Federal Retirement Thrift Investment Board: Due Diligence Over Administrative Expenses Should Continue and Be Broadened
Published: 2007-05-14T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The Federal Retirement Thrift Investment Board (FRTIB) is charged with managing the Thrift Savings Plan (TSP)--a key component of retirement savings for many federal employees--in the interest of its participants and beneficiaries. As part of a broader request on oversight of FRTIB, GAO reviewed (1) the administrative expenses of FRTIB and key components of these expenses, (2) whether the administrative expenses of FRTIB are the result of practices consistent with federal regulations and similar functions at other agencies, and (3) FRTIB's current method of benchmarking administrative expenses. GAO reviewed FRTIB's budgets, audited financial statements, a benchmarking study, and written responses to questions that GAO submitted. GAO also reviewed the regulations that guide FRTIB's spending.
section_title: What GAO Found
paragraphs: FRTIB's administrative expenses ranged from a peak of $101 million in fiscal year 2000 to $83 million estimated for fiscal year 2006. Only the 2001 administrative expenses were lower, reflecting the termination of a key contract. In real terms, FRTIB's administrative expenses in 2006 were at a 7-year low. Throughout this period more than half of FRTIB's administrative expenses went towards purchasing services from outside entities--private contractors and other government agencies. The next largest share of FRTIB's budget was for miscellaneous expenses, such as printing and information technology. Additional administrative expenses were spent on compensation of FRTIB's 65 employees, rent, and travel. FRTIB has established practices that are consistent with federal regulations--for acquisition, compensation, and travel. There are some areas, however, that suggest opportunities for future savings. The amount FRTIB pays per square foot is consistent with average rental rates that the General Services Administration (GSA) cites for nearby available properties. However, FRTIB rents more space per employee than GSA would recommend. Given recent downsizing, FRTIB has begun looking into consolidating its office space. Additionally, opportunities exist to reduce the travel expenses of TSP board members traveling to Washington, D.C. FRTIB's current method of benchmarking TSP participants' investment fees against those charged by 401(k) plans is a very important measure for participants--and the TSP compares favorably on this measure. However, looking only at an aggregate measure provides insufficient information to judge whether individual activities are being conducted either to achieve the best performance or in the most efficient manner. Benchmarking by individual activity permits an organization to compare its performance with standards or "best in class" in a specific activity.

section_title: Letter
paragraphs: The Thrift Savings Plan (TSP)—created in 1986—is a key component of  the Federal Employees’ Retirement System (FERS). TSP holds about $200  billion in retirement assets for more than three and a half million  participants. It is managed by the Federal Retirement Thrift Investment  Board (FRTIB), an independent agency in the executive branch governed  by five Presidentially appointed board members. Similar to private sector  401(k) pension plans, TSP allows federal employees to contribute a  portion of their current compensation through payroll deductions and  invest among a menu of options.
As part of a broader request on the oversight of FRTIB, you asked that we  examine the administrative expenses of FRTIB. Specifically, we reviewed  (1) the administrative expenses of FRTIB and the key components of these  expenses, (2) whether the administrative expenses are the result of  practices consistent with applicable federal regulations, and (3) FRTIB’s  current method of benchmarking administrative expenses.
To identify the administrative expenses of FRTIB, we reviewed the  President’s budget, FRTIB’s audited financial statements, FRTIB’s budget  documents from board meeting notes and FRTIB’s written responses to  questions we submitted. To analyze the components of administrative  expenses, we used the projections contained in FRTIB’s annual budget  documents. FRTIB officials confirmed that these projections were  analogous to what appears in budget documents for other agencies as  “actuals.” For the purposes of this review, and consistent with how FRTIB  presented its budget to the board members for approval, we considered all  expenses other than investment expenses to be administrative. We used  budget object classifications to categorize FRTIB’s administrative  expenses. These categories can broadly fit into six groups: services  purchased from private contractors, services purchased from government  agencies, miscellaneous expenses, compensation, rental of space, and  travel. There is some overlap in the descriptions. For example, the  mission-related telephone service for the call centers should fall under  services purchased from private contractors rather than miscellaneous  expenses. However, because FRTIB budget data aggregate these expenses  with charges such as postage and other miscellaneous expenses, we were  unable to isolate the specific portion related to telephone services. To  judge whether the administrative expenses of FRTIB are the result of  practices consistent with federal regulations, we identified the regulations  that guide FRTIB’s expenses for activities, such as acquisition, and  reviewed the Department of Labor’s audits of FRTIB. To analyze FRTIB’s  current benchmarking practices, we reviewed a benchmarking study cited  by FRTIB, notes from board meetings, and our relevant related work. We  conducted our work in Washington, D.C. between October 2006 and May  2007 in accordance with generally accepted government auditing  standards. Appendix I describes the scope and methodology of our work  in greater detail.
