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IS OPM PROCESSING FEDERAL WORKER PENSION 

CLAIMS ON TIME? 

HEARING 

BEFORE THE

SUBCOMMITTEE ON FEDERAL WORKFORCE, 

US POSTAL SERVICE AND THE CENSUS 

OF THE

COMMITTEE ON OVERSIGHT 

AND GOVERNMENT REFORM 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED THIRTEENTH CONGRESS 

FIRST SESSION 

MAY 9, 2013 

Serial No. 113–24 

Printed for the use of the Committee on Oversight and Government Reform 

( 

Available via the World Wide Web: http://www.fdsys.gov 

http://www.house.gov/reform 

(II) 

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM 

DARRELL E. ISSA, California, Chairman 

JOHN L. MICA, Florida 

MICHAEL R. TURNER, Ohio 

JOHN J. DUNCAN, JR., Tennessee 

PATRICK T. MCHENRY, North Carolina 

JIM JORDAN, Ohio 

JASON CHAFFETZ, Utah 

TIM WALBERG, Michigan 

JAMES LANKFORD, Oklahoma 

JUSTIN AMASH, Michigan 

PAUL A. GOSAR, Arizona 

PATRICK MEEHAN, Pennsylvania 

SCOTT DESJARLAIS, Tennessee 

TREY GOWDY, South Carolina 

BLAKE FARENTHOLD, Texas 

DOC HASTINGS, Washington 

CYNTHIA M. LUMMIS, Wyoming 

ROB WOODALL, Georgia 

THOMAS MASSIE, Kentucky 

DOUG COLLINS, Georgia 

MARK MEADOWS, North Carolina 

KERRY L. BENTIVOLIO, Michigan 

RON DESANTIS, Florida 

ELIJAH E. CUMMINGS, Maryland, Ranking 

Minority Member 

CAROLYN B. MALONEY, New York 

ELEANOR HOLMES NORTON, District of 

Columbia 

JOHN F. TIERNEY, Massachusetts 

WM. LACY CLAY, Missouri 

STEPHEN F. LYNCH, Massachusetts 

JIM COOPER, Tennessee 

GERALD E. CONNOLLY, Virginia 

JACKIE SPEIER, California 

MATTHEW A. CARTWRIGHT, Pennsylvania 

MARK POCAN, Wisconsin 

TAMMY DUCKWORTH, Illinois 

ROBIN L. KELLY, Illinois 

DANNY K. DAVIS, Illinois 

TONY CARDENAS, California 

STEVEN A. HORSFORD, Nevada 

MICHELLE LUJAN GRISHAM, New Mexico 

LAWRENCE J. BRADY, Staff Director 

JOHN D. CUADERES, Deputy Staff Director 

ROBERT BORDEN, General Counsel 

LINDA A. GOOD, Chief Clerk 

DAVID RAPALLO, Minority Staff Director 

SUBCOMMITTEE ON FEDERAL WORKFORCE, U.S. POSTAL SERVICE AND THE CENSUS

BLAKE FARENTHOLD, Texas, Chairman 

TIM WALBERG, Michigan 

TREY GOWDY, South Carolina 

DOUG COLLINS, Georgia 

RON DESANTIS, Florida 

STEPHEN F. LYNCH, Massachusetts, 

Ranking Minority Member 

ELEANOR HOLMES NORTON, District of 

Columbia 

WM. LACY CLAY, Missouri 

(III) 

C O N T E N T S 

Page 

Hearing held on May 9, 2013 ................................................................................. 1 

WITNESSES 

Mr. Patrick McFarland, Inspector General, U.S. Office of Personnel Management 

Oral Statement ................................................................................................. 4 

Written Statement ............................................................................................ 7 

Mr. Kenneth Zawodny, Associate Director, Retirement Services, U.S. Office 

of Personnel Management 

Oral Statement ................................................................................................. 16 

Written Statement ............................................................................................ 18 

Ms. Valerie C. Melvin, Director, Information Management and Technology 

Resources Issues, U.S. Government Accountability Office 

Oral Statement ................................................................................................. 27 

Written Statement ............................................................................................ 29 

Mr. George Kettner, President, Economic Systems, Inc. 

Oral Statement ................................................................................................. 45 

Written Statement ............................................................................................ 47 

Mr. Joseph A. Beaudoin, President, National Active and Retired Federal 

Employees Assoc. (NARFE) 

Oral Statement ................................................................................................. 64 

Written Statement ............................................................................................ 66 

(1) 

IS OPM PROCESSING FEDERAL WORKER 

PENSION CLAIMS ON TIME? 

Thursday, May 9, 2013 

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON FEDERAL WORKFORCE, U.S. POSTAL

SERVICE, AND THE CENSUS, COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM, Washington, D.C. 

The subcommittee met, pursuant to call, at 9:30 a.m., in Room 

2247 Rayburn House Office Building, Hon. Blake Farenthold 

[chairman of the subcommittee] presiding. 

Present: Representatives Farenthold, Lynch, Norton, and Clay. 

Staff Present: Molly Boyl, Parliamentarian; Daniel Bucheli, Assistant Clerk; Steve Castor, General Counsel; John Cuaderes, Deputy Staff Director; Adam P. Fromm, Director of Member Services 

and Committee Operations; Linda Good, Chief Clerk; Jennifer 

Hemingway, Deputy Policy Director; Jaron Bourke, Minority Director of Administration; Lena Chang, Minority Counsel; Adam 

Koshkin, Minority Research Assistant; Safiya Simmons, Minority 

Press Secretary; Mark Stephenson, Minority Director of Legislation. 

Mr. FARENTHOLD. The subcommittee will come to order. Good 

morning. 

As is traditional with all the committee and subcommittee meetings of the Oversight and Government Reform Committee, I’d like 

to begin today by reading the Oversight Committee’s mission statement. We exist to secure two fundamental principles. First, Americans have a right know that the money Washington takes from 

them is well spent. And second, Americans deserve an efficient, effective government that works for them. Our duty on the Oversight 

and Government Reform Committee is to protect these rights. Our 

solemn responsibility is to hold government accountable to the taxpayers because taxpayers have a right to know what they get from 

their government. We will work tirelessly, in partnership with citizen watchdogs, to deliver the facts to the American people and 

bring genuine reform to the Federal bureaucracy. This is the mission of the Oversight and Government Reform Committee. 

And I now will recognize myself for an opening statement. 

Two and a half million retired Federal workers and their survivors rely on their pension checks to make ends meet every 

month. The Office of Personnel Management, who administers 

these checks, has done it the same way since 1987. This lack of 

modernization has resulted in the backlog of 30,000 claims, while 

the OPM averages $100 million each year in payments to deceased 

2 

annuitants and survivors. Thousands of manila folders, imaged 

files, and a COBOL system patched together with spreadsheets 

makes up the benefit processing operation at OPM. It’s not an effective or organized operation, just more evidence of the Federal 

Government’s poor IT record. As I often say, I don’t think the Federal Government can compute their way out of a paper bag. 

I applaud the hard work that’s been put in over the past few 

years to reduce the backlog and speed claim processing. Unfortunately, however, I think the need for meaningful reform exists. It 

needs to be more than hiring additional staff to support an outdated process. There is no doubt the system needs reform. In a 

time of cuts, it is important that we, as congressional watchdogs, 

ensure you’re working on a long-term plan to make the process as 

efficient and effective as possible. While the President’s budget recommends $2.6 million to fund a 

case management system, the budget is short on detail and provides little guidance on how the OPM will achieve this modernization program. In the past, we’ve seen hundreds of millions of dollars wasted in Federal IT spending, yet reform seems to be very 

lacking. The clock is ticking. OPM has less than 60 days to achieve 

its short-term goal of reducing the backlog and processing 90 percent of the claims within 60 days. 

In the long term, OPM must drive down operational costs and 

use technologies to make the program more efficient. It must respond to questions by workers awaiting their pension, and it must 

also eliminate payments to dead people and must reduce waste, 

fraud, and abuse. OPM needs to work smarter, save money through 

technology and streamlining, and deliver results. Failure to do so 

sends the wrong message to those who work for the Federal Government. Federal workers deserve better at the end of their career. 

At this point, I’ll yield to the ranking member for 5 minutes, Mr. 

Lynch. 

Mr. LYNCH. Thank you, Mr. Chairman. I appreciate you calling 

this hearing. It’s an important one and also very timely. 

I think it’s important to evaluate the progress made by the Office 

of Personnel Management in addressing the backlog of Federal retirement claims since we last had a hearing on this issue in November of 2011. As I said, this is a timely hearing. This week is 

Public Service Recognition Week. Federal employees devote their 

lives to serving the public and this country, and I think that one 

of the ways that we can honor them is by making sure that when 

they do retire, they’ll be able to collect their pensions, and do so 

in a timely manner. This is not just a matter of principle. I am 

keenly aware of the financial hardship that a backlog and long 

delays in claim processing cause some of our Federal retirees. 

I want to thank OPM for making some progress in elimination 

of retirement claims backlog. They’ve made it a top priority. And 

I want to thank them for succeeding in at least bringing down the 

backlog from a high of 60,000 claims in January of 2012 to 30,000 

claims at the beginning of this month. I commend OPM’s employees for their hard work and dedication in reducing the backlog. It 

appears that OPM has met or exceeded the agency’s processing 

goals, from the numbers I see, since it issued its strategic plan in 

January of last year. And they did accomplish this despite some 

3 

unanticipated increases in retirement applications during the first 

quarter of this year. 

However, I believe that this problem will continue to plague 

OPM and our Federal retirees if we continue to rely upon a paperbased, manual processing of claims. We do need a long-term solution to that problem. Fortunately, I know that OPM recognizes that 

and is seeking to develop information technology solutions on an 

incremental basis. Given OPM’s past unsuccessful efforts in automating the claims process, this incremental approach makes sense 

to me. 

Solving this problem is not going to be easy, nor is it going to 

be quick. It will require some resources and support from Congress. 

But there lies a significant political problem. Congress requires 

across-the-board budget cuts in the Budget Control Act. Sequestration may have a negative effect on the ability of OPM to meet its 

goal of eliminating this backlog by this July and to have sufficient 

funding to implement its other initiatives. 

Just when sequestration imposes across-the-board cuts at OPM, 

early retirement and buyouts as a result of Postal Service restructuring or the wave of retirements from Federal retirees seeking to 

retire before Congress imposes any additional changes to pay or 

benefits, will surely add to the backlog problem. 

I do want to thank you, Mr. Chairman. I appreciate the opportunity to examine the status of OPM’s retirement claims processing, and I look forward to hearing from our members. And I 

yield back. 

Mr. FARENTHOLD. Thank you very much, Mr. Lynch. 

Mr. FARENTHOLD. Just a couple of housekeeping matters before 

we get underway. Votes are scheduled on the House floor at 10:30. 

In the event we are not finished by then—we may very possibly be 

finished by then—if we’re not, we will take a recess while the members go and vote, and we’ll return. So I did want to let everybody 

know that that was a possibility. 

Also, as is normal with the committee, members will have 7 days 

to submit opening statements for the record. 

Mr. FARENTHOLD. At this point we will now recognize our panel. 

The Honorable Patrick E. McFarland is Inspector General of the 

Office of Personnel Management. 

Welcome, Mr. McFarland. 

Mr. Ken Zawodny. He’s the Associate Director for Retirement 

Services at OPM. 

Welcome to you as well. 

Ms. Valerie C. Melvin is Director of Information Management 

and Technology Resource Issues for the U.S. Government Accountability Office. 

Welcome to the subcommittee. 

And then we have Dr. George Kettner. He’s founder of Economic 

Systems, Inc. and Mr. Joseph Beaudoin. He is the national president of the National Archives and Retired Federal Employees Association. 

Thank you for your service as a Federal employee, and welcome. 

Pursuant to the rules of the committee, all witnesses will be 

sworn. Would you please rise and raise your right hand? 

4 

Do you solemnly swear or affirm that the testimony you are 

about to give will be the truth, the whole truth, and nothing but 

the truth? 

Let the record reflect that all witnesses answered in the affirmative. 

Thank you, and be seated. 

As I was saying, we want to get thoroughly to the heart of this 

issue where we fully understand it and have fully developed a 

record that other Members of Congress may and the public may 

refer to as we work towards a solution in streamlining our government. That being said, our normal procedure is to allow each witness 5 minutes to give their testimony. Your complete written testimony, we have and have reviewed. We ask that you summarize it 

in 5 minutes. 

You will see a little light system in front of you. Works just like 

the traffic lights you see all around the city. Green means go, yellow means get ready to stop, and red means your 5 minutes are 

up. Obviously, we’ll allow you time to complete your thoughts. 

So we’ll get underway with Mr. McFarland. You’re recognized for 

5 minutes, sir. 

WITNESS STATEMENTS 

STATEMENT OF PATRICK MCFARLAND 

Mr. MCFARLAND. Good morning, Chairman Farenthold, Ranking 

Member Lynch, and members of the subcommittee. My name is 

Patrick McFarland. I am the Inspector General at the Office of Personnel Management. 

Thank you for this opportunity to speak to you. In these 5 minutes, I hope to capture the essence of my written testimony with 

a brief statement regarding the retirement claims backlog and then 

a more in-depth discussion about improper retirement payments to 

deceased annuitants. But most importantly, I will end by asking a 

favor of this committee. 

I believe OPM may be well on its way to eliminating the retirement claims backlog, although the recent news about reductions in 

retirement program funding due to sequestration may impact this 

endeavor. Based on the numbers reported, OPM has reduced the 

backlog 38 percent in the 16 months since the end of 2011, despite 

receiving many more claims than expected in 2013. However, I 

have concerns based on our audit work regarding the internal controls related to the tracking of the inventory as well as the reduced 

accuracy rate for adjudication of retirement claims. Nevertheless, it 

is clear that OPM has made substantial progress. 

OPM has enormous responsibilities to the rest of the Federal 

Government. OPM has good, dedicated personnel like Ken 

Zawodny, presently wrestling with the daunting task of reducing 

the retirement claims backlog. However, there is another task that 

requires the same level of attention as the backlog, and that is the 

improper payments made to deceased annuitants. 

Retirement Services’ everyday workload has subsumed what 

were already weak management directives. It has become management by happenstance rather than management by design and 

leadership. GAO’s standard for internal controls in the Federal 

5 

Government states that management is responsible for developing 

control activities, which are the policies, procedures, techniques, 

and mechanisms that enforce management’s directives. Control activities occur at all levels and include a wide range of activities, 

such as approvals, authorizations, verifications, reconciliations, and 

the creation and maintenance of related records which document 

execution of these activities. 

OPM’s improper payment strategic plan is replete with background root causes, measurements, and goals to be achieved in an 

effort to curb improper payments. However, what is not identified 

is indeed the missing link to success: It is full and unwavering 

leadership commitment to project management with the goal of finally stopping—finally stopping—egregious, improper payments. 

Although the OPM employees assigned to this work care and try 

hard, they do not always have the particular skill sets, tools, resources, and most importantly the management structure to be successful. 

If OPM had made an earlier commitment to embrace the concept 

of a lifecycle approach with careful thought devoted to each step, 

from beginning to end, OPM would have a prescription for effective 

and efficient corrective action and we would not be here discussing 

improper payments. Today, some of our simplest and routine questions cannot be answered by OPM management regarding improper 

payments. 

Illustrative of poor project management is the handling of the 

1099–R Project. The Internal Revenue Service requires that OPM 

annually send each annuitant a form 1099–R, which reports the 

amount of the annuity received during that year. Several thousand 

of these forms are returned to OPM each year by the Postal Service 

marked undeliverable. One of our prior recommendations was that 

OPM should review these returned forms in an effort to determine 

if they were undeliverable because the annuitant was deceased. 

OPM began to implement this recommendation starting with 

form 1099–R for the 2009 tax year, which were mailed in January 

2010. More than 33,000 forms were returned to OPM deemed undeliverable. OPM began to compare these names to the Social Security Administration’s death master file and take appropriate followup actions. But here’s the problem: Three years later, OPM still 

has not completed this work. Moreover, although OPM received 

and collected the returned forms mailed in January 2011, January 

2012, and January 2013, it has not taken any further action on 

these forms. Consequently, OPM now has 3 more years of returned 

1099 forms that have not been addressed. 

In closing, here’s the favor I would ask of the committee. Actually, the favor is for the taxpayer. I ask that Congress work with 

our office to explore various corrective measures to hold OPM accountable in this area for greatly improving its performance in a 

very deliberate, structured, and methodical way. Our work together 

could potentially produce a set of best practices for all improper 

payments in the Federal Government. 

Due to the millions of dollars of taxpayer funds that are at stake, 

I strongly believe that such a collaboration with your staff is absolutely necessary to ensure that the detection and prevention of imVerDate Aug 31 2005 12:04 Jun 10, 2013 Jkt 000000 PO 00000 Frm 00009 Fmt 6633 Sfmt 6633 C:\DOCS\81283.TXT APRIL
6 

proper payments receive the sustained attention and effort that it 

deserves and does not once again fade into the background. 

Thank you. 

Mr. FARENTHOLD. Thank you, Mr. McFarland. 

[Prepared statement of Mr. McFarland follows:] 

7 


Insert offset folio 1 here 81283.001

Office of the Inspector General 

United States Office of Personnel Management 

Statement of the Honorable 

Patrick E. McFarland 

Inspector General 

before the 

Subcommittee on Federal Workforce, U.S. Postal Service and the Census 

Committee on Oversight and Government Reform 

United States House of Representatives 

on 

"Is OPM Processing Federal Worker Pension Claims on Time?" 

May 9, 2013 

Chairman Farenthold, Ranking Member Lynch, and Members of the Subcommittee: 

Good morning. My name is Patrick E. McFarland. I am the Inspector General for the U.S. 

Office of Personnel Management (OPM). Thank you for inviting me to testify at today's hearing 

about OPM's administration of the Federal retirement programs. All of the Federal retirees and 

survivor annuitants who depend upon Federal annuity payments will agree that this is one of 

OPM's most important programs. 

Today I will touch on two critical functions performed by OPM's Retirement Services (RS) 

office: the elimination of the retirement claims backlog and the identification and prevention of 

improper payments to deceased annuitants. 
8 


Insert offset folio 2 here 81283.002

Elimination of the Backlog 

The timely issuance of full annuity payments has been a long-standing challenge for OPM. The 

adjudication of retirement claims historically has been a largely paper-based process, many times 

resulting in lengthy delays before completion. To that end, on January 17,2012, OPM unveiled 

a new strategic plan to address the backlog. After a review and discussion with agency officials, 

wc believe that it is a sound plan, although we certainly have concerns with the reduction of 

quality control measures. 

Based upon testing done by RS's Quality Assurance group, the adjudication accuracy rate for 

retirement annuities dropped from 91.7 percent in 20 II to 90.9 percent in 2012. It dropped again 

during the first quarter of20 13 to 90.6 percent. This drop in adjudication accuracy is 

troublesome, and welJ below OPM's target rate of95 percent. To put this into context, since RS 

adjudicated approximately 112,000 claims in Fiscal Year (FY) 2012, a one percent decrease in 

accuracy translates to an additional 1, 120 cases with errors that require re-adjudication. Not only 

must OPM expend additional man-hours to correct these errors, but it creates a further delay that 

potentially causes hardships for annuitants and their Jamilies. Moreover, by definition, these 

errors result in improper payments, either overpayments or underpayments to the annuitant. 

During a recent Office of the Inspector (Jeneral (OIG) audit, we reviewed the backlog statistics, 

as well as OPM's reported retirement claims processing performance measures for FY 2011.1 

Speci fically, we examined (I) RS' s process for tracking claims data related to the FY 2012 

strategic plan goal of eliminating the backlog of pending retirement claims by July 2013; (2) the 

number of retirement records that OPM received from Federal agencies that were complete and 

required no further action; (3) the average cost for processing retirement claims; and (4) the 

retirement claims processing timeliness. 

The results of our audit were as follows: 

I. RS does not have adequate controls in place to ensure the accuracy of the inventory for 

retirement claims received and processed. Although we were able to verify the beginning 

balance of the claims inventory (48,378) as of December 2011, our auditors were unable 

to substantiate the reported figures for retirement claims received (7,814) and processed 

(8,864) in June 2012.2 RS provided management reports that it used to support the June 

figures. However, we were unable to use those reports to recalculate the reported claims 

received and processed figures. RS was likewise unable to recalculate those figures. 

2. RS accurately reported that 82 percent of retirement records received from Federal 

agencies were complete and required no further development actions. This exceeded its 

target of 79 percent. 

I Assessing the Relevance and Reliability ofOPM's Performance Information, available at: 

)lltp:!i" \\ IV .opll1.gm/olir-in;,pcctor-!!cncraIJrcporlsJ20 J 3!ulIdit -oj~thc-()rficc-,~!::pl'rsolll1clLl]unagt1m:nts-perti)f11l uncc-i 11 format iOI1.pd f 

2 We chose June 2012 for our sample because during our audit field work, it was the most recent 

month for which RS had data. 

2 
9 


Insert offset folio 3 here 81283.003

3. RS accurately reported that the average unit cost for processing retirement claims was 

$107.62. However, it failed to meet its target goal of$101.23. 

