcommittee considering emerging market bonds or Treasury 
inflated protected securities or emerging market stocks? And 
why is the subcommittee moving forward before a comprehensive 
study of the universe of options can be completed? A study of 
investment choices will include an examination of the costs to 
participants, costs to the TSP, the scale at which the TSP 
would be able to enter the market without paying a premium, 
participant demand, overlapping funds, and whether or not any 
of those choices complement the existing investment options. 
This is municipality information, not only for us but for the 
Board and ETAC to know and understand, as we make decisions 
that will impact Federal employees' retirement savings.
    I am also concerned about a pattern of investment behavior 
known as ``chasing returns.'' I understand that this occurs 
when individuals over-concentrate investments in securities 
that perform well just prior to their investing in them. These 
investors run the risk of purchasing stocks that may be 
overvalued and are due for a correction. It is important to 
understand how chasing returns fits into the investment 
equation for Federal employees.
    Experts estimate that retirees will need about 70 percent 
of their pre-retirement income, 90 percent or more for lower-
income earners, to maintain their pre-retirement standard of 
living. That makes the consideration of a fund a very serious 
matter. One only has to look at the example of Enron, whose 
employees were allowed and encouraged by company executives to 
invest in Enron stock, to see what can happen when retirement 
programs are not administered solely in the interests of plan 
participants.
    The TSP has an exemplary record. Let's continue that 
tradition. I look forward to hearing from today's witnesses, 
and I still think, Mr. Chairman, that we need to have all of 
the information that we can garner before making a final 
decision.
    Again, I thank you for holding this hearing and yield back 
the balance of my time.
    [The prepared statement of Hon. Danny K. Davis follows:]
    [GRAPHIC] [TIFF OMITTED] T9849.022
    
    Mr. Porter. Thank you, Mr. Davis.
    Congressman Marchant.
    Mr. Marchant. No opening.
    Mr. Porter. Mr. Van Hollen.
    Mr. Van Hollen. Thank you, Mr. Chairman. I thank both you 
and the ranking member, Mr. Davis, for your opening statements. 
I want to thank the witnesses for being here today, and you, 
Mr. Chairman, for having this hearing.
    As you mentioned, we have had a series of hearings on this 
very important issue, and I am looking forward to the testimony 
of the witnesses today.
    As the chairman said, a large number of Members of Congress 
have cosponsored this bill. People want to find a way to 
provide Federal employees with the kind of choices that many of 
the major companies in the private sector are making. The 
question does arise: If IBM has a REIT option, if other major 
employers in the private sector have these kind of options, 
which by all analyses I think has performed well recently, why 
should we deny that kind of opportunity to Federal employees? 
So that is the framework from which many of us approach this 
issue.
    And I have to say, in the process of putting together this 
bill, our office approached many of the members of ETAC, some 
of the major ones, and asked them for their input. And the 
input we got back--and I will just mention one. AFGE, a major 
member of the Advisory Council, we said, ``What do you think of 
this bill?'' The response we got back was, ``We are not going 
to oppose it. In fact, the ETAC is meeting. We are going to 
learn more about it and see if we can support it.''
    So a lot has obviously happened since then, but I think it 
is important for everybody involved in this process to 
understand that people involved in putting together this 
legislation reached out and tried to solicit the views of 
different players here. I represent lots of Federal employees. 
It seems to me that we need to make sure they have the same 
options that are available to many people in the private 
sector.
    That having been said, I think that it is important to have 
this hearing given the fact that ETAC made the recommendation 
they did. I think it important for us to learn more about what 
factors they considered in reaching that opinion, and I look 
forward to the testimony.
    So thank you, Mr. Chairman.
    Mr. Porter. Thank you, Congressman.
    Congressman McHenry.
    Mr. McHenry. Thank you, Chairman Porter. Thank you so much 
for offering this legislation. I am proud to be a cosponsor of 
it. And thank you, Mr. Van Hollen, for your leadership on this 
legislation as well.
    I look forward to hearing your testimony today because just 
following this legislation, it is pretty perplexing that a 
Board created by Congress then opposes Congress acting on the 
program that it was created to have oversight over. It is a 
little bit ironic that a creation of Congress is biting 
Congress. And I would like to hear that from our second panel 
on why they deem that appropriate.
    I look forward to your testimony on the reason for your 
decision, the reason for your approach on this, and the reason 
why timeliness has not been of the essence of what you are 
trying to achieve. We would like to have a reasonable response 
in a reasonable amount of time, and I think this committee 
hearing is important for those purposes.
    So thank you again, Mr. Chairman.
    Mr. Porter. Thank you, Congressman.
    Congresswoman Holmes Norton, do you have an opening 
statement?
    Ms. Norton. Thank you very much, Mr. Chairman.
    Mr. Chairman, I am almost missing a markup at the Homeland 
Security Committee. I wanted to stay to say a few----
    Chairman Tom Davis. Would the gentlelady yield just 
quickly? They are voting final passage now. They are holding 
the vote open at Homeland Security.
    Ms. Norton. Yes, well, since I am going to get voted down, 
let me at least say these remarks. My good friend, the chairman 
of the full committee, has been there, cast his vote the wrong 
way, so he is prepared to stay here. [Laughter.]
    I have worked closely with the real estate industry. 
Indeed, the District of Columbia is a real estate town, so it 
comes to the table with a fair amount of credibility with me.
    I also have a unique bill that heavily involves the real 
estate industry. I put money in their pocket, both in the 
commercial sector where real estate is one of the few big 
industries in town, and, of course, my unique bill involving 
homebuyers.
    I, of course, have attended our subcommittee hearings, and 
they have been informative as far as they could go. Mr. 
Chairman, I have to say, I have to give the Republican majority 
some credit for taking a fully bipartisan support and trying 
their very best to tear it up. I mean, you couldn't have it 
better. You have the leaders, the top leaders on my side, 
literally from the top of my side, and your side on the bill, 
and yet there is a problem that is very unfortunate that has 
come forward.
    Nobody was more outspoken in favor of REITs on the 
committee than I was, kept pressing the Board--I was very 
disappointed in the Board. I found their answers mealy mouthed. 
We finally said, OK, tell you what, we are going to find out 
what the real deal is, and we asked for a study. It is pending.
    We even, some of us, were concerned that the Board might be 
stalling because we wanted the study to be done more quickly. I 
am told that may not be the case. Some have come forward with 
some dates. I am not sure about that. But one thing I did not 
expect was that this great interest--interest that came out of 
literally the probing of our subcommittee, in which we 
literally brought out in great detail what the great advantage 
of REITs would or might be, would dissolve into what we are now 
seeing. I just cannot believe that for the first time we see, 
of all things, of all bodies, the TSP maligned as being simply 
part of the political game vis-a-vis the Congress--something 
that, by the way, is very dangerous. Very, very dangerous. We 
are dealing here with one of the most conservative funds, one 
of the largest funds in the marketplace.
    So I do not like headlines like this that I regard as 
absolutely needless and that were completely unavoidable 
arriving very likely at the position that has been sought. I do 
not like headlines that say, ``Playing politics with your 
TSP.'' I do not want Wall Street to hear that and see that. And 
I do not want our employees to see it or hear it. And I do not 
like reading articles that say, ``Playing politics with your 
TSP.'' I do not like reading articles--and I will not even 
quote the worst of this--that say, among other things, most of 
those contributions ranging from $1,000 to $7,500 and averaging 
$3,300 per lawmaker were made within a month or two of the 
lawmakers' signing onto a bill, the records show.
    Well, you know what? I did not sign onto the bill. I wanted 
to wait until the hearing and until the study, so I did not get 
any of that money, and that is not why I am bringing this up. I 
am a member of the TSP, and I----
    Mr. Porter. If the Congresswoman would yield for a moment?
    Ms. Norton. I am going to finish, Mr. Chairman. You did not 
stop anybody else. And I think this needs to be brought out. I 
think that it is a darn shame to take what has been a process 
that had no political overtones and look like we are rushing to 
judgment because of politics. I do not believe that people who 
signed onto this bill thought any differently from the way I 
thought when everything I said at the meeting indicated that I 
thought that this might very well be a good idea. But here we 
have a study that is going to be coming in in a few months, and 
yet we are told that the sky will fall--what is falling is the 
TSP--the sky will fall unless somehow this is done right away, 
that we do not need to know about the cost to participants, the 
cost to the TSP. The whole study will be moot, and I do not see 
why in the world, even on a committee like this, Mr. Chairman, 
a subcommittee that you have run in a bipartisan way, where you 
have virtually every member of this subcommittee on the record 
for you, you would allow this to devolve into this. And that is 
what is happening here, and it is going to hurt the TSP and it 
is going to hurt the relationships we have had with you. And I 
want the record to show why I am concerned about this process 
and why I am particularly concerned that no matter how hard we 
try, this Republican majority is determined to separate us, 
whether it is Democrats from Republicans or whether it is 
employees from Members of Congress.
    And I thank you for the time, Mr. Chairman.
    Mr. Porter. Thank you, Congresswoman. If I may comment, I 
think we agree. It is irresponsible--but let me take it a step 
further. It is irresponsible of a media outlet to report a 
story without the courtesy of having an interview with the 
chairman of the committee. It is irresponsible, this article is 
irresponsible. It is not true. It is inaccurate. And I agree 
with you. It is a shame that certain members have played 
politics with this Board. And I think it is a discredit to 
every Federal employee, it is a discredit to this Congress, 
when politics are being played exactly as you are saying by the 
Board of TSP. It is a shame on TSP. And I am disappointed that 
one news outlet can choose to be irresponsible and not have the 
courtesy of interviewing the chairman of this committee. This 
is absolutely false. And I appreciate your comments, and I 
understand what you are saying. Based upon reading the article, 
that is why it is irresponsible of this newspaper to print this 
article, and I am glad you brought it up. Thank you.
    Mr. Davis.
    Chairman Tom Davis. Well, it is irresponsible. In fact, as 
far as the total amounts of money that my PAC gave to you, Mr. 
Porter, they are attributing somehow to some of these other 
interest groups, which is absurd. The numbers do not even add 
up.
    I guess my surprise here is that a group that is supposed 
to be looking out for Federal employees has cost Federal 
employees literally millions of dollars. If this option had 
been available a year ago, looking at the growth in REITs, 
Federal employees would have been able in many cases to get a 
greater return on their investment by having an option that you 
have denied them.
    In good faith, over a year ago they came before this Board 
and said they were going to do a study, and now it appears that 
the study results will come out and they are going to run the 
clock out on us before this Congress is over, hopefully to kick 
it over, and I suppose next Congress they will do the same 
thing. It is irresponsible.
    The fastest-growing part of my own personal portfolio has 
been the real estate side. I would like other Federal 
employees, the 54,000 Federal employees in my district, to have 
the same option. This is not a mandate. This just gives Federal 
employees an option to do that, and it is the height of 
arrogance to think that somehow Federal employees are not 
intelligent enough to make the right investment decisions so 
you want to deny them this opportunity because they might pick 
it. And that is the rhetoric that we have heard out of this 
group, which has been so irresponsible in some of the other 
things that they have undertaken, such as the computer system 
and everything else as you go back.
    Mr. Chairman, as you note in your opening statement, the 
percentage of private companies offering five or less options 
to their employees has dropped from 7 percent to 1 percent over 
the last 4 years, and yet this group insists on keeping it at 5 
percent and running out the clock, offering one of the largest 
plans in the country fewer options, when the trend everywhere 
else--I don't know what they know that we don't know, but I 
look forward to their testimony at this point, and to just tell 
you I don't think this committee can wait for this unelected 
body to sit here and try to run the clock out.
    Thank you.
    [The prepared statement of Chairman Tom Davis follows:]

    [GRAPHIC] [TIFF OMITTED] T9849.023
    
    [GRAPHIC] [TIFF OMITTED] T9849.024
    
    Mr. Porter. Thank you, Mr. Chairman. I would just like to 
add one additional comment that you started, regarding the 
article written by Tim Kauffman of the Federal Times, stating 
contributions received from other members of leadership, again, 
I think this is an insult to the whole Congress, and I 
appreciate you and the Congressman bringing it forward.
    So, with that, I would like to move to some procedural 
matters. I ask unanimous consent that all Members have 5 
legislative days to submit written statements and questions for 
the hearing record, answers to the written questions provided 
by the witnesses also be included in the record. Without 
objection, so ordered.
    I ask unanimous consent that all exhibits, documents, and 
other materials referred to by Members and the witnesses may be 
included in the hearing record and that all Members be 
permitted to revise and extend their remarks. Without 
objection, it's so ordered.
    Let's see here. There are a number of documents that we 
will be referring to through the course of the questioning. 
There are documents that will consist of correspondence 
relating to the subcommittee's interaction with the TSP Board. 
I ask unanimous consent that these documents be placed into the 
record. These documents are marked as exhibits 1 through 16. 
So, without objection, so ordered--correction, 1 through 20.
    [The information referred to follow:]

    [GRAPHIC] [TIFF OMITTED] T9849.025
    
    [GRAPHIC] [TIFF OMITTED] T9849.026
    
    [GRAPHIC] [TIFF OMITTED] T9849.027
    
    [GRAPHIC] [TIFF OMITTED] T9849.028
    
    [GRAPHIC] [TIFF OMITTED] T9849.029
    
    [GRAPHIC] [TIFF OMITTED] T9849.030
    
    [GRAPHIC] [TIFF OMITTED] T9849.031
    
    [GRAPHIC] [TIFF OMITTED] T9849.032
    
    [GRAPHIC] [TIFF OMITTED] T9849.033
    
    [GRAPHIC] [TIFF OMITTED] T9849.034
    
    [GRAPHIC] [TIFF OMITTED] T9849.035
    
    [GRAPHIC] [TIFF OMITTED] T9849.036
    
    [GRAPHIC] [TIFF OMITTED] T9849.037
    
    [GRAPHIC] [TIFF OMITTED] T9849.038
    
    [GRAPHIC] [TIFF OMITTED] T9849.039
    
    [GRAPHIC] [TIFF OMITTED] T9849.040
    
    [GRAPHIC] [TIFF OMITTED] T9849.041
    
    [GRAPHIC] [TIFF OMITTED] T9849.042
    
    [GRAPHIC] [TIFF OMITTED] T9849.043
    
    [GRAPHIC] [TIFF OMITTED] T9849.044
    
    [GRAPHIC] [TIFF OMITTED] T9849.045
    
    [GRAPHIC] [TIFF OMITTED] T9849.046
    
    [GRAPHIC] [TIFF OMITTED] T9849.047
    
    [GRAPHIC] [TIFF OMITTED] T9849.048
    
    [GRAPHIC] [TIFF OMITTED] T9849.049
    
    [GRAPHIC] [TIFF OMITTED] T9849.050
    
    [GRAPHIC] [TIFF OMITTED] T9849.051
    
    [GRAPHIC] [TIFF OMITTED] T9849.052
    
    [GRAPHIC] [TIFF OMITTED] T9849.053
    
    [GRAPHIC] [TIFF OMITTED] T9849.054
    
    [GRAPHIC] [TIFF OMITTED] T9849.055
    
    [GRAPHIC] [TIFF OMITTED] T9849.056
    
    [GRAPHIC] [TIFF OMITTED] T9849.057
    
    [GRAPHIC] [TIFF OMITTED] T9849.058
    
    [GRAPHIC] [TIFF OMITTED] T9849.059
    
    [GRAPHIC] [TIFF OMITTED] T9849.060
    
    [GRAPHIC] [TIFF OMITTED] T9849.061
    
    [GRAPHIC] [TIFF OMITTED] T9849.062
    
    [GRAPHIC] [TIFF OMITTED] T9849.063
    
    [GRAPHIC] [TIFF OMITTED] T9849.064
    
    [GRAPHIC] [TIFF OMITTED] T9849.065
    
    [GRAPHIC] [TIFF OMITTED] T9849.066
    
    [GRAPHIC] [TIFF OMITTED] T9849.067
    
    [GRAPHIC] [TIFF OMITTED] T9849.068
    
    [GRAPHIC] [TIFF OMITTED] T9849.069
    
    [GRAPHIC] [TIFF OMITTED] T9849.070
    
    [GRAPHIC] [TIFF OMITTED] T9849.071
    
    [GRAPHIC] [TIFF OMITTED] T9849.072
    
    [GRAPHIC] [TIFF OMITTED] T9849.073
    
    [GRAPHIC] [TIFF OMITTED] T9849.074
    
    [GRAPHIC] [TIFF OMITTED] T9849.075
    
    Mr. Porter. It is the practice of this committee to 
administer the oath to all witnesses, so if you would all 
please stand, I would like to administer the oath. Please raise 
your right hands.
    [Witnesses sworn.]
    Mr. Porter. Let the record reflect that the witnesses have 
answered in the affirmative. Please be seated, as you have.
    The first panel, I would like to now invite the panels to 
come forward. Of course, you are there, and the panel will now 
be recognized for opening statements. I would ask you each to 
summarize your testimony in about 5 minutes. Any fuller 
statement you may wish to make will be included in the record. 
First we will hear from Mr. Gary Amelio, Executive Director of 
the Federal Retirement Thrift Investment Board. After Mr. 
Amelio, we will hear from Mr. Thomas Trabucco, the Director of 
External Affairs for the Federal Retirement Thrift Investment 
Board. I would like to thank you both for being here.
    Mr. Amelio.

