[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]




 
        IS OPM PROCESSING FEDERAL WORKER PENSION CLAIMS ON TIME?

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

                                HEARING

                               before the

                   SUBCOMMITTEE ON FEDERAL WORKFORCE,
                    US POSTAL SERVICE AND THE CENSUS

                                 of the

                         COMMITTEE ON OVERSIGHT
                         AND GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED THIRTEENTH CONGRESS

                             FIRST SESSION

                               __________

                              MAY 9, 2013

                               __________

                           Serial No. 113-24

                               __________

Printed for the use of the Committee on Oversight and Government Reform


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


                  U.S. GOVERNMENT PRINTING OFFICE
81-283                    WASHINGTON : 2013
-----------------------------------------------------------------------
For sale by the Superintendent of Documents, U.S. Government Printing Office, 
http://bookstore.gpo.gov. For more information, contact the GPO Customer Contact Center, U.S. Government Printing Office. Phone 202ï¿½09512ï¿½091800, or 866ï¿½09512ï¿½091800 (toll-free). E-mail, [email protected].  


              COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

                 DARRELL E. ISSA, California, Chairman
JOHN L. MICA, Florida                ELIJAH E. CUMMINGS, Maryland, 
MICHAEL R. TURNER, Ohio                  Ranking Minority Member
JOHN J. DUNCAN, JR., Tennessee       CAROLYN B. MALONEY, New York
PATRICK T. McHENRY, North Carolina   ELEANOR HOLMES NORTON, District of 
JIM JORDAN, Ohio                         Columbia
JASON CHAFFETZ, Utah                 JOHN F. TIERNEY, Massachusetts
TIM WALBERG, Michigan                WM. LACY CLAY, Missouri
JAMES LANKFORD, Oklahoma             STEPHEN F. LYNCH, Massachusetts
JUSTIN AMASH, Michigan               JIM COOPER, Tennessee
PAUL A. GOSAR, Arizona               GERALD E. CONNOLLY, Virginia
PATRICK MEEHAN, Pennsylvania         JACKIE SPEIER, California
SCOTT DesJARLAIS, Tennessee          MATTHEW A. CARTWRIGHT, 
TREY GOWDY, South Carolina               Pennsylvania
BLAKE FARENTHOLD, Texas              MARK POCAN, Wisconsin
DOC HASTINGS, Washington             TAMMY DUCKWORTH, Illinois
CYNTHIA M. LUMMIS, Wyoming           ROBIN L. KELLY, Illinois
ROB WOODALL, Georgia                 DANNY K. DAVIS, Illinois
THOMAS MASSIE, Kentucky              TONY CARDENAS, California
DOUG COLLINS, Georgia                STEVEN A. HORSFORD, Nevada
MARK MEADOWS, North Carolina         MICHELLE LUJAN GRISHAM, New Mexico
KERRY L. BENTIVOLIO, Michigan
RON DeSANTIS, Florida

                   Lawrence J. Brady, Staff Director
                John D. Cuaderes, Deputy Staff Director
                     Robert Borden, General Counsel
                       Linda A. Good, Chief Clerk
                 David Rapallo, Minority Staff Director

 Subcommittee on Federal Workforce, U.S. Postal Service and the Census

                   BLAKE FARENTHOLD, Texas, Chairman
TIM WALBERG, Michigan                STEPHEN F. LYNCH, Massachusetts, 
TREY GOWDY, South Carolina               Ranking Minority Member
DOUG COLLINS, Georgia                ELEANOR HOLMES NORTON, District of 
RON DeSANTIS, Florida                    Columbia
                                     WM. LACY CLAY, Missouri


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on May 9, 2013......................................     1

                               WITNESSES

Mr. Patrick McFarland, Inspector General, U.S. Office of 
  Personnel Management
    Oral Statement...............................................     4
    Written Statement............................................     7
Mr. Kenneth Zawodny, Associate Director, Retirement Services, 
  U.S. Office of Personnel Management
    Oral Statement...............................................    16
    Written Statement............................................    18
Ms. Valerie C. Melvin, Director, Information Management and 
  Technology Resources Issues, U.S. Government Accountability 
  Office
    Oral Statement...............................................    27
    Written Statement............................................    29
Mr. George Kettner, President, Economic Systems, Inc.
    Oral Statement...............................................    45
    Written Statement............................................    47
Mr. Joseph A. Beaudoin, President, National Active and Retired 
  Federal Employees Assoc. (NARFE)
    Oral Statement...............................................    64
    Written Statement............................................    66


        IS OPM PROCESSING FEDERAL WORKER PENSION CLAIMS ON TIME?