4. RS does not have adequate controls in place to ensure that it accurately calculates the 

time it takes to process non-disability retirement claims. RS reported that it processed 

these claims in an average of 125 days, which was its target goal. Our auditors found, 

however, that the average was actually 131 days. 

Although we do not question that OPM is making progress with regard to eliminating the 

retirement claims backlog, our audit found that RS needs to strengthen its controls over the 

collection, review, and reporting ofpertormance information related to the processing of 

retirement claims, to ensure it is providing accurate information to the public. 

Improper Payments to Deceased Annuitants 

While I am pleased that OPM is aggressively addressing the retirement claims backlog, I would 

like to focus today's testimony on our serious concerns related to the egregious improper 

payments made by OPM to deceased annuitants, which total over $100 million each year. Just as 

OPM should be held accountable for providing an appropriate level of service to Federal retirees, 

it also has an obligation to the taxpayers to ensure that the agency is taking all reasonable 

measures to protect public funds. It is true that OPM's improper payment rate is quite low. 

Indeed, it is significantly lower than most other large Federal programs. However, I am of the 

opinion that when there are cost-effective steps that could prevent the loss of significant amounts 

of taxpayer dollars, those steps must be taken. 

Since issuing a report in September 20 II, Stopping Improper Payments to Deceased Annuitants, 

my office has worked closcly with OPM on ways to identify and prevent improper payments to 

deceased annuitants. During these interactions, we have found, to my dismay, serious systemic 

flaws within RS that hinder its ability to adequately address this problem, 

Background 

In 2005, we initiated a study of best practices for preventing improper payments to deceased 

annuitants. Along with OPM representatives, we met with several benefit-paying Federal 

agencies and a major corporation to discuss procedures and internal controls that were used to 

detect and prevent improper payments. This study resulted in a report that we provided to OPM 

containing recommendations tor improvements related to preventing improper payments from 

the Federal Government's Civil Service Retirement and Disability Fund. We updated and 

reissued this report in January 2008, reflecting the progress that the agency had made in 

addressing our original recommendations and providing additional recommendations. While a 

number of improvements were implemented by OPM, it became clear that they were only 

temporary measures, which is why we issued a third report in September 20 II. 

In our 2011 report, we stated that OPM identified an annual average 01'$120 million in improper 

payments to deceased annuitants between FY s 2006 and 20 I O. In the two years since then, FY s 

3 
10 


Insert offset folio 4 here 81283.004

2011 and 2012, the average dropped to $105.5 million. We hope that the reason for the decline 

is that these improper payments are in fact decreasing. However, we do not have evidence to 

validate that there are indeed fewer improper payments, as opposed to a lack of controls to 

effectively identify them. 

The following chart contains the figures for each of these years. 

Improper Payments Made to 

Deceased Annuitants 

(Millions) 

$160.0 i·---"-"'""---~· -"-- -"".--"--"~- --,---.» $144.9 

$140.0 

$120.0 

$100.0 

$!l0.0 

$60.0 

$40.0 

$20.0 

$0.0 

FY2006 FY2007 FY2008 FY2009 FY2010 FY2011 FY2012 

It is important to note that this entire amount does not represent egregious long-term improper 

payments. Much of it although OPM cannot provide the exact amount - comes from improper 

payments that are identified and recovered in a matter of a few months. These are often the 

result of a retiree passing away before the retirement payment is made for that month, or because 

the deceased's family takes a month or two to report the death. These overpayments are usually 

recovered in full. 

While of course we would like to prevent all improper payments, as each one requires time and 

effort to recover, our paramount concern is when an annuitant's death is not properly reported or 

detected and annuity payments continue for many years, resulting in high dollar overpayments. 

These payments are frequently taken by a relative or guardian of the deceased annuitant who 

failed to report the death. In some cases, these individuals actively deceive OPM, leading OPM 

to believe that the annuitant is still alive by forging his or her signature on an inquiry form from 

the agency (called an Address Verification Letter, or AVL). Our experience is that these types of 

improper payments often cannot be recovered, even if full restitution is ordered by a court and/or 

the debtor is put on a repayment plan. 

4 
11 


Insert offset folio 5 here 81283.005

Due to the implementation of one of our recommendations, OPM identified multiple instances of 

egregious overpayments. In 2009, in response to our 2008 report OPM performed a data-match 

where it compared the annuity roll data to the Social Security Administration's (SSA) Death 

Master File. One of the fraud cases discovered by this exercise involved a Federal retiree who 

died in May 1989. Since OPM was never notified of the death, his annuity payments continued, 

resulting in an overpayment of$526,000. The OIG opened an investigation and determined that 

the annuitant's daughter-in-law forged his name onfour AVLs sent by OPM to the annuitant. 

Although the daughter-in-law was convicted and ordered to pay restitution, it is unlikely that 

OPM will ever receive this full amount. 

While this is a larger than average improper payment, it is not unusual for overpayments in these 

cases to exceed $1 00,000. 

Current Problems within Retirement Services 

Our greatest frustration comes from RS's organizational culture, which does not prioritize this 

issue due to a lack of leadership commitment. 

OPM should not be neglecting an issue that can save the taxpayers millions of dollars. I would 

like to remind the Subcommittee Members that the improper payments themselves arc not the 

only Federal funds involved here significant resources are spent to recover these payments, 

including the time and effort of both OPM and OIG employees, personnel from the Department 

of Treasury, the staff of other Federal law enforcement organizations (because fraud is often not 

limited to a single Federal program), and Department of Justice prosecutors. 

We have identified several systemic weaknesses within RS that we believe must be addressed if 

OPM is truly serious about improving its efforts to identify and prevent improper payments. 

Lack of Accountability 

As I mentioned above, senior leadership within OPM, and specifically RS, has not demonstrated 

a sustained commitment to establishing an active and continuing effort to address improper 

payments made to deceased annuitants. We see this most clearly in the Retirement Inspections 

office and the Data Mining Working Group, which I will discuss in a moment. 

OPM developed and issued an improper payments strategic plan in November 2012. 3 However, 

full implementation of this plan requires an eftective system of accountability to ensure that all 

individuals involved are indeed taking the steps required by the plan. A Ithough this plan 

identities accountable officials, there are no clear steps or milestones established for the activities 

ofRS's Retirement Inspections, which is the primary office responsible for identification and 

prevention of improper payments. 

Recently, there has been frequent turnover in the Retirement Inspections' supervisor position. 

This was due in part because, rather than immediately filling the position when the prior 

supervisor left, RS instituted a planned leadership rotation, with individuals acting as supervisor 

3 This plan was revised and reissued on January 6, 2013. 

5 
12 


Insert offset folio 6 here 81283.006

for approximately four months. Apparently this approach was adopted in order to determine 

who would be the best candidate for the Retirement Inspections' permanent supervisor position. 

However, the result was that as soon as one of these temporary supervisors had time to become 

familiar with the improper payments projects, he or she would be moved, creating a lack of 

continuity within the office. We understand that a new, permanent supervisor has recently been 

appointed and we look forward to working with him. 

The consequences of this lack of kadership may be most obvious in the execution of the "1099-

R Project." The Internal Revenue Service (IRS) requires that OPM annually send each annuitant 

a Form 1099-R, which reports the amount of the annuity received during that year. Tens of 

thousands of these forms are returned to OPM each year by the U.S. Postal Service, marked 

"undeliverable." One of the recommendations contained in our reports is that OPM should 

review these returned Forms 1099-R in order to determine why they were undeliverable, and 

whether the annuitant is deceased. 

The current 1099-R Project began with the 2009 tax year forms, which were mailed in January 

20 I O. Over 33,000 forms were returned undeliverable, and OPM began to compare the names of 

recipients to SSA's Death Master File and take other appropriate follow-up actions. Three years 

later, OPM still has not completed this work. Moreover, although OPM has received and 

collected the returned Forms 1099-R mailed in January 20 I J, January 2012, and January 2013, it 

has not taken any further action on these forms. 

The lack ofa comprehensive, carefully designed plan with milestones and deadlines to complete 

the project has contributed to the failure to produce results. 

OPM's implementation ofthe OIG's 2008 recommendation to establish a permanent working 

group of retirement program subject matter experts is a second example demonstrating the lack 

ofleadership commitment. The intended purpose of this group was to focus upon improving the 

retirement program's integrity by exploring new ways to prevent improper payments and 

analyzing the wealth of information contained in the annuity roll. In October 2012, OPM 

established the Data Mining Working Group (Working Group) with the purpose of developing 

data mining programs to look for anomalies in the annuity roll that could indicate possible 

improper payments or fraud, and to share best practices and lessons learned with other benefitpaying agencies. 

We are concerned that the effort has stalled. According to the Working Group's charter, it is 

supposed to meet bi-weekly. However, it appears that the Working Group has met only three 

times: in December 2012, February 2013, and just last week. We hope that this hearing will 

renew OPM's commitment and reinvigorate the Working Group's efforts. 

Merely meeting for an hour or two periodically is not sufficient to accomplish the Working 

Group's goals. The minutes of these meetings indicate that the Working Group is developing 

good ideas that are worth pursuing. Unfortunately, we have not seen evidence that any 

additional action is being taken. 

6 
13 


Insert offset folio 7 here 81283.007

Lack o.fTracking Systems 

OPM's improper payments strategic plan contains certain milestones with regard to generally 

reducing and recapturing improper payments. However, there is no workload/data tracking 

system to determine the progress RS is making on each of its different initiatives aimed at 

identifying and preventing improper payments to deceased annuitants. For example, when 

Retirement Inspections identifies an improper payments case suitable lor reclamation by the 

Department of the Treasury, it is referred to the Office of the Chief Financial Officer and 

Retirement Inspections no longer tracks the case's progress. 

In addition, we are dismayed that RS is routinely unable to provide us with basic information. 

There have been instances where RS informed us that it was unable to gather the information that 

we requested, but later located it once we explained where the data could be found (e.g., the 

specific codes that would produce the requested data in a search of the annuity rolls). However, 

many times RS simply does not keep track of what the OIG considers to be essential data. For 

example, RS apparently does not see the need for an "aging schedule" tor improper payments 

made to deceased annuitants. Thus. it is unable to distinguish between short-term improper 

payments, which are usually recovered in full, and long-term improper payments, which 

sometimes total over $100,000. Not only would this information be useful to my office so that 

we can immediately pursue these cases, it could also illustrate OPM's effectiveness by showing 

how quickly it recovers improper payments in full. 

Furthermore, we have found instances where RS is unable to provide basic documentation to 

support the data that it reports on improper payments. For example, we requested the names of 

the individuals that OPM identified as deceased through matching the annuity roll with SSA's 

weekly death file. Although OPM was able to tell us how many annuitants it identified, it was 

unable to provide us with the names a/these individuals. Failure to track this information 

prevents validation ofRS's reports and causes concern about whether potential fraud cases are 

appropriately pursued. 

Failure to Fully Execute Projects 

Even when OPM implements one of our recommendations, the OIG has found that RS will take, 

for example, the first two steps in a five step process. and then let the matter languish. If the 

purpose of a project is to identify and prevent improper payments, all steps must be taken in 

order to ensure that the death is confirmed and improper payments are recovered. 

The best example or this is the 1099-R Project. OPM's current process is to review certain 

details of every returned Form 1099-R. However, due to the volume of returned forms, the effort 

so far has focused upon attempting to make contact with annuitants and suspending annuity 

payments. It has not yet progressed to include systematically researching dates of death, which 

is needed to verify whether the person is indeed deceased and to calculate the improper payment, 

if applicable. This step must be taken in order to identify and recover improper payments. 

In order to make the workload from this project manageable, OPM should carefully analyze a 

risk-based sample of returned Forms I099-R. Looking more closely at a smaller number of high 

7 
14 


Insert offset folio 8 here 81283.008

risk returned forms, including establishing the dates of death where applicable, would permit the 

agency to identify improper payments in a more efficient and effective manner, 

Lack of Fraud Referral.s 

We are very troubled about a decline in retirement fraud referrals produced by RS, as well as a 

lack of timeliness in bringing suspected fraud to the OIG's attention. In 2011, the OIG received 

only 30 retirement fraud referrals from RS, compared to 92 referrals in 2010. Then, on March 

19,2012, we received 30 retirement fraud referrals in a single day. However, in all 30 cases, 

OPM had identified the death and permanently stopped making annuity payments more than 5 

years prior to referral to the OIG. The statute oflimitations dictates that criminal proceedings 

must be initiated within five years of the Government becoming aware of a potential theft or 

fraud. Because the 30 suspected fraud cases referred in March 2012 were no longer 

prosecutable, our office had to decline all of them. 

We also noted that in 24 of the 30 cases, OPM did not ask the Department of Treasury to reclaim 

the identified overpayments within the required 120 days after the death was discovered. This is 

a critical step in recovering improper overpayments. 

We formally notified RS of our concerns by memorandum, dated July 31,2012, but we have not 

observed sufficient improvement since that time. Another 25 suspected retirement fraud cases 

were referred to the OIG by RS's Retirement Inspections between July 2012 and March 2013, 

but approximately 80 percent of these referrals also had statute of limitations problems. 

OIG's Proactive Efforts 

Due to the lack of timely fraud referrals from RS, our office initiated a data-matching project in 

the fall of2012 to try to identify deceased annuitants still rccciving monthly retirement annuity 

payments from OPM. From the annuity roll, the OIG identified annuitants over the age of 92 

who were enrolled in the BlueCross/BlucShield healthcare plan. We then conducted a datamatch between this annuity roll snapshot and the available data in the ~iG's Federal Employees 

Health Benefits Program Claims Data Warehouse in order to identify annuitants who have not 

filed any health insurance claims within the last two years. We mailed AVLs in an attempt to 

make contact with this annuitant population and are in the process of verifying the vital status of 

those individuals we were unable to reach. The OIG has notified OPM of those annuitants 

whose vital status is in question, so that RS may take action to suspend payment as appropriate. 

The work performed in the few months since the OIG began this project has resulted in the 

referral of 59 cases to RS. In 33 instances, the annuitant did not return an A VL; there were 18 

AVLs signed by someone other than the annuitant due to the annuitant's health issues; and 8 

A VLs were returned by the U.S. Postal Service as undeliverable. RS is sending a second A VL to 

those individuals who did not return the AVL sent by the OIG. If the annuitant docs not respond 

within 30 days, RS will suspend their annuity payment. RS mailed information to the J 8 

8 
15 


Insert offset folio 9 here 81283.009

annuitants who did not sign their own A VLs explaining how to name another person as their 

representative payee: 

Conclusion 

The Federal retirement system is a complex operation. OPM has been largely successful in 

administering the program and meeting the needs of the 2.5 million Federal retirees. While 

OPM works to eliminate the backlog of retirement claims. it must simultaneously address the 

quality of work and seek to improve the adjudication accuracy rate. 

In addition, OPM must not neglect the issue of improper payments. I ask that Congress join me 

in calling on OPM leadership to rededicate itself to the identification and prevention of improper 

payments, which includes dedicating sufficient and appropriate resources to address this critical 

issue. The agency must be held accountable to ensure the integrity of the retirement trust fund. 

Further, my office is ready and willing to work with the Subcommittee if it would like to pursue 

some type oflegislative action to address the situation. 

Thank you again for inviting me here today. I would be happy to respond to any questions that 

you may have. 

4 An annuitant may choose to designate a representative payee if the annuitant is incapable of 

handling his or her own affairs. often because of health issues. 

9 
16 

Mr. FARENTHOLD. And I’m sure you can count on this subcommittee, in particular, and the entire committee. We have a 

great relationship with the inspector general community throughout the government, and you can count on us to work with our fellow watchdogs. And we appreciate your testimony. 

Mr. MCFARLAND. Thank you. 

Mr. FARENTHOLD. Mr. Zawodny, you’re recognized for 5 minutes. 

STATEMENT OF KENNETH ZAWODNY 

Mr. ZAWODNY. Thank you. Chairman Farenthold, Ranking Member Lynch, and members of the subcommittee, today I’d like to discuss OPM’s progress in reducing the backlog of Federal retirement 

claims, as well as the challenges of developing a 21st century customer-focused retirement processing system. 

OPM is responsible for processing over 120,000 retirement applications a year for Federal employees from all three branches of the 

Federal Government and dozens of independent agencies and commissions. OPM also handles post-retirement transactions for the 

2.5 million annuitants, survivors, and their families. 

In January 2012, OPM released and began implementation of a 

strategic plan to reduce the unacceptable backlog of retirement 

claims, and we remain focused on the goal of adjudicating 90 percent of the applications within 60 days, starting in July of 2013. 

Our strategic plan consists of four pillars. One, people. Two, productivity and process improvement. Three, partnering with agencies. And four, partial, progressive IT improvements. All four of 

these pillars are in action, and we were able to reduce the claims 

inventory by 57 percent and reduce the average processing time for 

an application from 156 to 136 days last year. 

However, over the first 4 months of this year, OPM experienced 

significant increases in the number of applications received. In January through April of this year, OPM received almost 60,000 new 

applications, approximately 43 percent more than we received at 

the same time period last year and 51 percent more than we had 

projected. Still, the efforts of our employees, improved process 

changes resulted in a record number of applications being processed during that period. 

Last year we added to staff to the claims adjudication process as 

called for in our strategic plan. The new employees have been fully 

trained and have increased our capacity to improve timeliness and 

production in claims processing. We continue to achieve gains in efficiency in the pending work through productivity and process improvements. These improvements have occurred as a result of our 

work with the Navy’s Lean Six Sigma team and an ongoing Lean 

Six Sigma review in other parts of retirement services. 

Reducing the retirement claims backlog also requires OPM to 

work with agencies that prepare the applications for their employees to improve the accuracy and completeness of those applications. 

Last year, we developed an agency audit process designed to analyze applications sent to us by agencies so that we can better track 

and report on errors. We use these results to work with agencies 

to reduce incomplete, inaccurate applications. 

In our strategic plan we identified the need to modernize our IT 

infrastructure incrementally, employing a cost-effective and effiVerDate Aug 31 2005 12:04 Jun 10, 2013 Jkt 000000 PO 00000 Frm 00020 Fmt 6633 Sfmt 6633 C:\DOCS\81283.TXT APRIL
17 

cient transition away from paper. Working with stakeholders, we 

are establishing the capability of gathering electronic data from the 

applicant and sending it to the benefit calculator. Our Retirement 

Services online system empowers retirees to view, add, and update 

their information online. This system has over 25,000 visits per 

week, and over 3.2 million transactions were processed last year 

alone. 

We requested funding in our 2014 budget to begin the development of a case management system for the centralized tracking of, 

and reporting on, retirement applications. This modest investment 

begins the process of upgrading to an automated system, eventually reducing the amount of time necessary to process retirement 

claims. 

Government-wide fiscal challenges have ramifications for maintaining the progress made on retirement processing as well as future plans for improvements. Due to sequestration, OPM was required to change some of our business operations for Retirement 

Services. At the end of April, all overtime for employees working 

in Retirement Services was suspend. Last year, overtime enabled 

processing of over 34,000 additional claims, roughly 26 percent of 

the total production. We also reduced the hours of our call center, 

which receives approximately 40,000 calls and thousands of pieces 

of correspondence each week. 

Our desire is that improvements developed over the past year 

will offset some of the adverse effects of these actions. But it saddens me to report that retirees may still have to wait. 

Finally, we are working to reduce the number of improper annuity payments and increase recovery of overpayments. Last year the 

rate of improper payments for the federal retirement program was 

approximately one-third of 1 percent of the total benefits disbursed, 

and almost 72 percent of the improper payments identified have 

been recovered. 

OPM has made substantial progress in reducing retirement 

claims inventory. We understand that reducing the claims inventory is about our commitment to dedicated public servants and to 

their family members, and I know that delays cause personal and 

financial hardships. In recognition of our goal to honor their service, we are continuously developing a 21st century customer-focused retirement processing system that adjudicates claims in a 

timely and accurate manner. 

I am proud of the Federal employees I work with, and I look forward to addressing your concerns and questions you have today. 

Thank you. 

Mr. FARENTHOLD. Thank you very much. 

[Prepared statement of Mr. Zawodny follows:] 

18 


Insert offset folio 10 here 81283.010

UNITED STATES OFFICE OF PERSONNEL MANAGEMENT 

STATEMENT OF 

KENNETH ZA WODNY 

ASSOCIATE DIRECTOR, RETIREMENT SERVICES 

U.S. OFFICE OF PERSONNEL MANAGEMENT 

before the 

SUBCOMMITTEE ON FEDERAL WORKFORCE, U.S. POSTAL SERVICE, AND THE 

CENSUS 

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM 

UNITED STATES HOUSE OF REPRESENT A TIVES 

on 

"Is OPM Processing Federal Worker Pension Claims on Time?" 

May 9,2013 

Chairman Farenthold. Ranking Member Lynch and Members of the Subcommittee: 

Thank you for allowing me the opportunity to appear before you today to discuss the progress of 

the Office of Personnel Management (OPM) in reducing the backlog of Federal retirement 

claims, as well as the challenges of developing a 21 st Century customer-focused retirement 

processing system that adjudicates claims in a timely and accurate manner. 

