oversight

Report on the Audit of Metropolitan Life Insurance Company Jersey City, New Jersey

Published by the Office of Personnel Management, Office of Inspector General on 2006-01-31.

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

                                      United States

                    '11'~".'
                    I
                    ·-1·.·'·
                              -'~
                      ..· ,"'.' .
                        )..    "
                                      Office of
                                      PersOnnel
                                      Management


                   Office o/the Inspector General



                                                                                       '/




                   Final·Audit Report
       Subject: .
                                                                                                                                                                  ".

                         REP.ORTONTHE AUDIT OF 

                   METROPOLITAN LIFE INSURANCE COMPANY 

                         JERSEY CITY, NEW JERSEY 





        Prepared By: 


                                                       OFFICE OF AUDITS 




                                                        Report No. 2A..n-OO~OS-045 


                                                        Date:               January 31? 2006 





                                                                    -,-CAUTION-­

This audi,. .·"or, b.s. be'n dislribul.ell 10 Feller.land non-Federal offici.ls .. ho ar. responsible for Ihe administration "ftbe audiledconiracl. This alldi.
roporl nl3J conlain proprietar)' data which;s prolecled by Federal law (18 USC 1905); Iberefore', while lhis audit reporl is a,ailalile under Ibe Freedom of
Information Ari, raution should be exercised before reliasing Ihe reporllo Ibe gener.1 public.
                                           UNITED STATES 

                               OFFICE OF PERSONNEL MANAGEMENT 

                                      WASHINGTON, DC 20415-1100


      OFFICE OF
THE INSPECTOR GENERAL




                                           AUDIT REPORT 




                              Federal Employees' Group Life Insurance Program 

                                        Contract Number 17000-G 





                                   Metropolitan Life Insurance Company 

                                         Jersey City, New Jersey 





                        REPORT NO. 2A-II-OO-05-045          DATE: January 31. 2006




                                                            ~~-~ll                        

                                                       Ikv Harvey D. Thorp
                                                       r-   Assistant Inspector General
                                                              for Audits




                                                                                               OIG-Ol
                                                                                              May 1999
                                                    UNITED STATES 

                                   OFFICE OF PERSONNEL MANAGEMENT 

                                             WASIDNGTON. DC 20415-1100


      OFFICE OF
THE INSPECTOR GENERAL




                                             EXECUTIVE SUMMARY



                                   Federal Employees' Group Life Insurance Program 

                                              Contract Number 17000-G 





                                          Metropolitan Life Insurance Company 

                                                Jersey City, New Jersey 





                         REPORT NO. 2A-II-00-05-045                       DATE: .January 3J, 2006


        This final audit report on the Federal Employees' Group Life Insurance (FEGLI) Program
        operations at Metropolitan Life Insurance Company (MetLife) in Jersey City, New Jersey
        questions $1,273,154 1 in administrative expense overcharges and $180,354 in net under draws
        from the letter of credit (LOC) account. MetLife agreed (AJ with all questioned amounts. Lost
        investment income on the questioned costs amounted to $23,787.

        Our audit was conducted in accordance with Government Auditing Standards. The audit covered
        claim payments for fiscal year 2004, as well as claim overpayments and administrative expenses
        for fiscal years 2000 through 2004 as reported in the FEGLI Program financial statements. In
        addition, we reviewed MetLife's policies and procedures related to cash management ofFEGLI
        Program funds for fiscal years 2000 through 2004.

        Questioned items are summarized, as follows:




        1 Since the actual administrative expenses incurred by MetLife for the FEGLI Program exceeded the contract
        expense limitations for fiscal years 2000 through 2004 by approximately $2 million, no monetary adjustments are
        required by MetLife for these overcharges.


                                                                                                                            OIG-Ol
                                                                                                                          May 1999
                                    BENEFIT CHARGES

    The audit disclosed no findings pertaining to benefit charges. Overall, we concluded that
    MetLife correctly paid claims in fiscal year 2004 and properly processed overpayment
    recoveries in fiscal years 2000 through 2004.

