Federal Pensions: DOL Oversight and Thrift Savings Plan
Accountability (23-APR-03, GAO-03-400).
The Thrift Savings Plan (TSP) is a retirement savings and
investment plan for federal employees, governed by the Federal
Retirement Thrift Investment Board (the TSP Board). Recent events
relating to the TSP Board's contract to upgrade TSP's record
keeping system have raised questions about the management of the
TSP. In light of the TSP Board's actions relating to the record
keeping system and the recent submission of the TSP Board's
legislative proposal that would enhance its independence,
Congressional requesters asked us to examine federal oversight of
the TSP Board. Specifically, our objectives were to (1) describe
the Department of Labor's (DOL) oversight authority, under the
Federal Employees' Retirement System Act of 1986 (FERSA) and (2)
determine the actions DOL has taken in exercising its authority
over TSP.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-03-400
ACCNO: A06720
TITLE: Federal Pensions: DOL Oversight and Thrift Savings Plan
Accountability
DATE: 04/23/2003
SUBJECT: Civil service pensions
Federal employee retirement programs
Financial management
Records management
Reporting requirements
Retirement pensions
Federal Employees Retirement System
Thrift Savings Plan
******************************************************************
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GAO-03-400
Report to Congressional Requesters
United States General Accounting Office
GAO
April 2003 FEDERAL PENSIONS DOL Oversight and Thrift Savings Plan
Accountability
GAO- 03- 400
DOL is charged under FERSA with establishing an audit program of TSP and
its operations. The audit program is to ensure that TSP assets have been
reasonably safeguarded and that appropriate steps have been taken by TSP
fiduciaries to comply with FERSA. If DOL finds that the Executive Director
or TSP Board members have breached their fiduciary responsibilities, under
FERSA, DOL cannot take legal action or obtain monetary penalties against
the Executive Director and TSP Board members, although DOL may do so
against other TSP fiduciaries. This limitation contrasts with DOL*s
authority in overseeing private pension plans under the Employee
Retirement Income Security Act of 1974 (ERISA), which set certain minimum
standards for pension plans sponsored by private employers and gives DOL
authority to interpret and enforce those standards. Under ERISA, DOL is
allowed to seek remedies to correct fiduciary violations.
DOL exercises its authority over the TSP Board through recommendations
developed in its audit program, which is contracted to a public accounting
firm to perform. DOL makes its recommendations to the TSP Board and
service providers. However, the TSP Board is not required to implement
DOL*s recommendations. Since the inception of the audit program, DOL has
made 810 recommendations to the TSP Board and its service providers.
According to our analysis of DOL and TSP data, the TSP Board has
implemented roughly 95 percent of DOL*s recommendations, with the majority
of the remaining recommendations scheduled for implementation in 2003.
While the TSP Board does not always concur with DOL*s recommendations, the
TSP Board and DOL have resolved disputed recommendations by developing an
alternative to address the disputed reviewed areas. However, DOL has also
raised issues of concern to the TSP Board, in addition to making
recommendations, where the TSP Board has not resolved the issue with DOL.
In these instances, there is no formal process with which to ensure that
the TSP Board is held accountable for these actions. Reporting Process for
Each TSP Review
Implementation of recommendations
by the Board Report presented
to the Board Draft report
review Entrance
conference Fieldwork
auditee Comments All players meet Auditee
reviews Labor
action Labor responds Board
responds Source: GAO's Analysis of DOL's Documentation. The Thrift Savings
Plan (TSP) is a retirement savings and investment plan for federal
employees,
governed by the Federal Retirement Thrift Investment Board (the TSP
Board). Recent events relating to the TSP Board*s contract to upgrade
TSP*s record keeping system have raised
questions about the management of the TSP. In light of the TSP Board*s
actions relating to the record keeping system and the recent submission of
the TSP Board*s legislative proposal that would enhance its independence,
you asked us to examine federal oversight of the TSP Board. Specifically,
our objectives were to
(1) describe the Department of Labor*s (DOL) oversight authority, under
the Federal Employees*
Retirement System Act of 1986 (FERSA) and (2) determine the actions DOL
has taken in exercising its authority over TSP. To strengthen DOL