   STATEMENTS OF GARY A. AMELIO, EXECUTIVE DIRECTOR, FEDERAL 
  RETIREMENT THRIFT INVESTMENT BOARD; AND THOMAS J. TRABUCCO, 
    DIRECTOR OF EXTERNAL AFFAIRS, FEDERAL RETIREMENT THRIFT 
                        INVESTMENT BOARD

                  STATEMENT OF GARY A. AMELIO

    Mr. Amelio. Good afternoon. My name is Gary Amelio, and I 
am executive director of the Federal Retirement Thrift 
Investment Board.
    The duties of the executive director are established by 
law. One such duty is to meet with the statutorily created 
Employee Thrift Advisory Council [ETAC]. This is a duty which I 
find most useful and enjoyable. Since I arrived, we have held 
these meetings twice each year.
    Before coming to the agency nearly 3 years ago, I had 23 
years of private sector experience in the employee benefits, 
fiduciary industry. Because much of it involved Taft-Hartley 
plans, I had a great deal of experience with union and 
association leaders. I can state unequivocally that ETAC 
members are as knowledgeable about their plan and as protective 
of their members' retirement security as any of the employee 
leaders I have worked with throughout my career.
    The letter inviting me to this hearing asked that I discuss 
the formulation of the ETAC resolution to oppose H.R. 1578. 
ETAC meeting transcripts, which we have provided to this 
subcommittee, show that the discussion began more than 2 years 
ago at the March 24, 2004, ETAC meeting. At that time ETAC 
Chairman Jim Sauber announced that he had been contacted by the 
REIT lobbyist who requested such a meeting. As Mr. Sauber 
explained it, the REIT advocates wanted to make a pitch for 
their proposal. He told ETAC members he had an open mind and 
told other members they may be contacted as well.
    I had also been contacted by REIT representatives for a 
meeting. I advised ETAC that I was also open ``to listen to 
anything within reason,'' but I had sent word through their 
lobbyist that I did not want ``a hard sales pitch.'' I did 
state for the record my displeasure upon learning that my 
position had been misrepresented as refusing to meet. 
Nevertheless, I told ETAC that I planned to meet with the 
industry association representatives and lobbyists, which I did 
on March 30, 2004.
    The next ETAC meeting was held on November 9, 2004. Again, 
the issue was raised, and Chairman Sauber offered to facilitate 
a meeting of interested ETAC members with the REIT 
representatives. I explained that I had personally met with the 
trade association's leaders and their lobbyist for 2 hours. I 
also had my senior investment staff meet with them a second 
time to receive further information and to invite them to 
present any additional information they wished to develop in 
writing.
    I further advised ETAC on November 9th that Tom Trabucco 
and I had met with House and Senate staff to discuss the 
proposal. I again stated my openness to receiving information, 
but cited three specific concerns: liquidity, fee structure, 
and setting precedent for other narrowly focused fund additions 
to the TSP. I was helped at this point by an ETAC member who 
demonstrated her knowledge by pointing out that we already have 
REITs in our existing broad-based domestic stock index of 
funds.
    The Council next met on May 4, 2005, just 2 weeks after 
this subcommittee held a hearing on H.R. 1578. I was asked to 
and gave Council members a brief on what I had said during the 
hearing. A number of Council members voiced strong concerns. 
Others said they viewed it as an attempt to politicize the TSP. 
There was general agreement that each ETAC member would consult 
with his or her own organization's leadership.
    With regard to the resolution itself, ETAC Chairman Jim 
Sauber contacted us in late January 2006 to advise that he 
wanted to schedule an ETAC meeting. This is standard operating 
procedure since the law requires the executive director to meet 
at the request of the Council.
    Tom Trabucco advised me that Mr. Sauber wanted to have a 
potential resolution for consideration at the meeting. Mr. 
Sauber had also asked that the Board's general counsel, who 
also serves as the committee management officer, be consulted 
to be certain that he was proceeding consistent with the law. I 
told Tom to do everything appropriate to support the Council.
    The resolution was indeed developed, circulated, raised at 
the March 7, 2006, meeting, discussed, amended, and approved. 
Nine Council members and three alternates were in attendance. 
One Council member--the representative of the uniformed 
services--abstained because of his unique situation of 
representing not an employee organization but the Department of 
Defense. From my perspective as the Federal official to whom 
the Council provides its view, the Council had, after 2 years 
of discussion and review, clearly stated its opposition to the 
REIT bill.
    Thank you.
    [The prepared statement of Mr. Amelio follows:]

    [GRAPHIC] [TIFF OMITTED] T9849.076
    
    [GRAPHIC] [TIFF OMITTED] T9849.077
    
    [GRAPHIC] [TIFF OMITTED] T9849.078
    
    Mr. Porter. Thank you for your testimony.
    Mr. Trabucco, welcome.

                STATEMENT OF THOMAS J. TRABUCCO

    Mr. Trabucco. Thank you. Good afternoon, Chairman Porter, 
Congressman Davis, members of the subcommittee. My name is Tom 
Trabucco, and I am the director of external affairs for the 
Federal Retirement Thrift Investment Board. My position 
includes three main areas of responsibility: legislative 
affairs, the press, and relations with the unions and 
associations representing Federal and postal employees. I also 
serve as the agency's spokesman when the executive director is 
not available.
    I have served in this position for nearly 20 years as a 
career member of the Senior Executive Service. Before that, I 
served for a total of 13 years, handling legislative matters 
for two organizations, the National Association of Retired 
Federal Employees and the National Federation of Federal 
Employees, as well as a staff member to the predecessor of this 
committee.
    Since coming to the Thrift Investment Board in 1987, it has 
been my great privilege to work with many outstanding 
individuals in the agency, the employee organizations, the 
executive branch and the Congress, who were completely 
dedicated to the success of the Thrift Savings Plan. There has 
been a truly exceptional effort to assure those who placed 
their retirement savings in the TSP, that this plan will be 
managed solely in their interest by expert fiduciaries.
    This does not mean there have not been different views 
openly expressed. My prepared statement includes some examples.
    When Congress created the TSP, it recognized that the 
experts who serve as the plan fiduciaries, the board members 
and the executive director, would not necessarily be familiar 
with the Federal work force. To ensure that the employees 
eligible to participate had top-level input into all investment 
and administrative matters considered by the board, the House 
committee proposed the Employee Thrift Advisory Council. The 
Council was created and has functioned exactly as envisioned 
ever since.
    Part of my job at the board is to serve as the secretary to 
the Council. In this role I am the primary point of contact 
between Council members and the executive director. Council 
members are appointed by the chairman of the board from 
organizations prescribed by law. I manage the process by which 
nominations are solicited from the presidents of each of these 
unions and associations. I am also responsible for filing the 
annual reports regarding Council activities, as required by the 
Federal Advisory Committee Act, and for performing other 
administrative support functions.
    By law, the executive director meets at the request of the 
Council. I normally receive the first call that a meeting is 
being requested. I coordinate with the committee management 
officer to develop the meeting notice and forward the agenda 
for publication in the Federal Register. As Executive Director 
Amelio stated, I responded to Chairman Sauber's request 
regarding his resolution opposing REITs. He told me the points 
that he wanted in the resolution, and asked that I run them by 
the general counsel to ensure that they were put in proper 
legal language and that he was properly following the statutory 
provision regarding Council resolutions. I did so.
    The general counsel advised me that the resolution I 
drafted, based on Chairman Sauber's specifications, was fine, 
and that his actions were consistent with both the law and the 
ETAC charter. A copy of that charter is attached to my 
testimony. She further advised that Mr. Sauber should be sure 
to circulate his resolution in advance of the meeting.
    I forwarded the file that I had created to Mr. Sauber. I 
recall that he made two rounds of revisions, which he 
circulated to Council members in advance and copied to me. I 
also asked him before the meeting to send me his final version 
so we had a copy that could be promptly edited to reflect any 
amendments made at the meeting. The resolution was indeed again 
revised at the ETAC meeting. Board staff promptly produced a 
final version for ETAC members at the meeting, and it was 
approved by the Council.
    That concludes my prepared statement. I would be pleased to 
respond to any questions.
    [The prepared statement of Mr. Trabucco follows:]