OPM's Strategic Plan for Retirement Services 

OPM's mission is to recruit, retain, and honor a world-class workforce to serve the American 

people. Under the charge to honor the service of dedicated Federal employees who have devoted 

their careers to serving the citizens of this country, OPM is responsible for processing in excess 

of 120,000 retirement applications a year for Federal employees from all three Branches of the 
19 


Insert offset folio 11 here 81283.011

Statement of Kenneth Zawodny 

U.S. Office of Personnel Management 

May 9, 2013 

Government and dozens ofIndependent Agencies and Commissions. Aside from processing 

new, incoming retirements, OPM also handles post-retirement human resources functions for 2.5 

million Federal annuitants, survivors and their families. In January 2012, OPM released and 

began implementation of a strategic plan to reduce the unacceptable backlog of retirement 

claims, and we remain on track and focused on the goal of adjudicating 90 percent of retirement 

cases within 60 days starting in July 2013. In keeping with the principles of open government, 

our backlog reduction efforts are posted publicly on our website on a monthly basis, allowing the 

public to track our progress. 

The strategic plan consists offour pillars: people, productivity and process improvement, 

partnering with agencies, and partial, progressive information technology (IT) improvements. All 

four of these pillars have been put into action, and we were able to reduce the claims inventory 

by 57 percent and reduce the average time to process a claim from 156 to 136 days in 2012. 

However, over the first four months of20 13, OPM has experienced significant unprecedented 

increases in the number of retirement applications received. While actual claims processed 

continue to outpace our projections under the strategic plan, so do actual claims received. In 

January through April of this year, OPM received over 60,000 new retirement applications, 

approximately 43 percent more than were received for the same period in 2012, and 44 percent 

more than we projected. Still, the efforts of our employees resulted in a record number of claims 

being processed during that period, maintaining progress toward our goal. For example, in April 

2013 there was a 41 percent decrease in the inventory versus April 2012. 
20 


Insert offset folio 12 here 81283.012

Statement of Kenneth Zawodny 

U.S. Office of Personnel Management 

May 9, 2013 

OPM Retirement Services (RS) employees, the first pillar of the strategic plan, are engaged and 

focused on reducing the backlog. Individuals from all over the organization have contributed to 

the backlog reduction effort in whatever capacity they can, from adjudication, to review, to 

assembly of cases. Other organizations within OPM have provided RS with help by prioritizing 

requirements, working with RS employees to identify potential improvements in processing and, 

where possible, providing employees on detail to RS. Additional staff was added to the claims 

adjudication process during 2012 as called for in the strategic plan, including 56 new Legal 

Administrative Specialists (LAS) and 20 new Customer Service Specialists. Additionally, as 

employees have retired or moved on to pursue new opportunities, we are backfilling positions in 

critical workload areas as resources permit. The new employees have been fully trained and have 

increased our capacity to improve timeliness and production in claims processing. I must also 

note that our progress would be impossible without our partnership with our labor organizations. 

We continue to achieve gains in efficiency in the pending workload through the second pillar, 

productivity and process improvements. Improvements to our processes have been happening as 

a result of our work with the Navy's Lean Six Sigma team in 2012 and an additional Lean Six 

Sigma effort in 2013, and taking what we have learned from that experience and transferring it to 

other parts of the organization. In order to ensure that LAS receive complete cases, a 

development team has been established to review incoming cases and make sure they are 

"healthy" so that employees can focus on claims adjudication and not on development of a 

complete case file. Until the current inventory is significantly reduced, the use of overtime 

remains critical. In 2012 our employees worked over 94,000 hours of overtime. Overtime usage 
21 


Insert offset folio 13 here 81283.013

Statement of Kenneth Zawodny 

U.S. Office of Personnel Management 

May 9, 2013 

enabled processing of over 34,000 additional cases in 2012, equating to roughly 26 percent of 

our total production for the year. 

Reducing the retirement claims backlog also requires OPM to work with the employing agencies 

that prepare the retirement applications for their retiring employees. Through the third pillar, 

partnering with agencies, we are working with agency Chief Human Capital Officers to improve 

the accuracy and completeness of incoming claims. Last year we developed an agency audit 

process designed to identify incomplete and inaccurate retirement cases sent to us by the 

agencies so that we can bettcr track and report errors. These cases cause delays in processing 

and place additional development work on OPM. The audits, which are posted on our website 

each month, have enabled RS to provide consistent feedback and focused training. Additionally 

we have partnered with organizations such as the National Active and Retired Federal 

Employees Association (NARFE) who provide information to their members regarding 

retirement preparation. 

The fourth and final key pillar in the strategic plan involves expanding information technology 

(IT) support for record maintenance and claims processing through incremental progressive IT 

improvements. Working with agency and service partners, continued modernization of the 

current, paper-reliant, retirement claims process is vital to OPM's long-term success. As such, 

we are focused on transitioning the retirement program to a paperless system that will truly 

honor a Federal employee's service by authorizing accurate retirement benefit payments, 

answering customers' questions in a timely manner, and promoting self-service account 

maintenance via PC, tablet or other mobile device. 
22 


Insert offset folio 14 here 81283.014

Statement of Kenneth Zawodny 

U.S. Office of Personnel Management 

May 9, 2013 

Retirement Services Information Technology Strategy 

In the strategic plan, we outlined our intention to modernize our IT infrastructure incrementally, 

employing a cost effective and efficient modular approach to transition away from paper and into 

the modern era. Working with agency and service partners, we are in the process of establishing 

the capability of gathering electronic data from the applicant and to have that data sent to the 

repository. In addition, we are in the process of establishing the capability to feed the agency 

human resources, payroll and applicant sourced data from the repository to the benefit 

calculator. These represent the critical first steps in a long modernization journey. 

In 2012, we launched the Data Viewer, a web-based application which aggregates information 

from multiple systems and enables authorized users to see retirement related data. The Data 

Viewer will help our adjudicators access scanned retirement documents and other data through a 

single interface and will also help agencies assemble more accurate retirement packages for their 

employees so that they are sent to OPM in a more complete state, all saving time in claim 

processing. Currently II agencies are in a pilot for the Data Viewer, and they have viewed over 

40,000 documents to help make the retirement case packet more complete and accurate. The 

plan is to continue to deploy the Data Viewer to all agencies within the Federal government. We 

are also engaged in a crowd-sourcing initiative to develop innovative solutions to the current 

Service Credit system. The improved system will include enhanced capability to adapt to 

modifications to service credit calculations due to legislative changes, as well as robust 

accounting and financial management features. 

UNITFO STATES OFFICE 01· PU~SONNn, MANAGU .. 1ENT Page 50f9 
23 


Insert offset folio 15 here 81283.015

Statement of Kenneth Zawodny 

U.S. Office of Personnel Management 

May 9, 2013 

We have requested $2.6 million in our FY2014 budget request to begin development ofa Case 

Management System (CMS) for centralized tracking of, and reporting on, retirement documents 

and retirement cases. This initial, modest investment is to begin the process of upgrading CMS 

to an automated system, eventually streamlining the intake and review process and in the longterm reduce the amount of time necessary to process claims. 

Finally, our web-based Retirement Services Online application empowers retirees to view their 

individual information, make changes and update their information on demand. The program 

has over 25,000 visitors per week, and over 3.2 million transactions were processed during 

FY2012. These online transactions, from email address updates to tax withholding changes to 

establishing direct deposits, reduces calls and emails to our customer service group freeing them 

to respond to other customers. Further enhancements to Retirement Services Online will advance 

our focus on providing better customer service. 

Challenges in Achieving the Goals of the Strategic Plan 

We are at a critical juncture of the strategic plan and continuation of the current success in 

reducing the pending inventory is by no means assured. The improvements outlined above offer 

an excellent start, but alone, are not sufficient to overcome some ofthe challenges facing the 

retirement program. Without proper resources, the momentum we currently have processing 

claims and moving toward IT modernization will be in jeopardy. 

Government-wide fiscal challenges have obvious ramifications for maintaining the 

enhancements made in processing capacity as well as future plans for improvements in 
24 


Insert offset folio 16 here 81283.016

Statement of Kenneth Zawodny 

U.S. Office of Personnel Management 

May 9, 2013 

efficiency. As noted above, we are experiencing continued increases in new retirements, 

representing a growth in the customer base ofOPM, while resources to handle the volume and 

provide appropriate customer service diminish. One example is the recent surge or retirement 

cases due to U.S. Postal Service early retirements. Our staff is working diligently to finalize 

these cases as quickly as possible through the use of overtime. However, similar receipts in FY 

2014, especially if accompanied by reductions in funding for staffing and overtime, would 

severely impact our capability to achieve processing goals. 

Funding reductions will also affect our customer service group. The Call Center receives 

between 35,000 and 40,000 calls and upwards of 5,000 emails each week as well as thousands of 

other pieces of correspondence. Reduced funding will lead to reduced response rates and a 

decrease in service levels. Over the last year Qr so, hold times in the call center have improved 

by 4 or 5 minutes, but these sorts of improvements will quickly be negated. The second impact 

will be seen in our reduced ability to provide timely responses bye-mail, fax, correspondence, 

and a system that allows us to see all avenues of customer updates by the enhanced CMS. 

As noted above, we are also poised to implement real change in our IT systems with assistance 

from other Federal agencies and service partners. Lack of funding for these initiatives will 

impact the good work that has been done thus far and will bring a stop to development in the 

future. 
25 


Insert offset folio 17 here 81283.017

Improper Payments 

Statement of Kenneth Zawodny 

U.S. Office of Personnel Management 

May 9, 2013 

Finally, I want to address the work that OPM has done in recognition of the need to reduce the 

number of improper annuity payments and recovery of overpayments. OPM established an 

Improper Payments Working Group to design controls to protect the integrity of program 

data. This group is represented across organizational and functional areas within OPM, led by the 

Chief Financial Officer, and has worked during the year to develop the OPM Improper Payments 

Plan. Utilizing these efforts and working with the OPM Inspector General, OPM is making 

continued progress to reduce the number of improper annuity payments. In FY20 12, the rate of 

improper payments for the Federal Retirement Programs was 0.36 percent of outlays, and almost 

72 percent of improper payments identified have been recovered. 

Conclnsion 

OPM has made significant progress in reducing the Federal retirement claims inventory in the 

past year. We expect to make continued progress utilizing process improvements and 

incremental IT advances; however, we understand that challenges remain and our future is 

uncertain, and that our efforts must continue. We understand reducing the claims inventory is not 

just about reducing numbers, but about our commitment to retired dedicated public servants and 

their families. For our employees and our customers, we are moving forward on a major 

initiative we call C.A.R.E, which stands for Compassionate, Accurate, Responsive, and 

Empowered, to make workforce improvements in order to better serve our customers. We 

understand that any delays that retired Federal employees experience in receiving their final 

annuities can cause personal and financial hardships. While we continue to reduce the backlog, 
26 


Insert offset folio 18 here 81283.018

Statement of Kenneth Zawodny 

U.S. Office of Personnel Management 

May 9, 2013 

we have tried to mitigate any hardship as much as possible, such as by paying new retirees an 

estimated interim monthly annuity immediately after they retire until we complete their case. 

In recognition of our goal to honor service, both the performance of current employees and the 

careers of retired employees, we are continuously working to address challenges and have 

implemented several initiatives to develop a 21st Century customer-focused retirement 

processing system that adjudicates claims in a timely and accurate manner. 

I want to thank you for this opportunity to testify today and I am happy to address any questions 

you may have. 

t IN!TED STATES OFFICI": Of< PI~RSONN[~L MANAGEMENT Page 90f9 
27 

Mr. FARENTHOLD. Ms. Melvin, you’re recognized now for 5 minutes. 

STATEMENT OF VALERIE C. MELVIN 

Ms. MELVIN. Good morning, Chairman Farenthold, Ranking 

Member Lynch, and members of the subcommittee. Thank you for 

inviting me to testify at today’s hearing on OPM’s system for processing Federal employee retirement benefits. 

The use of information technology is integral to carrying out this 

important responsibility, and for over 2 decades OPM attempted to 

modernize the retirement process by automating paper-based functions and replacing its antiquated information systems. However, 

as you’ve alluded to, the agency faced many challenges in managing its modernizations efforts and they were largely unsuccessful. Reports that we previously issued on the agency’s efforts to 

plan and implement a modernized system highlighted a long history of initiatives that did not yield the intended results. 

At your request, my testimony today summarizes our findings on 

these efforts and the challenges OPM has faced in managing them 

and describes the agency’s more recent action to improve the retirement process. 

Overall, our studies found that OPM was hindered by weaknesses in several key management disciplines that are essential to 

successful IT modernizations. These included project management, 

risk management, and organizational change management. For example, in reporting on the agency’s efforts in 2005, we noted that 

while it had defined major retirement modernization system components, OPM had not identified the dependencies among them, 

thus increasing the risk that delays in one project activity could 

hinder progress in others. OPM also did not have a process for 

identifying and tracking project risk and mitigation strategies on a 

regular basis, and it did not have a plan that would help users 

transition to different job responsibilities after deployment of a new 

system. These deficiencies existed over numerous years in which 

the agency planned, analyzed, and redirected the program but 

without delivering the modernized capabilities. 

In 2008, as it was on the verge of deploying a system, we noted 

other management concerns and offered recommendations for improvement. Specifically, test results 1 month before deploying a 

major system component showed that it had not performed as intended. Also, defects and a compressed testing schedule increased 

the risk that the deployed system would not work as planned. Further, the cost estimate that OPM had developed was not supported 

by documentation needed to establish its reliability. And finally, 

the baseline against which OPM was measuring progress did not 

reflect the full scope of the project, meaning that variances from 

planned performance would not be identified. 

OPM nonetheless deployed a limited version of the modernized 

system in February 2008, but the system did not work as expected 

and the agency suspended its operation and began restructuring 

the modernization program. 

In April, 2009, we again reported on the initiative, noting that 

the agency still remained far from achieving the capabilities it had 

envisioned. Significant weaknesses continue to exist in the preVerDate Aug 31 2005 12:04 Jun 10, 2013 Jkt 000000 PO 00000 Frm 00031 Fmt 6633 Sfmt 6633 C:\DOCS\81283.TXT APRIL
28 

viously identified areas, and we noted additional weaknesses as 

well. Specifically, OPM lacked a plan describing how the program 

would proceed after terminating the earlier systems contract and 

it lacked a fully functioning oversight body to monitor its modernization projects. 

OPM agreed with all of our recommendations and took steps to 

address them. However, it terminated the retirement modernization program in February 2011 and subsequently stated that it did 

not plan to undertake another large-scale modernization effort. 

In January 2012, the agency released a plan describing intended 

improvements to retirement processing through targeted incremental steps such as hiring new staff and working with agencies 

to improve data quality and intended IT improvements to automate 

retirement application processing. As has been stated, the agency’s 

goal is to be able to process 90 percent of new claims within 60 

days by July of 2013. 

However, while OPM is taking these steps and has reported 

progress toward meeting its goal, it has not yet addressed the fundamental question of how it intends to modify the many legacy systems that currently support the retirement process. Moreover, even 

as it implements this plan, it is essential that the agency fully address the deficiencies and institutionalize the IT management capabilities highlighted in our studies. Until it does so, OPM will not 

be effectively positioned to ensure the success of any future retirement modernization projects. 

Mr. Chairman, this concludes my oral statement, and I would be 

pleased to respond to your questions. 

Mr. FARENTHOLD. Thank you very much, Ms. Melvin. 

[Prepared statement of Ms. Melvin follows:] 

29 


Insert offset folio 19 here 81283.019

For Releas(' on Delivery 

Expected at 9:30 a.m. EDT 

Thursday, May 9, 2013 

GAO-13-580T 

United States Government Accountability Office 

Testimony before the Subcommittee on 

Federal Workforce, U.S. Postal Service, and 

the Census, Committee on Oversight and 

Government Reform, House of 

Representatives 

FEDERAL RETIREMENT 

PROCESSING 

OPM Is Pursuing 

Incremental Information 

Technology Improvements 

after Canceling a 

Modernization Plagued by 

Management Weaknesses 

Statement of Valerie C. Melvin, Director 

Information Management and Technology 

Resources Issues 
30 


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Highlights of GAO··13-580T, a testimony 

before the Subcommittee on Federal 

Workforce, U.S Postal Service, and the 

Census, Committee on Oversight and 

Government Refo!Tll, House of 

Representatives 

Why GAO Did This Study 

OPM is the central human resources 

agency for the federal government 

and, as such, is responsible for 

ensuring that the government has an 

effective civilian workforce. As part of 

its mission, OPM defines recruiting and 

hiring processes and procedures; 

provides federal employees with 

various benefits, such as health 

benefits; and administers the 

retirement program for federal 

employees. OPM's use of IT is critical 

in carrying out its responsibilities; in 

fiscal year 2013 the agency plans to 

invest about $85 million in IT systems 

and services, For over two decades, 

OPM has been attempting to 

modernize its federal employee 

retirement process by automating 

paper-based processes and replacing 

antiquated information systems. 

However, these efforts have been 

unsuccessful, and the agency 

canceled its most recent large-scale 

retirement modernization effort in 

February 2011. 

GAO was asked to summarize its work 

on challenges OPM has faced in 

attempting to modernize the federal 

employee retirement process and to 

describe the agency's recent reported 

actions to improve its retirement 

processing. To do this, GAO generally 

relied on previously published work, 

What GAO Recommends 

GAO is not making new 

recommendations at this time. GAO 

has previously made numerous 

recommendations to address IT 

management challenges that aPM has 

faced in carrying out its retirement 

modernization efforts, Fully addressing 

these challenges remains key to the 

success of OPM's efforts. 

View GAO-13-580T. For more information. 

contact Valerie C. Melvin af (202) 512-6304 or 

me!vlnv@gao.gov 

FEDERAL RETIREMENT PROCESSING 

OPM Is Pursuing Incremental Information 

Technology Improvements after Canceling a Modernization Plagued by Management Weaknesses 

What GAO Found 

In a series of reviews, GAO found that the Office of Personnel Management's 

(OPM) retirement modernization efforts were hindered by weaknesses in key 

management practices that are essential to successful information technology 

(IT) modernization projects. For example, in 2005, GAO made recommendations 

to address weaknesses in the following areas' 

Project management: While OPM had defined major components of its 

retirement modernization effort, it had not identified the dependencies among 

them, increasing the risk that delays in one activity could have unforeseen 

impacts on the progress of others. 

Risk management: OPM did not have a process for identifying and tracking 

project risks and mitigation strategies on a regular basis. Thus, it lacked a 

mechanism to address potential problems that could adversely impact the 

cost, schedule, and quality of the modernization effort. 

Organizational change management: OPM had not adequately prepared 

its staff for changes to job responsibilities resulting from the modernization by 

developing a detailed transition plan, This could lead to confusion about roles 

and responsibilities and hinder effectIVe system implementation. 

In 2008, as OPM was on the verge of deploying an automated retirement 

processing system, GAO reported deficiencies in and made recommendations to 

address addition a! management capabilities: 

Testing: The results of tests 1 month prior to the deployment of a major 

system component revealed that it had not performed as intended, These 

defects, along with a compressed testing schedule, increased the risk that 

the system would not work as intended upon deployment 

Cost estimating: The cost estimate OPM developed was not fully reliable. 

This meant that the agency did not have a sound basis for formulating 

budgets or developing a program baseline 

Progress reporting: The baseline against which OPM was measuring the 

progress of the program did not reflect the full scope of the project; this 

increased the risk that variances from planned performance would not be 

detected. 

In 2009, GAO reported that OPM continued to have deficiencies in its cost 

estimating, progress reporting, and testing practices and made recommendations 

to address these and other weaknesses in the planning and oversight of the 

modernization effort, OPM agreed with these recommendations and began to 

address them. but. in February 2011, it terminated the modernization effort 

In January 2012, OPM released a plan to improve retirement processing that 

aimed at targeted, incremental improvements rather than a large-scale 

modernization. Toward this end, aPM has reported hiring new claims-processing 

staff, taking steps to identify potential process improvements, and working with 

other agencies to improve data quality. Further, the agency reported making IT 

improvements that allow retirees to view the status of their accounts and 

automating parts of the retirement application process. However, the plan reflects 

a less ambitious goal for retirement processing timeliness and does not address 

improving or replacing the legacy systems that support retirement processing. 

_____________ United States Government Accountability Office 
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GAO U.S. GOVERNMENT ACCOUNTABILITY OffiCE 

441 G St. N.W. 

Washington, DC 20548 

Chairman Farenthold. Ranking Member Lynch, and Members of the 

Subcommittee: 

Thank you for inviting me to testify at today's hearing on the Office of 

Personnel Management's (OPM) system for processing federal employee 

retirement benefits. The use of information technology (IT) is integral to 

carrying out this important responsibility,' and for over two decades, OPM 

engaged in efforts to modernize the retirement process by automating 

paper-based functions and replacing antiquated information systems. 

However, the agency experienced numerous challenges in managing its 

modernization initiatives. Reports that we issued in 2005, 2008, and 2009 

on its efforts toward planning and implementing a modernized retirement 

system highlighted a long history of undertaking modernization projects 

that did not yield the intended outcomes. 2 At your request, my testimony 

today summarizes the history of OPM's retirement modernization efforts 

along with our findings regarding the challenges that it faced in managing 

those efforts, and describes more recent actions the agency has reported 

taking to improve the retirement process. 