oversight and
to increase accountability of the TSP Board, Congress should consider
amending FERSA to require DOL to establish a formal process by which the
Secretary of Labor can report to the Congress
issues of critical concern associated with the actions of the Executive
Director and TSP Board members. www. gao. gov/ cgi- bin/ getrpt? GAO- 03-
400. To view the full report, including the scope
and methodology, click on the link above. For more information, contact
Barbara D. Bovbjerg at (202) 512- 7215. Highlights of GAO- 03- 400, a
report to
Congressional Requesters
April 2003
FEDERAL PENSIONS
DOL Oversight and Thrift Savings Plan Accountability
Page i GAO- 03- 400 Federal Pensions Letter 1 Results in Brief 2
Background 3 FERSA Requires DOL to Audit the TSP Board and Its Operations
4 DOL Makes Audit Recommendations to the TSP Board but Has No Formal
Process With Which to Ensure That Additional Concerns
Are Addressed 7 Conclusion 10 Matter For Congressional Consideration 11
Agency Comments 11 Appendix I Department Of Justice Is Responsible for
Representing Federal Agencies 13
Appendix II Process for TSP Audits 14
Appendix III Comments from the Federal Retirement Thrift Investment Board
17
Table
Table 1: DOL Recommendations Made Through Its Audit Program 8 Figure
Figure 1: DOL*s Typical Audit Program Report Process 15 Contents
Page ii GAO- 03- 400 Federal Pensions Abbreviations
AMS American Management Systems, Inc. CSRS Civil Service Retirement System
DOJ Department of Justice DOL Department of Labor EBSA Employee Benefits
Security Administration ERISA Employee Retirement Income Security Act of
1974 FERS Federal Employees* Retirement System FERSA Federal Employees*
Retirement System Act of 1986
NFC National Finance Center TSP Thrift Savings Plan
This is a work of the U. S. Government and is not subject to copyright
protection in the United States. It may be reproduced and distributed in
its entirety without further permission from GAO. It may contain
copyrighted graphics, images or other materials. Permission from the
copyright holder may be necessary should you wish to reproduce copyrighted
materials separately from GAO*s product.
Page 1 GAO- 03- 400 Federal Pensions April 23, 2003 The Honorable Thomas
M. Davis III Chairman
Committee on Government Reform House of Representatives The Honorable
Danny K. Davis Ranking Member Subcommittee on Civil Service
and Agency Organization Committee on Government Reform House of
Representatives
The Honorable Dave Weldon, M. D. House of Representatives
The Thrift Savings Plan (TSP) is a retirement savings and investment plan
for federal employees, governed by the Federal Retirement Thrift
Investment Board (the TSP Board). TSP is a defined contribution retirement
plan 1 within the Federal Employees* Retirement System (FERS). Recent
events relating to the TSP Board*s cancellation of the
contract to upgrade TSP*s record keeping system have raised questions
about the management of the TSP. TSP is now involved in court proceedings
related to the contract. In light of the TSP Board*s actions relating to
the record keeping system and the recent submission of the TSP Board*s
legislative proposal that would enhance its independence, you asked us to
examine federal oversight of the TSP. Specifically, our objectives were to
(1) describe the Department of Labor*s (DOL) oversight authority, under
the Federal Employees* Retirement System Act of 1986 (FERSA) and (2)
determine the actions DOL has taken in exercising its authority over the
TSP Board. You also asked us to discuss the Department of Justice*s
responsibility in representing federal agencies in the courts. (See app. I
for more information.)
1 Under a defined contribution plan, employees have individual accounts to
which the employer, employees, or both can make periodic contributions.
Defined contribution plan benefits are based on the contributions to and
the investment returns (gains and losses) on individual accounts.
United States General Accounting Office Washington, DC 20548
Page 2 GAO- 03- 400 Federal Pensions To determine DOL*s oversight
authority under FERSA, we analyzed FERSA and relevant DOL regulations, as
well as the TSP Fiduciary
Oversight Program manuals and documentation. We also interviewed officials
from the TSP Board, DOL, and DOL*s contracted public accounting firm. To
determine the actions DOL has taken in exercising its authority, we
reviewed and analyzed all audit recommendations since TSP*s inception. We
also interviewed officials from DOL and its contracted public accounting
firm about the audit process and how they establish their audit
recommendations.
We conducted our work between November 2002 and April 2003 in accordance
with generally accepted government auditing standards.