    [GRAPHIC] [TIFF OMITTED] T9849.079
    
    [GRAPHIC] [TIFF OMITTED] T9849.080
    
    [GRAPHIC] [TIFF OMITTED] T9849.081
    
    Mr. Porter. Thank you very much. We appreciate your 
testimony.
    I would like to begin questioning regarding a subcommittee 
hearing we had last year on H.R. 1578. In our hearing on April 
19, 2005, on H.R. 1578, Mr. Amelio, did you ask the 
subcommittee to delay action on H.R. 1578 until after you 
studied the investment options for TSP?
    Mr. Amelio. I believe that I did.
    Mr. Porter. And we have done that, correct?
    Mr. Amelio. I believe that you have, yes.
    Mr. Porter. After we held our hearing on April 19th, we 
sent you written questions for the record to answer, as our 
usual practice after a hearing. I want to read something from 
the May 4, 2005 Employee Thrift Advisory Council. This is a 
transcript of an exchange between you, Mr. Amelio, and Mr. 
Strombotne--pardon me if I mispronounced the name--discussing 
the questions for the record asked by the subcommittee 
following the hearing of April 19, 2005. It is exhibit No. 18.
    I am quoting Mr. Amelio. ``But I was startled when I read, 
not only the tenor of the questions from the subcommittee, but 
the tone. We're going to respond in kind, and I'm going to make 
these questions public. I'm going public. We'll give copies, 
and I intend to give the media copies. They ought to see what's 
going on behind the scenes.'' Now, remember, this was after our 
meeting April 19th. This is for the full committee. This is 
after our meeting. This is Mr. Amelio. ``We're going to go 
public. And now I finally have these questions in writing 
instead of just sitting in a room up there and hearing it. I 
think everybody else should see what's going on, although, 
frankly, the media knows what's going on. Some of them have 
already mentioned to me through their research they're well 
aware of what's going on, so that's where we are right now.
    Mr. Strombotne: `What kind of time schedule are you on for 
response to their questions?'
    Mr. Amelio: `I plan taking every day I have available.' 
From a transcript of May 4, 2005, ETAC meeting, page 77, 
emphasis added.''
    Mr. Amelio, what you mean when you said, ``I'm going 
public?'' Were you suggesting waging a media campaign against 
Members of Congress? Why were you so upset with Congress simply 
because we were asking questions? Can you answer my question?
    Mr. Amelio. I have a recollection. I just saw before the 
meeting, those transcripts, and my recollection is I believe 
that the questions that were submitted to us did not reflect an 
understanding of the information that we attempted to put 
forth, that we were going to do a full review. It appeared to 
me that they were driven by the industry, and that they were 
directed at a single fund rather than an in toto review of all 
available options.
    Mr. Porter. What did you mean when you said you were going 
to go public?
    Mr. Amelio. Keep this--just as we're doing now, be very 
open about this so that the plan's participants could see the 
board feels that to exercise its fiduciary duty, we need to 
know--or the participants need to know that we as fiduciaries 
are going to exercise our duty and ensure that we review every 
plan option and not simply focus on one particular option at 
one particular point, that we wanted to have an independent 
consultant do the full review of all investment options.
    Mr. Porter. Why then did you say you were going to wage a 
media campaign against Congress?
    Mr. Amelio. I don't recall. If it's in there, then I said 
it.
    Mr. Porter. It is in there.
    Mr. Amelio. OK. Well, I haven't, so----
    Mr. Porter. Why would you say that?
    Mr. Amelio. I have no--I don't know why.
    Mr. Porter. Why were you so upset because Congress was 
asking you questions, and why did you complain about the tone 
of this subcommittee, that I think is very fair?
    Mr. Amelio. Because, I believe, that the questions, as 
written, seemed to be written by the industry, rather than by 
an independent objective group, which I assume that the 
subcommittee, the role that you would take is the same role 
that the fiduciaries would take.
    Mr. Porter. So you are saying that those questions were 
written by the industry is why you were going to----
    Mr. Amelio. No, I don't know who wrote them.
    Mr. Porter [continuing]. Take the time to go to the media 
because you thought they were written by the industry?
    Mr. Amelio. I don't know who wrote them. It was just my own 
impression.
    Mr. Porter. Or were you afraid to answer those questions?
    Mr. Amelio. Not at all.
    Mr. Porter. On July 5th, Senators Collins, Lieberman, 
Voinovich, wrote to Chairman Saul. The Senators noted that the 
FRTIB was undertaking a review of investment options for Thrift 
Savings Plan. Senators requested a written report of the 
findings and recommendations of the review by January 1, 2006. 
That is exhibit No. 6.
    The next day, July 6th, Chairman Davis, Representatives 
Waxman, Danny Davis, myself, wrote to Chairman Saul to request 
a written report on TSP investments by January 1st. The letter 
stated, ``We look forward to the completion of the study and 
your recommendations so that we can consider them and proceed 
with the REIT legislation or a version of that legislation, 
including your recommendations, in the 109th Congress.''
    On August 11th, you, Mr. Amelio, and five board members, 
respond with a letter to the subcommittee which indicated the 
board had issued a request for proposals on April 29th, seeking 
competitive bids for ongoing expert investment consulting 
advice, exhibit No. 8.
    In the letter the board stated it expected to select an 
investment consultant by September 2005.
    Mr. Amelio, in the letter of August 11th, a study of the 
investment options for TSP is the last work item in the request 
for proposals; is that correct?
    Mr. Amelio. Is the--in terms of the work the consultant is 
doing for us, the fourth item is a review of investment 
options, that is correct.
    Mr. Porter. Why was it the fourth?
    Mr. Amelio. That was a practical measure to comply with 
Federal procurement law.
    Mr. Porter. To put it forth was per law?
    Mr. Amelio. No, but we had to get several other things done 
in advance of that that were required, and----
    Mr. Porter. And what were those things?
    Mr. Amelio. Reviewing the current indexes, which had to be 
done before we take--go out for RFP on the existing fund 
managers, which we have to complete by the fall of 2006.
    Mr. Porter. In the letter the board states that the tasks 
will need to be completed in the order listed. It is not 
prudent to establish firm deadlines on the completion of each 
task. So the study of investment options was your lowest 
priority, correct?
    Mr. Amelio. In the order in which we had to satisfy law, 
yeah, it had to be put fourth. I wouldn't say it was the lowest 
priority. I would simply say we had to address things that the 
law required us to first.
    Mr. Porter. Why did you refuse to accelerate the study of 
the investment options? Was it in defiance of Congress and the 
Senate?
    Mr. Amelio. Not at all. We have--the TSP is required under 
the statute to operate at low expenses, and therefore, we had 
to do the RFP. And in order to get the RFPs completed for the 
investment manager, we had to review the indexes first. Those 
two things had to be done, one, two. Obviously, then, the study 
would be completed after those, which we are doing, but we have 
indicated we'll get them done before the close of 2006.
    Mr. Porter. Mr. Davis.
    Mr. Davis of Illinois. Thank you very much, Mr. Chairman.
    Mr. Amelio, you noted in a recent Federal Times article 
that the board hired Ennis Knupp to assess the plan's current 
investments and to report back by the end of the year if there 
were any material gaps in the TSP.
    I have two questions. One: what will the Ennis Knupp study 
entail? Can an informed decision be made about adding funds to 
the TSP without this assessment? And how important is the study 
in determining which funds if any should be added to the TSP?
    Mr. Amelio. Ennis Knupp is an independent nationally 
renowned investment consulting firm. They will--their study of 
the universe of options will consist of two pieces. First, they 
will look at the existing funds and determine whether there are 
any material gap in the funds.
    The second thing they will do is, if they believe there is 
a material gap, look at the industry and determine whether 
there is any product out there that could appropriately fill 
the material gap. That study will include, but it certainly 
will not be limited to REITs. It will look at emerging markets. 
It will look at bonds. It will look at TIPs. It will look at 
any variety of investments. That is the way any appropriate 
fiduciary that is charged with managing an employee benefit 
plan does look at a participant directed plan. It would, I 
believe, be a breach of fiduciary duty to simply look at one 
fund without looking at the fund lineup and seeing what's in 
there or what isn't and make a decision on that basis.
    Mr. Davis of Illinois. So one would be in a better position 
to make a decision with the information that would be generated 
than they are without the information that would be generated 
once the study is completed?
    Mr. Amelio. Absolutely, yes, sir.
    Mr. Davis of Illinois. Would you say that would be the 
common opinion of other experts in the field?
    Mr. Amelio. I believe that every fiduciary of a participant 
directed defined contribution plan in this country would take 
the same approach, and the larger the plan, the more important 
it is that process be followed because of issues like liquidity 
and fees and availability of products to the plan, yes, sir.
    Mr. Davis of Illinois. Mr. Terrence Duffy, chairman of the 
Board of the Chicago Mercantile Exchange and the House of 
Representatives' nominee to the Thrift Savings Board, in 
written testimony submitted for this hearing, stated that a 
technical analysis demonstrated that the proponents of a REIT 
fund overstated the case for such a fund.
    What would you think he perhaps meant by making this 
statement?
    Mr. Amelio. Well, I spent about 22 years in the industry--
before I came into this position--in the private sector, and 
when proponents of any investment vehicle--when I say 
``proponents'' I'm talking about sales people and promoters of 
investment products--roll out figures, they roll out figures 
which put their particular fund or their particular industry in 
a better light than some other person using other figures would 
do it, and I believe in this case there were several factors 
that went into that. We've had our chief investment officer and 
her staff look into this, and I believe a couple of the 
weightings that were used in the study that the REIT lobbyists 
put forth could be challenged by others.
    For example, I think there was an overweighting of 40 
percent in REITs versus the allocation to equities when most 
other consultants might only use a 15 percent allocation. The 
second thing is, the REIT industry, or the real estate industry 
certainly got hot for a few years, but past performance is no 
indicator of future performance. I heard those kind of comments 
before. And if you're investing based on past performance, it's 
like driving a car by looking through the rear view mirror. It 
might be reassuring at first, but it can be dangerous.
    Mr. Davis of Illinois. And so the continuous gathering of 
information really puts you in the most comfortable position to 
feel that the benefits of your decisions are going to be 
favorable?
    Mr. Amelio. It absolutely does. I mean that's what 
fiduciaries do. You have to study all of the options, all of 
the materials, and I think it's particularly important that we 
get it from an independent consultant.
    Mr. Davis of Illinois. Thank you very much.
    Mr. Porter. If I could just respond to a couple of the 
comments that I don't think are quite accurate. If we look at 
rates of return, Thrift Savings Plan investment fund 
performance, G Fund from 1988-2005 was 6.5 percent, in 2000-
2005 was 5 percent. The I Fund was 7.7 percent from 1988 to 
2005. The fund was from 2000 to 2005, 3.2 percent. The F Fund 
7.7 percent from 1988 to 2005, and we look at 2000 to 2005 of 
6.9 percent.
    Now, given these numbers to show an analysis that was done 
based upon the investment in REIT funds--and again, I think 
Federal employees are capable of making decisions. I trust that 
they are smart and intelligent and know what they are doing.
    If you look at these funds, the REIT Fund in 1988 to 2005 
gained 13.8 percent, compared to the G Fund was 6.5, the I Fund 
was 7.7, the F Fund was 7.7, the C Fund was 13.3, the S Fund 
was 13.6. The REIT was right up there with the C and the S at 
13.8 from 1988 to 2005.
    From 2000 to 2005, the REIT Fund increased 20.7 percent, 
the G Fund was 5 percent, the I Fund was 3.2 percent, the F 
Fund was 6.9 percent, the C Fund was 0.2 percent, S Fund was 
4.7. The REIT Fund was 20.7 percent. So if we look at 1988 to 
2005, it is 13.8; from 2000-2005 it was 20.7 percent.
    I am sorry, maybe we are reading from a different set of 
stats.
    Mr. Davis, Chairman Davis.
    OK, Mr. Marchant.
    Mr. Marchant. Thank you.
    Mr. Amelio, in some of the literature that has been given 
out, it says that REITs are already a part of the core 
component, and I can't find anything in my material up here 
that says what part, what percentage of the core component it 
is. Do you know offhand, or is it in our material?
    Mr. Amelio. I can give it to you. I am not sure what all 
materials you have there, sir. It is--the REITs are a 
proportion of the two domestic equity funds in proportion to 
their overall totality of investment in the United States 
economy. So if you look at the fair market value of REITs in 
the TSP as of 3-31-06, it is $1.71 billion of the current TSP 
as invested in REITs. We could break that down because some 
REITs are held in the C Fund, and other REITs are held in the S 
Fund, and I do have those numbers here if you want to give me a 
second. But it gets to--oh, here it is. I'm sorry. OK. $564 
million of that is held in the C Fund, and $1.14 billion is 
held in the S Fund.
    To give you an example as to how that might impact an 
individual participant, if you were a participant in the TSP 
and you put your account in the appropriate L Fund--and this 
would be a participant who is younger and has a longer time 
horizon till retirement--approximately 2 percent of your 
account balance would be in REITs. And that basically is the 
same allocation that you might find if you went out and got an 
investment advisor to allocate your entire account versus all 
the different segments, pharmaceuticals, banking and finance, 
oil, energy, etc., if you were to pay an individual advisor.
    And actually, that also ties back somewhat to the 
chairman's point about there's always a debate in the industry, 
are you stock picking or are you doing asset allocation? Most 
investment advisors say asset allocation, and that's what we're 
intended to do with these broad-based index funds that we have 
in the plan that Congress created, and what we even do more so 
with the L Funds, which are completely asset allocation, as 
opposed to stock picking, going out, finding something that's 
hot and investing in it at that particular point in time.
    Mr. Marchant. When the board made its decision to not 
consider this fund until it got the report, did they take into 
consideration their fiduciary duty, not on the downside and on 
the protective side, but on the upside and the potential gain 
that they were, in essence, not allowing their investors to 
take part in? Because if I am in TSP, and I am, and 
aggressively in it, and I can't invest that money, because of 
the match, I can't invest that money anywhere else, and I have 
some limits on--the TSP board has in essence placed some limits 
on my investment horizon because I am getting a match from the 
Government. To me, it has limited my ability, not just for the 
upside, because while the positive returns are very good, 
REITs, historically in my portfolio and portfolios that I have 
dealt with at Teacher Retirement System in Texas, Employee 
Retirement System in Texas, have been used as a hedge as much 
as they have for upside potential.
    Do you think that the board, once it receives its report, 
will reconsider this?
    Mr. Amelio. I think that the board will support the 
independent consultant's report, whatever is in there, as long 
as it appears reasonable on its face, and I have no reason to 
believe it wouldn't.
    I would suggest to you that contrary to what's been said 
earlier, this plan is as fully diversified as any plan could 
be. We cover every U.S. domestic stock that there is between 
the index funds, and Congress did this in 1986. I mean it was 
genius when they created this plan, that it is low cost broad-
based index funds, so there is diversity here.
    I also would, to answer the first part of your question, I 
think the board very much considered its fiduciary duty. This 
is a very impressive board. Although they are politically 
appointed, they take their fiduciary duty seriously, and I 
think they're acting in the plan participants' best interest by 
wanting to see the independent review of the expert firm before 
making a decision.
    And, finally, we haven't said anything bad about REITs. 
We're not saying they're good or bad. We're simply saying we 
don't want to recommend any fund addition to the committee 
until we've had an opportunity to review the current lineup and 
all the potential possibilities if there are any material gaps. 
That's all we're saying.
    Mr. Marchant. Thank you.
    Mr. Porter. Just a point of order for information. Yale 
University Endowment Chief of Investment, I mentioned in my 
opening statement, urges real estate allocation of 20 percent 
for investors. Several of the largest hundred public defined 
plans, including California Public Employees Retirement System, 
which is the largest, and the New York State Teachers 
Retirement System, allocated over 6 percent of their total to 
commercial real estate. I just think that should be included.
    Thank you.
    Mr. Van Hollen, questions? I am sorry. Congresswoman, do 
you have any questions?
    Ms. Norton. Yes. Just let me make sure my comments were 
understood. I think they were. But my comments about the 
maligning of the TSP and its danger had nothing to do with the 
press. I didn't think the press reports were distorted. I think 
they reported. If there were some corrections and somebody got 
it wrong, I would, with the chairman, decry the notion of not 
trying to get a comment from the chairman. One of articles said 
that they talked with a spokesman for the chairman, so I think 
if he has something to clear up, I would certainly welcome it, 
because I think it would benefit this whole discussion.
    My comments, they reported campaign contributions. They got 
that from the Congressional Record. They got when they were put 
in. The nexus and the link is unhealthy. It is unhealthy for 
this discussion. It is unhealthy for the fund. The press is in 
the business of reporting. There they did not editorialize on 
the matter, and I want to make that clear that I think they 
were doing their job.
    The fact is, that this Congress is or should be very 
sensitive to appearances. We have a lobbying bill that is right 
this moment still trying to get enough votes to get the rule 
passed. This Congress has become all about lobbying and 
corruption. So the timing could not be worse, especially when 
we are talking about something where virtually every member was 
in agreement in the first place.
    Mr. Chairman, as you know, I am so perplexed. I was glad to 
hear your last question, because you asked about Yale's 20 
percent. That was in your testimony. Frankly, I was going to 
ask about it. That is my alma mater, and it is not a private 
sector IBM, and frankly, I was on the board of the Yale Corp., 
so I know just how conservative such boards are. That really 
was going to be my question.
    I do have a question, because I don't equate the TSP with 
IBM and the private sector. Yale and other charitable 
institutions, and their caution is, I think, more what has won 
the respect of the TSP over the years. But as I sat here 
listening to some of the questions, and once again, glanced at 
the title of this hearing, I was just perplexed. Considering 
the views and advisory roles of the Employee Thrift Advisory 
Council, well, you know, Employee Thrift Advisory Council is 
not central here, happens to be important as far as I am 
concerned, because actually money is involved. And I think the 
reason that many of us wanted this hearing is that we should 
begin to get some answers because we were being rushed to a 
vote right away, got to do it right away, there is some 
emergency. So we wonder, my God, let's see what we can find 
out.
    So I just want to object that we're talking about the 
Employee Thrift Advisory Council that are kind of in the same 
position we are, trying to find answers from the people who run 
the program itself. Much as I sympathize with them, they can't 
possibly be at the center of our concerns today.
    I would like to ask a Yale question. I would like to ask--
it is the kind of question that made me really wonder, Mr. 
Amelio, about whether the TSP was stuck in the past or whether 
it was prepared to move ahead at our last hearing. I like to 
compare apples with apples, not private sector corporations who 
are in the business of winning and losing, because the 
employees of the Federal Government are not in that business 
when they join the TSP.
    I would like to ask you if you have looked at relevant, 
responsible institutions like educational institutions, other 
such institutions that are substantially invested in the market 
or under pressure to in fact generate revenue for their 
endowments and the like, and how you are informed, if at all, 
by what other or similar funds are doing? And if you could 
justify the difference between, for example--I will just use 
that as an example, because, Chairman, I think rightfully--I 
don't know if he is from Yale or not, but he rightfully put 
this as an example. If not Yale, you can cite somebody else who 
hasn't done the same thing, and that would inform me of what I 
don't yet know.
    Mr. Amelio. Am I allowed to answer?
    Mr. Porter. Please.
    Ms. Norton. You don't have to ask his permission to answer 
my question.
    Mr. Amelio. Well, I was watching the time. I'm sorry.
    Ms. Norton. Oh, I see.
    Mr. Amelio. Just basically, yes, we have. And to just draw 
a distinction between the plans you're talking about, the Yale 
plan and CalPERS, etc., those plans are what are called 
actively managed by managers. Percentages are set up and 
managers actively buy and sell in guidelines. The TSP is a 
participant-directed plan, and you look at a menu of funds. 
What we have done, for example, is you can look at the top 20 
funds like the TSP in this country that are participant 
directed. You would find, for example, only four of them have 
REITs in----
    Ms. Norton. Such as, please, such as?
    Mr. Amelio. Such as IBM--they're not public, they're 
private companies--IBM, General Motors, Ford. I've got a list 
here. Boeing, Exxon, Lockheed, Verizon, Northrop, Procter & 
Gamble, to name a few. And four of those top 20 do have REITs, 
but they're all still smaller than us, and all of the plans 
that have REITs have a huge number of options compared to us, 
which gets into my concerns about liquidity and fees.
    Ms. Norton. Mr. Chairman, I am sorry, if I am going over, 
so I will not go further. I hope we will have another round. I 
would like to ask for the record that the two articles, one 
from the Federal Times, the other, be made a part of the 
record.
    Mr. Porter. No objection.
    [The information referred to follows:]

