Federal Retirement Thrift Investment Board: Many Responsibilities
and Investment Policies Set by Congress (21-JUN-07, GAO-07-611).
The Thrift Savings Plan (TSP), a retirement savings and
investment plan for federal workers, held approximately $210
billion in retirement assets for 3.7 million participants, as of
February 2007. TSP is managed by the Federal Retirement Thrift
Investment Board (FRTIB). In light of questions about TSP
oversight, we examined (1) the current structure for overseeing
FRTIB, (2) how the statutorily defined fiduciary responsibilities
of FRTIB compare to the responsibilities of private plan sponsors
and how FRTIB fulfills its responsibilities, (3) how FRTIB's
investment policies differ from those of private plan sponsors,
and (4) FRTIB's statutory responsibilities to educate plan
participants about TSP and other retirement issues and how these
responsibilities compare with those of private and state and
local government employee plan sponsors.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-07-611
ACCNO: A71187
TITLE: Federal Retirement Thrift Investment Board: Many
Responsibilities and Investment Policies Set by Congress
DATE: 06/21/2007
SUBJECT: Congressional oversight
Education
Federal employee retirement programs
Investment planning
Reporting requirements
Retirement
Retirement benefits
Stocks (securities)
Thrift savings plan
Comparative analysis
Fiduciaries
Government agency oversight
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GAO-07-611
* [1]Results in Brief
* [2]Background
* [3]DOL and Congress Oversee FRTIB, but Oversight Has Not Includ
* [4]DOL Oversees FRTIB through Regular Audits
* [5]Congress' Oversight of FRTIB Has Not Involved Regular Hearin
* [6]TSP's Fiduciaries Have Similar Duties to Those of Private Pl
* [7]FRTIB Fiduciary Duties Are Similar to Private Plan Fiduciary
* [8]DOL Can Take Civil Action against Private Plan Fiduciaries b
* [9]TSP Fiduciaries Have Limited Discretion over Investment Poli
* [10]FERSA Prescribes TSP Investment Options
* [11]Private Plan Sponsors Have Greater Discretion to Select Inve
* [12]FRTIB and Other Federal Agencies Have Responsibility for Edu
* [13]FRTIB Develops TSP-Specific Educational Materials, and OPM P
* [14]Private Plan Sponsors Are Responsible for Informing Particip
* [15]Conclusion
* [16]Agency Comments and Our Evaluation
* [17]GAO Contact
* [18]Staff Acknowledgments
* [19]GAO's Mission
* [20]Obtaining Copies of GAO Reports and Testimony
* [21]Order by Mail or Phone
* [22]To Report Fraud, Waste, and Abuse in Federal Programs
* [23]Congressional Relations
* [24]Public Affairs
Report to Congressional Requesters
United States Government Accountability Office
GAO
June 2007
FEDERAL RETIREMENT THRIFT INVESTMENT BOARD
Many Responsibilities and Investment Policies Set by Congress
GAO-07-611
Contents
Letter 1
Results in Brief 3
Background 5
DOL and Congress Oversee FRTIB, but Oversight Has Not Included Regular
Hearings 7
TSP's Fiduciaries Have Similar Duties to Those of Private Plan
Fiduciaries, but TSP Board Members and the Executive Director Have Special
Liability Protections 11
TSP Fiduciaries Have Limited Discretion over Investment Policy Compared to
Fiduciaries of Private Plans 15
FRTIB and Other Federal Agencies Have Responsibility for Educating
Participants on Retirement Issues, and Responsibilities Vary for Private
and State and Local Government Employee Plans 19
Conclusion 22
Agency Comments and Our Evaluation 22
Appendix I Selection of the Plan Sponsor Comparison Group 24
Appendix II Comments from the Federal Retirement Thrift Investment Board
26
Appendix III GAO Contact and Staff Acknowledgments 27
Table
Table 1: FERSA and FRTIB Investment Policies for Each TSP Fund 16
Abbreviations
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
FRTIB Federal Retirement Thrift Investment Board
FTCA Federal Tort Claims Act
OPM Office of Personnel Management
PSCA Profit Sharing/401(k) Council of America
TSP Thrift Savings Plan
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separately.
United States Government Accountability Office
Washington, DC 20548
June 21, 2007
The Honorable Susan M. Collins
Ranking Member
Committee on Homeland Security and Governmental Affairs
United States Senate
The Honorable Tom Davis
Ranking Member Committee on Oversight and
Government Reform House of Representatives
As of February 2007, the Thrift Savings Plan (TSP), a retirement savings
and investment plan for federal workers, held approximately $210 billion
in retirement assets for 3.7 million current and former federal employees.
Similar to private sector 401(k) plans, TSP allows employees to save for
retirement by diverting a portion of their pretax income into investment
accounts that can grow tax-free until withdrawn in retirement. In April
2006, the House Committee on Oversight and Government Reform held hearings
on TSP issues, resulting in concerns being raised about the adequacy of
the current oversight structure of TSP. The Federal Retirement Thrift
Investment Board (FRTIB) is responsible for day-to-day operations of TSP,
and the Department of Labor (DOL) has some oversight responsibilities,
primarily through conducting audits of TSP's operations. Subsequently, you
asked us to examine (1) the current structure for overseeing FRTIB, (2)
how the statutorily defined fiduciary^1 responsibilities of FRTIB compare
to the responsibilities of private plan sponsors and how FRTIB fulfills
its responsibilities, (3) how FRTIB's investment policies differ from
those of private plan sponsors, and (4) FRTIB's statutory responsibilities
to educate plan participants about TSP and other retirement issues and how
these responsibilities compare with those of private and state and local
government employee plan sponsors. ^2
^1A plan fiduciary includes a person who has discretionary control or
authority over the management or administration of a retirement plan,
including the plan's assets.
^2Private and public sector employers may sponsor pension plans for their
employees. A plan sponsor may include an employer, employee organization,
or both. Generally, the plan sponsor has ultimate responsibility for the
plan.
To address our objectives, we analyzed provisions of the Federal
Employees' Retirement System Act of 1986 (FERSA),^3 which governs the
administration of TSP, and the Employee Retirement Income Security Act of
1974 (ERISA),^4 which governs the administration of pension plans in the
private sector. To examine the current structure for overseeing FRTIB, as
well as our other objectives, we interviewed DOL officials, and analyzed
various documents from both DOL and FRTIB, including DOL regulations,
audit manuals, and reports. Additionally, to determine how FRTIB's
statutorily defined fiduciary responsibilities compare to the
responsibilities of private plan sponsors, and how FRTIB fulfills its
responsibilities, as well as what FRTIB's investment policies are and how
its policies differ from those of private plan sponsors, we interviewed
representatives of industry associations and reviewed related documents,
including FRTIB memos, policies, Board meeting minutes, and
correspondences, and DOL's guidance to private plan sponsors. To determine
FRTIB's responsibilities for educating plan participants about TSP and
other retirement issues, we examined information from TSP's Web site,
spoke with Office of Personnel Management (OPM) officials, and reviewed
FRTIB documents. To compare FRTIB's education responsibilities with those
of other plan sponsors, we interviewed representatives of industry
associations, and officials representing sponsors of five defined
contribution plans--four state and local government employee pension plans
and one private plan.^5 We selected plan sponsors based on plan assets,
plan type, and absence of fiduciary malfeasance. Appendix I describes the
selection of plan sponsors in greater detail. We also reviewed a 2005
industry survey to obtain additional information about how private plan
sponsors educate their participants.^6 We conducted our work between
August 2006 and June 2007 in accordance with generally accepted government
auditing standards. ^7
^35 U.S.C. SS 8401-8479.