The information in my testimony is primarily based on our previous work 

at OPM. We also reviewed the agency's plan and related information 

discussing its recent actions to improve retirement processing services. 

We performed our work in support of this testimony during April and May 

2013. All work on which this testimony is based was conducted 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 

findings and conclusions based on our audit objectives. We believe that 

11n fiscal year 2013 the agency plans to invest about $85 million In IT systems and 

services 

2GAO, Office of Personnel Management· Retirement Modernization Planning and 

Management Shortcomings Need to Be Addressed, GAO~09-529 (Washington, 0 C . Apr 

21,2009); Office of Personnel Management" fmprovements Needed to Ensure Successful 

Retirement Systems Modernization. GAO-08-345 (Washmgton, 0 C.: Jan 31,2008); 

Comments on the Office of Personnel Management's February 20, 2008 Report to 

Congress Regardmg the Retirement Systems Modernizalion, GAO-08-576R (Washington, 

D.C .. Mar. 28, 2008), and Office of Personnel Management Retirement Systems 

Modernization Program Faces Numerous Challenges. GAO-05-237 (Washington, D_C 

Feb. 28, 2005) 

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Background 

Federal Employee 

Retirement Application 

Processing Is Complex 

the evidence obtained provides a reasonable basis for our findings and 

conclusions based on our audit objectives. 

As the central human resources agency for the federal government, OPM 

is tasked with ensuring that the government has an effective civilian 

workforce. To carry out this mission, OPM delivers human resources 

products and services including policies and procedures for recruiting and 

hiring, provides health and training benefit programs, and administers the 

retirement program for federal employees. According to the agency, 

approximately 2.7 million active federal employees and nearly 2.5 million 

retired federal employees rely on its services. 3 

According to OPM, the retirement program serves current and former 

federal employees by providing (1) tools and options for retirement 

planning and (2) retirement compensation. Two defined-benefit retirement 

plans that provide retirement, disability, and survivor benefits to federal 

employees are administered by the agency. The first plan, the Civil 

Service Retirement System (CSRS), provides retirement benefits for most 

federal employees hired before 1984. The second plan, the Federal 

Employees Retirement System (FERS), covers most employees hired in 

or after 1984 and provides benefits that include Social Security and a 

defined contribution system. 4 

OPM and employing agencies' human resources and payroll offices are 

responsible for processing federal employees' retirement applications. 

The process begins when an employee submits a paper retirement 

application to his or her employer's human resources office and is 

completed when the individual begins receiving regular monthly benefit 

payments (as illustrated in fig. 1). 

30pM, Fiscal Year 2012 Annual Performance Report (February 2013) 

4The SocIal Security Administration is responsible for administenng Social Security, and 

the Federal Retirement Thrift Investment Board administers the defined-contnbution 

system known as the Thrift Savings Plan_ Defmed-benefit plans calculate benefit amounts 

m advance of retirement based on factors such as salary level and years of SeN!ce. and 

defined-contribution plans calculate benefit amounts based on how the amount IS invested 

by the employee and employer 

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Figure 1: Simplified View of Retirement Application Process 

Agency 

Human Resources (HR) 

I Employee submits. I! 100. rRe:QUlred meeting in wnlch agency benef~~ De~~I;;-p~~;~~'~ent L..I Review retirement package! 

I rehrement application ~ officer checks paperwork, provides retirement I I""" I and provido final documents i , .... ----"-.--.-----', Ense!ing, and prOVides be~efl~~~n:~~~~ "~_J ~gency payroll J 

I 

Once an employee submits an application, the human resources office 

provides retirement counseling services to the employee and augments 

the retirement application with additional paperwork, such as a separation 

form that finalizes the date the employee will retire, Then the agency 

provides the retirement package to the employee's payroll office, After the 

employee separates for retirement, the payroll office is responsible for 

reviewing the documents for correct signatures and information, making 

sure that all required forms have been submitted, and adding any 

additional paperwork that will be necessary for processing the retirement 

package, Once the payroll office has finalized the paperwork, the 

retirement package is mailed to OPM to continue the retirement process. 

Payroll offices are required to submit the package to OPM within 30 days 

of the retiree's separation date, 

Upon receipt of the retirement package, OPM calculates an interim 

payment based on information provided by the employing agency, The 

interim payments are partial payments that typically provide retirees with 

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80 percent of the total monthly benefit they will eventually receive. 5 OPM 

then starts the process of analyzing the retirement application and 

associated paperwork to determine the total monthly benefit amount to 

which the retiree is entitled. This process includes collecting additional 

information from the employing agency's human resources and payroll 

offices or from the retiree to ensure that all necessary data are available 

before calculating benefits. After OPM completes its review and 

authorizes payment, the retiree begins receiving 100 percent of the 

monthly retirement benefit payments. OPM then stores the paper 

retirement folder at the Retirement Operations Center in Boyers, 

Pennsylvania. 

The agency recently reported that the average time to process retirement 

claims was 156 days in 2012. According to the Deputy Associate Director 

for the Center of Retirement and Insurance Services, about 200 

employees are directly involved in processing the approximately 100,000 

retirement applications OPM receives annually. Retirement processing 

includes functions such as determining retirement eligibility, inputting data 

into benefit calculators, and providing customer service. The agency uses 

over 500 different procedures, laws, and regulations, which are 

documented on the agency's internal website, to process retirement 

applications. For example, the site contains memorandums that outline 

new procedures for handling special retirement applications, such as 

those for disability or court orders. Further, OPM's retirement processing 

involves the use of over 80 information systems that have approximately 

400 interfaces with other internal and external systems. For instance, 26 

internal systems interface with the Department of the Treasury to provide, 

among other things, information regarding the total amount of benefit 

payments to which an employee is entitled. 

OPM has reported that a greater retirement processing workload is 

expected due to an anticipated increase in the number of retirement 

applications over the next decade, although current retirement processing 

operations are at full capacity. Further, the agency has identified several 

factors that limit its ability to process retirement benefits in an efficient and 

timely manner. Specifically, OPM noted that 

reported in November 2008 that !t has made improvements to this process and is 

currently providing retirees with mterim payments that are about 90 percent of the monthly 

payment which they are entitled 

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OPM Has a Long History of 

Unsuccessful Retirement 

Modernization Initiatives 

current processes are paper-based and manually intensive, resulting 

in a higher number of errors and delays in providing benefit payments; 

the high costs, limited capabilities, and other problems with the 

existing information systems and processes pose increasing risks to 

the accuracy of benefit payments; 

current manual capabilities restrict customer service; 

federal employees have limited access to retirement records, making 

planning for retirement difficult; and 

attracting qualified personnel to operate and maintain the antiquated 

retirement systems, which have about 3 million lines of custom 

programming, is challenging 6 

Recognizing the need to modernize its retirement processing, in the late 

1980s OPM began initiatives that were aimed at automating its antiquated 

paper-based processes. Initial modernization visions called for developing 

an integrated system and automated processes to provide prompt and 

complete benefit payments. However, following attempts over more than 

two decades, the agency has not yet been successful in achieving the 

modernized retirement system that it envisioned. 

In early 1987, OPM began a program called the FERS Automated 

Processing System. However, after 8 years of planning, the agency 

decided to reevaluate the program, and the Office of Management and 

Budget requested an independent review of the program, which identified 

various management weaknesses. The independent review suggested 

areas for improvement and recommended terminating the program if 

immediate action was not taken. In mid-1996, OPM terminated the 

program. 

In 1997, OPM began planning a second modernization initiative, called 

the Retirement Systems Modernization (RSM) program. The agency 

originally intended to structure the program as an acquisition of 

commercially available hardware and software that would be modified inhouse to meet its needs. From 1997 to 2001, OPM developed plans and 

analyses and began developing business and security requirements for 

the program. However, in June 2001, it decided to change the direction of 

the retirement modernization initiative. 

"GAO·09·529 

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OPM's Unsuccessful 

Retirement 

Modernization Efforts 

Were Plagued by IT 

Management 

Weaknesses 

In late 2001, retaining the name RSM, the agency embarked upon its 

third initiative to modernize the retirement process and examined the 

possibility of privately sourced technologies and tools. Toward this end, 

the agency determined that contracting was a viable alternative and, in 

2006, awarded three contracts for the automation of retirement 

processing, the conversion of paper records to electronic files, and 

consulting services to redeSign its retirement operations. 

In February 2008, OPM renamed the program RetireEZ and deployed an 

automated retirement processing system. However, by May 2008 the 

agency determined that the system was not working as expected and 

suspended system operation. In October 2008, after 5 months of 

attempting to address quality issues, the agency terminated the contract 

for the system. In November 2008, OPM began restructuring the program 

and reported that its efforts to modernize retirement processing would 

continue. However, after several years of trying to revitalize the program, 

the agency terminated the retirement system modernization in February 

2011. 

OPM's efforts to modernize its retirement system were hindered by 

weaknesses in several key IT management disciplines. Our experience 

with major modernization initiatives has shown that having sound 

management capabilities is essential to achieving successful outcomes. 

These capabilities include project management, risk management, 

organizational change management, system testing, cost estimating, 

progress reporting, planning, and oversight. among others. However, we 

found that OPM's capabilities in these areas were not sufficiently 

developed. For example, in reporting on RSM in February 2005, we noted 

weaknesses in project management, risk management, and 

organizational change management. 7 

Project management is the process for planning and managing all 

project-related activities, including defining how project components 

are interrelated. Effective project management allows the 

performance, cost, and schedule of the overall project to be measured 

and controlled in comparison to planned objectives. Although OPM 

had defined major retirement modernization project components, it 

7 GAO-05-237 

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had not defined the dependencies among them. Specifically, the 

agency had not identified critical tasks and their impact on the 

completion of other tasks. By not identifying critical dependencies 

among project components, OPM increased the risk that unforeseen 

delays in one activity could hinder progress in other activities. 

Risk management entails identifying potential problems before they 

occur. Risks should be identified as early as possible, analyzed, 

mitigated, and tracked to closure. OPM officials acknowledged that 

they did not have a process for identifying and tracking retirement 

modernization project risks and mitigation strategies on a regular 

basis but stated that the agency's project management consultant 

would assist it in implementing a risk management process. Lacking 

such a process, OPM did not have a mechanism to address potential 

problems that could adversely impact the cost, schedule, and quality 

of the retirement modernization project. 

Organizational change management includes preparing users for the 

changes to how their work will be performed as a result of a new 

system implementation. Effective organizational change management 

includes plans to prepare users for impacts the new system might 

have on their roles and responsibilities, and a process to manage 

those changes. A~hough OPM officials stated that change 

management posed a substantial challenge to the success of 

retirement modernization, they had not developed a detailed plan to 

help users transition to different job responsibilities. Without having 

and implementing such a plan, effective implementation of new 

systems could be hindered by confusion about user roles and 

responsibilities. 

We recommended that the Director of OPM ensure that the retirement 

modernization program office expeditiously establish processes for 

effective project management, risk management, and organizational 

change management. In response, the agency initiated steps toward 

establishing management processes for retirement modernization and 

demonstrated activities to address our recommendations. 

We reported again on OPM's retirement modernization in January 2008, 

as the agency was about to deploy a new automated retirement 

processing system. 8 We noted weaknesses in additional key 

8GAO·08·345 

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management capabilities, including system testing, cost estimating, and 

progress reporting, 

Effective testing is an essential activity of any project that includes 

system development. Generally, the purpose of testing is to identify 

defects or problems in meeting defined system requirements or 

satisfying system user needs. At the time of our review, 1 month 

before OPM planned to deploy a major system component, test 

results showed that the component had not performed as intended. 

We warned that until actual test results indicated improvement in the 

system, OPM risked deploying technology that would not accurately 

calculate retirement benefits. Although the agency planned to perform 

additional tests to verify that the system would work as intended, the 

schedule for conducting these tests became compressed from 5 

months to 2-1/2 months, with several tests to be performed 

concurrently rather than sequentially. The agency stated that a lack of 

testing resources, including the availability of subject matter experts, 

and the need for further system development contributed to the delay 

of planned tests and the need for concurrent testing. The high degree 

of concurrent testing that OPM planned to meet its February 2008 

deployment schedule increased the risk that the agency would not 

have the resources or time to verify that the planned system worked 

as expected. 

Cost estimating is the identification of individual project cost elements, 

using established methods and valid data to estimate future costs. 

Establishing a reliable cost estimate is important for developing a 

project budget and having a sound basis for measuring performance, 

including comparing the actual and planned costs of project activities. 

Although OPM developed a retirement modernization cost estimate, it 

was not supported by the documentation that is fundamental to a 

reliable cost estimate. Without a reliable cost estimate, OPM lacked a 

sound basis for formulating retirement modernization budgets or for 

developing the cost baseline that is necessary for measuring and 

predicting project performance. 

Earned value management (EVM) is a tool for measuring program 

progress by comparing the value of work accomplished with the 

amount of work expected to be accomplished. Fundamental to reliable 

EVM is the development of a baseline against which variances are 

calculated. OPM used EVM to measure and report monthly 

performance of the retirement modernization system. The reported 

results indicated that the project was progressing almost exactly as 

planned. However, this view of project performance was not reliable 

because the baseline on which it was based did not reflect the full 

scope of the project, had not been validated, and was unstable (i.e., 

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subject to frequent changes). This EVM approach in effect ensured 

that material variances from planned performance would not be 

identified and that the state of the project would not be reliably 

reported. 

We recommended that the Director of OPM conduct effective system 

tests prior to system deployment and improve program cost estimation 

and progress reporting. OPM stated that it concurred with our 

recommendations and would take steps to address the weakness we 

identified. Nevertheless, OPM deployed a limited initial version of the 

modernized retirement system in February 2008. After unsuccessful 

efforts to address system quality issues, the agency suspended system 

operation, terminated the system contract, and began restructuring the 

modernization effort. 

In April 2009, we again reported on OPM's retirement modernization, 

noting that the agency still remained far from achieving the modernized 

retirement processing capabilities that it had planned. 9 Specifically, we 

noted that significant weaknesses continued to exist in the areas of cost 

estimating, progress reporting, and testing, while also noting two 

additional weaknesses related to planning and oversight. 

Although it concurred with our January 2008 recommendation to 

develop a revised cost estimate for the retirement modernization 

effort, OPM had not completed initial steps for developing the new 

estimate by the time we issued our report in April 2009. We reported 

that the agency had not yet fully defined the estimate's purpose, 

developed an estimating plan, or defined the project's characteristics. 

By not completing these steps, OPM increased the risk that it would 

produce an unreliable estimate and not have a sound basis for 

measuring project performance and formulating retirement 

modernization budgets. 

OPM also concurred with our January 2008 recommendation to 

establish a basis for effective EVM but had not completed key steps 

as of the time of our report. Specifically, despite planning to use EVM 

to report the retirement modernization project's progress, the agency 

had not developed a reliable cost estimate and a validated baseline. 

Engaging in EVM reporting without first taking these fundamental 

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steps could have again rendered the agency's assessments 

unreliable. 

As previously discussed, effective testing is an essential component 

of any project that includes developing systems. To be effectively 

managed, testing should be planned and conducted in a structured 

and disciplined fashion. Beginning the test planning process in the 

early stages of a project life cycle can reduce rework later. Early test 

planning in coordination with requirements development can provide 

major benefits. For example, planning for test activities during the 

development of requirements may reduce the number of defects 

identified later and the ccsts related to requirements rework or change 

requests. OPM's need to compress its testing schedule and conduct 

tests concurrently, as we reported in January 2008, illustrates the 

importance of planning test activities early in a project's life cycle. 

However, at the time of our April 2009 report, the agency had not 

begun to plan test activities in coordination with developing its 

requirements for the system it was planning at that time. 

Consequently, OPM increased the risk that it would again deploy a 

system that did not satisfy user expectations and meet requirements. 

Project management principles and effective practices emphasize the 

importance of having a plan that, among other things, incorporates all 

the critical areas of system development and is to be used as a 

means of determining what needs to be done, by whom, and when. 

Although OPM had developed a variety of informal documents and 

briefing slides that described retirement modernization activities, the 

agency did not have a complete plan that described how the program 

would proceed in the wake of its decision to terminate the system 

contract. As a result, we concluded that until the agency completed 

such a plan and used it to guide its efforts, it would not be properly 

positioned to proceed with its restructured retirement modernization 

initiative. 

Office of Management and Budget and GAO guidance call for 

agencies to ensure effective oversight of IT projects throughout all lifecycle phases. Critical to effective oversight are investment 

management boards made up of key executives who regularly track 

the progress of IT projects such as system acquisitions or 

modernizations. OPM's Investment Review Board was established to 

ensure that major investments are On track by reviewing their 

progress and identifying appropriate actions when investments 

encounter challenges. Despite meeting regularly and receiving 

information that indicated problems with the retirement modernization, 

the board did not ensure that retirement modernization investments 

were on track, nor did it determine appropriate actions for course 

correction when needed. For example, from January 2007 to August 

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OPM Has Reported 

Taking Actions to 

Improve Retirement 

Processing 

2008, the board met and was presented with reports that described 

problems the program was facing, such as the lack of an integrated 

master schedule and earned value data that did not reflect the "reality 

or current status" of the program. However, meeting minutes indicated 

that no discussion or action was taken to address these problems. 

According to a member of the board, OPM had not established 

guidance regarding how the board is to communicate 

recommendations and needed corrective actions for investments it 

oversees. Without a fully functioning oversight body, OPM lacked 

insight into the retirement modernization and the ability to make 

needed course corrections that effective boards are intended to 

provide. 

Our April 2009 report made new recommendations that OPM address the 

weaknesses in the retirement modernization project that we identified. 

Although the agency began taking steps to address them, the 

recommendations were overtaken by the agency's decision in February 

2011 to terminate the retirement modernization project. 

In mid-January 2012, OPM released a plan to undertake targeted, 

incremental improvements to retirement processing rather than a largescale modernization, which described planned actions in four areas: 

hiring and training 56 new staff to adjudicate retirement claims and 20 

additional staff to support the claims process; 

establishing higher production standards and identifying potential 

retirement process improvements; 

working with other agencies to improve the accuracy and 

completeness of the data they provide to OPM for use in retirement 

processing; and 

improving the department's IT by pursuing a long-term data flow 

strategy, exploring short-term strategies to leverage work performed 

by other agencies, and reviewing and upgrading systems used by 

retirement services. 10 

Through implementing these actions, OPM has said that it aims to 

eliminate the agency's retirement processing backlog and accurately 

process 90 percent of its cases within 60 days by July 31, 2013. 

However, as we testified in February 2012, that goal represents a 

iOOPM, StrategIc Plan for Retirement ServIces (Jan. 17,2012) 

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substantial reduction from the agency's fiscal year 2009 retirement 

modernization goal to accurately process 99 percent of cases within 30 

days. 11 Moreover, the plan did not describe whether or how the agency 

intends to modify or decommission the over 80 legacy systems that it 

currently relies on to support retirement processing. 

last month, OPM officials described steps the agency has begun taking 

to implement the January 2012 plan for retirement services. These steps 

include 

filling the 56 positions needed to adjudicate retirement claims and 20 

pOSitions needed to support the claims process; 

implementing retirement processing improvements identified during 

an external review of its retirement claims process, such as 

reorganizing benefits claims officers into two tiers to allow the 

processing of more complex inquiries by higher-level officers; 12 and 

improving the accuracy and completeness of retirement data that 

other agencies provide to OPM by conducting audits of the agencies' 

application submissions and providing more frequent feedback and 

follow-up training. 

Additionally, the officials identified existing and planned IT improvements 

to support the retirement process. These efforts include 

providing retirees with the ability to view the status of their cases 

through OPM's web-based application, Services Online; 

developing the capability to accept electronic data that are transferred 

from one of the seven federal payroll processing centers; 

enhancing its internal web-based application, Data Viewer, to allow 11 

other agencies to view retirement case packets; 

upgrading its data storage capacity and production printer; 

sponsoring a challenge, in cooperation with the National Aeronautics 

and Space Administration, for developers to create a system with 

accounting tools for processing service credits; 

updating reporting guides to include processes for sending electronic 

retirement data to OPM; and 

11GAO, OPM Retirement Modernization: Progress Has Been Hindered by Longstanding 

Information Technology Management Weaknesses, GAO-12-430T (Washington, D.C 

Feb. " 2012) 

120PM officials stated that the external review of its pending claims process was 

completed by the UnIted States Navy In November 2012 

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planning an initiative to develop an automated retirement case 

management system to replace the agency's existing document and 

case control system in fiscal year 2014. 

Nonetheless, while OPM is planning to replace its legacy document and 

case control system, agency officials stated that there were no major 

plans to decommission any of the agency's other legacy systems that 

support retirement processing. Although the Associate Director for 

Retirement Services stated that investing in IT is important for improving 

the efficiency of retirement claims processing, the agency has not yet 

planned for improving or replacing the remaining legacy systems that 

support retirement processing. 