    [GRAPHIC] [TIFF OMITTED] T9849.082
    
    [GRAPHIC] [TIFF OMITTED] T9849.083
    
    [GRAPHIC] [TIFF OMITTED] T9849.084
    
    [GRAPHIC] [TIFF OMITTED] T9849.085
    
    [GRAPHIC] [TIFF OMITTED] T9849.086
    
    [GRAPHIC] [TIFF OMITTED] T9849.087
    
    [GRAPHIC] [TIFF OMITTED] T9849.088
    
    Mr. Porter. I would like to comment, I guess, for the 
record, to make it clear. I appreciated the request by the 
minority to have the hearing today. That request was very 
specific. That request was to have it regarding--a hearing 
regarding the advisory role of the Employees Thrift Advisory 
Council. That was the request, which is why we are having the 
hearing today. So to answer the question why we are doing it, 
it was a request from the minority.
    And with that, Chairman Davis.
    Chairman Tom Davis. Thank you.
    Let me, since Ms. Norton has entered the Federal Times 
article into the record, it just shows that anything can get 
into the record. It is a very non-credible article, in my 
opinion. For example, let me just go, Mr. Chairman, to some of 
the things that they have talked about. Every Republican that 
is crucial was given a contribution of $5,000, and then they 
gave you $10,000. That has hardly passed through if they give--
they must have invested into a REIT, I think, to get that kind 
of appreciation over time. The Freedom Project did the same 
thing. By the way, the time periods, the Freedom Project was 
given 5,000, and gave you $10,000, some of that money before 
they even gave--I mean, anyone who understands how leadership 
PACs operate know that leaders get money from a lot of 
different sources, and generally, give it out on the basis of 
candidates from marginal districts, not to who is going to 
support legislation. I have never known a leadership PAC to 
give out anything except with the intent of keeping their party 
in power. That is why they are established in the first place, 
and I think the writer of this article is very naive in terms 
of understanding how those things work.
    Having said that, it is certainly the right of people to 
petition their government. PACs are, of course, the 
contributions of thousands of people who put them into one 
area, and it is, I don't think any mystery, that some of that 
would find its way to Members, some sitting on this committee, 
many others to Members who have nothing to do with this.
    I guess what bothers me though about the way the TSP has 
worked this, with leaks to the press and the other things, is 
you destroyed any credibility you had with me. When you came in 
to see me originally, we were going to try to get a report 
back, and now, to me, it looks like you are running out the 
clock, that you are going to report this at the very end of 
this session, where it would be impossible for us to act. Do 
you care to--Mr. Amelio, what do you have to say about that?
    Mr. Amelio. I genuinely don't want to do that.
    Chairman Tom Davis. When are we going to see a report?
    Mr. Amelio. Before the end of 2006, the fall.
    Chairman Tom Davis. Yes, but we are out in October. When 
are we going to see a report?
    Mr. Amelio. I can't give you a date. I don't know. It 
depends on the length of the RFP process.
    Chairman Tom Davis. When was the contract let for the 
report?
    Mr. Amelio. September 2005.
    Chairman Tom Davis. Did you give them any time limit?
    Mr. Amelio. No. We have four steps in the process. The 
first step was to prepare a report on the review of the 
indexes, which the board is required to do. The second step is 
to give us a plan as to whether we should let the contract in 
the way in which it has been let before, which is that the 
investment manager has custody in securities lending. The next 
step is to do the RFPs for the investment managers, and we have 
to get all that done by the fall of 2006 under Federal 
procurement law. Then the fourth and final step is once we have 
done with that, to look at the fund lineup and determine 
whether there is any material gaps in the fund, in the plan, 
and from there, determine whether there is any available 
product that would meet those gaps.
    Chairman Tom Davis. So basically this may not be on the 
timeline for the committee at all this Congress?
    Mr. Amelio. We want it all completed by the end of 2006. 
I'm sure it will be done well before--when I say well before 
that, I don't know. It depends on--it's a procurement process. 
It's very difficult. We can't even say right now how many 
contracts there will be, 1, 4 or 26, and we are a small agency.
    Chairman Tom Davis. Let's go back to October 14th, the 
Employee Thrift Advisory Council, in their regular meeting, 
where Mr. Sauber stated that he was pleased that the study of 
TSP investment has slowed down the train. What do you mean to 
slow down the train? Does this mean to stall the committee? 
What was conceived there, do you know?
    Mr. Amelio. I don't know.
    Chairman Tom Davis. You don't know? I know what it means, 
and I wasn't at the meeting, but I understand what that means.
    On January 13th, you again met with the majority and the 
minority subcommittee staff to discuss your plans for the study 
of investment options. At that meeting you stated that the 
study of investment options would be completed no earlier than 
September 2006, no later than early 2007. Apparently, the 
subcommittee staff didn't understand this, because at the 
meeting of the Federal Retirement Thrift Investment Board on 
January 18, 2006, you recounted the meeting with subcommittee 
staff and stated, ``I think the one thing that I hope we got 
clarified was that there may have been a misunderstanding. I 
think there was some anticipation that we would have had all 
this work concluded by the end of 2005. We wanted to point out 
that it was indeed 2006 that we committed to do this.''
    Mr. Amelio, our letter clearly asked you to submit your 
report by January 1, 2006. Why was there a misunderstanding 
regarding when the study was to be completed?
    Mr. Amelio. There was a debate going on at the meeting, 
after the board meeting of January 2006 as to what year end we 
were talking about. If the letter you're talking about was the 
fall of 2005----
    Chairman Tom Davis. September 2005.
    Mr. Amelio. Right. And that was the one that asked for a 
deadline at the end of 2005. We couldn't possibly have done it 
by then. We have to do contracts to hire the consultant, and 
then they've got to do the work on the other contracts for the 
managers.
    Chairman Tom Davis. Last year at the hearing on H.R. 1578, 
you asked us not to act on the bill until you had an 
opportunity to complete a study, but if the study isn't 
completed until early 2007, I want you to explain to me and the 
members of the subcommittee how can we possibly act on the 
legislation in this session?
    Mr. Amelio. We plan to have the study done by the end of 
2006.
    Chairman Tom Davis. We are set to adjourn in October. We 
may come back afterwards, but we are set, so basically you have 
run out the clock.
    Now, let's turn to the ETAC meeting March 7th. On March 
7th, the ETAC adopted a resolution opposing the addition of a 
Real Estate Investment Trust Fund. Were you at that meeting?
    Mr. Amelio. Yes.
    Chairman Tom Davis. Were you both at the meeting?
    Mr. Trabucco. Yes.
    Chairman Tom Davis. Mr. Trabucco, according to your written 
statement, you drafted the ETAC resolution; is that correct?
    Mr. Trabucco. That is correct.
    Chairman Tom Davis. And the resolution was also reviewed by 
the board's counsel, correct?
    Mr. Trabucco. That is correct.
    Chairman Tom Davis. Did the board's attorneys often advise 
ETAC?
    Mr. Trabucco. Yes. ETAC involved itself, for instance, in a 
lawsuit that we were involved in 3 years ago, and they had 
direct contact with our lawyer. The approach that ETAC has 
taken with regard to Council matters is very similar to the 
approach that I have----
    Chairman Tom Davis. So the board staff had extensive 
involvement with the drafting of the resolution; is that fair 
to say?
    Mr. Trabucco. I drafted it to Chairman Sauber's 
specifications, and based on the statements that were made at 
the earlier meetings.
    Chairman Tom Davis. Mr. Amelio, if you are not an ETAC 
member, and the role of the ETAC is to provide outside advice 
on the TSP board and its managers, how is it that you suggested 
language for the ETAC resolution?
    Mr. Amelio. I wasn't submitting substantive language. They 
were debating one sentence, and I offered a couple of words as 
a matter of technical assistance. I wasn't trying to impose 
intent upon them. They were struggling with certain terms of 
art.
    Chairman Tom Davis. Didn't you make sure that the 
resolution included the language you suggested, which asserts 
that a new fund must come from an independent process 
coordinated by the plan fiduciaries?
    Mr. Amelio. I may have suggested words. I didn't encourage. 
I was offering help. That was completely their resolution.
    Chairman Tom Davis. That language is absolutely 
substantive. That is not technical, in my opinion.
    Mr. Amelio. OK.
    Chairman Tom Davis. Coordinated by the plan fiduciaries, in 
fact, is a huge transfer of authority away from Congress and to 
you. I mean that is one of the dividing lines on this.
    Mr. Trabucco, did you sometimes provide your views to ETAC 
members concerning what Congress intended when it enacted the 
FERS Act?
    Mr. Trabucco. Yes, I do. I have the great fortune of having 
served on this committee and worked in the legislation that 
created the TSP, and I do have a box of papers going back, and 
I'm happy to dig through it and help them if they have 
questions, and also help this committee.
    Chairman Tom Davis. As we have seen the views of what the 
board believes the FERS Act provides are sometimes different 
from what other people think. There is always controversy on 
that.
    Mr. Trabucco. Well, I will say, sir, I try to go back to 
the law, as I did at that hearing record. If you check it, you 
will find we went for the precise words on the role of the 
board. The board's role under the law is to develop and 
establish investment policy. In fact, when I couldn't remember 
the second word, we sent somebody out of the room to get the 
law so that we were certain we were dealing with black letter 
law----
    Chairman Tom Davis. You didn't conduct any scientific 
survey of Federal employees to see if they wanted to add a REIT 
index fund, did you?
    Mr. Trabucco. No.
    Chairman Tom Davis. Did you make any attempt to provide 
objective information or collect information from Federal 
employees about adding new funds before you decided that they 
don't need new investment options?
    Mr. Trabucco. Do you want to talk about the survey?
    Chairman Tom Davis. Yes or no?
    Mr. Amelio. Not yet. We're doing an extensive survey in 
2006 of the participants.
    Chairman Tom Davis. When will that survey be completed?
    Mr. Amelio. I'm hopeful that--we've committed to have it 
finished by the end of this year. We're working on it right 
now. I've hired a new product development manager, who's seated 
behind me, from the private sector, and we want to go out and 
do a full survey. We want to find out what the participants 
know about----
    Chairman Tom Davis. Let me just--just to put this in 
perspective.
    Mr. Amelio. OK.
    Chairman Tom Davis. The conferees for the FERS Act, which 
you claim to know something about, Mr. Trabucco, made reference 
to two separate sources of potential political manipulation, 
pressure from the administration on board members, who would be 
Presidential appointees, and pressure from Congress. This is 
the language. ``Concerns over the specter of political 
involvement in the Thrift Plan management seemed to focus on 
two distinct issues: 1) the pressure from an administration; 
(2) the Congress might be tempted to use the large pool of 
Thrift Plan money for political purposes. Neither case would be 
likely to occur given the present legal and constitutional 
restraints.''
    Now, in terms of political pressure from Congress, it is 
clear for conferees statements at page 137, paragraphs 3 and 4, 
that they were concerned about the possibility of some sort of 
raid of the trust funds by Congress, not about Congress 
selecting new index funds. Do you disagree with that?
    Mr. Trabucco. I think there were many reasons, but it 
wasn't index funds. You're right on that. I'm not suggesting 
that it is. The next sentence is also instructive. ``Board 
members and employees are subject to strict fiduciary rules. 
They must invest the money and manage the funds solely for the 
benefit of participants. A breach of these responsibilities 
would make the fiduciaries civilly and criminally liable.''
    Chairman Tom Davis. But how do you feel when REIT funds, 
over the last--while we have been talking about this, have gone 
up in a very significant way, and we have deprived Federal 
employees of the option of investing in that? Do you feel good 
about that?
    Mr. Trabucco. I can only tell you, sir, what previous 
boards have done, and I've had the pleasure of serving many of 
them.
    Chairman Tom Davis. The previous boards were the ones that 
went through computer systems that failed, with huge cost 
overruns coming back and everything else, and if you align 
yourself with that, I think I get the picture.
    Mr. Trabucco. No. I'm telling you----
    Chairman Tom Davis. I will yield back, Mr. Chairman.
    Mr. Trabucco. If I might answer on investment policy. The 
previous boards looked at more than returns. They looked at the 
design of the plan, the structure of the plan, and did in toto 
reviews as they did from----
    Chairman Tom Davis. But three of the options were an 
underlying statute. You didn't add them. They were there in the 
underlying statute originally.
    Mr. Trabucco. That is correct. After 3 years of 
congressional study, they decided on those three.
    Chairman Tom Davis. I yield back.
    Mr. Porter. Mr. Cummings.
    Mr. Cummings. Thank you very much.
    Mr. Porter. Point of order. Mr. Van Hollen.
    Mr. Van Hollen. Thank you, Mr. Chairman.
    Mr. Porter. My apologies.
    Mr. Van Hollen. Not at all.
    Let me ask you, your answer to Mr. Marchant's question, Mr. 
Amelio, anticipated a little bit of my question, and that is 
have you personally, at this point in time, formed an opinion 
as to whether or not it would be a good or bad idea for the 
members of the Thrift Savings Plan to have a separate REIT 
option?
    Mr. Amelio. Are you asking me personally or in my--because 
I can only answer in my capacity as a fiduciary to the plan.
    Mr. Van Hollen. But with all due respect, I mean, I think 
it is important to understand where the head of the--you know, 
the executive in charge is coming from with respect to this, 
because if you have a--I mean, you are saying to the Members of 
Congress, and it is a fair point, wait for the study. But I 
want to know if you personally have reached a conclusion as to 
whether or not this is a good idea or a bad idea.
    Mr. Amelio. Well, I have grave concerns about the process. 
And my grave concerns are I think when this plan was created in 
1986, it was ingenious, broad-based low-cost index funds. And 
for all the talk about what employees in the private sector get 
to invest in real estate and whatnot, every employee in the 
private sector would give anything to be in this plan with its 
low fees and its broad base.
    My concern is if you put one single targeted industry fund 
into this plan, you're going to open the door to a dozen other 
single-industry funds and then this plan will lose the beauty 
of its simplicity, its low cost, and its high confidence level 
of the participants that it's being managed fairly.
    Mr. Van Hollen. I don't want to mischaracterize your 
answer, but, I mean, it sounds to me like you--if you were to 
weigh this on a 1-to-10 thing, you are pretty close to--zero 
being you are not in favor of it personally, and you are pretty 
close to zero at this point in time. Is that right?
    Mr. Amelio. I would have to be convinced----
    Mr. Van Hollen. I am not talking about the legislation. I 
am talking about do you think it is--you have formed an opinion 
as to whether or not it is a good idea.
    Mr. Amelio. I would have to be convinced that it is in the 
best interest of all the plan's participants, and I'm not there 
yet.
    Mr. Van Hollen. All right. Let me--do we have a copy, Mr. 
Chairman, of the contract between TSP and the consultant you 
have hired? Do we have a copy of that?
    Mr. Porter. Requesting for this study, correct?
    Mr. Van Hollen. Yes. You have no objection to providing the 
committee with a copy of the contract, do you?
    Mr. Amelio. Yeah, that's fine.
    Mr. Van Hollen. All right. And that contract, as I 
understand it, asks them to look at a range of different 
options and is, I hope, neutral in the way that it asks them to 
take a look at it.
    Mr. Amelio. It is absolutely--it is the entire universe of 
potential options. There is no limit.
    Mr. Van Hollen. Let me ask you with respect to the GAP 
report from January--I don't know if you had an opportunity to 
look at it--and the comments that they made with respect to the 
role of the ETAC. Have you had an opportunity to look at that?
    Mr. Amelio. No, I didn't in advance of this hearing, no, 
sir.
    Mr. Van Hollen. What I want--you know, we had a hearing 
earlier, as we all know, and after that hearing we had the 
opinions and the letter from the ETAC Advisory Council. And I 
guess one question, and this does go to the process, because 
one question that is raised, given your responses, is to what 
extent the ETAC is in fact an independent advisory board. And I 
am not saying this in any way to diminish the role of ETAC, but 
it does seem clear from the testimony that they have no 
independent staff. Is that right? In other words, the advisory 
council does not have an independent staff. Is that correct?
    Mr. Amelio. That is correct.
    Mr. Van Hollen. So they do rely entirely for their staff 
and resources on you and your staff, is that right?
    Mr. Amelio. I believe that's correct. I mean, they may use 
their personal association or union staffs, I don't know. But, 
you know, they rely on us for ETAC work.
    Mr. Van Hollen. But to your knowledge, do they have any 
outside consultant and/or expert that they rely on?
    Mr. Amelio. No. No.
    Mr. Van Hollen. And they rely on your attorneys, I 
understand, for whatever legal advice they provide.
    Mr. Amelio. Yes.
    Mr. Van Hollen. Because the question is--I mean, this 
letter is sort of presented in the sense that there has been an 
independent--at least, I think that is the perception up here--
an independent group that has its own sort of resources 
independently looked at this. But I guess, given the nature of 
