[Senate Hearing 110-934]
[From the U.S. Government Publishing Office]


                                                        S. Hrg. 110-934
 
NOMINATIONS OF HON. ANDREW M. SAUL, HON. ALEJANDRO M. SANCHEZ, AND HON. 
                           GORDON J. WHITING

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


                                HEARING

                               before the

                              COMMITTEE ON
               HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS
                          UNITED STATES SENATE

                       ONE HUNDRED TENTH CONGRESS

                             SECOND SESSION

                                 ON THE

 NOMINATIONS OF HON. ANDREW M. SAUL TO BE CHAIRMAN, FEDERAL RETIREMENT 
 THRIFT INVESTMENT BOARD; HON. ALEJANDRO M. SANCHEZ AND HON. GORDON J. 
   WHITING TO BE MEMBERS, FEDERAL RETIREMENT THRIFT INVESTMENT BOARD

                               __________

                             APRIL 10, 2008

                               __________

       Available via http://www.gpoaccess.gov/congress/index.html

                       Printed for the use of the
        Committee on Homeland Security and Governmental Affairs


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        COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS

               JOSEPH I. LIEBERMAN, Connecticut, Chairman
CARL LEVIN, Michigan                 SUSAN M. COLLINS, Maine
DANIEL K. AKAKA, Hawaii              TED STEVENS, Alaska
THOMAS R. CARPER, Delaware           GEORGE V. VOINOVICH, Ohio
MARK L. PRYOR, Arkansas              NORM COLEMAN, Minnesota
MARY L. LANDRIEU, Louisiana          TOM COBURN, Oklahoma
BARACK OBAMA, Illinois               PETE V. DOMENICI, New Mexico
CLAIRE McCASKILL, Missouri           JOHN WARNER, Virginia
JON TESTER, Montana                  JOHN E. SUNUNU, New Hampshire

                  Michael L. Alexander, Staff Director
               Kristine V. Lam, Professional Staff Member
     Brandon L. Milhorn, Minority Staff Director and Chief Counsel
                   Jennifer L. Tarr, Minority Counsel
                  Trina Driessnack Tyrer, Chief Clerk


                            C O N T E N T S


                                 ------                                
Opening statements:
                                                                   Page
    Senator Akaka................................................     1
    Senator Voinovich............................................     2

                               WITNESSES
                        Thursday, April 10, 2008

Hon. Bill Nelson, a U.S. Senator from the State of Florida.......     3
Hon. Mel Martinez, a U.S. Senator from the State of Florida......     3
Hon. Andrew M. Saul to be Chairman, Federal Retirement Thrift 
  Investment Board...............................................     6
Hon. Alejandro M. Sanchez to be a Member, Federal Retirement 
  Thrift Investment Board........................................     7
Hon. Gordon J. Whiting to be a Member, Federal Retirement Thrift 
  Investment Board...............................................     8

                     Alphabetical List of Witnesses

Martinez, Hon. Mel:
    Testimony....................................................     3
Nelson, Hon. Bill:
    Testimony....................................................     3
Sanchez, Hon. Alejandro M.:
    Testimony....................................................     7
    Biographical and professional information....................    39
    Responses to pre-hearing questions...........................    45
    Letter from U.S. Office of Government Ethics.................    50
Saul, Hon. Andrew M.:
    Testimony....................................................     6
    Prepared statement with an attachment........................    17
    Biographical and professional information....................    23
    Responses to pre-hearing questions...........................    31
    Letter from U.S. Office of Government Ethics.................    37
Whiting, Hon. Gordon J.:
    Testimony....................................................     8
    Prepared statement...........................................    51
    Biographical and professional information....................    52
    Responses to pre-hearing questions...........................    60
    Letter from U.S. Office of Government Ethics.................    67


NOMINATIONS OF HON. ANDREW M. SAUL, HON. ALEJANDRO M. SANCHEZ, AND HON. 
                           GORDON J. WHITING

                              ----------                              


                        THURSDAY, APRIL 10, 2008

                                     U.S. Senate,  
                           Committee on Homeland Security  
                                  and Governmental Affairs,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 2:14 p.m., in 
Room SD-342, Dirksen Senate Office Building, Hon. Daniel K. 
Akaka, presiding.
    Present: Senators Akaka and Voinovich.

               OPENING STATEMENT OF SENATOR AKAKA

    Senator Akaka. The hearing will come to order. I want to 
welcome our witnesses, especially my colleagues, the Senators 
who are here. I would like at this point in time--Senator 
Voinovich, do you want to go first and make a statement?
    Senator Voinovich. No. That is fine.
    Senator Akaka. Today, the Committee on Homeland Security 
and Governmental Affairs meets to consider the nominations of 
Andrew Saul, Alex Sanchez, and Gordon Whiting to be Members of 
the Federal Retirement Thrift Investment Board (FRTIB).
    Mr. Saul, currently serving as Chairman of the FRTIB, is a 
general partner in the firm of Saul Partners, a diversified 
investment firm, and the director of Cache, Inc., a specialty 
retailer of women's apparel in New York.
    Mr. Sanchez is currently the President and CEO of the 
Florida Bankers Association.
    And Mr. Whiting is the Managing Director and Partner of 
Angelo, Gordon and Company, LLP, in New York, and a graduate of 
Columbia Business School.
    I see that Senator Nelson and Senator Martinez are here to 
introduce Mr. Sanchez, and I also know that my Ranking Member 
is also tight for time. And so I would like to ask that my 
Ranking Member go first, and then I will have the two Senators 
introduce Mr. Sanchez.
    [The prepared statement of Senator Akaka follows:]
              OPENING PREPARED STATEMENT OF SENATOR AKAKA
    This hearing will come to order.
    Good afternoon.
    Today, the Committee on Homeland Security and Governmental Affairs 
meets to consider the nominations of Andrew Saul, Alex Sanchez, and 
Gordon Whiting to be members of the Federal Retirement Thrift 
Investment Board.
    Since being confirmed by the Senate in 2002, you all have served on 
the Board and provide direction and oversight as fiduciaries of the 
Thrift Savings Plan (TSP). As you know, the TSP is a long-term, 
retirement investment fund, similar to a 401(k) in the private sector, 
that allows enrollees to invest in five publicly traded index funds 
with varying degrees of risk:

