Federal Retirement Thrift Investment Board: Many Responsibilities and Investment Policies Set by Congress
Published: 2007-06-21T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The Thrift Savings Plan (TSP), a retirement savings and investment plan for federal workers, held approximately $210 billion in retirement assets for 3.7 million participants, as of February 2007. TSP is managed by the Federal Retirement Thrift Investment Board (FRTIB). In light of questions about TSP oversight, we examined (1) the current structure for overseeing FRTIB, (2) how the statutorily defined fiduciary responsibilities of FRTIB compare to the responsibilities of private plan sponsors and how FRTIB fulfills its responsibilities, (3) how FRTIB's investment policies differ from those of private plan sponsors, and (4) FRTIB's statutory responsibilities to educate plan participants about TSP and other retirement issues and how these responsibilities compare with those of private and state and local government employee plan sponsors.
section_title: What GAO Found
paragraphs: The Department of Labor (DOL) and Congress oversee FRTIB. In accordance with the law establishing TSP, DOL conducts regular audits to determine the level of compliance with laws and regulations as well as to ensure the efficiency and effectiveness of operations. Congress requires FRTIB to submit its annual budget and other reports, and to undergo an independent financial audit. However, Congress has not held regular FRTIB oversight hearings. Also, DOL does not submit its audit reports directly to Congress, and has not yet been provided with a mechanism to communicate issues of critical concern to Congress. FRTIB's fiduciary duties are similar to those of fiduciaries of private sector plans. To act prudently and solely in the interest of plan participants, FRTIB has implemented policies and practices in several of the areas mentioned in DOL's guidance for private sector plans. However, unlike the law governing private plans, the Federal Employees' Retirement System Act of 1986 (FERSA)--the law that governs the administration of TSP--contains special liability protections for Board members and the Executive Director. FRTIB has less discretion than private sector plan sponsors in setting investment policy because the investment options available to TSP participants are largely outlined in law, whereas private sector plan sponsors are responsible for choosing which investment options to offer participants. TSP's authorizing statute specifies the number and types of funds available to participants, and requires that some of these funds track indexes, which are broad, diversified market indicators. FRTIB chooses the particular indexes for the funds to track, reviews the investment options, and suggests additional funds. Changing TSP investment options requires legislation. FRTIB and the Office of Personnel Management (OPM) are responsible for educating participants about TSP and general retirement issues, while the private and state and local government employee plan sponsors that we interviewed are governed by different rules. By statute, FRTIB is charged with developing educational materials for participants about TSP-specific issues. FRTIB also assists OPM, which is required to provide general retirement education to federal employees and train retirement counselors at federal agencies to provide information to federal employees. Private plan sponsors as well as the state and local government employee plan sponsors that we spoke with are responsible for educating participants about their plans, but often supply general retirement information as well. As the size and complexity of TSP have grown, an appropriate level of oversight of FRTIB is critical to ensuring that federal workers' retirement savings are properly managed. GAO previously recommended that Congress consider amending FERSA to require DOL to establish a formal process by which the Secretary of Labor can report to Congress issues of critical concern about actions of the Executive Director and Board members.

section_title: Letter
paragraphs: As of February 2007, the Thrift Savings Plan (TSP), a retirement savings  and investment plan for federal workers, held approximately $210 billion  in retirement assets for 3.7 million current and former federal employees.  Similar to private sector 401(k) plans, TSP allows employees to save for  retirement by diverting a portion of their pretax income into investment  accounts that can grow tax-free until withdrawn in retirement. In April  2006, the House Committee on Oversight and Government Reform held  hearings on TSP issues, resulting in concerns being raised about the  adequacy of the current oversight structure of TSP. The Federal  Retirement Thrift Investment Board (FRTIB) is responsible for day-to-day  operations of TSP, and the Department of Labor (DOL) has some oversight  responsibilities, primarily through conducting audits of TSP’s operations.  Subsequently, you asked us to examine (1) the current structure for  overseeing FRTIB, (2) how the statutorily defined fiduciary  responsibilities of FRTIB compare to the responsibilities of private plan  sponsors and how FRTIB fulfills its responsibilities, (3) how FRTIB’s  investment policies differ from those of private plan sponsors, and (4)  FRTIB’s statutory responsibilities to educate plan participants about TSP  and other retirement issues and how these responsibilities compare with  those of private and state and local government employee plan sponsors.
To address our objectives, we analyzed provisions of the Federal  Employees’ Retirement System Act of 1986 (FERSA), which governs the  administration of TSP, and the Employee Retirement Income Security Act  of 1974 (ERISA), which governs the administration of pension plans in the  private sector. To examine the current structure for overseeing FRTIB, as  well as our other objectives, we interviewed DOL officials, and analyzed  various documents from both DOL and FRTIB, including DOL regulations,  audit manuals, and reports. Additionally, to determine how FRTIB’s  statutorily defined fiduciary responsibilities compare to the  responsibilities of private plan sponsors, and how FRTIB fulfills its  responsibilities, as well as what FRTIB’s investment policies are and how  its policies differ from those of private plan sponsors, we interviewed  representatives of industry associations and reviewed related documents,  including FRTIB memos, policies, Board meeting minutes, and  correspondences, and DOL’s guidance to private plan sponsors. To  determine FRTIB’s responsibilities for educating plan participants about  TSP and other retirement issues, we examined information from TSP’s  Web site, spoke with Office of Personnel Management (OPM) officials, and  reviewed FRTIB documents. To compare FRTIB’s education  responsibilities with those of other plan sponsors, we interviewed  representatives of industry associations, and officials representing  sponsors of five defined contribution plans—four state and local  government employee pension plans and one private plan. We selected  plan sponsors based on plan assets, plan type, and absence of fiduciary  malfeasance. Appendix I describes the selection of plan sponsors in  greater detail. We also reviewed a 2005 industry survey to obtain  additional information about how private plan sponsors educate their  participants. We conducted our work between August 2006 and June 2007  in accordance with generally accepted government auditing standards.
subsections: section_title: Background
paragraphs: The Federal Employees’ Retirement System Act of 1986 (FERSA) created  TSP to provide options for retirement planning and encourage personal  retirement savings among the federal workforce. Most federal workers are  allowed to participate in TSP, which is available to federal and postal  employees, including members of Congress and congressional employees  and members of the uniformed services, and members of the judicial  branch.
As of February 2007, TSP held approximately $210 billion in retirement  assets for 3.7 million current and former federal employees and their  families. Participants may allocate their contributions and any associated  earnings among five investment fund options: the G Fund, F Fund, C Fund,  S Fund, and I Fund. Since August 2005, TSP participants also may choose  one of five Lifecycle funds, which diversify participant accounts among  the G, F, C, S, and I Funds, using investment mixes that are tailored to  different time horizons for retirement and withdrawal. The investment mix  of each Lifecycle fund adjusts quarterly to more conservative investments  as the participant nears retirement.
Pension plans are classified either as defined benefit or as defined  contribution plans. Defined benefit plans promise to provide, generally, a  fixed level of monthly retirement income that is based on salary, years of  service, and age at retirement regardless of how the plan’s investments  perform. In contrast, benefits from defined contribution plans are based  on the contributions to and the performance of the investments in  individual accounts, which may fluctuate in value. Examples of defined  contribution plans include 401(k) plans, employee stock ownership  plans, and profit-sharing plans.
As with other defined contribution plans, TSP is structured to allow  eligible federal employees to contribute a fixed percentage of their annual  base pay or a flat amount, subject to Internal Revenue Service limits, into  an individual tax-deferred account. Additionally, FERS participants are  eligible for automatic 1 percent contributions and limited matching  contributions from the employing federal agency. According to FRTIB,  TSP provides federal (and in most cases, state) income tax deferral on  contributions and their related earnings, similar to those offered by many  private sector 401(k)-type pension plans. Participants can manage their  accounts and conduct a variety of transactions similar to those available to  401(k) participants, such as reallocating contributions, borrowing from the  account, making withdrawals, or purchasing annuities.
Administration of TSP falls under the purview of the Federal Retirement  Thrift Investment Board, an agency established by Congress under FERSA.  FRTIB is composed of five Board members appointed by the President,  with the advice and consent of the Senate. They are authorized to appoint  the Executive Director, who hires additional personnel, and an Employee  Thrift Advisory Council. The Employee Thrift Advisory Council is a 15- member council that provides advice to the Board and the Executive  Director on the investment policies and administration of the TSP. The  Board is responsible for establishing policies for the investment and  management of the TSP, as well as administration of the plan. The  Executive Director and staff of FRTIB are responsible for implementing  the Board’s policies and managing the day-to-day operations of TSP,  prescribing regulations to administer FERSA, and other duties. The Board  members and the Executive Director serve as plan fiduciaries.
