TSP chief considers new funds, loan limits

On June 1, Gary Amelio took over as executive director of the Thrift Savings Plan, the 401k-style retirement plan for federal employees.

In the first few weeks of his term, Amelio has been busy extinguishing fires related to the new automated record keeping system, trying to restore and maintain customers' goodwill amid those problems and responding to congressional inquiries about a failed contract to modernize the system.

Prior to joining the TSP, Amelio spent 14 years in the investment arm of PNC Bank. A Pittsburgh native, Amelio has an undergraduate degree and a law degree from the University of Pittsburgh.

On Monday, Amelio talked to Government Executive about the problems plaguing the TSP and shared some of his ideas for the future of the system. On progress with fixing problems associated with the automated record keeping system:

I am so focused on getting this thing running as smooth as a Swiss watch.

A substantial amount of testing was done and it was believed that we could bring the system up, and so the system was brought up. There were some transitional issues during the startup, where people were required to resubmit forms for the new system. That, combined with the fact that the Web site started off slow, resulted in a lot of participants becoming concerned that they weren't seeing their transactions hit, so they were resubmitting the same transactions on multiple occasions. As a result, the volumes grew, and we had a paper backlog. That probably revolved around 15,000 to 20,000 participants.

Then the phone lines started to jam up because of this huge burden. We got that backlog completely resolved, cleaned out. Some fixes have occurred to the system. We have gone from several hundred bugs down to 100 bugs right now and those should be resolved in the next two weeks. The only outstanding issue, right now, is the telephone lines and even now that issue is being resolved.

The alternative would have been a blackout period. You actually freeze the plan for some period of time, let's say three months, whereby participants cannot make fund changes or take out loans. You get everything transitioned over, set up, starting right, and then after the end of the blackout period you restart. First, there is no guarantee that, had we done that, the bugs would all have been worked out. Two, all 3.2 million participants would have been affected rather than the 15,000 who were affected. I wasn't here to make that decision, but had I been, I'm not so sure that would have been the way to go, either.

It's a monumental job getting this thing up and running. I would suggest that when you look at the enormity of this plan, the number of participants, the number of assets, the number of transactions that go on, given all my years of experience, I was surprised that all that went on was it, and that there weren't even more problems. But we never lost faith in the integrity of the system to do the job.

On settling the lawsuit with American Management Systems Inc.:

I did a thorough investigation with all of the attorneys and managers and executives who were involved . . . and based upon all of that, I thought my conclusion could only be one way and that was to settle. We generated $5 million for the participants that they otherwise would not have had.

That settlement did not cost the participants $36 million-that $36 million was spent three years ago. The only thing that we did was to actually credit the amount to the specific participant accounts. I believe it was a mistake that those assets weren't allocated to the participants when they were spent, and I totally agree with the Department of Labor, the [General Accounting Office] and our external auditors, all of whom made the recommendation that I believe, which is the money should have been allocated when it was spent three years ago.

On possible changes to the loan program:

The issue of participant loans has been really the genesis for where most of these [recordkeeping system] problems came from. Regardless of the fact that the telephone lines were busy and the Web site was slow, a lot of that backlog, a lot of the problems, a lot of the frustration, revolved around the loan program.

We are looking at [instituting] a holding period, so that if someone pays off a loan there will be a wait period before they'd be allowed to take out another loan. The second thing we're looking at is reviewing the concept of two loans. The third thing we're looking at is perhaps implementing a fee to take a loan.

All of those things are very commonplace in the private sector. The one thing that makes the fee attractive is it helps underwrite the cost of administration. Right now, all of the plan participants are underwriting the costs of the loan feature and the fee would perhaps be a way to shift some of those costs directly to only those participants who are specifically utilizing the loan feature.

Now, all of those alternatives will be unpopular with participants, who are used to the unfettered access to the two loans, but we've got to make the plan administratively practicable and pull it more in line with industry standards.

On adding new funds to the TSP:

Right now about 45 percent of the TSP assets are invested in the G Fund. Now, that particular fund has had an outstanding rate of return up until this year and it probably made sense given the wild gyrations in the stock market to have a lot of your money there, but over the long term-I'm talking over a 20, 30-year market horizon-it's not prudent to invest retirement monies in a stable asset fund, because it simply, over that period of time, won't keep up even with the [consumer price index] rates, much less the appreciation you need to live off of the assets when you retire. While those investments seem very safe and stable, and they are very comforting to a conservative investor, the rate of growth in the plan just simply will not keep up with what your needs will be 30, 40 years down the road when you retire.

We are currently exploring adding a couple of lifestyle funds. They are set up usually for the investment style of the investor, from very conservative to very aggressive. You're really getting professional money management inexpensively. [With] a plan the size of the TSP, we believe we can provide it very, very affordably.

On changing the ThriftLine in New Orleans (504-255-8777) to a toll-free number:

We're investigating it. It's expensive, but I think it will increase the utilization of the line, and I think it will tend to space out the calling. Right now we have, what you would call, spike periods. Folks are calling during working hours, primarily Eastern Standard Time, and they are utilizing their phones from work, because it's not a toll-free call. Also, we have the issue . . . that we're spanned across so many time zones that the hours don't accommodate them. So the cost would be driven not only by the 1-800 telephone line, but an increased number of operators. We would need to have the staff because we certainly would have to expand the call center hours.