what happened and the fact that the drafting of this resolution 
was actually done by your staff, would it be fair to say they 
are not a--they don't have their own resources to act 
independently of the board?
    Mr. Amelio. Yeah. Can I refer to----
    Mr. Trabucco. May I answer that, Congressman? As the 
individual secretary to the council, I attached to my testimony 
the document that created the council, the charter of the 
council. And that charter is consistent with the Federal 
Advisory Committee Act. The way that act works is the 
committee, or the agency that is receiving the advice from the 
outside independent group, provides staff support to that 
outside independent group. The notion is that there is a 
benefit to the agency receiving the advice and that the outside 
group should not have to pay for providing that advice. In 
other words, we provide, just as I have for this committee on 
technical drafting services, that technical----
    Mr. Van Hollen. Right, but you don't provide them any 
resources to pay for advice outside yourself, right?
    Mr. Trabucco. No. That is correct.
    Mr. Van Hollen. I raise this because, you know, during the 
process of putting together this legislation, people sought the 
input. As I mentioned in my opening statement, one of the 
people we asked was AFGE, American Federation of Government 
Employees, lots of Federal members. And I am just going to read 
the response that we received back from them during that 
process.
    ``On the REIT legislation, we will not oppose it. We are 
meeting with the Thrift Investment Board employee groups in 
mid-April''--this is dated March 2005--``in mid-April to learn 
more and see if we can support the legislation.''
    What I am getting at is to what extent these advisory 
council members have people asked advice from, whether their 
main source of advice is from you. And I think it is important 
they get advice from you, but it is pretty clear that is their 
main source of advice. So I don't think it is a great surprise, 
is what I am saying, I guess, to find out that they would take 
this position.
    Let me end with that, Mr. Chairman, because I think, you 
know, it is important that we had this hearing, and I want to 
thank the chairman for holding it. I think it is important that 
we move forward in a smart way. I also think it is important, 
as others have said, that we not forego the opportunity for 
Federal employees to have this opportunity, which is why it 
concerns me a little bit that even if people at the outset of 
this process, members of your board, were objective about it, 
given all that has happened and your comments in the 
transcripts, whether at the end of the day, given the report, 
whether all of you can see this, put aside what has happened 
and reach and independent decision, and sort of put aside your 
preliminary conclusions.
    Thank you, Mr. Chairman.
    Mr. Porter. Thank you. Mr. McHenry.
    Mr. McHenry. Mr. Chairman, thank you so much. Let me start 
by saying----
    Ms. Norton. Mr. Chairman, could I beg the indulgence of 
the----
    Mr. Porter. Not at this moment.
    Ms. Norton. Could I just ask the member if I could, because 
I am about to leave, if I could just clarify----
    Mr. McHenry. Actually, I have something that maybe you 
would like to hear first. You know, I think it is disgraceful 
for a member of this committee to impugn 163 Members of 
Congress for simply sponsoring this bill. I think that is 
really a harmful thing to this whole process to say that those 
that sponsor this bill did so for some financial gain. I think 
it is a very harmful thing.
    Ms. Norton. Then I am going to have to ask to respond to 
that. What I was about to say is not----
    Mr. McHenry. It obviously----
    Ms. Norton. I indicated--I indicated----
    Mr. McHenry. I am not yielding. I am not yielding.
    Mr. Porter. Excuse me. The gentleman----
    Ms. Norton. Well, I am going to have to ask for a point of 
personal privilege, though.
    Mr. McHenry. Mr. Chairman, I will say--actually, I have the 
time right now, if the gentlelady will let me continue. I will 
just say that is a very harmful thing, Mr. Chairman, to this 
whole process. The reason why I think this is a very useful 
option is, in North Carolina, having served in the legislature 
there, the North Carolina retirement system has a real estate--
pretty substantial real estate investment to the overall State 
employees retirement plan. And as someone who was involved in 
real estate before I got into politics to actually make a 
living--heaven forbid, a politician to make a living outside of 
the Government--but before my service here, I think it is a 
wonderful opportunity for individuals to invest and make a 
better return or a different return than just a narrow-based--
well, the simple offerings that we currently offer through the 
TSP. And as someone who invests in the TSP, because I do 
appreciate the value it brings, and I especially like the 
match, I think it is a wonderful thing. And we should offer 
more opportunities to expand that reach.
    And so, you know, let's look at a couple of things. First 
of all, according to Barclays Global Investors, the current 
manager of the TSP Index Fund--right--it says, ``Investors who 
rely on broad cap equity benchmarks for real estate exposure 
are not achieving meaningful allocations to the asset class.'' 
This is what Barclays published in their Investment Insights in 
September of last year. It is saying that you are not giving a 
meaningful exposure to real estate through the TSP plan.
    And what I would say is that we can go back to the question 
that you asked of the consultant. What did you pose to the 
consultant in terms of the bid proposal you put out? What was 
the request you had of the consultant?
    Mr. Amelio. They are going to look at the existing fund 
line up and determine if there is any material gap. Then they 
are going to go out and look at all available options, 
everything--they're not going to exclude or hide anything--and 
determine whether something should be put in.
    Mr. McHenry. Material gap. You know, in the--there are five 
funds, correct?
    Mr. Amelio. Yes. Yes.
    Mr. McHenry. They are widely diversified.
    Mr. Amelio. Yes.
    Mr. McHenry. So there is a little bit of everything in that 
one fund, in each fund in those particular areas. Small cap 
fund is widely diversified within small caps.
    Mr. Amelio. Well, let me--in the two domestic equity funds, 
we've got the entire domestic equity market. But if you were to 
look at the bond fund, you know, there might be something there 
that's missing. If you look at the international fund, that is 
only developed nations. There are no emerging markets. Emerging 
markets are the small countries, more Third World--much higher 
risk, but room for a lot of growth.
    Mr. McHenry. I would say that the question you asked this 
consultant to answer is innately flawed. What is the material 
gap? OK? If you have a widely diversified--one widely 
diversified fund that has a little bit of everything around the 
world, that would suffice to answer the question you posed to 
the consultant. So you did not ask the question, would real 
estate investment trusts be a viable and positive option for 
Federal employees to have within their investment portfolio.
    Mr. Amelio. Why would I ask that question? The question----
    Mr. McHenry. Because that was the request of the chairman 
of this committee and the chairman of not just the 
subcommittee, but of the entire committee; the ranking Democrat 
both of this subcommittee and the full committee.
    Mr. Amelio. The question I asked is one that every 
fiduciary of every plan asks. And the reason is that why would 
I limit it to just a REIT? REITs are included in the request. 
They're included with every other possible option.
    Keep in mind, the plan's participants are paying for this 
study. It's not taxpayer funded. The committee didn't say we're 
going to give you money to go hire a consultant to look at 
REITs. The committee said we would like to see you do this, 
when are you going to do it, what are you looking at? And we're 
expending the participants' money, and as fiduciaries, we have 
a duty to expend that money wisely.
    Mr. McHenry. Yes, and my point is, the question that was 
posed from this committee was should--this was the request: Do 
you think it is a viable option for people to have another fund 
that has real estate exposure?
    Mr. Amelio. It had to be--the question had to be worded 
wisely--widely, or broadly. Otherwise, why wouldn't I ask the 
question, do you think we should have real estate? Do you think 
we should have emerging markets? Do you think we should have 
TIPs? You could answer yes or no to all of those and where 
would we put an end to the questions? It wouldn't be 
appropriate to just ask about REITs.
    Mr. McHenry. Well, a material gap would say you omit from 
the whole gross domestic product of the whole United States, 
and real estate is a nice sizable chunk of that; and if you 
have your 2 percent exposure to that marketplace, which you 
currently do through--I believe you have 1 percent in the C 
Fund and maybe up to 8 with the S Fund, and that is the only 
real estate exposure right now--that would actually suffice to 
answer your question whether or not there is a material gap, 
because you at least have some, though it is a small inkling, 
of exposure to real estate in the overall TSP plan.
    So the consultant will--I would predict, I mean, Mr. 
Chairman, I don't want to go well beyond my time here, but I 
would say that based on the way you posed the question, the 
consultant's natural answer would be no, you do have real 
estate exposure, therefore that is not a material gap. Which I 
think is a very limiting way to focus on this when we are 
asking, in particular, whether or not the Federal employees 
should have this opportunity--only opportunity--opportunity to 
invest in real estate.
    Mr. Amelio. Can I answer?
    Mr. McHenry. Go ahead. I am just offering my prediction 
here at the end of my time.
    Mr. Amelio. Material gap is a much broader question than 
just ``do you have representation?'' They want to look at the 
fee structure, they want to look at the percentage and 
proportion of assets held. They might determine that we've got 
to break out and go to value and growth methods of equity. 
There's a whole variety of things. It's not just ``do you have 
the U.S. equity market covered?'' It's a rather detail-oriented 
question. And it's the same question every fiduciary asks. I 
think it would be a blatant breach of duty if I didn't ask the 
question in that way.
    Mr. Porter. Congresswoman.
    Ms. Norton. Mr. Chairman, a personal attack on me is no 
more justified than one would be justified had I personally 
attacked the Members who had signed on to this bill. I could 
hardly have done so. I began by saying my own minority 
leadership had signed on to the bill, that the members of this 
committee had signed on to the bill, and that in fact, at our 
subcommittee hearings, there was bipartisan, on-the-record 
approval pending, of course, a study for this matter. So it 
ought to be clear that there was no attack on the chairman or 
anybody else. The chairman has run this committee in a 
bipartisan way. The lobbyists may have rushed forward in order 
to reward people who never even asked for a contribution. So 
let the record show what was actually said and let us not have 
attacks on one another, particularly since I think my remarks 
were clear in not doing that.
    I do want to clarify what I have offered for the record, a 
Washington Post article, three Washington Times articles, an 
article from Govexec.com.
    And finally, as I leave--I hope to get back here--I just 
want to say to Mr. Amelio, I indicated before that I think you 
have brought much of this on yourself, sir. And I say so 
because it seems to me when you heard the approval of REITs at 
our subcommittee hearing across the board on both sides of this 
aisle, particularly if you had the doubts you now put on the 
record in answer to Mr. Van Hollen's questions, the very first 
thing you should have done was to get that study going as fast 
as you could and get it before the Members. By not doing so, 
you have laid the basis for the very hearing that is taking 
place here today, the doubts that are now in the papers. So you 
must share the problems with the lobbyists who are involved. 
Because as long as that record was left blank, something was 
going to come in to fill the gap. And what has come in to fill 
the gap is, well, the lobbyists wanted it; so all of us who 
have spoken out that we didn't know why employees couldn't get 
the benefit of this must be in hock to the lobbyists.
    And I thank you very much for the opportunity to reply.
    Mr. Porter. Thank you.
    Ms. Norton. I hope my good friend understands that I mean 
no disrespect to him for going on to the bill or for anybody 
who went on to the bill. I have to believe that he shared with 
me the feelings at that hearing we had when we got no answers 
to why in fact people shouldn't in fact have REITs as an 
option. I, for one, am still waiting for those answers.
    And I thank you, Mr. Chairman.
    Mr. Porter. Thank you, Congresswoman. I appreciate your 
comments.
    Mr. Cummings.
    Mr. Cummings. Thank you very much, Mr. Chairman.
    I just want to--your job, you just talked a little earlier 
about the fiduciary duty. That job is to do what is in the best 
interests of the people who are part of the TSP. Is that 
correct?
    Mr. Amelio. Under the statute, it is the sole interest of 
the participants and their beneficiaries, yes.
    Mr. Cummings. And when it comes to doing that, you are 
trying to figure out, I guess, part of carrying out that duty 
would be to try to figure out how do you get maximum dollars in 
as safe a way and as sound a way as you possibly can with as 
little reasonable risk as possible. Is there something else I 
am leaving out there?
    Mr. Amelio. And at a low cost. That's also in the statute.
    Mr. Cummings. And at a low cost, yes. So in this instance, 
the REITs, when you consider the real estate market goes up and 
down and that so many have, as we have seen in the local 
papers, including the Washington Post reporting that we have a 
real estate market and that sometimes they say it is on the 
bubble, sometimes they say it is on the way down--talking about 
real estate. Is that one of your concerns? I mean, I know you 
are waiting for the report and all that kind of thing, but is 
that one of your concerns?
    Mr. Amelio. You mean about adding a REIT as a fund, is the 
volatility a concern?
    Mr. Cummings. Yes.
    Mr. Amelio. No. Because if you're an investment 
professional and you have some sophistication and knowledge of 
the markets, you recognize that those investments which are the 
most volatile, while they are the riskiest, will over the long 
term, or should over the long term, bear larger gains. That's 
not always the case. That is not my concern. My primary concern 
here is that up until now the plan has only contained broad-
based, low-cost index funds. This is a narrowly focused fund 
into one sector, or industry, if you were, and I have concerns 
about the liquidity, about the fee structure, as well as if 
this would come in it could also open the door for other 
particularly narrowly focused funds.
    Mr. Cummings. And so, but it would provide you with 
additional diversification with regard to your portfolio, would 
it not?
    Mr. Amelio. I think that's arguable. This fund is 
incredibly diverse. We've got the entire universe of domestic 
stock as well as all of the developed international stocks and 
bonds. It's a very diverse fund. As long as----
    Mr. Cummings. Let me ask you this. You mean the fund as it 
is right now?
    Mr. Amelio. Yes.
    Mr. Cummings. OK. But I am just asking you, would the REITs 
add to that diversification?
    I know it is very diverse; I understand that. I got that 
piece. So would it add to that? That is all I am asking you.
    And I am not saying whether it is a great fund or--I mean, 
a great piece to bring in. I am just asking you would it add to 
the areas that you would then be able to invest?
    Mr. Amelio. I don't think so, because REITs are already 
included to the extent of their proportion of the overall 
domestic investable markets.
    Mr. Cummings. So what do we expect--not the results, but 
what, when you give the people who are doing the research the 
research assignment, what are they looking for?
    Mr. Amelio. Well, they know what to look for. They do this 
for many plans. They're going to look at what we have and 
they're going to look at what's out there. And they'll make a 
recommendation based on whether they think anything should be 
added.
    Mr. Cummings. So basically, the board's position is, as I 
understand it, be safe rather than possibly sorry later on? Is 
that reasonable?
    Mr. Amelio. It's reasonable. The term would be, the board 
wants to do what's prudent, and that's to hire an expert to 
review everything. And that's what----
    Mr. Cummings. That is being safe, rather than being sorry 
later on.
    Mr. Amelio. Yes.
    Mr. Cummings. OK. All right, I don't have anything. I see 
we are running out of time, Mr. Chairman.
    Mr. Porter. Thank you, Mr. Cummings.
    We are going to go into recess. We are taking votes on the 
floor. I think we have three. We should probably take about, 
outside, 45 minutes, 30 to 45 minutes. So we will go into 
recess. We still have one panel, and then action after that. So 
we are going to be in recess.
    [Recess.]
    Mr. Porter. I would like to bring the committee back to 
order.
    For some of you that have been attending a few of our 
hearings, I have been requesting now for about a year that we 
have all these held in Las Vegas. But no one seems to listen to 
me. So maybe next time we will meet in Las Vegas, and everyone 
will be welcome.
    Mr. Davis of Illinois. I second that.
    Mr. Porter. And it is seconded by our ranking member, Mr. 
Davis.
    Thank you all for being here. I appreciate your patience 
and understanding. I would like to announce that Chairman Davis 
has requested that action be taken at the full committee. And 
we are going to continue with the hearing today, but I would 
like to make that notice known for those that are in the 
audience.
    Also would like to say thank you to our last two panelists, 
who are still here. Thank you very much. Appreciate what you 
are doing. Also understand that you have a tough job and know 
that the purpose of our hearing is to do the best we can for 
all of your colleagues and Federal employees.
    So with that, we do have James Sauber, who is chairman of 
the Employee Thrift Advisory Council, and then Richard 
Strombotne, who will be second.
    So we begin with Mr. Sauber. We appreciate your being here.