section_title: DOL and Congress Oversee FRTIB, but Oversight Has Not Included Regular Hearings
paragraphs: The Department of Labor and Congress both play roles in overseeing  FRTIB. As we have previously reported, DOL is charged with conducting  regular compliance audits to determine if the Board is fulfilling its  fiduciary duties and properly safeguarding TSP participants’ assets.  Congress created FRTIB and has the ability to change the structure for  overseeing FRTIB. As with every federal agency, Congress may exercise  oversight of FRTIB. Currently, Congress requires FRTIB to submit its  budget and other reports regularly, but it has not typically held hearings  unless a challenge has arisen or there has been a proposed change to  legislation. In addition, DOL officials do not have in place a specific  mechanism for sharing their audit program findings or other issues of  concern with Congress.
subsections: section_title: DOL Oversees FRTIB through Regular Audits
paragraphs: DOL’s oversight of FRTIB is based on a FERSA requirement that the  Secretary of Labor establish an audit program and conduct audits of  FRTIB and its operations. DOL compliance audits are designed to  determine whether FRTIB is complying with FERSA and applicable laws  and regulations. This includes whether TSP fiduciaries are acquiring,  protecting, and using plan resources prudently, efficiently, and solely in  the interest of participants and beneficiaries. The DOL Employee Benefits  Security Administration’s (EBSA) Office of the Chief Accountant has  administered the audit program since its inception in fiscal year 1988.  According to DOL officials, DOL’s audit program reviews all significant  activities of FRTIB, including FRTIB’s policy formulation and  administration, record keeping, and other functions handled by service  providers under contract, and functions of federal agencies related to  contributions and employee participation programs. The audits include on- site reviews of TSP’s principal service providers. Because service  providers carry out many day-to-day operations of TSP, from record  keeping to investment management, audits are primarily conducted on  TSP’s service providers. DOL officials have developed an audit manual  that includes detailed audit guides, but a firm carries out the audits under  contract with DOL. DOL officials said that their ongoing audit presence for  TSP is greater than its presence for most of the private plans it oversees,  which numbered about 730,000 in 2002.
According to DOL, each year, DOL develops a strategic plan that identifies  how many and which functions it could audit based on risk and funding.  For example, due to FRTIB’s increased use of private contractors to  provide call center and other plan services formerly provided by the U.S.  Department of Agriculture’s National Finance Center, two of DOL’s five  audits in fiscal year 2006 looked at particular operations of newer  providers, including certain internal controls. DOL officials also said that  the number of audits in a given year is based on the level of funding  allocated to the audit program. Fiscal year 2006 funding for the contract  audits was $630,000 and covered five audits.
DOL exercises its authority over FRTIB by making recommendations for  improving operations based on audit findings. DOL officials and the  contract auditor meet with the Board members at least once a year to  highlight significant issues from audits and to present the department’s  future compliance audit schedule. DOL’s recommendations to FRTIB and  its service providers generally address compliance with FERSA and FRTIB  policies, significant weaknesses in internal controls, or areas where FRTIB  could improve the efficiency and effectiveness of its operations. For  example, during its fiscal year 2005 audit cycle, DOL’s contractor audited  one of FRTIB’s customer call centers, which is operated by a contractor.  The audit report included recommendations for FRTIB to implement and  enforce policies for information security, designated as a fundamental  internal control by DOL, at the contractor’s sites; establish additional  performance measures; and implement consistent monitoring of call  volume at the two call centers. As of September 2006, DOL considered the  first recommendation partially implemented and the other two  recommendations implemented. DOL cannot compel FRTIB or its service  providers to implement its audit recommendations. However, FRTIB  generally had implemented a high percentage of DOL’s audit  recommendations. According to DOL and FRTIB officials, this voluntary  implementation of audit recommendations has worked well for them  because DOL and FRTIB have a longstanding and positive working  relationship.
section_title: Congress’ Oversight of FRTIB Has Not Involved Regular Hearings
paragraphs: Congress has not required FRTIB or DOL to testify regularly before  Congress on TSP operations, although it does receive routine reports from  FRTIB. As with other federal agencies, Congress may exercise oversight of  FRTIB by investigating agency operations, holding hearings, issuing  subpoenas, and requiring the agency to submit performance or financial  reports. Congressional committees have typically held hearings on TSP  when a challenge has arisen or when there was a proposed change to  legislation. For example, FRTIB officials were asked to testify in response  to customer service issues with TSP in 2003 and in response to abusive  trading practices in the private sector in 2004. In the 20 years since TSP  has been in existence, FRTIB estimates it has been called to testify  approximately a dozen times. Most recently, Board members and the  Executive Director provided testimony in 2005 and 2006 about adding a  new fund to TSP’s investment options. According to DOL officials,  Congress does not require DOL to meet with committee staff or testify  about TSP or its audit findings on a regular basis. DOL has testified at least  three times on its audit program — in 1994, 2003, and 2004.