DOL is charged under FERSA with establishing an audit program of TSP and
its operations. The audit program is to ensure that TSP assets have been
reasonably safeguarded and that appropriate steps have been taken by TSP
fiduciaries 2 to comply with FERSA. If DOL finds that the Executive
Director or the TSP Board members have breached their fiduciary
responsibilities, under FERSA, DOL cannot take legal action or obtain
monetary penalties against the Executive Director and the TSP Board
members, although DOL may do so against other TSP fiduciaries. This
limitation contrasts with DOL*s authority in overseeing private pension
plans under the Employee Retirement Income Security Act of 1974 (ERISA),
which sets certain minimum standards for pension plans sponsored by
private employers and gives DOL authority to interpret and enforce those
standards. Under ERISA, DOL is allowed to seek remedies
to correct fiduciary violations. DOL exercises its authority over the TSP
Board through recommendations developed in its audit program, which is
contracted to a public accounting firm to perform. DOL makes its
recommendations to the TSP Board and its service providers. 3 However, the
TSP Board is not required to implement DOL*s recommendations. Since the
inception of the audit program, DOL
2 A fiduciary is a person who has discretionary control or authority over
the management or administration of a plan, including management of plan
assets. 3 Service providers include such entities as the National Finance
Center (NFC), Barclays Global Investments (the investment manager),
Metropolitan Life that issues TSP*s annuities, and federal agencies that
are responsible for providing processes and procedures for federal
employees to participate in TSP through their agency. Results in Brief
Page 3 GAO- 03- 400 Federal Pensions has made 810 recommendations to the
TSP Board and its service providers. According to our analysis, the TSP
Board has implemented
roughly 95 percent of DOL*s recommendations, with the majority of the
remaining recommendations scheduled for implementation in 2003. While the
TSP Board does not always concur with DOL*s recommendations, the TSP Board
and DOL have resolved disputed recommendations by developing an
alternative to address the disputed reviewed areas. However, DOL has also
raised issues of concern to the TSP Board, in addition to making
recommendations, where the TSP Board has not resolved the issue with DOL.
In these instances, there is no formal process with which to ensure that
the TSP Board is held accountable for these actions.
This report includes a Matter for Congressional Consideration to require
DOL to establish a formal process by which the Secretary of Labor can
report to the Congress issues of critical concern associated with the
actions of the Executive Director and the TSP Board members.
As of September 30, 2002, the TSP Board reported that the TSP had about 3
million participants and fund balances totaling approximately $96 billion,
making it one of the largest retirement savings plans in the United
States. TSP is available to federal and postal employees, Members of
Congress
and congressional employees, members of the uniformed services, members of
the Judicial branch and persons covered by FERS or the Civil Service
Retirement System (CSRS). 4 TSP provides federal (and in certain cases,
state) income tax deferral on employee contributions and related earnings.
TSP*s assets and earnings on these assets generally cannot be
used for any purpose other than providing benefits to participants and
their beneficiaries, and paying TSP administrative expenses. Through
FERSA, Congress established the Federal Retirement Thrift
Investment Board to administer TSP. The TSP Board is an independent agency
in the Executive Branch of the Government, which oversees and assumes
certain fiduciary and administrative responsibilities, such as performing
its TSP responsibilities solely in the interest of the participants and
beneficiaries of TSP. Similar to fiduciaries of private pension plans
4 CSRS is a retirement plan for federal employees and covers employees
hired prior to January 1, 1984. It is a defined benefit plan, a plan that
specifies the benefit to be received at retirement by the participant.
Employees hired after December 31, 1983, are not eligible for coverage in
CSRS, but participate in either FERS or another CSRS Plan. Background
Page 4 GAO- 03- 400 Federal Pensions under ERISA, TSP fiduciaries are the
persons who have discretionary control or authority over the management or
administration of the plan,
including the management of the plan*s assets. The TSP fiduciaries include
the TSP Board*s Executive Director and its five Board members. 5 The TSP
Board members are presidential appointees, who appoint the TSP Executive
Director. The chairman and the TSP Board members are appointed to 4- year
terms. The Executive Director and staff are responsible for managing the
daily operations of TSP. The TSP Board members are responsible for
establishing policies for the investment and management of TSP and are
ultimately responsible for the oversight of daily TSP contribution record
keeping and accounting activities.
As a part of administering the TSP, the TSP Board contracted with the
American Management Systems, Inc. (AMS) to develop and implement a new
record keeping system for the TSP in 1997. However, according to the TSP
Board, AMS had consistently failed to adhere to the schedules established
for delivery of the new system and was unable to perform the contract
under a given timetable. As a result, in 2001 the TSP Board terminated the
contract and subsequently the Executive Director filed a lawsuit on behalf
of TSP. 6 This lawsuit is presently before the United States Court of
Appeals for the District of Columbia.
