This is the accessible text file for GAO report number GAO-07-541 
entitled 'Federal Retirement Thrift Investment Board: Due Diligence 
Over Administrative Expenses Should Continue and Be Broadened' which 
was released on June 13, 2007. 

This text file was formatted by the U.S. Government Accountability 
Office (GAO) to be accessible to users with visual impairments, as part 
of a longer term project to improve GAO products' accessibility. Every 
attempt has been made to maintain the structural and data integrity of 
the original printed product. Accessibility features, such as text 
descriptions of tables, consecutively numbered footnotes placed at the 
end of the file, and the text of agency comment letters, are provided 
but may not exactly duplicate the presentation or format of the printed 
version. The portable document format (PDF) file is an exact electronic 
replica of the printed version. We welcome your feedback. Please E-mail 
your comments regarding the contents or accessibility features of this 
document to Webmaster@gao.gov. 

This is a work of the U.S. government and is not subject to copyright 
protection in the United States. It may be reproduced and distributed 
in its entirety without further permission from GAO. Because this work 
may contain copyrighted images or other material, permission from the 
copyright holder may be necessary if you wish to reproduce this 
material separately. 

Report to the Ranking Member, Committee on Oversight and Government 
Reform, House of Representatives: 

United States Government Accountability Office: 

GAO: 

May 2007: 

Federal Retirement Thrift Investment Board: 

Due Diligence Over Administrative Expenses Should Continue and Be 
Broadened: 

GAO-07-541: 

GAO Highlights: 

Highlights of GAO-07-541, a report to the Ranking Member, Committee on 
Oversight and Government Reform, House of Representatives 

Why GAO Did This Study: 

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. 

What GAO Found: 

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. 

Figure: Total Administrative Expenses of FRTIB, Fiscal Years 2000-2006: 

[See PDF for Image] 

Source: GAO analysis of FRTIB data. 

Note: Travel expenses--which have been between .10 and .24 percent of 
expenses--are not included in the graph above because they are too 
small to be visually apparent. 

[End of figure] 

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. 

What GAO Recommends: 

GAO recommends that the board members direct the Executive Director to 
continue exercising due diligence by identifying opportunities for 
continued cost savings, specifically in the areas of rent and travel. 
GAO also recommends that FRTIB expand its benchmarking practices to 
comparable individual activities. FRTIB partially concurred with our 
recommendations. 

[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-07-541]. 

To view the full product, including the scope and methodology, click on 
the link above. For more information, contact Susan J. Irving at (202) 
512-9142 or irvings@gao.gov. 

[End of section] 

Contents: 

Letter: 

Results in Brief: 

Background: 

Overview of Individual Categories of Expenses and Comparison of 
Expenses Against Other Agencies and Federal Regulations: 

Miscellaneous Expenses: 

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: 

Conclusions: 

Recommendations for Executive Action: 

Agency Comments and Our Evaluation: 

Appendix I: Objectives, Scope, and Methodology: 

Appendix II: Comments from the Federal Retirement Thrift Investment 
Board: 

Appendix III: GAO Contact and Staff Acknowledgments: 

Figures: 

Figure 1: Total Administrative Expenses of FRTIB, Fiscal Years 2000- 
2006: 

Figure 2: Expense Categories Used in This Report: 

Figure 3: Administration Expenses in FRTIB's Budget, Fiscal Year 2006: 

Figure 4: Services Purchased from Private Contractors and Other Federal 
Agencies, Fiscal Years 2000-2006: 

Figure 5: Miscellaneous Expenses, Fiscal Years 2000-2006: 

Figure 6: Compensation, Fiscal Years 2000-2006: 

Figure 7: Rent, Fiscal Years 2000-2006: 

Figure 8: Travel Expenses, Fiscal Years 2000-2006: 

United States Government Accountability Office: 

Washington, DC 20548: 

May 14, 2007: 

The Honorable Tom Davis: 
Ranking Member: 
Committee on Oversight and Government Reform: 
House of Representatives: 

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.[Footnote 1] 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.[Footnote 2] To analyze the components of 
administrative expenses, we used the projections contained in FRTIB's 
annual budget documents.[Footnote 3] 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.[Footnote 4] 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. 