In summary, despite OPM's longstanding recognition of the need to 

improve the timeliness and accuracy of retirement processing, the agency 

has thus far been unsuccessful in several attempts to develop the 

capabilities it has long sought. For over two decades, the agency's 

retirement modernization efforts were plagued by weaknesses in 

management capabilities that are critical to the success of such 

endeavors. Among the management disciplines the agency has struggled 

with are project management, risk management, organizational change 

management, cost estimating, system testing, progress reporting, 

planning, and oversight. The incremental steps the agency recently 

reported taking include dedicating additional resources to retirement 

processing; however, they do not address the more fundamental need to 

modernize its legacy IT systems in order to significantly improve the 

efficiency of the process. Until OPM tackles thai challenge, and develops 

the management capabilities to carry it out successfully, it may face 

ongoing difficulties in meeting the needs of future retirees. 

Chairman Farenthold, Ranking Member Lynch, and Members of the 

Subcommittee, this concludes my prepared statement. I would be 

pleased to respond to any questions that you or other members of the 

Subcommittee may have. 

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Contact and 

Acknowledgments 

{311-500) 

If you have any questions concerning this statement, please contact 

Valerie C. Melvin, Director, Information Management and Technology 

Resources Issues, at (202) 512-6304 or melvinv@gao.gov. Other 

individuals who made key contributions include Mark T. Bird, Assistant 

Director; David A. Hong; and Lee A. McCracken. 

Page 14 GAO·13·580T 
45 

Mr. FARENTHOLD. Dr. Kettner. 

STATEMENT OF GEORGE KETTNER 

Mr. KETTNER. Thank you for the opportunity to appear before 

the committee on the subject of OPM processing of retirement 

claims. 

In order to establish our credibility to speak today in front of the 

subcommittee, I would like to first describe our experience and capabilities relevant to the discussion. My company, Economic Systems, Inc., has been in the Federal retirement calculation and 

claims processing business for more than 20 years, and has a longstanding association with OPM and many Federal agencies in connection with retirement claims processing and related issues. 

Today, we operate a cloud service provider retirement system that 

services approximately 120 agencies, both large and small, 

throughout the Federal Government. Our retirement system provides automated tools for case tracking, filling forms electronically, 

and importing data from agency personnel and payroll systems. 

Economic Systems provides agencies with tools that facilitate the 

processing of retirement application packages that are sent to OPM 

for adjudication, using a wizard-like approach similar to how Turbo 

Tax works for preparing tax returns. 

We have a long history of working with OPM, which includes developing the original CSRS–FERS transfer model in 1985–1986 

and the Federal Employee Retirement Coverage Correction Act, referred to as FERCCA, decision model. We subsequently processed 

thousands of FERCCA cases on behalf of OPM using this tool. 

We commend OPM for its recent accomplishments of reducing 

the backlog of unprocessed claims. We agree with OPM’s decision 

to take an incremental approach toward modernizing the retirement system, and we agree with GAO’s assessment of the challenges that OPM faces in the pursuit of modernization. What we 

would like to add to this discussion is that the Federal retirement 

system is a large and very complex system that requires not only 

an incremental approach, but a unified design developed in partnership with subject matter experts who truly understand Federal 

retirement and Federal human resource systems. 

The complexities of the Federal retirement system affect all participants in the retirement process: employees, agency HR staff, 

OPM, and those in the vendor community who serve these groups. 

These complexities increase agency errors in the submission of retirement packages to OPM, causing delays at OPM. 

Another challenge is that the business processes upon which the 

current retirement system is built are obsolete, paper-based, and 

labor intensive. 

All of this notwithstanding, we believe that there are near-term 

incremental opportunities that OPM and the agencies could employ 

that would enable OPM to make a significant improvement in 

claims processing from a technology standpoint, as well as managing their workforce. 

Reviews and audits of the previous failed modernization efforts 

have focused primarily on the failures of project management and 

testing. Little or no review has focused on the actual IT design and 

engineering of the failed effort. The success of systems with enorVerDate Aug 31 2005 12:04 Jun 10, 2013 Jkt 000000 PO 00000 Frm 00049 Fmt 6633 Sfmt 6633 C:\DOCS\81283.TXT APRIL
46 

mous business rule complexity is ultimately dependent on the technical design, not just project management. 

Economic Systems has developed a proven Federal retirement 

calculator by combining subject matter expertise and adaptable engineering. Adaptable engineering allows the retirement system to 

accommodate change requirements such as the FERCCA rules and 

regulations. During the FERCCA project, OPM vetted the Economic Systems retirement calculator, and this collaboration produced a calculator that was suitable for processing FERCCA 

claims. This was accomplished with a software development budget 

that was a fraction of taxpayer money spent on past vendors who 

failed. 

A key reason for past failure at retirement modernization is lack 

of knowledge of subject matter complexity on the part of the previous IT contractors for OPM. For the most recent RSM effort, the 

vendors were not subject matter experts in Federal retirement. We 

believe that a prudent course would be to leverage the subject matter expertise and tools that Economics Systems has and expand our 

adaptive engineering approach. Economic Systems has developed a 

next-generation retirement calculator that is the centerpiece of a 

full-service component across all aspects of the Federal retirement 

process. This includes not only serving our existing agency customer requirements, but also claims adjudication and ongoing retiree benefits adjustments. 

Economic Systems products can replace OPM’s legacy retirement 

calculation systems. We would immediately start to replace the systems required for initial claims adjudication. The Economic Systems calculator is not tied to any specific user interface or database 

and can be integrated into a properly designed larger modernization road map. Because so many Federal agencies are using our retirement system, we can readily transfer data electronically to 

OPM. This alone would greatly enhance OPM’s efficiency. 

With our new calculator in place at OPM, we can incrementally 

replace other systems for retiree employee processing calculation. 

This can be accomplished at a much lower cost than the past failed 

projects and in a shorter period of time. 

Economic Systems provides management retirement software to 

agencies as well as retirement software. We have had a very positive working relationship with the USAJOBS program at OPM. We 

believe that the retirement program could draw valuable lessons 

from this program as well. OPM’s winning strategy for USAJOBS 

is to be in partnership with the agencies and the vendor community to develop solutions for the hiring process. In our view, the 

open communication model in USAJOBS should be followed in 

OPM’s retirement processing system as well. With integration between our retirement calculator and OPM’s retirement systems, 

OPM could eliminate a great amount of duplicate data entry. 

That concludes my testimony. 

Mr. FARENTHOLD. Thank you very much. 

[Prepared statement of Mr. Kettner follows:] 

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Econ 

STATEMENT OF 

GEORGE KETTNER, PhD 

PRESIDENT, ECONOMIC SYSTEMS INC. 

before the 

SUBCOMMITTEE ON FEDERAL WORKFORCE, U.S. POSTAL SERVICE, AND THE 

CENSUS 

of the 

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM 

UNITED STATES HOUSE OF REPRESENTATIVES 

on 

fils OPM Processing Federal Worker Pension Claims on Time?" 

May 9, 2013 

Contents 

Background on Economic Systems Inc. . ........... _ ......................... 2 

The Challenge of Retirement Claims Processing at aPM., .. ___ ...... 3 

Lessons Learned with the EconSys Retirement Calculator _ . _, . _______ .... 5 

How EconSys Can Help aPM Modernize_. _______ . __ ..... 7 

Electronic Submission of Retirement Data. _____________ ... _____ .. _ .... ____ .... __ .9 

Lessons from aPM Partnerships with Hiring Software Vendors _._ ... _10 

Retirement Planning ___ .. ___ ...... ___ . __ . _ .. _._. ___ 11 

George A. Kettner Biographical Information _ _11 

Chairman Farenthold, Ranking Member Stephen Lynch and Members of the Subcommittee: 

Thank you for allowing me the opportunity to appear before you today to contribute to the 

discussion regarding the progress of the Office of Personnel Management (OPM) toward 

reducing the backlog of Federal retirement claims, and the challenges OPM faces to modernize 
48 


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both their retirement processing systems and the business processes that underlie the current 

system. 

My company, Economic Systems Inc. (EconSys), has been in the Federal retirement calculation 

and claims processing business for more than twenty years and has a long-standing association, 

albeit not always well known, with OPM and many Federal agencies in connection with Federal 

retirement claims processing and related issues. 

Background on Economic Systems Inc. 

By way of background, EconSys is a small business based in Falls Church, Virginia. We are a 

research and human resources consulting and software provider and are probably best known 

for our Federal retirement calculation software which is used either agency-wide, or very 

extensively by several Federal Departments including: Agriculture, Homeland Security, Energy, 

Interior, Justice, Labor, Transportation, and Treasury, as well as numerous independent and 

small agencies and commissions. 

In addition to our retirement calculator, our software supports the full range of Federal human 

resources functions including tools for recruiting, classification, hiring, on-boarding, training, 

and performance management. These primary modules are supported by productivity tools 

such as case tracking, reports, and eOPF integration. 

Our retirement calculator addresses all of the Federal retirement plans - both the defined 

benefit and defined contribution and Social Security. We replicate the calculations that OPM 

uses in the adjudication of cases. Our past experience in working with OPM includes the 

following projects: 

• We developed the original CSRS-FERS transfer model in 1985-1986. OPM distributed the 

final version throughout Government for agency use in counseling employees. 

• In 1997 in response to the NDAA 1996 (PL 104-106), we developed a software package 

to model employee's decision to transfer retirement credits between appropriated fund 

(CSRS or FERS) and non-appropriated fund retirement plans. The project was vetted by 

OPM, which funded the work. 

• In 1998, we developed a model for the short-duration FERS Transfer open season that 

was used throughout much of Federal government. 

• We developed a simplified retirement calculation model for employee use that was 

posted on the OPM website for three years. 

• We developed a Federal Employee Retirement Coverage Correction Act (FERCCA) 

decision model that was vetted by OPM and approved for use in counseling Federal 
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retirees. We subsequently processed thousands of FERCCA cases on behalf of OPM, 

using this tool. 

As a contractor supporting Federal retirement processing, I am hoping today that I can provide 

the subcommittee and audience with some new perspectives. 

The Challenge of Retirement Claims Processing at aPM 

We commend OPM for its recent accomplishments toward reducing the inventory of 

unprocessed claims and the time needed to process claims, their efforts to partner with 

agencies to improve the quality of retirement submissions, and the steps they are attempting 

to take to move toward a paperless retirement process. 

The recent progress that OPM has made in claims processing is the result of applying brute 

force at their claims workload. In the short-term, they have no other choice. However, given 

the current budget situation, OPM is about to lose a significant portion of its claim processing 

capacity because it will not be able to have its claims processors work overtime. Thus, it cannot 

apply this short-term, brute force approach to the extent it had planned and needs to do. 

Without some other relief, we can expect the inventory of unprocessed claims to rise and age 

unacceptably and performance for processing times and level of service to retiring Federal 

employees to diminish. 

Federal retirement law has become increasingly more complex over time, driving more complex 

rules for processing claims for both the agencies and OPM. For instance, in addition to the 

general rules for basic CSRS and FERS cases, a wide variety of special computation rules apply to 

certain categories of Federal employees. Special rules apply only to certain cases such as 

employees with part time service and employees who transfer from one system to another. All 

of these rules are subject to change over time. The net effect of all of the special categories and 

specific rules means that the number of permutations of possible types of retirement cases is 

exponential in nature. For example, about six basic variables go into determining the full 

creditability of a period of Federal service, but there are at least 14,000 unique combinations of 

those variables. 

The complexity of the rules can present a huge challenge for all participants in the retirement 

process. For employees who do not have a "simple" service history, it is difficult to understand 

their benefits prior to and after retirement. For agency HR staff, it is a challenge to provide 

accurate counseling that fully explains the benefits to employees and provide accurate and 

complete data for retirement processing. For OPM, retirement claim adjudicators must be 

highly trained, and even then it is a time consuming process to adjudicate complex cases. 

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The massive complexity of the Federal retirement rules also presents unique challenges when 

trying to automate the process through IT and software. Past attempts at developing a software 

based calculator for use in claims processing have produced a variety of fragmented systems or 

partial solutions, Many attempts have failed and have been abandoned. Development of a 

complete unified retirement calculator is not something that can be designed and implemented 

by a typical software development shop. It requires a high level, multi-disciplined skill set that is 

a combination of technical and analytical ability and subject matter expertise, 

For the agencies, these complexities increases the occurrence of agency errors in the 

submission of retirement packages to OPM, cause processing delays at OPM, and also increase 

the opportunity for errors occurring at OPM, Federal retirement today has so many subtle and 

confusing aspects that there is a huge burden on Federal benefits specialists and claims 

processors to keep up with all of them, and to keep the tools current the tools that are used. In 

addition, there is a great burden on OPM to keep benefits staff across the agencies informed 

and educated about changes that occur in retirement law and processing procedures. For 

instance, the CSRS/FERS Handbook, which is a prime source of guidance to the agencies for 

retirement processing, has not been updated in 20 years. 

OPM has developed a web-based retirement calculator, the Federal Annuity Claims Expert 

System (FACES), which based on our analysis, performs the computation of most Federal 

retirement annuities but requires significant operator input to do 50. In addition, FACES is 

designed specifically to support claims processing at OPM; it does not support retirement 

counseling and processing at the agency. For instance, it does not address Social Security and 

TSP benefits and it does not project into the future factors such as average salary, inflation, and 

accumulation of leave. While FACES is useful to claims processors for computing most Federal 

annuities, it has little utility to agencies for retirement counseling purposes where an 

employee's social security benefits, TSP savings, and being able to project into the future are 

critical components of their retirement planning and counseling. Evidence of this lies in the fact 

that OPM offers FACES to agencies at no cost. However, nearly all agencies prefer to purchase a 

subscription to a Federal retirement calculator developed by a private sector vendor such as 

EconSys. 

We note that OPM's Strategic Plan for Retirement Services and recent budget documents 

describe efforts to "feed" retirement data electronically into FACES. However, much of this is 

focused on retrieving this data from agencies' HR and payroll systems. These efforts are very 

complex, time-consuming, and attempts that might never come to fruition. For the foreseeable 

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future, aPM will continue to load data into FACES as it has for all of its retirement calculators 

over the years manual input. 

Although we have heard some discussion coming out of aPM to re-engineer some of the 

business processes underlying retirement processing (such as using electronic signatures and 

electronic submission of retirement applications), for the most part, aPM and the agencies 

continue to accomplish this work using the same labor intensive paper processes that have 

been in place for many decades. 

The Achilles Heel in Federal retirement is getting employees' service history accurately 

documented before they retire. This is a big challenge because: 

• Data exists electronically in agency HR and payroll systems but is converted to hard copy 

format, submitted to aPM, then re-keyed into electronic format for aPM's systems 

- The specific nature of an individual's Federal service often drives the 

computation of his/her annuity 

Capturing data needed for retirement processing in an electronic format using 

technology is an expensive and long-term initiative for aPM 

Accuracy of agency retirement submissions is problematical 

Agency HR Benefits Specialists are of varying levels of competence 

-, Consolidation of HR processing does not always deliver expected efficiencies and 

frequently results in a decline in service levels to Federal employees 

• aPM does not have the outreach resources it needs to fully address agency issues 

- aur review of aPM's 2014 Congressional Budget Justification shows that only 3% 

of its total Trust Fund budget will go to improving its services to agency benefits 

officers and other outreach initiatives 

aPM's focuses the much larger 97% on actual claims processing. 

We believe that there are near-term and low budget opportunities that aPM and the agencies 

could employ that could improve the situation I have just described. 

Lessons Learned with the EconSys Retirement 

Calculator 

EconSys began developing software to perform Federal retirement calculations in 1985 when 

we developed a FERS Transfer model to help employees with the decision to transfer to FERS or 

stay in CSRS. Based on that experience, we developed a calculator for use by agency HR 

specialists in the early 19905. 

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In 1995 we began developing what I'll call our unified retirement calculator. One of the first 

fundamental design decisions we made was that the logic would be based on the service 

history of an employee. The calculator itself would be responsible for interpreting the service 

history and determining what specific combination of rules should be applied for the particular 

case entered. The HR specialist would not have to know every specific and obscure eligibility 

rule before they could create an estimate. They could simply enter the data and all of the rules 

would be embedded in the calculator. A successful calculator must be a "smart" system that 

can take historical data "as is" and automatically determine the correct and unique rules to 

apply for special categories of service including type of employee and part time service. 

While developing and improving our calculator for HR specialists, we also received requests for 

many other application configurations. One of the early design realizations was that each 

application configuration would require different front end user interfaces or different 

database back ends. Thus, it became critical that the retirement calculator itself was modular, 

independent and portable enough such that the same code could be reused in every 

configuration. Because of this design approach, over the next 18 years, we were able to 

integrate our retirement calculator into a wide variety of systems including a stand-alone 

windows version, a floppy disk based version, a client server version, an Interactive Voice 

Response system, an embedded web-based version, a FERCCA version, and an enterprise 

web/cloud based version. Any change to the calculator itself could immediately be pushed to 

each of the active versions with little effort. Another of our beliefs is that a successful 

retirement calculator must be able to be integrated into a variety of systems and platforms. 

The first versions of the unified retirement calculator were used mainly for retirement 

estimation and projection. Over time the calculator evolved to support certain specific 

retirement processing functions. In 2003, we modified the calculator to support handling of 

FERCCA cases. This required a greater level of precision in the calculator and more detail in the 

data inputs required. The calculator began a transition such that it could better support the 

more detailed requirements for retirement processing while maintaining the ability to support 

retirement counseling and financial literacy through projection and estimation. This is 

especially true for employees who must make a decision prior to retirement such as the option 

to transfer to FERS or if they are required to make a FERCCA election. 

As previously noted, an important design decision was to make the retirement calculator smart 

enough such that it could be used in cases where the operator lacks great knowledge of the 

Federal retirement rules. In software terms, this means that the calculator is what is called a 

"black box" where you simply put the inputs in and get out the answer, The user does not need 

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to know exactly how that answer was arrived at. In most cases this is generally a good thing. 

However, it turns out that for purposes of support, training and auditing, the purely black box 

approach may not be the best approach. In cases when a question about a particular result is 

asked, it is not always obvious what rules the calculator applied to achieve the result. The 

support staff must manually interpret the case and compare with the results from the 

calculator. 

The latest generation EconSys calculator provides a more open view for the specific rules that 

are being applied. While our FERCCA calculator was certified as accurate by OPM, it operated as 

a "black box." Our latest version is more transparent, containing not only the quantitative 

values, but also every unique business rule that is applied. These business rules are linked to 

documents that provide a detailed explanation of the rules and can also link to background 

references such as the OPM CSRS/FER5 Handbook, Benefits Administration letters, and the 

Electronic Code of Federal Regulations. This enables someone who is generally trained in the 

retirement regulations to quickly and easily audit the software and results. The latest calculator 

provides output of both the quantitative results along with documentation of how it arrived at 

the results. 

EconSys developed these tools and systems over a period of time through self-financed R&D 

funding with EconSys bearing the entire risk of the investment. Through this process we have 

acquired unique knowledge and expertise of Federal requirements, and have developed tools 

that can help OPM quickly improve its retirement processing efficiency and continue to make 

reductions in its retirement backlog without increasing staff levels or overtime. 

How EconSys Can Help aPM Modernize 

OPM needs a "smart" and highly adaptable retirement calculatar, 

EconSys agrees with OPM that an incremental approach to modernizing and replacing legacy IT 

systems can be more successful than previous failed all-encompassing approaches. The 

incremental efforts must be part of a well thought out design that will in the end provide a full 

and complete solution. Reviews and audits of the previous failed modernization efforts have 

focused primarily on the failures of project management and testing. There has been little 

review focused on the actual IT deSign and engineering of the failed effort. The success of 

systems with enormous business rule complexity is ultimately dependent on the technical 

design, not just project management. 

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In the most recent OPM Retirement Systems Modernization effort, one of the big failures of the 

software was the inability to accurately perform the Federal retirement calculations required. 

This problem cannot be solved efficiently by throwing money and programmers at it. EconSys 

has developed a proven Federal retirement calculator by focusing on adaptable engineering. 

Adaptable engineering allows EconSys to accommodate change requirements, as demonstrated 

by our ability to quickly develop capability to effectively process FERCCA cases when other 

much larger contractors could not. During the FERCCA project, OPM vetted the EconSys 

calculator, and this collaboration (which is rare for OPM) produced a calculator that was 

suitable for processing FERCCA cases. This was accomplished with a software development 

budget that was a tiny fraction of taxpayer money spent by past venders who failed. For the 

most recent RSM effort, EconSys offered to provide their calculator to multiple large-business 

vendors, including the winning contractor, Hewitt, for a fraction of the cost of what it would 

take to develop from the ground up. These vendors, however, were not subject matter experts 

in Federal retirement. They vastly underestimated the complexity of the task, and the length of 

time to acquire the knowledge, thinking they could throw programmers at it. Consequently, 

their efforts failed, and the EconSys calculator is still being used in numerous agencies 

throughout the government. 

EconSys' experience in developing support for FERCCA, along with watching the multiple largebusiness failed efforts to modernize the adjudication process convinced us that traditional 

approaches are not viable. They are not viable because understanding of the subject matter 

complexity does not reside in large software developers and integrators, and the time and cost 

to acquire the knowledge will cost more than the failed efforts. We believe the most prudent 

course would be to leverage the expertise that EconSys has and expand our adaptive 

engineering approach. 

