oversight

Federal Pensions: DOL Oversight and Thrift Savings Plan Accountability

Published by the Government Accountability Office on 2003-04-23.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

             United States General Accounting Office

GAO          Report to Congressional Requesters




April 2003
             FEDERAL PENSIONS

             DOL Oversight and
             Thrift Savings Plan
             Accountability




GAO-03-400
                                               April 2003


                                               FEDERAL PENSIONS

                                               DOL Oversight and Thrift Savings Plan
Highlights of GAO-03-400, a report to
Congressional Requesters                       Accountability



The Thrift Savings Plan (TSP) is a             DOL is charged under FERSA with establishing an audit program of TSP and
retirement savings and investment              its operations. The audit program is to ensure that TSP assets have been
plan for federal employees,                    reasonably safeguarded and that appropriate steps have been taken by TSP
governed by the Federal                        fiduciaries to comply with FERSA. If DOL finds that the Executive Director
Retirement Thrift Investment                   or TSP Board members have breached their fiduciary responsibilities, under
Board (the TSP Board). Recent
events relating to the TSP Board’s
                                               FERSA, DOL cannot take legal action or obtain monetary penalties against
contract to upgrade TSP’s record               the Executive Director and TSP Board members, although DOL may do so
keeping system have raised                     against other TSP fiduciaries. This limitation contrasts with DOL’s authority
questions about the management of              in overseeing private pension plans under the Employee Retirement Income
the TSP. In light of the TSP Board’s           Security Act of 1974 (ERISA), which set certain minimum standards for
actions relating to the record                 pension plans sponsored by private employers and gives DOL authority to
keeping system and the recent                  interpret and enforce those standards. Under ERISA, DOL is allowed to seek
submission of the TSP Board’s                  remedies to correct fiduciary violations.
legislative proposal that would
enhance its independence, you                  DOL exercises its authority over the TSP Board through recommendations
asked us to examine federal                    developed in its audit program, which is contracted to a public accounting
oversight of the TSP Board.
Specifically, our objectives were to
                                               firm to perform. DOL makes its recommendations to the TSP Board and
(1) describe the Department of                 service providers. However, the TSP Board is not required to implement
Labor’s (DOL) oversight authority,             DOL’s recommendations. Since the inception of the audit program, DOL has
under the Federal Employees’                   made 810 recommendations to the TSP Board and its service providers.
Retirement System Act of 1986                  According to our analysis of DOL and TSP data, the TSP Board has
(FERSA) and (2) determine the                  implemented roughly 95 percent of DOL’s recommendations, with the
actions DOL has taken in                       majority of the remaining recommendations scheduled for implementation
exercising its authority over TSP.             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
To strengthen DOL oversight and                Board, in addition to making recommendations, where the TSP Board has
to increase accountability of the              not resolved the issue with DOL. In these instances, there is no formal
TSP Board, Congress should                     process with which to ensure that the TSP Board is held accountable for
consider amending FERSA to                     these actions.
require DOL to establish a formal              Reporting Process for Each TSP Review
process by which the Secretary of
Labor can report to the Congress
issues of critical concern                                    Entrance
                                                             conference                                                          Report
associated with the actions of the                                                                 Labor        Board
                                                                                                                               presented
                                                                                                   action      responds
Executive Director and TSP Board                                                                                              to the Board
members.

                                                             Fieldwork                          Draft report                     Labor
                                                                                                  review                       responds




                                                             Comments            All players      Auditee                    Implementation
www.gao.gov/cgi-bin/getrpt?GAO-03-400.
                                                              auditee                meet         reviews                 of recommendations
To view the full report, including the scope                                                                                   by the Board
and methodology, click on the link above.
For more information, contact Barbara D.
Bovbjerg at (202) 512-7215.                    Source: GAO's Analysis of DOL's Documentation.
Contents


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




               Page i                                         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


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Page ii                                                     GAO-03-400 Federal Pensions
United States General Accounting Office
Washington, DC 20548




                                   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 plan1 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.



                                   Page 1                                                      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
Results in Brief   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 fiduciaries2 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.




                   Page 2                                                      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
Background   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.




             Page 3                                                         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
FERSA Requires DOL   audits to determine the level of TSP compliance with FERSA requirements
to Audit the TSP     relating to fiduciary responsibilities. ERISA is the law that governs private
                     employer sponsored plans. Although DOL is responsible for enforcing the
Board and Its        fiduciary responsibility provisions for both ERISA and FERSA, DOL has
Operations           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.




                     Page 4                                                      GAO-03-400 Federal Pensions
FERSA Requires DOL or     FERSA was designed to protect the rights and interests of TSP
DOL’s Designee to Audit   participants and prescribes the responsibilities of the Executive Director
the TSP Board             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.