Results in Brief: 

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 estimated expenses, and that reflected the 
termination of a contract with American Management Systems to develop a 
record-keeping system. However, 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. This was followed by miscellaneous expenses, 
compensation, rent, and travel. 

For its administrative activities, FRTIB has established practices that 
are consistent with federal regulations. However, it has opportunities 
to continue exercising due diligence. FRTIB is bound by federal 
regulations that govern acquisition, compensation, and travel. There 
are some areas, however, that suggest opportunities for future cost 
savings. The amount that FRTIB pays per square foot for rent is 
consistent with average rates that the General Services Administration 
(GSA) cites for nearby available properties. However, FRTIB rents more 
space per employee than GSA recommends. This is in part a reflection of 
the personnel downsizing that has occurred in recent years. Consistent 
with good management practices, FRTIB has indicated that it will be 
looking into the possibility of consolidating its space in 2007. 
Additionally, telecommunications provide opportunities to reduce the 
travel expenses of board members traveling to Washington, D.C. for 
monthly meetings. 

FRTIB's current method of benchmarking TSP participants' investment 
fees against those charged by 401(k) plans offers incomplete 
information to assess administrative expenses. The investment fee is 
very important for the participants--and the TSP compares favorably on 
this measure. However, looking only at an aggregate measure--whether 
the investment fee or the total administrative costs--provides 
insufficient information to judge whether individual activities, such 
as purchased call center services from private contractors, are being 
conducted either to achieve the best performance or in the most 
efficient manner. 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. 

To ensure that the 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 the 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 meetings, as appropriate. 
Finally, 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. 

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. 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. 

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. Our report does not 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. Nonetheless, 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. 

Written comments from FRTIB are included and addressed in appendix II. 
We have incorporated changes as a result of FRTIB's comments, as 
appropriate. 

Background: 

The Federal Employees' Retirement System Act of 1986 (FERSA)[Footnote 
5] 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.[Footnote 6] 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.[Footnote 7] 

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.[Footnote 8] 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.[Footnote 9] According to a 2005/2006 Deloitte 
Consulting 401(k) benchmarking survey, the average expense ratio for 
401(k) plans was 75 basis points.[Footnote 10] 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.[Footnote 11] 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. 

Trends and Composition of Administrative Expenses: 

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). 

Figure 1: Total Administrative Expenses of FRTIB, Fiscal Years 2000- 
2006: 

[See PDF for image] 

Source: GAO analysis of FRTIB data. 

Note: Travel expenses--which have been between .10 percent and .24 
percent of administrative expenses from fiscal years 2000 through 2006-
-are not included in the graph above because they are too small to be 
visually apparent. Investment fees paid to Barclays and Mercer 
Investment Consulting are not included in this graph because generally 
accepted accounting principles require these expenses to be offset 
against investment income and therefore are not classified as 
administrative expenses for financial reporting purposes. 

[End of figure] 

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. 

As discussed before, we used budget object classifications to 
categorize FRTIB's administrative expenses into six broad 
groups.[Footnote 12] Figures 2 and 3 describe the categories and show 
the breakout of these expenses in fiscal year 2006. 

Figure 2: Expense Categories Used in This Report: 

* Services purchased from private contractors is comprised of the 
object classes of consultants and commercial contracts. Some of the 
services that FRTIB purchases through contracts are record-keeping and 
services provided for data and call centers. This does not include fees 
paid to manage investment accounts; 
* Services purchased from other government agencies is comprised of the 
object classes of NFC and other government services. Some of these 
services are payroll and personnel services provided by the Department 
of the Interior; 
* Miscellaneous expenses is comprised of the object classes of 
communications, utilities, and miscellaneous charges; printing; 
supplies and materials; transportation of things; and furniture and 
equipment. The subcategory of communications, utilities, and 
miscellaneous charges is primarily comprised of postage, delivery 
charges, and telephone service, according to FRTIB. We included mission-
related telephone service for call centers in this category instead of 
services purchased from private contractors because the aggregated data 
provided by FRTIB did not permit us to isolate these charges from other 
miscellaneous expenses; 
* Compensation is comprised of full and part-time staff salaries, as 
well as benefits; 
* Rent is solely comprised of FRTIB's rental payments; 
* Travel is comprised of FRTIB staff and TSP board travel. 

