oversight

Audit of the Federal Employees Group Insurance Program Operation at Metropolitan Life Insurance Company

Published by the Office of Personnel Management, Office of Inspector General on 2008-12-15.

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

                                                             US OFFICE OF PERSONNEL MANAGEMENT
                                                                 OFFICE OF THE INSPECTOR GENERAL
                                                                                  OFFICE OF AUDITS




Final Audit Report
Subject:



    AUDIT OF THE FEDERAL EMPLOYEE GROUP

           LIFE INSURANCE PROGRAM

      OPERATIONS AT METROPOLITAN LIFE

             INSURANCE COMPANY


                                                 Report No. 2A-U-OO-07-017


                                               Date: December 15, 2008




                                                                 --CAUTION-­
This :lIIdit report has bCCll dislrilmtcd to Federal onicials who arc    I·cs[lo"~jblc fOI"lhc admitlistnltion of the ;ludill'd progr:lnJ. Thi.~ audit
I'CPOI"t may conl:tilllll'upri("tary dalll which is Ilrotected by Federal law (18l l.S.C. 1905); tll(',"('fo'"c. while this :lIulit l"rJlort is ,Ivailahle
under the 1"l'ccdolll of Ilifor mation Act. caution needs to be cxcl'cis('d bcfflH rcll':lsillg the '"C1}(J!"t tu the general public.
                             UNITED STATES OFFICE OF PERSONNEL MANAGEMENT

                                                   Washington, DC 20415



     Office of the
. Inspector General




                                              AUDIT REPORT





                                    Federal Employee Group Life Insurance Program

                                                Contract No. 17000-G


                                         Metropolitan Life Insurance Company

                                               Jersey City, New Jersey




                      Report No. 2A-II-OO-07-017                           Date: December 15, 2008




                                                                           Michael R. Esser
                                                                           Assistant Inspector General
                                                                             for Audits




          www.opm.goY                                                                       www.usajobs.goY
                         UNITED STATES OFFICE OF PERSONNEL MANAGEMENT

                                               Washington, DC 20415



   Office of the
Inspector General




                                        EXECUTIVE SUMMARY




                             Federal Employee Group Life Insurance Program

                                         Contract No. 17000-G '.


                                   Metropolitan Life Insurance Company

                                         Jersey City, New Jersey





             Report No. 2A-II-OO-07-017                                   Date: December 15,2008

        This repOli details the results of our audit of the Federal Employees Group Life Insurance
        (FEGLI) Program operations at the Metropolitan Life Insurance Company (MetLife). The audit
        covered claim benefits payments for fiscal year 2006, and miscellaneous payments and
        administrative expenses for fiscal years 2005 and 2006 as repOlied in the FEGLI Program
        financial statements. The report questions $465,336 in administrative expenses. Lost investment
        income on the questioned costs subject to lost investment income amounts to $72, I29.
        Additionally, MetLife is commingling FEGLI cash and investment funds with its corporate cash
        and investment funds.

        The questioned items are summarized below.

                                      ADMINISTRATIVE EXPENSES

        •   Depreciation Adjustment                                                             $292,367

            MetLife did not credit FEGLI with a portion of the gain made on the sale of a building that
            housed FEGLI operations from 1954 through 1993.




        www.opm.gov                                                                           www.usajobs.gov
•   Pension Expense                                                                     $151,885

    MetLife did not calculate pension costs in accordance with the Federal regulations for 2005.

•   Limits on Executive Compensation                                                    $21,084

    MetLife overcharged the FEGLI Program $21,084 for executive compensation in 2005.

                                     CASH MANAGEMENT

•   Commingling of Funds

    MetLife is commingling FEGLI cash and investment funds with its corporate cash and
    investment funds.

                                 LOST INVESTMENT INCOME

    The FEGLI Program is due $72,129 for lost investment income on the findings presented in
    the report that are subject to the recovery of lost investment income.