   STATEMENTS OF JAMES W. SAUBER, CHAIRMAN, EMPLOYEE THRIFT 
 ADVISORY COUNCIL; AND RICHARD L. STROMBOTNE, EMPLOYEE THRIFT 
                    ADVISORY COUNCIL MEMBER

                   STATEMENT OF JAMES SAUBER

    Mr. Sauber. Thank you, Mr. Chairman. Thank you, Congressman 
Davis and members of the subcommittee, for this opportunity to 
present the views of the Employee Thrift Advisory Council on 
the proposed addition of a real estate investment fund to the 
Thrift Savings Plan.
    My name is Jim Sauber. I'm the chief of staff to the 
president of the National Association of Letter Carriers, 
William H. Young, and I serve as chairman of the Employee 
Thrift Advisory Council. I have been actively involved with the 
council since its creation in 1987. ETAC is comprised of 15 
organizations that collectively represent 2.6 million active 
and retired Federal employees.
    I'm here today to explain why ETAC took the unusual step of 
adopting a resolution in opposition to the proposal to create a 
REIT fund for the TSP. It's unusual because, historically, the 
Congress, the Thrift Board, and ETAC have worked together to 
enact numerous improvements in the plan, whether it was the 
creation of the S&I funds or the elimination of the need for 
open seasons, we generally supported legislation designed to 
improve the TSP, which I am certain is the intention of H.R. 
1578.
    It gives nobody on the council pleasure to oppose a 
proposal that many of you have cosponsored. This subcommittee 
and Chairman Davis's full committee have a long history of 
bipartisan cooperation on matters affecting the TSP. I know 
that you and your colleagues believe that a REIT fund would be 
a good option for Federal employees who participate in the 
plan. But with all due respect, the members of the ETAC have 
not reached that same conclusion, at least not yet. There are 
two major reasons for this.
    First, we are reluctant to support the legislative addition 
of a REIT fund over the unanimous objection of the TSP's 
fiduciaries, the members of the Federal Retirement Thrift 
Investment Board. We believe this would set a bad precedent for 
the consideration of future new funds. Such a precedent is 
important because, in our view, the addition of one sector fund 
will leave groups representing other sectors to seek equitable 
access to the TSP. The investment policy of the TSP would 
become more politicized, the cost and complexity of the plan 
could increase, and participation rates could suffer.
    Second, we are equally reluctant to add a new fund option 
to the TSP, whether it's a REIT fund or any other kind of fund, 
before a complete and independent analysis of its merits is 
undertaken. The strong performance of REIT equities in recent 
years has resulted in the inclusion of more REITs in the equity 
indices that the C and S funds track, but we are not certain 
that this success warrants the creation of a special fund just 
for 170 or 180 REIT companies that are included in those 
indices.
    Before a decision is made, the TSP's fiduciaries and 
independent experts should thoroughly study the issues 
involved. As you know, the board has hired an investment 
consulting firm, Ennis Knupp, to do a comprehensive review of 
the TSP's investment options. I can assure this subcommittee 
that, should Ennis Knupp recommend the addition of a REIT fund 
to the TSP, the members of ETAC would certainly reconsider our 
position.
    In my written testimony for this hearing, I have summarized 
ETAC's discussions about the REIT fund proposal over the past 2 
years. These discussions took place during four meetings of the 
council during November 2004 and March 2006, and included 
several meetings individually as unions and as a group with the 
National Association of Real Estate Investment Trusts. The 
resolutions we adopted on March 7th reflect the concerns raised 
by members of ETAC during this time.
    In addition to the two major concerns I raised earlier, I 
want to emphasize that the council members believe that adding 
a sector fund like a real estate fund to the TSP could 
fundamentally alter the structure of the plan, which is 
designed around broad-based index funds. Before we take this 
major step, we should pause to consider its full ramifications, 
because once you open the TSP to one sector, it will be 
difficult to deny other sectors equal treatment.
    I would like to conclude with two final points. First, Our 
view is that both Congress and the Thrift Board share 
responsibility for the Thrift Savings Plan's investment 
policies. The FERSA law clearly gives the five Presidential 
appointees of the Thrift Board a role in developing and 
establishing investment policy for the TSP. Any changes in that 
policy, however, must be enacted by Congress. In adopting our 
resolution, ETAC is not arguing that Congress cannot change the 
investment options on its own. However, we do think the TSP 
works best when Congress and the board reach a consensus before 
making any significant change in the law. We urge you to keep 
this in mind as you contemplate further action on H.R. 1578.
    Second, if the subcommittee decides to adopt this bill 
today, I want to offer the assistance of ETAC to you and the 
other members of the full Government Reform Committee as the 
debate over this legislation proceeds. It is our hope that we 
can help build the consensus, which unfortunately does not 
exist today, on any new legislation that might emerge.
    The organizations that make up ETAC, the members of the 
Thrift Board, and the members of both the subcommittee and the 
full committee share the same goal, to help millions of 
hardworking Federal employees prepare a decent and secure 
retirement and to maintain that the TSP is the most successful 
retirement savings program in the country.
    Thanks again for this opportunity to testify. I will be 
happy to answer any of your questions.
    [The prepared statement of Mr. Sauber follows:]

    [GRAPHIC] [TIFF OMITTED] T9849.089
    
    [GRAPHIC] [TIFF OMITTED] T9849.090
    
    [GRAPHIC] [TIFF OMITTED] T9849.091
    
    [GRAPHIC] [TIFF OMITTED] T9849.092
    
    [GRAPHIC] [TIFF OMITTED] T9849.093
    
    Mr. Porter. Thank you very much. We appreciate your 
testimony. And you said it quite well, we share the same goal. 
Thank you for stating that.
    And certainly we appreciate the views of all Federal 
employees and organizations. In that vein, I would like to ask 
unanimous consent to enter into the record a letter we received 
today from the National Air Traffic Controllers Association, 
which is endorsing the legislation. And I just will summarize 
it, that ``we are writing to express our thanks for your 
continuing efforts to provide participants in the Federal 
Thrift Savings Plan with additional investment options. The 
more than 20,000 Federal employees who make up the NATCA want 
and deserve the opportunity to diversify their retirement 
savings beyond the limited options that are currently 
available. NATCA believes that the TSP should offer retirement 
savings options at least as good as those found in the leading 
private sector defined contribution plans. Employees in large 
401(k) plans in the private marketplace are offered far more 
than five core investment options from which they can chose to 
diversify their retirement savings. Our members deserve no 
less. We think that H.R. 1578 is an important first step in 
offering our members additional investment choices. Traditional 
pension plans have allocated substantial funds to the 
commercial real estate investment as a discrete asset class and 
our members, along with TSP participants, should have the same 
freedom to do so. NATCA is pleased to lend its support to this 
important legislation. We thank you for your leadership in 
providing TSP participants additional flexibility in 
planning.''
    So without objection, so ordered.
    [The information referred to follows:]

    [GRAPHIC] [TIFF OMITTED] T9849.094
    
    Mr. Porter. Next, Mr. Strombotne, an Employee Thrift 
Advisory Council member. Welcome. Thank you.

                STATEMENT OF RICHARD STROMBOTNE

    Mr. Strombotne. Good afternoon, Chairman Porter and 
Congressman Davis and members of the committee. For the record, 
I'm Richard L. Strombotne. I live in Gaithersburg, MD. I'm the 
nominee of the Senior Executives Association to the Employee 
Thrift Advisory Council, and I'm serving my second term on the 
council. I'm testifying as an individual and not as a 
representative of any organization to which I belong.
    You have my prepared testimony, and so I'll offer some of 
its highlights here. It's fairly lengthy. I have included some 
suggestions for improvements in the Thrift Savings Plan, so I 
hope you will give it your consideration.
    It's a distinct pleasure to be here and have the 
opportunity to discuss the resolution recently approved by the 
council and my support of that resolution. I retired in August 
1996 from the Federal service after 34\1/2\ years, most of it 
as a member of the Senior Executive Service. In 1979 I became a 
charter member of the SES, and a year later, I joined the 
Senior Executives Association when it was being formed. I 
served on the board of directors for 8 years, was acting 
president for 3 months, and chairman of the board for a year.
    While the legislation establishing the Federal Employees 
Retirement System was under consideration in the mid-1980's, I 
chaired SEA's task force on retirement issues. This task force 
recommended a number of policy positions for the SEA, many of 
which the SEA adopted.
    One such recommendation was to permit the CSRS to 
contribute up to 5 percent of their pay to the new Thrift 
Savings Plan. As you know, this feature ultimately was included 
in the FERS legislation. And as they say, success has many 
fathers. I consider myself fortunate to be one of the many 
fathers of the Thrift Savings Plan.
    Now, right around 2000, I was asked to serve on the ETAC as 
the SEA nominee. I accepted the nomination and subsequent 
appoint with pleasure. I serve as a volunteer. I receive no 
compensation from the Senior Executives Association or any 
other organization or individual for providing my time, energy, 
and judgment to serve on the council. I bring to the table the 
sum of my experiences as a Federal employee, a senior 
executive, a retiree, and an advocate for retirees and my 
fellow citizens. As such, I exercise my independent judgment 
about the issues that come before the council--even as you do, 
I'm sure.
    Early in 2005, I received--I attended a briefing by 
representatives of NAREIT regarding the potential benefits of 
including a REIT index fund. The briefing suggested that 
including that index fund would offer TSP participants the 
opportunity for greater investment return. After looking into 
the matter further--and this is described more fully in my 
prepared testimony--I became skeptical of the conclusion and 
the way it was presented.
    Earlier this year, Jim Sauber, at my right, chairman of the 
council, proposed the resolution that's the focus of this 
hearing. After reviewing it, I decided to support that 
resolution. It was thoroughly discussed at the council meeting, 
revised somewhat, approved by the council with the sole 
exception of the representative of the Department of Defense, 
who abstained from voting. And you've heard the explanation for 
that.
    Before giving my reasons for not suggesting--pardon me, for 
supporting the resolution, let me correct a misunderstanding 
that I heard in your earlier statement, Mr. Chairman. At the 
time of my vote in early March, the Senior Executives 
Association had taken no position on the resolution. So let me 
point out the statement in Carol Bonasaro's letter of April 
4th, which I believe is one of the exhibits, about 4 weeks 
after my vote: ``SEA has full confidence in the ETAC 
representative we have recommended, and we trust him to 
exercise his independent judgment on matters coming before ETAC 
that impact the Thrift Savings Plan.'' I certainly appreciate 
that from Carol Bonasaro.
    Now, the reasons for support. I thought it was premature to 
pick out a REIT fund as the next investment option for the 
Thrift Savings Plan in the absence of an analytical comparison 
with other potential options. There are other options that may 
be even more attractive for addition to the Thrift Savings Plan 
than a REIT index. And some of these are listed in my prepared 
testimony. You'll see that recently a number of EFTs--exchange 
traded funds, ETFs, have been doing better than real estate, 
and that is included in my prepared testimony.
    Next, I have concerns about including a REIT index at a 
time when real estate may be entering a down market. I know 
that's a personal opinion, but I've been around long enough to 
see both booms and busts in real estate, and I'm concerned that 
it would be very easy for a person to make a big allocation to 
the REIT index fund because it's hot, and then take a big loss 
when the real estate market drops.
    And finally, in my review of the resolution, in going over 
each of the whereas clauses, I agreed with each of them and 
agreed to support the resolution.
    If the board study of potential investment options for the 
Thrift Savings Plan concludes that Federal employees and 
retirees would benefit by including additional funds in the 
TSP, and if a REIT index fund is among those funds being 
recommended, I would be very happy to join in supporting that 
expansion of options. However, in my judgment it is premature 
to require that a REIT index fund be offered absent the 
analytical examination of the full range of options.
    And that completes my testimony. I appreciate your hearing 
me. I would be happy to respond to any questions that you may 
have, either on what I've just said or on the prepared 
testimony.
    [The prepared statement of Mr. Strombotne follows:]

