While officials at the Federal Retirement Thrift Investment Board focus on getting the new automated record keeping system running as promised, plan participants continue to question a decision by board members to settle a lawsuit with former contractor American Management Systems Inc. AMS won a contract in May 1997 to update the TSP record keeping system and provide participants services similar to those of private sector plans, such as daily access to balances. After several launch date delays and cost overruns, the board fired AMS in July 2001 and sued the contractors for $350 million. AMS sued the board for $41 million. The two battled for two years and, when the dust cleared, TSP tapped participants' accounts for $36 million.
"I am appalled that AMS is being given my money without my consent," wrote an industrial specialist in Columbus, Ohio.
"Why is this $36 million being charged to the TSP participants?," asked one Defense Department employee. "Why doesn't the board pay this out of the millions of dollars of fiduciary insurance they collected from the agencies over the years? Why can't that insurance be used to cover these outrageous contractor charges?"
"Let me see if I have the minimal facts straight: government contracts for system, project overruns in both cost and time, government sues, contractor countersues, innocent TSP participants foot the majority of settlement costs. Left me speechless," one reader wrote to GovExec.com. "We, the government, contract for a system, allow the project to be mishandled and now cannot protect the employees the new system was designed to benefit. I can understand in a free market economy wherein most all product/service cost increases are passed directly to the consumer, but this reaches a new low."
"I think it is appalling that the TSP participants were bilked out of $36 million without their knowledge or consent," another reader wrote. "We didn't ask for a new system and should not have had to pay for the mistakes made by TSP's management."
When the TSP board initiated the lawsuit with AMS, TSP officials decided not to assess member accounts for the $41 million the board had already paid the company, opting instead to wait until the lawsuits were settled. TSP officials hoped to use proceeds from the lawsuit to offset the $41 million, rather than charge the debt to TSP members.
However, when the lawsuits were settled, only $5 million was wiped away from the debt, leaving TSP participants on the hook for the remaining $36 million. According to the TSP Web site, administrative costs of the 401k-style TSP are borne by its participants. Those costs include the "operating and development" of the record keeping system, among other things.
According to a local broker, it's hard to gauge if private account holders would have absorbed the costs in a similar situation, because each plan is set up differently, but both the General Accounting Office and Labor Department have commissioned reports to study the situation.