                          Page 5                                                    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 Cannot Take Legal       DOL is responsible for enforcing fiduciary responsibility provisions of
Actions Against the         both ERISA and FERSA.9 Although FERSA requires DOL to audit TSP, it
Executive Director Or a     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
TSP Board Member Under      found to have violated FERSA requirements. Under a 1988 amendment10 to
FERSA, but Can Take         FERSA, the Secretary of Labor cannot initiate a civil action against the
Legal Actions Against Any   Executive Director or a TSP Board member. Because of this lack of
Fiduciary Under ERISA       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.




                            Page 6                                                         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
DOL Makes Audit             developed in its audit program, which is contracted to a public accounting
Recommendations to          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 but           the TSP Board and its service providers. The TSP Board is not required to
Has No Formal               implement DOL’s recommendations and does not always agree with DOL’s
                            recommendations, although they have implemented approximately 95
Process With Which          percent of DOL’s recommendations with the majority of the remaining
to Ensure That              recommendations scheduled for implementation in 2003. However, if DOL
Additional Concerns         has concerns with the Executive Director or a TSP Board member’s
                            actions there is no formal process by which to ensure the Executive
Are Addressed               Director and TSP Board members are held accountable for their actions.


DOL Exercises Its           DOL exercises its authority over the TSP Board through recommendations
Authority Through           developed in its audit program, which is performed by auditors of a public
Recommendations Made        accounting firm.12 These auditors report solely to DOL and do not report to
                            the TSP Board. The auditors’ primary responsibility is conducting
Through Its Audit Program   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.




                            Page 7                                                     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

                                                                             Percentage of all
                                                          Number of   recommendations made to
 Focus of Recommendation                            recommendations                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 8                                                                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 9                                                    GAO-03-400 Federal Pensions
No Formal Process Exists    DOL has raised issues of concern to the Executive Director and TSP Board
to Ensure Accountability    members outside its routine TSP compliance audit reporting process. The
of the Executive Director   Executive Director and TSP Board members have not always agreed with
                            DOL, and while the TSP Board members maintain the issue is resolved,
and TSP Board Members       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,
Conclusion                  through an audit program under DOL, fiduciary compliance would be
                            monitored. FERSA, however, allows the Executive Director and TSP


                            15
                             Pub. L. 100-504.




                            Page 10                                           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
Matter For        Board, Congress should consider amending FERSA to require DOL to
Congressional     establish a formal process by which the Secretary of Labor can report to
                  the Congress issues of critical concern about actions of the Executive
Consideration     Director and TSP Board members.


                  We provided a draft of this report to the Federal Retirement Thrift
Agency Comments   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.




                  Page 11                                             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




Page 12                                          GAO-03-400 Federal Pensions
              Appendix I: Department Of Justice Is
Appendix I: Department Of Justice Is
              Responsible for Representing Federal
              Agencies


Responsible for Representing Federal
Agencies
              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
                                        th
              grounds, 916 F.2d 1051 (5 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.




              Page 13                                                      GAO-03-400 Federal Pensions
              Appendix II: Process for TSP Audits
Appendix II: Process for TSP Audits


              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.




              Page 14                                                      GAO-03-400 Federal Pensions
Appendix II: Process for TSP Audits




Figure 1: DOL’s Typical Audit Program Report Process



1.                                               14.     Board/auditee
      Entrance conference
                                                        implement audit
        All players meet                               recommendations


2.
          Completion of                          13.    DOL responds to
          audit fieldwork
                                                        TSP audit report
      Independent Auditors                                questions


3.        Report writing
                                                 12.      TSP Board
      Independent Auditors                             Executive Director
                                                        issues a formal
                                                       response to DOL

4.       Exit conference
       (recommendations
     discussed and possibly                      11.    Presentation of
            modified)
                                                       audit reports to the
       Auditee, audit team,                              TSP Board by
              DOL,                                     Executive Director
          & Board reps


5.        DOL submits                            10.    Summary of final
          draft report for
       technical comments                              report forwarded to
                                                           DOL’s Asst.
       Auditee & Board Staff                            Secretary, EBSA,
                                                        for further action



6.       Official draft report
                                                  9.   DOL forwards final
         issuance by DOL
                                                         report to TSP
           Reviewed by                                 Board’s Executive
            auditee &                                  Director for formal
           Board staff                                     comments




7.       DOL receives                             8.   After consideration of
      comments on draft                                 written comments,
      report from auditee                              DOL issues the final
               and                                             report
          Board staff

Source: GAO’s analysis of DOL’s documentation.




Page 15                                                                  GAO-03-400 Federal Pensions
Appendix II: Process for TSP Audits




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.




Page 16                                           GAO-03-400 Federal Pensions
              Appendix III: Comments from the Federal
Appendix III: Comments from the Federal
              Retirement Thrift Investment Board



Retirement Thrift Investment Board




(130223)
              Page 17                                   GAO-03-400 Federal Pensions
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