      The Government Securities Investment Fund, or G Fund with 
the lowest amount of risk;
      The Fixed Income Index Investment Fund or the F Fund;
      The Common Stock Index Investment Fund or C Fund;
      The Small Capitalization Stock Index Investment Fund or S 
Fund; and,
      The International Stock Index Investment Fund or I [Eye] 
Fund, which has the highest degree of risk.

    At the time of your nomination hearing in 2002, the TSP was 
involved in a number of contentious issues including the computer 
modernization system. We are in a very different place today.
    Acording to a 2006 survey of participants by Watson Wyatt 
Worldwide, 85 percent of respondents are satisfied or very satisfied 
with the TSP, whereas 68 percent of participants in private sector 
401(k) programs are satisfied with their plans. More importantly, only 
3 percent of survey respondents were dissatisfied with the TSP. 
Participation in the TSP has grown to over 3.8 million military and 
civilian participants and roughly a quarter of a billion dollars, while 
administration costs have remained low at approximately two basis 
points.
    It is evident that you all have taken your fiduciary duties 
seriously by keeping costs low and making improvements to the Plan to 
ensure that Federal employees have comparable benefits to the private 
and public sector. For example, the introduction of the Lifecycle 
Funds, or L-Funds, allows participants who are not investment savvy the 
opportunity to improve their retirement growth potential.
    In addition, you contracted with the investment consulting firm of 
Ennis Knupp to determine if there were any gaps in the investment 
options available to Federal employees. In October 2006, the consulting 
firm concluded that the core investment structure was sound and that 
there were no gaps in the investment line-up for the TSP.
    Looking to the future, more changes to improve the Plan are on the 
horizon. The Board has proposed auto enrollment of all Federal civilian 
and military employees and making the L-Funds the default investment 
Fund. The Board also is looking into the possibility of adding a Roth-
like plan to the available options.
    However, as all of these changes are made and more options are 
examined, I would like to stress the importance of financial and 
retirement literacy. Participants must be able to take advantage of the 
Plan's full range of options in order for it to be successful.
    It is imperative the TSP participants fully understand the plan and 
how it works so that Federal employees can prepare for their 
retirement. I look forward to hearing from all of you on how you think 
financial literacy can be improved.

             OPENING STATEMENT OF SENATOR VOINOVICH

    Senator Voinovich. Thank you, Mr. Chairman.
    First of all, I want to thank each of you for your service. 
I am going to ask that my opening statement be made part of the 
record so that we can hear from Senator Martinez and Senator 
Nelson.
    Senator Akaka. It will be made part of the record.
    [The prepared statement of Senator Voinovich follows:]
                PREPARED STATEMENT OF SENATOR VOINOVICH
    Good afternoon. Chairman Akaka, thank you for calling today's 
hearing to consider the nominations of Mr. Saul, Mr. Sanchez, and Mr. 
Whiting to the Federal Retirement Thrift Investment Board.
    First, I would like to thank each of you for your service during 
the previous five years and for your willingness to serve another term.
    The Federal Retirement Thrift Investment Board holds the fiduciary 
responsibility for the Thrift Savings Plan for Federal employees. With 
combined assets exceeding $222 billion (as of February 2008), it is the 
largest defined contribution plan in the world.
    We all know too well the challenges facing the Federal workforce: 
60 percent will be eligible to retire within the next 5 years, 
including 90 percent of the Senior Executive service. According to the 
Partnership for Public Service, the government will need to hire 
193,000 new people to fill mission critical jobs in the next 2 years. 
These challenges no doubt will have an impact on the Board as the 
number of participants and the size of the plan continually increases.
    As a nation, we face a challenging financial future. Troubles in 
today's economy significantly impact the TSP. For example, TSP 
participants lost approximately $8 billion from December 2007 to 
February 2008.
    Additionally, individual Americans' financial situations are not 
necessarily better. The most recent Federal Reserve survey of Consumer 
Finances estimated the average credit card debt was $5,100. 
Furthermore, and the Department of Commerce has identified a worrisome 
trend of a negative personal savings rate.
    Chairman Akaka, it is fortunate that we are holding this 
nominations hearing in April, which is Financial Literacy Month. I know 
this is an important issue for you, and that the board plays a key role 
in educating our Federal employees on retirement planning.
    I look forward from hearing from the nominees on the successes they 
have achieved during their first term as Board members and how they 
will meet challenges ahead.
    Thank you.

    Senator Akaka. Thank you very much. And I know you have 
busy schedules, Senator Nelson and Senator Martinez, and I 
would ask you to make your introductions at this time.

TESTIMONY OF HON. BILL NELSON, A U.S. SENATOR FROM THE STATE OF 
                            FLORIDA

    Senator Nelson. Mr. Chairman, it is a pleasure. You have 
already noted that Alex Sanchez is the CEO of the Florida 
Bankers Association, and I think one of the strongest 
recommendations that I could give for him is not only what we 
know about him in Florida and those credentials which we 
testified about here when he was first confirmed to this Board, 
but the fact that these Board members seated at this table all 
get along so well and have brought order out of chaos that had 
previously been on this Board, and as a result of not only 
their professionalism but their personal relationships in 
working together, you now have a functioning Board in what the 
law intended. And so I think that is about as good a 
recommendation that I could give not only for Alex Sanchez but 
for his colleagues as well.
    Senator Akaka. Thank you very much, Senator Nelson. Senator 
Martinez.