subsections: section_title: Background
paragraphs: The Federal Employees’ Retirement System Act of 1986 (FERSA) created  the Thrift Savings Plan (TSP), a retirement savings plan similar to private- sector 401(k) plans, as a key component of the Federal Employees’  Retirement System (FERS) for federal workers. Membership is open to  federal and postal employees, members of Congress and their staff,  members of the uniformed services, and members of the judicial branch.  Participants are eligible for deferred federal (and in certain cases, state)  income taxes on employee contributions and earnings. For employees  covered by FERS, agencies make contributions to employees’ TSP  accounts. Agencies automatically contribute 1 percent of an employee’s  salary during each pay period to the TSP. Agency contributions for any  employee who remains employed by the federal government until “vested”  become part of that employee’s retirement savings. Some employees are  vested after 2 years of service; all other employees are vested at the end of  3 years of service. Agencies also match FERS employee contributions to  the TSP up to a total of 5 percent of the employee’s basic pay. As of  November 2006, FRTIB managed about $200 billion in assets for 3.5  million participants and beneficiaries.
FRTIB—which administers the TSP—is an independent agency in the  executive branch. As of the close of fiscal year 2006, FRTIB employed  about 65 people. Some functions—such as enrollment and training of  participants—are handled by other federal agencies rather than FRTIB.  These other agencies’ payroll and personnel offices act as the points of  contact for TSP participants; these offices may assist with enrollment and  alteration of contribution percentages. Additionally, the Office of  Personnel Management has established a training program for retirement  counselors of federal agencies. FRTIB is overseen by five Presidentially  appointed board members and is charged with establishing policies for the  investment and management of TSP funds and with creating  administrative policies for the TSP.
FRTIB’s administrative expenses are funded by (1) forfeited agency  contributions and (2) assessments against net earnings of the Thrift  Savings Fund. The 1 percent automatic agency contribution for FERS  employees who leave before vesting are forfeited to the TSP. To finance  the remainder of the FRTIB’s administrative expenses, FRTIB assesses  fees against the net earnings of the Thrift Savings Fund. FRTIB is required  by law to use the forfeited funds before assessing fees against the net  earnings of the Thrift Savings Fund. In both 2004 and 2005 these forfeited  agency contributions covered about 13 to15 percent of administrative  expenses; assessments against net earnings of the Thrift Savings Fund  were set at a level to cover the remaining 85 to 87 percent.
Outside contractors manage all investment funds other than the G fund.  FRTIB has contracted with Barclays Global Investors (Barclays) to  manage the F, C, S, and I funds. The L funds—which were introduced in  August 2005—were designed by another private company, Mercer  Investment Consulting. Consistent with generally accepted accounting  principles, FRTIB’s financial statements list these investment expenses as  adjustments to investment income; they are not included in the line item  for administrative expenses.
The cost to participate in a retirement fund is measured as an expense  ratio of the total administrative expenses charged to a fund during a  specific time period, divided by that fund’s average balance for that  specific time period. According to a 2005/2006 Deloitte Consulting 401(k)  benchmarking survey, the average expense ratio for 401(k) plans was 75  basis points. In comparison, FRTIB charged participants only 4 basis  points in fiscal year 2006.