                              ----------                              


                         Thursday, May 9, 2013

                  House of Representatives,
    Subcommittee on Federal Workforce, U.S. Postal 
                           Service, and the Census,
              Committee on Oversight and Government Reform,
                                                   Washington, D.C.
    The subcommittee met, pursuant to call, at 9:30 a.m., in 
Room 2247 Rayburn House Office Building, Hon. Blake Farenthold 
[chairman of the subcommittee] presiding.
    Present: Representatives Farenthold, Lynch, Norton, and 
Clay.
    Staff Present: Molly Boyl, Parliamentarian; Daniel Bucheli, 
Assistant Clerk; Steve Castor, General Counsel; John Cuaderes, 
Deputy Staff Director; Adam P. Fromm, Director of Member 
Services and Committee Operations; Linda Good, Chief Clerk; 
Jennifer Hemingway, Deputy Policy Director; Jaron Bourke, 
Minority Director of Administration; Lena Chang, Minority 
Counsel; Adam Koshkin, Minority Research Assistant; Safiya 
Simmons, Minority Press Secretary; Mark Stephenson, Minority 
Director of Legislation.
    Mr. Farenthold. The subcommittee will come to order. Good 
morning.
    As is traditional with all the committee and subcommittee 
meetings of the Oversight and Government Reform Committee, I'd 
like to begin today by reading the Oversight Committee's 
mission statement. We exist to secure two fundamental 
principles. First, Americans have a right know that the money 
Washington takes from them is well spent. And second, Americans 
deserve an efficient, effective government that works for them. 
Our duty on the Oversight and Government Reform Committee is to 
protect these rights. Our solemn responsibility is to hold 
government accountable to the taxpayers because taxpayers have 
a right to know what they get from their government. We will 
work tirelessly, in partnership with citizen watchdogs, to 
deliver the facts to the American people and bring genuine 
reform to the Federal bureaucracy. This is the mission of the 
Oversight and Government Reform Committee.
    And I now will recognize myself for an opening statement.
    Two and a half million retired Federal workers and their 
survivors rely on their pension checks to make ends meet every 
month. The Office of Personnel Management, who administers 
these checks, has done it the same way since 1987. This lack of 
modernization has resulted in the backlog of 30,000 claims, 
while the OPM averages $100 million each year in payments to 
deceased annuitants and survivors. Thousands of manila folders, 
imaged files, and a COBOL system patched together with 
spreadsheets makes up the benefit processing operation at OPM. 
It's not an effective or organized operation, just more 
evidence of the Federal Government's poor IT record. As I often 
say, I don't think the Federal Government can compute their way 
out of a paper bag.
    I applaud the hard work that's been put in over the past 
few years to reduce the backlog and speed claim processing. 
Unfortunately, however, I think the need for meaningful reform 
exists. It needs to be more than hiring additional staff to 
support an outdated process. There is no doubt the system needs 
reform. In a time of cuts, it is important that we, as 
congressional watchdogs, ensure you're working on a long-term 
plan to make the process as efficient and effective as 
possible.
    While the President's budget recommends $2.6 million to 
fund a case management system, the budget is short on detail 
and provides little guidance on how the OPM will achieve this 
modernization program. In the past, we've seen hundreds of 
millions of dollars wasted in Federal IT spending, yet reform 
seems to be very lacking. The clock is ticking. OPM has less 
than 60 days to achieve its short-term goal of reducing the 
backlog and processing 90 percent of the claims within 60 days.
    In the long term, OPM must drive down operational costs and 
use technologies to make the program more efficient. It must 
respond to questions by workers awaiting their pension, and it 
must also eliminate payments to dead people and must reduce 
waste, fraud, and abuse. OPM needs to work smarter, save money 
through technology and streamlining, and deliver results. 
Failure to do so sends the wrong message to those who work for 
the Federal Government. Federal workers deserve better at the 
end of their career.
    At this point, I'll yield to the ranking member for 5 
minutes, Mr. Lynch.
    Mr. Lynch. Thank you, Mr. Chairman. I appreciate you 
calling this hearing. It's an important one and also very 
timely.
    I think it's important to evaluate the progress made by the 
Office of Personnel Management in addressing the backlog of 
Federal retirement claims since we last had a hearing on this 
issue in November of 2011. As I said, this is a timely hearing. 
This week is Public Service Recognition Week. Federal employees 
devote their lives to serving the public and this country, and 
I think that one of the ways that we can honor them is by 
making sure that when they do retire, they'll be able to 
collect their pensions, and do so in a timely manner. This is 
not just a matter of principle. I am keenly aware of the 
financial hardship that a backlog and long delays in claim 
processing cause some of our Federal retirees.
    I want to thank OPM for making some progress in elimination 
of retirement claims backlog. They've made it a top priority. 
And I want to thank them for succeeding in at least bringing 
down the backlog from a high of 60,000 claims in January of 
2012 to 30,000 claims at the beginning of this month. I commend 
OPM's employees for their hard work and dedication in reducing 
the backlog. It appears that OPM has met or exceeded the 
agency's processing goals, from the numbers I see, since it 
issued its strategic plan in January of last year. And they did 
accomplish this despite some unanticipated increases in 
retirement applications during the first quarter of this year.
    However, I believe that this problem will continue to 
plague OPM and our Federal retirees if we continue to rely upon 
a paper-based, manual processing of claims. We do need a long-
term solution to that problem. Fortunately, I know that OPM 
recognizes that and is seeking to develop information 
technology solutions on an incremental basis. Given OPM's past 
unsuccessful efforts in automating the claims process, this 
incremental approach makes sense to me.
    Solving this problem is not going to be easy, nor is it 
going to be quick. It will require some resources and support 
from Congress. But there lies a significant political problem. 
Congress requires across-the-board budget cuts in the Budget 
Control Act. Sequestration may have a negative effect on the 
ability of OPM to meet its goal of eliminating this backlog by 
this July and to have sufficient funding to implement its other 
initiatives.
    Just when sequestration imposes across-the-board cuts at 
OPM, early retirement and buyouts as a result of Postal Service 
restructuring or the wave of retirements from Federal retirees 
seeking to retire before Congress imposes any additional 
changes to pay or benefits, will surely add to the backlog 
problem.
    I do want to thank you, Mr. Chairman. I appreciate the 
opportunity to examine the status of OPM's retirement claims 
processing, and I look forward to hearing from our members. And 
I yield back.
    Mr. Farenthold. Thank you very much, Mr. Lynch.
    Mr. Farenthold. Just a couple of housekeeping matters 
before we get underway. Votes are scheduled on the House floor 
at 10:30. In the event we are not finished by then--we may very 
possibly be finished by then--if we're not, we will take a 
recess while the members go and vote, and we'll return. So I 
did want to let everybody know that that was a possibility.
    Also, as is normal with the committee, members will have 7 
days to submit opening statements for the record.
    Mr. Farenthold. At this point we will now recognize our 
panel. The Honorable Patrick E. McFarland is Inspector General 
of the Office of Personnel Management.
    Welcome, Mr. McFarland.
    Mr. Ken Zawodny. He's the Associate Director for Retirement 
Services at OPM.
    Welcome to you as well.
    Ms. Valerie C. Melvin is Director of Information Management 
and Technology Resource Issues for the U.S. Government 
Accountability Office.
    Welcome to the subcommittee.
    And then we have Dr. George Kettner. He's founder of 
Economic Systems, Inc. and Mr. Joseph Beaudoin. He is the 
national president of the National Archives and Retired Federal 
Employees Association.
    Thank you for your service as a Federal employee, and 
welcome.
    Pursuant to the rules of the committee, all witnesses will 
be sworn. Would you please rise and raise your right hand?
    Do you solemnly swear or affirm that the testimony you are 
about to give will be the truth, the whole truth, and nothing 
but the truth?
    Let the record reflect that all witnesses answered in the 
affirmative.
    Thank you, and be seated.
    As I was saying, we want to get thoroughly to the heart of 
this issue where we fully understand it and have fully 
developed a record that other Members of Congress may and the 
public may refer to as we work towards a solution in 
streamlining our government. That being said, our normal 
procedure is to allow each witness 5 minutes to give their 
testimony. Your complete written testimony, we have and have 
reviewed. We ask that you summarize it in 5 minutes.
    You will see a little light system in front of you. Works 
just like the traffic lights you see all around the city. Green 
means go, yellow means get ready to stop, and red means your 5 
minutes are up. Obviously, we'll allow you time to complete 
your thoughts.
    So we'll get underway with Mr. McFarland. You're recognized 
for 5 minutes, sir.

                       WITNESS STATEMENTS

                 STATEMENT OF PATRICK MCFARLAND

    Mr. McFarland. Good morning, Chairman Farenthold, Ranking 
Member Lynch, and members of the subcommittee. My name is 
Patrick McFarland. I am the Inspector General at the Office of 
Personnel Management.
    Thank you for this opportunity to speak to you. In these 5 
minutes, I hope to capture the essence of my written testimony 
with a brief statement regarding the retirement claims backlog 
and then a more in-depth discussion about improper retirement 
payments to deceased annuitants. But most importantly, I will 
end by asking a favor of this committee.
    I believe OPM may be well on its way to eliminating the 
retirement claims backlog, although the recent news about 
reductions in retirement program funding due to sequestration 
may impact this endeavor. Based on the numbers reported, OPM 
has reduced the backlog 38 percent in the 16 months since the 
end of 2011, despite receiving many more claims than expected 
in 2013. However, I have concerns based on our audit work 
regarding the internal controls related to the tracking of the 
inventory as well as the reduced accuracy rate for adjudication 
of retirement claims. Nevertheless, it is clear that OPM has 
made substantial progress.
    OPM has enormous responsibilities to the rest of the 
Federal Government. OPM has good, dedicated personnel like Ken 
Zawodny, presently wrestling with the daunting task of reducing 
the retirement claims backlog. However, there is another task 
that requires the same level of attention as the backlog, and 
that is the improper payments made to deceased annuitants.
    Retirement Services' everyday workload has subsumed what 
were already weak management directives. It has become 
management by happenstance rather than management by design and 
leadership. GAO's standard for internal controls in the Federal 
Government states that management is responsible for developing 
control activities, which are the policies, procedures, 
techniques, and mechanisms that enforce management's 
directives. Control activities occur at all levels and include 
a wide range of activities, such as approvals, authorizations, 
verifications, reconciliations, and the creation and 
maintenance of related records which document execution of 
these activities.
    OPM's improper payment strategic plan is replete with 
background root causes, measurements, and goals to be achieved 
in an effort to curb improper payments. However, what is not 
identified is indeed the missing link to success: It is full 
and unwavering leadership commitment to project management with 
the goal of finally stopping--finally stopping--egregious, 
improper payments. Although the OPM employees assigned to this 
work care and try hard, they do not always have the particular 
skill sets, tools, resources, and most importantly the 
management structure to be successful.
    If OPM had made an earlier commitment to embrace the 
concept of a lifecycle approach with careful thought devoted to 
each step, from beginning to end, OPM would have a prescription 
for effective and efficient corrective action and we would not 
be here discussing improper payments. Today, some of our 
simplest and routine questions cannot be answered by OPM 
management regarding improper payments.
    Illustrative of poor project management is the handling of 
the 1099-R Project. The Internal Revenue Service requires that 
OPM annually send each annuitant a form 1099-R, which reports 
the amount of the annuity received during that year. Several 
thousand of these forms are returned to OPM each year by the 
Postal Service marked undeliverable. One of our prior 
recommendations was that OPM should review these returned forms 
in an effort to determine if they were undeliverable because 
the annuitant was deceased.
    OPM began to implement this recommendation starting with 
form 1099-R for the 2009 tax year, which were mailed in January 
2010. More than 33,000 forms were returned to OPM deemed 
undeliverable. OPM began to compare these names to the Social 
Security Administration's death master file and take 
appropriate follow-up actions. But here's the problem: Three 
years later, OPM still has not completed this work. Moreover, 
although OPM received and collected the returned forms mailed 
in January 2011, January 2012, and January 2013, it has not 
taken any further action on these forms. Consequently, OPM now 
has 3 more years of returned 1099 forms that have not been 
addressed.
    In closing, here's the favor I would ask of the committee. 
Actually, the favor is for the taxpayer. I ask that Congress 
work with our office to explore various corrective measures to 
hold OPM accountable in this area for greatly improving its 
performance in a very deliberate, structured, and methodical 
way. Our work together could potentially produce a set of best 
practices for all improper payments in the Federal Government.
    Due to the millions of dollars of taxpayer funds that are 
at stake, I strongly believe that such a collaboration with 
your staff is absolutely necessary to ensure that the detection 
and prevention of improper payments receive the sustained 
attention and effort that it deserves and does not once again 
fade into the background.
    Thank you.
    Mr. Farenthold. Thank you, Mr. McFarland.
    [Prepared statement of Mr. McFarland follows:]

