Federal Retirement Processing: OPM Is Pursuing Incremental Information Technology Improvements after Canceling a Modernization Plagued by Management Weaknesses
Published: 2013-05-09T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: 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.
section_title: What GAO Found
paragraphs: 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 additional 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, OPM 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.
section_title: What GAO Recommends
paragraphs: GAO is not making new recommendations at this time. GAO has previously made numerous recommendations to address IT management challenges that OPM has faced in carrying out its retirement modernization efforts. Fully addressing these challenges remains key to the success of OPM's efforts.

section_title: Letter
paragraphs: 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. 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  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
subsections: section_title: Background
paragraphs: 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.
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.
subsections: section_title: Federal Employee Retirement Application Processing Is Complex
paragraphs: 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).
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  80 percent of the total monthly benefit they will eventually receive.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  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.
section_title: OPM Has a Long History of Unsuccessful Retirement Modernization Initiatives
paragraphs: 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 in- house 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.
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.
section_title: OPM’s Unsuccessful Retirement Modernization Efforts Were Plagued by IT Management Weaknesses
paragraphs: 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.
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  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. Although 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. We noted weaknesses in additional key  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.,  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   Specifically, we  retirement processing capabilities that it had planned.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  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 costs 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 life- cycle 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  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.
section_title: OPM Has Reported Taking Actions to Improve Retirement Processing
paragraphs: In mid-January 2012, OPM released a plan to undertake targeted,  incremental improvements to retirement processing rather than a large- scale 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 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.
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  substantial reduction from the agency’s fiscal year 2009 retirement  modernization goal to accurately process 99 percent of cases within 30  days. 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; 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 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 that 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.
section_title: Contact and Acknowledgments
paragraphs: 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.
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