Under FERSA, DOL is charged with establishing a program to carry out
audits to determine the level of TSP compliance with FERSA requirements
relating to fiduciary responsibilities. ERISA is the law that governs
private employer sponsored plans. Although DOL is responsible for
enforcing the fiduciary responsibility provisions for both ERISA and
FERSA, DOL has the authority to bring legal action against all fiduciaries
under ERISA, but does not have such authority over the Executive Director
or TSP Board members under FERSA. However, DOL can bring legal actions
against other non- Board member fiduciaries under FERSA.
5 There are also non- Board member fiduciaries that include entities such
as TSP*s service providers and the NFC. 6 The TSP Board*s litigation was
initiated by the Executive Director who has subsequently resigned from the
TSP Board. FERSA Requires DOL
to Audit the TSP Board and Its Operations
Page 5 GAO- 03- 400 Federal Pensions FERSA was designed to protect the
rights and interests of TSP participants and prescribes the
responsibilities of the Executive Director
and the TSP Board members. FERSA requires the Secretary of Labor to carry
out audits of the TSP Board and its operations. 7 DOL*s audits are to
ensure that TSP assets have been reasonably safeguarded and that
appropriate steps have been taken by TSP fiduciaries to comply with FERSA.
Through its audit program, DOL determines whether TSP fiduciaries have
complied with FERSA and the TSP Board regulations relating to FERSA. DOL
also determines whether TSP fiduciaries are acquiring, protecting, and
using TSP resources economically, efficiently, and solely in the interest
of TSP participants and beneficiaries. DOL*s Employee Benefits Security
Administration*s (EBSA) Office of Chief Accountant administers this
program on behalf of the Secretary of Labor.
FERSA specifically requires that DOL*s audit program ensure compliance
with FERSA requirements relating to fiduciary responsibilities and
prohibited activities of fiduciaries. TSP fiduciaries are required to
perform their responsibilities in the interest of participants and
beneficiaries for the exclusive purpose of providing benefits to
participants and their beneficiaries and defraying the reasonable expenses
of administering TSP. Other fiduciary responsibilities include:
Using the care, skill, prudence, and diligence under the prevailing
circumstances that a prudent individual acting in a like capacity and
familiar with such matters would use in the conduct of an enterprise of a
like character and with like objectives. To the extent permitted by law,
diversifying the investments of the fund
so as to minimize the risk of large losses, unless under the circumstances
it is clearly prudent not to do so.
DOL is also required to determine TSP fiduciary*s compliance with FERSA*s
prohibited transaction provisions. Prohibited transactions include a
fiduciary dealing with TSP assets in his or her own interest or for his or
her account. Other prohibited transactions relate to fiduciaries engaging
in transactions involving TSP on behalf of a party or representing
7 DOL usually audits the TSP Board and its operations annually. FERSA
Requires DOL or
DOL*s Designee to Audit the TSP Board
Page 6 GAO- 03- 400 Federal Pensions a party whose interests are adverse
to the interest of TSP or the interests of its participants or
beneficiaries. 8 DOL is responsible for enforcing fiduciary responsibility
provisions of
both ERISA and FERSA. 9 Although FERSA requires DOL to audit TSP, it does
not grant DOL the authority to take legal or other measures against the
Executive Director or a TSP Board member if such fiduciaries are found to
have violated FERSA requirements. Under a 1988 amendment 10 to FERSA, the
Secretary of Labor cannot initiate a civil action against the Executive
Director or a TSP Board member. Because of this lack of enforcement
authority, DOL cannot bring legal actions against the Executive Director
or a TSP Board member to enforce FERSA fiduciary provisions. However, the
Secretary of Labor can initiate a civil action against other persons who
are fiduciaries of TSP but only for fiduciary
breaches. 11 ERISA sets minimum standards for pension plans sponsored by
private employers and gives DOL the authority to interpret and enforce
certain minimum standards for private pension plans sponsored by private
employers. Under ERISA, DOL is allowed to seek remedies to correct
fiduciary violations of ERISA, including using litigation when necessary.
Plan fiduciaries under ERISA must avoid conflicts of interest whereby they
or parties that manage or provide services to the plan could benefit from
the fiduciary*s actions. Fiduciaries who do not follow ERISA principles
regarding prohibited activities may be personally liable for any
8 In addition, other prohibited transactions include a fiduciary receiving
consideration for his or her own personal account from any party dealing
with sums credited to TSP in connection with a transaction involving TSP
assets; engaging in transactions with any
person whom the fiduciary knows to be a party in interest; and causing TSP
to own any assets outside the jurisdiction of the district courts of the
United States.
9 Congress designed ERISA to protect the rights and interests of private
pension plan participants and beneficiaries and outlined the
responsibilities of the employers and administrators who sponsor and
manage these plans.
