[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 202�09512�091800, or 866�09512�091800 (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.]