                             ADMINISTRATIVE EXPENSES

•   Pension Costs (A)                                                                    $1,249,584

    MetLife did not calculate pension costs in accordance with the Federal regulations. The
    regulations limit the amount of pension costs that may be charged to a government contract to
    the lower of any cash contribution to the pension fund trustee, or the amount of expense
    calculated in accordance with Cost Accounting Standards (CAS) 412 and 413, whichever is
    lower. MetLife did not calculate pension costs based on the lesser of cash contributions or
    CAS amounts. As a result, MetLife over allocated pension costs to the FEGLI Program in
    fiscal years 2001 through 2004.

•   Limits on Executive Compensation (A)                                                    $23,570

    MetLife overcharged the FEGLI Program for executive compensation in fiscal years 2000
    through 2004.

                                  CASH MANAGEMENT

•   Letter of Credit Drawdown Reconciliations (A)                                        ($180,354)

    MetLife under drew a net amount of$180,354 from the LOC account for administrative
    expenses and service charges for fiscal years 2002 through 2004. Specifically, MetLife over
    drew $141,100 and $94,105 from the LOC account for fiscal years 2002 and 2003,
    respectively, and under drew $415,559 for fiscal year 2004. .

             LOST INVESTMENT INCOME ON AUDIT FINDINGS
    As a result of the audit findings presented in this report, the FEGLI Program is due lost 

    investment income of$23,787 through September 30,2005. 





                                                 ii
                                                        CONTENTS
                                                                                                                             PAGE 


       EXECUTIVE SUMMARy............................................................................................ i 


 I.    INTRODUCTION AND BACKGROUND ................................................................... 1 


ll.    OBJECTIVES, SCOPE, AND METHODOLOGy .......................................................2 


ill.   AUDIT FINDINGS AND RECOMMENDATIONS .................................................... .4 


       A.     BENEFIT CHARGES ........................................................................................4 


       B.     ADMINISTRATIVE EXPENSES ....................................................................... .4 


              1.     Pension Costs ...............................................................................................4 

              2.     Limits on Executive Compensation .............................................................5 


       C.     CASH MANAGEMENT ......................................................................................6 


              1.     Letter of Credit Drawdown Reconciliations ................................................ 6 


       D.     LOST INVESTMENT INCOME ON AUDIT FINDINGS .................................. 8 



IV.    MAJOR CONTRIBUTORS TO THIS REPORT ..........................................................9 


 V.    SCHEDULES

       A.     Contract Charges and Questioned Charges
       B.     Questioned Charges
       C.     Lost Investment Income Calculation

       APPENDIX 	 (Metropolitan Life Insurance Company reply, dated September 20, 2005,
                  to the draft audit report)
                     I. INTRODUCTION AND BACKGROUND 


INTRODUCTION 


This final audit report details the findings, conclusions, and recommendations resulting from our
audit of the Federal Employees' Group Life Insurance (FEGLI) Program operations at
Metropolitan Life Insurance Company (MetLife). MetLife's FEGLI Program operations are
located in Jersey City, New Jersey.

The audit was performed by the Office of Personnel Management's (OPM) Office of the Inspector
General (OIG), as established by the Inspector General Act of 1978, as amended.

BACKGROUND

The FEGLI Program was created in 1954 by the Federal Employees' Group Life Insurance Act
(P.L. 83-598). OPM's Center for Retirement and Insurance Services (CRIS) has overall
responsibility for administering the Program, including the publication of program regulations
and agency guidelines; and the receipt, payment, and investment of agency withholdings and
contributions. CRIS contracts with MetLife to provide life insurance coverage to employees,
annuitants, and their family members (Contract No. 17000-G). Employing agencies are
responsible for emolling, informing and advising employees of program changes, determining
eligibility, maintaining insurance records, withholding premiums from pay, remitting and
reporting withholdings to OPM, and .certifying salary and insurance coverage upon separation or
death.

MetLife's responsibilities under the contract are carried out by the Office ofFEGLI (OFEGLI), a
separate unit of MetLife, which is located in Jersey City, New Jersey. OFEGLI is supervised by
MetLife's Group Insurance Department. OPM's Insurance Services Programs administers the
contract with OFEGLI.

Compliance with laws and regulations applicable to the FEGLI Program is the responsibility of
MetLife's management. Also, management of MetLife is responsible for establishing and
maintaining a system of internal controls.

Our previous audit of MetLife (Report Number II-OO-99-018, dated July 14, 1999), covering
administrative expenses for fiscal year 1998, disclosed no questioned costs.