10 Pub. L. No. 100- 238 (1988). 11 Any fiduciary other than the Executive
Director or TSP Board member who breaches his fiduciary responsibility,
duty, or obligation, as set out in FERSA, shall be personally liable to
TSP for any losses resulting from each breach or violation and will be
responsible for restoring to TSP any profits made through use of TSP
assets, and shall be subject to such other equitable or remedial relief a
court may consider appropriate. These fiduciaries may
also be removed for a fiduciary breach. DOL Cannot Take Legal
Actions Against the Executive Director Or a TSP Board Member Under FERSA,
but Can Take Legal Actions Against Any Fiduciary Under ERISA
Page 7 GAO- 03- 400 Federal Pensions losses to the plan, or for restoring
any profits made through improper use of the plan*s assets. According to
DOL, its primary goal in litigating a case is to ensure that a plan*s
assets, and therefore, its participants and
beneficiaries, are protected. DOL exercises its authority over the TSP
Board through recommendations developed in its audit program, which is
contracted to a public accounting firm to perform. DOL makes its
recommendations to the TSP Board and service providers and since inception
has made 810 recommendations to the TSP Board and its service providers.
The TSP Board is not required to implement DOL*s recommendations and does
not always agree with DOL*s
recommendations, although they have implemented approximately 95 percent
of DOL*s recommendations with the majority of the remaining
recommendations scheduled for implementation in 2003. However, if DOL has
concerns with the Executive Director or a TSP Board member*s actions there
is no formal process by which to ensure the Executive Director and TSP
Board members are held accountable for their actions.
DOL exercises its authority over the TSP Board through recommendations
developed in its audit program, which is performed by auditors of a public
accounting firm. 12 These auditors report solely to DOL and do not report
to the TSP Board. The auditors* primary responsibility is conducting
fiduciary audits, which include audits of TSP and its service providers.
Although the Executive Director and TSP Board members are ultimately
responsible for managing TSP, they implement their fiduciary
responsibility through third party contracts with service providers that
actually carry out the day- to- day operations of TSP, such as record
keeping of and investing TSP funds. Consequently, audits are primarily
conducted on TSP*s service providers.
DOL, in directing its contract auditors, determines the audits to be done
each year. Auditing officials said that issues from previous audits and
issues confronting TSP*s service providers usually determine the types of
audits performed. DOL officials stated that they also present any relevant
concerns that they think the auditors should address based on issues DOL
12 FERSA allows DOL to contract out its reviews using qualified
nongovernmental organizations, such as an accounting firm, or in
cooperation with the Comptroller General of the United States, as the
Secretary of Labor considers appropriate. DOL Makes Audit
Recommendations to the TSP Board but Has No Formal Process With Which to
Ensure That Additional Concerns Are Addressed
DOL Exercises Its Authority Through Recommendations Made Through Its Audit
Program
Page 8 GAO- 03- 400 Federal Pensions identified during its investigations
of private pension plans. Once DOL approves the audits, DOL and the
auditors meet with the TSP Board to
inform them of the number of audits that will be conducted and the topics
each review will address for the coming year. Arrangements are then made
with the appropriate TSP service provider, informing them of the audit.
DOL has spent roughly $350,000 to $750,000 per year on TSP audits over the
last 5 years. Funding for the TSP contract has varied based on DOL*s other
contracting needs. See appendix II for more information on the audit
report process.
DOL reviews auditor*s recommendations and once approved, presents the
recommendations to the TSP Board and its service providers. DOL officials
said that recommendations are made when the potential for significant
improvement in operations and performance is substantiated by audit
findings. In addition, DOL makes recommendations that affect compliance
with FERSA and TSP Board policies and improve management
controls when significant instances of noncompliance are noted or
significant weaknesses in controls are found.
As of November 1, 2002, the TSP Board*s recommendation status report noted
that 810 audit recommendations have been made to the TSP Board and its
service providers. The TSP Board classifies DOL*s
recommendations into three categories (1) NFC recommendations that relate
to some component of the record keeping system, (2) TSP Board audit
recommendations that relate to the administrative component of the TSP
Board and service providers, and (3) recommendations made jointly to NFC
and the TSP Board. As shown in table 1, the majority of the
recommendations have been made to NFC.
Table 1: DOL Recommendations Made Through Its Audit Program Focus of
Recommendation Number of
recommendations Percentage of all
recommendations made to each entity
NFC 497 61 TSP Board 219 27 Joint NFC and TSP Board 94 12
Total 810 100
Source: GAO*s analysis of the TSP Board and DOL data.