Source: GAO analysis. 

[End of figure] 

Figure 3: Administration Expenses in FRTIB's Budget, Fiscal Year 2006: 

[See PDF for image] 

Source: GAO analysis of FRTIB data. 

[End of figure] 

Overview of Individual Categories of Expenses and Comparison of 
Expenses Against Other Agencies and Federal Regulations: 

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.[Footnote 13] 

Services Purchased from Private Contractors and Other Federal Agencies: 

The amount that FRTIB spends purchasing services from other entities is 
at a 7-year low.[Footnote 14] (See fig. 4 below.) 

Figure 4: Services Purchased from Private Contractors and Other Federal 
Agencies, Fiscal Years 2000-2006: 

[See PDF for image] 

Source: GAO analysis of FRTIB data. 

[End of figure] 

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[Footnote 15]. 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.[Footnote 16] 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. 

Miscellaneous Expenses: 

In the years since 2003, a variety of factors have led to increased 
miscellaneous expenses.[Footnote 17] (See fig. 5 below.) 

Figure 5: Miscellaneous Expenses, Fiscal Years 2000-2006: 

[See PDF for image] 

Source: GAO analysis of FRTIB data. 

[End of figure] 

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.[Footnote 18] 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.[Footnote 19] 

Compensation: 

FRTIB's compensation expenses have been relatively stable over the past 
7 years. (See fig. 6 below.) [Footnote 20] 

Figure 6: Compensation, Fiscal Years 2000-2006: 

[See PDF for image] 

Source: GAO analysis of FRTIB data. 

Note: Compensation includes salaries and benefits. 

[End of figure] 

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.[Footnote 21] Additionally, 7 staff members are part of the 
Senior Executive Service.[Footnote 22] 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.[Footnote 23] 

Rent: 

FRTIB's total rent expenses remained relatively constant until fiscal 
year 2005.[Footnote 24] (See fig. 7 below.) Rent expenses dropped in 
2005 and increased again in 2006 coinciding with the lease of an 
emergency facility. 

Figure 7: Rent, Fiscal Years 2000-2006: 

[See PDF for image] 

Source: GAO analysis of FRTIB data. 

[End of figure] 

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. 

Travel: 

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.[Footnote 25] 
In fiscal year 2006 travel expenses fell slightly above the middle of 
this range at about $200,000. (See fig. 8.) 

Figure 8: Travel Expenses, Fiscal Years 2000-2006: 

[See PDF for image] 

Source: GAO analysis of FRTIB data. 

[End of figure] 

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.[Footnote 26] 

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.[Footnote 27] 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. 

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: 

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.[Footnote 28] 

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.[Footnote 29] 

Conclusions: 

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. 

Recommendations for Executive Action: 

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. 

Agency Comments and Our Evaluation: 

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. 

Sincerely yours, 

Signed by: 

Susan J. Irving: 
Director, Federal Budget Analysis Strategic Issues: 

[End of section] 

Appendix I: Objectives, Scope, and Methodology: 

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.[Footnote 30] 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,[Footnote 31] 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. 

[End of section] 

Appendix II: Comments from the Federal Retirement Thrift Investment 
Board: 

Note: GAO comments supplementing those in the report text appear at the 
end of this appendix. 

Federal Retirement Thrift Investment Board: 
1250 H Street, NW Washington, DC 20005: 
Thrift Savings Plan: 

April 16, 2007: 

Ms. Susan J. Irving: 
Director, Federal Budget Analysis: 
Strategic Issues: 
U.S. Government Accountability Office: 
Washington, D.C. 20548: 

Dear Ms. Irving: 

This letter is in response to your request for comments on the draft 
report now entitled "Federal Retirement Thrift Investment Board: Due 
Diligence Over Administrative Expenses Should Continue and Be 
Broadened." 

