The Federal Employees’ Retirement System Act of 1986 (FERSA) created TSP to provide options for retirement planning and encourage personal retirement savings among the federal workforce. Most federal workers are allowed to participate in TSP, which is available to federal and postal employees, including members of Congress and congressional employees and members of the uniformed services, and members of the judicial branch. As of February 2007, TSP held approximately $210 billion in retirement assets for 3.7 million current and former federal employees and their families. Participants may allocate their contributions and any associated earnings among five investment fund options: the G Fund, F Fund, C Fund, S Fund, and I Fund. Since August 2005, TSP participants also may choose one of five Lifecycle funds, which diversify participant accounts among the G, F, C, S, and I Funds, using investment mixes that are tailored to different time horizons for retirement and withdrawal. The investment mix of each Lifecycle fund adjusts quarterly to more conservative investments as the participant nears retirement. Pension plans are classified either as defined benefit or as defined contribution plans. Defined benefit plans promise to provide, generally, a fixed level of monthly retirement income that is based on salary, years of service, and age at retirement regardless of how the plan’s investments perform. In contrast, benefits from defined contribution plans are based on the contributions to and the performance of the investments in individual accounts, which may fluctuate in value. Examples of defined contribution plans include 401(k) plans, employee stock ownership plans, and profit-sharing plans. As with other defined contribution plans, TSP is structured to allow eligible federal employees to contribute a fixed percentage of their annual base pay or a flat amount, subject to Internal Revenue Service limits, into an individual tax-deferred account. Additionally, FERS participants are eligible for automatic 1 percent contributions and limited matching contributions from the employing federal agency. According to FRTIB, TSP provides federal (and in most cases, state) income tax deferral on contributions and their related earnings, similar to those offered by many private sector 401(k)-type pension plans. Participants can manage their accounts and conduct a variety of transactions similar to those available to 401(k) participants, such as reallocating contributions, borrowing from the account, making withdrawals, or purchasing annuities. Administration of TSP falls under the purview of the Federal Retirement Thrift Investment Board, an agency established by Congress under FERSA. FRTIB is composed of five Board members appointed by the President, with the advice and consent of the Senate. They are authorized to appoint the Executive Director, who hires additional personnel, and an Employee Thrift Advisory Council. The Employee Thrift Advisory Council is a 15- member council that provides advice to the Board and the Executive Director on the investment policies and administration of the TSP. The Board is responsible for establishing policies for the investment and management of the TSP, as well as administration of the plan. The Executive Director and staff of FRTIB are responsible for implementing the Board’s policies and managing the day-to-day operations of TSP, prescribing regulations to administer FERSA, and other duties. The Board members and the Executive Director serve as plan fiduciaries. The Department of Labor and Congress both play roles in overseeing FRTIB. As we have previously reported, DOL is charged with conducting regular compliance audits to determine if the Board is fulfilling its fiduciary duties and properly safeguarding TSP participants’ assets. Congress created FRTIB and has the ability to change the structure for overseeing FRTIB. As with every federal agency, Congress may exercise oversight of FRTIB. Currently, Congress requires FRTIB to submit its budget and other reports regularly, but it has not typically held hearings unless a challenge has arisen or there has been a proposed change to legislation. In addition, DOL officials do not have in place a specific mechanism for sharing their audit program findings or other issues of concern with Congress. DOL’s oversight of FRTIB is based on a FERSA requirement that the Secretary of Labor establish an audit program and conduct audits of FRTIB and its operations. DOL compliance audits are designed to determine whether FRTIB is complying with FERSA and applicable laws and regulations. This includes whether TSP fiduciaries are acquiring, protecting, and using plan resources prudently, efficiently, and solely in the interest of participants and beneficiaries. The DOL Employee Benefits Security Administration’s (EBSA) Office of the Chief Accountant has administered the audit program since its inception in fiscal year 1988. According to DOL officials, DOL’s audit program reviews all significant activities of FRTIB, including FRTIB’s policy formulation and administration, record keeping, and other functions handled by service providers under contract, and functions of federal agencies related to contributions and employee participation programs. The audits include on- site reviews of TSP’s principal service providers. Because service providers carry out many day-to-day operations of TSP, from record keeping to investment management, audits are primarily conducted on TSP’s service providers. DOL officials have developed an audit manual that includes detailed audit guides, but a firm carries out the audits under contract with DOL. DOL officials said that their ongoing audit presence for TSP is greater than its presence for most of the private plans it oversees, which numbered about 730,000 in 2002. According to DOL, each year, DOL develops a strategic plan that identifies how many and which functions it could audit based on risk and funding. For example, due to FRTIB’s increased use of private contractors to provide call center and other plan services formerly provided by the U.S. Department of Agriculture’s National Finance Center, two of DOL’s five audits in fiscal year 2006 looked at particular operations of newer providers, including certain internal controls. DOL officials also said that the number of audits in a given year is based on the level of funding allocated to the audit program. Fiscal year 2006 funding for the contract audits was $630,000 and covered five audits. DOL exercises its authority over FRTIB by making recommendations for improving operations based on audit findings. DOL officials and the contract auditor meet with the Board members at least once a year to highlight significant issues from audits and to present the department’s future compliance audit schedule. DOL’s recommendations to FRTIB and its service providers generally address compliance with FERSA and FRTIB policies, significant weaknesses in internal controls, or areas where FRTIB could improve the efficiency and effectiveness of its operations. For example, during its fiscal year 2005 audit cycle, DOL’s contractor audited one of FRTIB’s customer call centers, which is operated by a contractor. The audit report included recommendations for FRTIB to implement and enforce policies for information security, designated as a fundamental internal control by DOL, at the contractor’s sites; establish additional performance measures; and implement consistent monitoring of call volume at the two call centers. As of September 2006, DOL considered the first recommendation partially implemented and the other two recommendations implemented. DOL cannot compel FRTIB or its service providers to implement its audit recommendations. However, FRTIB generally had implemented a high percentage of DOL’s audit recommendations. According to DOL and FRTIB officials, this voluntary implementation of audit recommendations has worked well for them because DOL and FRTIB have a longstanding and positive working relationship. Congress has not required FRTIB or DOL to testify regularly before Congress on TSP operations, although it does receive routine reports from FRTIB. As with other federal agencies, Congress may exercise oversight of FRTIB by investigating agency operations, holding hearings, issuing subpoenas, and requiring the agency to submit performance or financial reports. Congressional committees have typically held hearings on TSP when a challenge has arisen or when there was a proposed change to legislation. For example, FRTIB officials were asked to testify in response to customer service issues with TSP in 2003 and in response to abusive trading practices in the private sector in 2004. In the 20 years since TSP has been in existence, FRTIB estimates it has been called to testify approximately a dozen times. Most recently, Board members and the Executive Director provided testimony in 2005 and 2006 about adding a new fund to TSP’s investment options. According to DOL officials, Congress does not require DOL to meet with committee staff or testify about TSP or its audit findings on a regular basis. DOL has testified at least three times on its audit program — in 1994, 2003, and 2004. Congress requires FRTIB to submit its budget and to have an independent financial audit each year, performed under contract by a public accounting firm. FRTIB also provides a list of each audit report, including DOL’s compliance audits, and summaries of any particularly significant findings, to Congress each year, as required by the Inspector General Act of 1978. The 2006 summary contained little information about audit recommendations. DOL is not required to submit its audit reports directly to Congress, and Congress has not asked DOL to share its audit findings on a regular basis through hearings or meetings with committee staff. Consequently, Congress may be unaware of concerns DOL may have. In a 2003 report, we noted that there have been times when DOL has had issues of concern with FRTIB outside of its audit findings. We recommended that Congress consider amending FERSA to require DOL to establish a formal process by which the Secretary of Labor can report to Congress areas of critical concern about the actions of the Executive Director and Board members, but no changes have yet been made.