DOL reports that the TSP Board has implemented about 95 percent of DOL*s
recommendations. To keep track of the reviews and recommendations over the
years, the TSP Board has maintained an
Page 9 GAO- 03- 400 Federal Pensions extensive database outlining the
overall status of all audits and recommendations, issued by DOL, to ensure
that all recommendations are
addressed. DOL has also maintained its own database. However, both DOL and
TSP Board officials recognized that there are discrepancies in the number
of open versus closed recommendations in each of their databases.
According to the TSP Board, 10 recommendations are open. 13 Using TSP
Board numbers, the TSP Board has implemented approximately 99 percent of
all recommendations. However, DOL reports that 41 recommendations are open
and using DOL numbers, approximately 95 percent of all recommendations
have been implemented, with the majority of the remaining recommendations
scheduled for implementation in 2003. 14 Both the TSP Board and DOL
officials say that the discrepancy is due to the time lapse that exists
between the TSP Board*s implementation of the recommendations and DOL*s
follow- up review. Once the TSP Board or the service provider implements
the recommendations, the TSP Board will close the outstanding
recommendations. However, DOL will maintain
the recommendations as open until an additional review is conducted of TSP
or its service providers, ensuring that the TSP Board has addressed the
audit recommendations to the auditor*s satisfaction.
The TSP Board and its service providers are not statutorily required to
implement any of DOL*s audit recommendations. According to the DOL and TSP
officials, this voluntary process has generally worked well since the
audit program*s inception. TSP officials have said that if in their
opinion a recommendation has merit, the TSP Board adopts it; otherwise,
the TSP Board does not implement it. Although the TSP Board does not
always concur with DOL*s recommendations, the TSP Board and DOL have
resolved disputed recommendations by developing an alternative to the
proposed recommendation.
13 Six recommendations pertain to NFC and four recommendations pertain to
the TSP Board. 14 DOL auditors classify the 41 open recommendations into
three categories: (1) 23 recommendations such as recommendations related
to security access and controls address fundamental controls, which focus
on significant procedures or processes that have been designed and
operated to reduce the risk that material intentional or unintentional
processing errors could occur; (2) 12 recommendations that address less
critical controls, which concentrate on procedures and processes that
augment
fundamental controls; and (3) 6 recommendations that address enhancing
efficiency and effectiveness of specific processes, methods, and internal
controls.
Page 10 GAO- 03- 400 Federal Pensions DOL has raised issues of concern to
the Executive Director and TSP Board members outside its routine TSP
compliance audit reporting process. The
Executive Director and TSP Board members have not always agreed with DOL,
and while the TSP Board members maintain the issue is resolved, from DOL*s
perspective the concern has not been addressed. In these instances, since
FERSA does not provide DOL with a formal process to resolve issues of
dispute, there is no process by which DOL can ensure that the Executive
Director and TSP Board members are held accountable for their actions.
Recently, DOL strongly expressed concerns about certain actions taken by
the Executive Director and TSP Board members. For example, DOL had
concerns about the authority of TSP Board members to pursue a lawsuit
against the company contracted by the TSP Board to upgrade the TSP record
keeping system. DOL sought to convince the TSP Board members of the
seriousness of the matter and persuade the Executive Director and TSP
Board members to take corrective steps prior to DOL opening an audit or
investigation. In response, both the Executive Director and TSP Board
members took issue with DOL*s authority to question the TSP Board*s
actions and continued to pursue its litigation. In addition, DOL for years
has informally recommended that the TSP Board establish its own internal
audit function that would report directly to the Executive Director and
TSP Board members. Although the Executive Director and TSP Board members
evaluated establishing their own internal audit function, they have not
done so and consider the matter to be closed.
Given the absence of enforcement authority under FERSA, the Executive
Director and TSP Board members are not held accountable for their actions
when they disagree with DOL. Although the TSP Board is required under the
Inspector General Act Amendments of 1988 15 to send its annual audit
reports to Congress specifying any actions taken by the TSP Board
including summaries of significant audit findings, DOL cannot require the
Executive Director or TSP Board members to take specific actions if the
TSP Board declines to address DOL*s concerns.
FERSA established the governance structure of the TSP and ensured that,
through an audit program under DOL, fiduciary compliance would be
monitored. FERSA, however, allows the Executive Director and TSP
15 Pub. L. 100- 504. No Formal Process Exists
to Ensure Accountability of the Executive Director and TSP Board Members
Conclusion
Page 11 GAO- 03- 400 Federal Pensions Board members to be the final
decision makers on the proper governance of TSP with limited external
oversight. Amending FERSA to allow DOL to
have a formal process, to ensure its concerns are resolved, could help
ensure that actions by the Executive Director or TSP Board members, which
DOL deems inappropriate, are addressed.