The draft General Accountability Office (GAO) report provides two 
recommendations for Executive Action. This letter contains our 
responses to each recommendation, as well as corrections and suggested 
changes to the text of the draft report. 

A. Recommendations: 

Recommendation No. 1: To ensure that the FRTIB continues to operate as 
efficiently as possible, we recommend that the Board direct the 
Executive Director to continue to 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 member 
meetings, as appropriate. 

Response: We concur with this recommendation. The Agency will continue 
to monitor and assess its office space needs and related costs in 
relation to its projected staffing levels. As we are in the middle of a 
multi-year lease for our office space at 1250 H St., we will also 
consider any costs and benefits that might be incurred by a decision to 
revise the lease or sublet part of our office space. We note that any 
reduction in the space leased by the Agency would not result in a 
material change to the overall Agency budget. We note that our General 
Counsel has opined that the Agency is not required to use the GSA for 
leasing services, a position to which the GSA has acceded. (See 
attached memorandum.) 

The second part of this recommendation states that the FRTIB should 
consider expanding its use of telecommunications for its monthly Board 
member meetings, as appropriate. I and the members of the Board believe 
that in-person Board meetings are extremely important aspect of 
fulfilling our fiduciary and due diligence responsibilities under 
FERSA. The annual number of in-person Board meetings is debated and 
decided by the Board members themselves, and they have been very 
deliberate in their decision to conduct their monthly meetings in 
person as frequently as possible in order to monitor Agency operations 
closely. The minimal travel costs associated with this decision are far 
outweighed by the benefits derived from in-person meetings. 

Recommendation No. 2: To provide the Board with the most complete and 
relevant information with which to assess the expenses and performance 
of administrative functions of the 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. 

Response: We concur with the use of benchmarking of costs in 
appropriate situations. The Agency is always mindful of its 
responsibility to ensure prudent use of TSP resources. In fact, as the 
report notes, overall TSP administrative costs, which include all 
Agency expenditures, compare extremely favorably with private sector 
401(k) plans, which we view as the most appropriate benchmark. TSP 
total administrative costs, including all record keeping and staff 
costs, as well as investment costs, were only three basis points in 
2006. This is far lower than the reported costs of any other 401(k) 
plan (the report cites an average of 75 basis points) and is in fact 
several times less than the reported investment expenses alone for the 
cheapest 401(k) plans. 

However, rather than separately "benchmarking" each component of our 
overall costs, as the report recommends, we rely on the competitive 
procurement process to obtain outstanding performance for TSP 
participants at competitive costs. Using the competitive procurement 
process, we have achieved exceptional cost savings for TSP participants 
in a number of areas, including investment management and call center 
operations. The competitive process is in fact the best type of 
benchmarking, because it requires competing companies to make firm 
business proposals with real costs in a competitive environment. 
Proposals are evaluated from both a technical and cost standpoint. Once 
a contract agreement is entered into, our focus shifts to monitoring 
the contractor's performance to ensure that it is providing the 
required services at the price promised. Although contracts can always 
be terminated for convenience, we believe that contractors have the 
right to expect when they make their cost proposals that we will 
continue to honor the contract as long as they continue to perform. 
Therefore, "benchmarking" has limited value during the duration of the 
contract if it implies a decision to change the contract terms after 
the fact. 

While the report specifically recommends further benchmarking of the 
costs of our two call center operations, we believe that our two 
competitively procured call center contracts are in fact evidence of 
the efficacy of our practice of regularly engaging in competitive 
procurements for call center operations. When compared to the previous 
arrangement with the National Finance Center, those contracts have 
resulted in significant cost savings as well as improved service and 
backup capabilities. While we regularly monitor the quality of each 
contractor's performance using an outside consultant and internal 
measures, we believe that "benchmarking" of costs for the call centers 
will occur during the next procurement cycle. 

