Labor questions TSP board’s handling of quarrel with contractor

A legal war between the board that oversees the Thrift Savings Plan and a fired contractor has led to a squabble between board officials and the Labor Department.

At issue is the Federal Retirement Thrift Investment Board's litigation with American Management Systems, the Fairfax, Va.-based company hired in 1997 to modernize the TSP computer system. After four years, four delays and a tripling of the project's estimated cost, the TSP board fired AMS in July 2001. The thrift board sued AMS asking for $350 million in damages, but a federal judge dismissed the case, ruling that the board could only sue AMS through the Justice Department. At the same time, AMS filed a breach of contract suit against the thrift board, and though the board tried to have the suit dismissed, the Federal Claims Court ruled that AMS could sue the board.

Labor Department officials are questioning the board's decision to press forward with the litigation, contending that the board is spending money unnecessarily in its fight with AMS. The department also questions the board's move to forego assessing TSP member accounts for $41 million in expenses from the AMS contract until the court actions are resolved. Nearly 3 million civilian and military participants have about $100 billion invested in the TSP.

The dispute has unfolded in a series of letters dating back to April 26, when Ian Dingwall, chief accountant for Labor's Pension and Welfare Benefits Administration, sent a letter to Roger Mehle, TSP board executive director, asking Mehle to "carefully consider whether the pursuit of the current appeal…is consistent with…the best interests of the participants and beneficiaries." Dingwall also wrote that the Labor Department had jurisdiction to investigate the board's activities under the 1986 Federal Employees' Retirement System Act (FERSA).

In the ensuing correspondence, TSP officials insisted that Labor officials were intervening unnecessarily and pointed to its $350 million suit as evidence that the board was, indeed, acting in the best interest of TSP participants. Board officials said they hope to use the proceeds from that lawsuit to offset the $41 million in question, rather than charge the debt to TSP members.

An August letter from Ernst & Young, the board's auditor, described the board's actions as reasonable.

But Assistant Secretary of Labor Ann Combs wrote on Sept. 6 that the agency had shared its concerns with the Internal Revenue Service, the General Accounting Office and the Justice Department, because "the board's conduct raises legal and policy issues of potential significance to other governmental entities." According to Combs, the board's decision regarding the $41 million expense was out of step with FERSA rules.

In his Sept. 12 response, Mehle and Board Chairman James Atkins said the board said it had asked Congress to step in and investigate Labor's role in the imbroglio and was forwarding the letter to President Bush to make him aware of the Labor Department's actions.

"The Labor Department is entitled to its views and opinions, but it may not impose them on this organization," board officials said in the Sept. 12 letter.

In the most recent letter, dated Sept. 26, Combs reiterated Labor Department's oversight role under FERSA. The issue is pending.