^429 U.S.C. SS 1001-1461.
^5Seven private pension plans were contacted, but only one agreed to speak
with GAO staff.
Results in Brief
DOL and Congress both play roles in overseeing FRTIB. Under TSP's
authorizing statute, DOL is charged with establishing and conducting an
audit program of FRTIB to determine the level of compliance with
requirements relating to fiduciary^8 responsibilities and other
transactions.^9 According to DOL officials, the audit program covers all
significant aspects of TSP operations, including FRTIB policy formulation
and administration as well as functions performed by service providers,
like record keeping. While FRTIB and its service providers are not
required to implement DOL's audit recommendations, they have generally
implemented a high percentage of the recommendations. In addition to
oversight from DOL, FRTIB--like other federal agencies--is subject to
congressional oversight. While Congress exercises its legislative
oversight authority by holding occasional hearings and requiring FRTIB to
submit routine reports, oversight has not involved regular hearings.
Hearings on FRTIB have typically been in response to challenges with TSP
or proposed legislative changes. Also, DOL does not submit its audit
reports directly to Congress, nor is there any other specific mechanism in
place through which DOL reports areas of critical concern to Congress.
^6The survey was conducted by the Profit Sharing/401(k) Council of America
(PSCA). PSCA's survey results are based on responses from 1,106 plan
sponsors that have profit-sharing plans, 401(k) plans, or a combination of
both and represent 1 to 5,000-plus employees. The survey was mailed or
faxed to respondents and conducted from March 2006 to May 2006. The survey
provides a snapshot as of the end of 2005. The survey response rate was 21
percent. PSCA is a national, nonprofit association of 1,200 companies and
their 6 million plan participants. According to PSCA, it represents the
interests of its members to federal policy makers and offers assistance
with profit sharing and 401(k) plan design, administration, investment,
compliance, and communication.
^7For information about FRTIB's administrative expenses see GAO, Federal
Retirement Thrift Investment Board: Due Diligence over Administrative
Expenses Should Continue and Be Broadened, GAO-07-541 (Washington, D.C.:
May 14, 2007).
^8TSP fiduciaries include the five Board members, the Executive Director,
any person who has or exercises discretionary authority or control over
the management or disposition of TSP assets, and anyone who would be
considered a fiduciary under ERISA. 5 U.S.C. S 8477(a)(3). Under ERISA, a
fiduciary is generally anyone to the extent he or she exercises any
discretionary authority or control over plan management or any authority
or control over the management or disposition of plan assets, renders
investment advice respecting plan money or property for a fee or other
compensation, or has discretionary authority or responsibility for plan
administration. 29 U.S.C. S 1002(21)(a).
^95 U.S.C. S 8477(g)(1).
FRTIB's fiduciary duties are similar to those of fiduciaries of private
sector plans. Both FERSA and ERISA, the statute that governs private
sector pension plans, require fiduciaries to act prudently and solely in
the interest of plan participants and beneficiaries. To fulfill its
fiduciary duties, FRTIB has implemented policies and practices in several
of the areas mentioned in DOL's guidance for private sector plans. For
example, FRTIB selects and closely monitors service provider companies,
which carry out many of TSP's operations, including managing all but one
of the investment funds. However, unlike private plan fiduciaries, Board
members and the Executive Director are not subject to civil actions by DOL
for the breach of their duties or for engaging in certain transactions.
DOL is authorized to bring civil actions against fiduciaries of private
plans and other TSP fiduciaries, such as the company providing investment
management services. However, a 1988 amendment to FERSA exempted Board
members and the Executive Director from DOL's authority to bring such
actions.
FRTIB has less discretion than private sector plan sponsors in setting
investment policy; the investment options available to TSP participants
are largely outlined in law, whereas private sector plan sponsors are
responsible for choosing investment options to offer participants.
According to DOL, an important part of the fiduciary duties of acting
prudently and solely in participants' interest involves selecting
investment options. For TSP, FERSA specifies the number and types of
funds, such as one that invests in Treasury securities or in stocks of
large U.S. companies, and requires that some of these funds track indexes,
which are broad, diversified market indicators like the Standard & Poor's
500. FRTIB, then, may select the particular indexes for the funds to
follow as well as review the investment options and suggest additional
funds. Any change in TSP options, however, requires legislation. For
example, in 1995, the Board submitted a legislative proposal to add funds
for international stocks and for stocks in small and medium-sized U.S.
companies, and Congress amended FERSA the next year. Unlike FRTIB, private
plan sponsors have the authority to choose which investment options to
offer plan participants. Although ERISA and its regulations require that
they offer diversified options, private plan sponsors can determine, among
other things, the number and type of funds in their plans, and whether to
include funds that track a specific market index or those that specialize
in one sector, like telecommunications.
FRTIB and OPM are responsible for educating participants about TSP and
general retirement issues; private and state and local government employee
pension plan sponsors we spoke with, while governed by different rules,
are responsible for educating participants specifically about their plans,
but often choose to provide employees with additional retirement
information. Under FERSA, FRTIB is responsible for developing educational
materials for participants about TSP-specific issues, such as descriptions
of investment options.^10 For example, FRTIB provides information about
TSP fund options and their past rates of return on its Web site, automated
call line, and in written materials. FRTIB also assists OPM, which is
required to provide general retirement education to federal employees and
ensure that retirement counselors at federal agencies are trained to
provide workers information on topics such as making contributions or
withdrawals from TSP.^11 Private sector plan sponsors under ERISA are
required to provide information to participants on the investment options
in their plan, but are not required to provide general retirement
education information, although many plan sponsors do. For example, the
private sector plan sponsor we spoke with contracts with a service
provider to give employees one-on-one financial and investment counseling.
State and local government employee pension plan sponsors'
responsibilities vary based on the rules governing the plan, but the four
plans we studied educated participants about not only plan-specific
issues, but other matters. For example, the public plans gave participants
tools to calculate how much they will need to save for retirement.
Background
The Federal Employees' Retirement System Act of 1986 (FERSA) created TSP
to provide options for retirement planning and encourage personal
retirement savings among the federal workforce. Most federal workers are
allowed to participate in TSP, which is available to federal and postal
employees, including members of Congress and congressional employees and
members of the uniformed services, and members of the judicial branch.^12
^105 U.S.C. S 8439(c).
^115 U.S.C. S 8350 and S 8350 note.
^12FERSA created the Federal Employees' Retirement System (FERS). As part
of FERS, TSP is part of the current three-part retirement system for
federal employees--Social Security benefits, the basic benefit plan, and
TSP. OPM trains retirement counselors about each part of the plan. Prior
to FERS, most federal employees were covered by the Civil Service
Retirement System.
