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. 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. 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. 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. 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.