    [GRAPHIC] [TIFF OMITTED] T1283.001
    
    [GRAPHIC] [TIFF OMITTED] T1283.002
    
    [GRAPHIC] [TIFF OMITTED] T1283.003
    
    [GRAPHIC] [TIFF OMITTED] T1283.004
    
    [GRAPHIC] [TIFF OMITTED] T1283.005
    
    [GRAPHIC] [TIFF OMITTED] T1283.006
    
    [GRAPHIC] [TIFF OMITTED] T1283.007
    
    [GRAPHIC] [TIFF OMITTED] T1283.008
    
    [GRAPHIC] [TIFF OMITTED] T1283.009
    
    Mr. Farenthold. And I'm sure you can count on this 
subcommittee, in particular, and the entire committee. We have 
a great relationship with the inspector general community 
throughout the government, and you can count on us to work with 
our fellow watchdogs. And we appreciate your testimony.
    Mr. McFarland. Thank you.
    Mr. Farenthold. Mr. Zawodny, you're recognized for 5 
minutes.

                  STATEMENT OF KENNETH ZAWODNY

    Mr. Zawodny. Thank you. Chairman Farenthold, Ranking Member 
Lynch, and members of the subcommittee, today I'd like to 
discuss OPM's progress in reducing the backlog of Federal 
retirement claims, as well as the challenges of developing a 
21st century customer-focused retirement processing system.
    OPM is responsible for processing over 120,000 retirement 
applications a year for Federal employees from all three 
branches of the Federal Government and dozens of independent 
agencies and commissions. OPM also handles post-retirement 
transactions for the 2.5 million annuitants, survivors, and 
their families.
    In January 2012, OPM released and began implementation of a 
strategic plan to reduce the unacceptable backlog of retirement 
claims, and we remain focused on the goal of adjudicating 90 
percent of the applications within 60 days, starting in July of 
2013.
    Our strategic plan consists of four pillars. One, people. 
Two, productivity and process improvement. Three, partnering 
with agencies. And four, partial, progressive IT improvements. 
All four of these pillars are in action, and we were able to 
reduce the claims inventory by 57 percent and reduce the 
average processing time for an application from 156 to 136 days 
last year.
    However, over the first 4 months of this year, OPM 
experienced significant increases in the number of applications 
received. In January through April of this year, OPM received 
almost 60,000 new applications, approximately 43 percent more 
than we received at the same time period last year and 51 
percent more than we had projected. Still, the efforts of our 
employees, improved process changes resulted in a record number 
of applications being processed during that period.
    Last year we added to staff to the claims adjudication 
process as called for in our strategic plan. The new employees 
have been fully trained and have increased our capacity to 
improve timeliness and production in claims processing. We 
continue to achieve gains in efficiency in the pending work 
through productivity and process improvements. These 
improvements have occurred as a result of our work with the 
Navy's Lean Six Sigma team and an ongoing Lean Six Sigma review 
in other parts of retirement services.
    Reducing the retirement claims backlog also requires OPM to 
work with agencies that prepare the applications for their 
employees to improve the accuracy and completeness of those 
applications. Last year, we developed an agency audit process 
designed to analyze applications sent to us by agencies so that 
we can better track and report on errors. We use these results 
to work with agencies to reduce incomplete, inaccurate 
applications.
    In our strategic plan we identified the need to modernize 
our IT infrastructure incrementally, employing a cost-effective 
and efficient transition away from paper. Working with 
stakeholders, we are establishing the capability of gathering 
electronic data from the applicant and sending it to the 
benefit calculator. Our Retirement Services online system 
empowers retirees to view, add, and update their information 
online. This system has over 25,000 visits per week, and over 
3.2 million transactions were processed last year alone.
    We requested funding in our 2014 budget to begin the 
development of a case management system for the centralized 
tracking of, and reporting on, retirement applications. This 
modest investment begins the process of upgrading to an 
automated system, eventually reducing the amount of time 
necessary to process retirement claims.
    Government-wide fiscal challenges have ramifications for 
maintaining the progress made on retirement processing as well 
as future plans for improvements. Due to sequestration, OPM was 
required to change some of our business operations for 
Retirement Services. At the end of April, all overtime for 
employees working in Retirement Services was suspend. Last 
year, overtime enabled processing of over 34,000 additional 
claims, roughly 26 percent of the total production. We also 
reduced the hours of our call center, which receives 
approximately 40,000 calls and thousands of pieces of 
correspondence each week.
    Our desire is that improvements developed over the past 
year will offset some of the adverse effects of these actions. 
But it saddens me to report that retirees may still have to 
wait.
    Finally, we are working to reduce the number of improper 
annuity payments and increase recovery of overpayments. Last 
year the rate of improper payments for the federal retirement 
program was approximately one-third of 1 percent of the total 
benefits disbursed, and almost 72 percent of the improper 
payments identified have been recovered.
    OPM has made substantial progress in reducing retirement 
claims inventory. We understand that reducing the claims 
inventory is about our commitment to dedicated public servants 
and to their family members, and I know that delays cause 
personal and financial hardships. In recognition of our goal to 
honor their service, we are continuously developing a 21st 
century customer-focused retirement processing system that 
adjudicates claims in a timely and accurate manner.
    I am proud of the Federal employees I work with, and I look 
forward to addressing your concerns and questions you have 
today. Thank you.
    Mr. Farenthold. Thank you very much.
    [Prepared statement of Mr. Zawodny follows:]

    [GRAPHIC] [TIFF OMITTED] T1283.010
    
    [GRAPHIC] [TIFF OMITTED] T1283.011
    
    [GRAPHIC] [TIFF OMITTED] T1283.012
    
    [GRAPHIC] [TIFF OMITTED] T1283.013
    
    [GRAPHIC] [TIFF OMITTED] T1283.014
    
    [GRAPHIC] [TIFF OMITTED] T1283.015
    
    [GRAPHIC] [TIFF OMITTED] T1283.016
    
    [GRAPHIC] [TIFF OMITTED] T1283.017
    
    [GRAPHIC] [TIFF OMITTED] T1283.018
    
    Mr. Farenthold. Ms. Melvin, you're recognized now for 5 
minutes.