As of February 2007, TSP held approximately $210 billion in retirement
assets for 3.7 million current and former federal employees and their
families. Participants may allocate their contributions and any associated
earnings among five investment fund options: the G Fund, F Fund, C Fund, S
Fund, and I Fund.^13 Since August 2005, TSP participants also may choose
one of five Lifecycle funds, which diversify participant accounts among
the G, F, C, S, and I Funds, using investment mixes that are tailored to
different time horizons for retirement and withdrawal. The investment mix
of each Lifecycle fund adjusts quarterly to more conservative investments
as the participant nears retirement.
Pension plans are classified either as defined benefit or as defined
contribution plans. Defined benefit plans promise to provide, generally, a
fixed level of monthly retirement income that is based on salary, years of
service, and age at retirement regardless of how the plan's investments
perform. In contrast, benefits from defined contribution plans are based
on the contributions to and the performance of the investments in
individual accounts, which may fluctuate in value. Examples of defined
contribution plans include 401(k) plans,^14 employee stock ownership
plans, and profit-sharing plans.
As with other defined contribution plans, TSP is structured to allow
eligible federal employees to contribute a fixed percentage of their
annual base pay or a flat amount, subject to Internal Revenue Service
limits, into an individual tax-deferred account. Additionally, FERS
participants are eligible for automatic 1 percent contributions and
limited matching contributions from the employing federal agency.
According to FRTIB, TSP provides federal (and in most cases, state) income
tax deferral on contributions and their related earnings, similar to those
offered by many private sector 401(k)-type pension plans. Participants can
manage their accounts and conduct a variety of transactions similar to
those available to 401(k) participants, such as reallocating
contributions, borrowing from the account, making withdrawals, or
purchasing annuities.
^13The G Fund, managed by FRTIB, is composed of short-term nonmarketable
government securities issued exclusively for the Thrift Savings Fund. The
remaining four funds are managed by Barclays Global Investors and are
structured to track large index funds, which are debt or equity portfolios
composed of bonds or stocks of a large number of different companies. The
first of these funds, the Fixed Income Index Investment Fund, or F Fund,
is a bond market fund primarily invested in the Barclays U.S. Debt Index
designed to track the Lehman Brothers U.S. Aggregate Index. The second
fund, the C Fund, is TSP's large-company stock fund. It is invested in the
Barclays Equity Index Fund and tracks the Standard & Poor's 500 Index. The
Small Capitalization Stock Index Investment Fund, or S Fund, is invested
in Barclays Extended Market Index Fund and is managed to track the Dow
Jones Wilshire 4500 Completion Index. The I Fund is the TSP's
international stock index fund and is invested in Barclays EAFE Index Fund
(Europe, Australasia, and Far East) and holds shares of major companies
and industries in the European, Australian, and Asian stock markets.
^14Named after section 401(k) of the Internal Revenue Code, 401(k) plans
allow workers to save for retirement by diverting a portion of their
pretax income into an investment account that can grow tax-free until
withdrawn in retirement. 26 U.S.C. S 401(k).
Administration of TSP falls under the purview of the Federal Retirement
Thrift Investment Board, an agency established by Congress under FERSA.
FRTIB is composed of five Board members appointed by the President, with
the advice and consent of the Senate.^15 They are authorized to appoint
the Executive Director, who hires additional personnel,^16 and an Employee
Thrift Advisory Council. The Employee Thrift Advisory Council is a
15-member council that provides advice to the Board and the Executive
Director on the investment policies and administration of the TSP.^17 The
Board is responsible for establishing policies for the investment and
management of the TSP, as well as administration of the plan. The
Executive Director and staff of FRTIB are responsible for implementing the
Board's policies and managing the day-to-day operations of TSP,
prescribing regulations to administer FERSA, and other duties. The Board
members and the Executive Director serve as plan fiduciaries.
DOL and Congress Oversee FRTIB, but Oversight Has Not Included Regular Hearings
The Department of Labor and Congress both play roles in overseeing FRTIB.
As we have previously reported, DOL is charged with conducting regular
compliance audits to determine if the Board is fulfilling its fiduciary
duties and properly safeguarding TSP participants' assets.^18 Congress
created FRTIB and has the ability to change the structure for overseeing
FRTIB. As with every federal agency, Congress may exercise oversight of
FRTIB. Currently, Congress requires FRTIB to submit its budget and other
reports regularly, but it has not typically held hearings unless a
challenge has arisen or there has been a proposed change to legislation.
In addition, DOL officials do not have in place a specific mechanism for
sharing their audit program findings or other issues of concern with
Congress.
^155 U.S.C. S 8472(b) and (c).
^165 U.S.C. S 8474.
^175 U.S.C. S 8473.
^18GAO, Federal Pensions: DOL Oversight and Thrift Savings Plan
Accountability, GAO-03-400 (Washington, DC: Apr. 23, 2003).
DOL Oversees FRTIB through Regular Audits
DOL's oversight of FRTIB is based on a FERSA requirement that the
Secretary of Labor establish an audit program and conduct audits of FRTIB
and its operations.^19 DOL compliance audits are designed to determine
whether FRTIB is complying with FERSA and applicable laws and regulations.
This includes whether TSP fiduciaries are acquiring, protecting, and using
plan resources prudently, efficiently, and solely in the interest of
participants and beneficiaries. The DOL Employee Benefits Security
Administration's (EBSA)^20 Office of the Chief Accountant has administered
the audit program since its inception in fiscal year 1988. According to
DOL officials, DOL's audit program reviews all significant activities of
FRTIB, including FRTIB's policy formulation and administration, record
keeping, and other functions handled by service providers under contract,
and functions of federal agencies related to contributions and employee
participation programs. The audits include on-site reviews of TSP's
principal service providers. Because service providers carry out many
day-to-day operations of TSP, from record keeping to investment
management, audits are primarily conducted on TSP's service providers. DOL
officials have developed an audit manual that includes detailed audit
guides, but a firm carries out the audits under contract with DOL. DOL
officials said that their ongoing audit presence for TSP is greater than
its presence for most of the private plans it oversees, which numbered
about 730,000 in 2002.
According to DOL, each year, DOL develops a strategic plan that identifies
how many and which functions it could audit based on risk and funding. For
example, due to FRTIB's increased use of private contractors to provide
call center and other plan services formerly provided by the U.S.
Department of Agriculture's National Finance Center, two of DOL's five
audits in fiscal year 2006 looked at particular operations of newer
providers, including certain internal controls. DOL officials also said
that the number of audits in a given year is based on the level of funding
allocated to the audit program. Fiscal year 2006 funding for the contract
audits was $630,000 and covered five audits.^21
^195 U.S.C. S 8477(g). Specifically, FERSA directs the Secretary of Labor
to establish a program to carry out audits to determine the level of
compliance with the act's fiduciary standards and prohibited transactions.