Congress requires FRTIB to submit its budget and to have an independent  financial audit each year, performed under contract by a public accounting  firm. FRTIB also provides a list of each audit report, including DOL’s  compliance audits, and summaries of any particularly significant findings,  to Congress each year, as required by the Inspector General Act of 1978.  The 2006 summary contained little information about audit  recommendations. DOL is not required to submit its audit reports directly  to Congress, and Congress has not asked DOL to share its audit findings  on a regular basis through hearings or meetings with committee staff.  Consequently, Congress may be unaware of concerns DOL may have. In a  2003 report, we noted that there have been times when DOL has had issues  of concern with FRTIB outside of its audit findings. We recommended that  Congress consider amending FERSA to require DOL to establish a formal  process by which the Secretary of Labor can report to Congress areas of  critical concern about the actions of the Executive Director and Board  members, but no changes have yet been made.
section_title: TSP’s Fiduciaries Have Similar Duties to Those of Private Plan Fiduciaries, but TSP Board Members and the Executive Director Have Special Liability Protections
paragraphs: FRTIB’s fiduciary duties are similar to those of private sector plan  fiduciaries, and FRTIB has adopted various policies and practices to fulfill  these responsibilities, but unlike private plan fiduciaries, Board members  and the Executive Director have special liability protections. Both FERSA  and ERISA require fiduciaries to act prudently and solely in the interest of  plan participants and beneficiaries. However, unlike ERISA, FERSA does  not authorize DOL to bring civil action against Board members or the  Executive Director for the breach of their duty, whereas DOL can take  such actions against fiduciaries of private plans and other TSP fiduciaries.  Congress amended FERSA to provide special liability protections for the  Board members and the Executive Director, given the potential assets of  TSP and concerns about the availability of fiduciary insurance.
subsections: section_title: FRTIB Fiduciary Duties Are Similar to Private Plan Fiduciary Duties, and FRTIB Has Adopted Policies and Practices to Fulfill Its Duties
paragraphs: FRTIB and private plan fiduciaries have similar fiduciary duties. TSP’s  authorizing statute, FERSA, and ERISA set the overarching requirements  for fiduciaries to act prudently and solely in the interest of plan  participants and beneficiaries. That is, fiduciaries must exercise an  appropriate level of care and diligence given the scope of the plan and act  for the exclusive benefit of plan participants and beneficiaries, rather than  for their own or another party’s gain. In addition, FERSA and ERISA  specifically prohibit fiduciaries from engaging in certain transactions that  that could raise questions about their ability to fulfill their duties, unless  certain safeguards are met or waivers are granted by DOL. For TSP, the  statute specifically lists Board members, the Executive Director, and any  person who has or exercises discretionary authority or control over the  management or disposition of TSP assets as fiduciaries.
FRTIB has adopted a range of policies and practices that are similar to  those that private plans should follow to carry out these broad duties. DOL  has issued guidance for private plans describing important policies and  practices to fulfill fiduciary responsibilities. While the guidance is not  specifically designed for TSP, FRTIB has implemented policies and  practices for several of the areas in DOL’s guidance. For example, FRTIB  has policies and practices for selecting and monitoring service providers,  as well as measuring investment performance. Because private service  providers perform many of TSP’s operations, including record keeping for  participant accounts and investment management of all funds but one,  these areas are important for acting prudently and solely in the interest of  participants and beneficiaries. Specifically:    FRTIB generally uses a competitive process in order to select qualified  service providers at a reasonable cost. According to FRTIB, contracts  for major activities undergo review and competition at least every 5  years. While we did not review its procurement documentation, DOL  reviews the selection and monitoring of service providers as part of its  compliance audit program.
FRTIB noted that it uses several approaches to monitor service  providers. FRTIB has included performance measures in certain  service providers’ contracts. Also, since 2004, FRTIB has reviewed  quarterly financial reports for most of its major private providers,  including financial statements, credit scores, and overall viability.  FRTIB further noted that it monitors providers through daily contact  with them, periodic on-site visits, and reports from the provider, such  as monthly and annual reports from the annuity vendor.
FRTIB also reviews its performance measures monthly, including the  investment performance of each fund. The company providing  investment management services must provide monthly reports to  FRTIB showing how closely each option is tracking its underlying  index. A measure of the difference between the performance of the  TSP fund and the underlying index is known as the “tracking error,”  and by contract, the investment manager must report the amount and  reasons for the error. Because the investment manager is allocated  fiduciary responsibility by contract, given the manager’s control of plan  assets, this measurement of performance is essential for both FRTIB  and the investment manager to act prudently and ensure that the  investment manager is not trading needlessly or for self-gain.
section_title: DOL Can Take Civil Action against Private Plan Fiduciaries but Cannot Do So against TSP Board Members and the Executive Director
paragraphs: The Secretary of Labor can take civil action against private plan  fiduciaries. Under ERISA, DOL is allowed to seek remedies if fiduciaries of  private plans do not fulfill their fiduciary duties, including using litigation  when necessary. According to DOL, its primary goal in litigating a case is  to ensure that a plan’s assets, and therefore its participants and  beneficiaries, are protected. For example, DOL has brought legal actions  or filed briefs against private plan fiduciaries for investing imprudently in  company stock, not investing exclusively for participants’ benefit, and  failing to monitor appointed fiduciaries.