The results of our audit were provided to MetLife in written audit inquiries; were discussed with
MetLife officials throughout the audit and at an exit conference; and were presented in detail in a
draft report, dated August 23, 2005. MetLife's comments offered in response to the draft report
were considered in preparing our final report and are included as the Appendix to this report.




                                                1

                II. OBJECTIVES, SCOPE, AND METHODOLOGY


OBJECTIVES

The objectives of our audit were to determine whether MetLife charged costs to the FEGLI
Program and provided services to FEGLI Program subscribers in accordance with the terms of
the contract. Specifically, our objectives were as follows:

        Benefit Charges

        • 	 To determine whether MetLife complied with the contract provisions relative to
            benefit payments.

        • 	 To determine whether overpayment recoveries were returned promptly to the FEGLI
            Program.

        Administrative Expenses

        • 	 To determine whether administrative expenses charged to the contract were actual,
            necessary and reasonable expenses incurred in accordance with the terms ofthe
            contract, contractual expense limitations, and applicable regulations.

        Cash Management

        • 	 To determine whether MetLife handled FEGLI Program funds in accordance with
            applicable laws and regulations concerning cash management in the FEGLI Program.

SCOPE

Our performance audit was performed in accordance with Government Auditing Standards,
published by the United States General Accounting Office, and with the terms of the contract.
Accordingly, the audit included tests of the accounting records and other aUditing procedures as
considered necessary in the circumstances.

We reviewed the FEGLI Program financial statements for fiscal years 2000 through 2004. During
this period, benefit charges totaled approximately $9.8 billion and administrative expenses totaled
$41.2 million. (See Schedule A) Specifically, we reviewed claim payments in fiscal year 2004 for
proper adjudication. We also reviewed claim overpayments, administrative expenses, and cash
management activities for fiscal years 2000 through 2004.

In planning and conducting our audit, we obtained an understanding of MetLife's internal control
structure to help determine the nature, timing, and extent of our auditing procedures. This was
determined to be the most effective approach to select areas of audit. For those areas selected,
we primarily relied on substantive tests of transactions and not tests of controls. Based on our




                                                2

 testing, we did not identify any significant matters involving MetLife's internal control structure
 and its operation. However, since our audit would not necessarily disclose all significant matters
 in the internal control structure, we do not express an opinion on MetLife's system of internal
 controls taken as a whole.

 We also conducted tests to determine whether MetLife had complied with the contract, the
 applicable procurement regulations (i.e., Federal Acquisition Regulations and Federal Employees
 Group Life Insurance Federal Acquisition Regulations, as appropriate), and the laws and
 regulations governing the FEGLI Program. The results of our tests indicate that, with respect to the
 items tested, MetLife did not comply with all provisions of the contract and federal procurement
 regulations. Exceptions noted in the areas reviewed are set forth in detail in the "Audit Findings
 and Recommendations" section of this audit report. With respect to the items not tested, nothing
 came to our attention that caused us to believe that MetLife had not complied, in all material
 respects, with those provisions.

 The audit was performed at MetLife's OFEGLI in Jersey City, New Jersey from April 11, 2005
 through May 13,2005.

 METHODOLOGY

To test MetLife's compliance regarding the FEGLI Program benefit provisions, we selected and 

reviewed a judgmental sample of200 claims from fiscal year 2004. For the claims in this 

sample, we reviewed the case files and determined if the necessary documents were provided and 

if these claims were correctly calculated and paid. 


To test MetLife's compliance regarding claim overpayments, we selected a judgmental sample of 

80 overpayment recoveries from fiscal years 2000 through 2004, and reviewed MetLife's 

accounting records to determine if these recoveries were properly processed. 


We judgmentally reviewed the administrative expenses charged to the FEGLI Program for 

contract years 2000 through 2004. We used the FEGLI Program contract; the Federal 

Acquisition Regulations; and the Federal Employees Group Life Insurance Federal Acquisition 

Regulations to determine the allowability, allocability, and reasonableness of charges. 


 In addition, we reviewed MetLife's cash management to determine whether MetLife handled
'FEGLI Program cash in accordance with Contract No. 17000-G and applicable laws and
 regulations.