The Secretary may perform the audit, contract with a qualified
non-government organization, or may conduct the audit in cooperation with
the Comptroller General of the United States. According to DOL, the
department has always elected to contract with a reputable accounting
firm.
^20EBSA is also responsible for enforcing provisions of ERISA, which
governs private pension plans.
DOL exercises its authority over FRTIB by making recommendations for
improving operations based on audit findings. DOL officials and the
contract auditor meet with the Board members at least once a year to
highlight significant issues from audits and to present the department's
future compliance audit schedule. DOL's recommendations to FRTIB and its
service providers generally address compliance with FERSA and FRTIB
policies, significant weaknesses in internal controls, or areas where
FRTIB could improve the efficiency and effectiveness of its operations.
For example, during its fiscal year 2005 audit cycle, DOL's contractor
audited one of FRTIB's customer call centers, which is operated by a
contractor. The audit report included recommendations for FRTIB to
implement and enforce policies for information security, designated as a
fundamental internal control by DOL, at the contractor's sites; establish
additional performance measures; and implement consistent monitoring of
call volume at the two call centers. As of September 2006, DOL considered
the first recommendation partially implemented and the other two
recommendations implemented. DOL cannot compel FRTIB or its service
providers to implement its audit recommendations. However, FRTIB generally
had implemented a high percentage of DOL's audit recommendations.^22
According to DOL and FRTIB officials, this voluntary implementation of
audit recommendations has worked well for them because DOL and FRTIB have
a longstanding and positive working relationship.
^21If additional funds become available, DOL officials said that the
contract auditors can perform more audits. For example, when increased
funding became available for fiscal year 2002 audits, DOL reviewed the
U.S. Treasury's calculation of the interest rate for the specially issued
Treasury securities held in the G Fund. While not all plan activities are
addressed every year, audit officials noted that the audit program covers
most activities over an approximately 3-year cycle.
^22In 2003, we reported that FRTIB implements approximately 95 percent of
DOL recommendations. GAO-03-400.
Congress' Oversight of FRTIB Has Not Involved Regular Hearings
Congress has not required FRTIB or DOL to testify regularly before
Congress on TSP operations, although it does receive routine reports from
FRTIB. As with other federal agencies, Congress may exercise oversight of
FRTIB by investigating agency operations, holding hearings, issuing
subpoenas, and requiring the agency to submit performance or financial
reports. Congressional committees have typically held hearings on TSP when
a challenge has arisen or when there was a proposed change to legislation.
For example, FRTIB officials were asked to testify in response to customer
service issues with TSP in 2003 and in response to abusive trading
practices in the private sector in 2004. In the 20 years since TSP has
been in existence, FRTIB estimates it has been called to testify
approximately a dozen times. Most recently, Board members and the
Executive Director provided testimony in 2005 and 2006 about adding a new
fund to TSP's investment options. According to DOL officials, Congress
does not require DOL to meet with committee staff or testify about TSP or
its audit findings on a regular basis. DOL has testified at least three
times on its audit program -- in 1994, 2003, and 2004.
Congress requires FRTIB to submit its budget and to have an independent
financial audit each year, performed under contract by a public accounting
firm. FRTIB also provides a list of each audit report, including DOL's
compliance audits, and summaries of any particularly significant findings,
to Congress each year, as required by the Inspector General Act of
1978.^23 The 2006 summary contained little information about audit
recommendations. DOL is not required to submit its audit reports directly
to Congress, and Congress has not asked DOL to share its audit findings on
a regular basis through hearings or meetings with committee staff.
Consequently, Congress may be unaware of concerns DOL may have. In a 2003
report, we noted that there have been times when DOL has had issues of
concern with FRTIB outside of its audit findings. We recommended that
Congress consider amending FERSA to require DOL to establish a formal
process by which the Secretary of Labor can report to Congress areas of
critical concern about the actions of the Executive Director and Board
members, but no changes have yet been made.^24
^235 U.S.C. App. 3, S 8G(h)(2)(B).
^24See GAO-03-400.
TSP's Fiduciaries Have Similar Duties to Those of Private Plan Fiduciaries, but
TSP Board Members and the Executive Director Have Special Liability Protections
FRTIB's fiduciary duties are similar to those of private sector plan
fiduciaries, and FRTIB has adopted various policies and practices to
fulfill these responsibilities, but unlike private plan fiduciaries, Board
members and the Executive Director have special liability protections.
Both FERSA and ERISA require fiduciaries to act prudently and solely in
the interest of plan participants and beneficiaries. However, unlike
ERISA, FERSA does not authorize DOL to bring civil action against Board
members or the Executive Director for the breach of their duty, whereas
DOL can take such actions against fiduciaries of private plans and other
TSP fiduciaries. Congress amended FERSA to provide special liability
protections for the Board members and the Executive Director, given the
potential assets of TSP and concerns about the availability of fiduciary
insurance.
FRTIB Fiduciary Duties Are Similar to Private Plan Fiduciary Duties, and FRTIB
Has Adopted Policies and Practices to Fulfill Its Duties
FRTIB and private plan fiduciaries have similar fiduciary duties. TSP's
authorizing statute, FERSA, and ERISA set the overarching requirements for
fiduciaries to act prudently and solely in the interest of plan
participants and beneficiaries.^25 That is, fiduciaries must exercise an
appropriate level of care and diligence given the scope of the plan and
act for the exclusive benefit of plan participants and beneficiaries,
rather than for their own or another party's gain. In addition, FERSA and
ERISA specifically prohibit fiduciaries from engaging in certain
transactions that that could raise questions about their ability to
fulfill their duties, unless certain safeguards are met or waivers are
granted by DOL.^26 For TSP, the statute specifically lists Board members,
the Executive Director, and any person who has or exercises discretionary
authority or control over the management or disposition of TSP assets as
fiduciaries.^27
FRTIB has adopted a range of policies and practices that are similar to
those that private plans should follow to carry out these broad duties.
DOL has issued guidance for private plans describing important policies
and practices to fulfill fiduciary responsibilities. While the guidance is
not specifically designed for TSP, FRTIB has implemented policies and
practices for several of the areas in DOL's guidance.^28 For example,
FRTIB has policies and practices for selecting and monitoring service
providers, as well as measuring investment performance. Because private
service providers perform many of TSP's operations, including record
keeping for participant accounts and investment management of all funds
but one, these areas are important for acting prudently and solely in the
interest of participants and beneficiaries. Specifically:
^255 U.S.C. S 8477(b) and 29 U.S.C. S 1104(a). Additional responsibilities
of fiduciaries required by both statutes include diversifying plan
investments and paying only reasonable plan expenses.
^265 U.S.C. S 8477(c) and 29 U.S.C. SS 1106 and 1108.