DOL cannot bring civil actions against Board members or the Executive  Director for breaching their plan duties or engaging in prohibited  transactions. FERSA allows DOL to bring civil actions against any  fiduciary, such as the investment manager, other than a Board member or  the Executive Director. While DOL was initially authorized under FERSA  to bring civil actions against any TSP fiduciary, a 1988 amendment  established an exception from such actions for Board members and the  Executive Director. The 1988 amendment was passed, in part, in  response to FRTIB’s concerns about obtaining fiduciary insurance.  According to the then-Executive Director, it would be difficult to buy  adequate insurance for these TSP fiduciaries, as FRTIB officials expected  TSP to become the largest plan of its kind in the country. Congress took  this action in the face of concerns that, without protection, Board  members would resign and that they would be hard to replace.
With regard to plan participants’ recourse, participants can take civil  action against private plan fiduciaries and all FRTIB fiduciaries, including  Board members and the Executive Director. Under ERISA, available  remedies include awards for plan losses through monetary damages and  restoring any profits made from a fiduciary’s improper use of plan assets.  Fiduciaries of private plans may guard against the legal risks of personal  liability by having fiduciary liability insurance, which the fiduciary, the  plan, or the employer may purchase. Fiduciary liability insurance  provides reimbursement for costs related to legal actions for breach of  their fiduciary responsibilities, including the costs of defending and  settling actions or awards of monetary damages. DOL officials said that  although fiduciaries of private pension plans may have insurance to largely  insulate them from the personal risks associated with their personal  liability as fiduciaries, they still face financial risks in certain  circumstances due to policy limits or exclusions. For example, fiduciary  liability insurance often includes coverage exceptions for intentional  harm, criminal acts, or self-dealing.
Similarly, under FERSA, TSP participants or beneficiaries may bring civil  actions against Board members or the Executive Director, as well as other  TSP fiduciaries, for breaching their plan duties or engaging in prohibited  transactions. The 1988 amendment provided that any such claims against a  Board member or the Executive Director will be defended by the Attorney  General of the United States and, if he certifies that the Board member or  Executive Director was acting as a TSP fiduciary, deemed claims under  the Federal Tort Claims Act (FTCA). As a result, rather than any  monetary relief awarded in such cases being paid personally by any Board  member or Executive Director who may commit a breach (or through  applicable fiduciary liability insurance), it would be paid out of the  Judgment Fund established to pay claims under the FTCA. According to  DOL officials, treating claims against a Board member or the Executive  Director in this way provides TSP participants with a greater ability to  obtain monetary relief than that available to participants in other pension  plans. In addition, DOL officials told us that without the special liability  protections, DOL could be in the unusual position of suing FRTIB— another federal entity—and receiving assistance with prosecutions from  the Department of Justice, which is also responsible for defending Board  members or the Executive Director.
TSP has been relatively free from any allegations that TSP fiduciaries have  breached their fiduciary duties or engaged in prohibited transactions. DOL  and FRTIB officials were aware of only one civil claim against the Board,  which is currently pending in federal district court.
section_title: TSP Fiduciaries Have Limited Discretion over Investment Policy Compared to Fiduciaries of Private Plans
paragraphs: The Board has less discretion than private sector plan sponsors in setting  investment policy because the investment options available to TSP  participants are largely outlined in law, whereas private sector plan  sponsors are responsible for choosing which investment options to offer  participants. FRTIB may select the particular indexes for the funds to  follow as well as review the investment options and suggest additional  funds. However, Congress must amend FERSA to approve a change in TSP  investment options offered to participants.
subsections: section_title: FERSA Prescribes TSP Investment Options
paragraphs: FRTIB has limited discretion in setting investment policy because FERSA  largely sets the investment options available to TSP participants. DOL and  FRTIB officials noted that FERSA serves as TSP’s overall investment  policy. FERSA states that FRTIB shall establish a government securities  investment fund, fixed income investment fund, a common stock index  investment fund, a small capitalization stock index investment fund, and  an international stock index investment fund. For the index funds,  FERSA states that the Board shall invest in a portfolio designed to  replicate the performance of a commonly recognized index for that fund.  For the government securities investment fund, FERSA states that the  Secretary of the Treasury is authorized to issue special interest-bearing  obligations of the United States for the purchase by TSP. FERSA has other  investment policy provisions, such as who can exercise voting rights  associated with the ownership of stocks held by TSP.