                                                 3

            III. AUDIT FINDINGS AND RECOMMENDATIONS 



A. 	 BENEFIT CHARGES

  The audit disclosed no findings pertaining to benefit charges. Overall, we concluded that
  MetLife correctly paid claims in fiscal year 2004 and properly processed overpayment
  recoveries in fiscal years 2000 through 2004.

B. 	 ADMINISTRATIVE EXPENSES

  1. 	 Pension Costs                                                                 $1,249,584

     MetLife did not calculate pension costs in accordance with the Federal regulations. The
     regulations limit the amount of pension costs that may be charged to a government
     contract to the lower of any cash contribution to the pension fund trustee, or the amount
     of expense calculated in accordance with Cost Accounting Standards (CAS) 412 and 413,
     whichever is lower. MetLife did not calculate pension costs based on the lesser of cash
     contributions (funded) or CAS amounts. As a result, MetLife over allocated pension
     costs of$1,249,584 to the FEGLI Program in fiscal years 2001 through 2004.

     48 CFR 31.205-60)(2) states, " ... The cost of all defined-benefit pension plans shall be
     measured, allocated and accounted for in compliance with the provisions of 48 CFR
     9904.412, Cost accounting standard for composition and measurement of pension cost,
     and 48 CFR 9904.413, Adjustment and allocation of pension cost. The costs of all
     defined-contribution pension plans shall be measured, allocated, and accounted for in
     accordance with the provisions of 48 CFR 9904.412 and 48 CFR 9904.413. Pension
     costs are allowable subject to the referenced standards ..."

     The Federal Acquisition Regulations (FAR) limit the amount of pension costs that may
     be charged to a government contract. Only the following may be charged:
         • 	 the amount of any cash contribution to the pension fund trustee, or
         • 	 the amount of expense calculated in accordance with CAS 412 and 413,
             whichever is lower.

     For fiscal years 2000 through 2004, MetLife calculated pension costs according to
     Financial Accounting Standard 87 and allocated $2,053,842 to the FEGLI Program.
     MetLife charged these pension costs as indirect expenses to the FEGLI Program.
     However, MetLife did not calculate these pension costs according to FAR, nor limit
     pension costs to the lower of cash contributions or CAS amounts. After receiving our
     Audit Inquiry, MetLife recalculated pension costs based on the lesser of the funded or
     CAS amounts for fiscal years 2000 through 2004. Based on MetLife's recalculations, the
     FEGLI Program was over allocated $1,249,584 ($208,150 in 2001, $300,632 in 2002,




                                              4

           $583,699 in 2003, and $157,103 in 2004) for pension costs in fiscal years 2001 through
           2004. 2 We reviewed and accepted MetLife's recalculations.

           MetLife's Response:

           MetLife agrees with this finding. In the future, MetLife will limit the pension costs
           allocated to the FEGLI Program in accordance with FAR.

           OIG Comments:

           We reviewed the FEGLI Program financial statements and noted that MetLife exceeded
           the administrative expense limitations by $1,983,886 ($128,198 in 2000, $373,340 in
           2001, $304,988 in 2002, $730,122 in 2003, and $447,238 in 2004) for fiscal years 2000
           through 2004.

           Recommendation 1

           We recommend that the contracting officer disallow $1,249,584 in pension costs that
           were over allocated to the FEGLI Program for fiscal years 2001 through 2004. However,
           since MetLife exceeded its administrative expense ceiling in each year by more than the
           amount questioned for that year, no monetary adjustments are required.

      2. Limits on Executive Compensation                                                              $23,570

          MetLife overcharged the FEGLI Program $23,570 for executive compensation in fiscal
          years 2000 through 2004.

          48 CFR 31.205-6(p) limits the allowable compensation costs for senior executives to a
          benchmark amount established each year by the Office of Federal Procurement Policy.
          For 2000 through 2004, this limit is applicable to the five most highly compensated
          employees in management positions at each home office and each segment of the Plan,
          whether or not the home office or segment reports directly to the Plan's headquarters.
          The benchmark compensation amounts were $353,010 for 2000, $374,228 for 2001,
          $387,783 for 2002, $405,273 for 2003, and $432,851 for 2004.