    [GRAPHIC] [TIFF OMITTED] T9849.095
    
    [GRAPHIC] [TIFF OMITTED] T9849.096
    
    [GRAPHIC] [TIFF OMITTED] T9849.097
    
    [GRAPHIC] [TIFF OMITTED] T9849.098
    
    Mr. Porter. Thank you very much. We appreciate your 
testimony.
    I have a few questions. Please know that these will be very 
reasonable questions. You are lucky you are up at this hour, 
not a lot earlier. [Laughter.]
    Mr. Strombotne. Yes, we appreciate that.
    Mr. Porter. Thank you again for being here and, as I said, 
we appreciate what you are doing.
    Mr. Sauber, did ETAC conduct any scientific survey of all 
Federal employees to see if they wanted to add a REIT index to 
the TSP?
    And let me followup with a second question. Do you have the 
resources to do such a study?
    Mr. Sauber. No, we haven't--we did not conduct any 
scientific surveys of our members. However, I think there is a 
misimpression about----
    Mr. Porter. I am not sure, is your microphone on? Try it 
one more time.
    Mr. Sauber. I'm not sure if there's been a misimpression 
about the role of ETAC and how we work. Our organizations are 
unions and associations that have elected leaders. And what I 
did--because we don't have the resources to do a survey of the 
kind that you ask about, we rely on our members to bring their 
experience and their meetings, their interactions with their 
members, with their State conventions, with their legislative 
conferences.
    Just speaking for myself on behalf of the NALC, in the NALC 
we hold 50 State legislative conferences every year. Every 
State association has a legislative conference. We have 
multiple regional training sessions. At our national convention 
every year since 1988, we have had a Thrift Savings Plan 
seminar. In the course of all those years--I've been involved 
from day one with this Thrift Savings Plan. In the course of 
all those years, I can say with great confidence that members 
of the NALC have not indicated a desire for a REIT fund.
    Now, if we did a survey of them, how they would respond, I 
don't know. I'm not saying I can predict exactly what our 
members would want or wouldn't want or to what extent they're 
in a position to make this judgment. I think they're relying on 
their union to exercise judgment for them. And so for that 
reason, based on that, I asked all members of the organizations 
in ETAC repeatedly over several meetings, are you hearing from 
your members? Do they want--you know, the REITS are the hot 
item. They're the item that are getting a lot of attention of 
the financial press. And every time I've asked, they said no.
    That being said, I think our judgment is not really on the 
merits, the pro or con of REITs. We haven't made that judgment. 
We don't pretend to be investment experts. What we've focused 
on are two things: the process and the policy. We think it's 
not only important what funds we add, but how we add them, so 
that we set a good precedent for the future. And I think up to 
this point, it's been a good cooperation between the board, 
ETAC, and Congress. We've tried to reach consensus before 
making big changes in the law. And I think that we'd be well 
advised to continue down that road because I think it builds 
trust in the plan. It makes sure--I think Congressman Cummings 
talked a bit earlier about rather being safe than sorry later.
    That really is what motivates us. We're not making a 
judgment one way or the other on REITs. We want to have all the 
information. We want to know how much it's going to cost, what 
are the pros and cons, and we want to, frankly, test some of 
the very interesting information that we got from NAREIT. I 
went out of my way to make sure that all our members met with 
NAREIT. So when Congressman Van Hollen was saying earlier, is 
our only source of information the board, that is not the case. 
We went out of our way to talk to the folks who know most about 
this industry.
    Now, should we take their presentation on faith? I don't 
think we'd be responsible representatives to do that. I think 
that's why we've asked for--we really do think it's important 
to have an independent review before making a final judgment. 
And I understand the frustration you have, this--I sat through 
the hearing. I understand the frustration you have about the 
time it's taken to get this study done. Nonetheless, despite 
that, I just think it would be wise for us to try to wait until 
we get a full understanding of these issues before we proceed.
    Mr. Strombotne. May I comment?
    Mr. Porter. Yes.
    Mr. Strombotne. After the NAREIT briefing, as a retiree I 
had some time available that people who are more busy don't 
have, and I took it on myself to go into the Internet and look 
up the literature associated with asset allocation. I received 
quite an education. I went through a lot of the pertinent 
literature, and I think on the back of my--at the end of my 
prepared statement, you will see a very short, selected 
bibliography. But I came away from that with a much greater 
appreciation of both the benefits of what is called the 
efficient frontier method for asset allocation, but also with 
an appreciation for its pitfalls.
    One of those pitfalls is if you have two funds or two 
investment classes with very similar yields, but one has a 
great deal more volatility or risk than the other, small 
changes in the yield can lead to big changes in the proportion 
of assets in the optimum allocation.
    And so my reading into the literature on asset allocation 
is what I brought with me when I decided to support the 
resolution, that it was just premature at this stage to pick 
out one particular asset class.
    Mr. Porter. Thank you.
    I guess just a couple additional questions at this point. 
Of the five funds now in existence, didn't Congress create 
three of those funds without the TSP Board?
    Mr. Strombotne. I am sorry. I didn't hear you.
    Mr. Porter. Of the five funds that are available today, 
didn't Congress create three of the five without the TSP Board?
    Mr. Sauber. Yes, that is correct. When the legislation was 
drafted, it was created by Congress, that is correct. And the 
new funds were created by Congress as well.
    Mr. Porter. Thank you. I guess just one additional 
question. Did you understand that Congress was encouraging to 
have the study done as soon as possible? Was that made aware to 
you folks?
    Mr. Sauber. Yes. In fact, I think Congressman Davis, Tom 
Davis, mentioned one of our meetings where we discussed it. And 
I was very concerned about this issue, and that is why I asked 
the question to Mr. Amelio and Mr. Trabucco: Where were your 
discussions with Congress on this study? Because I understood 
the frustration and that there was concern about whether or not 
the study was going forward.
    And when we met in October 2005, I was under the impression 
that, based on their August 11th letter, there had been some 
meeting of the minds about how you were going to proceed. And I 
learned by the end of the year, certainly by the beginning of 
2006, that certainly had broken down.
    So we were aware of it, and we were under the impression 
that you had reached some sort of accommodation. That clearly 
did not happen.
    Mr. Porter. Thank you.
    Mr. Davis.
    Mr. Davis of Illinois. Thank you very much, Mr. Chairman. 
Before I ask any questions, I have a number of letters from 
various associations and organizations that I would like to ask 
be submitted for the record in opposition to passage at this 
time, from the American Federation of Government Employees, the 
National Treasury Employees Union, the American Postal Workers 
Union, the Federal Managers Association, the National 
Association of Letter Carriers, and the Senior Executives 
Association. If these could be submitted for the record, I 
would appreciate that.
    Mr. Porter. No. [Laughter.]
    Without objection, certainly. But these are all ETAC 
members, correct?
    Mr. Davis of Illinois. Yes.
    Mr. Porter. Thank you.
    Mr. Davis of Illinois. Thank you very much, Mr. Chairman.
    Mr. Porter. Caught you, didn't I?
    Mr. Davis of Illinois. Yes.
    [The information referred to follow:]

    [GRAPHIC] [TIFF OMITTED] T9849.099
    
    [GRAPHIC] [TIFF OMITTED] T9849.100
    
    [GRAPHIC] [TIFF OMITTED] T9849.101
    
    [GRAPHIC] [TIFF OMITTED] T9849.102
    
    [GRAPHIC] [TIFF OMITTED] T9849.103
    
    [GRAPHIC] [TIFF OMITTED] T9849.104
    
    [GRAPHIC] [TIFF OMITTED] T9849.105
    
    [GRAPHIC] [TIFF OMITTED] T9849.106
    
    Mr. Davis of Illinois. Mr. Sauber, let me ask a couple of 
questions. Francis Cavanaugh, who was the first executive 
director of the TSP, stated in testimony submitted for the 
record that TSP participants were concerned that the management 
of their TSP funds would be subject to political influences. 
Therefore, the Federal Employees Retirement Act of 1986 
required that all TSP stock funds be broad-based index funds 
that do not favor any particular industry.
    Do plan participants still have these concerns? And do you 
know why the TSP was exempted from the OMB budget 
appropriations and regulatory controls?
    Mr. Sauber. Well, I cannot testify that I have been aware 
of any sort of increase or growth in concerns among TSP 
participants about political manipulation, and the reason is 
the Thrift Savings Plan over its history has kept--politics 
have been kept out of it pretty well. We have had a good, 
long--I mean, this Congress and the Board can be very proud of 
how popular the TSP is and the level of trust and the high 
level of participation. Our participation rates are much, much 
higher than typical 401(k) plans, and I think in part because 
there is a lot of trust in it.
    I think in terms of why the Congress exempted the Thrift 
Board from the appropriations cycle, I think in general the 
idea was the funds that are invested in the TSP are the funds 
of the employees. That $180 billion belong to the workers, the 
employees who are saving for their retirement. These are not 
taxpayer money, and I think that was the main reason for 
exempting and for creating some independence for the Board and 
for creating the Board as fiduciaries whose job is to look out 
solely for the interests of the participants and beneficiaries.
    Mr. Davis of Illinois. Mr. Strombotne, you have obviously 
spent a great deal of time, energy, and effort in this arena. 
Would you care to comment?
    Mr. Strombotne. I think Mr. Sauber hit it right on the 
head. The money that is in the Thrift Savings Plan is the 
employees'--active employees and retired employees' money. And 
that is sufficient reason for OMB to keep its hands off.
    And I must say that I have heard the concerns expressed at 
the meeting about potential politicization of decisions 
regarding the funds that go into the Thrift Savings Plan, and I 
think that is something that I would be concerned about and I 
would hope that all of you would be concerned about, because 
the Thrift Savings Plan is just a tremendous success, and I 
have watched it progress over the years. You know, at the very 
beginning, we only had the three funds, and we could only make 
changes in our contributions in limited periods. And we could 
only invest so much money, and it was limited to civilians. And 
since then, it has expanded in practically every aspect. We 
have more funds. We have more flexibility. We can now change 
our asset allocation daily if we wanted to. The military is a 
part of that.
    I think it is just a tremendous asset for Federal 
employees, retirees, military and civilian.
    Mr. Davis of Illinois. Mike Miles, an independent financial 
adviser, has stated that a reduced diversification results when 
there is an overconcentration of investment in securities that 
performed well just prior to investment. He also stated that if 
history is any indicator, investors are likely to be the 
victims rather than the beneficiaries if increased portfolio 
concentration of a REIT fund is added.
    Do either one of you share Mr. Miles' concerns? And if so, 
why?
    Mr. Strombotne. Well, if I may be the first one on this, 
what I have seen from some of the investment advisers that I 
listen to or read, Vanguard and Fidelity mostly, there is some 
concern about offering too many options to people who are in 
401(k) plans so that, you know, they want to--too many choices 
are not so great, like too many choices for breakfast cereal. 
You need to have a certain number that you can get your arms 
around and really understand, and I think that is where the 
Thrift Savings Plan is today, particularly with the 
introduction of the five lifecycle funds. The Federal employee 
now is not looking just at five funds. It is looking at five 
different options on lifecycle. And to some degree, there is a 
mix and match there. And it is already beginning to get 
complicated.
    Mr. Davis of Illinois. Well, I still like Corn Flakes but, 
Mr. Sauber?
    Mr. Sauber. Yes, I do not think there is anything magic 
about five funds. I do not have an objection to adding more 
funds. I think Dick raises an interesting point. At one of our 
meetings we discussed a Wall Street Journal article about there 
is a diminished--there is a point of diminishing returns. When 
you get too many options, it does start to decrease 
participation rates. But I am not arguing that we are at that 
point. Just whatever funds we add, I want to make sure that we 
have all the data and all the information in and that we take 
our time and make a considered judgment. So I am not so 
concerned about that.
    In terms of return chasing, I think there is some evidence 
in the behavior of Federal employees that they are just like a 
lot of private sector investors. It is a problem for people in 
general in defined contribution plans, and this is in part, I 
think, the fact that, you know, we have made this big change in 
this country over the last 20 years, shifting from defined 
benefit plans where the companies sort of invested people's 
retirement for them and employees had no role in it. And so in 
some ways we are in this transition period where employees are 
taking a more and more--have to take a more and more active 
role in managing their own retirement funds. And as a result, 
they are learning as they are going, and I think there is 
considerable evidence that there is a lot of return chasing 
that goes on, people chasing the latest hot thing. And, 
unfortunately, Federal employees are not immune from that 
activity. The Board has done studies to show that people tend 
to do that. They tend to dump their C Fund shares after a big 
downturn, and they tend to buy when things get hot. And that is 
something we have to guard against.
    Mr. Davis of Illinois. Thank you, gentlemen, very much.
    Mr. Porter. Thank you, Congressman.
    Congressman Marchant.
    Mr. Marchant. Yes, sir. Mr.--is it Strombotne?
    Mr. Strombotne. Strombotne, yes.
    Mr. Marchant. Is that an Irish name?
    Mr. Strombotne. No. It is Norwegian. [Laughter.]
    Mr. Marchant. What process did you go--how many people are 
in the Senior Executives Association?
    Mr. Strombotne. The Senior Executives Association, I have 
lost track. I think there is somewhere between 2,000 and 3,000. 
I am not an active participant on the board of SEA any longer. 
I am retired. I was nominated by SEA to exercise my judgment, 
and I am not that involved in day-to-day activities of SEA.
    Mr. Marchant. OK. So there was no process to poll the SEA 
membership as to whether----
    Mr. Strombotne. No, there was not.
    Mr. Marchant. What level of interest they had?
    Mr. Strombotne. No. But I must say that I was a senior 
executive for, I believe, if I do the math right, 17 years, 
about half of my 34\1/2\ years as a Federal employee. And in my 
experience, senior executives are pretty darn busy doing their 
own jobs, which are of high-level and significant importance, 
and I did not hear a lot of my colleagues talking to me about 
their investment decisions and whether or not they should be 
investing in the C Fund or the F Fund. That is not uppermost on 
their minds, and I suspect that is true today.
    Mr. Marchant. Do you see any problem with the fact that you 
went to the meeting and voted basically to postpone this 
decision and then write a letter and said you did not really 
have--that you really did not have any objection to it, but--
you voted not to do it, but then you wrote the letter and said 
you really didn't have any objection to it?
    Mr. Strombotne. I tried to explain that earlier in my 
testimony, and that is, I voted in March based on the 
information that I had. The letter from Carol Bonasaro, 
president of SEA, came out in April. And between my vote and 
her letter, the SEA Board decided that they would take no 
position on the bill. That does not change my position.
    Mr. Marchant. OK. So in this case, your research and your 
decision would supersede the Association's that you were 
elected to represent.
    Mr. Strombotne. Yes. They did not elect me. They nominated 
me to be their representative, a task that I take very 
seriously. And so I bring my best judgment to bear on the 
issues that come before the Council. And I do not go back to 
SEA and ask how I should vote.
    Mr. Marchant. OK. Mr. Sauber, do you recall a similar 
exercise 2 years ago that the executive director recommended to 
you where you would go to an outside consultant and get the 
first three things, a study done on the first three things that 
were listed?
    Mr. Sauber. Do I recall them saying that they made plans to 
go to an investment consultant for just the first three and not 
the fourth?
    Mr. Marchant. No. I mean, in previous budget cycles, you 
have to go out for this--you have to rebid this Barclay 
account.
    Mr. Sauber. Right.
    Mr. Marchant. In previous budget cycles did you go into a 
consulting firm and get the first three items----
    Mr. Sauber. I am not certain it is--these contracts have 
been 4 and 5 years in duration, so I do not know how many 
iterations of management contracts they have been through. But 
I do know that they have an RFP process, but I frankly at this 
moment don't recall whether or not they engaged an outside 
consultant for that. I would just have to check with my 
records. I would be happy to answer what I find out.
    Mr. Marchant. Does it seem strange to you with the kind of 
empirical data that is available, just period, that it would 
take a consultant as long as it is going to take this consult 
to come up with the answer to that question?
    Mr. Sauber. Well, there are four questions that they have 
asked him, so----
    Mr. Marchant. No, but the first three were just about 
bidding out the contract.
    Mr. Sauber. Well, I know--I do not have any independent----
    Mr. Marchant. Wouldn't you stumble on the answer to No. 4 
along the way?
    Mr. Sauber. I was sort of interested earlier today. I see 
the tension between the agency and the Congress. I understand 
this. You guys, by the nature of your job, you work in 2-year 
increments and you have to move legislation, and I know that 
you are here to get things done, and I totally respect that.
    I just want to tell you, from our point of view, not from 
the Board's point of view--from our point of view as 
representatives of employees, and they have the $180 billion 
invested, our time horizon is not the same as yours. And I 
understand you are frustrated with the Board, and that is 
something that I really want the two sides to resolve. But from 
our point of view, we look at these funds as being available 
for 20, 30, 40 years. Our members are going to rely on it. So 
we do not really quite--so when I think of your question, I 
have a much longer time horizon. I think whether they are 
taking too long or too short is in the eye of the beholder. And 
obviously from your point of view, it is taking too long.
    I frankly have been frustrated. I would like to know, too. 
There are certain questions that I wish we had the answer to 
before we came here. I would like to know how much----
    Mr. Marchant. There are 50 States out there. The State of 
Texas, their fund is almost this big. I think CalPERS is. There 
is empirical data out there readily available to answer this 
question.
    Mr. Sauber. Right.
    Mr. Marchant. You do not have to go pay--what was the 
amount of the contract, consulting contract?
    Mr. Sauber. I am not sure exactly. I think they revealed it 
to us, but I don't recall it at the moment. But I could find 
that out for you.
    Mr. Marchant. As chairman, do you convene the meetings?
    Mr. Sauber. Yes, I do.
    Mr. Marchant. And in your absence, who convenes the 
meetings?
    Mr. Sauber. Well, we have a vice chair that we consult 
together, if we want to call a meeting. Either he or I are 
there. I have been to every one we have had.
    Mr. Marchant. OK. So do you set the agenda for the meeting 
or does----
    Mr. Sauber. Yes, I do.
    Mr. Marchant [continuing]. The executive director set the--
--
    Mr. Sauber. I set the agenda.
    Mr. Marchant. OK. Thank you, Mr. Chairman.
    Mr. Porter. Thank you.
    I guess just in closing, a couple questions, or maybe more 
of a comment and you are welcome to respond.
    I really sense and certainly respect that as members you 
are trying to get as much information as you can because you 
have a huge responsibility, not unlike we do. And I believe 
that you are, with the information that you have and very 
little budget, if any, trying to do the right thing for the 
right reasons, and I certainly respect that.
    If this legislation moves forward and there were some more 
safeguards and some more pieces that may help give you comfort, 
would that--I guess would that give you more comfort with the 
legislation?
    Mr. Sauber. I certainly would like to hear about those 
ideas, and we are open to work with the committee, the 
subcommittee and the full committee, on that. That would be an 
appropriate role for us, and I would welcome the opportunity.
    Mr. Porter. And after today's hearing--you get big points 
for sitting through it all--are there some things that you may 
look at differently in your roles that may help you in working 
with the Board itself?
    Mr. Sauber. Well, actually, there was. I did want to 
comment on a few things because I got the sense that there was 
some misapprehension, I think, about how we work under the 
Federal Advisory Committee Act. From day one, the way the 
Council was set up was we had a secretary of the Council, which 
is the general counsel of the Thrift Board. The lawyers have 
always been involved. We have had a very sort of cooperative 
relationship, and I get the sense that there is some discomfort 
with that in Congress and that you think we should have a more 
arm's-length relationship.
    I think there are pros and cons to that. You know, do I 
wish we had a budget that we could undertake all these things? 
Sure, everybody wants a budget. But I am very convinced that 
our organizations--again, I am going to speak for my 
organization. We are a very democratic union. Ninety-two 
percent of letter carriers in this country belong to the NALC 
voluntarily. They are very active politically and 
legislatively. They are very knowledgeable. At every one of our 
conventions, we have legislative resolutions, and we hear from 
our members what they want. So I am absolutely convinced I have 
a sense of where our members are, and I am convinced that most 
of the organizations in ETAC are similarly structured. These 
are democratic organizations with elections, and I think the 
Board benefits from hearing from our organizations, and I think 
the Congress benefits from having the ETAC available to serve 
as that conduit.
    Unfortunately, I get the sense that, just from hearing 
today's hearing on this particular issue, things have not gone 
very well between the committee and the Board. And whatever 
role we can do to help build a consensus we are willing to do.
    Mr. Porter. I appreciate that, and if there is anything 
that you have gleaned today that would give you the tools that 
you need to--what you think to perform at a different level, if 
you had those tools, please let us know.
    Mr. Sauber. Thank you very much. I appreciate that offer.
    Mr. Porter. Thank you very much.
    I am going to be proposing legislation based upon the GAO 
report, and the GAO report pointed out a few areas that need 
some assistance. That is a systematic effort to assess TSP's 
participants' overall satisfaction with the service being 
provided, which I think is just good business to find out, and 
to institutionalize the routine collection of information and 
systematic assessment of industry trends and innovations. So 
you will have more tools available to you as a committee as you 
make your recommendations. So I will be introducing 
legislation.
    And I am very open for any other ideas. It does not have to 
be tonight, but as we put this together, I would like to get 
some of your thoughts to help improve and help you with your 
role.
    Also for the record, I mentioned it earlier but in a more 
formal perspective, I want to reiterate that Chairman Davis has 
asked that we postpone consideration of H.R. 1578, instead 
consider the bill in full committee at a later date so there 
could be a full and fair debate about the proposals among the 
members of the entire committee and stakeholder groups. So he 
wants additional input. I just want to make sure that is 
understood.
    And with that, thank you all very much for being here and 
we will adjourn the meeting.
    [Whereupon, at 6:48 p.m., the subcommittee was adjourned.]
    [The prepared statement of Hon. Elijah E. Cummings and 
additional information submitted for the hearing record 
follow:]

[GRAPHIC] [TIFF OMITTED] T9849.107

[GRAPHIC] [TIFF OMITTED] T9849.108

[GRAPHIC] [TIFF OMITTED] T9849.109

[GRAPHIC] [TIFF OMITTED] T9849.110

[GRAPHIC] [TIFF OMITTED] T9849.111

[GRAPHIC] [TIFF OMITTED] T9849.112

[GRAPHIC] [TIFF OMITTED] T9849.113

[GRAPHIC] [TIFF OMITTED] T9849.114

[GRAPHIC] [TIFF OMITTED] T9849.115

[GRAPHIC] [TIFF OMITTED] T9849.116

[GRAPHIC] [TIFF OMITTED] T9849.117

[GRAPHIC] [TIFF OMITTED] T9849.118

[GRAPHIC] [TIFF OMITTED] T9849.119

[GRAPHIC] [TIFF OMITTED] T9849.120

[GRAPHIC] [TIFF OMITTED] T9849.121

[GRAPHIC] [TIFF OMITTED] T9849.122

[GRAPHIC] [TIFF OMITTED] T9849.123

[GRAPHIC] [TIFF OMITTED] T9849.124

[GRAPHIC] [TIFF OMITTED] T9849.125

[GRAPHIC] [TIFF OMITTED] T9849.126

[GRAPHIC] [TIFF OMITTED] T9849.127

[GRAPHIC] [TIFF OMITTED] T9849.128

[GRAPHIC] [TIFF OMITTED] T9849.129

[GRAPHIC] [TIFF OMITTED] T9849.130

[GRAPHIC] [TIFF OMITTED] T9849.131

[GRAPHIC] [TIFF OMITTED] T9849.132

[GRAPHIC] [TIFF OMITTED] T9849.133

[GRAPHIC] [TIFF OMITTED] T9849.134

[GRAPHIC] [TIFF OMITTED] T9849.135

[GRAPHIC] [TIFF OMITTED] T9849.136

[GRAPHIC] [TIFF OMITTED] T9849.137

[GRAPHIC] [TIFF OMITTED] T9849.138

[GRAPHIC] [TIFF OMITTED] T9849.139

[GRAPHIC] [TIFF OMITTED] T9849.140

[GRAPHIC] [TIFF OMITTED] T9849.141

[GRAPHIC] [TIFF OMITTED] T9849.142

[GRAPHIC] [TIFF OMITTED] T9849.143

[GRAPHIC] [TIFF OMITTED] T9849.144

[GRAPHIC] [TIFF OMITTED] T9849.145

[GRAPHIC] [TIFF OMITTED] T9849.146

[GRAPHIC] [TIFF OMITTED] T9849.147

[GRAPHIC] [TIFF OMITTED] T9849.148

[GRAPHIC] [TIFF OMITTED] T9849.149

[GRAPHIC] [TIFF OMITTED] T9849.150

[GRAPHIC] [TIFF OMITTED] T9849.151

[GRAPHIC] [TIFF OMITTED] T9849.152

[GRAPHIC] [TIFF OMITTED] T9849.153

[GRAPHIC] [TIFF OMITTED] T9849.154

[GRAPHIC] [TIFF OMITTED] T9849.155

[GRAPHIC] [TIFF OMITTED] T9849.156

[GRAPHIC] [TIFF OMITTED] T9849.157

[GRAPHIC] [TIFF OMITTED] T9849.158

[GRAPHIC] [TIFF OMITTED] T9849.159

[GRAPHIC] [TIFF OMITTED] T9849.160

[GRAPHIC] [TIFF OMITTED] T9849.161

[GRAPHIC] [TIFF OMITTED] T9849.162

[GRAPHIC] [TIFF OMITTED] T9849.163

[GRAPHIC] [TIFF OMITTED] T9849.164

[GRAPHIC] [TIFF OMITTED] T9849.165

[GRAPHIC] [TIFF OMITTED] T9849.166

[GRAPHIC] [TIFF OMITTED] T9849.167

[GRAPHIC] [TIFF OMITTED] T9849.168

[GRAPHIC] [TIFF OMITTED] T9849.169

[GRAPHIC] [TIFF OMITTED] T9849.170

[GRAPHIC] [TIFF OMITTED] T9849.171

[GRAPHIC] [TIFF OMITTED] T9849.172

[GRAPHIC] [TIFF OMITTED] T9849.173

[GRAPHIC] [TIFF OMITTED] T9849.174

[GRAPHIC] [TIFF OMITTED] T9849.175

[GRAPHIC] [TIFF OMITTED] T9849.176

[GRAPHIC] [TIFF OMITTED] T9849.177

[GRAPHIC] [TIFF OMITTED] T9849.178

[GRAPHIC] [TIFF OMITTED] T9849.179

[GRAPHIC] [TIFF OMITTED] T9849.180

[GRAPHIC] [TIFF OMITTED] T9849.181

[GRAPHIC] [TIFF OMITTED] T9849.182

[GRAPHIC] [TIFF OMITTED] T9849.183

[GRAPHIC] [TIFF OMITTED] T9849.184

[GRAPHIC] [TIFF OMITTED] T9849.185

[GRAPHIC] [TIFF OMITTED] T9849.186

[GRAPHIC] [TIFF OMITTED] T9849.187

[GRAPHIC] [TIFF OMITTED] T9849.188

[GRAPHIC] [TIFF OMITTED] T9849.189

[GRAPHIC] [TIFF OMITTED] T9849.190

[GRAPHIC] [TIFF OMITTED] T9849.191

[GRAPHIC] [TIFF OMITTED] T9849.192

[GRAPHIC] [TIFF OMITTED] T9849.193

[GRAPHIC] [TIFF OMITTED] T9849.194

[GRAPHIC] [TIFF OMITTED] T9849.195

[GRAPHIC] [TIFF OMITTED] T9849.196

[GRAPHIC] [TIFF OMITTED] T9849.197

[GRAPHIC] [TIFF OMITTED] T9849.198

[GRAPHIC] [TIFF OMITTED] T9849.199

[GRAPHIC] [TIFF OMITTED] T9849.200

[GRAPHIC] [TIFF OMITTED] T9849.201

[GRAPHIC] [TIFF OMITTED] T9849.202

[GRAPHIC] [TIFF OMITTED] T9849.203

[GRAPHIC] [TIFF OMITTED] T9849.204

[GRAPHIC] [TIFF OMITTED] T9849.205

[GRAPHIC] [TIFF OMITTED] T9849.206

[GRAPHIC] [TIFF OMITTED] T9849.207

[GRAPHIC] [TIFF OMITTED] T9849.208

[GRAPHIC] [TIFF OMITTED] T9849.209

[GRAPHIC] [TIFF OMITTED] T9849.210

[GRAPHIC] [TIFF OMITTED] T9849.211

[GRAPHIC] [TIFF OMITTED] T9849.212

[GRAPHIC] [TIFF OMITTED] T9849.213

[GRAPHIC] [TIFF OMITTED] T9849.214

[GRAPHIC] [TIFF OMITTED] T9849.215

[GRAPHIC] [TIFF OMITTED] T9849.216

[GRAPHIC] [TIFF OMITTED] T9849.217

[GRAPHIC] [TIFF OMITTED] T9849.218

[GRAPHIC] [TIFF OMITTED] T9849.219

[GRAPHIC] [TIFF OMITTED] T9849.220

[GRAPHIC] [TIFF OMITTED] T9849.221

[GRAPHIC] [TIFF OMITTED] T9849.222

[GRAPHIC] [TIFF OMITTED] T9849.223

[GRAPHIC] [TIFF OMITTED] T9849.224

[GRAPHIC] [TIFF OMITTED] T9849.225

[GRAPHIC] [TIFF OMITTED] T9849.226

[GRAPHIC] [TIFF OMITTED] T9849.227

[GRAPHIC] [TIFF OMITTED] T9849.228

[GRAPHIC] [TIFF OMITTED] T9849.229

[GRAPHIC] [TIFF OMITTED] T9849.230

[GRAPHIC] [TIFF OMITTED] T9849.231

[GRAPHIC] [TIFF OMITTED] T9849.232

[GRAPHIC] [TIFF OMITTED] T9849.233

[GRAPHIC] [TIFF OMITTED] T9849.234

[GRAPHIC] [TIFF OMITTED] T9849.235

[GRAPHIC] [TIFF OMITTED] T9849.236

[GRAPHIC] [TIFF OMITTED] T9849.237

[GRAPHIC] [TIFF OMITTED] T9849.238

[GRAPHIC] [TIFF OMITTED] T9849.239

                                 