                                                II
                                        CONTENTS

                                                                              PAGE


        EXECUTIVE SUMMARy                                                          i


  I.    INTRODUCTION AND BACKGROUND	                                               1


 II.	   OBJECTIVES, SCOPE, AND METHODOLOGY                                        2


III.	   AUDIT FINDINGS AND RECOMMENDATIONS                                        5


        A.   BENEFITS CHARGES	                                                    5


        B.   ADMINISTRATIVE EXPENSES	                                             5


             1. Depreciation Adjustment	                                          5

             2. Pension Expense	                                                  6

             3. Limits on Executive Compensation	                                 7


        C.   CASH MANAGEMENT	                                                     7


             1. Commingling of Funds	                                             7


        D.   LOST INVESTMENT INCOME	                                              9


IV.	    MAJOR CONTRIBUTORS TO Tl-IIS REPORT                                      10


        SCHEDULES


        A.   CONTRACT CHARGES AND QUESTIONED CHARGES
        B.   QUESTIONED CHARGES
        C.   LOST INVESTMENT INCOME CALCULATION


        APPENDIX	 (Metropolitan Life Insurance Company's September 10, 2008 comments
                  on the draft report)
                    I. INTRODUCTION AND BACKGROUND

INTRODUCTION

This repmi details the results of bur audit of the Federal Employees' Group Life Insurance
Program (FEGLI or Program) operations at the Metropolitan Life Insurance Company (MetLife)
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 fanlily members (Contract No. 17000-G). Employee agencies are
responsible for em-oIling, 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 office 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 intemal controls.

Our previous audit of MetLife (Report Number 2A-II-00-05-045, dated January 31, 2006),
covered claim payments for fiscal year 2004, claim overpayments, administrative expenses and
cash management policies and procedures for fiscal years 2000 through 2004. All findings
questioned in this repmi were satisfactorily resolved.




                                               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:

     Benefits Charges

     o	     To determine whether MetLife complied with the contract provisions relative to
            benefit payments.
     o	     To determine whether overpayment recoveries were returned promptly to the FEGLI
            Program. Also, to determine whether MetLife made diligent efforts to recover
            overpayments.

     Cash Management

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

      Administrative Expenses

     o	    To determine if the administrative expenses charged to the FEGLI Program were
           actual, necessary, and reasonable expenses incurred in accordance with the terms of
           the contract and applicable regulations.

SCOPE

We conducted this perfornlance audit in accordance with generally accepted government
auditing standards. Those standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our audit findings and
conclusions based on the audit objectives. We believe that the evidence obtained provides a
reasonable basis for our findings and conclusions based on our audit objectives.

We reviewed the FEGLI Program financial statements for fiscal years 2005 and 2006. During
this period, benefit charges totaled approximately $4.4 billion and administrative expenses
totaled $16.9 million. Specifically, we reviewed claim payments in fiscal year 2006. We also
reviewed claim overpayments, administrative expenses, and cash management activities for
fiscal years 2005 and 2006.

In conducting the audit, we reviewed approximately $29,268,800 in claim payments made fl.'om
October 1,2005 through September 30,2006, for proper adjudication. We also reviewed
$3,645,572 in claim overpayments, $16,797,628 in administrative expenses and $850,151,372 in
letter of credit (LaC) drawdowns for compliance with cash management policies and
procedures.
We obtained an understanding of MetLife's internal control structure to help detennine the
nature, timing, and extent of our auditing procedures. This was detennined 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 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 appropIiate), and the laws and
regulations governing the FEGLI Program. 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 mateIial respects, with those provisions.

In conducting our audit, we relied to varying degrees on computer-generated data provided by
MetLife. Due to time constraints, we did not verify the reliability of the data generated by
MetLife's information systems. However, while utilizing the computer-generated data during
audit testing, nothing came to our attention to cause us to doubt its reliability. We believe that
the data was sufficient to achieve the audit objectives.

The audit was pelformed at MetLife's office in Jersey City, New Jersey from April 2, 2.007
through ApIi127, 2007.

METHODOLOGY

To test MetLife's compliance with the contract provisions relative to claim payments, we
selected and reviewed a judgmental sample of the 100 highest dollar value claims from a
universe of96,147 claims. Of the $2,233,934,034 in claim payments made from October 1,
2005 through September 30, 2006, we reviewed a total of $29,268,800. We also reviewed
MetLife's case files and determined ifthe necessary documents were provided and if these
claims were conectly calculated and paid.

To test MetLife's compliance regarding claim overpayments, we selected a judgmental sample
ofthe 35 highest overpayment recovelies in fiscal years 2005 and 2006 (for a total of70
overpayment recoveIies), and reviewed MetLife's accounting records to determine if these
recoveries were properly processed and timely returned to the FEGLI Program. The 70
overpayment recoveIies we reviewed represented $3,645,752 of a total of $4,308,787 in
recovenes.

To detennine if administrative expenses were actual, necessary, and reasonable, we selected 15
natural accounts out of98 natural expense accounts for potential review. Natural accounts are
expense accounts (i.e. Rent, Utilities, etc.) that support the FEGLI program cost centers. The
accounts were selected based on highest dollar amount and account name. From the 15 natural




                                                 3

accounts, we selected 30 invoices for a detailed review based on the highest monthly transaction
amounts. For each natural account, the month with the highest transaction amount was
reviewed. We also reviewed each account description to ensure that only allowable costs were
charged to the account. The 15 accounts represented $2,824,165 of the $11,225,947 charged to
98 natural expense accounts for fiscal years 2005 and 2006.

In addition, we selected and reviewed MetLife's LOC drawdowns to detelmine whether MetLife
handled FEGLI Program cash in accordance with Contract No. 17000-G and applicable laws and
regulations. To accomplish this, we selected and reviewed 92 LOC drawdown transactions that
occurred during the months of March and June of2005, and March and August of2006. The 92
LOC drawdown samples represented $850,151,402 ofthe total of $4,394,936,299 in LOC
drawdown transactions occurring during fiscal years 2005 and 2006.

Because the samples we selected and reviewed in performing the audit were not statistically
based, the results could not be projected to the universe since it is unlikely that the results are
representative ofthe universe taken as a whole.

We used the FEGLI Program contract; the Federal Acquisition Regulations; and the Federal
Employees Group Life Insurance Federal Acquisition Regulations to determine allowable,
allocable, and reasonable administrative expenses charged against the contract.

The results of the audit were provided to MetLife in written inquiries and were discussed with
MetLife officials throughout the audit and at the exit conference. In addition, a draft report,
dated April 17,2008, was provided to MetLife for review and comment. MetLife's comments to
the draft report were considered in preparing the final report and are included as an Appendix to
this report.




                                                   4

          III. AUDIT FINDINGS AND RECOMMENDATIONS


A.	 BENEFITS CHARGES

  The results of our review showed that MetLife:
     •	 Properly calculated and paid claims in fiscal year 2006; and
     •	 Properly processed overpayment recoveries and timely retumed the funds to the
         FEGLI program during fiscal years 2005 and 2006.

B.	 ADMINISTRATIVE EXPENSES

  1.	 Depreciation Adjustment                                                         $292,367

     MetLife did not credit FEGLI with a portion of the gain made on the sale ofa building
     that housed FEGLI operations from 1954 through 1993. During this period FEGLI was
     charged depreciation for the occupied space. According to federal regulations, a gain
     from such a sale requires an adjustment of depreciation costs previously charged to the
     contract. FEGLI is due $292,367 for tins adjustment.

     Starting in 1954 and continuing through 1993, MetLife's FEGLI operations were
     conducted at One Madison Avenue in New York City. FEGLI occupied 10,000 square
     feet ofthe building's 1.4 million square feet. Although MetLife had fully depreciated the
     building before 1954, several improvements were made to the building while occupied by
     FEGLI. Part ofthe depreciation for these improvements was charged to FEGLI.

     In 2005, MetLife sold One Madison Avenue for a gain. According to federal regulations,
     FEGLI is entitled to recover the depreciation it was charged during its period of
     occupancy. Specifically, 48 CFR 31.205-16 states that gains and losses from the sale,
     retirement, or distribution of depreciable property shall be included in the year it occurs
     as credits or charges to the cost grouping in which the depreciation or amortization
     applicable to those assets was included. It further states that gains and losses are
     considered to be adjustments of depreciation cost previously recognized. At the time of
     our audit, MetLife had not reimbursed FEGLI for the depreciation it was charged for the
     building.

     MetLife perfOlmed an analysis, based on available infonnation, to detennine the amount
     of depreciation charged to FEGLI from 1954 through 1993. The estimate is based on
     FEGLI's percentage of occupancy (0.71 percent) at One Madison Avenue, applied
     against the total amount depreciated in each year. Based on our review of MetLife's
     calculations, we agree that FEGLI was charged $292,367 for depreciation during its
     period of occupancy. Therefore, we believe MetLife should credit FEGLI for this
     amount.




                                              5

   MetLife Comments:

  MetLife contends that an adjustment to a previously closed accounting period is
  inconsistent with FEGLI regulations and contract provisions. However, it will not contest
  the audit finding.

   OIG Comments:

   We maintain our position that MetLife must credit the Program $292,367 for depreciation
   charged to the FEGLI Program during its periods of occupancy.

   Recommendation 1

   We recommend that the contracting officer require MetLife to credit the FEGLI Program
   $292,367 for depreciation expense charged to the program from 1954 through 1993.

2. Pension Expense	                                                                $151,885

   MetLife did not calculate pension costs in accordance with the Federal regulations for
   fiscal year 2005. As a result, FEGLI was overcharged $151,885.

   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 and the cost limitations and .
 -exclusions set forth in paragraph 0)(2)(i) and paragraph 0)(3) through (8) of this
   subsection." The regulations limit the amount of pension costs that may be charged to a
   government contract to:

      •	 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.

   lfthe cash contributions exceed the amount of expense calculated according to CAS 412
   and 413, the excess contribution is considered a pre-funding ofthe pension plan.
   Amounts pre-ftmded may not be charged in future years when the cash contlibution is
   lower than the CAS 412 and 413 expense calculation.

   MetLife allocated a net amount of $381,243 ($529,652 less an adjustment of $148,409)
   for pension expenses to the FEGLl Program in 2005. We recalculated the pension costs
   by multiplying the lesser of the funded or CAS amount by the FEGLI's corporate
   allocation percentage (0.46%) and detennined that only $229,358 should have been




                                           6

    allocated to the Program. Therefore, the FEGLI Program was overcharged $151,885 in
    fiscal year 2005.

    MetLife Comments:

    MetLife agrees with this fInding. In the future, it will limit pension costs allocated to the
    program in accordance with the applicable regulation.

    Recommendation 2

    We recommend that the contracting officer ensure that MetLife retums $151,885 in
    pension costs that were over-allocated to the FEGLI Program for fiscal year 2005.

  3. Limits on Executive Compensation                                            $21,084

    MetLife overcharged the FEGLI Program $21,084 for executive compensation in 2005.

    48 CFR 31.205-6(p) limits the allowability of compensation for certain contractor
    personnel and limits the allowable compensation costs for senior executives to a
    benchmark amount established each year by the OftIce of Federal Procurement Policy.
    For 2005, the benchmark compensation amount limit was $473,318 and was applicable to
    the five most highly compensated employees in executive positions.

    We reviewed the executive compensation MetLife charged to FEGLI in 2005 to determine
    if the allocated amount exceeded the benchmark compensation limit set by the Office of
    Federal Procurement Policy. We found that the charges exceeded the limit by $21,084.

    MetLife Comments:

     MetLife agrees with this finding. In the future, it will limit executive compensation costs
     allocated to the program in accordance with the applicable regulation.

     Recommendation 3

     We recommend that the contracting officer ensure that MetLife retums $21,084 in
     executive compensation costs charged to FEGLI in 2005.

C. CASH MANAGEMENT

  1. Commingling of Funds

     MetLife is commingling FEGLI cash and investment funds with its corporate cash and
     investment funds. As a result, FEGLI assets are not separately identifiable from the other
     assets controlled by MetLife.




                                              7
   According to 48 CFR 2152.232-71, Non~commingling ofFEGLI Program funds, "(a)
   The Contractor must maintain FEGLI Program funds in such a manner as to be separately
   identifiable from other assets of the Contractor." However, if accounting techniques have
   been established to clearly measure FEGLI cash and investments, the regulations provide
   that a contractor can request the contracting officer to approve a modification of this
   provision.

   In an April 12, 1996 letter, OPM informed MetLife that it concun-ed with its practice of
   investing FEGLI monies in an investment pool with other MetLife funds. OPM stated
   that it did not intend to preclude the procedures MetLife used to invest FEGLI funds and
   that the allocation of investment income appeared reasonable and equitable.

   MetLife's investment objective is to provide liquidity and generate income while
   minimizing the erosion of the principal. MetLife's FEGLI investments generally mature
   within a year and are maintained in a money market pool that is not specific to FEGLI.
   Income from the investments represents allocations from MetLife's general account
   based on FEGLI's proportionate investment contribution balance for each investment
   year. The allocated amounts do not represent separately identifiable assets as called for in
   the FEGLI regulations. In addition, FEGLI cash is in a commingled MetLife investment
   pool. Confirming FEGLI cash with an independent source is also not possible.

    MetLife's independent auditors also reported a concern with the commingling ofFEGLI
    investment funds with other MetLife assets. In a management letter to MetLife
    concerning its audit of the FEGLI financial statements for fiscal year 2006, the auditors
    stated that "The short-term investment liquidity pool is not specific to the Program but
    represents cumulative daily cash transactions for the company allocated using prorates
    established to asceliain that total ledger debits equals credits for the line of business. As
    a result, these allocated amounts do not represent separately identifiable assets of the
- ..Program as required by the Life Insurance Federal Acquisition Regulations."

   According to MetLife, establishing separately identifiable bank accounts and money
   market pools for FEGLI would diminish the flexibility ofth~ investment manager and
   possibly result in diminished returns. While we agree that this could happen, we are
   generally opposed to the commingling of OPM and contractor assets.

   In responding to an audit inquiry on this issue, MetLife said that it should have either
   established "separately identifiable segments within bank accounts and money market
   pools for cash and short-term investments of the Program and establish procedures to
   reconcile to bank statements and supporting documentation on a periodic basis," or
   obtained the contracting officers conCUlTence that a contract deviation is wan-anted.

   MetLife Comments:

   MetLife said that they are cun-ent1y reviewing its management of FEGLI assets. In
   addition, they added that they will discuss this issue with the FEGLI Program Contracting
   Officer and take whatever appropriate action is directed ,by them.
     OIG Comments:

     We believe that OPM's contracting officer should reevaluate MetLife's investment
     procedures that were approved in 1996, in light of the situation existing today, to
     detennine if approval of the procedures is still warranted. In addition, MetLife should
     take steps to change its procedures to ensure FEGLI funds are not commingled with the
     MetLife investment pooL

     Recommendation 4

     We recommend that the contracting officer analyze MetLife's procedures for handling
     FEGLI cash and investments to determine ifOPM's approval of the procedures is still
     walTanted. If the procedures are acceptable, the contracting officer should determine if a
     modification of the regulation requiring a contractor to maintain FEGLI funds in a
     manner as to be separately identifiable from other contractor assets is needed.

D. LOST INVESTMENT INCOME                                                              $72,129

  The FEGLI Program isdue $72,129 for lost investment income on the findings subject to the
  recovery of lost investment income.

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

  We computed investment income that would have been earned using the semiannual rates
  specified by the Secretary of the Treasury. The computations show that the Program is due
  $72,129 for lost investment income, calculated for the period from January 1,2006 through
  September 30, 2008, on the applicable questioned costs.

  OIG Comments:

  The draft report did not include a section covering lost investment income on the audit
  findings. Therefore, MetLife did not address lost investment income in commenting on the
  draft report.

  Recommendation 5

  We recommend that the contracting officer direct MetLife to credit the FEGLI Program
  $72,129, plus interest accming after September 30,2008, for lost investment income.




                                             9

               IV. MAJOR CONTRIBUTORS TO THIS REPORT

Special Audits Group

              Auditor-In-Charge

                 Auditor

               Auditor



Jill S. Henderson, Deputy Assistant Inspector General for Management

               SAG Group Chief

                     Senior Team Leader




                                             10

                                                                                                    SCHEDULE A
                               METROPOLITAN LIFE INSURANCE COMPANY
                                     JERSEY CITY, NEW JERSEY

                               CONTRACT COSTS AND QUESTiONED CHARGES

CONTRACT COSTS                            2005              2006                                    TOTAL


A. BENEFITS CHARGES                     $2,139,015,234   52,271,582,494                             $4,410,597,728

B. ADMINISTRATiVE EXPENSES                 $8,430,859       $8,461,553                                $16,892,412

TOTAL CONTRACT CHARGES                  $2,147,446,093   52,280,044,047                             54,427,490,140



QUESTiONED CHARGES                        2005              2006          2007         2008         TOTAL

A. BENEFITS CHARGES                                SO               SO            SO           $0              SO
B. AD,\llNISTRATIVE EXPENSES                 S465,336               $0            SO           SO        S465,336
C. CASH MANAGEMENT                                 SO               $0            SO           SO              SO
D. LOST INVESTMENT INCOME                          50          $25,645       $27,374      SI9,110         $72,129

TOTAL QUESTIONED CHARGES                     S465,336          525,645       527,374      $19,llO        $537,465
                                                                                                              Schedule B
                                         METROPOLITAN LIFE INSURANCE COMPANY
                                               .JERSEY CITY, NEW JERSEY

                                                 QUESTIONED CHARGES

                                                               FY          FY          FY          FY          Total
                 QUESTIONED CHARGES                           2005        2006        2007        2008

A. BENEFITS CHARGES                                                  SO          SO          SO          SO            SO

B. ADMINISTRATIVE EXPENSES

   1. Depreciation Adj lIstmellt                              S292,367           SO          SO          SO    S292,367
   2. Pension Expense                                         S151,885           SO          SO          SO    SI51,885
   3. Limits on Executive Compensation                         S21,084           SO          SO          SO     S21,084

  TOTAL ADMINISTRATIVE EXPENSES                               S465,336           SO          SO          SO    S465,336

C. CASH MANAGEMENT

   1. Commingling of Funds (Procedural)                              SO          SO          SO          SO            SO

  TOTAL CASH MANAGEMENT                                              SO          SO          SO          SO            SO

D. LOST INVESTMENT INCOME                                            SO   S25,645     S27,374     SI9,110       S72,129

TOTAL QlIESTIONED CHARGES                                     S465,336    S25,645     527,374     519,110      5537,465
                                                                                                                                                                                    SCHEDliLE C
                                                                   METROPOLITAN LIFE INSURANCE CO"IPA"iY
                                                                            .JERSEY CITY, NEW .JERSEY
                                                                   LOST I"iYESTiI'JENT INCOME CALCULAnON
                                                                    (from January 2006 through September 30, 20(8)


I·····;····;·.·····;;·;··;·.·    ;.; ..... ;   ...... .... .. ;.
                                                     ;     ;             ...;..>.•....••••;.......•                    >              ~

QlJESTIONED CHARGES (Subject to Lost Investment Income)

       ADMINISTRt;.nYE EXPENSE CHARGES
          L       Depreciation Adjustment                                                              S292,367                  SO                   SO                SO               S292,367
          2.      Pension Costs                                                                        S151,885                  SO                   SO                SO               S151,~85
          3.      Limits on Executive Compensation                                                      S21,084                  SO                   SO                SO                S21,084

        TOTAL                                                                                  I       S465,336                  SO                   SO                SO               S465.336

                  LOST INVESTMENT INCOME CALctiLAnON

                  a. Prior Yellr's Total Questionell (Principal)                                            SO             S465,336                   SO                SO               S465,336
                  b. Cumulative Total (Ii.)                                                                 SO                   SO              490,981           518,355
                  l',   Tut;}l                                                                              SO             S465,336             S490,981     $518,355
                                                                                                                                                                     ~~,    .." ,
                  d. Tl'caslIl')' Rate: January 1 - June 30                                    :.i.,               .•'>           " . ·,;i";·              ',i.'

                  e. Interest (t1 .;, c)                                                                    SO              511,924              5I2,888      S12,311                     537,123
                  f. Total (l')                                                                             SO             S465,336             5490,981     $518,355
                  g. Total (c + f)                                                                          SO             5477,260             5503,869     S530,666


                                                                                                  >,              'f
                  h. Treasury Rate: July 1 • December 31                                                                                                            ••occ

                 i. Interest (il * g)                                                                       SO              SI3,721              S14,486       S6,799                     S35,006
                 j. Total (g)                                                                               SO             S477.260             S503.869     S530.666
                  k. CUll1uhltive Total (Principal + Interest)                                              SO             S490,981             S518,355     S537,465

                         TotallntC"l'C'st by Year (c + i)                                     I             SO              S25,645              S27,374           S19,1I0                572,129
                                                                                                           Appendix


                                                                                            etLif

  Melmpolitan Life Insurance Company

  2 Montgom~y Street. 3rd Roor, J~sey City. NJ 07302

  Tel 201 395-7936 Fax 201 395-7940
                    200a SEP 24 AM 7: 10



  -
  rwall~1 @metlife.com





  Director
  Client Services


  September 10, 2008


    ie - peaa A its Group

  V,S. Office ofPersonnel Management

  1900 E Street NW, Rm. 6400

  Washington, DC 20415-1100


  RE: .FEGU Audit Draft Report

  Dear Ms. May:

  The following is our response to the four audit findings contained in the draft report dated April 17,
  2008.

  1.   Depreciation Adjustment:
       As discussed, we believe that an adjustment to a previously dosed accounting period is
       inconsistent with FEGLI regulations and contract provisions. However, we would not contest the
       Contracting Officer's recommendation for Metlife to reimburse the FEGLI program for these
       costs.

  2.. Pension Expense/Costs:
       We are in agreement with the recommendation presented and going forward we will limit
       pension costs allocated to the FEGLI program in accordance with the applicable regulation.

-"'3, Executive Compensation:
       We are in agreement with the recommendation presented and going forward we will limit
       executive compensation costs allocated to the FEGLI program in accoroance with the
       applicable regulation.

  4.   Commingling of Funds:
       MetLife is currently reviewing its management of FEGU assets. We will be discussing this issue
       with the FEGU Program Contracting Officer and will take whatever appropriate action as
       directed by them.

       If you have any questions, please let me know.