^275 U.S.C. S 8477(a)(3).
o FRTIB generally uses a competitive process in order to select
qualified service providers at a reasonable cost. According to
FRTIB, contracts for major activities undergo review and
competition at least every 5 years. While we did not review its
procurement documentation, DOL reviews the selection and
monitoring of service providers as part of its compliance audit
program.^29
o FRTIB noted that it uses several approaches to monitor service
providers. FRTIB has included performance measures in certain
service providers' contracts. Also, since 2004, FRTIB has reviewed
quarterly financial reports for most of its major private
providers, including financial statements, credit scores, and
overall viability.^30 FRTIB further noted that it monitors
providers through daily contact with them, periodic on-site
visits, and reports from the provider, such as monthly and annual
reports from the annuity vendor.
o FRTIB also reviews its performance measures monthly, including
the investment performance of each fund. The company providing
investment management services must provide monthly reports to
FRTIB showing how closely each option is tracking its underlying
index. A measure of the difference between the performance of the
TSP fund and the underlying index is known as the "tracking
error," and by contract, the investment manager must report the
amount and reasons for the error. Because the investment manager
is allocated fiduciary responsibility by contract, given the
manager's control of plan assets, this measurement of performance
is essential for both FRTIB and the investment manager to act
prudently and ensure that the investment manager is not trading
needlessly or for self-gain.^31
^28We recently recommended benchmarking cost and performance of FRTIB's
individual activities against other entities or standards. See GAO-07-541.
^29DOL's most recently completed audit of FRTIB's procurement and
selection of providers was published in 2003; it found that the
procurement practices and controls complied with FERSA's provisions about
fiduciary responsibility and prohibited transactions and contained no
recommendations.
^30The annuity vendor was not included in the quarterly financial reviews
until April 2007.
DOL Can Take Civil Action against Private Plan Fiduciaries but Cannot Do So
against TSP Board Members and the Executive Director
The Secretary of Labor can take civil action against private plan
fiduciaries. Under ERISA, DOL is allowed to seek remedies if fiduciaries
of private plans do not fulfill their fiduciary duties, including using
litigation when necessary.^32 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. For example, DOL has
brought legal actions or filed briefs against private plan fiduciaries for
investing imprudently in company stock, not investing exclusively for
participants' benefit, and failing to monitor appointed fiduciaries.
DOL cannot bring civil actions against Board members or the Executive
Director for breaching their plan duties or engaging in prohibited
transactions. FERSA allows DOL to bring civil actions against any
fiduciary, such as the investment manager, other than a Board member or
the Executive Director. While DOL was initially authorized under FERSA to
bring civil actions against any TSP fiduciary,^33 a 1988 amendment
established an exception from such actions for Board members and the
Executive Director.^34 The 1988 amendment was passed, in part, in response
to FRTIB's concerns about obtaining fiduciary insurance. According to the
then-Executive Director, it would be difficult to buy adequate insurance
for these TSP fiduciaries, as FRTIB officials expected TSP to become the
largest plan of its kind in the country.^35 Congress took this action in
the face of concerns that, without protection, Board members would resign
and that they would be hard to replace.
With regard to plan participants' recourse, participants can take civil
action against private plan fiduciaries and all FRTIB fiduciaries,
including Board members and the Executive Director.^36 Under ERISA,
available remedies include awards for plan losses through monetary damages
and restoring any profits made from a fiduciary's improper use of plan
assets.^37 Fiduciaries of private plans may guard against the legal risks
of personal liability by having fiduciary liability insurance, which the
fiduciary, the plan, or the employer may purchase.^38 Fiduciary liability
insurance provides reimbursement for costs related to legal actions for
breach of their fiduciary responsibilities, including the costs of
defending and settling actions or awards of monetary damages. DOL
officials said that although fiduciaries of private pension plans may have
insurance to largely insulate them from the personal risks associated with
their personal liability as fiduciaries, they still face financial risks
in certain circumstances due to policy limits or exclusions. For example,
fiduciary liability insurance often includes coverage exceptions for
intentional harm, criminal acts, or self-dealing.
^31In 2006, DOL issued its most recent audit of the TSP investment
manager. The audit contained no recommendations and found appropriate
investment management operations, including compliance with provisions
about transactions prohibited by FERSA.
^3229 U.S.C. S 1132.
^33Pub. L. No. 99-335, S 101(a), 100 Stat. 514, 582.
^34Pub. L. No. 100-238, S 133(a), 101 Stat. 1744, 1760-62.
^35Currently, TSP holds the most assets of any defined contribution plan
in the United States.
Similarly, under FERSA, TSP participants or beneficiaries may bring civil
actions against Board members or the Executive Director, as well as other
TSP fiduciaries, for breaching their plan duties or engaging in prohibited
transactions. The 1988 amendment provided that any such claims against a
Board member or the Executive Director will be defended by the Attorney
General of the United States and, if he certifies that the Board member or
Executive Director was acting as a TSP fiduciary, deemed claims under the
Federal Tort Claims Act (FTCA).^39 As a result, rather than any monetary
relief awarded in such cases being paid personally by any Board member or
Executive Director who may commit a breach (or through applicable
fiduciary liability insurance), it would be paid out of the Judgment Fund
established to pay claims under the FTCA.^40 According to DOL officials,
treating claims against a Board member or the Executive Director in this
way provides TSP participants with a greater ability to obtain monetary
relief than that available to participants in other pension plans. In
addition, DOL officials told us that without the special liability
protections, DOL could be in the unusual position of suing FRTIB--another
federal entity--and receiving assistance with prosecutions from the
Department of Justice, which is also responsible for defending Board
members or the Executive Director.
^36Under ERISA and FERSA, participants can bring civil actions to, among
other things, enjoin any fiduciary from acts or practices that will
constitute a fiduciary breach.
^37These remedies are also available to DOL when taking civil action
against private plan fiduciaries.
^3829 U.S.C. S 1110. If the plan purchases fiduciary liability insurance,
however, it must provide for recourse by the insurer against any breaching
fiduciaries. Both ERISA and FERSA require the purchase of another
financial instrument, fidelity bonds, which protect the plan against
dishonest acts like fraud. 29 U.S.C. S 1112 and 5 U.S.C. S 8478.
^395 U.S.C. S 8477(e)(4)(B) and (C).The FTCA waives sovereign immunity to
permit parties injured by tortuous acts of the federal government or its
employees to bring legal claims for damages. 28 U.S.C. SS 1346 and
2671-2680.
TSP has been relatively free from any allegations that TSP fiduciaries
have breached their fiduciary duties or engaged in prohibited
transactions. DOL and FRTIB officials were aware of only one civil claim
against the Board, which is currently pending in federal district
court.^41
TSP Fiduciaries Have Limited Discretion over Investment Policy Compared to
Fiduciaries of Private Plans
The Board has less discretion than private sector plan sponsors in setting
investment policy because the investment options available to TSP
participants are largely outlined in law, whereas private sector plan
sponsors are responsible for choosing which investment options to offer
participants. FRTIB may select the particular indexes for the funds to
follow as well as review the investment options and suggest additional
funds. However, Congress must amend FERSA to approve a change in TSP
investment options offered to participants.
FERSA Prescribes TSP Investment Options
FRTIB has limited discretion in setting investment policy because FERSA
largely sets the investment options available to TSP participants. DOL and
FRTIB officials noted that FERSA serves as TSP's overall investment
policy. FERSA states that FRTIB shall establish a government securities
investment fund, fixed income investment fund, a common stock index
investment fund, a small capitalization stock index investment fund, and
an international stock index investment fund.^42 For the index funds,
FERSA states that the Board shall invest in a portfolio designed to
replicate the performance of a commonly recognized index for that fund.