          MetLife allocated executive compensation indirectly to the FEGLI Program. To
          determine the allowability of the amounts charged to FEGLI for executive compensation,
          we reviewed the Plan's allocations for contract years 2000 through 2004 and determined
          if the executive compensation amounts were limited to the benchmark amounts as
          required by 48 CFR 31.205-6(p). We found that the Plan did not limit the executive
          compensation amounts in the 2000, 2001, 2003, and 2004 allocations. As a result, the
          FEGLI Program was overcharged $23,570 ($91 in 2000, $204 in 2001, $11,212 in 2003,
          and $12,063 in 2004) for executive compensation in fiscal years 2000 through 2004.


2   MetLife allocated the funded amount to the FEGLI Program in 2000, which was less than the CAS amount.




                                                        5

     MetLife's Response:

     MetLife agrees with this finding. In the future, MetLife will limit the executive salaries
     allocated to the FEGLI Program in accordance with FAR.

     OIG Comments:

     We reviewed the FEGLI Program financial statements and noted that MetLife exceeded
     the administrative expense limitations by $1,983,886 ($128,198 in 2000, $373,340 in
     2001, $304,988 in 2002, $730,122 in 2003, and $447,238 in 2004) for fiscal years 2000
     through 2004.

     Recommendation 2

     We recommend that the contracting officer disallow $23,570 in executive compensation
     costs that were over allocated to the FEGLI Program for fiscal years 2000 through 2004.
     However, since MetLife exceeded its administrative expense ceiling in each year by more
     than the amount questioned for that year, no monetary adjustments are required.

C. CASH MANAGEMENT

  1. Letter of Credit Drawdown Reconciliations                                        ($180,354)

     MetLife under drew a net amount of $180,354 from the letter of credit (LOC) account for
     administrative expenses and service charges for fiscal years 2002 through 2004.
     Specifically, MetLife over drew $141,100 and $94,105 from the LOC account for fiscal
     years 2002 and 2003, respectively, and under drew $415,559 for fiscal year 2004.

     48 CFR 31.20 1-2(d) states, "A contractor is responsible for accounting for costs
     appropriately and for maintaining records ..."

     For each month during fiscal years 2002 through 2004, MetLife withdrew an estimated
     amount from the LOC account for administrative expenses and service charges. As ofthe
     completion of our on-site audit (May 13,2005), MetLife had not reconciled these LOC
     drawdowns to the actual chargeable expenses. Subsequently, MetLife reconciled the
     LOC drawdowns for these estimated expenses to the actual chargeable expenses for fiscal
     years 2002 through 2004. Based on these reconciliations, MetLife under drew a net
     amount of$180,354 from the LOC account for administrative expenses and service
     charges.




                                              6

The following is a summary of MetLife's reconciliations.

      Fiscal Year 2002

      Total Charged through Monthly LOC Drawdowns           $8,352,388
      Less:
      Chargeable Administrative Expenses                     7,586,288
      Less:
      Service Charge                                           625,000

      Difference (Over drew)                                  $141,100

      Fiscal Year 2003

     Total Charged through Monthly LOC Drawdowns            $8,518,299
     Less:
     Chargeable Administrative Expenses                      7,749,194
     Less:
     Service Charge                                            675,000

     Difference (Over drew)                                    $94.105

     Fiscal Year 2004

     Total Charged through Monthly LOC Drawdowns            $8,518,299
     Less:
     Chargeable Administrative Expenses                      8,213,858
     Less:
     Service Charge                                            720,000

     Difference (Under drew)                                 ($415.559)

The administrative expenses incurred by MetLife exceeded the contract expense
limitation for each year. Therefore, the chargeable administrative expenses for each year
equal the contract expense limitation (including approved exceptions).

We reviewed and agreed with MetLife's reconciliations.

MetLife's Response:

MetLife agrees with this finding.




                                        7

      Recommendation 3

      We recommend that the contracting officer allow MetLife to withdraw an additional
      $180,354 from the LOC account for fiscal years 2002 through 2004 administrative
      expenses and service charges.

D. LOST INVESTMENT INCOME ON AUDIT FINDINGS                                              $23,787

  As result of the audit findings presented in this report, the FEGLI Program is due lost
  investment income (LIT) of$23,787 from January 1, 2003 through September 30,2005.