According to FRTIB, it reviews its administrative expenses regularly  through a variety of means. First, an independent entity audits  administrative expenses as part of a larger financial audit of FRTIB.  Second, the Department of Labor examines administrative expenses as  part of its periodic FRTIB Administrative Staff review, which it conducts  approximately once every 3 years. Third, as required by statute, board  members prepare and submit to the President and Congress an annual  budget. Fourth, each month since 2003, FRTIB has provided monthly  reports to the Executive Director for review. Lastly, according to FRTIB, it  contracts for all major TSP administrative services. Because the maximum  contract length is 5 years, every major activity undergoes review and  competition at a minimum of every 5 years.
section_title: Trends and Composition of Administrative Expenses
paragraphs: FRTIB’s administrative expenses ranged from a peak of $101 million in  fiscal year 2000 to $83 million estimated for fiscal year 2006. During this  time period, only the fiscal year 2001 administrative expenses were lower  than the 2006 expenses, and that reflected the termination of a contract  with American Management Systems to develop a record-keeping system,  which will be discussed in more detail below. However, in real terms,  FRTIB’s administrative expenses in 2006 were at a 7-year low. (See fig. 1  below).
There is no standard governmentwide definition of administrative  expenses. For the purposes of this review, and consistent with how FRTIB  presented its budget to the board for approval, we considered all expenses  other than investment expenses to be administrative.
FRTIB purchases most of its administrative services from outside entities.  Until 2005 these were purchased primarily from government agencies—99  percent of which were record-keeping and call center services provided by  the National Finance Center. During fiscal years 2005 and 2006 the  National Finance Center terminated its contracts with FRTIB, which began  purchasing these services from a private contractor. The only remaining  major services purchased from another government agency are personnel  and payroll services provided by the U.S. Department of the Interior.
section_title: Overview of Individual Categories of Expenses and Comparison of Expenses Against Other Agencies and Federal Regulations
paragraphs: For its administrative activities, FRTIB has established practices that are  consistent with federal regulations. However, it has opportunities to  achieve cost savings. To purchase services and goods, FRTIB is required  to follow the Federal Acquisition Regulation (FAR) and employee  compensation is governed by federal pay schedules. For travel, FRTIB is  bound by federal travel regulations. However, this is one place where  opportunities may exist to reduce travel expenses by holding monthly  board member meetings by teleconference where appropriate. FRTIB  leases its own space directly rather than going through GSA. Although the  cost per square foot for its headquarters is comparable to average rates  that GSA cites for nearby available properties, the amount of space FRTIB  rents is greater per employee than GSA recommends.
subsections: section_title: Services Purchased from Private Contractors and Other Federal Agencies
paragraphs: The amount that FRTIB spends purchasing services from other entities is  at a 7-year low. (See fig. 4 below.)
Since most administrative services are purchased from outside entities, it  is not surprising that declines in spending on services purchased from  outside entities—both private contractors and other federal agencies— parallel the declines in administrative expenses during the same period.
Although most administrative services are purchased from outside  entities, the allocation between private contractors and federal agencies  has changed over time. As figure 3 shows, from fiscal year 2000 through  fiscal year 2004 FRTIB spent more money purchasing services from other  government agencies than from private contractors. In shifting the  acquisition of call center services from the National Finance Center to a  private contractor in 2005, the balance was reversed. In 2006, the National  Finance Center terminated all remaining services that it was providing to  FRTIB. With the termination of the National Finance Center contracts, the  only remaining major services purchased from another government  agency were payroll and personnel services provided by the U.S.  Department of the Interior.
Another change within FRTIB’s expenses for services purchased from  private contractors occurred in 2001. In 2001, FRTIB terminated a contract  with American Management Systems, Inc., a private sector firm hired to  design, develop, and implement a record-keeping system for the TSP that  would provide daily investment updates. FRTIB then hired Materials,  Communication & Computers, Inc. to complete the work that American  Management Systems was unable to complete.
Although we did not review the reasonableness of FRTIB’s individual  contracts, we reviewed its process for acquiring goods and services.  Overall, it follows a process that seeks to assure reasonable expenses.  First, FRTIB is subject to the FAR—which governs acquisition activities.  Second, FRTIB has one contract specialist and one purchasing agent on  staff to ensure that acquisition occurs according to statute and regulation.  Additionally, other staff are responsible for management and oversight of  the individual contracts. For example, the agency’s Chief Information  Officer is responsible for managing a record-keeping contract and the  Director of the Office of Participant Services is responsible for managing  the two call center contracts. Each of these individuals monitors contracts  through site visits and remotely. FRTIB plans to send agency directors for  additional monitoring site visits in 2007. The travel expenses for these  monitoring visits are included under travel and discussed later in this  report.
The Department of Labor provides additional oversight of FRTIB’s  contracts through its periodic audits. In 2005, the Department of Labor  reported that FRTIB had reexamined service providers to find ways to  increase services while decreasing costs. For example, FRTIB found that it  could cut expenses in half by transferring information technology  operations from the National Finance Center to SI International, a private  contractor. The Department of Labor reviewed one call center in August  2006 and, according to FRTIB, the department is also planning to review  another call center service contract in 2007.
section_title: Miscellaneous Expensess
paragraphs: In the years since 2003, a variety of factors have led to increased  miscellaneous expenses. (See fig. 5 below.)
In fiscal year 2004, miscellaneous expenses jumped to about $14 million, in  part because FRTIB updated aging software and hardware. Second, in  fiscal year 2005 FRTIB’s printing expenses increased from about $1 million  to about $11 million. FRTIB told us that this was a one-time extra expense  to print information about a series of new TSP funds, the Lifecycle (L)  funds. Lastly, in fiscal year 2006, FRTIB projected a ninefold increase from  about $1 million to about $9 million in expenses for communications. This  was to pay for providing information to TSP plan participants about new  passwords and account numbers to replace the use of Social Security  numbers in the system. FRTIB also said that this spike would permit  increased communications about the L funds. Although overall  miscellaneous expenses began to decrease in 2006, it is unclear if  expenses will continue to decrease or remain elevated.
Although we did not review FRTIB’s individual contracts, it is required to  follow the same regulations as other federal agencies regarding  acquisition. As discussed above, FRTIB is required to follow the FAR and  is routinely audited by the Department of Labor. Also, FRTIB has the  ability to purchase goods through GSA. Although GSA does not guarantee  the lowest price possible, use of GSA’s Federal Acquisition Service  ensures that the prices paid by FRTIB are reasonable and generally  consistent with the prices paid by other agencies.
subsections: section_title: Compensation
paragraphs: FRTIB’s compensation expenses have been relatively stable over the past  7 years. (See fig. 6 below.)
FRTIB compensates employees according to federal pay schedules.  Currently, FRTIB employs about 65 staff members, the majority of whom  are paid according to the General Schedule. About 28 percent of these  employees are compensated at or below the GS-11 level. Accordingly, to  the extent that the composition of FRTIB’s staff is appropriate,  compensation costs appear reasonable. The Executive Director is  compensated according to level three of the Executive Schedule.  Additionally, 7 staff members are part of the Senior Executive Service.  These Senior Executive Service positions are all approved by the Office of  Personnel Management. Each of the 5 board members—who are not  otherwise officers or employees of the federal government—are  compensated at the daily rate of basic pay for level IV of the Executive  Schedule for each day the board member is engaged in performing a  function for FRTIB.
section_title: Rent
paragraphs: FRTIB’s total rent expenses remained relatively constant until fiscal year  2005. (See fig. 7 below.) Rent expenses dropped in 2005 and increased  again in 2006 coinciding with the lease of an emergency facility.
The majority of FRTIB’s rental expenses are associated with renting a  headquarters office in Washington, D.C. FRTIB rents its own office space,  which means it does not need to go through GSA. However, GSA rents  space on behalf of many federal agencies and thus has a rich database of  local rent prices. Accordingly, we compared the amount that FRTIB pays  per square foot in fiscal year 2007 with the average rates that GSA cited for  nearby available properties. At $28 per square foot in 2007, the per square  foot rental rate—which includes operating expenses such as utilities,  building security, maintenance, and cleaning—is in line with average  market rates for nearby available properties with comparable square  footage.
Currently, FRTIB rents more than 47,000 square feet. At its present staff  size, FRTIB rents more space per person than GSA would recommend.  Based on FRTIB’s mission, a GSA official told us that FRTIB’s space needs  are likely similar to a model that proposes 368 rentable square feet per  person. At its current staffing level of 65 employees, FRTIB’s headquarters  provides more than 670 square feet per person, about 300 square feet more  per person than GSA would recommend. This calculation, however, is  somewhat misleading because of the recent personnel downsizing at  FRTIB. In the 7 years covered by our review, employment at FRTIB  peaked at 111 staff members. Yet, even at its peak staffing, FRTIB rented  about 430 square feet per person, about 60 square feet more per person  than GSA would recommend. In light of recent declines in staff numbers,  and consistent with good management practices, at a September 2006  board meeting FRTIB staff indicated that they would look into  consolidating space at the headquarters location.
section_title: Travel
paragraphs: Over the past 7 fiscal years, travel expenses varied considerably, ranging  in current year dollars from a low of about $80,000 in fiscal year 2001 to a  high of about $255,000 in fiscal year 2003. In fiscal year 2006 travel  expenses fell slightly above the middle of this range at about $200,000.  (See fig. 8.)
FRTIB travel is governed by federal travel regulations. The fiscal year 2006  travel we examined was consistent with these regulations and appears  reasonable given federal daily allowances for lodging, meals, and  incidental expenses and current cost trends for common carriers.
The largest portion of fiscal year 2006 travel was for contract oversight,  about 38 percent of which was associated with the one-time expense of  transitioning the call center from the National Finance Center to a new  contractor, SI International. Although about 20 percent of FRTIB’s trips  were to other federal agencies to conduct training and make  presentations, since the host agency often paid for these trips, they  accounted for only about 5 percent of travel expenses.
In fiscal year 2006, FRTIB spent about $27,000 to bring board members to  Washington, D.C. These expenses are associated with travel from  locations as disparate as Alaska and New York, and require, in general, a 2- night stay in Washington, D.C. Although FRTIB reports that it has not  issued any first or business class tickets to any employee, it has on  occasion issued a first or business class ticket to a board member traveling  from Alaska when coach fares were not available. Although the law  requires monthly meetings, and the practice has generally been to meet in  person, on occasion members of the board have participated in these  meetings by telephone—some more than others. Meetings that occur  through telecommunications rather than in person save money for FRTIB  and sometimes may be appropriate.
section_title: FRTIB’s Current Practice of Benchmarking Against the Cost of Participating in Private Sector 401(k) Plans Offers a Limited Means of Evaluating Administrative Expenses
paragraphs: FRTIB’s current method of benchmarking its costs by comparing the fees  assessed to TSP participants against the fees assessed to participants in  private 401(k) plans provides important but incomplete information about  its administrative costs and efficiency. This measure is very important for  participants—and the TSP compares favorably on this measure. It does  not, however, provide a complete picture of administrative expenses or  sufficient information for oversight of administrative activities.
Looking only at an aggregate measure—whether the investment fee or the  total administrative costs—provides insufficient information to judge  whether individual activities are being conducted either to achieve the  best performance or in the most efficient manner. Disaggregating FRTIB’s  activities and benchmarking those individual activities against similar ones  elsewhere would provide the board a better picture of the performance  and efficiency of these activities. Although no other federal agency  performs the same mission as FRTIB, the individual activities it performs  to fulfill that mission can be found in other agencies and outside  government. For example, other agencies—such as the Centers for  Disease Control and Prevention and GSA—purchase call center services  from private contractors. Benchmarking by individual activity permits an  organization to compare the performance of its individual  processes/activities—and the way those processes/activities are  conducted—with either standards or “best in class” in a specific activity.  Benchmarking provides a feedback mechanism for continuous  improvement.
section_title: Conclusions
paragraphs: FRTIB’s falling administrative expenses appear to reflect an overall  commitment to manage the TSP in the interest of the participants and  beneficiaries of TSP. Consistent with this commitment FRTIB is looking  into consolidating its office space. We also note that on occasion board  members have elected to participate in the monthly meetings by  telephone. The use of telecommunications has increased throughout both  government and the private sector. Although in-person meetings are  valuable and may be important for some discussions, increasing the use of  telecommunications for monthly meetings could further reduce expenses.  For example, if the board found it appropriate to meet monthly by  teleconference and quarterly in person, travel costs would be reduced.
Since FRTIB follows practices that seek to constrain expenses within  federally regulated parameters, its success in maintaining low expenses is  not surprising. In fact, FRTIB’s fiscal year 2006 administrative expenses  were near a 7-year low. Moving beyond comparing costs charged to TSP  participants with costs charged by other 401(k) plans to benchmarking the  cost and performance of individual activities would be consistent with a  commitment to continuous improvement and being alert to opportunities  to further improve performance and/or reduce costs. It would also assist  the board as it seeks to assure that the TSP is managed in the interest of its  participants and beneficiaries.
section_title: Recommendations for Executive Action
paragraphs: To ensure that FRTIB continues to operate as efficiently as possible, we  recommend that the board direct the Executive Director to continue  monitoring both the square footage and cost per square foot of office  space in the future to ensure that it is appropriate for its needs. In  addition, FRTIB should consider expanding its use of telecommunications  for its monthly board members’ meetings, as appropriate.
To provide the board with the most complete and relevant information  with which to assess the expenses and performance of administrative  functions of FRTIB, we recommend that the board direct the Executive  Director to move beyond the comparison of participant costs against those  for other 401(k) plans to benchmarking cost and performance of  individual activities—either against similar activities elsewhere or against  validated criteria or standards, such as federal regulations.
section_title: Agency Comments and Our Evaluation
paragraphs: In comments on a draft of this report, FRTIB partially concurred with our  findings and recommendations. While they agreed in concept with our  recommendations, they stated that in-person board meetings are an  extremely important aspect of fulfilling their fiduciary responsibilities and  that the minimal travel costs associated with this decision were far  outweighed by the benefits derived from in-person meetings. However,  consistent with FRTIB’s commitment to managing the TSP in the interest  of participants and beneficiaries of TSP, we note that use of  telecommunications offers opportunities to further reduce expenses. Our  report acknowledges that in-person meetings are valuable and may be  important for some discussions. Our recommendation merely states that  FRTIB should consider expanding its use of telecommunications as  appropriate. With respect to its square footage, FRTIB said it would  continue to monitor and assess its office space needs and related costs in  relation to projected staffing levels.
FRTIB also concurred in concept with the use of benchmarking costs in  appropriate situations. However, it noted that rather than separately  benchmarking each component of its overall costs, it relies on the  competitive procurement process to obtain outstanding performance for  TSP participants at competitive rates. FRTIB’s comments reflect a  misunderstanding of our point. The report does not suggest that  benchmarking would lead to changes in contracts during the contract  period. Nor does our report suggest that the competitive bidding process  be abandoned—we concur that it helps assure good performance at  competitive costs. Nor do we dispute that FRTIB’s processes have led to  outstanding performance for TSP participants at competitive costs. To the  contrary, companies and agencies that are viewed as leaders in their  operations use benchmarking.
Benchmarking is widely accepted in the private sector and in much of the  public sector as a “best practice” in evaluating performance of specific  activities. It offers a way to compare a specific function or activity to the  same or similar one in other businesses or agencies. The essence of  benchmarking is the process of identifying the highest standards of  excellence for products, services, or processes, and then making the  improvement necessary to reach those standards—commonly known as  best practices. We have developed a body of work—best practice  reviews—that provides guidance to help public sector organizations  become world-class.
Such benchmarking of best practices could be helpful to FRTIB. For  example, as the term of a contract for call center operations nears  completion and FRTIB considers the design of the successor contract, it  could look at the scope or services, performance measures used and  performance attained, and costs of other excellent call centers in  developing the criteria for that next contract.
In addition to these key comments, FRTIB provided technical comments.  The full written comments from FRTIB are included and addressed in  appendix II. We have incorporated changes as a result of these comments,  as appropriate.
As agreed with your office, unless you publicly announce the contents of  this report earlier, we plan no further distribution of it until 30 days from  the date of this letter. At that time, we will send copies of this report to the  Executive Director of FRTIB and interested congressional committees.  This report will also be available at no charge on the GAO Web site at  http://www.gao.gov.
Please contact me on (202) 512-9142 if you or your staff have any  questions about this report. Contact points for our Office of Congressional  Relations and Public Affairs may be found on the last page of this report.  Other contacts and staff acknowledgments are listed in appendix III.
section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: To identify the administrative expenses of the Federal Retirement Thrift  Investment Board (FRTIB) we reviewed the President’s budget, FRTIB’s  audited financial statements, FRTIB’s budget documents from meeting  notes of the board members, and FRTIB’s written responses to our  questions. To analyze the components of administrative expenses, we used  the projections contained in the board members’ annual budget  documents. The numbers we used from FRTIB’s budget documents were  prepared late in the fiscal year, which ends September 30. FRTIB officials  confirmed that the projections were analogous to what appears in budget  documents for other agencies as “actuals.” We reviewed FRTIB’s audited  financial statements for information about FRTIB’s financial contractual  commitments. The administrative expenses listed in the financial  statements were not disaggregated sufficiently for our purposes. As a  result, they did not provide the detail that we needed for our analysis. To  be consistent with the budget documents, we used current year dollars  throughout the report. We confirmed that the analysis and conclusions  would not change if dollars were adjusted for inflation.
To judge whether the administrative expenses of FRTIB are the result of  practices consistent with federal regulations, we identified the regulations  that guide FRTIB’s expenses for activities such as compensating  employees. To analyze the applicability of the Federal Acquisition  Regulation (FAR) to FRTIB’s acquisition activities, we reviewed statutory  requirements and court cases. We also reviewed GAO guidance for  assessing the acquisition function at federal agencies. To compare the  rent that FRTIB pays for its headquarters office with the amount that other  federal agencies would pay for downtown office spaces we reviewed  FRTIB’s current lease. We then compared the parameters of the lease with  a database of properties from the General Services Administration (GSA).  Because GSA rents office space for other agencies, it has access to a rich  database of available properties and current rents. To review the  compensation of FRTIB staff members, we analyzed the Office of  Personnel and Management’s Central Personnel Data File, a file of all  personnel actions in the federal government. This allowed us to identify  the pay plans that FRTIB uses to compensate employees, the positions  held by FRTIB staff, as well as actual staffing levels for the time period  covered by our analysis. To analyze travel expenses, we compared the  travel records that FRTIB gave to us for fiscal year 2006 to expected travel  expenses for locations given standard per diem rates and negotiated air  fares. We also reviewed FRTIB’s responses to questions we submitted.
To analyze FRTIB’s current benchmarking practices, we reviewed a  benchmarking study cited by FRTIB, notes from the board members’  meetings, relevant GAO work, and FRTIB responses to questions we  submitted.
We conducted our work in Washington, D.C., between October 2006 and  May 2007 in accordance with generally accepted government auditing  standards.
section_title: Appendix II: Comments from the Federal Retirement Thrift Investment Board
subsections: section_title: GAO Comments
paragraphs: 1.  Our report states that FRTIB leases its own space directly rather than  going through GSA—we did not indicate nor imply that FRTIB is  required to use GSA for leasing services.  2.  Our report acknowledges that in-person meetings are valuable and  may be important for some discussions. However, consistent with  FRTIB’s commitment to managing the TSP in the interest of  participants and beneficiaries of TSP, we note that use of  telecommunications offers opportunities to further reduce expenses.  Our recommendation states merely that FRTIB should consider  expanding its use of telecommunications as appropriate.  3.  The FRTIB’s comments on our benchmarking recommendation reflect  a misunderstanding of our point. Our report notes that benchmarking  should go beyond a comparison of TSP’s investment fees (cost to  participants) with those of other 401(k) plans. It does not suggest that  benchmarking would lead to changes in contracts during the contract  period. Nor does our report suggest that the competitive bidding  process be abandoned—we concur that it helps assure good  performance at competitive costs. Further, we do not dispute that the  FRTIB’s processes have led to outstanding performance for TSP  participants at competitive costs. Nor should the mention of call  centers as one example of an activity in which other agencies also  engage be read as a criticism of FRTIB’s call center operations. To the  contrary, companies and agencies that are viewed as leaders in their  operations use benchmarking.
Benchmarking is widely accepted in the private sector and in much of  the public sector as a “best practice” in evaluating performance of  specific activities. It offers a way to compare a specific function or  activity to the same or similar one in other businesses or agencies. The  essence of benchmarking is the process of identifying the highest  standards of excellence for products, services, or processes, and then  making the improvement necessary to reach those standards— commonly known as best practices. We have developed a body of  work—best practice reviews—that provides guidance to help public  sector organizations become world-class.
Such benchmarking of best practices could be helpful to FRTIB. For  example, as the term of a contract for call center operations nears  completion and the FRTIB considers the design of the successor  contract, it could look at the scope or services, performance measures  used and performance attained, and costs of other excellent call  centers in developing the criteria for that next contract.  4.  Our report states that looking only at investment fees offers an  incomplete picture of administrative expenses and that looking at total  administrative expenses in the aggregate provides incomplete  information for judging whether individual activities are being  conducted in the most efficient matter. We did not discuss or opine on  FRTIB’s disclosure of administrative expenses.  5.  Our report notes that benchmarking should go beyond a comparison of  TSP’s investment fees (cost to participants) with those of other 401(k)  plans. It does not suggest that it is FRTIB’s responsibility to ensure  that private sector 401(k) plans adopt similar levels of public  disclosure.  6.  See comment 3.  7.  We agree that telephone services for the call centers are mission- related services. However, because budget data provided by the FRTIB  aggregates such expenses with charges such as postage and other  miscellaneous expenses, we were unable to separate these expenses  from others in this category. Nonetheless, we have clarified the report  to indicate that expenses associated with telephone service for call  centers, although mission-related, were included under miscellaneous  expenses.  8.  We revised the report text as suggested.  9.  We revised the report text as suggested.  10. We revised the report text as suggested.  11. We disagree with FRTIB’s comment that it is not subject to the federal  procurement rules. First, FRTIB is an executive agency under 41 U.S.C.  § 405(a) and thus subject to the FAR. Moreover, we are unaware of  any, and FRTIB has not identified any, express exclusion for FRTIB.  Second, FRTIB cites as support a 1987 internal memo that states “One  of the most important criteria applied by the courts and agencies, in  determining the applicability of acquisition regulations is the source of  funds being expended.” The memo concludes that FRTIB does not pay  its administrative expenses with appropriated funds. In a 2002 contract  dispute with one of its contractors, the United States Court of Federal  Claims rejected each one of FRTIB’s arguments that its administrative  expenses are not payable out of appropriated funds. Since the FAR  applies to acquisitions by contract with appropriated funds, and the  FRTIB has not addressed the court’s ruling, we stand by the position  that FRTIB is subject to the FAR.  12. We revised the report text as suggested.  13. We revised the report text as suggested.  14. See comment 12.  15. We revised the report text as suggested.  16. See comment 7.  17. Clarified text to indicate it is a call center service contract.
section_title: Appendix III: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Acknowledgments
paragraphs: In addition to the contact named above, Carol Henn, Mallory Barg Bulman,  John P. Stradling, and Farahnaaz H. Khakoo made significant  contributions to this report. Barbara D. Bovbjerg, Tamara E. Cross, Lara  Lee Laufer, Ramona L. Burton, Matthew J. Saradjian, Patrick G. Bernard,  Michael R. Volpe, Adam Vodraska, Andrew J. Stephens, Richard S.  Krashevski, Gregory H. Wilmoth, Donald R. Neff, William T. Woods, and  Ruth DeVan also provided key assistance.