For the government securities investment fund, FERSA states that the
Secretary of the Treasury is authorized to issue special interest-bearing
obligations of the United States for the purchase by TSP. FERSA has other
investment policy provisions, such as who can exercise voting rights
associated with the ownership of stocks held by TSP.^43
^4031 U.S.C. S 1304. In 1987, GAO determined that the Judgment Fund was
available to pay tort claims against FRTIB that did not involve losses
from the TSP or the payment of benefits. 67 Comp. Gen. 142 (Dec. 15,
1987).
^41That case was brought by the founding Executive Director and a former
Board member, who also served later as Executive Director. It involves
allegations regarding personnel changes made when new Board members were
appointed in 2002 and has resulted as yet in only one reported decision,
which addresses only a collateral procedural issue. Cavanaugh v. Saul, 233
F.R.D. 21 (D.D.C. 2005).
FRTIB has developed individual policies for each fund. These policies,
which FRTIB reaffirms quarterly, provide the rationale for selecting the
fund's investments. Factors influencing the policies include the level of
risk and return, low costs, and the legislative history of FERSA. A
consultant to FRTIB reported in January 2006 that the indexes that FRTIB
selected were appropriate and changes to certain indexes would not be
cost-effective. Table 1 shows FERSA requirements and FRTIB's policies for
each fund.
Table 1: FERSA and FRTIB Investment Policies for Each TSP Fund
FERSA requires the Fund to be FRTIB policies call for
Fund invested in: investing the Fund in:
G Fund Treasury securities specially Short-term securities (that
issued to TSP with a maturity mature in 1 to 4 days)
determined by the Executive
Director that provide the
generally higher interest rates of
securities with a term of at least
4 years
F Fund Fixed-income securities An index including bonds and
asset-backed securities to track
the Lehman Brothers U.S.
Aggregate Index
C Fund A portfolio that tracks a broad An index of stocks of large to
index representing the U.S. stock medium-sized companies to track
market the Standard & Poor's 500 Index
S Fund A portfolio that tracks a broad An index of stocks in small and
index representing U.S. stocks not medium-sized companies not
included in the C Fund represented in the Standard &
Poor's 500 to track the Dow
Jones Wilshire 4500 Completion
Index
I Fund A portfolio that tracks a broad An index of the stock markets of
index representing international the developed world outside of
stock markets outside of the the United States and Canada to
United States track the Morgan Stanley Capital
International Europe,
Australasia, and Far East Index
Source: GAO analysis.
^425 U.S.C. S 8438.
^435 U.S.C. S 8438(f).
In the past, FRTIB has periodically conducted a major review of its
investment policy and suggested additional funds for TSP to Congress
besides the initial G, F, and C Funds. FRTIB's process for reviewing and
suggesting additional funds has included investment analysis,
consideration of industry practices, and communication with Congress and
the Employee Thrift Advisory Council, which represents participants. For
example, in the early 1990s, FRTIB analyzed possible funds to add to the
lineup of options for participants to invest in, based on factors like
diversification, risk and return, cost, and administrative issues. It
submitted a legislative proposal in 1995 to add funds for international
stocks (the I Fund) and for stocks in small and medium-sized U.S.
companies (the S Fund), and Congress amended FERSA in 1996 accordingly.^44
In 2005, FRTIB introduced Lifecycle funds without an amendment to FERSA
because it determined that the Lifecycle funds are combinations of the
five existing funds tailored to different time horizons for withdrawal.
FRTIB developed these funds partly based on its analysis of inefficient
participant behavior whereby participants were not periodically shifting,
or rebalancing, their investment portfolio or diversifying their balances
among the five funds, which the Lifecycle funds would do automatically for
the participant. In 2005, given congressional interest in having FRTIB
study the desirability of adding new funds, FRTIB hired an outside
consultant to analyze the existing TSP options, who recommended in 2006
that FRTIB not add any additional funds to the plan. According to FRTIB,
having relatively few TSP options based on broad-based indexes encourages
participation and limits costs.
Private Plan Sponsors Have Greater Discretion to Select Investment Options
Private plans under ERISA have considerable latitude in selecting
investment options for their plans. According to DOL, an important part of
the fiduciary duties of acting prudently and solely in participants'
interest involves selecting investment options. ERISA requires plan
fiduciaries to use prudence in selecting and monitoring funds for
participants, and to offer diversified funds. Within these parameters,
private plans can offer a wide array of options for participants. Unlike
TSP, private plans can decide, among other things, the number and types of
funds, whether to include funds that specialize in one sector, like
telecommunications, or those that track a specific market index. Besides
funds tracking a specific market index, which are one kind of passively
managed funds, private plans can offer actively managed options, in which
the investment manager selects particular investments trying to obtain
higher than average returns. Private plan sponsors also may offer employer
stock.^45 Further, private plans can also offer features like a
self-directed brokerage option, which allows participants to invest in
individual stocks or mutual funds.
^44Thrift Savings Investment Funds Act of 1996, Pub. L. No. 104-208, tit.
I, S 102, 110 Stat. 3009, 3009-372--3009-373.
Given that private plans have greater discretion than TSP to select
options, many private plans have adopted an investment policy statement to
guide their decision-making process. According to a 2005 industry
survey,^46 79 percent of responding plans had an investment policy
statement. While these statements are not required by ERISA, DOL has
issued regulations about written statements of investment policy. The
regulations note that a statement may set guidelines about investment
decisions for the investment manager.^47 According to one industry
association, besides clarifying the intended goals and performance of the
plan, the statement-- which may include the process for selecting,
monitoring, and altering investments--can guide future decisions and limit
liability by showing that fiduciaries are following a prudent process.
^45Recently enacted ERISA requirements apply to employer stock in such
cases. For example, all plan participants must be allowed to diversify out
of employer stock purchased through their own elective deferrals and
after-tax contributions. 29 U.S.C. S 1054(j).
^46The 49th Annual Survey of Profit Sharing and 401(k) Plans.
^4729 C.F.R. S 2509.94-2.
FRTIB and Other Federal Agencies Have Responsibility for Educating Participants
on Retirement Issues, and Responsibilities Vary for Private and State and Local
Government Employee Plans
FRTIB, OPM, and staff of employing federal agencies have responsibility
for educating TSP participants about their retirement plan and other
retirement issues, and responsibilities vary for private and state and
local government employee plans. FRTIB has responsibility for providing
information to TSP plan participants to facilitate informed decision
making about what level of contribution to make and how to invest those
contributions. OPM is required to establish a training program for all
retirement counselors and to develop, in consultation with FRTIB, a
retirement financial literacy and education strategy for federal
employees.^48 Retirement counselors are employed by federal agencies, and
they provide employees with information on their retirement benefits,
including information about TSP. ERISA requires private retirement plan
sponsors to provide certain documents to participants, such as a summary
plan description, but many plans provide more information than is
required.^49 State and local government employee plans' education
requirements vary, but all of the plans we studied are required to provide
participants with benefit statements. They also make other types of
information available to participants, such as tools for calculating
retirement needs.
