[Senate Hearing 112-518]
[From the U.S. Government Publishing Office]
S. Hrg. 112-518
FEDERAL RETIREMENT PROCESSING: ENSURING PROPER AND TIMELY PAYMENTS
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HEARING
before the
OVERSIGHT OF GOVERNMENT MANAGEMENT,
THE FEDERAL WORKFORCE, AND THE
DISTRICT OF COLUMBIA SUBCOMMITTEE
of the
COMMITTEE ON
HOMELAND SECURITY AND
GOVERNMENTAL AFFAIRS
UNITED STATES SENATE
ONE HUNDRED TWELFTH CONGRESS
SECOND SESSION
__________
FEBRUARY 1, 2012
__________
Available via the World Wide Web: http://www.fdsys.gov
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 TOM COBURN, Oklahoma
THOMAS R. CARPER, Delaware SCOTT P. BROWN, Massachusetts
MARK L. PRYOR, Arkansas JOHN McCAIN, Arizona
MARY L. LANDRIEU, Louisiana RON JOHNSON, Wisconsin
CLAIRE McCASKILL, Missouri ROB PORTMAN, Ohio
JON TESTER, Montana RAND PAUL, Kentucky
MARK BEGICH, Alaska JERRY MORAN, Kansas
Michael L. Alexander, Staff Director
Nicholas A. Rossi, Minority Staff Director
Trina Driessnack Tyrer, Chief Clerk
Joyce Ward, Publications Clerk and GPO Detailee
OVERSIGHT OF GOVERNMENT MANAGEMENT, THE FEDERAL WORKFORCE, AND THE
DISTRICT OF COLUMBIA SUBCOMMITTEE
DANIEL K. AKAKA, Hawaii, Chairman
CARL LEVIN, Michigan RON JOHNSON, Wisconsin
MARY L. LANDRIEU, Louisiana TOM COBURN, Oklahoma
MARK BEGICH, Alaska JERRY MORAN, Kansas
Lisa M. Powell, Majority Staff Director
Christine West, Counsel
Rachel R. Weaver, Minority Staff Director
Sean Kennedy, Professional Staff Member
Aaron H. Woolf, Chief Clerk
C O N T E N T S
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Opening statement:
Page
Senator Akaka................................................ 1
Senator Johnson.............................................. 2
Senator Warner............................................... 3
Prepared statement:
Senator Akaka................................................ 39
WITNESSES
Wednesday, February 1, 2012
Hon. John Berry, Director, U.S. Office of Personnel Management... 5
Hon. Patrick E. McFarland, Inspector General, U.S. Office of
Personnel Management........................................... 8
Valerie C. Melvin, Director of Information Management and
Technology Resource Issues, U.S. Government Accountability
Office......................................................... 9
Joseph A. Beaudoin, President, National Active and Retired
Federal Employees Association.................................. 28
George Nesterczuk, President, Nestercsuk and Associates.......... 29
Alphabetical List of Witnesses
Beaudoin, Joseph A.:
Testimony.................................................... 28
Prepared statement........................................... 69
Berry, Hon. John:
Testimony.................................................... 5
Prepared statement........................................... 41
McFarland, Hon. Patrick E.:
Testimony.................................................... 8
Prepared statement........................................... 45
Melvin, Valerie C.:
Testimony.................................................... 9
Prepared statement........................................... 54
Nesterczuk, George:
Testimony.................................................... 29
Prepared statement........................................... 73
APPENDIX
Questions and Responses for the Record from:
Mr. Berry.................................................... 79
Mr. McFarland................................................ 89
Ms. Melvin................................................... 93
Background....................................................... 96
Chart referenced by Senator Warner............................... 103
FEDERAL RETIREMENT PROCESSING: ENSURING PROPER AND TIMELY PAYMENTS
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WEDNESDAY, FEBRUARY 1, 2012
U.S. Senate,
Subcommittee on Oversight of Government
Management, the Federal Workforce,
and the District of Columbia,
of the Committee on Homeland Security
and Governmental Affairs,
Washington, DC.
The Subcommittee met, pursuant to notice, at 2:31 p.m., in
Room 342, Dirksen Senate Office Building, Hon. Daniel K. Akaka,
Chairman of the Subcommittee, presiding.
Present: Senators Akaka, and Johnson.
Also present: Senator Warner.
OPENING STATEMENT OF SENATOR AKAKA
Senator Akaka. This hearing of the Subcommittee on
Oversight of Government Management (OGM), the Federal
Workforce, and the District of Columbia will come to order.
Aloha and welcome, everyone. Thank you for being here for
today's hearing, which will focus on processing Federal
retirements. I just want to clarify that it will not address
Federal retirement benefits or the status of the Civil Service
Disability Fund.
Discussing the administration of Federal retirement
benefits is timely and important. Recent news articles have
told us stories of people waiting months on end for retirement
benefits while millions of dollars are improperly paid to
annuitants who have passed away. That is the kind of publicity
the Office of Personnel Management (OPM) has had, but it is
changing. This is not the type of Federal Government that will
regain the faith of the American public and is not a government
living up to the potential that I know it has.
As the Federal Government's human resource agency, the
Office of Personnel Management (OPM) administers retirement
benefits for roughly 2.5 million Federal retirees and processes
approximately 100,000 new claims each year. OPM uses a system
that is mostly paper-based. Over the past 24 years, the agency
has embarked on a number of information technology (IT)
projects to automate retirement processing, most of which were
contracted out to private companies at that time. Each one
failed after millions of dollars and years of development were
poured into them. The Government Accountability Office (GAO)
found that management weaknesses like poor contracting
oversight were the source of OPM's troubles. I look forward to
hearing more about how the agency will improve its management
of IT projects and how it will approach the need to modernize
in the future.
Failed IT contracts are at the root of OPM's current
challenges. OPM reduced its retirement staff significantly
through attrition from 2005 to 2009 in anticipation of an
automated system that never materialized. The result is a
backlog of over 48,000 claims that the agency is struggling to
address.
To recapture some of its lost processing capacity, OPM
plans to hire 56 new adjudicators. According to OPM, the
average wait for a full annuity is 5 months, and people quickly
receive interim payments that are approximately 80 percent of
what their final annuity is later determined to be.
Although those statistics are not good, as Members of
Congress, we all hear stories from retirees who have even worse
experiences. News articles and constituent calls describe a
system where people wait up to one year to receive full
benefits while living off a small percentage of their final
annuity.
Today, I hope to gain a better understanding of how OPM
will eliminate the backlog. In the meantime, it must make sure
no one waits this long and that interim pay is more accurate,
even for those with complex retirement applications. I know
there has been improvement made and we will hear some of that
today.
Another common concern from recent retirees is poor
customer service. I understand that OPM's new strategic plan
addresses this. I look forward to hearing more about how the
plan creates more efficient retirement processes and increases
the effectiveness of its customer service.
In this era of financial constraints, every effort must be
made to safeguard our tax dollars. I am troubled by the
improper payment recommendations from the Inspector General
(IG) that date back to 2005. They highlight inadequate internal
controls to detect and prevent waste. This has resulted in some
$600 million being paid to deceased annuitants over the past 5
years. While these large improper payments are unacceptable,
they are well under one percent of the agency's total annuity
payments.
OPM has also made progress on implementing the Inspector
General's recommendations; it reduced the number of improper
payments made in the last year, and recovered most of the
payments. However, OPM must do even more to prevent this sort
of waste from happening, and I am sure we will hear some of
those improvements.
I appreciate our witnesses' dedication to improving the
Federal retirement system, particularly Director Berry, whose
willingness to be held accountable and his resolve to reform
broken processes are encouraging. I look forward to hearing
from him and our other witnesses as we try to find solutions to
these important issues.
I am pleased that the Subcommittee's Ranking Member,
Senator Ron Johnson, is here today and I am going to call on
him for his opening statement. Senator Johnson.
OPENING STATEMENT OF SENATOR JOHNSON
Senator Johnson. Thanks, Mr. Chairman and aloha. That is
always fun to say.
Senator Akaka. Aloha.
Senator Johnson. I would like to thank the witnesses for
coming on this beautiful, almost Hawaiian-like weather day
here. I am looking forward to your testimony.
Mr. Chairman, I think you have stated the case pretty well
so I do not think I need to repeat too much, other than just to
basically say what I am going to be interested in hearing is
what we can do to improve the system, obviously. I do not quite
understand what is so difficult about computerizing the system,
so we are going to want to get into that.
And I will certainly want to question why we would want to
put on additional individuals. Just as I do the math, if you
take a look at the number of people that are basically
retiring, divide it by the number of people, my calculations
come up with about three applications, or about three per day
per individual, which does not seem like a particularly onerous
workload, and so I am going to want to find out what is so
complex about determining eligibility in these cases.
Mr. Chairman, as you mentioned, $600 million paid to
deceased individuals over the last 5 years, we are certainly
going to want to explore how that can happen, and probably even
more important, how can we prevent it in the future.
I know you said that this is not necessarily going to be
about the level of pay and benefits, but there have been a
couple of studies released just recently talking about the
level of Federal pay in relationship to the private sector and
I think that is something we may want to discuss a little bit,
as long as we have Mr. Berry here, because I think it is
extremely important in a period and time where we are running,
last year, $1.3 trillion a year deficits, this year projected
over a trillion dollars. I think we are all in agreement, we do
not want to underpay individual who work for the Federal
Government or any public sector employee, but we simply cannot
afford to overpay them. So I think we need to take a look at
that and those types of studies that benchmark Federal pay and
benefits with the private sector are, I think, just extremely
important and, I think, valid, because after all, it is the
taxpayers that do pay the taxes to pay the salaries. I think it
is just something that is very important.
Again, with that, I want to again thank the witnesses and
look forward to your testimony.
Senator Akaka. Thank you very much, Senator Johnson.
I am pleased to welcome Senator Mark Warner as a guest of
the Subcommittee. Although Senator Warner is not a Member of
the Subcommittee, he represents a large number of Federal
workers and has been engaged on these issues. Senator Warner,
will you please begin with your statement.
OPENING STATEMENT OF SENATOR WARNER
Senator Warner. Aloha, Mr. Chairman----
Senator Akaka. Aloha.
Senator Warner [continuing]. And let me thank you and
Ranking Member Johnson for the courtesy to let me sit up here
and, again, be part of this very important hearing. I just want
to take a couple minutes because I do want to get to the
witnesses.
But as you mentioned, I have 140,000 retirees in Virginia
and we have some pretty upset folks. We have members from my
staff here who receive the calls of frustrated retired Federal
workers on a daily basis. Mr. Chairman, I wish the returns were
just--the delay were only 12 months. Literally, just today, we
worked on a case where a Federal retiree had waited 17 months
to get their retirement benefits. Now, next month, she is going
to get $50,000, but she has had to wait 17 months to get those
benefits that were due to her.
It is not just Virginia. We actually had somebody, a
Colorado retiree who was getting 50 percent of her benefits. I
wish that the retirees who were waiting this extended period of
time were getting 80 percent. We are finding many getting zero
or 50 percent. This woman was getting 50 percent for 12 months.
She finally got so frustrated with the bureaucracy, got in her
car and drove here demanding answers. Now, that is just not the
level of customer service, government service. It accentuates
all of the kind of worst images of Federal Government
performance.
I have a series. I am going to skip a couple of my charts
because they are going to infringe on the Chair, but Mr. Berry,
I have read your plan and I know this is not a new problem. OPM
has been grappling with this issue since 1987. And I think the
Chairman pointed out some of the earlier efforts to try to
upgrade, and I share Senator Johnson's concern of why we cannot
seem to get the IT on this right. But, candidly, if your plan
is that it is going to take 18 months to get the wait time down
to 60 days, I just do not think that is acceptable, not just
for my retirees, but it should not be the level of service we
expect from our government.