EconSys has developed a next generation retirement calculator that is the centerpiece of a full 

service component across all aspects of the Federal retirement process. This includes not only 

serving our existing agency customer's requirements, but also claims adjudication, ongoing 

retiree benefits adjustments, and employee self-service. 

EconSys' products can replace OPM's legacy retirement calculation systems. We could 

immediately replace the systems required for initial claims adjudication. The EconSys calculator 

is not tied to any specific user interface or database and can be integrated into a properly 

designed larger modernization road map. It would also be able to adapt to and integrate with 

legacy systems in the shorter term. Because so many Federal agencies are using EconSys' 

Federal Human Resource (FHR) Navigator product, we can easily begin transferring data 

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electronically to OPM such that it can be fed directly into the calculator without the need to rekey the data, That alone would greatly improve the current system, 

With our new calculator in place, at OPM we can incrementally replace other systems for 

retiree and employee processing calculations, This can be accomplished at a much lower cost 

than the past failed projects, and in a shorter period of time, 

Since there is very little existing integration between the fragmented legacy systems currently 

being used at OPM, it would not be difficult to replace these systems with a single unified 

calculator. The EconSys calculator is not tied to any specific user interface or database and can 

thus be integrated into any properly designed larger modernization road map, It would also be 

able to adapt to and integrate with legacy systems in the shorter term, Lastly, because so many 

Federal agencies are using EconSys' FHR Navigator product, we can easily begin transferring 

data electronically to OPM such that it can be fed directly into the calculator without the need 

to rekey the data, 

Electronic Submission of Retirement Data 

In addition to applying the EconSys retirement calculator to the OPM modernization effort, 

other approaches could be readily adopted to improve overall operations of retirement 

processing and significantly enhance retirement services for employees and annuitants, One of 

these approaches is electronic submission of retirement data and application packages, 

aPM should work toward electronic submission of retirement data and packages, 

As discussed previously, one of the biggest challenges is extracting accurate and complete 

service history data from extant agency HR and payroll systems, Agency retirement specialists 

prepare service history data for newly transferred employees from one agency to another, for 

employees about to retire, and at other times for counseling and keeping records up to date, 

This service history data could be transmitted to OPM electronically and used for calculation of 

annuities, This would obviate the need for OPM staff to "re-key" service history data that has 

already been developed and certified by the agency, 

In addition, OPM should accept retirement application packages electronically that were 

prepared by agencies instead of by snail mail, EconSys provides productivity tools to agencies 

that facilitate the processing of retirement application packages including case tracking and a 

wizard-like system for filling out the retirement application similar to how Turbo Tax works for 

taxpayers preparing their tax returns, Our review of OPM audits of agency retirement 

submissions indicates that our retirement application wizard prevents many of the common 

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errors found on retirement submissions. OPM and the agencies can work with EconSys to build 

additional edits to fully address errors and omissions and greatly improve the accuracy and 

reliability of retirement data going to OPM. 

In addition to case tracking and its eRetirement wizard tools, EconSys' cloud-based FHR 

Navigator system has a data import service whereby service-related and salary history data 

needed for computing retirement benefits are electronically imported bi-weekly from the 

agency's payroll service provider such as the National Finance Center. This productivity tool 

greatly increases the efficiency and accuracy of managing data as well as the other tools we 

have in place at agencies. 

Lessons from aPM Partnerships with Hiring Software 

Vendors 

EconSys has had a very positive experience working with the USAJOBS Program Office at OPM. 

USAJOBS is an online job posting and search system that vendors of Talent Acquisition Systems 

(TAS) must integrate with. Each individual TAS must integrate with USAJOBS according to the 

Software Integration Framework for USAJOBS. The USAJOBS system is a very complex project to 

manage. USAJOBS and the TASs are subject to many changing laws, regulations, and policies 

from different parts of OPM as well as different agencies. In the face of this, OPM has found a 

winning strategy: to work closely with agencies and TAS vendors. The USAJOBS Program Office 

has developed a partnership with the vendor community to develop solutions for the hiring 

process. The USAJOBS Program Office hosts an annual vendor's conference where TAS vendors 

can ask questions about changes in USAJOBS and give feedback. When the Program Office 

considers making a change in USAJOBS, the Program Office staff contact all the vendors to 

determine what impact it might have. In addition, the Program Office hosts regular conference 

calls with vendors. In our view, the open communication model in USAJOBS should be followed 

in reforming OPM's retirement processing system. With integration between the EconSys 

Retirement Calculator and OPM's retirement systems, OPM, for example, could eliminate 

duplicate data entry. The EconSys Retirement Calculator contains service history, salary history, 

and other inputs required for computing annuity calculations, in an electronic format. EconSys 

recommends collaboration between EconSys and OPM to develop a specification for providing 

data required by aPM for claims adjudication. 

Even if OPM is not ready to accept electronic data into an integrated system, OPM could still 

begin to accept electronic data in other forms such as electronic retirement applications in PDF 

format. The data in the EconSys Calculator automatically flows to retirement application forms, 

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which can be saved as PDF documents. Today, agencies are required to print and mail those 

documents, even though they exist in an electronic format. If OPM accepted the application 

data electronically, it would cut costs significantly for the Federal government. 

Retirement Planning 

aPM has an opportunity to harness the energy that already exists in the agencies to capture 

complete service history before Federal employees are about to retire as part of the effort to 

enhance financial planning for employees. 

There is a significant amount of interest among vendors, like EconSys, and financial planners to 

work with Federal agencies in support of the Federal Financial Literacy and other initiatives that 

motivate Federal employees to begin retirement planning and ask for retirement estimates 

early in their careers. We believe OPM should consider developing ways of leveraging this 

interest so that these vendors and financial planners can provide agencies with low cost 

approaches that promote the capture of employees' service history early in their careers, 

leverage tools agencies are already using to provide estimates and counseling, and support 

employees getting retirement estimates and reviewing their service history. Despite the angst 

that exists regarding so called financial advisors working with Federal employees, credentials 

can be developed and ordained by OPM which could identify those with expertise in Federal 

benefits and whose mission is to educate employees about their benefits and assist them in 

obtaining a reliable estimate of those benefits. 

Good retirement planning should begin early in a worker's career. For Federal employees 

retirement planning requires highly reliable estimates of the annuity, Social Security, and TSP 

benefits. The reliability of annuity estimates most often is contingent upon having an 

employee's service history fully documented so that the correct calculations pertinent to it can 

be made in the computation of the overall annuity. 

George A. Kettner Biographical Information 

Dr. George Kettner founded Economic Systems Inc. in 1990 to help businesses and government 

agencies approach problems and decision-making more quantitatively. Today the company has 

two major divisions: Management Consulting devoted to research, analYSiS, and evaluation and 

Human Resources (HR) Software Development and Services. Our Management Consulting team 

conducts surveys, performs CongreSSionally-mandated program evaluations, conducts costbenefit analysis, and determines key drivers of business outcomes. Our web-based HR software 

is deployed in well over 120 federal agencies and covers a full range of HR processes. 

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Dr. Kettner provides overall direction for the company's Federal Human Resource (FHR) 

Navigator. FHR Navigator provides e-business solutions to support position management and 

classification, workforce planning, hiring management, on-boarding, benefits and retirement 

calculations and processing, and forms processing. Dr. Kettner directs overall corporate efforts 

to develop HR systems to automate human resources functions and combine the latest 

computer technology with subject matter expertise in Federal HR management. In the 

retirement area Dr. Kettner directs the company's overall effort to develop and provide the 

Federal Retirement Benefit calculator and retirement delivery support services for HR 

specialists and employees in federal agencies. 

Examples of projects that Dr. Kettner has worked on throughout his career include: 

• Examined the business case for the employment of people with disabilities from the 

perspective of businesses. Identified strategies to increase participation of people with 

disabilities (PWD) in the Federal work force. Provided guidance to employers on effectively 

promoting the inclusion of people with disabilities. 

• Served as Project Director on several evaluation projects for the Department of Veterans 

Affairs (VA), including Disability Compensation Program evaluation, Home loan Guaranty 

Program evaluation, Survivor Benefit study, Pension Benefit study, and VA capital 

investment methodology. Dr. Kettner provided testimony to Senate Committee on Veterans 

Affairs. 

• Directed project to process approximately 3,000 FERCCA retirement cases for the Office of 

Personnel Management. 

• Served as project director in developing the Federal Employees Retirement System (FERS) 

transfer deciSion model that was adopted by the Office of Personnel Management for the 

entire federal government. 

• Directed on-site human resource management support, particularly in the retirement area, to 

federal agencies such as the General Accounting Office, FDIC, National Archives, Comptroller of 

the Currency, and Department of Education. 

• Conducted a study to review and assess productivity models used by Federal Agencies, in the 

areas of workforce planning and payroll cost control. 

• Provided litigation support to the Equal Employment Opportunity Commission in age, race, 

and sex discrimination cases as labor economist or database management consultant in 

several cases. 

• Developed dynamiC workforce simulation models of personnel attrition, retirement, 

transfers, accessions, and promotions, based on econometric analysis of federal agency 

personnel events. 

12 
59 


Insert offset folio 47 here 81283.047

Developed statistical models for staffing standards for both private sector and public sector 

organizations. 

Dr. Kettner earned his doctorate degree in economics at UCLA, where he also obtained his 

baccalaureate degree in economics. He has over 35 years of experience in management 

consulting and human resource related work and has led his own consulting firm over the past 

23 years. 

13 
60 


Insert offset folio 48 here 81283.048

4:24 PM Economic Systems Inc. 

05/06/13 

Accrual Basis Income by Customer Summary 

October 1, 2010 thr0'ffi:~ ~~¥06! tfN6, 13 

CON - BSD (Education) 

CON - DWB & Associates 

CON - GDC Integration, Inc. 

CON - Hay Group 

CON - LeadFirst Learning Systems, LLC 

CON - National Academy of Public Admin. 

CON -ODEP 

CON - Rutgers, The State University 

CON - TSA-Fed Marshall 

CON US Marshals Services 

CON - VA(VR&E) 

CON - WPCioffi Engineering Mgmt., Inc. 

DC - DC Court of Appeals 

DC - DC Superior Court 

DC - Water and Sewer Authority 

DHS-OIG - Inspector General 

DHS CIS 

DHS - Coast Guard 

DHS - Customs & Border Protection 

DHS - Federal Law Enforcement Trng Ctr 

DHS-FEMA 

DHS - Hqs (CHCO) 

DHS - ICE (software) 

DHS -NPPD 

DHS - TSA-HR Access-LMCO 

DHS - TSA Hqs 

DoD - Army ABC 

DoD - Civ Pers Mgmt Svc (CPMS) 

DoD - DLA Columbus (FERCCA) 

DoD - NGB Arizona (Services) 

DoD - NGB Arizona (Software) 

DoD - NGB Delaware (FRB) 

DoD - NGB Georgia - (FRB) FRB Tng 

DoD - NGB Iowa (FRB) 

DoD - NGB Kentucky (Seminar) 

DoD - NGB New Hampshire (FRB) 

DoD - NGB Ohio (FRB) 

DoD - NGB Wash DC (FRB) 

DoD - NGB Washington State (Software) 

DoD - NGB West Virginia (FRB) 

DoD - Rhode Island National Guard 

DoD (USAF) - AFPC-Randolph 

DoD (USN) - CIPO 

DoEn -EMCBC 

DoEn - Golden Field Office 

194.274.54 

57,470.00 

847,083.42 

83,227.00 

36,49608 

192,217.80 

3,952,230.47 

76,421.04 

114,196.34 

75,363.57 

75,135.55 

40,344.00 

2,31750 

22,462.95 

126,816.52 

8.02400 

119,305.91 

83.87970 

553,900.00 

9,442.76 

153.845.03 

41.977.80 

342,827.89 

33,483.46 

550,200.00 

9,574.88 

23,892.00 

3,833.00 

20,497.25 

47,411.00 

5,580.00 

1.800.00 

5,99800 

5,580.00 

7.502.92 

19,080.00 

3,088.00 

3,712.50 

5,580.00 

3.78000 

3,825.00 

7,357.50 

0.00 

1,800.00 

3,780.00 

Page 1 of4 
61 


Insert offset folio 49 here 81283.049

4:24 PM Economic Systems Inc. 

05/06/13 

Accrual Basis Income by Customer Summary 

October 1, 2010 thro~c~ ~'l~06! fi~l6, 13 

DoEn - Headquarters 

DoEn - National Nuclear Security Admin 

DoEn - Southwestern Power Admin 

DoEn - Washington Navy Yard 

001 - Bureau of Indian Affairs 

001 - Bureau of Reclamation MT 

001 -Office of Inspector General 

Dol (BLM) - Idaho 

Dol (BLM) - Nevada 

001 (BLM) - New Mexico 

001 (BLM) - Oregon-Pat Hicks 

Dol (BLM) Nat'l Ops Ctr Denver, CO 

001 (FWS) - Headquarters-Arlington 

001 (FWS) Lakewood, CO 

001 (FWS) -Region 4-Atlanta 

001 (NPS) - Anchorage, AK 

001 (NPS) - Gulf Islands Nat'l Seashore 

001 (NPS) - Mammoth Cave National Park 

001 (NPS) - Yosemite National Park 

DOJ Alcohol, Tobacco & Firearms 

DoJ BoP Federal Correction Complex 

DoJ - BoP Ret Center, Grand Prairie, TX 

DOJ - Criminal Div, Wash, DC 

DoJ - Drug Enforcement Admin (DEA) 

DOJ - Office of Justice Programs (OJP) 

DoJ - OIG (FRB WEb) 

DoJ - U S Marshals Service (USMS) 

DoL - Hqs Wash DC 

DoL - Atlanta, GA 

DoL - BLS -Bureau of Labor Statistics 

DoL - Boston/New York 

DoL - Chicago/Kansas City 

DoL - Dallas/Denver 

DoL - Philadephia, PA 

DoL - San Francisco, CA 

DOT - FAA-Hqs-Benefits 

DOT - Federal Highway Administration 

DOT - Federal Railroad Adm 

DOT - Federal Transit Administration 

DoT -FMCSA 

DOT - Maritime Administration 

DOT - Office of the Inspector General 

DOT - Office of the Secretary 

DOT - Pipeline&Hazardous Materials Safety 

DOT - RITA Volpe Center 

27,306.00 

14,375.00 

6,797.50 

2,000.00 

119,599.60 

13,061.25 

5,580.00 

4,262.11 

2,600.00 

1,620.00 

38,095.45 

4,318.63 

6,958.50 

7,707.00 

10,268.00 

0.00 

1,800.00 

1,600.00 

2,190.00 

23,326.03 

500.00 

99,792.81 

5,670.00 

58,742.04 

1,150.00 

5,580.00 

12,600.00 

7,468.00 

8,076.94 

6,000.00 

2,694.00 

8,472.57 

3,382.00 

8,804.00 

5,510.00 

300,150.41 

18,101.74 

5.580.00 

3,401.60 

4,483.33 

4,378.50 

5.850.00 

8,080.00 

2,722.50 

3,240.00 

Page 20f4 
62 


Insert offset folio 50 here 81283.050

4:24 PM Economic Systems Inc. 

05/06/13 

Accrual Basis Income by Customer Summary 

October 1, 2010 thr0'8b~ ~~¥06: ffaVs, 13 

HHS· Bethesda Operations Center 

HHS - DFO Congressional 

HHS - Indian Health Service 

HHS - NIH Benefits Office- 0303 

HUD - Retirement Software 

IAlGC- Alaska Railroad Corporation 

IAIGC -CFTC 

IA/GC - Corp for Nat'l & Comm Svc 

IA/GC - Delta Regional Authority 

IA/GC • Environmental Protection Agency 

IA/GC - Farm Credit Administration ( FRB) 

IA/GC • FDIC· FRB Software & Services 

IAlGC - Federal Communications Commission 

IA/GC - Federal Election Commission 

IAlGC • Federal Maritime Commission 

IA/GC - Federal Trade Commission 

IA/GC - FHFA (formerly OFHEO) 

IA/GC - GAO -FRB Software 

IAlGC - Govt. Account. Office GAO (53022) 

IA/GC - Holocaust Memorial Museum 

IA/GC - International Trade Commission 

IA/GC - Metropolitan Washington Airports 

IA/GC - Millennium Challenge Corporation 

IA/GC • Nat'l Archives and Records Adm 

IA/GC - Nat'l Labor Relations Board 

IA/GC • National Mediation Board 

IA/GC -NTSB 

IA/GC - Occ'tional Safety&Health Rev Comm 

IA/GC - Office of Government Ethics 

IA/GC - PBGC (FRB) 

IA/GC - Peace Corps 

IA/Ge - SBA Hqs 

IA/Ge - SBA Office of Disaster Assistanc 

IA/Ge - SSA - Atlanta 

IA/GC - The Presidio Trust 

IAIGC - US AID 

IAlGC - US Forest Service - FERCCA 

IAIGC - US Postal Service - FERCCA 

Nancy Brooks Lane 

North Pacific Fishery Management Council 

Office of the Special Counsel 

P-James Colby 

P - Moira Roberts 

Quasi - Smithsonian Institution 

Quasi - Tuskegee University 

37,237.50 

79,051.26 

1,800.00 

41,581.58 

35,029.06 

5,220.00 

6,412.50 

3,825.00 

19,094.25 

293,617.27 

12,481.25 

148,287.52 

7,036.04 

29,912.51 

5,260.63 

245,782.67 

22,972.20 

30,496.00 

294,812.64 

6,615.00 

3,780.00 

9,675.00 

5,777.50 

9,911.69 

16,664.89 

0.00 

12,635.00 

4,772.50 

1,800.00 

5,821.00 

5,892.00 

5,328.00 

4,650.00 

17,750.00 

3,780.00 

34,865.50 

52,227.95 

360,537.82 

-110.05 

460.00 

3,991.44 

700.00 

700.00 

15,552.60 

5,000.00 

Page 3 of4 
63 


Insert offset folio 51 here 81283.051

4:24 PM 

05106113 

Accrual Basis 

Economic Systems Inc. 

Income by Customer Summary 

October 1, 201 0 thro't¥c~ ~'1¥ 06: ~aV 6, 13 

R - Congress - Library of Congress 

R - Congress Senate-U.S. Capitol Police 

R - Congressional Budget Office 

R - House Committee on Natural Resources 

R - LMCO Air Force-FERCCA 

Robert Seldon & AssOCiates, P.C. 

Treasury - Bureau of Engraving & Printing 

Treasury - OCC 

Treasury - OCC (FRB Software) 

Treasury - Office of Thrift Supervision 

VA Cemetery Indianapolis 

VA HQS Wash DC (OHR) 

VAMC - Cheyenne, WY 

VAMC - Dallas, TX 

VAMC -Indianapolis, IN 

VAMC - Sheridan WY 

VAMC - Temple, TX 

Vendor-Atlantic Management Center 

Vendor-LTC Partners 

Vendor - Personnel Managment Services Inc 

Vendor - Redhawk Financial Systems, Inc. 

Vendor - Ronald Anderson 

TOTAL 

30.662.42 

13,71120 

7,186.67 

460.00 

46,326.36 

1,510.00 

12,465.75 

38,525.00 

46,126.61 

103,485,45 

2,484.00 

12,375.00 

5,580.00 

29,925.00 

3,616.00 

9,464.00 

28,875.00 

13,504.62 

1,400.00 

300.00 

1,200.00 

3,600.00 

11,181,981.69 

Page 4 of4 
64 

Mr. FARENTHOLD. Mr. Beaudoin. 

STATEMENT OF JOSEPH A. BEAUDOIN 

Mr. BEAUDOIN. Good morning, and thank you for inviting me to 

testify on behalf of the 5 million Federal workers and retirees represented by NARFE, where I have the privilege of serving as president. I appreciate this opportunity to discuss Federal retirement 

annuity processing. 

Last Congress, both this subcommittee and its Senate counterpart recognized there were issues with the processing of Federal retirement annuity claims and held hearings drawing attention to 

the problem. As the association representing those directly affected 

by these problems, I would like to extend our thanks to the subcommittee for addressing this issue. We further appreciate this follow-up to ensure progress is being made. 

Last February, I testified before the Senate that NARFE was receiving hundreds of calls from our members complaining that their 

interim annuity payments were too low, they were waiting too long 

to receive their full annuity payments, and they were unable to 

communicate with OPM to check the status of their claims. Some 

had understandably complicated claims that took longer than the 

average. They worked for several Federal agencies, they had a 

break in service, they had both military and civilian service. However, even in instances of fully complete claims, with little to no errors, wait times were far too long. There was a major problem, to 

say the least. 

To their credit, OPM acknowledged what our members were experiencing, recognizing that, ‘‘Federal employees face unacceptable 

delays in receiving retirement benefits after years of honorable 

service to the Nation.’’ 

In January 2012, there was a backlog of over 61,000 claims and 

the average time to process a claim was over 5 months. Many 

claims, however, took far longer to process. It was in this context 

that OPM developed a strategic plan to improve the processing of 

retirement benefit claims, which they released in January 2012, 

promising to do better. 