FRTIB Develops TSP-Specific Educational Materials, and OPM Provides General
Retirement Education
FERSA requires FRTIB to provide participants with periodic statements
about their accounts and a summary description of the plan's investment
options to facilitate informed decision making.^50 To further inform
participants about the plan, FRTIB provides additional information, such
as how to roll over or transfer funds from other plans into TSP,
information on agency matching contributions, TSP's loan program, and the
monthly returns of TSP funds and their related indexes. FRTIB provides
this information on TSP's Web site. According to FRTIB, the TSP Web site
is its primary method for communicating with participants, but information
is also available by telephone, and in written materials. The TSP Web site
also includes a retirement calculator that participants can use to
estimate how much they will need to save each year to meet their
retirement goals, and a quarterly newsletter. For example, the
newsletter's January 2007 feature article was titled "Pension Reform Law
Benefits TSP Participants," and included information about provisions in
the Pension Protection Act of 2006 that apply to TSP. In addition to the
educational materials available on the TSP Web site, FRTIB occasionally
sends mailings to TSP participants. For example, mailings were sent to
participants raising awareness about the new Lifecycle funds.
^485 U.S.C. S 8350 and S 8350 note. Agencies generally refer to retirement
counselors and other retirement education staff as benefits officers.
^4929 U.S.C. S 1021.
^505 U.S.C. S 8439(c).
OPM is responsible for providing general retirement education to federal
employees, including TSP participants, and it does this primarily through
training retirement counselors at federal agencies, who provide federal
employees with information on retirement benefits, including TSP.
Retirement counselors' roles were expanded with passage of the Thrift
Savings Plan Open Elections Act of 2004.^51 To implement the act, OPM's
training will include information about retirement financial literacy and
education. According to information provided by OPM, it will provide
comprehensive training on the tools and resources it is developing, such
as the retirement readiness index, an age-based profile containing
information about an employee's state of readiness according to various
dimensions. As of April 2007, OPM had produced and made available on its
Web site a retirement video. According to OPM, the video provides an
overview of critical information federal employees need to know as they
plan for their retirement. OPM is required to consult with FRTIB about its
implementation of the act. In addition to retirement counselors, federal
agencies have TSP agency coordinators that, among other things, inform
eligible employees of TSP options and benefits, maintain TSP informational
materials, and respond to inquiries from active employees. TSP officials
offer training to agency coordinators. Sometimes individuals serve as both
agency coordinators and retirement counselors.
Private Plan Sponsors Are Responsible for Informing Participants about Their
Plans, and Responsibilities Vary for State and Local Government Employee Plan
Sponsors
The Employee Retirement Income Security Act of 1974 (ERISA) requires plan
sponsors to give plan participants in writing the information they need to
know about their retirement benefit plans, including plan rules, financial
information, and documents on the operation and management of the plan.
ERISA requires sponsors of private retirement plans to make available to
participants the following:
o an annual report, which is a summary of an annual financial
report that most plans must file with the Department of Labor;
o a summary plan description, which provides information about
what the plan provides and how it operates, such as when an
employee can begin to participate, how service and benefits are
calculated, when benefits become vested, when and in what form
benefits are paid, and how to file a claim for benefits; and
o account statements one or more times per year or upon
request.^52
^51Pub. L. No. 108-469, S 2, 118 Stat. 3891, 3892.
A 2005 industry survey found that many private plan sponsors provide
additional educational information, not required under ERISA, for such
purposes as increasing employee participation, increasing satisfaction
with their plans, and improving asset allocation.^53 They provide this
information through enrollment kits, seminars and workshops, fund
performance sheets, newsletters, retirement calculators, and Internet and
intranet sites. For example, the private plan sponsor we spoke with
provides one-on-one financial and investment counseling to its employees
through a service provider. Additionally, almost half of the plans that
responded to the industry survey indicated that they offer participants
investment advice.
State and local government employee pension plan sponsors are required to
educate their participants in a manner consistent with the state or local
requirements and plan documents that govern their plans. Each of the four
plans we studied require that a statement be sent to participants
periodically or at the participant's request. At least two of the plan
sponsors provide participants with summary plan descriptions, and at least
one plan sponsor requires that participants be sent an annual report.
Local and state officials expressed the importance of providing plan
participants with information on a broad range of services and topics, for
example, how to make contributions and the array of investment options.
Each plan sponsor provides some information on its Web site; such
information may include answers to frequently asked questions, forms, and
information about investment options and retirement planning conferences.
All of the officials we spoke with provide some type of general retirement
information or non-plan-specific information to participants, such as
retirement calculators. Three of the plan sponsors make general retirement
information available to their participants through service providers.
^5229 U.S.C. SS 1021-1025. ERISA requires plan sponsors to provide summary
plan descriptions to participants within 90 days of being covered by the
plan, then every 5 or 10 years, depending on changes.
^53The 49th Annual Survey of Profit Sharing and 401(k) Plans.
Conclusion
Through FERSA, Congress established FRTIB to administer TSP and charged
DOL with establishing a program to carry out audits to determine the level
of TSP compliance with FERSA requirements. According to DOL, its audit
findings and recommendations provide details on all significant aspects of
TSP operations, from the management of TSP investments to the information
security of participants' data, and can also shape future oversight of
FRTIB and its service providers. Although FRTIB is required by law to
provide Congress each year with a list of audits, including summaries of
significant DOL audit findings, there have been times when DOL has had
issues of concern with FRTIB outside of its audit findings. In such
instances, DOL has no formal process to communicate its issues of dispute.
Consequently, we previously recommended that Congress amend FERSA to
require DOL to establish a formal process by which it can report to
Congress issues of critical concern.
Historically, communications between congressional committees of
jurisdiction with FRTIB and DOL have been limited. Although Congress has
occasionally held hearings where DOL and FRTIB officials have testified,
such hearings are held irregularly, usually in response to a particular
issue, such as abusive trading practices or when Congress was considering
legislative changes to FERSA, such as adding an additional fund to TSP's
investment options.
Congress created TSP as one of the basic elements of a new retirement
system for federal workers. Since its inception, TSP has grown to become
one of the largest defined contribution plans in the country, affecting
the retirement of millions of current and former federal employees. As the
size and complexity of TSP have grown, an appropriate level of oversight
of FRTIB is critical to ensuring that federal workers' retirement savings
are properly managed.
Agency Comments and Our Evaluation
We provided a draft of this report to the Federal Retirement Thrift
Investment Board (FRTIB), the Department of Labor (DOL), and the Office of
Personnel Management (OPM) for review and comment. FRTIB suggested that
the report will be useful to the continued improvement of the TSP, and
expressed appreciation for our constructive approach in conducting the
review. Both FRTIB and DOL provided technical comments, which we have
incorporated where appropriate. FRTIB's written comments are reproduced in
appendix II.
As agreed with your staff, 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 Executive Director of FRTIB, the Secretary of DOL, and the Director of
OPM, appropriate congressional committees, and others who are interested.