 TESTIMONY OF HON. MEL MARTINEZ, A U.S. SENATOR FROM THE STATE 
                           OF FLORIDA

    Senator Martinez. Thank you, Mr. Chairman, and thank you, 
Senator Voinovich. I am delighted to be here once again to 
recommend Alex Sanchez to the Committee.
    I share a similar background with Mr. Sanchez. We both 
immigrated to this country. We both love America. He exhibited 
that love of his country by being a member of the Air Force and 
serving the Nation in that way.
    Alex Sanchez is one of those people who has an infectious 
enthusiasm for everything that he does. He not only is a 
terrific president of the Florida Bankers Association where he 
does a tremendous job of representing the interests of Florida 
bankers--they love him; they know what a tireless worker he 
is--but he also serves his State on the Florida Schools of 
Excellence Commission and, of course, is willing to now serve 
another term in this very important Board, Federal Retirement 
and Thrift.
    I am impressed by his willingness to serve, and I know he 
will continue to do the great job that he and his colleagues 
have obviously been doing. So I am delighted to be here for him 
today, and I am delighted to join with my colleague, Senator 
Nelson, in presenting Alex Sanchez to the Committee once again 
and wish him well in hopeful second term.
    Senator Akaka. Well, I thank you, Senator Martinez and 
Senator Nelson, for your support.
    Senator Nelson. Thank you.
    Senator Akaka. Since being confirmed by the Senate in 2002, 
you all have served on the Board and provided direction and 
oversight as fiduciaries of the Thrift Savings Plan (TSP). At 
the time of your nomination hearing in 2002, the TSP was 
involved in a number of contentious issues, including the 
computer modernization system, and we are in a very different 
place today.
    Over the past 5 years, changes have been made to improve 
the investment options for participants, the administration of 
the plan, and the participation within the TSP. Most recently, 
the Board decided to limit the number of inter-fund transfers 
for participants from unlimited transfers per month to two 
transfers per month, with unlimited transfers to the G Fund.
    While I understand this is not uncommon among private 
sector plans, we have worked hard over the past few years to 
give participants more flexibility in managing their TSP 
accounts, and I am interested in hearing more about the need 
for this regulation to restrict participants' ability to freely 
manage their retirement funds.
    As you may know, April is Financial Literacy Month, and I 
am a strong proponent of improving financial literacy. As more 
changes are made and more options are examined, I believe the 
plan's success relies heavily on properly educating the 
participants.
    It is imperative that Federal employees be educated in 
their investment and benefit options in order to make sound 
financial decisions, avoid unnecessary pitfalls or setbacks, 
and secure their retirements. TSP participants must fully 
understand the plan and how it works to prepare for their 
retirement.
    So I look forward to hearing from all of you on how you 
think financial literacy can be improved.
    I would like at this time to ask Senator Voinovich--I know 
he did ask that his statement be placed in the record--whether 
he wanted to make any statement at this time.
    Senator Voinovich. All I want to say is that I have had a 
very good relationship with the TSP Board. We have the folks in 
to talk about opening up some new accounts, and I think that 
they have acted responsibly, and you folks have a very heavy 
burden on your shoulders because your decisions are going to 
have a lot to do with the retirement of our Federal workers, 
and I think that the issue of educating our Federal workers as 
much as possible is something that you ought to work on as 
aggressively as possible because we know we are going to be 
losing a lot of people through retirement. And I think that you 
ought to crank up in anticipation of that so that folks really 
understand it, maybe have seminars around the various offices 
so that folks really know what options are available to them so 
that they can make good decisions.
    Thank you.
    Senator Akaka. Thank you. The rules of this Committee 
require that all witnesses at nomination hearings give their 
testimony under oath. And, therefore, I ask that the witnesses 
please stand and raise your right hand. Do you solemnly swear 
that the testimony you are about to give this Committee is the 
truth, the whole truth, and nothing but the truth, so help you, 
God?
    Mr. Saul. I do.
    Mr. Sanchez. I do.
    Mr. Whiting. I do.
    Senator Akaka. Thank you very much.
    Let the record note that the witnesses responded in the 
affirmative.
    At this time I understand there is a vote on the Floor, and 
so I am going to call for a recess. We will run over there and 
vote, and I will be right back. So thank you very much for your 
patience.
    The Committee is in recess for a few minutes.
    [Recess.]
    Senator Akaka. The Committee will be in order. I want to 
commend you for your patience. [Laughter.]
    I look forward to your testimony.
    I understand that the witnesses have some family and 
friends in the audience, and I want to give you the opportunity 
to present them formally to the Committee. So let me start with 
Mr. Saul.
    Mr. Saul. It is just myself.
    Senator Akaka. Mr. Sanchez.
    Mr. Sanchez. Thank you, Mr. Chairman.
    First of all, let me just say that when you enter our 
house, my home, Mr. Chairman, your photograph is there with my 
two daughters and my wife--from 5 years ago. Unfortunately, as 
your children get older, you cannot control their schedules 
that much. My youngest daughter's tennis high school 
championship is today, so she could not make it. And my oldest 
daughter has finals. She graduates from college this month. My 
wife stayed behind with them, so they cannot be here. But I 
want to say, sir, that my 77-year-old mom, Hilda, is here 
behind me.
    Senator Akaka. Welcome.
    Mr. Sanchez. And my friends Rick and Sheryl Lee are also 
here from Florida, sir.
    Senator Akaka. Welcome.
    Mr. Sanchez. So it is great to have them here, Mr. 
Chairman.
    Senator Akaka. Well, thank you very much. Good to see all 
of you, and please pass my best regards to your family. I 
really appreciate that.
    Mr. Sanchez. Thank you, sir.
    Senator Akaka. Mr. Whiting.
    Mr. Whiting. Thank you, Mr. Chairman. Today I am joined by 
my father, William G. Whiting, and I am very glad that he can 
be here. Thank you.
    Senator Akaka. Thank you. Welcome. Good to have all of you.
    Well, again, I am happy to have you here, and I am looking 
forward to your opening remarks. So let me call on Mr. Saul.