Let’s give credit where credit is due. OPM laid out a strategic 

plan that predicted improvements in claims processing through additional staff, longer call center hours, and better communication 

with agencies. OPM implemented the plan as intended, and it has 

worked. The inventory of claims has dropped to roughly 30,000. 

OPM has outpaced its projections for claims processing every 

month, with the exception of December 2012. 

Yet, as a result of much higher than expected retirements in 

February and March, the claims inventory is higher than the projected. In fact, in 3 of this year’s first 4 months the number of Federal employees filing retirement claims outpaced OPM’s projections. Given the ongoing retirement wave, this trend is likely to 

continue. With overtime reductions planned as a result of budget 

cuts, it now seems doubtful that OPM will be able to reach the 

goals of its strategic plan, despite the substantial progress that has 

been made. This is a huge setback in an otherwise successful story. 

As flight delays made frustratingly clear to many Members of 

Congress, you need a strong, capable, and fully staffed Federal 

65 

workforce for the government to operate and serve its customers. 

Unfortunately, while Congress passed a Band-Aid fix to end the 

continuation of air traffic controller furloughs, it did not fix the remainder of the less publicly visible problem being caused by sequestration. 

OPM recently announced that it was forced to reduce its call centers hours and halt overtime for employees processing annuity 

claims. This is very disappointing news. Previously, one of our most 

significant complaints with OPM was that retirees were unable to 

reach someone on the phone. Reducing call center hours threatens 

to bring a return to this problem. 

Furthermore, the use of overtime may have been one of OPM’s 

most effective tools in reducing the backlog. 

By taking that away, we find it hard to see how OPM will be 

able to handle the large wave of retirements expected to occur in 

the very near future. Postal Service buyouts, combined with a general sentiment among retirement-eligible workers to retire before 

Congress asks for more financial sacrifices from them, there are 

likely to be more retirement claims before there are less. 

There is still an inventory of more than 30,000 claims and waits 

continue to be too long. The expected wave of Federal retirements 

threatens to reverse the progress that has been made. The force reduction in overtime and call center hours could not come at a worse 

time. We implore the Congress to take notice of the very real effects that austerity budgeting is having on government services, including the ones on which our career civil servants rely. 

As we sit here during Public Service Recognition Week, today is 

a perfect time to ensure that we treat our retiring public servants 

with the recognition they deserve for their careers of service. 

Thank you again for providing me the opportunity to share 

NARFE’s views. 

Mr. FARENTHOLD. Thank you very much, Mr. Beaudoin. 

[prepared statement of Mr. Beaudoin follows:] 

66 


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WRITTEN TESTIMONY BY 

JOSEPH A. BEAUDOIN 

PRESIDENT 

NATIONAL ACTIVE AND RETIRED FEDERAL 

EMPLOYEES ASSOCIATION 

BEFORE 

THE SUBCOMMITTEE ON THE FEDERAL 

WORKFORCE, THE POSTAL SERVICE & THE 

CENSUS, COMMITTEE ON OVERSIGHT AND 

GOVERNMENT REFORM, UNITED STATES HOUSE OF 

REPRESENTATIVES 

HEARING TITLED, 

"IS OPM PROCESSING FEDERAL WORKER PENSION 

CLAIMS ON TIME?" 

MAY 9, 2013 
67 


Insert offset folio 53 here 81283.053

Chairman Farenthold, Ranking Member Lynch, and Members of the House Oversight and 

Government Reform Subcommittee on the Federal Workforce, the Postal Service and the 

Census, on behalf of the nearly five million federal workers and annuitants represented by the 

National Active and Retired Federal Employees Association (NARFE), I appreciate the 

opportunity to express our views regarding the processing offederal retirement annuity claims. 

At the end of2011 and the beginning of2012, both this subcommittee and its Senate counterpart 

recognized there were problems with the processing of federal retirement annuity claims by 

agencies and the Office of Personnel Management (OPM), and held hearings drawing attention 

to the issue. As the association representing those directly affected by these problems, I would 

like to extend our thanks to the subcommittee for addressing the issue. We at NARFE further 

appreciate this follow up to ensure progress is being made. 

Last February, before the Senate Subcommittee on Oversight of Government Management, the 

Federal Workforce and the District of Columbia, I testified that NARFE was receiving hundreds 

of calls from our members complaining that their interim annuity payments were too low, they 

were waiting too long to receive their full annuity payments, and they were unable to 

communicate with OPM to check the status of their claims. Some had understandably 

complicated claims that took longer than the average - they worked for several federal agencies, 

they had a break in service or they had both military and civilian service. However, even in 

instances of fully complete claims with little [0 no errors, wait times were far too long. There 

was a major problem, to say the least. 

It was not uncommon for NARFE staff to hear tales of interim payments being as low as 40 

percent orthe full annuity and claims taking over a year to be processed. Contrary to some 

commonly-held beliefs by members of Congress, federal employees do not make exorbitant 

amounts of money and therefore it would not be oflittlc consequence if annuity payments were 

delayed. These delays have real, substantial impacts on federal retirees, many of whom rely on 

their already modest government pension as their sole source of income. NARFE members 

reported extreme worry over being able to pay their bills, including their mortgages. 

To their credit, OPM acknowledged what our members were experiencing, recognizing, 

"[ f1ederal employees face unacceptable delays in receiving retirement benefits after years of 

honorable service to the nation.'" In January 2012, there was a backlog of61,108 claims and the 

average time to process a claim was over five months. Many claims, however, took far longer to 

process. 

It was in this context, coupled with pressure from Congress and employee groups, that OPM 

developed a strategic plan to improve the processing of retirement benefit claims, which they 

released in January 2012, promising to do better. 

Success of OPM's Strategic Plan 

Let's give credit where credit is due. OPM laid out a strategic plan that predicted improvements 

in claims processing through additional staff, longer call center hours and better communication 

1 StrategiC Plan/or Retirement Senices, Office of Personnel Management, January 17.2012. 
68 


Insert offset folio 54 here 81283.054

with agency human resource offices. OPM implemented the plan as intended, and it worked to 

reduce the inventory of claims according to plan. 

OPM hired more stan' and utilized overtime effectively to handle retirement processing, 

including rehiring some recent retirees with the experience to process claims quickly. The 

agency also implemented process improvements to increase the efficiency of the staff already in 

house. 

Additionally, the modest steps taken to improve how each agency handles the initial phase of the 

retirement claims process has seemed to yield positive results. By disseminating a checklist for 

agency human resource personnel to use and publiciy publishing agencies' accuracy rates, it 

appears that the files being sent over by agencies have less errors and are more complete. 

Notably, the issue has drawn greater attention from the Chief Human Capital Officers (CHCO) 

Council, placing retirement processing results at a higher priority within agencies. We are 

encouraged by the results, but continue to see room for improvement within agencies with regard 

to errors in the initial retirement annuity claim. 

In no small part due to these efforts, we have noticed a considerable decline in complaints from 

our members. Particularly, the decline suggests OPM is doing a much better job of answering 

customer calls regarding the status of their claims, and utilizing an online system to provide 

individual status updates regarding claims processing. 

The inventory of claims has dropped from 61,108 in January 2012 to 30,080 in April 2013. 

OPM has outpaced their projections for claims processing every month, with the exception of 

December 2012. Yet, as a result of much higher than expected retirements in February and 

March, the 30,080 claims inventory is about 7,000 higher than the inventory projected pursuant 

to the strategic plan. In the three of this year's first four months, the number of federal 

employees filing retirement claims outpaced OPM's projections. Given the ongoing retirement 

wave, this trend is likely to continue. With overtime reductions planned as a result of budget 

cuts, it now seems doubtful that OPM will be able to reach the goals of their strategic plan, 

despite the substantial progress that has been made. This is a huge setback in an otherwise 

successful story. 

Sequestration 

While some members of Congress have suggested that budget cuts made pursuant to 

sequestration will not significantly impact government operations, it is clear that is not the case. 

As flight delays made frustratingly clear to many members of Congress, you need a strong, 

capable and fully staffed federal workforce for the government to operate and serve its 

customers. Unfortunately, while Congress passed a Band-Aid fix to prevent the continuation of 

air traffic controller furloughs, it did not fix the remainder of the less-publicly-visible problems 

being caused by sequestration, and it's starting to show. 

The following blog post appeared on OPM's website on last week: 

2 
69 


Insert offset folio 55 here 81283.055

Due 10 budget cuts caused by sequestration, OPM has been required to initiate 

changes to some of the business operations in Retirement Services, Beginning on 

Sunday, April 28, 2013, all overtime for employees working in Retirement 

Services at OPM is suspended and call center hours are reduced to 7:40 a,m. -

5:00 p.m, EDT Monday through Friday. While it is our hope that process 

improvements developed over the past year will ameliorate some of the adverse 

effects of these necessary actions, retirees should expect an increase in the time 

required to process their claims or respond to inquiries, OPM remains committed 

to assuring that retirees receive the benefits that they have earned, and we will 

provide an update on the impact of these actions on retirement processing on a 

monthly basis with our retirement claims processing report. 

As you can see, while OPM is fortunate it will not have to furlough employees, it will be forced 

to reduce its call-center hours and halt overtime for employees processing federal retirement 

annuity claims, That is very disappointing news, Previously, one of our most significant 

complaints with OPM was that federal retirees were unable to reach someone on the phone, 

Reducing call center hours threatens to bring a return of this problem. Furthermore, the lise of 

overtime may have been one ofOPM's most effective tools in reducing the backlog of retirement 

claims. By taking that capacity away, we find it hard to see how OPM will be able to handle the 

large wave of retirements expected to occur in the very near future, With U.S, Postal Service 

buyouts combined with a general sentiment among retirement-eligible workers to retire bclore 

Congress asks for more financial sacrifices froll1thcm, there are likely to be more retirement 

claims before there are less, 

So the question must be asked, with sequestration a reality, what can OPM, agencies, and 

Congress do to lessen the impact on retirees? For one, while progress has been made, there needs 

to be more communication with agencies to ensure retirement packages reaching OPM are as 

complete as possible. The checklist was a good step, as was publicly publishing results, but we 

believe agencies should be held accountable for incomplete packages, Where possible, agencies 

should be providing their human resources staff with additional training, particularly those 

agencies which are failing to meet expectations, In a similar vein, agency HR staff are often 

unaware of an employee's intention to retire until they have started the process, It would 

behoove agencies to keep a list of when employees will reach retirement-eligibility, so they can 

guide them through the process before it even starts, 

OPM recently provided NARFE with a copy of its checklist, and it ran as the cover story in the 

narfe magazine, which has wide distribution among the federal community. This has yielded 

accolades from recipients and we at NARFE are more than willing to do what we can to help 

OPM and the people it serves. We encourage OPM to continue to utilize NARFE and the other 

federal employee groups to help distribute checklists widely and often. 

As suggested by the Government Managers Coalition and supported by NARFE, the retirement 

information process should start when an employee first joins the civil service. As part of the 

onboarding process, employees should be made aware that they should keep records of standard 

forms, transfers between agencies etc." Additionally, as employees near retirement eligibility, 

fact sheets with a list of common errors and more complex issues should be developed and made 

3 
70 


Insert offset folio 56 here 81283.056

available. Once an employee declares hislher intention to retire, agencies should ensure that slhe 

receives the standardized checklist, a list of common problems that can delay processing, an 

FAQ (contact numbers, info on what to expect, etc ... ), and a list of forms that may need to be 

updated (beneficiaries, life insurance). It should also be made clear to employees that the process 

takes time, especially if they worked for more than one agency, since most employee records are 

in paper form. The employee should also follow up with hislher agency to ensure the request to 

receive those records has been made. 

The Future of Retirement Processing at OPM 

It is our understanding that OPM is taking an incremental approach to automating its retirement 

processing. Given the setbacks OPM has had in the past with electronic processing, we at 

NARFE support this methodical approach. 

However, OPM must work to enter the electronic age, and eventually cease with paper records 

being physically driven up and down the east coast. We realize this is no easy feat, and requires a 

collaborative effort with agencies, not to mention the daunting task of obtaining funding from 

Congress. However, the process to start moving into retirement varies too much among agencies. 

A standardized process, to the best that one can be developed across the government, would go 

far in ensuring a backlog of this magnitude never happens again. 

The Administration's FYI4 budget requests $2.6 million in Trust Fund No-Year Authority, 

presumably intended to be directed towards modernizing the retirement processing system2 

Specifically, the Congressional Budget Justification states that Retirement Services "plans to 

implement a case management system for centralized storage processing of all retirement and 

related benefits claims." 

First, OPM should provide additional details to members of Congress as well as federal 

employee and retiree representatives regarding this plan. As currently described, it is difficult to 

ascertain what this proposal entails. Second, as has occurred in the past, financing for 

information technology modernization should come from the general fund rather than the 

retirement trust fund. We strongly support efforts by OPM to modernize its retirement services 

to improve efficiency and better serve federal retirees. However, we are skeptical of using the 

retirement trust fund as an altcrnative source of tllnding simply because Congress is unwilling to 

provide adequate tlnancing. 

Conclusion 

Make no mistake; by January 2012, there was a major problem with federal retirement annuity 

claims processing. But remarkable improvements have been made since then. We commend 

both former OPM Director John Berry and Ken Zawodny, the Associate Director of Retirement 

Services, for their leadership in recognizing and tackling the problem head on, as well as the hard 

work of the employees at OPM in reducing the backlog of claims. 

'Congressional Budget Justification. Pefformance Budget, Fiscal Year 20/ -I, omcc of Personnel Management 

(CBJ Submission April 2013). 

4 
71 


Insert offset folio 57 here 81283.057

However, we have not crossed the finish line yet. There is still an inventory of more than 30,000 

retirement annuity claims, and waits continue to be too long. The wave of federal retirements 

that is expected threatens to reverse the progress that has been made. The forced reduction in 

overtime and call center hours resulting from sequestration could not come at a worse time. We 

implore members of Congress to take notice of the very real effects that austerity budgeting will 

have on government services, including the ones on which our career civil servants rely. 

Thank you again for inviting me to testify and for providing me the opportunity to share 

NARFE's views. 

5 
72 

Mr. FARENTHOLD. We’ll now go to questioning. I’ll recognize myself first for 5 minutes. I’ll start with Mr. Zawodny. 

For more than 2 decades, OPM has failed to meet its goal to improve retirement system claim processing. Will you all be able to 

meet your commitment to reduce the backlog by July of 2013? Are 

you going to be able to get to the 90 percent within 60 days? 

Mr. ZAWODNY. Our goal, sir, is at the end of July of 2013 we’ll 

be able to process 90 percent of our cases within 60 days. The recent setbacks, the unexpected amount of Postal Service retirements 

in February and March have slowed us down a bit. The unexpected 

reduction in overtime also has put us back a bit, perhaps. It’s still 

too early for me to really understand what that impact is going to 

be, since it just occurred about 10 days ago. Within the next 30 

days, after we have a full understanding of what our capabilities 

are without the use of overtime in processing our workload, I’ll be 

better able to judge and project out what our capabilities are going 

to forecast up until the end of July. 

Mr. FARENTHOLD. So let’s talk just a little bit about what the 

process is for doing this. So I’m a Federal employee. I’m ready to 

retire. I go talk to my H.R. Person and they start the paperwork. 

Mr. ZAWODNY. Yes, sir. 

Mr. FARENTHOLD. Now, depending on what agency, they may or 

may not use Dr. Kettner’s system. But they fill out all this paperwork and they just put it in an envelope and mail it to you? What 

percentage comes by mail, what percentage comes electronically? 

Mr. ZAWODNY. Each time an individual retires from any one of 

the three branches, in most instances, and independent agencies, 

when they elect to retire and the day that they walk out the door, 

those agencies’ H.R. Offices and the payroll providers send us electronic transmission that the individual has left the building. At 

that time we start them in interim pay immediately. It provides 

data elements on the individual—name, Social Security number, 

and some basic information—so we can start that person in the interim pay immediately, even before we receive the retirement application. 

Mr. FARENTHOLD. Okay. 

Mr. ZAWODNY. Then the agencies follow up with us to provide the 

retirement application and all of the other documents required, 

such as election forms for survivor benefits, health insurance election forms, changes that they may make with regards to—— 

Mr. FARENTHOLD. All right. So there are all these questions. I 

understand it’s complicated, whether you’re in the military, whether there were breaks in services, different agencies. You calculate 

everything differently. 

How much time is spent re-keying that data? Is there a lot of 

data entry? Where is the big time? Is it is looking at it, doing the 

math, is it getting the information? I mean, what takes so long? To 

me, it just seems like it’s something—and I guess I grew up in the 

Turbo Tax era; you just check the boxes and it spits out the form 

with the amount. Do you have not have a system that does that? 

I mean, what else do you do that makes it take so long? 

Mr. ZAWODNY. Well, sir, the length of time it takes to actually 

adjudicate a case is not that long. Getting it into the hands of the 

adjudicator to ensure that the case has gone through our refined 

73 

process of ensuring that the case is full and complete, we have all 

the information there to adjudicate the place and put them into 

final pay, as well as ensuring that the information is there that is 

going to maybe require post-adjudicative work, because remember, 

the individual comes to us, we have them for the rest of their life 

and the rest of their survivor’s life. 

Mr. FARENTHOLD. All right. So what’s post-adjudicative work? 

They think they’re not getting enough and there’s a hearing process? Is that—— 

Mr. ZAWODNY. No, sir. The adjudication process consists of the 

legal administrative specialist reviewing the entire document, the 

retirement application; ensuring all the information is there; ensuring that the service history is continuous and complete, that there’s 

no missing periods of time. Once that information is full and complete, then they adjudicate the case, meaning they can put it into 

our annuity system, do the calculations, and render a final payment. 

Mr. FARENTHOLD. I guess it’s just me having grown up in the 

computer age. To me, this just sounds like something you key in 

the data and, with very few exceptions, it ought to spit it out. And 

when there’s an exception, it turns it red on the screen. 

Mr. ZAWODNY. And it does, sir. All of the information gets keyed 

in or gets placed into the system and those calculations are done 

by our calculator, down to the penny. 

Mr. FARENTHOLD. And can’t that be done by the agency or the 

retiree just plugging it in on a Web site? 

Mr. ZAWODNY. The agencies use various estimator tools, such as 

Dr. Kettner had mentioned, but quite often the agency may not 

have the full, complete service record of the individual. If the individual has moved from different agencies—— 

Mr. FARENTHOLD. So who gets you that information? The individual then says—or the retiree says, okay, so, I’m with OPM now, 

I’m retiring from OPM. Before that I was a congressional staffer. 

Before that I was in the military. So who gathers all that? 

Mr. ZAWODNY. The agency is ultimately responsible for compiling 

all that data and information and getting us a complete record of 

the individual service history. But every time an employee moves 

from agency to agency, that losing agency transmits to us information about the service and the time that they spent at that agency 

and we have it on file. 

Mr. FARENTHOLD. And you all keep that in the database—— 

Mr. ZAWODNY. Yes, sir, we do. 

Mr. FARENTHOLD. In the database or on paper? 

Mr. ZAWODNY. Both, sir. It depends. Many of these systems are 

very old—— 

Mr. FARENTHOLD. Sure, some of them have been around for a 

long time. 

Mr. ZAWODNY. —before the systems were created. So we have 

those records to refer to. Most of the information is electronic, and 

we look through our systems to determine if we have the complete 

service record on file. 

Mr. FARENTHOLD. I’m already out of time. I’m going to go to my 

colleagues here. I probably do have another round of questioning 

after we finish. 

74 

I’ll recognize Mr. Lynch now. 

Mr. LYNCH. Thank you. I want to thank all the witnesses for 

coming before the committee to help us with this work. 

I’m a little bit concerned. I know we’ve got a bunch of big problems here, systemic problems. But I did want to talk to Mr. McFarland and Mr. Zawodny about the number of these—the number of 

these claims—excuse me—checks that are going that are misdelivered, 33,000 returns. How many checks actually go out? This 

33,000, what is that a percentage of? I know we’ve got 5 million 

retirees. 

Mr. ZAWODNY. They are not the checks, sir. They are the 1099– 

R’s. It’s the—— 

Mr. LYNCH. No, no, I know. You’re doing that as a check, as a 

check against whether people are receiving—whether they are undeliverable or not. I understand that part. But you’ve got 30,000 

1099s that came back undeliverable. 

Mr. ZAWODNY. Correct, sir. 

Mr. LYNCH. How many did you send out? 

Mr. ZAWODNY. Two-point-five million, roughly. 

Mr. LYNCH. Okay, 2.5 million. That was my question. Okay. Out 

of 2.5 million, 33,000. So it’s a very small number. 

Mr. ZAWODNY. Yes, sir. 

Mr. LYNCH. But still, it’s troubling, if we’ve got 33,000 forms 

going out and we’re not addressing this. What are we doing about 

this? I know you had a cross-check with Social Security. 

Mr. ZAWODNY. Yes, sir. That’s the master file. Once a month and 

down to the week now we cross reference our annuity roll with the 

death master file from Social Security to see if there’s been reported deaths that might match up to our annuity roll. 