We will also make copies available to others upon request. In addition,
the report will be available at no charge on GAO's Web site at
http://www.gao.gov. If you have any questions about this report, please
call me at (202) 512-7215. Contact points for our Offices of Congressional
Relations and Public Affairs may be found on the last page of this report.
Key contributors are listed in appendix III.
Barbara D. Bovbjerg, Director
Education, Workforce, and Income Security
Issues
Appendix I: Selection of the Plan Sponsor Comparison Group
To compare the Federal Retirement Thrift Investment Board's (FRTIB)
education responsibilities with those of other plan sponsors, we reviewed
documents and interviewed officials representing sponsors of five defined
contribution plans--four government employee pension plans and one private
plan. The plans we studied were selected from a list of the 200 largest
U.S. employee retirement plans as reported by Pensions & Investments, a
trade journal for plan sponsors and other investors, as of September 30,
2005. Plans were selected based on three criteria--plan assets, plan type,
and absence of fiduciary malfeasance. TSP is the largest defined
contribution plan in the nation. The plans we studied, while having
significantly fewer assets than TSP, were among the largest in total
defined contribution plan assets. The five plans had assets ranging from
approximately $3 billion to $21 billion. The plans we studied, like TSP,
are participant directed, that is, investors make investment decisions and
plan fiduciaries may receive limited liability from the results of these
decisions.^1 Additionally, we reviewed Pension & Investments Online and
LexisNexis, and could find no citations over the last 2 years for
fiduciary malfeasance for the five plans we studied.
The four government employee pension plans we studied are a state
supplemental 401(k) plan, a state 401(k) plan for all newly hired
employees, a university plan that includes a 401(a) plan and a tax
deferred 403(b) plan, and a large city supplemental deferred compensation
plan with a 401(k) plan. The private plan was a Fortune 100 company. We
contacted seven private pension plans, but only one agreed to speak with
GAO staff. The private plan sponsor we spoke with was willing to
participate in our study, and its characteristics may or may not reflect
the characteristics of other private pension plans. The interviews we
conducted with plan sponsors are solely for illustrative purposes and are
not generalizable.
^1Special fiduciary rules contained in Department of Labor regulations
protect plan fiduciaries from liability for individuals' investment
decisions with respect to plans that provide participant-directed
investments. These special fiduciary rules for plans with
participant-directed investments are set forth pursuant to section 404(c)
of the Employee Retirement Income Security Act. There are certain
requirements that must be satisfied in order for these special rules to
apply to plans that provide for participant-directed investments. Among
other requirements, plans must offer participants at least three
investment options and information about and investment instructions with
respect to each of the investment options, and allow participants to
exercise independent control over their investments.
Appendix II: Comments from the Federal Retirement Thrift Investment Board
Appendix III: GAO Contact and Staff Acknowledgments
GAO Contact
Barbara D. Bovbjerg (202) 512-7215 or [email protected]
Staff Acknowledgments
In addition to the contact named above, the following individuals made
important contributions to this report: Tamara Cross, Assistant Director;
Ramona Burton; Lara Laufer; Patrick Bernard; Matthew Saradjian; Roger
Thomas; Rachael Valliere; Walter Vance; and Craig Winslow.
(130602)
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Highlights of [32]GAO-07-611 , a report to congressional requesters
June 2007
FEDERAL RETIREMENT THRIFT INVESTMENT BOARD
Many Responsibilities and Investment Policies Set by Congress
The Thrift Savings Plan (TSP), a retirement savings and investment plan
for federal workers, held approximately $210 billion in retirement assets
for 3.7 million participants, as of February 2007. TSP is managed by the
Federal Retirement Thrift Investment Board (FRTIB). In light of questions
about TSP oversight, we examined (1) the current structure for overseeing
FRTIB, (2) how the statutorily defined fiduciary responsibilities of FRTIB
compare to the responsibilities of private plan sponsors and how FRTIB
fulfills its responsibilities, (3) how FRTIB's investment policies differ
from those of private plan sponsors, and (4) FRTIB's statutory
responsibilities to educate plan participants about TSP and other
retirement issues and how these responsibilities compare with those of
private and state and local government employee plan sponsors.
The Department of Labor (DOL) and Congress oversee FRTIB. In accordance
with the law establishing TSP, DOL conducts regular audits to determine
the level of compliance with laws and regulations as well as to ensure the
efficiency and effectiveness of operations. Congress requires FRTIB to
submit its annual budget and other reports, and to undergo an independent
financial audit. However, Congress has not held regular FRTIB oversight
hearings. Also, DOL does not submit its audit reports directly to
Congress, and has not yet been provided with a mechanism to communicate
issues of critical concern to Congress.
FRTIB's fiduciary duties are similar to those of fiduciaries of private
sector plans. To act prudently and solely in the interest of plan
participants, FRTIB has implemented policies and practices in several of
the areas mentioned in DOL's guidance for private sector plans. However,
unlike the law governing private plans, the Federal Employees' Retirement
System Act of 1986 (FERSA)--the law that governs the administration of
TSP--contains special liability protections for Board members and the
Executive Director.
FRTIB has less discretion than private sector plan sponsors in setting
investment policy because the investment options available to TSP
participants are largely outlined in law, whereas private sector plan
sponsors are responsible for choosing which investment options to offer
participants. TSP's authorizing statute specifies the number and types of
funds available to participants, and requires that some of these funds
track indexes, which are broad, diversified market indicators. FRTIB
chooses the particular indexes for the funds to track, reviews the
investment options, and suggests additional funds. Changing TSP investment
options requires legislation.
FRTIB and the Office of Personnel Management (OPM) are responsible for
educating participants about TSP and general retirement issues, while the
private and state and local government employee plan sponsors that we
interviewed are governed by different rules. By statute, FRTIB is charged
with developing educational materials for participants about TSP-specific
issues. FRTIB also assists OPM, which is required to provide general
retirement education to federal employees and train retirement counselors
at federal agencies to provide information to federal employees. Private
plan sponsors as well as the state and local government employee plan
sponsors that we spoke with are responsible for educating participants
about their plans, but often supply general retirement information as
well.
As the size and complexity of TSP have grown, an appropriate level of
oversight of FRTIB is critical to ensuring that federal workers'
retirement savings are properly managed. GAO previously recommended that
Congress consider amending FERSA to require DOL to establish a formal
process by which the Secretary of Labor can report to Congress issues of
critical concern about actions of the Executive Director and Board
members.
References
Visible links
25. http://www.gao.gov/
26. http://www.gao.gov/
27. http://www.gao.gov/fraudnet/fraudnet.htm
28. file:///home/webmaster/infomgt/d07611.htm#mailto:[email protected]
29. file:///home/webmaster/infomgt/d07611.htm#mailto:[email protected]
30. file:///home/webmaster/infomgt/d07611.htm#mailto:[email protected]
31. http://www.gao.gov/cgi-bin/getrpt?GAO-07-611
32. http://www.gao.gov/cgi-bin/getrpt?GAO-07-611
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