 TESTIMONY OF HON. ANDREW M. SAUL \1\ TO BE CHAIRMAN, FEDERAL 
               RETIREMENT THRIFT INVESTMENT BOARD

    Mr. Saul. Mr. Chairman, first I would like to say I am very 
proud to be here again sitting before you, and I thank you very 
much for holding this hearing.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Saul with an attachment appears 
in the Appendix on page 17.
---------------------------------------------------------------------------
    Mr. Chairman and Members of the Committee, my name is 
Andrew M. Saul. Since my confirmation by the Senate in November 
2002, it has been my privilege to serve as Chairman at the 
Federal Retirement Thrift Investment Board. I am appearing 
today with my colleagues on the Board and fellow nominees, 
Gordon J. Whiting and Alejandro Modesto Sanchez. We thank you 
for holding this hearing today.
    When my colleagues and I appeared before you for our 
previous confirmation hearing on November 15, 2002, you were 
very direct in advising us about the challenges we faced at the 
Board. You described an institution with a failed modernization 
program, terminated contracts, and multiple lawsuits. 
Disagreements between the former leadership and Executive 
Branch departments were very public and combative. You further 
noted the lack of useful information on the TSP website. Your 
candor was appreciated and extremely useful as we set out about 
getting the Board back in the business of providing retirement 
security to Federal employees and members of the uniformed 
services.
    In an orderly and businesslike fashion, during open public 
meetings, this Board attended to the problems you cited. We 
worked with the senior career staff to put the new 
recordkeeping system in operation just 6 months after taking 
office. We hired a new executive director who settled the 
lawsuits. We improved the TSP website and have made it, along 
with our toll-free telephone service centers, the gateways for 
service and up-to-date information.
    The TSP today is a very different plan than it was in 2002. 
We transact business on a daily-valued platform and have built 
in redundancies to ensure continuity of business. We introduced 
the new life cycle funds which provide automatic, 
professionally designed asset allocation. Participation has 
grown from 3 million to 3.9 million individuals, and balances 
on accounts have increased from $98 billion when we arrived to 
$223 billion today. All of this and more has been accomplished 
at the same time that costs to participants have declined from 
seven basis points, 70 cents per $1,000 of account balance, in 
2002 to one and a half basis points, 15 cents per $1,000, in 
2007.
    During our 2002 confirmation hearing, you noted that the 
TSP website did not include information regarding Board member 
or governance activities. That has been remedied, and we now 
also include information on the Employee Thrift Advisory 
Council and their meetings. As for other useful information, if 
you look at our home page this month, you will see a scrolling 
marquee drawing attention to the fact that April is Financial 
Literacy Month.
    Mr. Chairman, the Akaka amendment to the TSP Open 
Enrollment Act of 2004 refocused attention on this critical 
area. We now file a report annually with the Committee to 
report our ongoing efforts regarding financial literacy. So far 
this year, agency staff has scheduled 305 educational sessions, 
including 55 for agency and service representatives and 250 
employee briefings. Eighteen of the latter are major 
conferences and benefits fairs, including one scheduled for 
Legislative Branch employees later this month.
    Finally, Mr. Chairman, we are all very pleased that TSP 
participation by members of the uniformed services has grown 
from 282,000 to 602,000 since we took office. We made special 
efforts to work with the services in this regard and will 
continue to do so. The TSP is so well conceived and designed by 
Congress--and this Committee in particular--it has been called 
``possibly the best single savings vehicle in America today'' 
by legendary Vanguard Mutual Fund founder John Bogle. We agree, 
and we pledge, to continue to do all that we can to keep it 
attractive and useful to the fine men and women who serve our 
Nation.
    I appreciate the opportunity to appear before you and to 
serve those who have served us all so well. And, Senator, if I 
may just say on a personal note, in my varied career--which has 
been very varied--I have been involved in, fortunately, many 
different things and most of them successful. This public 
service that you have afforded me, this opportunity to serve 
our Nation and give back something, is one of the things I am 
truly, sincerely most proud of. I feel that with myself and my 
fellow Board members who appear before you and the staff, we 
have really made this a first-class agency, and it is one of 
the most important things that I have done in my life. And I 
thank you, Senator, for giving me this opportunity and hope you 
will afford me that opportunity going forward.
    Thank you, sir.
    Senator Akaka. Thank you very much, Mr. Saul.
    Mr. Sanchez, please proceed with your statement.