To strengthen DOL oversight and to increase accountability of the TSP
Board, Congress should consider amending FERSA to require DOL to establish
a formal process by which the Secretary of Labor can report to the
Congress issues of critical concern about actions of the Executive
Director and TSP Board members.
We provided a draft of this report to the Federal Retirement Thrift
Investment Board, the Department of Labor, and the Department of Justice
(DOJ) for their review and comment. We received written comments from the
Federal Retirement Thrift Investment Board, which are reprinted in
Appendix III. The Federal Retirement Thrift Investment Board generally
agreed with our findings and conclusions. DOL and the TSP Board also
provided technical comments on the draft. We incorporated each agency*s
comments as appropriate.
As agreed with your offices, unless you publicly announce its contents
earlier, we plan no further distribution of this report until 30 days
after its issue date. At that time, we will send copies of this report to
the Secretary of Labor, the Federal Retirement Thrift Investment Board,
and the Department of Justice. We will also make copies available to
others on request. In addition, the report will be available at no charge
on GAO*s Web site at http:// www. gao. gov. Matter For
Congressional Consideration
Agency Comments
Page 12 GAO- 03- 400 Federal Pensions If you have any questions concerning
this report, please contact me at (202) 512- 7215 or George Scott at (202)
512- 5932. Other major contributors
include Richard Burkard, Tamara Cross, Patrick DiBattista, Kim Granger,
Jason Holsclaw, and Roger Thomas.
Barbara D. Bovbjerg Director, Education, Workforce
and Income Security Issues
Appendix I: Department Of Justice Is Responsible for Representing Federal
Agencies
Page 13 GAO- 03- 400 Federal Pensions Generally, the Department of Justice
(DOJ) has responsibility for representing federal agencies in the courts.
Unless otherwise authorized
by law, the conduct of litigation involving any federal agency is reserved
to the DOJ. 1 Moreover, an agency generally may not employ an attorney for
the conduct of litigation in which the agency is a party, but must refer
the matter to DOJ. 2 DOJ officials we spoke with told us that they
consider themselves to have broad authority to represent the federal
government in court, regardless of the particular facts or circumstances.
The officials stated that in most cases an agreement can be reached with
the agency and DOJ as to whether or not to pursue a particular case;
however, if an agreement cannot be reached, the Attorney General makes the
final decision.
Congress, however, has created a number of exceptions to DOJ*s control
over agency litigation, and has authorized, to varying degrees, certain
executive, legislative, and independent agencies to conduct litigation on
their own behalf. This grant of authority to agencies has in some
instances been broad, as in the case of the Federal Deposit Insurance
Corporation (FDIC). By statute, FDIC may sue or represent itself, *through
its own attorneys, in any court of law or equity, State or Federal.* 3
Often, however, Congress limits the authority of the agency to sue only
under a particular program or for a limited purpose. 4 Moreover, when
Congress authorizes agencies to represent themselves, it may require that
the agency consult or obtain the concurrence of DOJ. 5 1 28 U. S. C. 516,
519.
2 5 U. S. C. 3106. 3 12 U. S. C. 1819( a). FDIC v. Irwin, 727 F. Supp.
1073 (N. D. Tex. 1989), aff*d on other grounds, 916 F. 2d 1051 (5 th Cir.
1990). 4 7 U. S. C. 216 (authorizing the Secretary of Agriculture to
enforce certain orders in District Court). 5 29 U. S. C. 663, authorizing
the Solicitor of Labor to represent the Department of Labor for certain
purposes, subject to the control of the Attorney General. Appendix I:
Department Of Justice Is
Responsible for Representing Federal Agencies
Appendix II: Process for TSP Audits Page 14 GAO- 03- 400 Federal Pensions
Before each audit, DOL*s Employees Benefits Security Administration*s
(EBSA) Chief Accountant notifies the Federal Retirement Thrift
Investment Board*s Executive Director of the proposed entity that will be
audited and instructs the Executive Director to notify the proposed
auditee of the pending field visit for purposes of arranging an entrance
conference. Upon arrival at the entity to be audited, the independent
auditors are responsible for conducting audits in accordance with our
Government Auditing Standards and DOL*s Audit Program Manuals. DOL*s
independent auditors may perform one of four types of audits, full scope,
limited scope, restricted scope, and special project reviews. 1 After the
entrance conference, the independent auditing firm conducts fieldwork and
drafts a report of its findings. Figure 1 highlights the individual steps
taken by each entity in the auditing process, including the auditee, the
independent auditors, DOL, and the TSP Board.