B. Other Edits: 

The draft report contains the following factual error: 

1. The summary page states the FRTIB's current method of benchmarking 
TSP participants' investment fees against those charged by 401(k) plans 
offers "incomplete information" to assess administrative expenses. For 
the following reasons, as well as those articulated above, we do not 
agree with this comment: 

The Agency maintains complete information on all TSP administrative 
expenses, which are accurately and thoroughly disclosed to Board 
members, our participants, and members of the public through our 
statutorily mandated audited financial statements, which are available 
on the TSP website. Further expense information is provided to the 
Board, the press, and the public at the annual Board meeting where the 
Agency budget is discussed, reviewed, and approved by the Board. It is 
not the Agency's responsibility to ensure that private sector 401(k) 
plans adopt similar levels of public disclosure so that there would be 
better benchmarking opportunities for the TSP. Further, the report does 
not document a single instance where such benchmarking has been 
performed either in the government or private industry or describe the 
actual value derived from that benchmarking. 

1. In the discussion on page 2, it is not clear to us why the GAO does 
not consider telephone service for the call centers to be a mission- 
related service purchased from a private contractor. We certainly 
believe it to be so. We caution that the categories into which certain 
budget items are required to be placed by OMB rules when submitting our 
budget to the President and the Congress cannot be correlated with the 
proper budget category for program evaluation purposes. 

2. On page 5, in the first paragraph, the statutory formula for the 
FERS Agency automatic contribution is one percent of "basic pay" which 
is not always the same as "salary"; also, it is not made clear that 
only the Agency automatic contribution is affected by vesting. The 
participant is always vested in his or her matching contributions. We 
also note that specific contribution rules apply to the members of the; 
uniformed services (e.g., contributions from pay earned in a combat 
zone are tax exempt and contributions from special pay, incentive pay, 
and bonuses are allowed). In the last sentence of the paragraph, the 
correct number of participants as of November, 2006 was 3.5 million. 

3. On page 5, in the second paragraph, at the end of FY2006, the FRTIB 
employed 65 people. Also, OPM has performed the functions described in 
this report as a result of its statutory responsibilities. 

4. In the first sentence of the second paragraph on page 6, the word 
"accounts" should be replaced by the word "funds". Also, you should 
clarify that the "L funds" are not separate funds, but merely asset 
allocations mechanisms consisting of the existing five TSP funds. 

5. The draft report states in several places (e.g., page 11) that the 
FRTIB is required to follow the Federal Acquisition Regulation (FAR). 
The Agency's General Counsel has concluded that the Agency is not 
subject to Federal procurement rules. (See attached memorandum.) The 
Agency voluntarily follows the provisions of the FAR to the extent that 
it concludes that this fosters adherence to fiduciary principles. This 
position has been reviewed and endorsed by the Department of Labor. 

6. On page 9, the document incorrectly states that the FRTIB terminated 
its contracts with the National Finance Center (NFC). As we stated in 
our November 6, 2007 response to the initial set of questions on March 
9, 2006, the NFC terminate all the initial set of GAO questions, on 
March provided notice to the FRTIB that it would services to the TSP 
effective June 9, 2006. 

7. On page 7, in the fifth sentence, the word "reportedly" should be 
removed, since it appears to suggest that reports may not actually be 
provided, whereas the Board minutes clearly show that they are. 

8. On page 9, the discussion should clarify that the NFC terminated its 
contracts with the FRTIB. Also, the Department of Interior provides 
personnel as well as payroll services to the Agency; this is correctly 
stated in Figure 2. 

9. In Figure 3, the graph is misleading due to the GAO decision to 
place telephone services for the call centers under the category 
"Miscellaneous office expenses," rather than under the category of 
"Services Purchased from Private Contractors." As noted in comment 2 
above, use of the OMB budget reporting categories does not cause these 
expenses to be categorized correctly for program purposes. The same 
error exists in Figure 4 and Figure 5. 

10. On page 14, last sentence, the word "contract" should be changed to 
"call center". 

Sincerely, 

Signed by: 

Gregory T. Long: 
Executive Director: 

Enclosure: 

GAO Comments: 

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.[Footnote 32] 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. 

[End of section] 

Appendix III: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

Susan J. Irving, (202) 512-9142 or irvings@gao.gov: 

Acknowledgments: 

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.  

FOOTNOTES 

[1] Asset and participant numbers are as of November 2006. 