TESTIMONY OF HON. ALEJANDRO M. SANCHEZ TO BE A MEMBER, FEDERAL 
               RETIREMENT THRIFT INVESTMENT BOARD

    Mr. Sanchez. Thank you, Mr. Chairman. And again, Mr. 
Chairman, I want to start with Mr. Saul's last comment. Five 
years ago we received confirmation from this Committee and then 
the full Senate, and as I said to you 5 years ago, sir, as an 
immigrant to this country, I cannot tell you what an honor it 
is for my family and for myself to serve our government in this 
capacity. Along with Mr. Whiting and Mr. Saul, we have really 
put our heart and soul into this, taking the time to make sure 
that we are there to properly give this agency the time that it 
required in service to our Nation, sir. And it is a tremendous 
honor for us. That honor has not faded. It has not been watered 
down. It is as strong today as it was 5 years ago, and, again, 
I ask you, sir, if we are afforded the opportunity for a second 
term, I assure you, sir, that the three of us will continue to 
work very hard for the agency.
    It has been a great 5 years, Mr. Chairman. I think we have 
a lot of things positive that have been done, and I think that 
from a personal perspective, Mr. Whiting and Mr. Saul--the 
three of us feel very strongly about the benefits of this great 
plan that this Congress has afforded those Federal workers and 
men and women in the military, what we feel very proud about is 
that this plan has reached and penetrated deeper and deeper--
every month the numbers go up for those who are serving our 
country at this hour. I think that is very important because 
those courageous men and women serving in uniform, defending 
our Nation, really need to benefit from the TSP.
    When the numbers come in every month at the Board meeting, 
we see that we have reached over 50 percent in the Navy in 
active duty, sir. A third of the Marine Corps are now in this 
plan. Over a third of the Air Force active duty is 
participating. Over a third of the Coast Guard and over 25 
percent, a quarter, of the Army is participating. The three of 
us really feel like we have really done something here to help 
those courageous men and women. So that for us is a big thing 
that means a lot to us personally to make sure that this plan--
because these men and women are all over the world and, we have 
done the marketing pieces, we have improved the website, to 
make sure that the word gets out not only to those courageous 
men and women in our armed services, but the Federal workers as 
well so that they will realize the benefits of the TSP and 
their participation numbers will continue to rise as well.
    But, we have things like the life cycle funds, Mr. 
Chairman, to make it easier for the Federal workers and the 
participants to invest for their retirement, and increased 
education; we have a great professional staff now. We have a 
deeper bench on the professional staff, which only benefits, 
again, the participants. I think those are some of the things 
that we have done these last 5 years that we will continue to 
focus on to make sure that this agency is providing the best 
possible services for its participants, sir.
    Thank you.
    Senator Akaka. Thank you very much, Mr. Sanchez. Now we 
will hear from Mr. Whiting.

TESTIMONY OF HON. GORDON J. WHITING\1\ TO BE A MEMBER, FEDERAL 
               RETIREMENT THRIFT INVESTMENT BOARD

    Mr. Whiting. Mr. Chairman, my name is Gordon J. Whiting, 
and I too would like to thank you, other Members of the 
Committee, and the staff for conducting this hearing today. The 
Thrift Savings Plan has become a critical element for the 
retirement security of nearly 4 million Federal employees and 
members of the uniformed services. It has been my privilege to 
serve as a plan fiduciary and member of the Federal Retirement 
Thrift Investment Board. I am grateful for the opportunity to 
continue this service.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Whiting appears in the Appendix 
on page 51.
---------------------------------------------------------------------------
    When I last appeared before you in 2002, you focused my 
attention on two issues: Working cooperatively with other 
agencies and ensuring that participants have the financial 
knowledge to make informed decisions. I want to assure you 
today that we have continued to pursue these goals with notable 
success throughout my tenure.
    In today's fast-paced financial world, we need to be sure 
that the TSP remains nimble yet grounded in the fundamental 
principles established for it in law. You have my commitment 
today that I will continue down that path, exercising both 
prudence and deliberate speed.
    Thank you again for your consideration of my nomination to 
this important position.
    Senator Akaka. Thank you very much, Mr. Whiting.
    I will begin with the standard questions this Committee 
asks of all nominees. Is there anything you are aware of in 
your background that might present a conflict of interest with 
the duties of the office to which you have been nominated? Mr. 
Saul.
    Mr. Saul. No, sir.
    Senator Akaka. Mr. Sanchez.
    Mr. Sanchez. No, sir.
    Senator Akaka. Mr. Whiting.
    Mr. Whiting. No, sir.
    Senator Akaka. Thank you very much.
    Do you know of anything, personal or otherwise, that would 
in any way prevent you from fully and honorably discharging the 
responsibilities of the office to which you have been 
nominated? Mr. Saul.
    Mr. Saul. No, sir.
    Senator Akaka. Mr. Sanchez.
    Mr. Sanchez. No, Mr. Chairman.
    Senator Akaka. Mr. Whiting.
    Mr. Whiting. No, sir.
    Senator Akaka. Do you agree without reservation to respond 
to any reasonable summons to appear and testify before any duly 
constituted Committee of Congress if you are confirmed? Mr. 
Saul.
    Mr. Saul. Yes, sir, I do.
    Senator Akaka. Mr. Sanchez.
    Mr. Sanchez. Yes, sir, I do. Thank you.
    Senator Akaka. Mr. Whiting.
    Mr. Whiting. Yes, Mr. Chairman, I do.
    Senator Akaka. I thank you all for your responses. Now let 
me ask a question to the entire panel.
    Federal Reserve Chairman, Ben Bernanke, testified before 
the House last week that a recession is possible. Within the 
last few months, the economy lost nearly 80,000 jobs. Home 
values continue to fall, and the credit markets have tightened. 
Understandably, TSP participants are concerned about the impact 
of recent events on their retirement.
    How is the TSP doing in light of the recent events? And 
what would you say to concerned TSP participants? Mr. Saul.
    Mr. Saul. Well, Senator, unfortunately, we have had 5 years 
of tremendous growth in the economy and tremendous growth in 
the financial markets, and the TSP participants have obviously 
participated in this great fortune. We have had a rough 
quarter. There is no question about it. The financial markets 
are down about 8 percent, roughly, for the first 3 months of 
the year. And our plan is an index fund plan, which does track 
the markets. So, depending on the allocation that the 
individual has, they, of course, unfortunately, have suffered 
losses.
    Now, I think it is very important, and what I would say to 
the participants is the following: Over a period of time, as 
this is a long-term savings plan, this is not to be judged on 
one quarter or two quarters. A properly allocated plan is a 
future retiree's best defense against an uncertain economy.
    And I might call attention to the life cycle funds, which 
we introduced in the last 2 years. And I think over a period of 
time and if you track their performance for the first quarter, 
I think they have done very well and done just as they were 
conceived. So that somebody that is closer to retirement who is 
in the life cycle funds with a get-out date closer to the 
present date, they have a much higher allocation of bonds and G 
Fund, which is short-term Treasuries, in their mix. And those 
younger people that are working for the Federal Government have 
a larger percentage of equity, but they have a longer time to 
be able to recover if we do have a down quarter.
    So I think that a properly allocated plan, as I think we 
have and I think that most of our participants have, is the 
right thing for the long term. And while there will be short-
term interruptions, as we go forward I do believe that that is 
the proper way to invest, and I encourage people that are not 
sophisticated, financial-market-orientated people to please 
take a look at our life cycle funds, because I do think that is 
the right approach for uncertain times like this. And I would 
encourage whatever participants that look and hear this 
testimony today to relook at the L Fund performance.
    Senator Akaka. Thank you very much, Mr. Saul. Mr. Sanchez.
    Mr. Sanchez. Mr. Chairman, as Mr. Saul said, this is really 
a long-term savings plan, and, yes, I know we have--in the last 
months now, we have had turbulent times on Wall Street 
obviously affecting the prices of not only individual stocks 
but also index funds. But this is a long-term plan, and I think 
that it is very important that the TSP, our Board, and the 
agency continue a strong education program. That way the nearly 
4 million participants can make their choices to allocate their 
funds depending on their age and the number of years they have 
left in the workforce.
    But because it is a long-term plan, I think they will--as 
they have benefited in the last 5 years from the uptick in the 
market--they have to make the proper allocations now in a 
market that is more turbulent.
    The good news, sir, is that, again, because it is long 
term, if they continue buying in the equity funds, they are 
buying those shares cheaper now so that when they do rise--
because we know that things will turnaround eventually--they 
will be benefiting by buying those shares cheaper today than at 
the uptick--at the highest point a year or so ago when the 
market was doing extremely well.
    So I think the education, gentlemen, of our participants is 
vital in order for them to be successful because it is a long-
term savings plan.
    Senator Akaka. Thank you. Mr. Whiting.
    Mr. Whiting. Thank you, Mr. Chairman. As was previously 
said, I think it is very important for the participants to 
remember that this is a long-term plan and they need to 
maintain a long-term focus. It is also important that they 
continue to make regular contributions into the plan and that 
they do not try and chase the market or chase return.
    When Congress created the plan, it was designed to have 
index funds, and so the index funds do track the market. But a 
couple of years ago, we added the life cycle funds, or the L 
Funds, as a way to help people make allocation decisions, based 
upon when they were going to need their money for retirement. I 
think that has been a great addition to the plan, and I think 
it is something that people who either do not have the time or 
the inclination to focus on the plan and on their investments 
really consider. These funds will make the allocations for them 
and make sure that everything continues to be done properly and 
that would be very helpful for them.
    Senator Akaka. Thank you.
    Mr. Saul, the Board recently proposed a rule that would 
allow TSP participants only two inter-fund transfers per month 
with the flexibility to transfer money to the G Fund at any 
time. This change was made because of frequent inter-fund 
transfers by a small number of TSP participants into and out of 
the I Fund, costing the entire plan approximately $25 million.
    Was there any thought given to limiting inter-fund 
transfers only to the I Fund?
    Mr. Saul. I think that in order to answer your question, 
you have to return to the basic principles of the plan, Mr. 
Chairman, and that is that this is a long-term savings plan, as 
we have said. This plan was not devised to in any way, shape, 
or form become a day-trading operation. It is something that 
really does not require and, as a matter of fact, we admonish 
against making a lot of changes in one's retirement plan.
    The interesting thing is when we went to daily balancing 
about, I guess now, 4 years ago, 5 years ago, I had made a 
statement at that time, I was afraid exactly of this happening 
because what we have built is a system that is a fabulous 
system for somebody that wants to day trade. And, by the way, 
you can day trade at no expense to yourself, only to the plan. 
And that is not what this plan was about in the beginning.
    So what we had here was approximately 4,000 out of 4 
million people began to use this thing as a day-trading 
account. And not only did it cost the other participants that 
weren't involved in this a great deal of money, as you have 
stated, but it also made it very difficult to balance some of 
the index funds at the end of the day.
    You referred to the I Fund. The I Fund, because it is 
involved in smaller markets than the U.S. financial markets, 
and there is less liquidity in some of those markets, it became 
very difficult to balance the plan each day for Barclays Global 
Investors, who does our outside investing, to tie our plan into 
the index for the day because of this tremendous amount of 
money that was going in and out of the plan.
    So, we proposed these changes, but we proposed changes in a 
way that would not restrict anybody from being able to achieve 
liquidity in their account if there was turmoil in the markets, 
and that is why we allowed--we didn't restrict in any way, 
shape, or form any transfers in the G Fund because we believed 
that the individual needed to be able to get liquidity if they 
so desired.
    We have just gone through the closing of a public comment 
period, which actually closed yesterday. The staff and the 
executive director, by order of the Board, will be reviewing 
the public comments, and within about 2 weeks, we will have a 
ruling from the executive director and the staff as to where we 
are going to go with this thing. But I just caution everybody 
to remember that when Congress devised a great plan here, they 
made it a long-term savings plan. And because of all our 
technology changes that we put in in the last years, we have 
been able to build, unfortunately, a great mousetrap, and we 
built a system that is perfect for day trading. And I think 
that was not the intention of the plan when it was devised. So 
that was what brought this whole event before the Board.
    Senator Akaka. Before I call on Senator Voinovich for his 
questions, let me ask this question of Mr. Whiting. TSP 
participants who understand the implications of their financial 
decisions will be more likely to take appropriate action to 
secure their retirement. While 91 percent of the Federal 
employees participate in the TSP, only 27 percent of the 
uniformed members participate in TSP. Increasing awareness of 
the benefits of the TSP and improving overall financial 
literacy of Federal employees could improve participation. What 
plans do you have to improve the financial literacy and 
participation among the uniformed services?
    Mr. Whiting. Thank you, Mr. Chairman. Increasing the 
percentage of participation amongst all the Federal employees 
and the uniformed services is one of the most important things 
that we hope to achieve. You are absolutely right. This is so 
important to their long-term financial security and their 
retirement that we focus on it monthly at every Board meeting. 
We track the percentage of all the agencies, which are 
participating, and we work with the Board staff to try and come 
up with ways to increase the participation. And financial 
education, as you have said, is one of the most important 
things that we can do in order to help that. And, in fact, to 
date, the agency staff has scheduled over 305 educational 
sessions, including 55 for agency and service representatives, 
and 250 employee briefings.
    So education and making people aware of the plan and how 
good it is, is one of the most important things that we can do, 
and we are working with everybody to ensure that.
    Mr. Sanchez. Mr. Chairman, can I add something to Mr. 
Whiting's answer, sir?
    Senator Akaka. Yes, Mr. Sanchez.
    Mr. Sanchez. Mr. Chairman and Senator Voinovich, I also 
want to add to the excellent answer Mr. Whiting gave, that the 
three of us, thanks to one of the Board's professional staff 
members, Mr. Trabucco, who is sitting here behind us to the 
left, we had a meeting either late last year or earlier this 
year at the Pentagon with members from each of the units--
Marine Corps, U.S. Air Force, and so on--as a Board--and I 
think that was the first time that had ever been done since the 
Board's inception in 1986--to specifically talk about 
increasing the participation rate of the members of the 
uniformed services in the plan.
    It has nearly tripled since we have been on, but are we 
satisfied, sir? No, we are not. We want to continue to grow 
that, and that is why that meeting resulted at the Pentagon 
itself with those who are responsible in promoting the plan to 
the participants.
    Senator Akaka. Thank you very much. Senator Voinovich.
    Senator Voinovich. I think that you ought to be 
congratulated for keeping the cost of participation low.
    Mr. Saul. Senator, when returns get smaller, as they have 
in the last years, obviously the percentage that one pays as 
overhead becomes very significant. Since we have been here, not 
only have we raised the amount of assets under management by 
two and a half times, but we have actually cut the actual 
dollars that are spent in order to run the plan. And I think by 
efficient management and use of technology, we have been able 
to actually drive down the real dollars, while at the same time 
more than doubling the asset value of the plan.
    I must say, though, that next year, over this year--and I 
am sure you know it because I know you and your staff follow 
what we do very closely--we have embarked on a plan to increase 
and modernize the technology efforts at the TSP, and that is 
going to entail some increase this year and next year. But it 
is for infrastructure development, which we feel is absolutely 
vital because of the large growth that the plan has 
encompassed.
    Why we want to keep the costs low, which we totally agree 
with and we are dedicated to that, we need to be sure that our 
infrastructure, staffing, and systems are able to cope with a 
plan that is growing as fast as it has.
    Senator Voinovich. I have had my own personal experience in 
transferring some deferred compensation out of the State of 
Ohio's fund into the TSP. There was a period of time when the 
funds were in limbo. And I thought to myself, why did it take 
so much time for this to get transferred from the State of Ohio 
into the TSP?
    Mr. Saul. We would blame it on the State of Ohio, of 
course. [Laughter.]
    Senator Voinovich. Why doesn't the Board believe it would 
be advantageous to employees, and particularly those who do not 
contribute to the IRS-deferral limit, which is $15,500, not to 
be able to include the bonuses in their contributions? The base 
pay is what is used to calculate the contributions to the TSP 
and the bonuses are not. As more agencies move to pay for 
performance, it seems to me that someone ought to look at this, 
especially when these individuals have not maxed out their 
contributions.
    Mr. Saul. We will definitely take a look at that, Senator. 
I know that we have encouraged everybody, though, to invest as 
much under the IRS regulations as possible for a 401(k) plan, 
which really governs the amount of investment. I assume you are 
also talking about the 6-percent government match on the 
bonuses.
    Senator Voinovich. I am talking about bonus compensation 
that is not part of the base.
    Mr. Saul. That is a good point, and we will get back to you 
on this, and your staff.
    Senator Voinovich. The other thing is: How long has 
Barclay's managed portions of the TSP?
    Mr. Saul. Barclays actually has run this, I believe, since 
the inception of the plan. However, under the procurement laws, 
which we do every 3 to 5 years--I believe it is a 3-year 
rotation, we bid this management contract out. As a matter of 
fact, I believe it was last year or the year before, this 
contract was rebid, and Barclays was the successful bidder 
again. So they do not have a lock on it. This is a competitive 
bid process and done under the Federal procurement laws.
    Senator Voinovich. And performance is one of the 
considerations?
    Mr. Saul. There is a whole group of criteria that is set by 
the----
    Senator Voinovich. How do you think they are doing?
    Mr. Saul. I think actually Barclays is a very professional, 
very capable operation.
    Senator Voinovich. And they manage all the funds like your 
small----
    Mr. Saul. Yes, they do.
    Senator Voinovich. Large cap, small cap.
    Mr. Saul. They do all of our funds currently.
    Senator Voinovich. They are the ones that select the 
companies that are within those classifications?
    Mr. Saul. Well, the indexes are the index, and they set up 
a basket of stocks that pretty much mirrors the indexes, for 
example, the S&P 500, the Wilshire 4500, and the EFA Fund.
    Senator Voinovich. Do they have some discretion in terms of 
which funds are included?
    Mr. Saul. No, they pretty much have to mirror the index 
funds, the way I understand it, in order to come out the same--
with the same results as the index funds. Their baskets have to 
mirror pretty much the index funds as they are set up. But I 
assure you that Barclays, which I believe to be the largest now 
in the index fund operation, is a very highly professional 
operation. When we sent out the criteria, we actually had a 
consulting firm, Ennis Knupp and Associates, one of the biggest 
in the industry, come in and help us with the procurement that 
we sent out. So this was very professionally done, very 
competitively bid, and they were the successful bidders.
    Senator Voinovich. Pardon me for interrupting you, but it 
seems like all three of you like the L Fund which has been 
around for 2 years?
    Mr. Saul. Two years. It is now 15 percent of our assets.
    Senator Voinovich. Yes, and have you looked at the 
performance of that and do you feel that they are relatively 
competitive, understanding the market has not been the best in 
the last 6 or 7 months?
    Mr. Saul. I think if you look at the L Funds for the first 
quarter, which has been, as Mr. Sanchez said, a very turbulent 
quarter, I think you will find that, depending on which one you 
are in, I think it did just what it was intended to do.
    Obviously, those with the longest retirement did lose more, 
the L Funds did perform less in the market than the shorter 
ones because the shorter ones had more bond, more G Fund in 
them. But that is the way it is set up to operate. And I think 
that for somebody that is not a sophisticated investor, it is a 
great way to go. I think it is one of the best additions we had 
in the plan. And I think that as we go on the next couple 
years, you are going to see probably the vast majority of the 
funds that are run by the TSP in the L Funds. I think the 
popularity will increase as people become more educated about 
them.
    Senator Voinovich. Thank you.
    Mr. Whiting. Mr. Senator, I would just like to say that we 
make it very clear that the existing companies that we have 
engaged for the various positions, for the various parts of the 
TSP, in absolutely no way have a lock on the business going 
forward. Competitive bidding is extremely important to us and 
to the agency because that benefit gets passed directly onto 
the participants. So it is extremely important to us that they 
do that. Everybody understands that, and always works very hard 
to sharpen their pencils when it comes time to the bidding 
process. The real beneficiaries are the participants, so we 
really do focus on that.
    Senator Voinovich. Thank you very much.
    Senator Akaka. Thank you very much, Senator Voinovich.
    As I had mentioned earlier, we called this hearing to get 
to speak with you and to hear your thoughts about TSP. Also, I 
want to commend you for what you have done since you have been 
on board, if I recall, since November 15, 2002. And since 
then--and you would agree with me--there has been huge 
improvement in the program, so I commend you for that. And we 
always look forward to improving whatever we are doing, and I 
think you know that Congress is looking at you to evaluate and 
improve existing TSP education programs. I look forward to your 
continuing to do that. Of course, that falls under financial 
literacy, which is so important, and it is something that we 
need to do throughout our Federal system, especially for those 
who have to make financial decisions at different times in 
their lives. And so these are important in what you need to do, 
and in this hearing, we were looking at hearing about some of 
the things that you are doing, and one of them was the transfer 
of funds between funds.
    I also wanted to mention that through financial literacy, I 
have started a program that now has gone on for 3 years in 
Hawaii. And first I started with NASD, and I do not know 
whether that means anything to you, but it is the National 
Association of Securities Dealers, who had a great program of 
hosting workshops with people. I had them come to Hawaii for 3 
years, and they were a sensation. I took them to every island, 
and they held these workshops, and all of these were 
successful. People were so upbeat about investing. And then it 
was changed from NASD to FINRA, which is now Financial Industry 
Regulatory Authority, and I had them last year come out as 
FINRA to conduct three workshops in Hawaii.
    I just mentioned that because one of the hearings was only 
for military personnel. The admirals and the generals were so 
happy, they praised me for that hearing, and they said it was 
so good for their people to sit--and we have a huge convention 
hall in Hawaii, and that place was packed with couples from the 
military. All of them, as they left, they were so happy, they 
learned so much in that hearing and were so upbeat that I 
thought some things are going to be improved. But the top 
officers felt that it really worked out well.
    I just wanted to mention that to you as something--and 
these were educational programs, and it has really taken in 
Hawaii. I do not know whether they will come back another year, 
but we will see. Financial literacy is so important to our 
country, and I am glad you folks have that on your agenda and 
continue to work at that.
    Seeing that there are no further questions at this time, I 
want to congratulate you as nominees again, and thank you for 
what you have done already. I wish you well in your future. I 
know you are anxious for your nominations to move forward, and 
I just want to tell you that I will try my best to move your 
nominations in the near future and have the Senate 
expeditiously move on that.
    With that, the hearing record will remain open until the 
close of business tomorrow for Members of this Committee to 
submit additional statements or questions. And, again, I want 
to thank you for being here and for your patience.
    Mr. Saul. Thank you, Mr. Chairman.
    Mr. Sanchez. Thank you, Mr. Chairman.
    Mr. Whiting. Thank you.
    Senator Akaka. This hearing is adjourned.
    [Whereupon, at 4:28 p.m., the Committee was adjourned.]


                            A P P E N D I X

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