So I hope that we will see a priority for those who have
been on the backlog the longest, kind of get their cases
resolved first. I do believe--the Chairman mentioned the OPM
Web site says it takes 18 weeks to resolve a case. We have
seen, and I will get into this in questions, other areas of
government where there have been wait times where there have
been SWAT teams put in and at least you can get some kind of
ability to check on the status of your processing.
And echoing what Senator Johnson said, it seems like OPM's
processes are very outdated with paper, and I concur with
Senator Johnson that it is three to four applications a day.
Well, the Navy does 6 to 7 a day. I hope we will get some
explanation of why the Navy--and again, you have bigger
numbers.
And also, having met with our friends from the National
Active and Retired Federal Employees (NARFE) and others, I know
that part of the challenge is going to be how you get the
materials from all the other agencies and how we hold a hammer
to all those other agencies on reporting the data to you, and
we have some ideas on that.
And finally, because I cannot pass up without at least one
chart, OPM's Fiscal Year 2011 Retirement Services' budget was
over $91 billion and they processed 80,356 claims. So just
doing basic math, that shows the average cost to process each
claim was $1,134.38. Now, as a former Governor, I thought,
well, let me check someplace else. So I called our retirement
system. And let me acknowledge, the Virginia Retirement System
(VRS), is much smaller than the Federal level, but they do have
600,000 beneficiaries. They pay out $3.2 billion a year. VRS
says it costs, on an average, $115 to process each retirement
claim and VRS processes initial payments in 37 days.
So whether it is the Navy or whether it is some of our
State systems, Mr. Chairman, I really appreciate you holding
this hearing, because this is not the level of service or the
level of cost structure that I think our Federal retirees
deserve, and candidly, as Senator Johnson mentioned, the
taxpayers deserve. So thank you for including me this morning,
Mr. Chairman.
Senator Akaka. Thank you very much, Senator Warner.
Now, I would like to welcome our first panel of witnesses
to the Subcommittee. The Honorable John Berry is the Director
of the Office of Personnel Management. The Honorable Patrick
McFarland is the Inspector General of the Office of Personnel
Management. And Ms. Valerie Melvin is the Director of
Information Management and Technology Resource Issues at the
U.S. Government Accountability Office.
It is the custom of the Subcommittee to swear in all
witnesses at this time and I ask you to please stand and raise
your right hand. Do you swear that the testimony you are about
to give before the Subcommittee is the truth, the whole truth,
and nothing but the truth, so help you, God?
Mr. Berry. I do.
Mr. McFarland. I do.
Ms. Melvin. I do.
Senator Akaka. Thank you. Let the record note that the
witnesses answered in the affirmative.
Mr. Berry, will you please proceed with your statement.
TESTIMONY OF HON. JOHN BERRY,\1\ DIRECTOR, U.S. OFFICE OF
PERSONNEL MANAGEMENT
Mr. Berry. Chairman Akaka and Ranking Member Johnson and
Senator Warner, thank you for the opportunity to be here with
you today.
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\1\ The prepared statement of Mr. Berry appears in the appendix on
page 41.
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I share your frustration. The current delays in our
retirement processing are unacceptable. Eliminating the current
backlog is my highest priority for 2012. It is the agency's
goal to eliminate this backlog within 18 months from January,
as we issued the new strategic plan, and provide retirees with
their full annuity payments within 60 days of their retirement
by July 2013 in all but the most complex of cases. We are going
to do everything in our power to do this faster and put
everything on it we can to move that needle further, but I also
do not want to mislead this Subcommittee as to the challenge
before us.
To accomplish this, we have developed a strategic plan
which relies on four central pillars: People, productivity and
process improvement, partnering with agencies, and partial
progressive information technology improvements. It may be too
early to tell, but I believe that our efforts are starting to
bear fruit. Between the staffing changes, process improvements,
a greater sense of urgency, and some of the other reforms I
will discuss, we processed nearly 20 percent more cases this
January than we did last January.
Every January, we receive our largest number of incoming
retirement cases, and as expected in the plan, with the
addition of 21,000 new cases last month, the current backlog
now stands at 62,000 cases. To ensure transparency and focus,
we will be reporting this number, our total backlog, to both
you and the House Committees on a monthly basis on the fifth
day of every month, in other words, giving us that so that we
can accurately report those numbers to you. We will also be
using them as our benchmark to drive reforms with our people.
Let me talk about our people. Our Retirement Processing
Division has been understaffed. Historically, what happened was
after four failed attempts at IT modernization, just before I
arrived, the budget was adjusted and positions were left vacant
or reduced under the presumption that a retirement automated
system would be online to handle the process. So what OPM did 4
years ago was to draw down their staff, unacceptably, without
ensuring that the IT solution was in place. What has happened,
obviously, since, is with that lower staff, frozen budgets, we
have not been able to rebuild to provide for the staffing of
this that I would like.
What we have put in place is through efficiencies and tight
management within our budget, we have recognized we have just
got to get the people back to where we were. Last year, we put
40 more legal administrative specialists on this case. I have
readjusted our budget this year and will be adding another 40
along with another 20 customer service representatives. Taken
together, with last year and this year, this will put us back
where we were 4 years ago. I should say, of those 56 new hires,
all have been selected. Thirty have been hired and are already
beginning their training.
To improve the retirement process, the U.S. Navy Lean/Six-
Sigma Team from Crane, Indiana, the Naval Surface Warfare
Center (NSWC), has been with us, three visits to our retirement
operation, and they have given us wonderful advice and
recommendations. We are already beginning to implement those
recommendations.
And, as I mentioned, the transparency of reporting on a
benchmark, not only to our employees and our managers, but to
the public and to the Congress on a monthly basis, will make
sure our feet are held to the fire.
Along with our internal efforts, the agency is also working
in partnership with the Chief Human Capital Officers Council
(CHCO), and all of our agency partners, like the Postal
Service, who submit records to us for processing. Many of those
records come in now in an incomplete status, and one of our
longest lag times is assembling the paperwork so that we can
accurately adjudicate the case.
As we are going to discuss, we want to avoid improper
payments, as well, and so we have to be careful to have a
complete file before we can make that final adjudication. But
we are working on improving that.
And I am happy to say, I just met this week with the
Postmaster General and they have agreed, along with the
Department of Defense (DOD), to pilot an initiative with us
where they can automate and send us complete cases. If they can
do that, that is going to be of phenomenal assistance.
Additionally, the plan recognizes that further automation
is absolutely vital to our success. We are exploring both
short-term, medium-term, and long-term solutions that will
learn from the past mistakes that our agency has endured on
this issue. But we have a great Chief Information Officer
(CIO). Underneath him, we have hired a new Chief Technology
Officer (CTO). He comes to us, David Bowen, from the Federal
Aviation Administration (FAA). He is going to be leading our
coordinating effort on this to ensure that we can deliver
small, bite-size automated efforts that will significantly
increase our processing ability and capabilities and accuracy--
the time and the accuracy--and do it in a smart, fast way. We
will be looking to the private sector to join with us. We will
be looking to some of our own employees. But obviously, we need
to do as much as we can as fast as we can in this area.
We are also going to increase the interim payments, and to
the maximum extent possible under the law and come as close to
the line, recognizing we have to be very careful not to go over
that line where we might have improper payments. But we are
going to do everything we can to maximize interim payments for
people who are stuck until we can get this backlog behind us.
Finally, there has been some publicity regarding the
Inspector General's Office report on dealing with payments made
to annuitants who are now deceased. OPM regards any overpayment
as unacceptable. But as noted by the Inspector General, I am
proud that our improper payment rate is extraordinarily low. It
is less than two-tenths of one percent. Now, we have
implemented 10 of the 14 recommendations by the Inspector
General. I have promised Patrick that we will quickly implement
the remaining four.
But also, this is such an important issue, and we do not
want to lose sight of this, because it is incredibly critical
that we not fall into improper payments because we are dealing
with large amounts of money. So even a small percentage is an
unacceptable amount. I have agreed to work with Patrick, and
over the next 6 weeks we will introduce an amendment to this
strategic plan, an additional strategic plan that is going to
show how both of us together are going to fix improper payments
until we can get it down to zero. So we are not just going to
rest on completing the past 14 recommendations. We are going to
have a plan going forward that we will develop together that we
can give to you within 6 weeks that will, again, hold our feet
to the fire on resolving improper payments going forward.
Last, I would like to point out that of the $600 million of
the improper payments that was reported in the IG report, over
$500 million of it has already been recovered through our
efforts working hand-in-glove with the Inspector General. Now,
we are not going to rest until the remaining $100 million is in
hand, but again, that is--we are going to continue to keep
focus, energy, and attention on this until this problem is
licked.
With that, I thank you very much for the opportunity to
testify and be with you today and look forward to your
questions.
Senator Akaka. Thank you very much, Director Berry.
Mr. McFarland, will you please proceed with your statement.
TESTIMONY OF PATRICK E. MCFARLAND,\1\ INSPECTOR GENERAL, U.S.
OFFICE OF PERSONNEL MANAGEMENT
Mr. McFarland. Good afternoon, Chairman Akaka, Ranking
Member Johnson, Senator Warner, and Members of the
Subcommittee. My name is Patrick McFarland. I am the Inspector
General of the Office of Personnel Management. Thank you for
inviting me to testify at today's hearing about OPM's
processing of retirement payments.
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\1\ The prepared statement of Mr. McFarland appears in the appendix
on page 45.
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Today, I will touch on two tasks performed by OPM's
Retirement Services Office: The processing of retirement claims
and the identification and prevention of improper payments to
deceased annuitants.
Earlier this month, OPM unveiled a new strategic plan to
address the current backlog in processing retirement claims.
This plan is a big step in the right direction. Based upon our
initial review of the strategic plan, we asked OPM about
various details not presented in the plan as of yet. For
example, we would like to see interim milestones that would
allow OPM to track its progress toward eliminating the backlog
in 18 months. Furthermore, we want to be sure there is a
commitment to revisit the plan periodically to make
modifications as necessary.
We also have concerns regarding the scaling back of the
accuracy review process. This will obviously result in a higher
risk of error in the processing of retirement claims. We would
like to see how OPM plans to address the higher degree of risk
for improperly paying annuities.
While I am pleased that OPM is aggressively addressing the
retirement claims backlog, I would like to reemphasize my
concerns regarding OPM's pattern of making improper payments to
deceased annuitants, requiring the expenditure of significant
resources to recover these monies. Resources would be better
spent identifying and, more importantly, preventing improper
payments from being made. The identification and removal of
even a handful of deceased annuitants from the annuity roles
will more than pay for the time and expense incurred by OPM in
any prevention efforts.
We have been working closely with OPM on this issue for
over 6 years, and while improvements have certainly been
achieved, systemic problems remain. As Director Berry agrees,
improper payments to deceased annuitants can be remedied only
by a comprehensive reform effort. To this end, he has committed
to developing a strategic plan to address this problem, similar
to the one OPM has just issued regarding the retirement claims
backlog.
I would like to briefly update you using information
provided to us by OPM on the agency's progress in implementing
some of the recommendations contained in our most recent
report, issued in September 2011. First, OPM continues to
conduct an annual computer match between the OPM retirement
annuity roles and the Social Security Death Master File.
Performing this match allows OPM to identify deaths that were
not included in the weekly file of deaths reported by the
Social Security Administration (SSA). In 2009 and 2010 alone,
these annual matches identified over 1,000 deaths that were
previously unknown to OPM. The agency is currently conducting
its third consecutive annual match and it is approximately 85
percent complete.
Second, OPM is analyzing IRS Forms 1099-R mailed to
annuitants that were returned to the agency as undeliverable.
These are important documents that annuitants need to file for
their annual tax returns. OPM is currently reviewing the
undeliverable Forms 1099-R mailed out in January 2010. To our
knowledge, OPM has only reviewed a small percentage of the
33,000 returned forms. Moreover, the agency has not begun
reviewing the undeliverable forms mailed in January 2011 and
will soon begin receiving undeliverable forms mailed in January
2012. This severe backlog requires immediate attention and OPM
must develop a coordinated strategy to address it.