Regarding the 1099–R’s are that are returned, when they are returned to us the first thing we do is check our system to see if 

there’s been an updated address, that the individual may have 

moved and it did not get forwarded, then we’ll re-send that out, 

which occurs quite often. In the case of these 33,000, we have spent 

roughly 5,500 hours and have gone through all but about 4,000 so 

far, verifying that the individual has either moved or it was a bad 

address or some misinformation and have cleared all of those as 

not involved in any sort of fraud, waste, or any other sort of discrepancy. The other 4,000 we are still working to verify where the 

individual lives and what is going on with those. 

So far, of those 33,000 that were mentioned earlier, none of them 

have matched up against the Social Security death match file indicating that the individual has reported a death, at least to the Social Security Administration, nor have we been informed that the 

individual should no longer be subject to annuity payments. 

Mr. LYNCH. Okay. Is there a death benefit for a Federal employee. There are, right? 

Mr. ZAWODNY. Life insurance, yes, sir. Or if the individual is survived by a surviving member of the family and they have survivor 

benefits, they could elect to get those as well. 

Mr. LYNCH. Yeah. Okay. Now we’ve got sequestration coming up. 

I know you’ve made some significant headway in reducing the 

backlog of claims. We’ve gone from 60,000 to 30,000, which is a 

good deal. Now we’re going to have the recent postal retirements 

75 

coming in. So that’s going to kick up your business again. And 

we’ve got sequestration is going to drive down the number of hours 

that you’re working on overtime, and that’s going to be problematic 

as well. Maybe furloughs. Are you looking at that as well? 

Mr. ZAWODNY. We are not at this time, sir. That’s the reason we 

took the overtime off and cut some of the call center and other 

areas, so we can forego furloughs. 

Mr. LYNCH. Okay. Well, I guess what I want to know, is there 

any flexibility for OPM to transfer or reprogram funds to make 

sure that this top priority activity remains adequately funded, you 

know, to keep your effort going here in the right direction. 

Mr. ZAWODNY. We are working. The Acting Director of OPM 

right now is working with our Chief Financial Officer and all the 

program offices within OPM to see how we can reprogram moneys 

to meet some of the high priority goals within OPM. 

Mr. LYNCH. Can I ask you, I know that OPM picked up some responsibility with respect to the Affordable Care Act. 

Mr. ZAWODNY. Yes, sir. 

Mr. LYNCH. You’re helping with establishing the exchanges, is 

that what you’re doing? 

Mr. ZAWODNY. Yes, sir. 

Mr. LYNCH. How is that going? 

Mr. ZAWODNY. To be honest with you, sir, that’s not in my program area of responsibility. So I’ll get back to you on that. 

Mr. LYNCH. Anybody on the panel here? 

I just note that’s a tremendous amount of responsibility as well. 

Mr. ZAWODNY. Yes, sir. 

Mr. LYNCH. And it may not be your area of expertise, but it’s 

sure something that we want to be concerned about. 

Mr. ZAWODNY. Absolutely, sir. 

Mr. LYNCH. Okay. That’s another mess waiting to happen. 

All right. I’ll yield back. I have about 2 seconds left. Thank you. 

Appreciate it. 

Mr. FARENTHOLD. Thank you very much. 

We’ll go to Mr. Clay now. You’re recognized for 5 minutes. 

Mr. CLAY. Thank you, Mr. Chairman. And let me thank the witnesses for their testimony today. 

OPM’s retirement services strategic plan sets forth a goal to 

eliminate a backlog of over 60,000 claims by July of 2013 and to 

process 90 percent of new claims within 60 days of receipt from the 

agency. Since rolling out the strategic plan, and with the exception 

of 2 months, OPM has met or exceeded its claims processing goal. 

Despite a 40 percent increase in claims since January, compared to 

the first 4 months of last year, OPM was able to reduce its backlog 

from 61,108 claims in January of 2012 to 30,080 claims as of the 

beginning of this month. The average time to process a new CSRS 

or FERS retirement claim was reduced from 156 days as of January 2012 to 86 days as of the end of April 2013. 

Mr. Zawodny, I appreciate the progress made by OPM in decreasing the claims backlog, but I am concerned that the backlog 

of claims for more complicated cases, such as court-ordered and disability benefits, have increased significantly, from 3,483 to 7,618 

claims, and from 5,611 claims to 6,536 claims, respectively. Can 

76 

you tell me how OPM plans to address the growing backlog for 

these complicated cases? 

Mr. ZAWODNY. Yes, sir. Thank you, sir, for allowing me to address your concerns. Both court-order and disability cases are cases 

where there are multiple parties involved in the review and completion of those cases. In both areas we’ve added additional resources to those areas. In the disability, we have a class of—we’re 

training some LAS’s, legal administrative specialists, right now to 

handle the disability cases. They are far more complex. They require a lot of interaction either between the agency, the individual, 

their medical doctors and medical teams to assure that we have 

enough information to render the suitable disability retirement determination. 

Regarding court-ordered benefits, we’ve hired paralegals to help 

review the record amount of court orders, which consists of not only 

divorce decrees that are submitted to us, but also bankruptcies, 

garnishments, other court orders that impact a Federal retiree and/ 

or their survivor. 

The court order workload that you mentioned is comprised of a 

number of different areas. It includes not only the court orders that 

pertain to current retirees or those who are getting ready to retire, 

but also Federal employees are responsible for submitting the court 

orders if they are still an active Federal employee. For instance, if 

an individual retires at their tenth year of service and gets divorced, they’re required to submit a court order of their divorce decree to us so that we can have it on file in furtherance of the retirement application if and when that may occur. That’s part of the review process as well. 

What we have done to speed up that process is we have removed 

from the overall picture in court orders just those cases that pertain to current active Federal employees and split those out from 

those who are currently ready to retire. So we can have two different streams of work to try to drive down that workload. 

Mr. CLAY. Based on monthly progress reports the committee receives from OPM, claims less than 90 days old have grown. Mr. 

Zawodny, why is OPM having difficulty meeting the second part of 

its goal of processing 90 percent of new claims within 60 days of 

receipt? 

Mr. ZAWODNY. Our most recent receipts from January through 

March included not only our annual January surge, but also the 

U.S. Postal surge. That created quite an unprecedented backlog in 

our ability to process the claims quickly. 

We believe—we did believe before the overtime was taken away 

that we were going to be able to meet our goal in July of 2013. I 

still strongly believe that we are going to come very close to meeting that and driving that back down to meeting our goal of processing 90 percent of the cases within 60 days. 

Mr. CLAY. Thank you so much. 

And, Mr. McFarland, would you care to comment on the backlog 

status? 

Mr. MCFARLAND. I think the backlog status is something that obviously has been going on for years. And my concern is not necessarily with specifics as much as it is with the overarching operation of the Retirement Service. There are so many, from our perVerDate Aug 31 2005 12:04 Jun 10, 2013 Jkt 000000 PO 00000 Frm 00080 Fmt 6633 Sfmt 6633 C:\DOCS\81283.TXT APRIL
77 

spective, from the IG’s perspective, there are just a carload of frustrations that we have with dealing with these issues. The backlog 

as such is—it is what it is. It’s going to take a while to clear it up, 

and they are certainly marching in the right direction. I don’t have 

much concern that they are not doing the right thing. I think they 

are doing the right thing. 

But the backlog—obviously inherent in the backlog is the problem in the beginning, and it’s been going on for years. And now Mr. 

Zawodny’s job is to clear it up. It’s a big task. It’s almost an overwhelming task. But what we’re concerned about is the many frustrations and the lack of accountability, the lack of leadership that 

we see in the retirement system for the many issues that we deal 

with. And I’d be happy to go over some of them with you if you’d 

like. 

Mr. CLAY. My time is up, Mr. Chairman. 

Mr. FARENTHOLD. I’ll be happy to give you another minute or so 

if you’d like to get that question answered. 

Mr. CLAY. Sure. Is it the sheer numbers or is it not enough staff? 

Mr. MCFARLAND. No, I think what’s happened here, this is my 

personal feeling, what I think has happened is that this backlog 

has caused a real problem for the other aspects of Retirement Services. As an example, the lack of fraud referrals to us. We are troubled about a decline in the retirement fraud referrals produced by 

Retirement Services, as well as a lack of timeliness in bringing suspected fraud to our attention. 

In 2011, the OIG received only 30 retirement fraud referrals 

from Retirement Services. But in 2010, we had received 92 referrals. Then, on March 19, 2012, we received 30 retirement fraud referrals in a single day. However, in all 30 cases OPM had identified 

the death and permanently stopped making annuity payments 

more than 5 years prior to the referral to our office. The statute 

of limitations dictates that criminal proceedings must be initiated 

within 5 years of the government becoming aware of a potential 

theft or fraud. Because of this delay by Retirement Services, the 

cases were no longer prosecutable. 

Finally, another 25 suspected retirement fraud cases were referred to us by Retirement Inspections between July 2012 and 

March 2013, but approximately 80 percent of these referrals also 

had statutes of limitation problems. That’s a prime example from 

our enforcement side. 

Mr. CLAY. Well, that’s a mouthful. 

Mr. FARENTHOLD. Thank you very much. 

We will now go to the gentlelady from the District of Columbia, 

Ms. Norton. You’re recognized for 5 minutes. 

Ms. NORTON. Thank you, Mr. Chairman. 

I’m impressed with how you’ve kept your payments, Mr. McFarland, to deceased annuitants at low levels and going down. 

Before I ask Mr. McFarland a question, let me ask you, given 

that this particular issue is often a problem for public and private 

entities alike, how are you able to keep the numbers going down? 

Apparently, you had a 5-year number of $103 million over 5 years, 

and now it’s down to $86 million, which is 0.12 percent of your 

total payouts. I think that is impressive. 

78 

First, I want to know how you are able to keep payments to deceased annuitants from occurring in the first place. What’s your 

system for doing that? 

Mr. ZAWODNY. Thank you, ma’am, for allowing me to address 

your question. Automation matches that we perform in recent 

years yielded extremely extraordinary results due to the match not 

being performed in over 20 years. Now we have four main contributing factors to driving down the reduction of the number of these 

types of overpayments and referrals to the IG. One, we conduct a 

weekly consolidated death match of the Social Security Administration. We also do a yearly death match file of the Social Security Administration to ensure that there was nothing slipped in after the 

weekly one had done. The surveys and matches—— 

Ms. NORTON. So you do this match. How does anybody know that 

someone has died? How do you keep the payments from just coming, period, whether you are Social Security or whether you are the 

Federal Government—or whether you are annuitants? 

Mr. ZAWODNY. We rely on family members and others to notify 

either Social Security or us directly that one of the annuitants—— 

Ms. NORTON. And people do that? 

Mr. ZAWODNY. Yes, ma’am. Yes, ma’am. Quite often they do that. 

Ms. NORTON. There must be a severe penalty for not telling the 

government or telling the Social Security Administration this person is no longer alive. 

Mr. ZAWODNY. I am not aware of any penalty, ma’am, but any 

annuity payments that have been made are then recouped from the 

individual. We receive about 300 death notifications a day, either 

from annuitants or current Federal employees, that we process 

based upon notifications of family members or through the Social 

Security Administration. 

Ms. NORTON. So how have you been able to keep the numbers 

going down given what looked like a very tight system in the first 

place? And then I want to ask, Mr. Zawodny, why you think the 

effort has stalled in light of what seemed to be pretty good figures. 

Mr. ZAWODNY. We have been able to reduce the amount of improper payments and our efforts to stop those payments because of 

our concerted effort on that program. We have added additional resources and retrained folks and made them more aware of handling 

these cases in an expeditious manner. Using the information from 

the Social Security on a daily basis, relying on our surveys of older 

annuitants also helps us cut down those death payments. 

The current stall right now is we have continued to see an increase in the number of deaths that we’ve had. But the payment 

rate, the improper payment rate and the collection rate has actually gone up, in my perspective, regarding the recovery of those 

payments that were made to individuals. 

Ms. NORTON. Mr. Zawodny, what did you mean by stalling, that 

you think this progress has stalled? 

Mr. ZAWODNY. For me? 

Ms. NORTON. I’m sorry, Mr. McFarland. 

Mr. ZAWODNY. Oh, sorry. 

Mr. MCFARLAND. What do I mean? 

Ms. NORTON. Yeah. 

Mr. MCFARLAND. What do I mean that it’s stalled? 

79 

Ms. NORTON. Yeah, that you are concerned about these efforts 

now being stalled and therefore delaying the efforts that have been 

underway. 

Mr. MCFARLAND. Well, I think the work that’s being done by so 

many people right now to reduce the backlog, I think the effort and 

concentration by Retirement Services is in that area. And I think 

other areas that we deal with specifically, are concerned about, 

have been affected by that. 

Ms. NORTON. So how would you prioritize these matters then? Of 

course they are payouts that you wouldn’t want to have happen. 

That is real money going out to people on the one hand. Do you 

think that the priorities are skewed in any way? 

Mr. MCFARLAND. Yes, I do. I think that the priority that Retirement Systems, I believe, has had for years is that they do not, in 

my estimation, prioritize the problem of improper payments. 

Ms. NORTON. Over—you think it should be the top priority? 

Mr. MCFARLAND. I’m not saying it should be the top priority. But 

certainly the person on the street who is out of a job and paying 

taxes, and other people paying taxes, they certainly would believe 

that it should be a priority to take care of the improper payments 

and not waste the taxpayer dollars. Now, granted a lot of it’s recovered. But what does that mean? That means more people are working to recover it, and those people are using taxpayer dollars. 

Ms. NORTON. Well, Mr. Zawodny, of course $86 million is not 

chump change. So that’s money going out. I don’t know how much 

of that money does get recovered. Have you any idea? 

Mr. ZAWODNY. Right now, ma’am, we are at about 72 percent recovery right now. The moneys that we haven’t been able to recoup 

are moneys that may have been paid to individuals who have been 

incarcerated, through the help of the IG’s office. The individuals 

may have died themselves after stealing the money from individuals. Or moneys that we just haven’t been able to recoup from 

whatever reason. 

Ms. NORTON. Thank you, Mr. Chairman. 

Mr. FARENTHOLD. Thank you very much. 

I think we have got another few minutes before they call votes 

on the House floor, so we’ll start a second round of questioning, 

and then we do have to leave. I will consult with the ranking member to see if we are going to adjourn or come back. 

All right. So, Mr. Zawodny, you made some references to the fact 

you’re concerned about not being able to get caught up as a result 

of not being able to continue overtime. Since the beginning of the 

year, our numbers indicate 156 of your employees have processed 

roughly 56,000 claims. That works out to about three per day, or 

if you take out the weekends a little over four. So you have got 

your employees processing four, only on the average four claims a 

day. Again, I don’t understand the process of why it’s taking 2 

hours to do a claim. Are they that voluminous? Are they that incomplete? 

Mr. ZAWODNY. Sir, in some instances it’s a matter of going 

through and validating and verifying the information of that current retiree, their 40 years of service, ensuring that we have completed their service history calculations. 

80 

Mr. FARENTHOLD. So you all are making a strategic decision to 

be a little more aggressive in the beginning rather than having to 

go back after them later for having—I assume they sign something 

saying this is true and correct before they get their check, do they 

not, the employee? 

Mr. ZAWODNY. They sign their retirement application. 

Mr. FARENTHOLD. Right. And does it include their packet saying 

the information in here to the best of my knowledge is true and 

correct? 

Mr. ZAWODNY. It does. 

Mr. FARENTHOLD. All right. Actually, as a watchdog, I appreciate 

you all doing that. The amount of time it’s taking on an individual 

basis is a little bit troubling. 

Let me go to Ms. Melvin and the IT. You looked at the OPM’s 

IT situation. They had a big failed project. Do you see some things 

they can do immediately to kick the technology up, save some time, 

and get this out the door faster? 

Ms. MELVIN. Well, I think that the approach that they are taking, which is from what we see right now very modest, incremental 

steps to implementing or upgrading some of the technology that 

they do have, is probably a prudent and risk-based approach for 

them to take, especially given the history of their inability to be 

successful with such initiative in the past. 

What I think needs to happen going forward, though, because 

this is still largely a manual process, and because it does rely significantly on overtime to help maintain and bring down the workload that they currently have, there has to be a longer-term strategy and approach to making sure that the department—the agency 

can in fact move to an overall electronic capability. 

So while we do agree that, you know, we see progress on the part 

of what they’ve identified in the strategic plan that they have, I 

don’t view it as enough to make sure that they can move ahead and 

have a long-term sustainable capability unless they do a more indepth assessment. 

Mr. FARENTHOLD. Dr. Kettner, I realize you’ve got a commercial 

product that does a lot of what we are talking about now. I assume 

you all work some with OPM to interface your data, so you’re a little—and you are familiar with the process and the systems. Do you 

think there are some quick and easy things that can be done relatively inexpensively—I’ll save you the trouble of doing a pitch for 

your company—but within the OPM? Are there some quick and 

easy things? If you were the boss of the OPM, where would you 

start? 

Mr. KETTNER. Okay. Well, I think there are certain steps that 

could be taken immediately. And I think you are entirely correct 

in thinking that more could be done at the agency level. That’s 

where the data comes from, and much more can be done. And 

that’s where our work is focused, on the agency side. We do have 

tools that we provide to help the agencies. 

The Achilles’ heel in the whole retirement system is getting the 

service history extracted out of the systems. It currently is not 

maintained electronically in personnel and payroll systems. But 

there is no reason in the world why the data should not go over 

to OPM electronically. You know, it’s all put—all the data is keyed 

81 

into our software, the data fills out the forms automatically, and 

then the retirement specialist at the agency prints it out, and then 

it gets mailed over to OPM. And then they re-key all that data 

back in. 

Mr. FARENTHOLD. As the committee overseeing the Postal Service, we appreciate your continuing to use the mail. It may not be 

the most effective use of government resources there. So you think 

it would be possible then, a good cost-effective would be for OPM 

to focus on an API for your company or other, your competitors 

would be able to send that data in a standardized form. 

Mr. KETTNER. Absolutely. Absolutely. You know, and a good example where this kind of cooperative partnership is working is on 

the OPM USAJOBS hiring site. There is very cooperative arrangements going on between my company and USAJOBS and other 

vendors for there to be data interchanges between the vendors tool 

and USAJOBS. There is no reason why this couldn’t happened in 

the case of the retirement—OPM’s retirement system as well. 

Mr. FARENTHOLD. All right. And, Mr. Lynch, you have somebody 

on your side you want to continue with additional questions? 

Mr. LYNCH. Yeah, just a couple. 

Mr. McFarland, help me with this. Have you looked at the issue 

of the Affordable Care Act and OPM’s responsibility there? I know 

I had raised the issue earlier in the last round of questions, but 

I really didn’t focus on you. 

Mr. MCFARLAND. Yes, we have looked at it. We are involved in 

assisting the agency, but on a rather limited basis. 

Mr. LYNCH. Okay. Well, I remember back when the Affordable 

Care Act was being voted upon and decided upon and how this was 

going to actually work. I raised some concerns that OPM wasn’t 

really resourced enough to handle the tremendous responsibility 

they were being given. Are you comfortable that OPM can handle 

their responsibilities with respect to these exchanges? They are 

going to have to go in and set up exchanges in States where States 

don’t choose to do that. 

Mr. MCFARLAND. Yes, I believe they’re working rather diligently 

on being able to do that. I have no particular reason to think that 

they cannot do it. 

Mr. LYNCH. Okay. Okay. 

Mr. MCFARLAND. And we have, as I said, we’ve been involved to 

a limited basis. 

Mr. LYNCH. All right. I’m going to hold you to that. All right. 

Mr. Beaudoin, we’re looking at some broad across-the-board cuts 

here. I know that you’ve got a pretty good agency-to-agency viewpoint. What do you think about the impending cuts, furloughs, 

things like that across these different agencies for Federal employees? What do you think the impact of this is going to be if sequestration keeps going as it’s currently intended? 

Mr. BEAUDOIN. I think, sir, that you are going to see a lot more 

people taking early retirement versus those people that would have 

stayed on for a number of more years. And then it’s going to be 

harder to replace them with the same caliber, the same education, 

the same expertise that the outgoing people have because really no 

one will want to work for the government because of the furloughs, 

frozen salaries, the way that the government employees are being 

82 

treated now, and the way that the public looks at them, that 

they’re overpaid, and all the bad press. So I think we’re going to 

see, as I say, a lot more retirements, and we’re going to have trouble refilling those positions. 

Mr. LYNCH. Very good. Thank you. 

I’ll yield back. 

Mr. FARENTHOLD. Thank you very much. 

Ms. Norton, did you have—or I guess Mr. Clay would be next. 

Mr. CLAY. I really don’t. 

Ms. NORTON. No questions. 

Mr. FARENTHOLD. We timed that perfectly. The buzzer, as you 

just heard, was the House calling for votes. I would like to thank 

the witnesses, both for their testimony today and in many cases 

their service to our government. This committee is the watchdog 

for the Federal taxpayers, and we want to work with you to be better stewards of the taxpayers’ money, and combat waste, fraud, and 

abuse at every opportunity. We’ll continue to follow this. And I encourage everybody to keep up the hard work. Thank you very 

much. And we are adjourned. 

[Whereupon, at 10:48 a.m., the subcommittee was adjourned.] 

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