FRTIB has developed individual policies for each fund. These policies,  which FRTIB reaffirms quarterly, provide the rationale for selecting the  fund’s investments. Factors influencing the policies include the level of  risk and return, low costs, and the legislative history of FERSA. A  consultant to FRTIB reported in January 2006 that the indexes that FRTIB  selected were appropriate and changes to certain indexes would not be  cost-effective. Table 1 shows FERSA requirements and FRTIB’s policies  for each fund.
In the past, FRTIB has periodically conducted a major review of its  investment policy and suggested additional funds for TSP to Congress  besides the initial G, F, and C Funds. FRTIB’s process for reviewing and  suggesting additional funds has included investment analysis,  consideration of industry practices, and communication with Congress  and the Employee Thrift Advisory Council, which represents participants.  For example, in the early 1990s, FRTIB analyzed possible funds to add to  the lineup of options for participants to invest in, based on factors like  diversification, risk and return, cost, and administrative issues. It  submitted a legislative proposal in 1995 to add funds for international  stocks (the I Fund) and for stocks in small and medium-sized U.S.  companies (the S Fund), and Congress amended FERSA in 1996  accordingly. In 2005, FRTIB introduced Lifecycle funds without an  amendment to FERSA because it determined that the Lifecycle funds are  combinations of the five existing funds tailored to different time horizons  for withdrawal. FRTIB developed these funds partly based on its analysis  of inefficient participant behavior whereby participants were not  periodically shifting, or rebalancing, their investment portfolio or  diversifying their balances among the five funds, which the Lifecycle funds  would do automatically for the participant. In 2005, given congressional  interest in having FRTIB study the desirability of adding new funds, FRTIB  hired an outside consultant to analyze the existing TSP options, who  recommended in 2006 that FRTIB not add any additional funds to the plan.  According to FRTIB, having relatively few TSP options based on broad- based indexes encourages participation and limits costs.
section_title: Private Plan Sponsors Have Greater Discretion to Select Investment Options
paragraphs: Private plans under ERISA have considerable latitude in selecting  investment options for their plans. According to DOL, an important part of  the fiduciary duties of acting prudently and solely in participants’ interest  involves selecting investment options. ERISA requires plan fiduciaries to  use prudence in selecting and monitoring funds for participants, and to  offer diversified funds. Within these parameters, private plans can offer a  wide array of options for participants. Unlike TSP, private plans can  decide, among other things, the number and types of funds, whether to  include funds that specialize in one sector, like telecommunications, or  those that track a specific market index. Besides funds tracking a specific  market index, which are one kind of passively managed funds, private  plans can offer actively managed options, in which the investment  manager selects particular investments trying to obtain higher than  average returns. Private plan sponsors also may offer employer stock.  Further, private plans can also offer features like a self-directed brokerage  option, which allows participants to invest in individual stocks or mutual  funds.
Given that private plans have greater discretion than TSP to select options,  many private plans have adopted an investment policy statement to guide  their decision-making process. According to a 2005 industry survey, 79  percent of responding plans had an investment policy statement. While  these statements are not required by ERISA, DOL has issued regulations  about written statements of investment policy. The regulations note that a  statement may set guidelines about investment decisions for the  investment manager. According to one industry association, besides  clarifying the intended goals and performance of the plan, the statement—  which may include the process for selecting, monitoring, and altering  investments—can guide future decisions and limit liability by showing that  fiduciaries are following a prudent process.
section_title: FRTIB and Other Federal Agencies Have Responsibility for Educating Participants on Retirement Issues, and Responsibilities Vary for Private and State and Local Government Employee Plans
paragraphs: FRTIB, OPM, and staff of employing federal agencies have responsibility  for educating TSP participants about their retirement plan and other  retirement issues, and responsibilities vary for private and state and local  government employee plans. FRTIB has responsibility for providing  information to TSP plan participants to facilitate informed decision  making about what level of contribution to make and how to invest those  contributions. OPM is required to establish a training program for all  retirement counselors and to develop, in consultation with FRTIB, a  retirement financial literacy and education strategy for federal  employees. Retirement counselors are employed by federal agencies, and  they provide employees with information on their retirement benefits,  including information about TSP. ERISA requires private retirement plan  sponsors to provide certain documents to participants, such as a summary  plan description, but many plans provide more information than is  required. State and local government employee plans’ education  requirements vary, but all of the plans we studied are required to provide  participants with benefit statements. They also make other types of  information available to participants, such as tools for calculating  retirement needs.
subsections: section_title: FRTIB Develops TSP- Specific Educational Materials, and OPM Provides General Retirement Education
paragraphs: FERSA requires FRTIB to provide participants with periodic statements  about their accounts and a summary description of the plan’s investment  options to facilitate informed decision making. To further inform  participants about the plan, FRTIB provides additional information, such  as how to roll over or transfer funds from other plans into TSP,  information on agency matching contributions, TSP’s loan program, and  the monthly returns of TSP funds and their related indexes. FRTIB  provides this information on TSP’s Web site. According to FRTIB, the TSP  Web site is its primary method for communicating with participants, but  information is also available by telephone, and in written materials. The  TSP Web site also includes a retirement calculator that participants can  use to estimate how much they will need to save each year to meet their  retirement goals, and a quarterly newsletter. For example, the newsletter’s  January 2007 feature article was titled “Pension Reform Law Benefits TSP  Participants,” and included information about provisions in the Pension  Protection Act of 2006 that apply to TSP. In addition to the educational  materials available on the TSP Web site, FRTIB occasionally sends  mailings to TSP participants. For example, mailings were sent to  participants raising awareness about the new Lifecycle funds.
OPM is responsible for providing general retirement education to federal  employees, including TSP participants, and it does this primarily through  training retirement counselors at federal agencies, who provide federal  employees with information on retirement benefits, including TSP.  Retirement counselors’ roles were expanded with passage of the Thrift  Savings Plan Open Elections Act of 2004. To implement the act, OPM’s  training will include information about retirement financial literacy and  education. According to information provided by OPM, it will provide  comprehensive training on the tools and resources it is developing, such  as the retirement readiness index, an age-based profile containing  information about an employee’s state of readiness according to various  dimensions. As of April 2007, OPM had produced and made available on its  Web site a retirement video. According to OPM, the video provides an  overview of critical information federal employees need to know as they  plan for their retirement. OPM is required to consult with FRTIB about its  implementation of the act. In addition to retirement counselors, federal  agencies have TSP agency coordinators that, among other things, inform  eligible employees of TSP options and benefits, maintain TSP  informational materials, and respond to inquiries from active employees.  TSP officials offer training to agency coordinators. Sometimes individuals  serve as both agency coordinators and retirement counselors.
section_title: Private Plan Sponsors Are Responsible for Informing Participants about Their Plans, and Responsibilities Vary for State and Local Government Employee Plan Sponsors
paragraphs: The Employee Retirement Income Security Act of 1974 (ERISA) requires  plan sponsors to give plan participants in writing the information they  need to know about their retirement benefit plans, including plan rules,  financial information, and documents on the operation and management  of the plan. ERISA requires sponsors of private retirement plans to make  available to participants the following:    an annual report, which is a summary of an annual financial report that  most plans must file with the Department of Labor;    a summary plan description, which provides information about what  the plan provides and how it operates, such as when an employee can  begin to participate, how service and benefits are calculated, when  benefits become vested, when and in what form benefits are paid, and  how to file a claim for benefits; and    account statements one or more times per year or upon request.
A 2005 industry survey found that many private plan sponsors provide  additional educational information, not required under ERISA, for such  purposes as increasing employee participation, increasing satisfaction  with their plans, and improving asset allocation. They provide this  information through enrollment kits, seminars and workshops, fund  performance sheets, newsletters, retirement calculators, and Internet and  intranet sites. For example, the private plan sponsor we spoke with  provides one-on-one financial and investment counseling to its employees  through a service provider. Additionally, almost half of the plans that  responded to the industry survey indicated that they offer participants  investment advice.
State and local government employee pension plan sponsors are required  to educate their participants in a manner consistent with the state or local  requirements and plan documents that govern their plans. Each of the four  plans we studied require that a statement be sent to participants  periodically or at the participant’s request. At least two of the plan  sponsors provide participants with summary plan descriptions, and at  least one plan sponsor requires that participants be sent an annual report.  Local and state officials expressed the importance of providing plan  participants with information on a broad range of services and topics, for  example, how to make contributions and the array of investment options.  Each plan sponsor provides some information on its Web site; such  information may include answers to frequently asked questions, forms,  and information about investment options and retirement planning  conferences. All of the officials we spoke with provide some type of  general retirement information or non-plan-specific information to  participants, such as retirement calculators. Three of the plan sponsors  make general retirement information available to their participants  through service providers.