  48 CFR 2152.210-70 requires the contractor to invest and reinvest all excess FEGLI Program
  funds on hand, and to credit all investment income earned on those ftinds to the FEGLI
  Program. When the carrier fails to comply with these requirements, the carrier shall credit
  the FEGLI Program with investment income that would have been earned at the rates
  specified by the Secretary of the Treasury. LIT payable on questioned costs is compounded
  semianrtuall y.

  We computed investment income that would have been earned using the semiannual rates
  specified by the Secretary of the Treasury. LIT is only computed on the LOC overdraws for
  the 2002 and 2003 administrative expenses and service charges (see "Letter of Credit
  Drawdown Reconciliations" finding on page 6). Our computations show that the FEGLI
  Program is due LIT of$23,787 from January 1, 2003 through September 30,2005 on these
  LOC overdraws for 2002 and 2003 (see Schedule C).

  MetLife's Response:

  The draft audit report did not include a finding that computed LIT on audit findings. Therefore,
  MetLife did not address this item in its reply.

  Recommendation 4

  We recommend that the contracting officer direct MetLife to credit $23,787 (plus interest
  accruing after September 30, 2005) to the FEGLI Program for LIT on audit findings.




                                              8

               IV. MAJOR CONTRIBUTORS TO THIS REPORT

Experience-Rated and Special Audits Group

                 Auditor-In-Charge

                   Auditor

                 Auditor

                Auditor


                   Group Chief

                    Senior Team Leader




                                            9

                                                                                                                                                                      SCHEDULE A
                                                                     V. SCHEDULES

                                                    METROPOLITAN LIFE INSURANCE COMPANY
                                                          JERSEY CITY, NEW JERSEY

                                                CONTRACT COSTS AND QUESTIONED CHARGES


CONTRACT COSTS                                         2000              2001                       2002                 2003               2004                       TOTAL

A. BENEFIT CHARGES                              I $1,853,725,419     $1,805,525,690       $1 978,867 147 $1,989,896,360                 $2,137;054,075                $9,765,068691


B. ADMINISTRATIVE EXPENSES                      I      $7,762,060       $7,479,730                  $7,586,288          $7749194          $10,581,858                    $41,159,130




QUESTIONED CHARGES                                      2000             2001                        2002                2003               2004         2005          TOTAL

A.   BENEFIT CHARGES                                            $0              $0                         $0                      $0              $0           $0                $0
B.   ADMINISTRATIVE EXPENSES                                    91         208,354                    300,632                 594,911         169,166            0        $1,273,154
C.   CASH MANAGEMENT                                             0               0                    141,100                  94,105        (415,559)           0         ($180,354)
D.   LOST INVESTMENT INCOME ON AUDIT FINDINGS                    0               0                          0                   5,250          10,327        8,210           $23,787

TOTAL QUESTIONED CHARGES                                       $91        $208,354                   $441,732             $694,266          ~$236,066~     $8,210         $1,116,587
                                                                                      itk.iii'4iJ                i w&tM%IJw                                0lIIII '   !ii_~m~~~     II
                                                                                                                                                                                                                                        SCHEDULEB
                                                                                             METROPOLITAN LIFE INSURANCE COMPANY
                                                                                                   JERSEY CITY, NEW JERSEY

                                                                                                            QUESTIONED CHARGES


QUESTIONED CHARGES                                                                                        2000                  2001                          2002          2003                  2004                   2005               TOTAL


A.     BENEFIT CHARGES                                                                            I                  $0                       $0                     $0                $0                    $0                    $0                    $O~



B.     ADMINISTRATIVE EXPENSES
       1. Pension Costs *                                                                                           $0            $208,150                     $300,632       $583,699              $157,103                      $0          $1,249,584
       2. Limits on Executive Compensation *                                                                        91                 204                            0         11,212                12,063                       0              23,570

       TOTAL ADMINISTRATIVE EXPENSES                                                              I               $91             $208354
                                                                                                                                                          %
                                                                                                                                                               $300632        $594911               $169166                       $0          $1273154 !II


C.     CASH MANAGEMENT
       1. Letter of Credit Drawdown Reconciliations                **                                               $0                      $0                 $141,100         $94,105            ($415,559)                     $0              ($180,354)

       TOTAL CASH MANAGEMENT 	                                                                    I                 $0                      $0                 $141,100         $94105             ($415559)                      $0              ($180354 II


D. 	   LOST INVESTMENT INCOME ON AUDIT FINDINGS                                                   I                 $0                      $0                       $0          $5250                $10327                 $8210                 $23787 Ii


TOTAL QUESTIONED CHARGES                                                                          I               $91             $208354                      $441732        $694266              ($236066)                 $8210            $1 116587        I!!

*	     The administrative expenses incurred by the MetropOlitan Life Insurnace Company exceeded the contract expense limitations for 2000 through 2004. Therefore, this audit finding is not subject to the lost investment income calculation.
**     Only the over draws Jor 2002 and 2003 are subject to the lost investment income calculation.
                --	                                                                                                                  -   -- - -_._._--­
                                                                                                                                                                       SCHEDULEC
                                                                  METROPOLITAN LIFE INSURANCE COMPANY
                                                                        JERSEY CITY, NEW JERSEY

                                                                  LOST INVESTMENT INCOME CALCULATION


                                                                                      2000        2001            2002           2003       2004          2005*           TOTAL

A. QUESTIONED CHARGES (Subject to Lost Iuvestment Income)

      Letter of Credit Drawdown Reconciliations                                              $0          $0      $141,100        $94,105             $0           $0             $235,205

      TOTAL                                                                    I             $0          $0      $141,100        $94,105             $0           $0             $235,205



B. LOST INVESTMENT INCOME CALCULATION - Compounded Semi-Annually

   a. Prior Years Total Questioned (principal)                                               $0          $0              $0      $141,100    $94,105            $0
   b. Cumulative Total (k)                                                                   $0          IQ              IQ            $0   $146,350      $250,782
   c. Total                                                                                  $0          $0              $0      $141,100   $240,455      $250,782


   d. Treasury Rate: January 1 - June 30                                               6.750%      6.375%           5.500%        4.250%     4.000%        4.250%

   e. Interest (d*c)                                                                         $0          $0              $0        $2,998     $4,809        $5,329                   $13,136
   f. Total (c)                                                                              $0          $0              IQ      $141,100   $240,455      $250,782
   g. Total                                                                                  $0          $0              $0      $144,098   $245,264      $256,111


    h. Treasury Rate: July 1 - December 31                                             7.250%      5.875%           5.250%        3.125%     4.500%        4.500%
                                                                                                                                                                                               I
   i. Interest (h*g)                                                                         $0          $0              $0        $2,252     $5,518        $2,881                   $10,651!
   j. Total (g)                                                                              $0          $0              $0      $144,098   $245,264      $256,111
   k. Cumulative Total (Principal + Interest)                                                $Q          $Q              $Q      $]46,350   $250,182      $258,222


    Total Interest By Year (e+i)                                               I             $0          $0
                                                                                                              :dUiMttt h:
                                                                                                                            $0     $5,250    $10,327
                                                                                                                                             di'i@WWil
                                                                                                                                                            $8,210Wiii1 ;. . .   i   ~2;,;:71
* Calculated lost investmen.t income through September 30, 2005
                  --                                                           ----
                                                                                               APPENDIX 





 September 20, 2005




Experience - Rated and Special Audits Group
Office of Inspector General
U.S. Office of Personnel Management 

1900 E. Street NW, Room 6400 

Washington, DC 20415-1100 


Re:     FEGLI Audit Draft Report




The following is our response to the four audit inquiries contained in the draft audit report dated August
23,2005.

Audit Inquiry #1 - Pension Costs

After receiving the audit inquiry, we recalculated the questioned pension costs in accordance with the
guidance provided. Our recalculated pension costs have now been reviewed and accepted. Going
forward we will limit pension costs allocated to the FEGLI program in accordance with applicable
regulation .

.Audit Inquiry #2 - 2004 Open Season Expenses

Since Audit Inquiry #2 has been dropped, we need not respond to it.

Audit Inquiry #3 - Letter of Credit Drawdown (LOC) Reconciliation

We are in agreement with the recommendations regarding the LOC drawdown. We will contact the
contracting office to request a withdrawal of $180,354 from the Letter of Credit, reflecting the reconciled
amounts for FY 2002, 2003, and 2004.

Audit Inquiry #4 - Executive Compensation

We agree with the recommendations presented. Going forward we will limit the executive salaries
allocated to the FEGLI program in accordance with applicable regulation.

If you have any question, please let me know.




-

Copy: