Federal Retirement Processing: Applying Information Technology Acquisition Best Practices Could Help OPM Overcome a Long History of Unsuccessful Modernization Efforts
Published: 2014-12-10T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The use of IT is integral to OPM's ability to carry out its responsibilities in modernizing federal employee retirement claims processing. Since 1987, the agency has undertaken a number of initiatives that were aimed at modernizing its paper-intensive processes and antiquated systems, but that were unsuccessful.
GAO was asked to summarize findings from its previous reports on the challenges that OPM has faced in modernizing its retirement claims processing systems. The testimony also summarizes the agency's current plans to acquire new technology to improve the retirement process and key IT acquisition best practices that could serve as critical factors in the agency's successful accomplishment of its latest modernization efforts.
The information in this testimony is primarily based on GAO's previous work at OPM. GAO also reviewed the agency's plans and related information discussing current efforts to improve retirement processing systems. Additionally, the testimony highlights findings from GAO's previous report on critical success factors for major IT acquisitions. Work in support of this testimony was performed during November and December 2014.
section_title: What GAO Found
paragraphs: In a series of reviews, GAO found that the Office of Personnel Management's (OPM) efforts over two decades to modernize its processing of federal employee retirement applications were fraught with information technology (IT) management weaknesses. Specifically, in 2005, GAO made recommendations to address weaknesses in project, risk, and organizational change management. 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 weaknesses in system testing, cost estimating, and progress reporting. 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 agency's modernization effort. OPM began to address these recommendations; however, in February 2011, it terminated the modernization effort.
OPM's Strategic Plan for Fiscal Years 2014-2018 includes a goal to deliver retirement benefits to employees accurately, seamlessly, and on time. To achieve this goal, the agency has plans to acquire a new case management system and, ultimately, to transition to a paperless system that will authorize accurate retirement benefits on the day they are due. In addition, the agency plans other initiatives that are intended to incrementally improve retirement claims processing.
GAO has previously reported that its experience at other agencies has demonstrated that successfully overcoming challenges, such as those that have plagued OPM's past efforts, can best be achieved when critical success factors are applied. Nine common factors critical to the success of IT acquisitions are
Active engagement of senior officials with stakeholders.
Qualified and experienced program staff.
Support of senior department and agency executives.
Involvement of end users and stakeholders in the development of requirements.
Participation of end users in testing system functionality prior to formal end user acceptance testing.
Consistency and stability of government and contractor staff.
Prioritization of requirements by program staff.
Regular communication maintained between program officials and the prime contractor.
Sufficient funding.
These critical success factors can serve as a model of best practices that OPM could apply to enhance the likelihood that the incremental IT investments the agency now plans, including the acquisition of a new case management system, will be successfully achieved.
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: I am pleased to be here today to comment on the Office of Personnel  Management’s (OPM) efforts toward modernizing federal employee  retirement claims processing. The use of information technology (IT) is  integral to carrying out this very important responsibility. However, OPM’s  efforts over two decades to modernize the retirement process have been  fraught with IT management challenges and have not achieved the  desired capabilities.
The agency has reported an IT investment of approximately $96 million in  fiscal year 2014 and has indicated its intent to further invest in capabilities  to improve the retirement claims processing system. Effectively applying  IT acquisition best practices can help agencies better ensure successful  outcomes from their investment efforts.
As agreed with your staff, my testimony today summarizes findings from  reports that we have previously issued on the challenges that OPM has  faced in managing its retirement modernization efforts. It also speaks to  the agency’s current plans to acquire new technology to improve the  retirement process, as well as key IT acquisition best practices that could  serve as critical factors in the agency’s successful accomplishment of its  latest modernization projects.
The information in my testimony is primarily based on our previous work  at OPM. We also reviewed the agency’s plans and related information  discussing its recent efforts to improve retirement processing services. In  addition, we considered our prior report that discussed critical success  factors of major IT acquisitions.testimony during November and December 2014. 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. In carrying out its mission, the agency 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. The agency  reports that 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 tools and options for retirement planning  and retirement compensation. Two defined-benefit retirement plans that  provide retirement, disability, and survivor benefits to federal employees  are administered by the agency: (1) the Civil Service Retirement System  (CSRS), which provides retirement benefits for most federal employees  hired before 1984 and (2) the Federal Employees Retirement System  (FERS), which covers most employees hired in or after 1984 and  provides benefits that include Social Security and a defined contribution  system.
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.
subsections: section_title: OPM Has a Long History of Unsuccessful Efforts to Modernize Retirement Processing
paragraphs: Recognizing the need to improve the efficiency and effectiveness of its  retirement claims processing, OPM has undertaken a number of  initiatives since 1987 that were aimed at modernizing its paper-intensive  processes and antiquated systems. 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.
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 said that it aimed to eliminate  the agency’s retirement processing backlog and accurately process 90  percent of its cases within 60 days by July 31, 2013. While its Fiscal Year  2013 Summary of Performance and Financial Information indicated that  the agency was on track to eliminate the backlog, the agency nonetheless  reported that two factors beyond its control prevented achieving the goal.First, Voluntary Early Retirement Authority and a Voluntary Separation  Incentive Program offered by the U.S. Postal Service increased OPM’s  retirement processing workload by over 20,000 cases. Second, funding  reductions due to sequestration required the agency to curtail overtime  work on retirement processing in April 2013.
In March 2014, OPM again articulated a retirement claims processing  improvement goal as part of its Fiscal Year 2014-2015 Agency Priority  Goals strategy. Specifically, the agency reiterated the goal to process 90  percent of retirement cases within 60 days, but extended the date for  doing so to July 2014. However, OPM did not achieve this goal, reporting  that 77.9 percent of cases were processed within 60 days in July 2014.  Further, in October 2014, the most recent month for which the agency  has reported, 83.2 percent of cases were processed within 60 days.
section_title: OPM’s Efforts to Modernize Retirement Processing Have Been Plagued by IT Management Weaknesses
paragraphs: Our prior reports noted that OPM’s efforts to modernize its retirement  system were hindered by weaknesses in key IT management disciplines.  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, 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. However, OPM officials 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.management capabilities, including system testing, cost estimating, and  progress reporting.
We noted weaknesses in additional key
Effective testing is an essential activity of any project that includes  system development. At the time of our review, test results showed  that the new system had not performed as intended. 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, with several tests to be performed concurrently  rather than sequentially. The agency stated that a lack of testing  resources 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. 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 guidanceagencies 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 was to communicate  recommendations and needed corrective actions for investments it  oversaw. 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 calling for OPM to  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 Plans to Acquire New Technology to Improve Retirement Processing
paragraphs: OPM’s Strategic Plan for Fiscal Years 2014-2018 includes a strategic  goal to “Ensure that Federal retirees receive timely, appropriate,  transparent, seamless, and accurate retirement benefits.” To achieve this  goal, the agency has set forth a strategy to improve the retirement claims  processing system by, among other things, investing in information  technology solutions, such as the acquisition of a case management  system. In addition, the agency’s February 2014 Strategic Information  Technology Plan articulated OPM’s vision of “transitioning the retirement  program to a paperless system that will truly honor a Federal employee’s  service by authorizing accurate retirement benefits on the day they are  due, answering customers’ questions in a timely manner, and promoting  self-service account maintenance.” The plan also reiterated the agency’s  intention to acquire a new case management system.
According to OPM’s chief information officer (CIO), as of late-November  2014, the case management initiative is the agency’s primary focus.  Toward this end, the strategic plan states that OPM intends to complete  documentation of its needs, evaluate available commercial solutions  against those needs, and create an acquisition plan for procuring licenses  and services this month. The agency then intends to develop a plan to  begin implementing the chosen solution in August 2015. OPM received a  fiscal year 2014 appropriation of $2.6 million for the case management  system and, according to an agency official, is expecting to receive  additional funding for the system in fiscal year 2015.
Beyond acquisition of the case management system, the strategic IT plan  also describes other initiatives that are intended to incrementally improve  retirement claims processing. These initiatives include expanding and testing a retirement data repository to include data  from agency human resources and payroll systems, data submitted  via the online retirement application, and scanned documents; building a capability for the retirement calculator to pull data from the  retirement data repository; identifying functional requirements for deployment of a web-based  retirement data viewer to additional agencies; and developing requirements for a web-based electronic retirement  application.
According to the plan, pursuit of these initiatives is dependent on OPM  receiving additional funding.
section_title: Critical Factors Underlying Successful Major Acquisitions
paragraphs: While we have not conducted a detailed examination of OPM’s plans for  acquiring new technology for retirement processing, it will be important for  the agency to leverage all available opportunities to ensure that its  investments are carried out in the most effective manner possible, and  not repeat mistakes of the past. Our experience has shown that  challenges, such as those that have plagued the agency’s past efforts,  can successfully be overcome through using a more disciplined approach  to IT acquisition management.
To help federal agencies, such as OPM, address the acquisition  challenges that they face, in 2011, we reported on nine common factors  critical to the success of IT acquisitions. Specifically, we reported that  department officials from seven agencies had each identified a successful  investment acquisition, in that they best achieved their respective cost,  schedule, scope, and performance goals.
Among these seven IT investments, the officials identified nine factors as  critical to the success of three or more of the seven. The factors most  commonly identified include active engagement of stakeholders, program  staff with the necessary knowledge and skills, and senior department and  agency executive support for the program. These nine critical success  factors are consistent with leading industry practices for IT acquisitions.  Table 1 shows how many of the investments reported the nine factors.
Officials for all seven selected investments cited active engagement with  program stakeholders—individuals or groups (including, in some cases,  end users) with an interest in the success of the acquisition—as a critical  factor to the success of those investments. Agency officials stated that  stakeholders, among other things, reviewed contractor proposals during  the procurement process, regularly attended program management office  sponsored meetings, were working members of integrated project  teams, and were notified of problems and concerns as soon as  possible. In addition, officials from two investments noted that actively  engaging with stakeholders created transparency and trust, and  increased the support from the stakeholders.
Additionally, officials for six of the seven selected investments indicated  that the knowledge and skills of the program staff were critical to the  success of the program. This included knowledge of acquisitions and  procurement processes, monitoring of contracts, large-scale  organizational transformation, Agile software development concepts,  and areas of program management such as earned value management  and technical monitoring.
Finally, officials for five of the seven selected investments identified  having the end users test and validate the system components prior to  formal end user acceptance testing for deployment as critical to the  success of their program. Similar to this factor, leading guidance  recommends testing selected products and product components  throughout the program life cycle.prior to acceptance demonstrates, earlier rather than later in the program  life cycle, that the functionality will fulfill its intended use. If problems are  found during this testing, programs are typically positioned to make  changes that are less costly and disruptive than ones made later in the  life cycle would be.
Testing of functionality by end users  Use of the critical success factors described above can serve as a model  of best practices for all agencies as they plan and conduct their own IT  acquisitions. With specific regard to OPM, application of these acquisition  best practices presents opportunities for the agency to undertake a more  disciplined and, thus effective, management approach, as well as  increase the likelihood that its planned IT investments to improve  retirement processing will meet their cost, schedule, scope, and  performance goals.
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. Applying the information technology best practices we have  identified to OPM’s acquisition of a new case management system could  help the agency overcome its long history of unsuccessful retirement  modernization efforts.
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: Appendix I: Contact and Acknowledgments
subsections: section_title: Contacts
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.
section_title: Staff Acknowledgments
paragraphs: Other individuals who made key contributions include Mark T. Bird,  Assistant Director; Glenn Spiegel; Pavitri K. Daitnarayan; and Nancy E.  Glover.
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