Third, OPM should develop a permanent working group of
retirement program subject matter experts to focus on improving
the retirement program's integrity. Those who wish to defraud
the government will continue to develop new ways to do so.
Therefore, OPM must also constantly seek to improve and adapt
to this increasingly automated world. Having a permanent
working group dedicated to the identification and prevention of
improper payments is necessary to protecting the integrity of
the retirement trust funds.
As OPM moves forward to address these concerns through the
development of a comprehensive strategic plan, we believe that
the Improper Payments Elimination and Recovery Act of 2010
(IPERA) would provide OPM with useful guidance. Among other
things, IPERA requires agencies to conduct risk assessments,
publish corrective plans, and publish and meet annual reduction
targets. IPERA should act as a guidepost for OPM's new
strategic plan.
In closing, as OPM tackles the retirement claims processing
backlog, I believe that it must also develop a plan to address
the egregious long-term improper payments with which the agency
currently struggles. Over the past 6 years, we have watched as
the agency has adopted new measures to combat improper
payments. However, these measures were not consistently pursued
and the efforts eventually stalled.
Despite this, I am confident that Director Berry's
enthusiastic commitment to eliminating egregious long-term
improper payments will result in an effective and sustainable
identification and prevention policy.
Thank you for inviting me.
Senator Akaka. Thank you very much for your statement, Mr.
McFarland.
Ms. Melvin, will you please proceed with your statement.
TESTIMONY OF VALERIE C. MELVIN,\1\ DIRECTOR OF INFORMATION
MANAGEMENT AND TECHNOLOGY RESOURCES ISSUES, U.S. GOVERNMENT
ACCOUNTABILITY OFFICE
Ms. Melvin. Good afternoon, Mr. Chairman, Ranking Member
Johnson, Senator Warner, and Members of the Subcommittee. Thank
you for inviting me to testify at today's hearing on OPM's
efforts to manage the system that is crucial to the processing
of Federal employee retirement benefits.
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\1\ The prepared statement of Ms. Melvin appears in the appendix on
page 54.
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The use of information technology is integral to carrying
out this important responsibility, and for over two decades,
the agency attempted to modernize the retirement process by
automating paper-based processes and replacing its antiquated
information systems. However, as you are aware, its efforts
were largely unsuccessful. Reports that we issued in 2005,
2008, and 2009 on the agency's efforts toward planning and
implementing a modernized system highlighted a long history of
undertaking projects that did not yield the intended outcomes.
At your request, my testimony today summarizes our findings on
these efforts and the challenges OPM has faced in managing
them.
Overall, our studies found that OPM was hindered by
weaknesses in a number of important management disciplines that
are essential to successful IT modernizations. These includes
project management, risk management, and organizational change
management. For example, in reporting on the agency's efforts
in 2005, we noted that while it had defined major retirement
modernization system components, OPM had not identified the
deficiencies among them, thus increasing the risks that delays
in one project activity could hinder progress in others.
OPM also did not have a process for identifying and
tracking project risk and mitigation strategies on a regular
basis and it did not have a plan that would help users
transition to different job responsibilities after deployment
of a new system. These deficiencies existed over numerous years
in which OPM planned, analyzed, and redirected the program, but
without delivering the modernized capabilities.
In 2008, as the agency was on the verge of deploying a
system, we raised other management concerns and offered
recommendations for improvement. Specifically, test results one
month prior to deploying a major system component showed that
it had not performed as intended. Also, defects and a
compressed testing schedule increased the risks that the
deployed system would not work as planned. Further, the cost
estimate that OPM had developed was not supported by
documentation needed to establish its reliability. And finally,
the baseline against which OPM was measuring program progress
did not reflect the full scope of the project, meaning that
variances from planned performance would not be identified.
OPM nonetheless deployed a limited version of the
modernized system in February 2008. However, the system did not
work as expected and the agency suspended the system's
operation and began restructuring the modernization program.
In April 2009, we again reported on the initiative, noting
that the agency still remained far from achieving the
capabilities it had envisioned. Significant weaknesses
continued to exist in the previously identified areas and we
noted additional weaknesses, as well. Specifically, OPM lacked
a plan describing how the program would proceed after
terminating the earlier systems contract and it lacked a fully
functioning oversight body to monitor its modernization
projects.
OPM agreed with all of our recommendations and took steps
toward addressing them. Ultimately, however, it terminated the
Retirement Modernization Program in February 2011. The agency
subsequently stated that it did not plan to undertake another
large-scale modernization effort, as Director Berry has alluded
to.
In mid-January, OPM released a new plan describing its
intention to improve retirement processing through targeted
incremental actions, such as hiring new staff and working with
agencies to improve data quality. The plan also identifies
intended IT improvements to automate the retirement application
process. However, it does not address how the agency intends to
modify the many legacy systems that currently support the
retirement process.
Moreover, even as it implements this plan, it is essential
that OPM fully address the deficiencies and institutionalize
the IT management capabilities highlighted in our studies.
Without doing so, the agency will not be effectively positioned
to ensure the success of any future retirement modernization
projects that it pursues.
This concludes a summary of my statement and I look forward
to responding to your questions.
Senator Akaka. Thank you very much, Ms. Melvin, for your
statement.
Director Berry, you testified that Retirement Services
staff was reduced significantly through attrition and
anticipation of an automated system that never materialized.
Please explain the impact this had on the agency's ability to
keep pace with retirement claims as well as why you believe it
is necessary to rebuild Retirement Services' staff.
Mr. Berry. Mr. Chairman, I think as you have heard, and let
me just say, I agree with all of the points that GAO has made
as well as our Inspector General, so there is no disagreement
in terms of my viewpoint and their testimony.
When we talk about some of the legacy systems that GAO
mentioned, some of the pieces that we are dealing with in terms
of automation still use COBOL, to give you a sense of what we
are trying to manage, improve, and enhance. I have challenged
our people saying, look, we have just got to take those systems
and calculators that are critical to the functioning of this
system and get them brought into the 21st century. And so that
is one of the things that Dave Bowen and our CIO and our CTO
are going to be dramatically working on, and I can promise you
they are going to be applying the lessons the GAO has flagged
for us in terms of having the oversight and the central quality
control through the CIO's shop and operation to guarantee that
we do not repeat the mistakes and the four failed IT attempts
of the past.
But, Mr. Chairman, also, right now, I have to be honest
with you. Not all of the data that comes to us from all of the
agencies across the Federal Government comes to us in an
automated form. We are still managing thousands of pieces--
millions of pieces of paper on an annual basis. Some
information is automated and we are working hard to try to get
to a place where all of the incoming information will be
automated. But we are still in a paper and pencil world without
the IT solution to address what is a real increase in
retirements and backlogs.
Our Postal Service draw-down has increased the demand. The
buyouts of agencies, and as agencies tighten their belts, we
know we are going to have increases in retirements coming in.
This January alone was higher than last January, so we are
starting to see some of that.
I do not have the IT solution to address it, and so for at
least the time being, and this is one, Mr. Johnson, I would
agree with you, the preference would be if we could grab an
automated IT solution. But for the short-term, one does not
exist. And so I have increasing numbers and less people. I just
need to get the bodies back, get them trained to get us through
the next few years until we can get more IT solutions up and
running that will be accurate and improve the service to handle
the volume loads.
I would agree with both your opening statements, that we
have to be smarter in how we do IT so that we do not have to
look for this forever. But for the foreseeable future, we are
dealing with a paper and pencil process and that is why I am
hiring more people and doing it within a frozen budget.
Senator Akaka. Thank you, Mr. Berry.
Mr. McFarland, you testified that you believe OPM is on the
right track with hiring additional retirement staff. Please
elaborate on why you believe additional staff is necessary to
make progress on the claims backlog and improper payments.
Mr. McFarland. Mr. Chairman, I think, without question,
that the planned hiring of these specific people for these jobs
is absolutely necessary. I think that for OPM at this point,
after so many years, to have to acknowledge that there are so
many claims in arrears is just--it is just a sad situation when
that has to happen. And so I know that, without any hesitation,
that when this new plan that the Director has talked about is
put into effect, it should make all the difference in the
world. But it will only make all the difference in the world if
the leadership maintains it at a level that requires everyday
discussions. It cannot be something that just ends up hanging
on a wall: ``This is our vision and this is our mission.'' And
I do not anticipate that this will happen at all. But I think
it is very necessary to hire these people to try and catch up
with the problem at hand.
Senator Akaka. Thank you very much.
Mr. Berry. Mr. Chairman.
Senator Akaka. Yes, Director Berry.
Mr. Berry. Could I just add to that, with your indulgence,
if I could, and I agree with Patrick. To ensure that we keep
focus on this, not only will I be involved, but I have created
three key leaders to watch this on a daily basis. I have a
Chief Operating Officer who is a career senior executive in our
organization that I have created and he is going to be leading
this effort with my Deputy Chief of Staff, who is a political
appointee but is one of the sharpest young men I have ever
worked with, and my Associate Director, who is sitting directly
behind me, is Ken Zawodny, and he is my new leader on this.
He is the director in charge of my retirement operation. I
brought him from my Investigative Services Unit after we
brought in new leadership and then they were stolen away from
me. We now have a leader who, I believe, is going to really
move the needle. And on Investigative Services, you will
remember, Mr. Chairman and Mr. Johnson, from the hearing where
we were removed from the GAO High-Risk List for processing
background investigations and meeting the 40-day standard that
was set under the law ahead of schedule and on budget. Ken was
part of the team that helped us to meet that success. And so
when I looked for who to put in charge of this who could lead
this as a career day-to-day leader, I grabbed Ken from the
Federal Investigative Services Division (FISD) and brought him
over to help us in this effort.
So we do have the Chief Operating Officer, my Deputy Chief
of Staff, and Ken on a day-to-day basis, and then I am watching
this, like I say, as my highest priority. So I just want to
give you that organizational sense of how we are dogging this.
Senator Akaka. Thank you. Mr. McFarland.
Mr. McFarland. Mr. Chairman, if I might, I would like to
mention just a couple of things that might add a little more
clarification to the effort at hand.
I have recently become an ardent reader of Ms. Melvin's
work regarding OPM. I have read GAO's work over a few times,
and I would say, without question, they have done a terrific
job of identifying the problems. If their work is not used as a
guidepost, that would be a real mistake in my estimation.
But let me just point out something--not to make an excuse
for OPM because that is not what my job is about, to make
excuses--but I do want it to be a level playing field for all
to understand. In fact, Ms. Melvin mentioned this in a previous
testimony, talking about the processing of a claim--in order to
process a claim, OPM must determine eligibility, calculate the
annuity, and provide customer service. Now, there are many
other things involved, of course, but on the surface, that
sounds like a pretty easy fix.
But in order to do this, the Retirement Services Division
has to comply with over 500 different procedures, laws, and
regulations. They use over 80 different information systems
that interface with approximately 400 other internal and
external systems. They work with antiquated equipment that have
about three million lines of custom programming. Now, up until
a few hours ago, I did not know what custom programming was,
but three million lines means three million lines of code. This
means that the retirement IT systems are very carefully and
specifically customized to the government's needs. It also
means that it is very hard to fix something because you have to
locate the one line of code out of those three million lines.
And I know Ms. Melvin could speak more to the technical
aspects, but what I would like to add to this, if I may, as OPM
continues to refine its reforms to the retirement claims
processing procedures, OPM must take specific steps to ensure
that this processing system will last far into the future. This
is very similar to the steps that must be taken when developing
any new IT system or project.
The first step is investment management--simply ensuring
that adequate funding is available throughout the project.
Next, requirements management--documenting and maintaining
all business processes requirements--basically, the rules of
the system.
Third, testing--ensuring that all of the requirements have
been properly tested.
Fourth, project oversight--establishing executive
sponsorship through an executive steering committee, such as
the Office of Inspector General (OIG), GAO or the Office of
Management and Budget (OMB).
Fifth, risk management--identifying, tracking, and
mitigating risks to the project throughout the life cycle.
And, finally, information security. The system's security
has to be planned at the beginning of the process to ensure
that it is included at all stages of the development process,
all the way to the end of the work.
So I just mention this so that there is a better
understanding of what OPM must do. There are an awful lot of
people doing Retirement Services work, something like close to
800 people in that division, and about 290 in the actual part
that do the processing. But that is a lot of people. This is a
complicated situation. But I do think that it can be overcome
and it will not be that long before this overage is canceled
out.
Senator Akaka. Thank you both very much for your responses.
Let me call on Senator Johnson for his questions.
Senator Johnson. Thank you, Mr. Chairman.
Director Berry, while I have you here, before I hop into
the computer system, we may be bringing up the Postal bill here
in the next couple weeks. In Section 102 of that bill, there is
a provision that would provide service years of credit for
Postal employees, phantom average salaries. We did request from
OPM some information in terms of what that would cost, and
there were actually ranges. It was intended to be capped at
$25,000, but your agency provided us information in an e-mail
that showed that those awards could be as high as $280,000 per
employee.
We also got an e-mail from your agency stating your
opposition to granting those types of phantom average salary
credits in any kind of a retirement buyout. I just kind of want
to get you on the record. That is your position? It would be a
very bad precedent being set is, I think, what your agency
thought?
Mr. Berry. Yes, sir. And I have not been fully briefed in
great detail on the issue, but my staff tells me that it is our
policy and we are in agreement with you on the phantom
payments.
Senator Johnson. OK. Well, I appreciate that. Let us delve
into computer systems. Mr. McFarland, you are quoting in terms
of the number of systems involved. I used to actually program
FORTRAN. I used the card decks. It is somewhat jaw dropping
that the Federal Government is that antiquated. Is the
retirement system of the Federal Government that vastly
different than private sector retirement plans, that in some
way, shape, or form, we cannot modify computer systems used in
the private sector to handle the Federal Government, as well? I
mean, is it just that different? Or maybe that would be for Ms.
Melvin.
Ms. Melvin. We have not looked at the retirement system
relative to what the private sector has done, but what I would
say is that the types of concerns that we saw overall relative
to managing the Retirement Modernization Initiative are the
types of concerns that are prevalent at many other agencies,
but they can be overcome if the essential management
capabilities are in place.
From the standpoint of the technology itself, certainly,
there are complications when you are dealing with very old code
and you are dealing with many systems and the hundreds of
interfaces that are involved with OPM's systems. Across the 20-
plus years, I do not believe that it would be impossible for
them to overcome that and develop a system.
However, as has been alluded to in my statement as well as
in the statements of the others, the deficit in the IT
management capability is very extreme at OPM, at least from
what we saw through our work. The types of recommendations that
we made are recommendations that collectively need to be
addressed in an institutionalized way at the agency, I think it
is very commendable that Director Berry has taken ownership of
the problem and has recognized the severity of it. I think it
is also important that he talk to the need to involve others, a
Chief Technology Officer, for example. Those types of figures
are going to play a critical role from a leadership perspective
to try to help get a culture in place at OPM where they can
start to, first of all, assess their capabilities and try to
move forward in understanding what their needs are, developing
a clear vision of what that is, and then working toward that
through a defined and concrete plan of action that would take
them there.
Senator Johnson. Yes, Director Berry. Go ahead.
Mr. Berry. Senator, if I could, you would think with having
basically two core systems, the Civil Service Retirement System
(CSRS), which was the old Civil Service retirement, a defined
benefit, pretty straightforward calculation, now about 15
percent of our workforce is under that. We walked away from
that back in 1984 and reformed it and created the new Federal
Employment Retirement System, which sort of has a three-legged
stool approach to it--Social Security, a Thrift Savings Plan,
and a much smaller defined benefit portion. Those are the two
core lanes, if you will, that we have to operate in.
When the private sector--the last automation attempt came
in, they had an off-the-shelf system that they thought, well,
this was similar to the lanes that they were operating in. But
what they encountered when they came in--the Inspector General
mentioned 500 rules and modifications in law and regulation
over the years that have accumulated, things like a different
law enforcement officer pay calculation, a different
firefighter calculation, an air traffic controller calculation,
part-time service calculations, different doctor/dentist/
surgeon calculations. You could go on and on and on with those
lists of what those 500 calculations are.
And what they found was they could not modify the off-the-
shelf system to accommodate all of these unique variables that
exist in the Federal process. And so that is why in looking at
the learned experience from that most recent--they took that
behind the barn and shot it just before I walked in the door.
So lessons learned. I read that file the first month on the job
and said, we are not repeating this. We are not going to try to
automate the whole thing. It is just too complicated.
And so that is what motivated my system to look at my
approach of this, pieces that make sense that we can control.
There will be private sector solutions to a lot of these pieces
and we will be able to bring them on a lot faster with a more
easy application of GAO's principles than we will if we try to
do it all at once.
Senator Johnson. Was it ever considered, taking these off-
the-shelf systems and putting them down at the agency level so
you would have fewer of those variables?
Mr. Berry. The problem, Senator, is that--and this is one
of the reasons we have problems sometimes in getting a complete
file to just make the adjudication--once we have a complete
file, it is ours to process it and it is not days or weeks. It
is getting that file complete.
And so what each agency would then face if you devolved it
to each agency is most Federal employees are moving around
during the course of their career. They have military service.
They have National Guard service. They might have worked for
the Postal Service. They might have part-time service. And they
will have it with multiple agencies. And there is not--all of
the paperwork for that service lies with those original
agencies, it does not build a file that follows the employee as
they go unless if they are--Federal employees who are savvy do.
They maintain their file. And for those, we are able to rebuild
a file very quickly or make sure it is complete.
But otherwise, we need to go back and, before we can
adjudicate it, make sure we can verify that service. And
sometimes people's memories will be foggy the farther back you
go and they will think that was full-time service when in
reality it was part-time service, and the credit is different
and we have to verify that before making that determination.
Senator Johnson. I am beginning to understand your
quandary. [Laughter.]
Senator Akaka. Thank you very much, Senator Johnson.
Let me call on Senator Warner for questions.
Senator Warner. Thank you, Mr. Chairman, and I appreciate
your responses.
I guess I want to kind of pick up where Senator Johnson
left off, and let me thank you for your willingness that you
will report back to this Subcommittee and to all of us on a
monthly basis what the wait period is. I would simply question
whether at this point that you cannot finalize your
calculations until you get the data from all the corresponding
agencies. I have a chart\1\ here, I believe, that shows 2011,
June 10, 2011, that shows that the error rate at the Department
of State is 50 percent, EPA is in the 40s, the Judiciary is at
33, the Library of Congress is in the mid-30s. I think the
Federal Government average is about 20 percent. Can we get that
monthly report of the error rate from all of these various
departments who are reporting in to you?
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\1\ The chart referenced by Senator Warner appears in the appendix
on page 103.
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Mr. Berry. Senator, what I can tell you is what we are
trying to do, right now, those error rates are just an annual
snapshot, and what we do is we take it when it is at the
slowest part of the year in terms of when we are getting the
fewest cases in so that I can take people off. Right now, I
have had an ``all hands on deck'' mentality of if you can
handle cases or help in the processing of cases or field calls
so that you can free up time for adjudicators to handle cases,
I have everybody focused on cases.
And so what I have challenged my people to do, and the
Chief Human Capital Officers Council, has volunteered to help
us on this. This has not been one where--they know they are
part of the problem and so they have promised to help us. We
are going to try to figure--one of the Navy Six-Sigma reforms
was to build a processing team that will prioritize and sort of
triage your cases as they come in and to immediately identify
right there if the file is not complete and identify where that
is from so that we can then develop a monthly report on it.
Senator Warner. Well, one of the things--the reason why I
asked----
Mr. Berry. So we want to do that. Our goal is to do that.
Well, that is one of the reasons why I asked. I do not have it
now, so I do not want to promise you something that I cannot
commit until we get this--we are putting that in place now, and
as soon as I get it, I am happy to share it.
Senator Warner. Well, I guess what I would hope would be
that with your monthly report, and if we had a report on the
error rate from each of the departments, we might ask our
friends in the media to publish that on a monthly basis, as
well. We do have a lot of Federal employees here. My
understanding is there was a similar effort made when there was
a backlog in the early 1990s, that this helped generate some
internal pressure to get folks just hired.
Because one of the things that you may need to come back to
us with is something that says, if you have continual laggards
in parts of the government getting you these materials, well,
at the end of the day, it is your responsibility but you have
to have some ability to have a hammer on these agencies and
departments that are not getting you the data in a timely
manner.
Mr. Berry. I appreciate that, Senator, and we agree. It has
to be--it is one of the four pillars----
Senator Warner. All right. So you are going to get us
monthly reports in terms of your lag time right now. When do
you think, working with your CHCO group, you can get us error
rates for each of the agencies? Do you think within 90 days?
Mr. Berry. If we could get you back for the record on that,
because what I have asked is once the Navy Six-Sigma process,
once we get that team up and we can see----
Senator Warner. It would seem to me that within 90 days, we
ought to be able----
Mr. Berry. Yes, I would hope that, sir----
Senator Warner. Now, can we move again to the next item.
The one concern I had in reviewing your plan is that, and if
Senator Johnson and my calculations are wrong, please correct
me for the record, but if OPM is processing about three to four
cases a day, others seem to be doing--we have some data that
shows double that, if you are at a cost basis at about $1,100
to process, Virginia is at $137--a simpler system, I would be
the first to grant, but there are people that move around State
systems, as well--in your goal beyond simply running this
timeline down so the backlog is taken care of, I would hope you
would have goals, as well, to look at what standards for
processing would be in equivalent organizations, State
Governments, elsewhere, other parts of the Federal Government,
and how you can drive that per claim processing cost down.
Mr. Berry. If I could, Senator, the correct comparison, in
other words, an apples-to-apples comparison, Virginia-to-us,
our per claims cost is $108. So we are in the ballpark where
Virginia is right now.
Now, the whole budget, in other words, does not go toward
claims processing. There are pieces of it, the court ordered
benefits section, the training components, we do not score that
toward that cost. And so when we have asked for legislative
help from you when agencies are having a significant buyout,
like the Postal Service, and you have been very helpful to us
in that regard, that they would reimburse to us the cost of
this so that we could make sure we could keep the staffing up,
that is the rate we would be charging them, is the $108 rate,
which would be comparable. So I think we are in the ballpark
there, but we will keep a close eye on it.
Senator Warner. I do not want to exceed my time. I will not
be invited back. Just two quick other points I want to raise,
and not being a member of the Subcommittee, this may have
already been provided to the Subcommittee, but we all know we
have this bulge of Federal workers who are in the realm of
retirement age----
Mr. Berry. Yes.
Senator Warner [continuing]. Over the next 5 to 8 years. We
talked about this when you first came in. Do you have
projections--I appreciate the focus, although, again, I would
not--18 months down to 60 days, an 18-month period to get to 60
days. I would love to see improvement there. But do you have
projections going forward over the next 5 years what your
staffing needs will be, and while I understand that the Retire
EZ system, $200 million, pretty much flushed down the toilet,
prior to your time, but did not work out.
I would hope that you would be able, not just this backlog,
but this is going to be an ongoing problem as we get through
the bulge in the snake of all these Federal employees
retiring--that you would have lined out some kind of 3-to 5-
year plan on how you would move an IT system in.
And my last point here on this would be perhaps the analogy
to private sector IT systems may not be accurate, but I have to
believe there may be certain State IT systems or even other
country IT systems that have some of the complexities the
Federal Government would have.
Mr. Berry. Senator, you are right on, and we will be--the
Chief Technology Officer and our Chief Information Officer,
they will be the ones that I have tasked to provide the
addendum to this--this strategic plan is going to be a living
document, and I think it is important that it does so that we
can do this.