1 A full scope review includes determining the overall adequacy and
effectiveness of applicable procedures and controls, examining significant
changes in the applicable procedures, and determining the status of prior
year recommendations. The full scope review includes statistical samples
and resulting conclusions inferable to the entire system
tested. The limited scope review focuses primarily on the status of all
open prior recommendations, and may also incorporate analyzing a
nonstatistical sample of transactions. Restricted scope reviews utilize
only certain audit program guides within the TSP Fiduciary Oversight
Program, and perhaps will include nonstatistical sampling procedures. On
occasion, the auditors will also perform a number of special projects,
usually at the specific request of DOL. Special projects address a
particular area of focus, which is not covered by the TSP Fiduciary
Oversight audit program guide. Appendix II: Process for TSP Audits
Appendix II: Process for TSP Audits Page 15 GAO- 03- 400 Federal Pensions
Figure 1: DOL*s Typical Audit Program Report Process
Entrance conference
All players meet
1.
Completion of audit fieldwork
Independent Auditors
2.
Report writing
Independent Auditors
Exit conference (recommendations discussed and possibly modified)
Auditee, audit team, DOL, & Board reps
3. 4.
DOL submits draft report for technical comments
Auditee & Board Staff
5.
Official draft report issuance by DOL
Reviewed by auditee & Board staff
6.
DOL receives comments on draft report from auditee
and Board staff
7. After consideration of written comments, DOL issues the final report
8.
DOL forwards final report to TSP Board*s Executive Director for formal
comments
9. 10. Summary of final report forwarded to
DOL*s Asst. Secretary, EBSA,
for further action Presentation of
audit reports to the TSP Board by Executive Director
11.
TSP Board Executive Director issues a formal response to DOL
12.
Board/ auditee implement audit recommendations
13. DOL responds to TSP audit report
questions
14.
Source: GAO*s analysis of DOL*s documentation.
Appendix II: Process for TSP Audits Page 16 GAO- 03- 400 Federal Pensions
After audits are completed, recommendations are made to the TSP Board and
the auditee. DOL reviews all recommendations made before they are
presented to the TSP Board. The process works in such a way that the
auditors draft recommendations based, in part, on the service provider*s
input throughout the audit fieldwork. The auditors then provide DOL with
their findings and recommendations. Once DOL approves the recommendations,
an exit conference is held with the service provider. Auditing and DOL
officials said that DOL generally agrees with the auditor*s
recommendations and because the service provider acknowledges all
recommendations prior to the actual exit conference, no substantive
disagreements are generally voiced. According to DOL
officials, the recommendations may sometimes be modified if the same
objective can be obtained through a more efficient procedure than what the
original recommendation states. If this occurs, an additional draft report
is prepared by the auditors and sent to DOL and to the service providers.
The service provider is requested to respond, in writing, to the reported
recommendations within 30 days of receiving the revised draft report. If
the draft report contains anything potentially affecting other DOL offices
(e. g., DOL*s Solicitor*s Office), a copy is also forwarded for their
comment. Written comments are then advanced to EBSA*s Office of Federal
Employee Retirement System Act (FERSA) Compliance, where it is reviewed
and then forwarded to the auditors for inclusion in the final
report. The final report of an audit is usually sent to EBSA*s Chief
Accountant within 90 days of the exit conference with a service provider.
At that time, the Chief Accountant will sign the transmittal to the final
report indicating his/ her concurrence with the recommendations. The Chief
Accountant will then provide the final report, including all audit
recommendations, to the TSP Board*s Executive Director. The TSP Board*s
Executive Director is then requested to formally respond to DOL within 30
days of receiving the report. After the TSP Board review the
recommendations, it is given the opportunity to comment on the findings.
TSP Board officials said that
there are times when the TSP Board does not concur with the audit
recommendations. However, they said when this occurs, a consensus is
reached on an alternative way of addressing the issue that satisfies the
auditors. Eventually, the TSP Board*s Executive Director presents all
audit recommendations to the TSP Board members at a regularly scheduled
monthly meeting.
Appendix III: Comments from the Federal Retirement Thrift Investment Board
Page 17 GAO- 03- 400 Federal Pensions Appendix III: Comments from the
Federal Retirement Thrift Investment Board
(130223)
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