[2] The numbers we use from FRTIB's budget documents were prepared late 
in the fiscal year, which ends September 30. 

[3] Since the financial statements do not disaggregate data 
sufficiently for our purposes, we were not able to use them. We used 
projections because the board does not report actual expenses in its 
budget documents after the fiscal year is complete. 

[4] Budget object classifications are uniform classifications 
identifying the obligations of the federal government by the types of 
goods or services purchased (such as personnel compensation, supplies 
and materials, and equipment) without regard to the agency involved or 
the purpose of the programs for which they are used. 

[5] Pub. L. No. 99-335, 100 Stat. 514 (June 6, 1986). For details on 
defined contribution plans, see GAO, Federal Pensions: DOL Oversight 
and Thrift Savings Plan Accountability, GAO-03-400 (Washington, D.C.: 
Apr. 23, 2003). 

[6] Only employees who are "vested" are entitled to keep the 
contributions that an agency has made on their behalf. In other words 
only agency automatic contributions are affected by vesting; the 
participant is always vested in his or her matching contributions. 

[7] The investment options in the TSP are the G fund, a government 
securities fund; the F Fund, a fixed income securities fund; the C 
Fund, a common stock investment fund; the S Fund, a small 
capitalization stock investment fund; the I Fund, an international 
investment fund; and the L Funds, a series of five life-cycle funds. 
The L Funds are not separate funds; they merely consist of asset 
allocation mechanisms of the existing five TSP funds. 

[8] 5 U.S.C. §§ 8432(g), 8437(d). 

[9] This expense ratio is expressed in basis points, which are equal to 
.01 percent of the cost. 

[10] Deloitte Consulting, LLP, Annual 401(k) Benchmarking Survey, 2005/ 
2006 Edition. Available at: 
http://www.deloitte.com/dtt/article/0%2C1002%2Ccid%25253D124276%2C00.htm
l (Accessed Feb. 20, 2007). 

[11] 5 U.S.C. § 8472(i). 

[12] As discussed earlier, we used budget data because FRTIB's 
financial statements did not disaggregate data sufficiently for our 
purposes. Budget object classifications are uniform classifications 
identifying the obligations of the federal government by the types of 
goods or services purchased (such as personnel compensation, supplies 
and materials, and equipment) without regard to the agency involved or 
the purpose of the programs for which they are used. 

[13] 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. 

[14] The "services purchased from other entities" category includes two 
subcategories: private contractors and services purchased from other 
government agencies. Private contractors is comprised of the object 
classes of consultants and commercial contracts. Some of the services 
that FRTIB purchases through contracts are record-keeping and services 
provided for data and call centers. This does not include fees paid to 
manage investment accounts. Services purchased from other government 
agencies is comprised of the object classes of National Finance Center 
and other government services. Some of these services are payroll and 
personnel services provided by the Department of the Interior. 

[15] For more information about FRTIB's termination of the American 
Management Systems contract, see GAO, Thrift Savings Plan: Delayed 
Allocation of Failed System Development Costs to Participant Accounts, 
GAO-03-827R (Washington, D.C.: July 22, 2003). 

[16] For more information about call center monitoring, see GAO, 
Federal Contact Centers: Mechanism for Sharing Metrics and Oversight 
Practices along with Improved Data Needed, GAO-06-270 (Washington, 
D.C.: Feb. 8, 2006). 

[17] The miscellaneous expenses category is comprised of the object 
classes of communications, utilities, and miscellaneous charges; 
printing; supplies and materials; transportation of things; and 
furniture and equipment, many of which are purchased from outside 
entities. The subcategory of communications, utilities, and 
miscellaneous charges is primarily comprised of postage, delivery 
charges, and telephone service, according to FRTIB. 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. 

[18] In a 2003 audit of FRTIB's procurement practices, the Department 
of Labor had no recommendations about ways to improve procurement 
practices and controls for compliance with FERSA's fiduciary and 
prohibited transaction practices. 

