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Thrift Savings Plan: Delayed Allocation of Failed System Development Costs to Participant Accounts

GAO-03-827R Published: Jul 22, 2003. Publicly Released: Aug 22, 2003.
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Highlights

The Thrift Savings Plan (TSP) is a retirement savings and investment plan for federal employees, governed by the Federal Retirement Thrift Investment Board (Board). The TSP is a defined contribution retirement plan available to eligible federal employees. The TSP had about 2.6 million participants and held about $100.6 billion in Net Assets Available for Benefits as of December 31, 2001, and about 3 million participants and $102.3 billion in Net Assets Available for Benefits as of December 31, 2002. In 1997, the Board awarded a contract to American Management Systems, Inc. (AMS) to develop and implement a new record-keeping system for the TSP. In 2001, after several implementation delays, the Board terminated the contract, and the Board's former Executive Director filed a lawsuit against the contractor on behalf of the TSP. On June 20, 2003, 2 days after we provided a draft of this report to the Board for its review, a settlement between the parties was reached. Then, on June 23, 2003, the net unrecovered cost from the system development failure was allocated to participant account balances as recommended in our draft report. While the loss has now been allocated to participant accounts, albeit on a belated basis, we believe there is value associated with issuing this product in response to the request to illustrate the operative principles and concepts that should govern allocation of costs in the future. Since the TSP is an important component of retirement income for many federal employees, participants must be assured of proper accounting of their funds. Therefore, Congress asked us to examine federal oversight of the TSP and the TSP's accounting for its failed system development costs. Our report on federal oversight of the TSP was issued in April 2003. This report addresses whether (1) the TSP's management followed U.S. generally accepted accounting principles (GAAP) in accounting for the costs associated with the failed development of the new record-keeping system and (2) the TSP should have allocated the costs to participants' accounts when the loss occurred.

Recommendations

Recommendations for Executive Action

Agency Affected Recommendation Status
Federal Retirement Thrift Investment Board To be consistent with the financial statement treatment and its routine allocation practices, in light of uncertainties involving the litigation, and to prevent a growing percentage of account holders from departing the Thrift Savings Plan and not sharing in the system failure costs, the Federal Retirement Thrift Investment Board should require the Executive Director to allocate the loss as soon as possible to participant accounts in the most equitable and efficient manner.
Closed – Implemented
On June 20, 2003, the Federal Retirement Thrift Investment Board (FRTIB) and American Management Systems, Inc. (AMS) settled a lawsuit related to the failed system development for $36 million. On June 23, 2003, the $36 million in failed system development costs were allocated to participant accounts. This action closes GAO's recommendation because now (1) the Thrift Savings Plan consistently reports the costs in its financial statements and on individual participant accounts and (2) aggregate reported Thrift Savings Plan assets equal the sum of individual participant accounts.

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Topics

AccountabilityAccounting standardsAllocation (Government accounting)Federal employee retirement programsGovernment retirement benefitsLossesRecords managementThrift savings planAccountsAdministrative expenses