                 STATEMENT OF VALERIE C. MELVIN

    Ms. Melvin. Good morning, Chairman Farenthold, Ranking 
Member Lynch, and members of the subcommittee. Thank you for 
inviting me to testify at today's hearing on OPM's system for 
processing Federal employee retirement benefits.
    The use of information technology is integral to carrying 
out this important responsibility, and for over 2 decades OPM 
attempted to modernize the retirement process by automating 
paper-based functions and replacing its antiquated information 
systems. However, as you've alluded to, the agency faced many 
challenges in managing its modernizations efforts and they were 
largely unsuccessful. Reports that we previously issued on the 
agency's efforts to plan and implement a modernized system 
highlighted a long history of initiatives that did not yield 
the intended results.
    At your request, my testimony today summarizes our findings 
on these efforts and the challenges OPM has faced in managing 
them and describes the agency's more recent action to improve 
the retirement process.
    Overall, our studies found that OPM was hindered by 
weaknesses in several key management disciplines that are 
essential to successful IT modernizations. These included 
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 
dependencies among them, thus increasing the risk 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 
the agency planned, analyzed, and redirected the program but 
without delivering the modernized capabilities.
    In 2008, as it was on the verge of deploying a system, we 
noted other management concerns and offered recommendations for 
improvement. Specifically, test results 1 month before 
deploying a major system component showed that it had not 
performed as intended. Also, defects and a compressed testing 
schedule increased the risk 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 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, but the system did not work 
as expected and the agency suspended its 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 continue 
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 
to address them. However, it terminated the retirement 
modernization program in February 2011 and subsequently stated 
that it did not plan to undertake another large-scale 
modernization effort.
    In January 2012, the agency released a plan describing 
intended improvements to retirement processing through targeted 
incremental steps such as hiring new staff and working with 
agencies to improve data quality and intended IT improvements 
to automate retirement application processing. As has been 
stated, the agency's goal is to be able to process 90 percent 
of new claims within 60 days by July of 2013.
    However, while OPM is taking these steps and has reported 
progress toward meeting its goal, it has not yet addressed the 
fundamental question of how it intends to modify the many 
legacy systems that currently support the retirement process. 
Moreover, even as it implements this plan, it is essential that 
the agency fully address the deficiencies and institutionalize 
the IT management capabilities highlighted in our studies. 
Until it does so, OPM will not be effectively positioned to 
ensure the success of any future retirement modernization 
projects.
    Mr. Chairman, this concludes my oral statement, and I would 
be pleased to respond to your questions.
    Mr. Farenthold. Thank you very much, Ms. Melvin.
    [Prepared statement of Ms. Melvin follows:]

    [GRAPHIC] [TIFF OMITTED] T1283.019
    
    [GRAPHIC] [TIFF OMITTED] T1283.020
    
    [GRAPHIC] [TIFF OMITTED] T1283.021
    
    [GRAPHIC] [TIFF OMITTED] T1283.022
    
    [GRAPHIC] [TIFF OMITTED] T1283.023
    
    [GRAPHIC] [TIFF OMITTED] T1283.024
    
    [GRAPHIC] [TIFF OMITTED] T1283.025
    
    [GRAPHIC] [TIFF OMITTED] T1283.026
    
    [GRAPHIC] [TIFF OMITTED] T1283.027
    
    [GRAPHIC] [TIFF OMITTED] T1283.028
    
    [GRAPHIC] [TIFF OMITTED] T1283.029
    
    [GRAPHIC] [TIFF OMITTED] T1283.030
    
    [GRAPHIC] [TIFF OMITTED] T1283.031
    
    [GRAPHIC] [TIFF OMITTED] T1283.032
    
    [GRAPHIC] [TIFF OMITTED] T1283.033
    
    [GRAPHIC] [TIFF OMITTED] T1283.034
    
    Mr. Farenthold. Dr. Kettner.

                  STATEMENT OF GEORGE KETTNER

    Mr. Kettner. Thank you for the opportunity to appear before 
the committee on the subject of OPM processing of retirement 
claims.
    In order to establish our credibility to speak today in 
front of the subcommittee, I would like to first describe our 
experience and capabilities relevant to the discussion. My 
company, Economic Systems, Inc., has been in the Federal 
retirement calculation and claims processing business for more 
than 20 years, and has a longstanding association with OPM and 
many Federal agencies in connection with retirement claims 
processing and related issues. Today, we operate a cloud 
service provider retirement system that services approximately 
120 agencies, both large and small, throughout the Federal 
Government. Our retirement system provides automated tools for 
case tracking, filling forms electronically, and importing data 
from agency personnel and payroll systems. Economic Systems 
provides agencies with tools that facilitate the processing of 
retirement application packages that are sent to OPM for 
adjudication, using a wizard-like approach similar to how Turbo 
Tax works for preparing tax returns.
    We have a long history of working with OPM, which includes 
developing the original CSRS-FERS transfer model in 1985-1986 
and the Federal Employee Retirement Coverage Correction Act, 
referred to as FERCCA, decision model. We subsequently 
processed thousands of FERCCA cases on behalf of OPM using this 
tool.
    We commend OPM for its recent accomplishments of reducing 
the backlog of unprocessed claims. We agree with OPM's decision 
to take an incremental approach toward modernizing the 
retirement system, and we agree with GAO's assessment of the 
challenges that OPM faces in the pursuit of modernization. What 
we would like to add to this discussion is that the Federal 
retirement system is a large and very complex system that 
requires not only an incremental approach, but a unified design 
developed in partnership with subject matter experts who truly 
understand Federal retirement and Federal human resource 
systems.
    The complexities of the Federal retirement system affect 
all participants in the retirement process: employees, agency 
HR staff, OPM, and those in the vendor community who serve 
these groups. These complexities increase agency errors in the 
submission of retirement packages to OPM, causing delays at 
OPM.
    Another challenge is that the business processes upon which 
the current retirement system is built are obsolete, paper-
based, and labor intensive.
    All of this notwithstanding, we believe that there are 
near-term incremental opportunities that OPM and the agencies 
could employ that would enable OPM to make a significant 
improvement in claims processing from a technology standpoint, 
as well as managing their workforce.
    Reviews and audits of the previous failed modernization 
efforts have focused primarily on the failures of project 
management and testing. Little or no review has focused on the 
actual IT design and engineering of the failed effort. The 
success of systems with enormous business rule complexity is 
ultimately dependent on the technical design, not just project 
management.
    Economic Systems has developed a proven Federal retirement 
calculator by combining subject matter expertise and adaptable 
engineering. Adaptable engineering allows the retirement system 
to accommodate change requirements such as the FERCCA rules and 
regulations. During the FERCCA project, OPM vetted the Economic 
Systems retirement calculator, and this collaboration produced 
a calculator that was suitable for processing FERCCA claims. 
This was accomplished with a software development budget that 
was a fraction of taxpayer money spent on past vendors who 
failed.
    A key reason for past failure at retirement modernization 
is lack of knowledge of subject matter complexity on the part 
of the previous IT contractors for OPM. For the most recent RSM 
effort, the vendors were not subject matter experts in Federal 
retirement. We believe that a prudent course would be to 
leverage the subject matter expertise and tools that Economics 
Systems has and expand our adaptive engineering approach. 
Economic Systems has developed a next-generation retirement 
calculator that is the centerpiece of a full-service component 
across all aspects of the Federal retirement process. This 
includes not only serving our existing agency customer 
requirements, but also claims adjudication and ongoing retiree 
benefits adjustments.
    Economic Systems products can replace OPM's legacy 
retirement calculation systems. We would immediately start to 
replace the systems required for initial claims adjudication. 
The Economic Systems calculator is not tied to any specific 
user interface or database and can be integrated into a 
properly designed larger modernization road map. Because so 
many Federal agencies are using our retirement system, we can 
readily transfer data electronically to OPM. This alone would 
greatly enhance OPM's efficiency.
    With our new calculator in place at OPM, we can 
incrementally replace other systems for retiree employee 
processing calculation. This can be accomplished at a much 
lower cost than the past failed projects and in a shorter 
period of time.
    Economic Systems provides management retirement software to 
agencies as well as retirement software. We have had a very 
positive working relationship with the USAJOBS program at OPM. 
We believe that the retirement program could draw valuable 
lessons from this program as well. OPM's winning strategy for 
USAJOBS is to be in partnership with the agencies and the 
vendor community to develop solutions for the hiring process. 
In our view, the open communication model in USAJOBS should be 
followed in OPM's retirement processing system as well. With 
integration between our retirement calculator and OPM's 
retirement systems, OPM could eliminate a great amount of 
duplicate data entry.
    That concludes my testimony.
    Mr. Farenthold. Thank you very much.
    [Prepared statement of Mr. Kettner follows:]

    [GRAPHIC] [TIFF OMITTED] T1283.035
    
    [GRAPHIC] [TIFF OMITTED] T1283.036
    
    [GRAPHIC] [TIFF OMITTED] T1283.037
    
    [GRAPHIC] [TIFF OMITTED] T1283.038
    
    [GRAPHIC] [TIFF OMITTED] T1283.039
    
    [GRAPHIC] [TIFF OMITTED] T1283.040
    
    [GRAPHIC] [TIFF OMITTED] T1283.041
    
    [GRAPHIC] [TIFF OMITTED] T1283.042
    
    [GRAPHIC] [TIFF OMITTED] T1283.043
    
    [GRAPHIC] [TIFF OMITTED] T1283.044
    
    [GRAPHIC] [TIFF OMITTED] T1283.045
    
    [GRAPHIC] [TIFF OMITTED] T1283.046
    
    [GRAPHIC] [TIFF OMITTED] T1283.047
    
    [GRAPHIC] [TIFF OMITTED] T1283.048
    
    [GRAPHIC] [TIFF OMITTED] T1283.049
    
    [GRAPHIC] [TIFF OMITTED] T1283.050
    
    [GRAPHIC] [TIFF OMITTED] T1283.051
    
    Mr. Farenthold. Mr. Beaudoin.

                STATEMENT OF JOSEPH A. BEAUDOIN

    Mr. Beaudoin. Good morning, and thank you for inviting me 
to testify on behalf of the 5 million Federal workers and 
retirees represented by NARFE, where I have the privilege of 
serving as president. I appreciate this opportunity to discuss 
Federal retirement annuity processing.
    Last Congress, both this subcommittee and its Senate 
counterpart recognized there were issues with the processing of 
Federal retirement annuity claims and held hearings drawing 
attention to the problem. As the association representing those 
directly affected by these problems, I would like to extend our 
thanks to the subcommittee for addressing this issue. We 
further appreciate this follow-up to ensure progress is being 
made.
    Last February, I testified before the Senate that NARFE was 
receiving hundreds of calls from our members complaining that 
their interim annuity payments were too low, they were waiting 
too long to receive their full annuity payments, and they were 
unable to communicate with OPM to check the status of their 
claims. Some had understandably complicated claims that took 
longer than the average. They worked for several Federal 
agencies, they had a break in service, they had both military 
and civilian service. However, even in instances of fully 
complete claims, with little to no errors, wait times were far 
too long. There was a major problem, to say the least.
    To their credit, OPM acknowledged what our members were 
experiencing, recognizing that, ``Federal employees face 
unacceptable delays in receiving retirement benefits after 
years of honorable service to the Nation.''
    In January 2012, there was a backlog of over 61,000 claims 
and the average time to process a claim was over 5 months. Many 
claims, however, took far longer to process. It was in this 
context that OPM developed a strategic plan to improve the 
processing of retirement benefit claims, which they released in 
January 2012, promising to do better.
    Let's give credit where credit is due. OPM laid out a 
strategic plan that predicted improvements in claims processing 
through additional staff, longer call center hours, and better 
communication with agencies. OPM implemented the plan as 
intended, and it has worked. The inventory of claims has 
dropped to roughly 30,000. OPM has outpaced its projections for 
claims processing every month, with the exception of December 
2012.
    Yet, as a result of much higher than expected retirements 
in February and March, the claims inventory is higher than the 
projected. In fact, in 3 of this year's first 4 months the 
number of Federal employees filing retirement claims outpaced 
OPM's projections. Given the ongoing retirement wave, this 
trend is likely to continue. With overtime reductions planned 
as a result of budget cuts, it now seems doubtful that OPM will 
be able to reach the goals of its strategic plan, despite the 
substantial progress that has been made. This is a huge setback 
in an otherwise successful story.
    As flight delays made frustratingly clear to many Members 
of Congress, you need a strong, capable, and fully staffed 
Federal workforce for the government to operate and serve its 
customers. Unfortunately, while Congress passed a Band-Aid fix 
to end the continuation of air traffic controller furloughs, it 
did not fix the remainder of the less publicly visible problem 
being caused by sequestration.
    OPM recently announced that it was forced to reduce its 
call centers hours and halt overtime for employees processing 
annuity claims. This is very disappointing news. Previously, 
one of our most significant complaints with OPM was that 
retirees were unable to reach someone on the phone. Reducing 
call center hours threatens to bring a return to this problem.
    Furthermore, the use of overtime may have been one of OPM's 
most effective tools in reducing the backlog.
    By taking that away, we find it hard to see how OPM will be 
able to handle the large wave of retirements expected to occur 
in the very near future. Postal Service buyouts, combined with 
a general sentiment among retirement-eligible workers to retire 
before Congress asks for more financial sacrifices from them, 
there are likely to be more retirement claims before there are 
less.
    There is still an inventory of more than 30,000 claims and 
waits continue to be too long. The expected wave of Federal 
retirements threatens to reverse the progress that has been 
made. The force reduction in overtime and call center hours 
could not come at a worse time. We implore the Congress to take 
notice of the very real effects that austerity budgeting is 
having on government services, including the ones on which our 
career civil servants rely.
    As we sit here during Public Service Recognition Week, 
today is a perfect time to ensure that we treat our retiring 
public servants with the recognition they deserve for their 
careers of service.
    Thank you again for providing me the opportunity to share 
NARFE's views.
    Mr. Farenthold. Thank you very much, Mr. Beaudoin.
    [prepared statement of Mr. Beaudoin follows:]

    [GRAPHIC] [TIFF OMITTED] T1283.052
    
    [GRAPHIC] [TIFF OMITTED] T1283.053
    
    [GRAPHIC] [TIFF OMITTED] T1283.054
    
    [GRAPHIC] [TIFF OMITTED] T1283.055
    
    [GRAPHIC] [TIFF OMITTED] T1283.056
    
    [GRAPHIC] [TIFF OMITTED] T1283.057
    
    Mr. Farenthold. We'll now go to questioning. I'll recognize 
myself first for 5 minutes. I'll start with Mr. Zawodny.
    For more than 2 decades, OPM has failed to meet its goal to 
improve retirement system claim processing. Will you all be 
able to meet your commitment to reduce the backlog by July of 
2013? Are you going to be able to get to the 90 percent within 
60 days?
    Mr. Zawodny. Our goal, sir, is at the end of July of 2013 
we'll be able to process 90 percent of our cases within 60 
days. The recent setbacks, the unexpected amount of Postal 
Service retirements in February and March have slowed us down a 
bit. The unexpected reduction in overtime also has put us back 
a bit, perhaps. It's still too early for me to really 
understand what that impact is going to be, since it just 
occurred about 10 days ago. Within the next 30 days, after we 
have a full understanding of what our capabilities are without 
the use of overtime in processing our workload, I'll be better 
able to judge and project out what our capabilities are going 
to forecast up until the end of July.
    Mr. Farenthold. So let's talk just a little bit about what 
the process is for doing this. So I'm a Federal employee. I'm 
ready to retire. I go talk to my H.R. Person and they start the 
paperwork.
    Mr. Zawodny. Yes, sir.
    Mr. Farenthold. Now, depending on what agency, they may or 
may not use Dr. Kettner's system. But they fill out all this 
paperwork and they just put it in an envelope and mail it to 
you? What percentage comes by mail, what percentage comes 
electronically?
    Mr. Zawodny. Each time an individual retires from any one 
of the three branches, in most instances, and independent 
agencies, when they elect to retire and the day that they walk 
out the door, those agencies' H.R. Offices and the payroll 
providers send us electronic transmission that the individual 
has left the building. At that time we start them in interim 
pay immediately. It provides data elements on the individual--
name, Social Security number, and some basic information--so we 
can start that person in the interim pay immediately, even 
before we receive the retirement application.
    Mr. Farenthold. Okay.
    Mr. Zawodny. Then the agencies follow up with us to provide 
the retirement application and all of the other documents 
required, such as election forms for survivor benefits, health 
insurance election forms, changes that they may make with 
regards to----
    Mr. Farenthold. All right. So there are all these 
questions. I understand it's complicated, whether you're in the 
military, whether there were breaks in services, different 
agencies. You calculate everything differently.
    How much time is spent re-keying that data? Is there a lot 
of data entry? Where is the big time? Is it is looking at it, 
doing the math, is it getting the information? I mean, what 
takes so long? To me, it just seems like it's something--and I 
guess I grew up in the Turbo Tax era; you just check the boxes 
and it spits out the form with the amount. Do you have not have 
a system that does that? I mean, what else do you do that makes 
it take so long?
    Mr. Zawodny. Well, sir, the length of time it takes to 
actually adjudicate a case is not that long. Getting it into 
the hands of the adjudicator to ensure that the case has gone 
through our refined process of ensuring that the case is full 
and complete, we have all the information there to adjudicate 
the place and put them into final pay, as well as ensuring that 
the information is there that is going to maybe require post-
adjudicative work, because remember, the individual comes to 
us, we have them for the rest of their life and the rest of 
their survivor's life.
    Mr. Farenthold. All right. So what's post-adjudicative 
work? They think they're not getting enough and there's a 
hearing process? Is that----
    Mr. Zawodny. No, sir. The adjudication process consists of 
the legal administrative specialist reviewing the entire 
document, the retirement application; ensuring all the 
information is there; ensuring that the service history is 
continuous and complete, that there's no missing periods of 
time. Once that information is full and complete, then they 
adjudicate the case, meaning they can put it into our annuity 
system, do the calculations, and render a final payment.
    Mr. Farenthold. I guess it's just me having grown up in the 
computer age. To me, this just sounds like something you key in 
the data and, with very few exceptions, it ought to spit it 
out. And when there's an exception, it turns it red on the 
screen.
    Mr. Zawodny. And it does, sir. All of the information gets 
keyed in or gets placed into the system and those calculations 
are done by our calculator, down to the penny.
    Mr. Farenthold. And can't that be done by the agency or the 
retiree just plugging it in on a Web site?
    Mr. Zawodny. The agencies use various estimator tools, such 
as Dr. Kettner had mentioned, but quite often the agency may 
not have the full, complete service record of the individual. 
If the individual has moved from different agencies----
    Mr. Farenthold. So who gets you that information? The 
individual then says--or the retiree says, okay, so, I'm with 
OPM now, I'm retiring from OPM. Before that I was a 
congressional staffer. Before that I was in the military. So 
who gathers all that?
    Mr. Zawodny. The agency is ultimately responsible for 
compiling all that data and information and getting us a 
complete record of the individual service history. But every 
time an employee moves from agency to agency, that losing 
agency transmits to us information about the service and the 
time that they spent at that agency and we have it on file.
    Mr. Farenthold. And you all keep that in the database----
    Mr. Zawodny. Yes, sir, we do.
    Mr. Farenthold. In the database or on paper?
    Mr. Zawodny. Both, sir. It depends. Many of these systems 
are very old----
    Mr. Farenthold. Sure, some of them have been around for a 
long time.
    Mr. Zawodny. --before the systems were created. So we have 
those records to refer to. Most of the information is 
electronic, and we look through our systems to determine if we 
have the complete service record on file.
    Mr. Farenthold. I'm already out of time. I'm going to go to 
my colleagues here. I probably do have another round of 
questioning after we finish.
    I'll recognize Mr. Lynch now.
    Mr. Lynch. Thank you. I want to thank all the witnesses for 
coming before the committee to help us with this work.
    I'm a little bit concerned. I know we've got a bunch of big 
problems here, systemic problems. But I did want to talk to Mr. 
McFarland and Mr. Zawodny about the number of these--the number 
of these claims--excuse me--checks that are going that are 
misdelivered, 33,000 returns. How many checks actually go out? 
This 33,000, what is that a percentage of? I know we've got 5 
million retirees.
    Mr. Zawodny. They are not the checks, sir. They are the 
1099-R's. It's the----
    Mr. Lynch. No, no, I know. You're doing that as a check, as 
a check against whether people are receiving--whether they are 
undeliverable or not. I understand that part. But you've got 
30,000 1099s that came back undeliverable.
    Mr. Zawodny. Correct, sir.
    Mr. Lynch. How many did you send out?
    Mr. Zawodny. Two-point-five million, roughly.
    Mr. Lynch. Okay, 2.5 million. That was my question. Okay. 
Out of 2.5 million, 33,000. So it's a very small number.
    Mr. Zawodny. Yes, sir.
    Mr. Lynch. But still, it's troubling, if we've got 33,000 
forms going out and we're not addressing this. What are we 
doing about this? I know you had a cross-check with Social 
Security.
    Mr. Zawodny. Yes, sir. That's the master file. Once a month 
and down to the week now we cross reference our annuity roll 
with the death master file from Social Security to see if 
there's been reported deaths that might match up to our annuity 
roll.
    Regarding the 1099-R's are that are returned, when they are 
returned to us the first thing we do is check our system to see 
if there's been an updated address, that the individual may 
have moved and it did not get forwarded, then we'll re-send 
that out, which occurs quite often. In the case of these 
33,000, we have spent roughly 5,500 hours and have gone through 
all but about 4,000 so far, verifying that the individual has 
either moved or it was a bad address or some misinformation and 
have cleared all of those as not involved in any sort of fraud, 
waste, or any other sort of discrepancy. The other 4,000 we are 
still working to verify where the individual lives and what is 
going on with those.
    So far, of those 33,000 that were mentioned earlier, none 
of them have matched up against the Social Security death match 
file indicating that the individual has reported a death, at 
least to the Social Security Administration, nor have we been 
informed that the individual should no longer be subject to 
annuity payments.
    Mr. Lynch. Okay. Is there a death benefit for a Federal 
employee. There are, right?
    Mr. Zawodny. Life insurance, yes, sir. Or if the individual 
is survived by a surviving member of the family and they have 
survivor benefits, they could elect to get those as well.
    Mr. Lynch. Yeah. Okay. Now we've got sequestration coming 
up. I know you've made some significant headway in reducing the 
backlog of claims. We've gone from 60,000 to 30,000, which is a 
good deal. Now we're going to have the recent postal 
retirements coming in. So that's going to kick up your business 
again. And we've got sequestration is going to drive down the 
number of hours that you're working on overtime, and that's 
going to be problematic as well. Maybe furloughs. Are you 
looking at that as well?
    Mr. Zawodny. We are not at this time, sir. That's the 
reason we took the overtime off and cut some of the call center 
and other areas, so we can forego furloughs.
    Mr. Lynch. Okay. Well, I guess what I want to know, is 
there any flexibility for OPM to transfer or reprogram funds to 
make sure that this top priority activity remains adequately 
funded, you know, to keep your effort going here in the right 
direction.
    Mr. Zawodny. We are working. The Acting Director of OPM 
right now is working with our Chief Financial Officer and all 
the program offices within OPM to see how we can reprogram 
moneys to meet some of the high priority goals within OPM.
    Mr. Lynch. Can I ask you, I know that OPM picked up some 
responsibility with respect to the Affordable Care Act.
    Mr. Zawodny. Yes, sir.
    Mr. Lynch. You're helping with establishing the exchanges, 
is that what you're doing?
    Mr. Zawodny. Yes, sir.
    Mr. Lynch. How is that going?
    Mr. Zawodny. To be honest with you, sir, that's not in my 
program area of responsibility. So I'll get back to you on 
that.
    Mr. Lynch. Anybody on the panel here?
    I just note that's a tremendous amount of responsibility as 
well.
    Mr. Zawodny. Yes, sir.
    Mr. Lynch. And it may not be your area of expertise, but 
it's sure something that we want to be concerned about.
    Mr. Zawodny. Absolutely, sir.
    Mr. Lynch. Okay. That's another mess waiting to happen.
    All right. I'll yield back. I have about 2 seconds left. 
Thank you. Appreciate it.
    Mr. Farenthold. Thank you very much.
    We'll go to Mr. Clay now. You're recognized for 5 minutes.
    Mr. Clay. Thank you, Mr. Chairman. And let me thank the 
witnesses for their testimony today.
    OPM's retirement services strategic plan sets forth a goal 
to eliminate a backlog of over 60,000 claims by July of 2013 
and to process 90 percent of new claims within 60 days of 
receipt from the agency. Since rolling out the strategic plan, 
and with the exception of 2 months, OPM has met or exceeded its 
claims processing goal. Despite a 40 percent increase in claims 
since January, compared to the first 4 months of last year, OPM 
was able to reduce its backlog from 61,108 claims in January of 
2012 to 30,080 claims as of the beginning of this month. The 
average time to process a new CSRS or FERS retirement claim was 
reduced from 156 days as of January 2012 to 86 days as of the 
end of April 2013.
    Mr. Zawodny, I appreciate the progress made by OPM in 
decreasing the claims backlog, but I am concerned that the 
backlog of claims for more complicated cases, such as court-
ordered and disability benefits, have increased significantly, 
from 3,483 to 7,618 claims, and from 5,611 claims to 6,536 
claims, respectively. Can you tell me how OPM plans to address 
the growing backlog for these complicated cases?
    Mr. Zawodny. Yes, sir. Thank you, sir, for allowing me to 
address your concerns. Both court-order and disability cases 
are cases where there are multiple parties involved in the 
review and completion of those cases. In both areas we've added 
additional resources to those areas. In the disability, we have 
a class of--we're training some LAS's, legal administrative 
specialists, right now to handle the disability cases. They are 
far more complex. They require a lot of interaction either 
between the agency, the individual, their medical doctors and 
medical teams to assure that we have enough information to 
render the suitable disability retirement determination.
    Regarding court-ordered benefits, we've hired paralegals to 
help review the record amount of court orders, which consists 
of not only divorce decrees that are submitted to us, but also 
bankruptcies, garnishments, other court orders that impact a 
Federal retiree and/or their survivor.
    The court order workload that you mentioned is comprised of 
a number of different areas. It includes not only the court 
orders that pertain to current retirees or those who are 
getting ready to retire, but also Federal employees are 
responsible for submitting the court orders if they are still 
an active Federal employee. For instance, if an individual 
retires at their tenth year of service and gets divorced, 
they're required to submit a court order of their divorce 
decree to us so that we can have it on file in furtherance of 
the retirement application if and when that may occur. That's 
part of the review process as well.
    What we have done to speed up that process is we have 
removed from the overall picture in court orders just those 
cases that pertain to current active Federal employees and 
split those out from those who are currently ready to retire. 
So we can have two different streams of work to try to drive 
down that workload.
    Mr. Clay. Based on monthly progress reports the committee 
receives from OPM, claims less than 90 days old have grown. Mr. 
Zawodny, why is OPM having difficulty meeting the second part 
of its goal of processing 90 percent of new claims within 60 
days of receipt?
    Mr. Zawodny. Our most recent receipts from January through 
March included not only our annual January surge, but also the 
U.S. Postal surge. That created quite an unprecedented backlog 
in our ability to process the claims quickly.
    We believe--we did believe before the overtime was taken 
away that we were going to be able to meet our goal in July of 
2013. I still strongly believe that we are going to come very 
close to meeting that and driving that back down to meeting our 
goal of processing 90 percent of the cases within 60 days.
    Mr. Clay. Thank you so much.
    And, Mr. McFarland, would you care to comment on the 
backlog status?
    Mr. McFarland. I think the backlog status is something that 
obviously has been going on for years. And my concern is not 
necessarily with specifics as much as it is with the 
overarching operation of the Retirement Service. There are so 
many, from our perspective, from the IG's perspective, there 
are just a carload of frustrations that we have with dealing 
with these issues. The backlog as such is--it is what it is. 
It's going to take a while to clear it up, and they are 
certainly marching in the right direction. I don't have much 
concern that they are not doing the right thing. I think they 
are doing the right thing.
    But the backlog--obviously inherent in the backlog is the 
problem in the beginning, and it's been going on for years. And 
now Mr. Zawodny's job is to clear it up. It's a big task. It's 
almost an overwhelming task. But what we're concerned about is 
the many frustrations and the lack of accountability, the lack 
of leadership that we see in the retirement system for the many 
issues that we deal with. And I'd be happy to go over some of 
them with you if you'd like.
    Mr. Clay. My time is up, Mr. Chairman.
    Mr. Farenthold. I'll be happy to give you another minute or 
so if you'd like to get that question answered.
    Mr. Clay. Sure. Is it the sheer numbers or is it not enough 
staff?
    Mr. McFarland. No, I think what's happened here, this is my 
personal feeling, what I think has happened is that this 
backlog has caused a real problem for the other aspects of 
Retirement Services. As an example, the lack of fraud referrals 
to us. We are troubled about a decline in the retirement fraud 
referrals produced by Retirement Services, as well as a lack of 
timeliness in bringing suspected fraud to our attention.
    In 2011, the OIG received only 30 retirement fraud 
referrals from Retirement Services. But in 2010, we had 
received 92 referrals. Then, on March 19, 2012, we received 30 
retirement fraud referrals in a single day. However, in all 30 
cases OPM had identified the death and permanently stopped 
making annuity payments more than 5 years prior to the referral 
to our office. The statute of limitations dictates that 
criminal proceedings must be initiated within 5 years of the 
government becoming aware of a potential theft or fraud. 
Because of this delay by Retirement Services, the cases were no 
longer prosecutable.
    Finally, another 25 suspected retirement fraud cases were 
referred to us by Retirement Inspections between July 2012 and 
March 2013, but approximately 80 percent of these referrals 
also had statutes of limitation problems. That's a prime 
example from our enforcement side.
    Mr. Clay. Well, that's a mouthful.
    Mr. Farenthold. Thank you very much.
    We will now go to the gentlelady from the District of 
Columbia, Ms. Norton. You're recognized for 5 minutes.
    Ms. Norton. Thank you, Mr. Chairman.
    I'm impressed with how you've kept your payments, Mr. 
McFarland, to deceased annuitants at low levels and going down.
    Before I ask Mr. McFarland a question, let me ask you, 
given that this particular issue is often a problem for public 
and private entities alike, how are you able to keep the 
numbers going down? Apparently, you had a 5-year number of $103 
million over 5 years, and now it's down to $86 million, which 
is 0.12 percent of your total payouts. I think that is 
impressive.
    First, I want to know how you are able to keep payments to 
deceased annuitants from occurring in the first place. What's 
your system for doing that?
    Mr. Zawodny. Thank you, ma'am, for allowing me to address 
your question. Automation matches that we perform in recent 
years yielded extremely extraordinary results due to the match 
not being performed in over 20 years. Now we have four main 
contributing factors to driving down the reduction of the 
number of these types of overpayments and referrals to the IG. 
One, we conduct a weekly consolidated death match of the Social 
Security Administration. We also do a yearly death match file 
of the Social Security Administration to ensure that there was 
nothing slipped in after the weekly one had done. The surveys 
and matches----
    Ms. Norton. So you do this match. How does anybody know 
that someone has died? How do you keep the payments from just 
coming, period, whether you are Social Security or whether you 
are the Federal Government--or whether you are annuitants?
    Mr. Zawodny. We rely on family members and others to notify 
either Social Security or us directly that one of the 
annuitants----
    Ms. Norton. And people do that?
    Mr. Zawodny. Yes, ma'am. Yes, ma'am. Quite often they do 
that.
    Ms. Norton. There must be a severe penalty for not telling 
the government or telling the Social Security Administration 
this person is no longer alive.
    Mr. Zawodny. I am not aware of any penalty, ma'am, but any 
annuity payments that have been made are then recouped from the 
individual. We receive about 300 death notifications a day, 
either from annuitants or current Federal employees, that we 
process based upon notifications of family members or through 
the Social Security Administration.
    Ms. Norton. So how have you been able to keep the numbers 
going down given what looked like a very tight system in the 
first place? And then I want to ask, Mr. Zawodny, why you think 
the effort has stalled in light of what seemed to be pretty 
good figures.
    Mr. Zawodny. We have been able to reduce the amount of 
improper payments and our efforts to stop those payments 
because of our concerted effort on that program. We have added 
additional resources and retrained folks and made them more 
aware of handling these cases in an expeditious manner. Using 
the information from the Social Security on a daily basis, 
relying on our surveys of older annuitants also helps us cut 
down those death payments.
    The current stall right now is we have continued to see an 
increase in the number of deaths that we've had. But the 
payment rate, the improper payment rate and the collection rate 
has actually gone up, in my perspective, regarding the recovery 
of those payments that were made to individuals.
    Ms. Norton. Mr. Zawodny, what did you mean by stalling, 
that you think this progress has stalled?
    Mr. Zawodny. For me?
    Ms. Norton. I'm sorry, Mr. McFarland.
    Mr. Zawodny. Oh, sorry.
    Mr. McFarland. What do I mean?
    Ms. Norton. Yeah.
    Mr. McFarland. What do I mean that it's stalled?
    Ms. Norton. Yeah, that you are concerned about these 
efforts now being stalled and therefore delaying the efforts 
that have been underway.
    Mr. McFarland. Well, I think the work that's being done by 
so many people right now to reduce the backlog, I think the 
effort and concentration by Retirement Services is in that 
area. And I think other areas that we deal with specifically, 
are concerned about, have been affected by that.
    Ms. Norton. So how would you prioritize these matters then? 
Of course they are payouts that you wouldn't want to have 
happen. That is real money going out to people on the one hand. 
Do you think that the priorities are skewed in any way?
    Mr. McFarland. Yes, I do. I think that the priority that 
Retirement Systems, I believe, has had for years is that they 
do not, in my estimation, prioritize the problem of improper 
payments.
    Ms. Norton. Over--you think it should be the top priority?
    Mr. McFarland. I'm not saying it should be the top 
priority. But certainly the person on the street who is out of 
a job and paying taxes, and other people paying taxes, they 
certainly would believe that it should be a priority to take 
care of the improper payments and not waste the taxpayer 
dollars. Now, granted a lot of it's recovered. But what does 
that mean? That means more people are working to recover it, 
and those people are using taxpayer dollars.
    Ms. Norton. Well, Mr. Zawodny, of course $86 million is not 
chump change. So that's money going out. I don't know how much 
of that money does get recovered. Have you any idea?
    Mr. Zawodny. Right now, ma'am, we are at about 72 percent 
recovery right now. The moneys that we haven't been able to 
recoup are moneys that may have been paid to individuals who 
have been incarcerated, through the help of the IG's office. 
The individuals may have died themselves after stealing the 
money from individuals. Or moneys that we just haven't been 
able to recoup from whatever reason.
    Ms. Norton. Thank you, Mr. Chairman.
    Mr. Farenthold. Thank you very much.
    I think we have got another few minutes before they call 
votes on the House floor, so we'll start a second round of 
questioning, and then we do have to leave. I will consult with 
the ranking member to see if we are going to adjourn or come 
back.
    All right. So, Mr. Zawodny, you made some references to the 
fact you're concerned about not being able to get caught up as 
a result of not being able to continue overtime. Since the 
beginning of the year, our numbers indicate 156 of your 
employees have processed roughly 56,000 claims. That works out 
to about three per day, or if you take out the weekends a 
little over four. So you have got your employees processing 
four, only on the average four claims a day. Again, I don't 
understand the process of why it's taking 2 hours to do a 
claim. Are they that voluminous? Are they that incomplete?
    Mr. Zawodny. Sir, in some instances it's a matter of going 
through and validating and verifying the information of that 
current retiree, their 40 years of service, ensuring that we 
have completed their service history calculations.
    Mr. Farenthold. So you all are making a strategic decision 
to be a little more aggressive in the beginning rather than 
having to go back after them later for having--I assume they 
sign something saying this is true and correct before they get 
their check, do they not, the employee?
    Mr. Zawodny. They sign their retirement application.
    Mr. Farenthold. Right. And does it include their packet 
saying the information in here to the best of my knowledge is 
true and correct?
    Mr. Zawodny. It does.
    Mr. Farenthold. All right. Actually, as a watchdog, I 
appreciate you all doing that. The amount of time it's taking 
on an individual basis is a little bit troubling.
    Let me go to Ms. Melvin and the IT. You looked at the OPM's 
IT situation. They had a big failed project. Do you see some 
things they can do immediately to kick the technology up, save 
some time, and get this out the door faster?
    Ms. Melvin. Well, I think that the approach that they are 
taking, which is from what we see right now very modest, 
incremental steps to implementing or upgrading some of the 
technology that they do have, is probably a prudent and risk-
based approach for them to take, especially given the history 
of their inability to be successful with such initiative in the 
past.
    What I think needs to happen going forward, though, because 
this is still largely a manual process, and because it does 
rely significantly on overtime to help maintain and bring down 
the workload that they currently have, there has to be a 
longer-term strategy and approach to making sure that the 
department--the agency can in fact move to an overall 
electronic capability.
    So while we do agree that, you know, we see progress on the 
part of what they've identified in the strategic plan that they 
have, I don't view it as enough to make sure that they can move 
ahead and have a long-term sustainable capability unless they 
do a more in-depth assessment.
    Mr. Farenthold. Dr. Kettner, I realize you've got a 
commercial product that does a lot of what we are talking about 
now. I assume you all work some with OPM to interface your 
data, so you're a little--and you are familiar with the process 
and the systems. Do you think there are some quick and easy 
things that can be done relatively inexpensively--I'll save you 
the trouble of doing a pitch for your company--but within the 
OPM? Are there some quick and easy things? If you were the boss 
of the OPM, where would you start?
    Mr. Kettner. Okay. Well, I think there are certain steps 
that could be taken immediately. And I think you are entirely 
correct in thinking that more could be done at the agency 
level. That's where the data comes from, and much more can be 
done. And that's where our work is focused, on the agency side. 
We do have tools that we provide to help the agencies.
    The Achilles' heel in the whole retirement system is 
getting the service history extracted out of the systems. It 
currently is not maintained electronically in personnel and 
payroll systems. But there is no reason in the world why the 
data should not go over to OPM electronically. You know, it's 
all put--all the data is keyed into our software, the data 
fills out the forms automatically, and then the retirement 
specialist at the agency prints it out, and then it gets mailed 
over to OPM. And then they re-key all that data back in.
    Mr. Farenthold. As the committee overseeing the Postal 
Service, we appreciate your continuing to use the mail. It may 
not be the most effective use of government resources there. So 
you think it would be possible then, a good cost-effective 
would be for OPM to focus on an API for your company or other, 
your competitors would be able to send that data in a 
standardized form.
    Mr. Kettner. Absolutely. Absolutely. You know, and a good 
example where this kind of cooperative partnership is working 
is on the OPM USAJOBS hiring site. There is very cooperative 
arrangements going on between my company and USAJOBS and other 
vendors for there to be data interchanges between the vendors 
tool and USAJOBS. There is no reason why this couldn't happened 
in the case of the retirement--OPM's retirement system as well.
    Mr. Farenthold. All right. And, Mr. Lynch, you have 
somebody on your side you want to continue with additional 
questions?
    Mr. Lynch. Yeah, just a couple.
    Mr. McFarland, help me with this. Have you looked at the 
issue of the Affordable Care Act and OPM's responsibility 
there? I know I had raised the issue earlier in the last round 
of questions, but I really didn't focus on you.
    Mr. McFarland. Yes, we have looked at it. We are involved 
in assisting the agency, but on a rather limited basis.
    Mr. Lynch. Okay. Well, I remember back when the Affordable 
Care Act was being voted upon and decided upon and how this was 
going to actually work. I raised some concerns that OPM wasn't 
really resourced enough to handle the tremendous responsibility 
they were being given. Are you comfortable that OPM can handle 
their responsibilities with respect to these exchanges? They 
are going to have to go in and set up exchanges in States where 
States don't choose to do that.
    Mr. McFarland. Yes, I believe they're working rather 
diligently on being able to do that. I have no particular 
reason to think that they cannot do it.
    Mr. Lynch. Okay. Okay.
    Mr. McFarland. And we have, as I said, we've been involved 
to a limited basis.
    Mr. Lynch. All right. I'm going to hold you to that. All 
right.
    Mr. Beaudoin, we're looking at some broad across-the-board 
cuts here. I know that you've got a pretty good agency-to-
agency viewpoint. What do you think about the impending cuts, 
furloughs, things like that across these different agencies for 
Federal employees? What do you think the impact of this is 
going to be if sequestration keeps going as it's currently 
intended?
    Mr. Beaudoin. I think, sir, that you are going to see a lot 
more people taking early retirement versus those people that 
would have stayed on for a number of more years. And then it's 
going to be harder to replace them with the same caliber, the 
same education, the same expertise that the outgoing people 
have because really no one will want to work for the government 
because of the furloughs, frozen salaries, the way that the 
government employees are being treated now, and the way that 
the public looks at them, that they're overpaid, and all the 
bad press. So I think we're going to see, as I say, a lot more 
retirements, and we're going to have trouble refilling those 
positions.
    Mr. Lynch. Very good. Thank you.
    I'll yield back.
    Mr. Farenthold. Thank you very much.
    Ms. Norton, did you have--or I guess Mr. Clay would be 
next.
    Mr. Clay. I really don't.
    Ms. Norton. No questions.
    Mr. Farenthold. We timed that perfectly. The buzzer, as you 
just heard, was the House calling for votes. I would like to 
thank the witnesses, both for their testimony today and in many 
cases their service to our government. This committee is the 
watchdog for the Federal taxpayers, and we want to work with 
you to be better stewards of the taxpayers' money, and combat 
waste, fraud, and abuse at every opportunity. We'll continue to 
follow this. And I encourage everybody to keep up the hard 
work. Thank you very much. And we are adjourned.
    [Whereupon, at 10:48 a.m., the subcommittee was adjourned.]

                                 