section_title: Conclusion
paragraphs: Through FERSA, Congress established FRTIB to administer TSP and  charged DOL with establishing a program to carry out audits to determine  the level of TSP compliance with FERSA requirements. According to DOL,  its audit findings and recommendations provide details on all significant  aspects of TSP operations, from the management of TSP investments to  the information security of participants’ data, and can also shape future  oversight of FRTIB and its service providers. Although FRTIB is required  by law to provide Congress each year with a list of audits, including  summaries of significant DOL audit findings, there have been times when  DOL has had issues of concern with FRTIB outside of its audit findings.    In such instances, DOL has no formal process to communicate its issues of  dispute.  Consequently, we previously recommended that Congress amend  FERSA to require DOL to establish a formal process by which it can report  to Congress issues of critical concern.
Historically, communications between congressional committees of  jurisdiction with FRTIB and DOL have been limited. Although Congress  has occasionally held hearings where DOL and FRTIB officials have  testified, such hearings are held irregularly, usually in response to a  particular issue, such as abusive trading practices or when Congress was  considering legislative changes to FERSA, such as adding an additional  fund to TSP’s investment options.
Congress created TSP as one of the basic elements of a new retirement  system for federal workers. Since its inception, TSP has grown to become  one of the largest defined contribution plans in the country, affecting the  retirement of millions of current and former federal employees. As the size  and complexity of TSP have grown, an appropriate level of oversight of  FRTIB is critical to ensuring that federal workers’ retirement savings are  properly managed.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided a draft of this report to the Federal Retirement Thrift  Investment Board (FRTIB), the Department of Labor (DOL), and the Office  of Personnel Management (OPM) for review and comment. FRTIB  suggested that the report will be useful to the continued improvement of  the TSP, and expressed appreciation for our constructive approach in  conducting the review.  Both FRTIB and DOL provided technical  comments, which we have incorporated where appropriate.  FRTIB’s  written comments are reproduced in appendix II.
As agreed with your staff, unless you publicly announce its contents  earlier, we plan no further distribution of this report until 30 days after its  issue date.  At that time, we will send copies of this report to the Executive  Director of FRTIB, the Secretary of DOL, and the Director of OPM,  appropriate congressional committees, and others who are interested. We  will also make copies available to others upon request. In addition, the  report will be available at no charge on GAO’s Web site at  http://www.gao.gov. If you have any questions about this report, please  call me at (202) 512-7215. Contact points for our Offices of Congressional  Relations and Public Affairs may be found on the last page of this report.   Key contributors are listed in appendix III.
section_title: Appendix I: Selection of the Plan Sponsor Comparison Group
paragraphs: To compare the Federal Retirement Thrift Investment Board’s (FRTIB)  education responsibilities with those of other plan sponsors, we reviewed  documents and interviewed officials representing sponsors of five defined  contribution plans—four government employee pension plans and one  private plan. The plans we studied were selected from a list of the 200  largest U.S. employee retirement plans as reported by Pensions &  Investments, a trade journal for plan sponsors and other investors, as of  September 30, 2005. Plans were selected based on three criteria—plan  assets, plan type, and absence of fiduciary malfeasance. TSP is the largest  defined contribution plan in the nation. The plans we studied, while having  significantly fewer assets than TSP, were among the largest in total  defined contribution plan assets. The five plans had assets ranging from  approximately $3 billion to $21 billion. The plans we studied, like TSP, are  participant directed, that is, investors make investment decisions and plan  fiduciaries may receive limited liability from the results of these decisions.  Additionally, we reviewed Pension & Investments Online and LexisNexis,  and could find no citations over the last 2 years for fiduciary malfeasance  for the five plans we studied.
The four government employee pension plans we studied are a state  supplemental 401(k) plan, a state 401(k) plan for all newly hired  employees, a university plan that includes a 401(a) plan and a tax deferred  403(b) plan, and a large city supplemental deferred compensation plan  with a 401(k) plan. The private plan was a Fortune 100 company. We  contacted seven private pension plans, but only one agreed to speak with  GAO staff. The private plan sponsor we spoke with was willing to  participate in our study, and its characteristics may or may not reflect the  characteristics of other private pension plans. The interviews we  conducted with plan sponsors are solely for illustrative purposes and are  not generalizable.
section_title: Appendix II: Comments from the Federal Retirement Thrift Investment Board
section_title: Appendix III: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, the following individuals made  important contributions to this report: Tamara Cross, Assistant Director;  Ramona Burton; Lara Laufer; Patrick Bernard; Matthew Saradjian; Roger  Thomas; Rachael Valliere; Walter Vance; and Craig Winslow.