To answer your first question, the strategic plan does
estimate what we would project for at least the next 2 years in
terms of retirements, and so far [knocks on wood] we are on
target. The 20,000 increase--I heard the gasps in the room--was
in the plan. So we projected that in the plan. What I hope is
that is the peak and from here down we will be able to, with
all of the efforts that we have been able to draw, that 20
percent increase in productivity, I have hired the people but
they have just started training. So none of those extra bodies
have actually been thrown at this yet to produce.
So the productivity improvements have just been through the
Six-Sigma and some of our own creativity from our unions and
working in partnership with them and our people on the front
line of, hey, this is a smarter way of doing it. And when
somebody has a good idea, as long as it increases the standard
I have used, if it makes it faster and maintains accuracy, go
for it.
Senator Warner. I am not trying to take extra time, but you
have a goal of getting productivity above three to four claims
a day?
Mr. Berry. Absolutely, sir.
Senator Warner. What is your goal?
Mr. Berry. Well, I do not want to--we were the first ones
to put in place a performance standard, and that performance
standard was just put in place last April, which is that one
that you talk about of three a day. The three a day, though it
sounds like it is not significant, you have to understand,
probably 30 percent of their time is now handling customer
service calls and another 30 percent in getting cases drawn
together.
I want to use our legal administrative specialists for case
adjudication. And so we are growing the customer specialists to
handle customer service and I am creating teams of other people
to make sure the files are complete so that now--that standard
was developed when only essentially 30, 40 percent of their
time was being used on actual case adjudication. As we are able
to peel those off and get those other elements stood up, we are
going to revisit those standards. They are within management's
rights.
And so as we feel it is fair to adjust and to move those
standards up, we will. But I want to make sure we--right now,
we have a wonderful partnership. Our employees get this. Our
union members are as embarrassed by this backlog and take it to
heart personally. They know we want to honor the service of
Federal employees and retirees. They are sick that people with
disability have to wait as long as they do. So they are driving
at this as hard as we are. This is not a case where I have
intransigent employees. They are working on this.
But just so you know we are taking this seriously, I have
over a dozen people on Performance Improvement Plans right now,
and if they do not shape up, we will be removing them. In other
words, we are going to dog this with those standards and we are
going to be lifting those standards and we are going to be
enforcing those standards. So that we can reach these targets.
But this plan lays out a pretty aggressive plan. I am going
to try to push it even faster, as you have said, because I
would love to get it done faster than 18 months. But I also do
not want to mislead the Subcommittee. Within a frozen budget
level, and I have probably moved about as much money and
tightened as I can in other places that I can do right now, so
I do not have a lot more to throw right now. So we have to do
it smart, as well.
Senator Warner. Thank you, Mr. Chairman. I appreciate your
courtesy.
Senator Akaka. Thank you, Senator Warner.
Director Berry, OPM has set an ambitious 18-month goal to
reduce processing time to an average of 60 days. The current
average stands at 156 days. Given the challenges we have heard
about today, please explain why you feel this goal is
attainable.
Mr. Berry. Well, I think within constrained budgets, and
keeping in mind for Fiscal Year 2012, the current budget right
now, just to give you a sense of our constraint, the
President's budget request was for $232 million for our agency
and we received, and I understand the deficit we are wrestling
with and we have to share our pain with everyone else, but we
were held at $211 million, which is a hard freeze from the year
before.
So you can see moving these resources, I have had a 20
percent increase in the past 2 years of what I have been able
to pull from other parts of my agency to put on retirement to
try to address this situation. So I take it very seriously, Mr.
Chairman, and will continue. Like I said, it is my highest
priority.
But I also do not want to mislead the Subcommittee. I do
not have a magic wand. This is hard work. This is paper and
pencil processing. The first IT task we have to do is just
replace those antiquated systems. If those systems fail right
now with the code that the IG mentioned it will blow a hole in
my strategic plan. I have to be honest. And so we have to get
those upgraded. We have to get them brought into the modern era
and the private sector is going to help us on that.
So that is going to be--all of these elements of this plan,
I believe, will address this, the four pillars, which are
getting more people, getting them trained as fast as we can,
and getting them on the front line.
The basic training, just to give you a sense of the
complexity of this, for someone to begin to process with a
mentor looking over their shoulders takes 3 months to get them
to that point. It is 6 months before they are doing it without
the mentor there and a year before they can really handle the
full panoply of cases. One of the things we have looked at is
could we just go out and hire a temporary contractor, short-
term help that could come in and help us. But many of the
contractors we have worked on who are familiar with our
situation and the complexity of it know that it is going to
take them about the same time to get the people trained and up
and running. So they cannot make that investment for an 18-
month period or a short-term period.
So people, technology, working with the agencies, and
getting IT fixes in place. Those four pillars, I think, Mr.
Chairman, are every angle of attack that we need to make on
this issue and we are going to go at all four of them equal
energy and see if we can move the needle. I think we can.
Senator Akaka. Thank you.
Ms. Melvin, you testified that OPM's strategic plan does
not address its dependence on legacy systems. What methods can
OPM use to evaluate its legacy systems and determine how they
should fit into its reform strategy?
Ms. Melvin. The approach that we would advocate would be
for OPM to step back and take a look overall at what its
current operating State is in terms of information technology
that supports its retirement processing. So it involves getting
an up-front understanding of what all of its systems are and
then from that point moving forward to really make a decision
on how it can process going from there.
In terms of a plan that we look for, we think that there is
a lot more that OPM can do to establish a concrete plan, an
approach, if you will, for addressing its information
technology. Looking at the IT systems that are there,
understanding all of the interfaces, for example, all of the
different aspects that go into that is critical to that plan.
We would like to see a plan, however, that is built on them
having an understanding of what their current state is and that
is driven by that vision that he speaks of in terms of moving
forward to having a modernized automated process. But in doing
that, what we would look for is for them to have a very solid
description of program scope that would look at all of those
systems, that would take into consideration all of the
processes that would have to be considered as they design a
system, the actual implementation strategy that would, again,
be built upon what they are trying to move toward, the ``to
be,'' if you will. A lot of it is built around understanding
their architecture, the IT architecture that they have to have
in place to support this modernization effort.
And then from there, it moves into understanding the lines
of responsibility and authority and make sure that they have
the critical management officials in place to oversee this
effort and to move forward.
A big concern that we had was the lack of oversight that
has pervaded the efforts that they had undertaken. I think
having the critical oversight of all of these processes as they
move forward is going to be key to them being able to figure
out how to move from those legacy systems into a process that
is more modernized.
Senator Akaka. Thank you.
Director Berry, under my Non-Foreign Area Act, employees in
Hawaii, Alaska, and the Territories who retire between 2010 and
2012 may treat part of their Cost of Living Adjustment (COLA)
as locality pay----
Mr. Berry. Yes, sir.
Senator Akaka [continuing]. For retirement calculations.
Some people expect a surge of retirements from these areas in
late 2012. What steps is OPM taking to make sure it is ready
for this and other retirement surges so these employees will
not face additional delays?
Mr. Berry. Mr. Chairman, thank you, and we are well aware
of that COLA calculation and recalculation under the reforms
and the law that you and the Congress have put into place and
we have been working very hard with outreach to all of the
agencies who have the responsibility, for example, to manage
the actual buy-back of the deposits that need to be made for
some of the annuitants. We have done an extensive outreach
effort to assist agencies and will continue to provide
training.
We have done benefit administration letters to all of the
H.R. agencies, to each of the Federal agencies, to help them
and assist them in determining these calculations. We have done
onsite training in the locations where the majority of these
annuitants are located. As we recently completed a training in
Hawaii, which I, sadly, could not attend. The training that we
have also done for agency benefit officers at the 2010 Benefits
Conference and the Fall Festival of Training, which happened in
2011, is another opportunity for us. But we are going to stay
on this. And finally, we have done a payroll presentation to
the Shared Service Center Advisory Council meeting, which has
to manage those calculations for those--the buy-backs under the
law that you recently put in place.
So I think, sir, we have it well in hand. I also know that
one of the leaders who understands the complexity of this
issue, you were very kind to allow me to bring onto our staff,
Thomas Richards, he helps dog this issue internally at OPM to
make sure that we meet all the deadlines under the law that you
have created here.
Senator Akaka. Thank you very much.
Senator Johnson, do you have questions?
Senator Johnson. Thank you, Mr. Chairman.
Director Berry, are there any simple cases?
Mr. Berry. Yes. Thank goodness, there are.
Senator Johnson. You mentioned a word I was going to bring
up, triage.
Mr. Berry. Yes.
Senator Johnson. In that triage process--again, I am glad
you are looking at some Six-Sigma processes, as well, process
improvement--is part of that effort not only just splitting out
the complex cases but really taking a look at the simple ones
and move those faster? In other words, do some of your cases
move through very quickly or are they all stacked up and first
in, first out process?
Mr. Berry. No. We do have a triage for a disability case,
for someone who has a terminal illness or is fighting a serious
disability illness and has pretty clear issues. We work very
closely with Social Security and the Department of Labor to
expedite those cases and try to bring those to the forefront.
So, absolutely, we do take triage seriously.
But we also, through the Six-Sigma process, are identifying
those cases where somebody has worked at one agency. They are
in one system. We have a complete file. We can get it done in 3
hours. So we are tiering those down and assigning those simpler
cases to those more junior employees and our more senior
employees who are more familiar with the complexity of those
individual complexities of those 500 rules that they need to
understand and apply, we can use those more senior
adjudicators, the Legal Administrative Specialists (LASs), to
handle those.
So the Six-Sigma process has really been helpful in terms
of helping us define that and to create that front-end process
which we were not doing before. So it has been a great reform
and one which, I think when we look at that 20 percent increase
in productivity, I cannot give you an exact of what percentage
of that is due to that, but that is one example of something we
have been able to just get running with.
Senator Johnson. The two areas of complexity you talked
about, certainly the people moving around to different
agencies, which I can see could be pretty difficult, having
different jobs under different contracts with different
calculations, I mean, again, that is just growing geometrically
in terms of complexity. Do the retirees themselves--can they
take on some of the responsibility for getting information? Are
you trying to create some systems there in terms of data
entries so that they can actually feel empowered to help
themselves speed the process along?
Mr. Berry. Absolutely, Senator Johnson. The people who know
their service best are our retirees and we encourage and are
working with the Chief Human Capital Officers Council and our
agencies as well as all of the employee associations and our
union partners and management associations. As people are
thinking about retiring right now, we encourage them, 6 months
out--most people know that they are approaching retirement.
They are thinking about it. Even if you are just thinking about
it, make sure your paperwork is up to date. Go to your H.R.
office and look at your file and see what is missing and see if
they have that. And if not, you can help that H.R. officer by
saying, what? You might not know this, but when I was in
college, I worked part-time at the Postal Service and I should
get credit for that. Well, they are not going to know that.
That annuitant is going to know that and they can help, then,
to go to the Postal Service to identify the paperwork so that
we can have a complete file.
So we are asking our annuitants to help us in this regard,
and anything they can do to make sure--like I say, if we have a
complete file, the processing time, we will be able to blow by
that 60-day standard. I would love to get to a 30-day standard.
But I also know we have to have realism as we try to tackle
this backlog. And so to the extent we can get help from our
annuitants, I would be very grateful for it.
Senator Johnson. Well, is that a standard part of the exit
process or the termination process?
Mr. Berry. In some agencies--it is not standard across the
government, no. Some agencies do a better job. Some annuitants
or employees do a better job as they are approaching
retirement. And some folks wait until the very end. And so we
have to be ready to handle all of that. But working with the
CHCO Council, I think we are going to be able to really
significantly--those audit, the annual audit picture you had--
and I want to, in fairness to some of the agencies that were
mentioned, because that audit is not a scientific sample. We
are drawing cases as best we can.
For example, OPM under that audit, to be full disclosure,
we have a 50 percent error rate under that, but it was premised
on two cases, one of which was incomplete, therefore the 50
percent error rate. So you can see how that audit has not been
done accurately, and so one of the things we are working with
the Navy Six-Sigma process on is refining that so we can get a
really good monthly snapshot and know who is really holding up
the line here by bringing in incomplete files.
And the CHCO Council has agreed to hold each other's feet
to the fire and monthly share the data amongst each other so
there will be peer pressure. But I will also, as soon as we get
that, be able to make that available to the Subcommittee, as
well.
Senator Johnson. As part of this process, and really, as
just part of the Office of Personnel Management, is there any
effort underway at all to take a look at all these labor
contracts, take a look at all of these different calculations
and try and begin the standardization process?
Mr. Berry. None of those calculations are as the result
of--at least none that I am aware of are the result of any
bargaining. They are all set in law. So they have all been
adjustments or results that the Congress has enacted. And so
Federal employees do not bargain over pay, so that--nor over
their retirement benefits. So none of this variability that we
are talking about----
Senator Johnson. So the question would be, would that be a
recommendation you could make to Congress, then, to standardize
these things?
Mr. Berry. It is something we would love to work with the
Subcommittee on as a longer-term project, of how we might be
able to standardize and reform some of that complexity in the
system. Some of it goes back over 100 years and we are still
responsible----
Senator Johnson. OK. You have a receptive audience right
here.
Mr. Berry. Yes.
Senator Johnson. Let us talk about some good news. I heard
that of the $600 million payment to dead people, $500 million
has been recovered. Can you just tell us how that happened and
maybe it can serve as an example for other areas.
Mr. Berry. Well, it is through a lot of hard work and it is
through the good work of our Inspector General's Office. They
identified some great reforms that we could do by using Social
Security lists and cross-checking and doing mailings using
1099, so our people just implementing those reforms. And then
we have been able to recover much of those resources.
But we can still do better, and that is why I think having
a strategic plan of looking over the horizon, how can we be
smarter and how are we going to do that together with our
Inspector General's team. They have an outstanding group of
people and I want to give a hats off to Patrick for raising
this issue and dogging it, and my commitment is we will stay on
it to do it.
Senator Johnson. I am just amazed you recovered $500
million. Now, were those checks just sitting there and you had
to basically void them out, or did you actually have to go to
people and say, you owe us X?
Mr. Berry. Some of it is people are not aware. They have
been receiving a check, and you are the son or you are the
surviving spouse and you thought that they had elected for the
annuitant survivor plan when, in fact, they did not. And so,
therefore, as the spouse, you are not entitled to that check.
And so they are not aware that--for example, they presumed that
it happened. And it often is not until you approach and you
say, I am sorry, but you can no longer receive this payment.
Oftentimes, they are not even aware that they were improperly
receiving it.
But many of it, some of it--there is some percentage of it
that is fraud and we have to go after those people very hard
because that is illegal. But it is a very complicated issue. It
is multifaceted. And I think what Patrick has designed and what
we want to work on in the strategic plan is we have to attack
this from all the angles, not just one, and that is why I
think--why developing a good strategic plan on this will do a
good job, but I should defer to Patrick.
Mr. McFarland. I thought this might be of interest. It is
nice sometimes in a situation like this to put a face on the
issue. Most of the retirement fraud is fraud of opportunity. It
is convenient for the family member or a friend or someone who
is associated with the person that died to keep the checks
coming so that they do not put themselves in an awkward
position of having to tell the truth. They just keep accepting
the checks.
Here is a very interesting story that I think is worth
reading. We do encounter cases of elder abuse. For example, we
found a retired Federal employee and military veteran who was
evicted from a series of nursing homes for non-payment while
his son was stealing $47,000 in retirement and VA benefits from
their joint bank account. This gentleman was transferred to
four different nursing homes in under 2 years with his son
simply dropping him off at the next nursing home to avoid
making payments. The defendant wrote only two checks for the
nursing home care. He stopped payment on one and wrote the
other on a closed checking account.
The defendant pled guilty to theft and was sentenced to 19
years, unfortunately, of just probation and restitution of
$47,000. OPM received back $36,000 and the remainder was
returned to VA. So there is just a panoply of these cases out
there that we work with.
Senator Johnson. Thank you very much.
Senator Warner. Mr. Chairman, could I get two quick
questions and then I will not take any more time?
One was on the question Senator Johnson raised, the issue
of providing future retirees with kind of a checklist. I just
wonder if that could be at least standardized, gotten out. If
you have a 156-day average wait list and yet you can say, if
you get all your data in a timely manner, the wait list is some
smaller percentage of that and if members could write out, as
well, I mean----
Mr. Berry. It is a great idea, Senator. I know the Chairman
takes financial literacy training very seriously, and so we can
make sure. I think our Web site has it now, sort of a checklist
for people, if you are thinking of retiring, what to gather.
But we need to--if we do not have it as standardized and as
simple----
Senator Warner. And proactively sending it out----
Mr. Berry. Absolutely.
Senator Warner [continuing]. And also indicating how long
the potential wait is.
Mr. Berry. Yes.
Senator Warner. The only other question I would ask, and
again, I really thank the Chair and the Ranking Member for
having the courtesy to have me come by, I did hear as I was
trying to get briefed up on the challenge of how long it is to
train new personnel on this issue. I know on the second panel
we are going to have some representatives from NARFE. Do you
have any capability of bringing back recently retired OPM
personnel that have this expertise already on some kind of SWAT
team?
Mr. Berry. Yes, sir. In fact, I think, is it No. 8? We have
recently brought back as reemployed annuitants people who had
retired from our retirement processing who we knew were
outstanding producers. They knew how to do cases. They did them
accurately. Their accuracy rate was very well. So we went and
asked them, would you come back and help us? And so eight took
us up on that and they are now at work. And so part of that 20
percent productivity increase is they have been on the front
lines here in the past month, and we are going to keep them
there as long as we legally can to keep producing. They are
part of that people solution.
And so it is a great idea, Senator. What we have said is we
will keep looking for people who are accurate and they had a
good record with us. If they would like to come back, we would
love to welcome them back to help.
Senator Warner. Thank you, Mr. Chairman.
Senator Akaka. Thank you very much, Senator Warner. I thank
you so much for your responses. Without question, it shows that
we will be improving the programs further for the future and
that there are plans in place. Of course, we wish you well in
reworking those retirement systems and to do it as quickly as
you can. So I want to say thank you so much to all of you for
your responses.
But before I dismiss you, let me ask you a question Mr.
McFarland. You noted the absence of annual recovery targets in
OPM's reclamation strategy, but also acknowledged the
difficulty in setting a target given the complexity of the
recovery process. My question to you is, what specific steps
would you recommend OPM to take in order to set a feasible
annual target?
Mr. McFarland. Well, I think what I would suggest would be
pretty much in line with what I said earlier, and it comes
right back to leadership from the top. Now, I am not just
speaking of John, of course. I am speaking of somebody who is
really going to take charge of something and determine through
that process--a project manager, so to speak--and determine
through that process what would be a viable target.
I cannot say at this point because I do not know, but I
think that if we have someone at the top who is dogging this
thing to the point where everybody has to answer up in an
extremely accountable way, then that will create the tone that
is needed in order to make these things work. The strategic
plan is, like I said before, a big step forward, but unless we
have the people, and the funding to get the people for that
project, it is not going to go anywhere. I truly believe that
it just takes a lot of support from the top and it cannot
waiver. It has to be there indefinitely.
Senator Akaka. Thank you very much.
I am going to ask each of you, in case you have any
additional statements to make, that you make them now before we
dismiss the first panel. Director Berry.
Mr. Berry. Mr. Chairman, you have been very generous with
your time today. You have my promise that we will stay on this
and we will dog this plan to make sure that it continues to
follow the trajectory which we hope is going to be even faster.
So thank you, sir, for the opportunity to be with you today.
Senator Akaka. Thank you. Anyone else?
Mr. McFarland. Mr. Chairman, I would like to just mention
something regarding what was talked about earlier. From the
standpoint of the person preparing to retire they need to get
their paperwork moving so that it will help the system as far
as responsiveness. But my point is that I would like to see--
and this might possibly be a recommendation from our office
down the road--I would like to see that, let us say today all
of the backlog was cleared up. I would like to see a situation
where not just the retiree shows initiative, but also have the
office at each agency show initiative and look in their files,
determine who probably will be retiring, and who may have
indicated retirement. They should show some initiative and get
started on the paperwork, and not just rely totally on the
retiree.
Senator Akaka. Thank you.
Mr. McFarland. Thank you.
Senator Akaka. Ms. Melvin.
Ms. Melvin. Yes. Chairman Akaka, I would encourage
continued oversight such as the hearing that is being held
today and other mechanisms through requiring OPM to report,
similar to some of the things that they have suggested. I would
also hold OPM to developing timelines and measures of progress.
I think that is critical to anything that they have to do going
forward, whether it is the information technology component or
the personnel component. Having clearly defined timelines and
measures for accomplishing the goals and the activities that
they have set about to do is going to be critical to ensuring
that there is accountability for them to get there.
Senator Akaka. Well, I want to thank the panel for your
testimonies and your responses. At this time, there are no
further questions for this panel.
I would like to now welcome our second panel of witnesses.
[Pause.]
Welcome to our second panel. Good to see you again here.
Mr. Joseph Beaudoin is President of the National Active and
Retired Federal Employees Association, and Mr. George
Nesterczuk is President of Nesterczuk and Associates.
It is the custom of the Subcommittee to swear in all
witnesses, so will you please stand and raise your right hand.
Do you swear that the testimony you are about to give this
Subcommittee is the truth, the whole truth, and nothing but the
truth, so help you, God?
Mr. Beaudoin. I do.
Mr. Nesterczuk. I do.
Senator Akaka. Thank you. Let the record note that
affirmative answers were given.
I want to thank you so much for being here and would like
to call on Mr. Beaudoin for your statement. Please proceed.
TESTIMONY OF JOSEPH A. BEAUDOIN,\1\ PRESIDENT, NATIONAL ACTIVE
AND RETIRED FEDERAL EMPLOYEES ASSOCIATION
Mr. Beaudoin. Mahalo, Chairman Akaka and Members of the
Subcommittee. Thank you for inviting me to testify on behalf of
the 4.6 million Federal workers and annuitants represented by
the National Active and Retired Federal Employees Association
where I have the privilege of serving as President. I
appreciate the opportunity to discuss Federal retirement
annuity processing.
---------------------------------------------------------------------------
\1\ The prepared statement of Mr. Beaudoin appears in the appendix
on page 69.
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We have received hundreds of calls from our members, most
of them from outside the Washington metropolitan area,
complaining that interim payments are too low, that they are
waiting too long to receive their full annuity payments, and
that they are unable to get through to OPM to check the status
of their annuity. Our members have sent us e-mails attesting to
their long delays.
For example, in the past 2 weeks, Jennifer Ortiz told us,
``I retired on December 31, 2010, and received my first full
annuity payment on September 1, 2011. Up until then, I was
receiving interim payments of $17 per month.''
John Tolleris told us, ``I retired from the U.S. Treasury
Department (DOT) on May 31, 2011, after 32\1/2\ years of
service. While OPM started paying my interim pension promptly
on July 1, it still has not yet adjudicated my pension case and
I am currently receiving about 65 percent of the monthly
payment my agency had estimated. I am now expecting to receive
my eighth 'diet' annuity payment next month with no indication
of when I will ever receive my full monthly payment or ever-
growing back payment.''
Craig Boehne told us, ``I retired from the FAA on May 31,
2011. I continue to receive partial interim checks at about 55
to 60 percent gross of what I am entitled.''
OPM confirms the problem that our members are experiencing,
recognizing that Federal employees face unacceptable delays in
receiving retirement benefits after years of honorable service
to the Nation. As of December 31, 2011, there was a backlog of
48,375 claims, and the average time to process a claim was 156
days, or a little over 5 months.
We commend OPM for so honestly recognizing the problem and
for developing a strategic plan to solve it. This hearing
provides an important opportunity to assess whether that plan
is sufficient to achieve its goals, and if not, to determine
what else OPM, agencies, or Congress can do to ensure that it
is.
This task is urgent. The effect of such long delays on new
Federal retirees is obviously serious. They must make do while
waiting to receive the full amount they have earned. The wait
is too long and the uncertainty is too much, particularly in
the current economy.
In addition to causing individuals personal pain and
inconvenience, the delays also have an impact on local
communities. More than 85 percent of Federal retirees live
outside of the Washington, DC. area. They live in every
American community.
We are hopeful that OPM's plan reduces delays. Of course,
even the best laid plans can go awry. Thus, implementation will
be essential to its success. Qualified new employees must be
hired and trained quickly. Higher production standards must be
enforced. And temporary mandatory overtime must be implemented.
Also, there must be an enforceable way to ensure that agencies
provide timely information to OPM.
Our members frequently complain not only that they have not
yet received their full annuity payments, but they cannot
easily check the status of their claims. It is unclear whether
OPM's new plan will provide better customer service to retirees
that simply want to check the status of their claim. What is
the volume of calls into OPM? Are there enough people answering
the phones to handle that volume? It may be that there are
simply too many calls for too few people. If that is the case,
OPM should look for other ways to provide retirees with status
updates. For example, OPM may want to consider providing
retirees the ability to check their status online.
Federal employees who have worked for years in public
service deserve to receive their retirement income they have
earned in a timely manner. OPM recognizes that delays in
receiving retirement payments are unacceptable. OPM has a new
plan to solve the problem and we hope it works, but we must see
results and we must see them soon. The task is too urgent and
the problem is too big not to.
Thank you for the opportunity to testify and I would be
happy to answer any questions you may have.
Senator Akaka. Thank you very much, Mr. Beaudoin.
Mr. Nesterczuk, please proceed with your testimony.
TESTIMONY OF GEORGE NESTERCZUK,\1\ PRESIDENT, NESTERCZUK AND
ASSOCIATES
Mr. Nesterczuk. Thank you, Senator Akaka, and good
afternoon. I appreciate the opportunity to testify on the
processing of Federal retirement applications by OPM, an issue
that unfortunately is getting to be of increasing concern to
more and more Federal employees.
---------------------------------------------------------------------------
\1\ The prepared statement of Mr. Nesterczuk appears in the
appendix on page 73.
---------------------------------------------------------------------------
I prepared a longer statement for the record. I will speak
from an abbreviated version.
Retirement benefits are an integral part of the Federal
employee compensation package. The prevalent systems are the
Civil Service Retirement System and the Federal Employee
Retirement System (FERS). They are funded from the Civil
Service Retirement and Disability Fund (CSRDF). It is a trust
fund administered by OPM.
In 1983, when the unfunded liabilities in the CSRDF had
soared to over $500 billion, Congress closed the CSRS to new
entrants with the hope that starting a new system would
simplify the process. FERS was established in 1986 and opened
to new employees in 1987. FERS employees are enrolled in the
Social Security system, a benefit generally not available to
CSRS employees.
These steps significantly slowed the growth of the unfunded
liability of the trust funds but did nothing to actually reduce
it. Today, the unfunded liability has grown to over $800
billion, by some accounting methods, much larger if you use
dynamic scoring. FERS is fully funded. However, even though
FERS is fully funded, the CSRDF has had to survive on borrowed
money to meet its cash-flow requirements since the 1960s.
Employee payroll deductions together with agency
contributions provide about $30 billion of cash receipts
annually, but this sum is dwarfed by payments to annuitants and
survivors totaling nearly $70 billion per year. This perpetual
reliance on the general fund rather than the trust fund has
kept the spotlight of controversy on the Federal Retirement
System.
OPM services nearly 2.5 million annuitants and survivors,
with operating costs of over $90 million per year drawn
primarily on the trust fund. OPM, as the bridge to continued
compensation, has an obligation to provide full and timely
annuity payments. OPM maintains annuitant records and
administers the exercise of various benefit options. The agency
is also responsible for maintaining the integrity of payments
by preventing fraud and abuse of the system.
It is impossible to achieve these goals without up-to-date
information technology and properly functioning information
management systems. Past leadership at OPM has recognized this,
and over the years, undertaken succeeding Retirement System
Modernization (RSM), efforts, with varying degrees of success
and failure.
Mr. Chairman, you asked me to address efforts to reform
retirement processing, management of the resources, and any
recommendations to improve claims processing. I will take these
in turn.
For the sake of brevity, I will skip the early reform
efforts and begin with RSM in 1997 that had intended to reduce
the amount of paper in the process. Around this time,
commercial vendors had developed a number of systems that could
potentially be modified for use in the Federal sector and RSM
envisioned relying on such commercially available products.
With Internet usage exploding, the notion of online
management of employee benefits programs took RSM in a yet new
direction. About 10 years ago, OPM expanded RSM, began to
consider outsourcing the modernization effort. In 2006, the
agency awarded contracts to automate retirement processing,
convert paper records to digital files, and give employees the
ability to file for retirement online, a concept dubbed Retire
EZ. It certainly was not.
By 2008, OPM found it necessary to cancel the effort, and
the 10-year, $290 million RSM contract was terminated. By that
time, OPM had spent over $30 million in various failed
modernization efforts during the previous decade. No doubt,
some benefits have accrued to OPM from these expenditures, but
considering the growing backlog of claims, it is hard to tell
what those might be.
What is disappointing is the current administration's
apparent abandonment of full-scale modernization. Despite
shortcomings and failures in past efforts, OPM did recognize
the need to modernize a process too heavily dependent on
paperwork. Today, you and I can file complicated tax returns
online, purchase most any kind of product or commodity online,
and execute complex financial transactions in our investment
portfolios. Is filing a retirement application really more
complicated than filing a tax return that meets the
requirements of thousands of pages of tax rules and
regulations? I do not think so.
It was not until January of this year that OPM Director
Berry produced a strategic plan for Retirement Services. With a
retirement claims backlog at over 48,000 claims--much higher I
heard earlier--the Director proposes to throw money and bodies
at the problem. The agency is proposing to hire 76 new people
to toss at its mountain of claims. These new hires will require
extensive training. It will be months, according to Director
Berry himself, before they can fully shoulder their burden.
In addition, OPM proposes to expand the use of overtime.
Upgrading IT capabilities are thrown into the mix almost as an
afterthought. Director Berry missed a clear opportunity to
reassure the Federal community that a wholesale restructuring
would be forthcoming.
The current lack of leadership on Retirement System
Modernization has left agencies to fend for themselves. Given
past failures at OPM, this is not necessarily a bad outcome,
but it certainly leaves one to wonder how $95 million of
operating expenses per year for retirement operations are
prioritized and allocated, which brings me to the second issue
you asked me to discuss: resource management.
In light of the retirement claims backlog, serious
questions arise about management of resources and agency
priorities. In the strategic plan for Retirement Services, the
Director concludes that, quote, ``The retirement claims backlog
developed over a number of years and for a number of reasons.''
If that is the case, then the problem should have been attended
to as a priority back in 2009 and not allowed to fester until
now.
As an aside, I would point out that in the 1990s, in the
Clinton Administration, with the significant downsizings, over
4 years, 400,000 Federal employees were reduced from the
payroll. Overwhelmingly, those were retirements. Retirements
were running at 80,000 per year in those times, twice the
normal routine. And yet we did not have the buildup of these
kinds of backlogs under those stresses.
And if the backlog--getting back to my script--if the
backlog is of more recent vintage, then the problem reflects
directly on leadership. In either instance, OPM resources were
not properly allocated to manage a core agency function, and it
has been since my involvement at OPM for over 30 years. After
all, OPM has been forecasting a retirement tsunami since 2006,
so no surprises.
In 2009, Director Berry needed to double-down on technology
when RSM needed his attention. He instead allowed the looming
problem of retirement claims to deteriorate and now proposes to
grow OPM's payroll and spend more on overtime. The Director
chose to double-down on labor rather than technology. Whose
interests are better served with that management decision?
Now, some suggestions for improvement, some of which I have
already heard or are being taken up, which is a good thing.
In the long term, I do believe that full automation of
retirement processing should remain the highest priority for
OPM. The original intent of RSM, to rely on commercially
available technologies, is a sound strategy and it should
receive renewed consideration.
In the short term, I concur with OPM's partnering with
agencies and I would enhance the role of the agencies in pre-
processing retirement claims. I would upgrade the skills of
employee benefit officers in the agencies--they work very
closely with OPM today--particularly in the larger agencies
that produce the bulk of retirees. It seems like a no-brainer
to me.
Further, I would have OPM fund the acquisition of competing
commercial technologies at these agencies to serve as a
comparison test bed to evaluate which are more accurate and
more effective. OPM should accept retirement claim calculations
for predefined classes of annuitants from such agencies, accept
them as final calculations.
For example, employees retiring with unreduced benefits
from an agency with which they spent their entire careers would
generally have very simplified applications. OPM could perform
statistical samples, detailed reviews of randomly selected
agency produced claims, as a means of maintaining the integrity
of the process and provide whatever corrective measures the
agencies might need on a subsequent basis.
Difficult claims would be identified much sooner in the
retirement process and employees themselves would have
opportunities to resolve some of those problems while still
employed and while still having access to their agency claim
processor rather than a telephone answering device.
Further, I would put more emphasis on technology
development for FERS because that constituency will be retiring
in greater numbers in the next few years, while CSRS employees
will decline significantly in number over the next 5 to 10
years. While the CSRS cases may possibly have more complex
employment histories, they do tend to have much easier benefit
calculations.
Finally, I would urge Congress to maintain close oversight
over OPM's claim processing until such time as the backlog has
been reduced to an acceptable number of claims. It is only
congressional scrutiny that has forced OPM to take action in
the current instance. Congress should consider requiring OPM to
file monthly progress reports on backlog reduction, applicable
performance standards, productivity metrics, use of overtime
dollars, and the like. High-level attention and keeping the
agency focused on its priority is what it will take to fix this
problem.
Thank you for your attention. I would be happy to respond
to any questions you may have.
Senator Akaka. Thank you very much, Mr. Nesterczuk. Your
full statement will be included in the record.
Mr. Nesterczuk. Thank you.
Senator Akaka. Mr. Beaudoin, when your members leave
Federal service, do they feel that they receive sufficient
information about what to expect during the retirement process?
Mr. Beaudoin. The answer to that is no, sir. We at one time
advocated that pre-retirement seminars should be given, the
employees should attend them to find out about their benefits
and about all of this information. The agencies, of course,
have reduced all of that because of the budget constraints and
the answer is no.
Senator Akaka. Mr. Beaudoin, as you know, Mr. McFarland
testified about a need for increased communication with
annuitants to prevent improper payments due to unreported
deaths or changes to personnel information. My question for you
is, do you have recommendations for education or assistance
your members might find useful so that they know how to update
OPM and the Social Security Administration (SSA) about life
changes?
Mr. Beaudoin. Sir, we in NARFE have a retirement benefits
section that deals mainly with that issue and with OPM, and
every day, we receive hundreds of calls from members and
annuitants because they cannot contact OPM. The lines are busy.
There is no way for them to go on electronically to get
information. It is the backlog and the inability to contact OPM
to get information that is causing a lot of the problem. Of
course, the whole problem that we are here to talk about is the
backlog in even getting their annuities. But once they get
them, they cannot get through to OPM because there is nobody
there to answer the lines.
Senator Akaka. Mr. Nesterczuk, you recommended allowing
people to begin their retirement applications while they are
still active employees. Please elaborate on how you think this
should be done and why you think it would speed up the process.
Mr. Nesterczuk. I think just having publicized the delays
and the difficulties that employees and retirees are facing
with the system as is has alerted the employees, or potential
retirees, to the processing problems that could face them. Just
knowing 2 to 3 months before you are going to retire that
kicking in an application form will start the process of
amassing the information necessary to clear you at exit should
provide enough incentive for them to get involved.
It is not always the fault of the person you are speaking
to. There are--if you have had a history where you left an
agency 10 or 15 years prior to your retirement, the files in
that agency could most likely be in archives halfway across the
country. You need to place a request to get that stuff
activated and back out. That is weeks. That is not days. That
is weeks before the physical files are actually placed in front
of the processor. So it is not OPM's fault necessarily nor your
H.R. office. It is the system that we operate in.
And I think employees need to be made aware of that. If you
have worked in one agency for 20, 30 years and the record is
continuous, that is not an issue. But if you have a broken
employment record, then you need to know that it will take
weeks to reconstruct that. OPM will not finalize anything until
they see hard proof. Your H.R. office could provide the
information, but OPM will not clear that until they see the
hard proof. So you have to get that information rolling before
you are ready to go.
And, of course, the employees have the greatest vested
interest to see that happen and they can dog the process. They
will have more time to call that archive operation and make
sure that their files have been cut loose rather than the H.R.
person that may be dealing with 50 or 60 cases at the time. So
that is why I think it is a good idea, and as a matter of
policy, OPM ought to encourage--the CHCO Council through
issuances, through publications, the American Association of
Retired Persons (AARP) can get involved. If you identify what
are the stumbling blocks in the process and how employees can
intervene on their own behalf, you will get them activated. It
will serve everyone, OPM, the processors. It will serve
everyone well to do that.
Senator Akaka. Thank you very much for your response.
Mr. Beaudoin, I would like to get your thoughts on this
recommendation, as well. Do you think your members would
benefit from beginning the retirement process while they are
still in active service?
Mr. Beaudoin. I do believe in that, because if they, as has
been testified already, if they would start 3, 4, 5, 6 months
before their retirement, we would not end up with the problems
that we are presently having, and that is that right now, 23
percent of all the claims are missing one or more records.
Eleven percent are not even received within 30 days. And the
problems with the agencies is that they do not have complete
information, and as has been testified earlier, the individuals
do. If the individuals would look at their records and say, as
Mr. Berry did, oh, you are missing this portion of it, I think
it would help to expedite the claims and we would not end up
with 48,000-plus claims in the backlog.
Senator Akaka. Yes, thank you. Senator Warner do you have
questions?
Senator Warner. Thank you, Mr. Chairman. I know you have
been very generous with your time for me today and I really
appreciate you willing to have me come over and participate as
a member of your Subcommittee. I also really particularly
appreciate you holding this hearing to bring this matter to the
attention of your Subcommittee and the public.
And I also want to thank my friends from NARFE. I have had
a long journey with NARFE back to my times as Governor. Mr.
Beaudoin, thank you for your testimony.
I would ask--just two or three quick questions. One is, you
made the point, and at least, I want to try to followup with
Mr. Berry on this point, that it did not sound like there was
really that standardized package and checklist of what you
should pre-prepare. I agree with Mr. Nesterczuk that maybe we
ought to start that process a little bit earlier. But even if
you do not, you ought to at least make that checklist available
on a standardized basis.
And would it not seem to me, and you made the point that
perhaps those pre-retirement seminars were cutoff because of
budget constraints, but it would be interesting to see an
analysis. If you do not end up getting the data and those are
the claims that are taking much longer, the actual cost of
processing that claim--I think I am going to press him on that
$107 number. I think it is actually higher than that on some
other data I have. But it would seem to me that we would save
money in the long run if you went ahead and started this
process earlier or if you reinstituted those pre-retirement
seminars or at least put together a standardized checklist.
Would you concur with that, or----
Mr. Beaudoin. I would, Senator. I believe that information
is vital. It is needed by the agencies. But part of the
problem, also, is that the agencies are sending OPM incomplete
data and there are no teeth in there, in that, so I am sending
you incomplete data. Just send it back to me and I will try to
fill in the blanks. No, we ought to hold those agencies, hold
them accountable so that they make sure that when they send the
information, they get it from the retiree or the employee at
the time and then they send factual information to OPM.
And I think we need to do that. Congress needs to make sure
that they are held accountable, the agencies, that when they
send the data to OPM, it is correct, it is complete, and it is
timely, and maybe that will help reduce the backlog.
Senator Warner. And, Mr. Chairman, one other thing. It
would seem that if Mr. Berry is going to report on a regular
basis the backlog, which now, I believe, is actually not at
42,000, but one of the comments today, in the mid-60,000, and
if we could get those reporting agencies, their error rates,
and perhaps there might be some ways that this Subcommittee,
and any assistance I could give, that would help give OPM some
teeth to make sure that those other agencies that are reporting
to OPM actually try to have that as a priority, as well.
Perhaps the CHCO Council is one tool. But my understanding is,
and you may recall, or others, that when there was this
situation in the early 1990s, that simply publicizing the error
rate from some of the agencies helped create some, at least,
pressure in town on that item and we might want to return to
it.
One other question, and then I want to ask Mr. Nesterczuk
one question, and then I will, again, not take too much time,
but I was happy to hear Mr. Berry say that they have gone back
out to some of our recently retired Federal employees that
might be able to help fill in since there is this lag time on
training. Have you been asked at NARFE to help put the word out
to your members that there might be opportunities coming back
at OPM if you want to re-up for a period of time to help us get
through this backlog?
Mr. Beaudoin. No, we have not. We would be happy to put the
word out and to do that.
But if I could mention one other thing, Senator, in OPM's
plan, they have voluntary overtime. We believe that is the
wrong approach. We have too many people waiting for their
annuities, too many people that are not getting their full
annuities. They are getting, as I mentioned earlier, 17
percent, 23 percent, 50 percent, whereas even the one that you
mentioned earlier today, the lady from Colorado, says, I cannot
do anything. I cannot buy anything. I do not get any money. We
need to do something.
I would hope that Congress would step in and make it
mandatory overtime for the OPM people to work an extra 20 hours
a week until the backlog is gone. Once it is gone, then they
can look into automation. They can look at all the rest of it.
But that backlog has to be taken care of, and it has to be
taken care of now.
Senator Warner. In prior backlogs, there has been mandatory
overtime--I thought you had said to me--was that the case?
Mr. Beaudoin. It was a voluntary backlog--I mean, I am
sorry, not the backlog, voluntary overtime----
Senator Warner. Yes.
Mr. Beaudoin [continuing]. But that the backlog has to be
reduced, sir.
Senator Warner. Mr. Nesterczuk, I concur with many of your
comments that you made and do believe we need to move through
to a more technology-based solution, not just an increased
personnel solution. I guess my last question would simply be
two-fold. One, are there other examples, perhaps not from the
private sector because clearly with all the procedures and
rules and regulations of the Federal Government, but comparison
to other State systems or other national government systems,
Canada, that might have a further along technological solution,
No. 1.
And No. 2, it seemed it was clear that the effort with
Retire EZ did not work out that well. How do we make sure that
as we go down this path again we do not make those same
mistakes?
Mr. Nesterczuk. I think in the case of your first question
about other available comparative systems, I am not aware of. I
cannot answer that question.
I do believe OPM was primarily responsible for the failure
of Retire EZ. If the contractor in making a delivery was
surprised at what was not functioning properly in there, they
clearly did not have the parameters properly stipulated. OPM I
think more than probably, for certain--should have done their
homework better in putting out the procurement competitively
initially so that the contractors knew what they were really up
against instead of what it is that they got that clearly did
not meet the requirements of OPM, of their customers.
So they need to go down--I would not necessarily have
tossed out Retire EZ. I would have pared it down so that it
would pick up at least part of the workload that OPM had, get
something for your money out of that initial investment.
Instead of expanding it, scale it back. The $290 million was
spread over 10 years, so it is not like they lost the full
amount. I believe it was something like $19, $20 million for
the 2-year effort. But I would have gotten something out of
that, out of the contractor, and focused them on some part of
the effort to subsequently buildupon.
I mean, I had been involved in system programming, FORTRAN
programming in my day, including some fairly complicated
systems, so I know that once you have done something, you have
a beginning and then you can fix it and build on it, et cetera,
expand. I suspect there was a lot of political scrutiny--a lot
of public scrutiny and political pressure that came to bear on
not delivering after 2 years' worth of expectations. Backlogs
may have been building up already and so they just pulled the
plug on it to try to clean the slate.
I think, also, OPM needs to rethink its approach of
managing the retirement system. This business of keeping
everything in-house and close hold does not work anymore.
Technology advances, evolves very quickly, and you are better
off bringing in players from the outside as partners who keep
up with that for you and then you just give them what it is
that you want and let them worry about how to deliver. And that
is probably today a much better business model to utilize. But
that would require rethinking what parts of the retirement
system they want to keep in-house and what to put out the door
on a competitive basis and then just monitor the process, get
feedback on errors, fix it, work with the contractors. And you
do not have to get stuck with one. You can get several.
Senator Warner. Well, let me thank both witnesses, and Mr.
Chairman, again, thank you for the courtesy, and any way I can
help you as we pursue this matter, count me in. Thank you, Mr.
Chairman.
Senator Akaka. Thank you very much, Senator Warner, for
participating in this hearing.
This is my final question and it is to both of you. What
should OPM's No. 1 priority be for its retirement processing
reforms? I would like to call on Mr. Nesterczuk to answer
first, followed by Mr. Beaudoin. Mr. Nesterczuk.
Mr. Nesterczuk. Well, I think initially, in the short term,
I would rely on the agencies. I would change the rules for
processing and delegate some authority to the agencies. OPM in
the past has delegated various kinds of staffing authorities in
terms of the ability to hire employees. They gave it away, gave
up their own authorities to let other agencies in the process
participate, become more efficient and speed up the hiring
tremendously. I would push for that initially.
Have OPM, instead of bringing all the folks in-house--that
is their first step--simultaneously shove some of the work back
out. They have very capable people in the agencies, especially
the agencies like DOD that turn loose an awful lot of retirees.
I would work with those agencies, partner up with them,
authorize them to be the claims adjudicators, the finalizers,
and just monitor their progress on it. That might offload 20,
30 percent of the workload right off the get-go. So that would
be what I would do in the short term as my immediate priority.
And longer term, absolutely, stick with modernization. The
future is not going to be with more claims processors. Thank
you.
Senator Akaka. Thank you, Mr. Nesterczuk. Mr. Beaudoin.
Mr. Beaudoin. Yes, sir. I believe that the problem, as we
all know, is the backlog. We have thousands of people that are
inconvenienced, that do not have the pay to live on. Their
lives are upset. The communities that they live in, they cannot
even benefit from them. So I believe OPM needs to do everything
they can to reduce that backlog.
They need to, as has been testified, work with the agencies
to demand that the information coming to them is accurate and
complete the first time. They need to have people of not the
administrative specialists but others answer the phone to free
up the administrative specialists. They need to bring in
overtime, mandatory overtime. They need to bring back retirees,
more retirees.
They need to be more automated so that anyone who wants to
check their claim can do it online. This is--we are in the 21st
century. They should be able to do things online. They should
not have to go, as they said, with paper and pencil and
telephone. No. Go on a computer. I can check my status. I can
check my claim. But we are still operating in the 20th century.
I am not even sure--maybe it is the 19th century. But they need
to move ahead and I do not think they are doing it fast enough,
sir. Thank you.
Senator Akaka. Well, I want to thank you both. It was so
good to hear things from your experience and the people that
you represent. Your responses will certainly be taken under
consideration here and we all look forward to improvement in
the retirement system. There are many times when people like
you who, I would say, are in the trenches, know the problem
better than officials do, so we value your responses.
I want to thank you very much for your testimonies and your
responses. There are no further questions.
In this time of shrinking budgets, many agencies are
offering early retirement options. This could mean a wave of
retirements will be added to what is already a sizable claims
backlog. OPM must prioritize its resources, address
shortcomings, and focus its attention on providing the level of
service that retirees deserve.
I want to again thank our witnesses for being here today. I
believe that this hearing provided good insight into how
Federal retirement processing can and must be improved. The
hearing record will be open for one week for additional
statements or questions from other Members of the Subcommittee.
Again, thank you very much. Mahalo. This hearing is
adjourned.
[Whereupon, at 4:50 p.m., the Subcommittee was adjourned.]
A P P E N D I X
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