[19] For more discussion about the prices of the Federal Acquisition 
Service, please refer to GAO, Contract Management: Opportunities to 
Improve Pricing of GSA Multiple Award Schedules Contracts, GAO-05-229 
(Washington, D.C.: Feb. 11, 2005). 

[20] The compensation category includes salary and benefits. 

[21] 5 U.S.C. §5314. 

[22] FRTIB had an additional five open senior executive positions 
available as of September 2006. 

[23] 5 U.S.C. § 8476(d)(1). 

[24] The rent category is solely comprised of rental payments. 

[25] The travel category contains travel expenses for FRTIB staff and 
the five board members. 

[26] FRTIB governs travel by board members and employees under FRTIB 
Directive 10D and in accordance with Federal Travel Regulations (FTR). 
5 U.S.C. §5701-5760, 41 C.F.R. Ch. 301-304. 

[27] FERSA states that the board "shall meet"(1) not less than once 
during each month; and (2) at additional times at the call of the 
Chairman. 

[28] Private sector 401(k) plans report the amount charged to the 
investor for participation in the investment fund; for most plans this 
is not a measure of administrative expenses. 

[29] For a discussion and examples of benchmarking by administrative 
function, see GAO, Managing for Results: Critical Actions for Measuring 
Performance, GAO/T-GGD/AIMD-95-187 (Washington, D.C.: June 20, 1995); 
Public-Private Partnerships: Key Elements of Federal Building and 
Facility Partnerships, GAO/GGD-99-23 (Washington, D.C.: Feb. 3, 1999); 
Management Reform: Agency Initial Efforts to Restructure Personnel 
Operations, GAO/GGD-98-93 (Washington, D.C.: July 13, 1998). 

[30] GAO, Framework for Assessing the Acquisition Function at Federal 
Agencies, GAO-05-218G (Washington, D.C.: September 2005). 

[31] We reviewed a benchmarking study from Deloitte Consulting, Inc. 
that compares the basis points charged by various 401(k) plans. 

[32] American Management Systems v. United States, 53 Fed. Cl. 525, 529 
(2002). 

GAO's Mission: 

The Government Accountability Office, the audit, evaluation and 
investigative arm of Congress, exists to support Congress in meeting 
its constitutional responsibilities and to help improve the performance 
and accountability of the federal government for the American people. 
GAO examines the use of public funds; evaluates federal programs and 
policies; and provides analyses, recommendations, and other assistance 
to help Congress make informed oversight, policy, and funding 
decisions. GAO's commitment to good government is reflected in its core 
values of accountability, integrity, and reliability. 

Obtaining Copies of GAO Reports and Testimony: 

The fastest and easiest way to obtain copies of GAO documents at no 
cost is through GAO's Web site (www.gao.gov). Each weekday, GAO posts 
newly released reports, testimony, and correspondence on its Web site. 
To have GAO e-mail you a list of newly posted products every afternoon, 
go to www.gao.gov and select "Subscribe to Updates." 

Order by Mail or Phone: 

The first copy of each printed report is free. Additional copies are $2 
each. A check or money order should be made out to the Superintendent 
of Documents. GAO also accepts VISA and Mastercard. Orders for 100 or 
more copies mailed to a single address are discounted 25 percent. 
Orders should be sent to: 

U.S. Government Accountability Office 441 G Street NW, Room LM 
Washington, D.C. 20548: 

To order by Phone: Voice: (202) 512-6000 TDD: (202) 512-2537 Fax: (202) 
512-6061: 

To Report Fraud, Waste, and Abuse in Federal Programs: 

Contact: 

Web site: www.gao.gov/fraudnet/fraudnet.htm E-mail: fraudnet@gao.gov 
Automated answering system: (800) 424-5454 or (202) 512-7470: 

Congressional Relations: 

Gloria Jarmon, Managing Director, JarmonG@gao.gov (202) 512-4400 U.S. 
Government Accountability Office, 441 G Street NW, Room 7125 
Washington, D.C. 20548: 

Public Affairs: 

Paul Anderson, Managing Director, AndersonP1@gao.gov (202) 512-4800 
U.S. Government Accountability Office, 441 G Street NW, Room 7149 
Washington, D.C. 20548: