[House Hearing, 105 Congress]
[From the U.S. Government Publishing Office]
AGENCY MISTAKES IN FEDERAL RETIREMENT--WHO PAYS THE PRICE?
=======================================================================
HEARING
before the
SUBCOMMITTEE ON THE CIVIL SERVICE
of the
COMMITTEE ON
GOVERNMENT REFORM
AND OVERSIGHT
HOUSE OF REPRESENTATIVES
ONE HUNDRED FIFTH CONGRESS
FIRST SESSION
__________
JULY 31, 1997
__________
Serial No. 105-80
__________
Printed for the use of the Committee on Government Reform and Oversight
U.S. GOVERNMENT PRINTING OFFICE
46-343 WASHINGTON : 1998
_____________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
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COMMITTEE ON GOVERNMENT REFORM AND OVERSIGHT
DAN BURTON, Indiana, Chairman
BENJAMIN A. GILMAN, New York HENRY A. WAXMAN, California
J. DENNIS HASTERT, Illinois TOM LANTOS, California
CONSTANCE A. MORELLA, Maryland ROBERT E. WISE, Jr., West Virginia
CHRISTOPHER SHAYS, Connecticut MAJOR R. OWENS, New York
STEVEN SCHIFF, New Mexico EDOLPHUS TOWNS, New York
CHRISTOPHER COX, California PAUL E. KANJORSKI, Pennsylvania
ILEANA ROS-LEHTINEN, Florida GARY A. CONDIT, California
JOHN M. McHUGH, New York CAROLYN B. MALONEY, New York
STEPHEN HORN, California THOMAS M. BARRETT, Wisconsin
JOHN L. MICA, Florida ELEANOR HOLMES NORTON, Washington,
THOMAS M. DAVIS, Virginia DC
DAVID M. McINTOSH, Indiana CHAKA FATTAH, Pennsylvania
MARK E. SOUDER, Indiana ELIJAH E. CUMMINGS, Maryland
JOE SCARBOROUGH, Florida DENNIS J. KUCINICH, Ohio
JOHN B. SHADEGG, Arizona ROD R. BLAGOJEVICH, Illinois
STEVEN C. LaTOURETTE, Ohio DANNY K. DAVIS, Illinois
MARSHALL ``MARK'' SANFORD, South JOHN F. TIERNEY, Massachusetts
Carolina JIM TURNER, Texas
JOHN E. SUNUNU, New Hampshire THOMAS H. ALLEN, Maine
PETE SESSIONS, Texas HAROLD E. FORD, Jr., Tennessee
MICHAEL PAPPAS, New Jersey ------
VINCE SNOWBARGER, Kansas BERNARD SANDERS, Vermont
BOB BARR, Georgia (Independent)
ROB PORTMAN, Ohio
Kevin Binger, Staff Director
Daniel R. Moll, Deputy Staff Director
William Moschella, Deputy Counsel and Parliamentarian
Judith McCoy, Chief Clerk
Phil Schiliro, Minority Staff Director
------
Subcommittee on the Civil Service
JOHN L. MICA, Florida, Chairman
MICHAEL PAPPAS, New Jersey ELIJAH E. CUMMINGS, Maryland
CONSTANCE A. MORELLA, Maryland ELEANOR HOLMES NORTON, Washington,
CHRISTOPHER COX, California DC
PETE SESSIONS, Texas HAROLD E. FORD, Jr., Tennessee
Ex Officio
DAN BURTON, Indiana HENRY A. WAXMAN, California
George Nesterczuk, Staff Director
Ned Lynch, Professional Staff Member
Caroline Fiel, Clerk
Cedric Hendricks, Minority Counsel
C O N T E N T S
----------
Page
Hearing held on July 31, 1997.................................... 1
Statement of:
Flynn, William E., Associate Director, Retirement and
Insurance Service, Office of Personnel Management; Sarah
Hall Ingram, Associate Chief Counsel, Employee Benefits/
Exemption Organizations, Internal Revenue Service; Diane
Disney, Deputy Assistant Secretary, Civilian Personnel,
Department of Defense; and Linda Oakey-Hemphill, Agency
Retirement Counselor, Department of the Treasury........... 43
White, Alan, Office of the Inspector General, Department of
Defense; David Mangam, Army War College; John Gabrielli,
Internal Revenue Service; and E. Barry Schrum, Department
of Energy.................................................. 8
Letters, statements, etc., submitted for the record by:
Disney, Diane, Deputy Assistant Secretary, Civilian
Personnel, Department of Defense, prepared statement of.... 62
Ingram, Sarah Hall, Associate Chief Counsel, Employee
Benefits/Exemption Organizations, Internal Revenue Service,
prepared statement of...................................... 55
Mica, Hon. John L., a Representative in Congress from the
State of Florida, prepared statement of.................... 4
Oakey-Hemphill, Linda, Agency Retirement Counselor,
Department of the Treasury, prepared statement of.......... 66
Schrum, E. Barry, Department of Energy, letter dated July 21,
1997....................................................... 31
White, Alan, Office of the Inspector General, Department of
Defense, prepared statement of............................. 12
AGENCY MISTAKES IN FEDERAL RETIREMENT--WHO PAYS THE PRICE?
----------
THURSDAY, JULY 31, 1997
House of Representatives,
Subcommittee on the Civil Service,
Committee on Government Reform and Oversight,
Washington, DC.
The subcommittee met, pursuant to notice, at 9:05 a.m., in
room 2154, Rayburn House Office Building, Hon. John L. Mica
(chairman of the subcommittee) presiding.
Present: Representatives Mica, Pappas, Morella, Cummings,
and Ford.
Staff present: George Nesterczuk, staff director; Ned
Lynch, professional staff member; Caroline Fiel, clerk; and
Cedric Hendricks, minority counsel.
Mr. Mica. I'd like to call this meeting of the House Civil
Service Subcommittee to order. This morning we're going to have
a hearing related to mistaken enrollments in our Federal
retirement programs. And the title of today's hearing is, ``Who
Pays the Price?''
I'd like to start with an opening statement, then I'll
recognize other Members for their comments and we'll begin the
hearing.
We, in fact, have heard many complaints about Government
agencies making errors in Social Security payments, veterans'
benefits, tax audits, and other transactions with ordinary
citizens.
Today, however, we'll hear about a strange twist in this
tale. And that is Federal employees who themselves are
victimized by mistakes of their own agencies. Beginning some 10
years ago, hundreds, perhaps thousands of Federal employees--
and we're trying to get a handle on that figure--but hundreds,
in fact, maybe thousands of employees here are enrolled in the
wrong retirement system.
What sounds like simple administrative error has turned
into a bureaucratic nightmare for many of these individuals.
The consequences of these errors, in fact, can be quite severe:
reduced retirement benefits, back taxes owed, underfunded
Thrift Savings accounts, lost investment opportunities, and
tons and tons of aggravation.
Our purpose today is to hear testimony that will illustrate
and personalize the impact of these agency mistakes. We'll also
hear from some of the agencies that are involved. I hope that
their experiences will contribute to a swift and satisfactory
resolution of our employees' problems.
This issue has festered for several years now, and the list
of victims keeps growing. By now there's plenty of blame to go
around for everyone. We can start with the employees in the
agencies who made the mistakes in the first place. Then, of
course, there's the Office of Personnel Management, the agency
responsible for administering our Federal retirement programs.
Why haven't they in fact intervened or found a solution to this
problem? Does OPM think that expensive legal suits are the
proper course, or in some cases, the only course for
individuals to resolve this? The Federal Retirement Thrift
Savings Board deserves credit for attempting to resolve this
problem in 1990. But they could have saved many people
unnecessary grief if they had pursued enrollment problems more
aggressively.
Of course we can't forget the Post Office and Civil Service
Committee in the 101st Congress. Congress should receive a
special prize for ducking this issue from the beginning. In
fact, Congress' position on this enrollment problem was not
just nonresponsive, it was, in fact, irresponsible.
Here's what they said in an April 19, 1990, report: ``The
committee believes that the right to file suit provided in
current law is an appropriate means for participants and
beneficiaries to seek relief if the administrative process
proves unsatisfactory.''
In effect, Congress threw these employees to the wolves--
and it sounds like the attorneys--and told them to sue if they
didn't like it. But then OPM was not much better. This has been
called an administration that ``feels your pain'' and trumpets
its alleged ``customer-oriented'' reinvention of government.
OPM's customers are the Federal employees whose retirements
they hold in trust. And, unfortunately, these are the people
that are also feeling the pain right now.
Stripped of the formalities, this is what OPM has to say
about the innocent victims of this administrative nightmare.
And I quote again from one of their correspondences on this
issue.
Dear Federal employee: Your agency has made a mistake.
Because of that mistake your enrollment in CSRS retirement is
terminated. You are being placed in FERS. You now have a Social
Security problem. So contact the Social Security administration
to correct your records.
You also have a tax problem. So you should contact the
Internal Revenue Service and work it out. While you're at it,
get in touch with the Thrift Investment Board, then check your
agency personnel records and also straighten out your Federal
retirement records.
We have a copy of one of these letters that was sent out
December 24, 1996--the end of last year--just in time for the
holidays. I sure hope that whoever came up with the letter
didn't get the Vice President's Golden Hammer Award for warmth
and sensitivity.
The retirement and insurance service at OPM has been chosen
to be one of the administration's flagship performance-based
organizations. If this is what they consider model performance,
then the expression, ``I'm from the government. I'm here to
help you,'' will remain a warning, not a promise.
Can you imagine a private sector company sending a similar
letter? We made one up here just for illustration purposes.
Dear consumer: About the car you bought from us last year.
It's a lemon. The transmission is bad and will cost you a
bundle to fix. You have probably noticed that the engine is no
good. We hope you can afford to maintain it. We made a mistake
in pricing the car, so we kept the sales tax to make up the
difference.
Your state revenue office will be in touch to collect the
taxes you now owe. By the way, we put the wrong plates on your
car and messed up your registration. You may want to sort that
out with the Motor Vehicle Bureau. It's been a pleasure, and we
hope to see you again real soon.
We just made that up for illustration. But it does sum up
the type of problem that we face here. Fortunately, in a
competitive marketplace, businesses like that would not
survive. Businesses that send out that kind of notice would be
laughed at. The marketplace would take care of that problem
before government regulations could be enacted.
Unfortunately, for our Federal employees, it will take
legislation to fix this enrollment problem. And we're here
today to try to come up with a better answer than the
bureaucratic inertia these employees have had to face so far.
I've made some light of the aspects of this issue, but the
problems are very real.
Our first panel today will put a human face on this
problem. And our second panel of agency witnesses hopefully
will provide some useful suggestions and solutions from the
administration on how we may work together to fix this problem.
Even if we are unable to resolve this with the
recommendations from the panel, I hope that we in Congress can
come up with a solution that will help the agencies out of this
dilemma we find ourselves in today. Those are my opening
comments. I'm very pleased to yield now to the distinguished
gentleman and ranking member from Maryland, Mr. Cummings.
[The prepared statement of Hon. John L. Mica follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Mr. Cummings. Mr. Chairman, I want to thank you very much
for holding this hearing today. It is a very important hearing.
I will not spend my time trying to place blame here or there. I
am interested to hear what the second panel has to say. But I
know one thing. If we can send that little wagon up there to
Mars and we can get pictures back, then we sure ought to be
able to resolve this issue.
One of the things that has consistently concerned me is
that a lot of times we in Government forget that we as human
beings have one life to live; this is no dress rehearsal, and
this is the life.
And so when we miss out, when people are deprived of things
that they were due through no fault of their own, government
has a responsibility to correct it if we made the mistake. And
that's what it's all about.
I want to be in a situation that after this hearing, by the
end of this hearing, that we set some kind of a deadline to
have this matter resolved. I mean to have it resolved so that
people do not--I read the testimony and it screams at me. When
I read the testimony last night that was going to be presented
here today, I said, ``Something has to be corrected.''
Now let me tell you something. We can have motion,
commotion, and emotion, and no results. That does not do
families any good whatsoever. It does not do these witnesses
any good. And the people that they represent. And when I say
the people they represent, I mean the people that are in like
circumstances.
And so today we need to begin--we have done all kinds of
things in this Congress very rapidly. When we want to do
something we do it. And I think that between both sides of
this--and I know of our chairman's concern. But that concern,
all of our concern has to be turned into results with a
timetable.
And so the agencies at some point have to come together.
Mr. Chairman, I'm going to recommend at some point that we set
a deadline for having this matter resolved. I mean, we can go
on and on and on, and guess what. I'm so glad that you talked
about the history of this, because folk could be in the same
position next year, 5 years from now, 10 years from now, unless
we set some type of deadlines.
And so I'm glad you brought us together today with regard
to this issue. It is a very important issue. And now government
must stand up for people who have stood up for us. I get tired
of the rap that Federal employees take when they are working,
giving this United States of America every single thing--their
blood, sweat, and tears--but yet and still when we make
mistakes, they've got to wait to have them resolved.
And so I had a written statement, but I am so upset about
this I am speaking from my heart. And so I hope that we're able
to resolve this, Mr. Chairman. And I agree with you. We cannot
wait one moment. One more moment not resolving this matter is a
moment that some child in the family of one of these witnesses
will not get what they are due.
When opportunities are missed--and I repeat, we have one
life to live. This is no dress rehearsal. And this is the life.
I want to thank the witnesses for being here today. I look
forward to your testimony. And hopefully we'll be able to bring
some swift and appropriate resolution to this matter.
Mr. Mica. I thank the gentleman for his opening comments
and yield now to the vice chairman of our panel, Mr. Pappas.
You're recognized.
Mr. Pappas. Thank you, Mr. Chairman. And thank you for
calling this hearing. And I, too, had the opportunity to review
the written testimony of some of the folks that we're going to
hear from. And I was equally horrified.
And, you know, one thing that struck me, we each in our
lives have to deal with deadlines. We have reports or tasks
that have to be done by a certain date. People that are in
business have to meet deadlines in dealing with their
customers. And what I saw here, again, in reading these stories
and the descriptive memo kind of outlining this entire
situation, appeared to be a lack of accountability from some
who may have been dealing with these programs and dealing with
the Federal employees, many of which have experienced
disruption to their lives and to their financial well-being.
So I, too, want to join my voice to those who are demanding
accountability for what has taken place and not to just set yet
another deadline that won't be met. Thank you, Mr. Chairman.
Mr. Mica. Thank you. And I now recognize the gentlelady
from Maryland, Mrs. Morella.
Mrs. Morella. Thank you, Mr. Chairman. I do want to thank
you for holding this morning's hearing to discuss retirement
enrollment errors between January 1984 to January 1987.
In May, I wrote the chairman a letter requesting that he
hold a hearing on this matter. And I really want to thank him
and his staff for beginning the process of figuring out how to
remedy this complicated issue. I also wrote to OPM, and I
haven't yet received a response.
Many, possibly thousands of Federal employees who were
hired between January 1984 and 1987 were erroneously placed in
CSRS. And to this day, many of them do not know that they are
in the wrong system and the serious financial consequences that
await them.
Those who have discovered the error have been deprived of
critically important retirement benefits and tax benefits. And
they have been subjected to tremendous strain and incurred
tremendous legal expenses. Mr. Chairman, this situation is
incredibly unfair. I strongly believe that these Federal
employees are entitled to compensation for these losses, losses
that were the direct result of their agency's actions.
Testifying before us today is one of my constituents, Barry
Schrum. He has been deeply affected by his agency's errors. Mr.
Schrum was hired by the Office of the Inspector General of the
Department of Energy in December 1994, and was placed in the
Civil Service Retirement System, despite the fact that new
enrollments were prohibited after December 31, 1983.
In August 1987, he was told he had the option of electing
to participate in the new retirement system, the Federal
Employee Retirement System. But he chose to remain in the CSRS.
From that time until April 1996 the OIG withheld CSRS
contributions of 7 percent of his salary.
In April 1996, OIG personnel determined that he had been
improperly placed in CSRS and that his retirement
classification would retroactively be changed to FERS. Mr.
Schrum will tell the whole story. But I must emphasize the fact
that Mr. Schrum and thousands of other Federal employees who
were incorrectly classified were denied several opportunities
to save for their retirement, and we owe it to them to remedy
this situation.
It is absolutely critical that we hold OPM and agencies
responsible. Last year the Senate Appropriations Committee
directed OPM to provide a legislative recommendation by
January. As no action by OPM has been taken, it is past time
for the Congress to step in.
I look forward to today's discussion of ways to remedy this
egregious situation.
Thank you, Mr. Chairman.
Mr. Mica. I thank the gentlelady and also for her
leadership on this issue and helping to bring it before our
panel. I would like to introduce and welcome our first panel
this morning. Our panel is just a sampling of dozens of
individuals we've heard from and cases resulting from these
errors in enrollment.
Our first panel today consists of Alan White, Office of
Inspector General, the Department of Defense, Mission Viejo,
CA. I think he's also going to bring us some remarks from a
witness who couldn't be with us, Deborah Monroe.
We have David Mangam, from the Army War College of
Carlisle, PA; John Gabrielli, Internal Revenue Service,
Buffalo, NY; and E. Barry Schrum, Department of Energy,
Derwood, MD.
I just want to advise the members of our panel that this is
an investigations and oversight subcommittee of Congress. It is
customary that we swear all of our witnesses in, so if you
would stand.
[Witnesses sworn.]
Mr. Mica. The record will reflect the witnesses answered in
the affirmative. Since you have not testified before this panel
before, I might indicate that we like to have our panelists
keep their oral comments to the subcommittee limited to 5
minutes, if you would, and try to summarize.
And we would be glad to take other testimony or information
for the record. We'll be glad to do that.
I'd like to welcome each of you; thank you for
participating. First, for 5 minutes, Mr. Alan White, Office of
the Inspector General, Department of Defense, Mission Viejo,
CA; good morning and welcome, Mr. White, you're recognized.
STATEMENTS OF ALAN WHITE, OFFICE OF THE INSPECTOR GENERAL,
DEPARTMENT OF DEFENSE; DAVID MANGAM, ARMY WAR COLLEGE; JOHN
GABRIELLI, INTERNAL REVENUE SERVICE; AND E. BARRY SCHRUM,
DEPARTMENT OF ENERGY
Mr. White. Thank you, Mr. Chairman and members of the
subcommittee. It is my pleasure to be here today and have this
opportunity to discuss the matter of erroneous enrollments in
the Federal retirement systems.
It is my belief that it is a significant problem throughout
the Federal Government and affects literally thousands of
Federal employees. At the request of the subcommittee I will
provide testimony about my experience as an employee of the
Department of Defense Inspector General.
By way of introduction, I am currently a GS-15 working as
the assistant special agent in charge of the Defense Criminal
Investigative Service western field office in Mission Viejo.
We're the criminal investigative arm of the Department of
Defense Inspector General.
As you requested, I will specifically address those issues
mentioned in your letter. On August 26, 1984, I was hired by
the Department of the Air Force as a civilian criminal
investigator and placed into the Civil Service Retirement
System for Federal law enforcement.
On August 31, 1986, I accepted a position with the
Department of Defense Inspector General, DCIS and remained in
the CSRS. With the passage of FERS I should have been
transferred to FERS effective January 1, 1997. The DODIG
personnel office did not transfer me into FERS but continued to
classify me as an employee covered by CSRS offset program. In
April 1991 the DODIG personnel office documented a review of my
personnel file to verify my service computation date and that I
was in the proper retirement system. This review failed to
detect the erroneous retirement enrollment. CSRS contributions
of 7.5 percent of my salary continued to be withheld from my
salary until January 1996, when the error was detected.
The error was detected when I requested my personnel office
to calculate the cost of my active duty military time which I
could have purchased for CSRS credit. During that process it
was discovered that I was in the wrong retirement system.
As a result, on February 28 my personnel office changed me
from CSRS to FERS. I was not notified of this change until I
later discovered the discrepancy on my leave and earnings
statement on a Saturday. I happened to read it at the mail box.
I knew something was deeply wrong at that time when the amount
had changed from $51,000 to $103.
The personnel office did not officially notify me until
April 3, 1996. Between April and May 1996 I had many contacts
with my personnel office as well as OPM. Neither agency could
provide me with any guidance on what I should do. Rather, I was
advised that the resolution of the matter would require
congressional or legal action.
It was suggested that I contact my local Congressman and
seek his intervention. OPM advised me that they were only aware
of a few people who were impacted similarly to me. My personnel
office advised me that I was the only one they were aware of.
After receipt of this information I appealed to the DODIG
personally and requested her intervention. Once she became
aware of the problem she wrote the appropriate chairmen of the
House and Senate subcommittees and requested their intervention
in addressing this matter. The various responses from those
chairmen revealed that they were aware of the problem and it
was their hope the problem would be addressed in the 105th
Congress.
To protect my interests I retained legal counsel to explore
what legal remedies were available. Consequently, on July 28,
1997, 1 day before the statute ran out on my ability to file
legal action, I filed a lawsuit seeking full restitution in
U.S. District Court in Washington, DC, along with four other of
my Federal colleagues.
Clearly, being in the wrong retirement system has changed
my whole life over the past 18 months. My retirement planning
has been centered solely around CSRS. The most immediate
concern, as a Federal law enforcement officer, is the welfare
of my family if something should happen to me.
For example, the survivors' benefits under FERS are less
than half of what my family would receive under CSRS.
Additionally, there are virtually no funds in my Thrift Savings
account.
My wife and I feel frustrated and bitter about how this
entire matter has been handled and the fact that we've had to
deplete our savings for legal and expert witness fees. The
estimated financial impact over my lifetime has been estimated
at over $2 million.
My dealings with OPM, my contact with OPM has been horrid
from the very beginning. At the onset, when I learned how many
people were impacted, or when I asked how many people were
impacted, they refused to tell me. However, I learned that
there were over 341,000 people hired during that timeframe,
between January 1, 1984 and December 31, 1986. With that large
of a number I suspected that there were more than a few
impacted. Unfortunately, Congress had directed OPM for the past
2 years to study the extent of the problem and draft
legislation. OPM has continued to ignore the issue and failed
to responsibly address this problem. Meanwhile the clock
continued to tick on any legal action I could take. It is
outrageous that a Federal agency like OPM can get away with
acting as irresponsibly as they have in addressing such a
significant problem with so many Federal employees that are
involved. If a private sector company failed to address a
problem such as this, the Department of Labor and/or the
Department of Justice would intervene on the wronged employees'
behalf without hesitation, and has done so.
Obviously, this same legal protection should be afforded to
Federal employees as well. Throughout this entire ordeal,
myself and my fellow Federal employees have been made to feel
that we are somehow different and held in lower regard than the
private sector.
I can't help but believe that there are thousands of
Federal employees affected, because I continue to receive calls
weekly from Federal employees who are similarly impacted. It is
absurd that Federal employees must take legal action to ensure
a viable retirement system when this situation was created
through no fault of their own.
Finally, I believe that Congress should no longer wait for
OPM to address the problem since OPM has ignored and defied the
specific direction and will of Congress for the past 2 years.
Congress should enact legislation that would simply allow those
wrongly enrolled in CSRS to remain in CSRS if they so choose or
transfer to FERS. The agency who erroneously enrolled the
employee should bear the expense of getting that employee
whole.
Further, Congress should require the agency to make the
government employee whole by depositing the necessary
contributions on behalf of the employee at 10 percent of the
employee's wages from the date of employment to the present
along with the corresponding 5 percent matching funds by the
agency plus interest.
The option of investing for the period in question in
either the C fund or G fund would be at the employee's
discretion. Those impacted by this situation who elect to
transfer to FERS Congress should provide a one time exemption
on the amount that can be contributed to an employee's Thrift
Savings account. Currently, the law only allows that maximum
$9,500 be deposited. This would allow the employee's agency to
make a one time deposit of the calculated harm determined by
the Thrift Savings Investment Board to his or her account.
Basically, that summarizes my testimony. But one of my
colleagues who could not be here today----
[The prepared statement of Mr. White follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Mr. Mica. Without objection, we're going to extend your
time so you may read the comments----
Mr. White. Yes, sir.
Mr. Mica [continuing]. I understand it's relatively brief--
of Debo-rah Monroe.
Mr. White. Yes, sir.
Mr. Mica. You're recognized.
Mr. White. OK. Sir. This statement is by Deborah Monroe,
pro- gram assistant--GS-7--for the Department of Housing and
Urban Development from Chicago, IL.
Mr. Chairman and members of the subcommittee, first of all
I would like to thank Congress for deeming this to be an
important issue and making it possible for this statement to be
read into testimony.
I am currently a GS-7 program assistant in the multi-family
branch in the De- partment of Housing and Urban Development HUD
office in Chicago, Illinois. I was hired as a first time
Federal employee in 1982 as a clerk typist (temporary) by HUD.
My appointment ended and I was hired again in August 1983. The
date is my service com date.
On February 23, 1995 I was notified by my personnel office
in writing that my retirement category had been corrected to
FERS and Social Security. My personnel office informed me that
this was done because I had been erroneously placed in the
wrong retirement system, CSRS.
I would like to reveal to Congress about the lack of
assistance and support that I've received from my personnel
office since 1995. I have received total callous and
insensitivity regarding my situation.
An article published by the Federal Times on September 16,
1996 made me aware that I was not the only person that was
experiencing this problem. I was told that I was the only one
in this situation by my personnel office. I called Mr. Alan
White, who had the article written in the Federal Times, to
inform him that I had been dealing with this problem since
February 1995 in vain. This is just an example of what happens
to a person at my grade level and how I was treated.
It took Alan White and Barry Schrum, grades 13 and 15, to
get this matter mov- ing. I went through and spoke with the
same people in my office as Mr. White did in his and wrote to
everyone that he did. My results: I was told nothing could be
done.
No one was willing to help me. I had been an outstanding
government employee, and this was how I was treated. My
personnel office displayed a hostile attitude and dealt with me
in a negative and unprofessional manner. My continuous effort
in try- ing to resolve this matter to date has been futile.
My personnel office had no idea on how to resolve this
issue. I have escalated the problem all the way up to HUD
Assistant Secretary, Marilyn Davis, to no avail. I attempted
and was denied the opportunity for a third party to help, Mr.
Linford Coleman, who is the Blacks in Government president.
I have been under an enormous amount of stress and strain
and it's been a major strain on my whole family. I am mad at
the system and my personnel office because this entire matter
has been laughed at by many HUD officials. I was told by the
legal department that if I took this matter out of HUD, I would
lose.
I want to also express that had it not been for Mr. Alan
White and Mr. Barry Schrum I would have lost my mind. They have
been my rock. Because of these is- sues and the threat of
downsizing our office I have no idea where retirement funds
reside. And this has caused me great psychological and physical
trauma.
I would like, again, to thank the chairman of the committee
for taking a concern in myself and my two very good friends,
Mr. Alan White and Mr. Barry Schrum. I thank Congress for
allowing my statement to be read and entered into the record.
And I am very sorry that I could not attend.
Mr. Mica. Thank you, Mr. White. And also thank you for
provid- ing us with the testimony of Ms. Monroe. I'd like to
now recognize David Mangam of the Army War College. You're
recognized, sir.
Mr. Mangam. Mr. Chairman, I am David Mangam, a GM-14 civil
servant working for the Department of the Army at the U.S. Army
War College, Carlisle Barracks, Carlisle, PA. I appreciate the
opportunity to appear before you today on behalf of myself and
all
the other civil servants who are in a similar situation, which
is, recently being notified that their employing agency made a
mistake many years ago and placed them erroneously in the wrong
retirement program.
I entered Federal civil service via the United States Army
Europe on January 31, 1983, as an overseas limited appointee,
that is, a 5-year overseas employee limitation. On January 29,
1984, I was converted to a career condition appointment and
according to the agency and OPM, was correctly placed in the
Civil Service Retirement System, as there were no laws
otherwise at that time.
As I now understand the events, Public Law 98-369 on July
18, 1984, retroactively changed retirement program status for
all employees hired post-December 31, 1983. I am a retired Army
E-7 who relinquished promotion and retirement as an E-8 in
order to accept continued Federal employment as a civilian
(original appointment was at grade GS-12).
My decision to continue Federal service was heavily biased
on the projected ability to combine my military service with
continued Federal civil service with a goal to retire at 35 to
40 years of total combined service. The Civil Service
Retirement System into which I was placed offered me this
opportunity.
If I had been informed at the outset of civil service
employment that I would not be able to fully incorporate my 20
years of military service with continued Federal service and
have the option to retire after 35 years of service, then I
would clearly have chosen an employment path that provided me
that similar opportunity.
In August 1996, the local civilian personnel office
notified me in discussions that they discovered what might be
an error in retirement system placement. On November 7, 1996, I
was officially notified that I was to be converted to the FERS
retirement system.
Effective November 24, 1996, the personnel system changed
my retirement enrollment. I requested agency and OPM review of
this decision on December 4, 1996. The OPM review fully
supported the agency action. The full transition of this action
is still in process and could take up to 257 pay periods, which
is approximately 10 years.
And even with that I will not be fully restored in the FERS
system and never be equal to the full CSRS retirement I had
been offered as part of my employment. This mistake will cost
me more than $30,000 per year if I am to retire after 35-plus
years of civil service.
It will cost me an aggregate of approximately $1.6 million
across my projected 35-plus years of retirement. Note, my
parents are deceased at age 87 and 90, and I would expect the
same life expectancy.
There is no possible way that I can retire in the next 8 to
10 years under FERS unless I can obtain a settlement to offset
the disparity of the decision. My wife and children share this
anxiety and uncertainty with me. It has caused great turmoil in
our lives and family relationships.
An additional personal cost is due to me due to increased
stress and anxiety which has caused complications in my daily
health. I am a type II diabetic. The rise in blood sugars
causes extreme depression and fatigue on a daily basis, which
requires big increases in sick leave usage. I have applied to
the agency, OPM, the DODIG, the U.S. Merit Systems Protection
Board for review and correction.
I have also discussed this with the TSP board and the
Defense Finance Accounting Services. All have upheld the action
as in accordance with public law. The OPM reply recognized that
it was clearly an agency error and they could not change the
retirement coverage due to law and they have no authority over
monetary settlement provided by my agency.
I applied for settlement to my agency. And although they
understood the error and supported me, they could not provide
settlement.
Two corrective actions are possible: Grandfathered return
to the CSRS retirement and repositioning of all fund transfers
and taxes correctly, reimbursement for out of pocket expenses
or, two, make me whole in the FERS system and reimburse all
lost interest, compound interest, military buy-in loss,
retirement offset, IRS/OASDI loss, plus personal expenses.
OPM has provided support only when directly challenged.
They, through the agency, did not provide all conversion
information and opportunities. As an example, in 1996 the IRS
retirement contribution ceiling was $95,000 and my TSP annual
contributions were under $4,000. Therefore, I should have been
offered the option to contribute the difference to back
payments to TSP.
And, until pushed hard, they did not start even making up
the back payment deductions for TSP. They are also not able to
fully correct losses in TSP interest and compound interest due
to public law. To date, they are still withholding over $30,000
plus interest out of my previous CSRS contributions, even if
they have made OASDI and FERS make-up payments from my initial
total CSRS fund.
These are direct individual contributions and not required
for FERS or OASDI or other legal back payments and belong to
the employee. As reported to by many staff and action
personnel, this problem has been recognized for more than 6
years, yet OPM policy and procedures have not fully developed,
nor has this problem been fully brought to your committee for a
resolution that would be equitable and fair.
I would recommend that this committee provide full relief
to all Federal service employees who in good faith contracted
employment with the Federal Government, by bringing into law
these options: To become fully vested in FERS with Government
support for losses, or to be fully grandfathered into CSRS with
support for all losses incurred by these transition efforts.
Thank you for providing me the opportunity to address this
concern to your committee.
Mr. Mica. I thank you for your testimony and now would like
to recognize John Gabrielli, Internal Revenue Service. You're
recognized, sir.
Mr. Gabrielli. I'm an employee of the Internal Revenue
Service and a member of the National Treasury Employees Union,
local chapter 58, from Buffalo, NY. Mr. Chairman and members of
the subcommittee, I thank you for providing me with the
opportunity to tell my situation regarding my retirement.
I hope that this subcommittee will be able to provide some
relief to me and others who have had similar problems. On
January 10, 1983, I started with the Internal Revenue Service
under a temporary appointment in the taxpayer service division.
The employment was due to expire on April 15, 1983.
I was employed through a series of temporary appointments
until I was finally converted to a career conditional
appointment on September 30, 1984. It was at this time that I
was incorrectly coded as eligible for retirement benefits under
the Civil Service Retirement System, known as CSRS.
At the start of 1987, I received a computer-generated
letter from the human resources division of the national office
advising me that I was currently covered under the CSRS. The
letter also informed me that beginning July 1, 1987, I would
have the opportunity to transfer my enrollment to the Federal
Employees Retirement System, known as FERS.
The letter advised me that I would receive information on
CSRS and FERS that would assist me in making an irrevocable
decision concerning my retirement. Subsequently, I received
written information and an oral presentation comparing the two
retirement systems. I elected to remain under the CSRS.
On April 14, 1993, I was summoned to a meeting with four
other employees from my district. During this meeting I was
informed that I was incorrectly placed in the CSRS and should
have been placed under the FERS. During the meeting we were
told that our district human resources branch was seeking
guidance from the national office of IRS.
A series of letters passed between the district and the
region, all seeking equitable solutions. Thereafter, the
assistant chief counsel indicated in a letter dated November
15, 1993, that there was no statutory authority permitting a
waiver from the FERS provision for me and the other employees.
In a memorandum dated October 25, 1993, from the acting
chief, resources management division, I was told that effective
May 5, 1991, I would be placed under the FERS. I was advised
that the process of adjustments to my retirement funds had
begun. I was also advised that the IRS was seeking a
determination from the Comptroller General whether we could
receive a refund of our CSRS contributions that could not be
paid into Social Security for the years which are beyond a 3-
year statute of limitations. To this date, I have not been
informed of a final decision on this issue.
When it became clear that I was placed under the FERS, I
enrolled in the Thrift Savings Plan, known as TSP, on September
13, 1993, I designated 5 percent of my income to be apportioned
between the three funds. Later, in an attempt to make up for
the 6 years that I should have had in the TSP, I transferred
all moneys from the G and F funds to the C fund and started
having 100 percent of my 5 percent plus matching funds invested
in only the C fund.
Despite the risks involved with this strategy, I'm seeking
the highest return on my investments in an effort to catch up
on all the time I missed. As of August 7, 1993, I had $13,382
in my CSRS retirement fund. When I was switched over to the
FERS, 0.8 percent of this amount was applied to my FERS
retirement account.
The IRS informed me that it could only pay 3 years
retroactively for Social Security. The rest of the moneys that
I contributed under the CSRS are the subject of the pending
Comptroller General decision.
It would only seem fair for me to get back the moneys that
I invested, and reinvest them in my TSP account. I have yet to
see any reimbursements.
If I had been correctly informed in 1987, that I was
covered under the FERS, I would have opted to place 5 percent
of my gross wages into the TSP. Instead, believing that I was
covered under the CSRS, I chose not to join TSP at that time.
I have lost 6 years of contributions into the TSP, as well
as the agency's matching contributions. In addition, I have
missed 9 years' worth of Social Security deductions. Robert
Tobias, president of the National Treasury Employees Union,
sent a letter to IRS on behalf of the affected employees,
seeking assistance and a legislative solution. David Mader,
chief, management and administration, responded that the
affected individuals would ``Receive full FERS and Social
Security coverage in addition to retroactive agency automatic
TSP contributions, agency matching benefits and lost
earnings.''
In the fiscal year 1996 Treasury Postal Appropriations
bill, NTEU sought a solution. The language included in the
legislation stated, ``OPM is directed to review the IRS problem
and other similar circumstances and make every effort to
resolve this issue with common sense and fairness in mind. OPM
is instructed to correct these problems through administrative
procedures, if possible, and if not, recommend any legislative
action that may be required to correct this and any other
inadvertent inequities.''
This bill, Senate bill 1287, introduced by Senator Leahy of
Vermont, also provided Federal employees who were erroneously
covered by CSRS the option to elect continued coverage under
the CSRS or transfer coverage to the FERS.
In my view, legislation should be passed that would give me
either the option to revert to coverage under CSRS or to remain
in FERS with guarantees that all of my CSRS contributions plus
matching agency contributions would be credited to my TSP
account, together with accrued interest.
As the events described above unfolded I relied on the
efforts that the IRS was making on my behalf. I voiced my
concern about possible financial harm that I would encounter
upon retirement. These efforts included an appeal to the Merit
Systems Protection Board, letters to Senator Alfonse D'Amato,
and discussions with NTEU.
I never had any direct dealings with the Office of
Personnel Management, and am not aware of any efforts that OPM
has made on my behalf to either correct or facilitate the
correction of my records with the Internal Revenue Service or
with the Social Security Administration.
In conclusion, I feel that some form of legislation is
needed to ensure that I and the other people in similar
circumstances are not harmed financially in any way from a
mistake that we had no control over. I believe that every
effort should be made, through proper legislation to recompense
our TSP accounts to reflect the contributions that we would
have made had we known that we were to be covered under FERS, a
system whose main component is the TSP.
Thank you for the opportunity to provide this statement.
I'd be happy to answer any questions that you have on this
issue.
Mr. Mica. Thank you, and I'd like to now recognize Barry
Schrum. And he's with the Department of Energy from Derwood,
MD. You're recognized, sir.
Mr. Schrum. Mr. Chairman, members of the subcommittee, I'm
pleased to be permitted the opportunity to address you
concerning an egregious wrong which was done to me and others
and which has already damaged me personally, both financially
and emotionally, and has the potential, unless expeditiously
resolved, for greater harm.
I will provide you testimony about my enrollment in the
wrong Federal retirement system as an employee of the
Department of Energy, Office of the Inspector General. I was
first hired as a first time Federal employee as a criminal
investigator by the Inspector General on December 24, 1984, and
was placed in the Civil Service Special Retirement code C
system.
As a criminal investigator I was subject to a 7.5 percent
CSRS deduction. With the enactment of the Federal Employees
Retirement System Act I should have been transferred to FERS
effective January 1, 1987. I was not transferred into FERS but
continued to be classified as an employee covered by CSRS.
On August 13, 1987, personnel officials advised me that I
had the option of electing to participate in FERS or remain in
CSRS. I chose to remain in CSRS. From that date my lifestyle
and investment planning was based on a CSRS retirement.
A year later, on March 6, 1988, I was reassigned from the
criminal investigator series to a program analyst series. This
change should have required a reduction in my CSRS withholdings
from 7.5 to 7 percent and a refund of the 5.5 percent that had
been withheld.
However, after the change my retirement code remained CSRS
special code 6, and payroll continued to deduct 7.5 percent,
although according to OPM I was not eligible for coverage under
CSRS offset. My pay statement for pay period ending April 6,
1991, indicated that my retirement coverage had been changed to
the civil service offset code C.
In April 1996, OIG personnel officials advised me that I
had been improperly placed in the CSRS and that my retirement
classification would be retroactively changed to FERS. I was
officially notified of the change in a memorandum dated June
25, 1996, from the OIG personnel office.
I was also advised that I could retroactively adjust the
amount that I had contributed to the Thrift Savings Plan. In an
effort to raise the funds needed to make these retroactive
contributions, I sold my home. I was later advised by DOE that
I had been given incorrect information regarding my ability to
make retroactive contributions to the TSP.
DOE determined that adjustment to the TSP could be made
over an 8-year period. On December 9, 1996, I made the first
payment to my TSP. I withdrew $4,936 from savings and forwarded
it to the Department of Energy. DOE also reminded me that in
order to completely fund my TSP I would be required to remain
in Federal service with no breaks for an additional 8 years and
make the remaining seven lump sum payments.
I would be required to provide approximately $35,000 over 8
years in order to get TSP matching funds from the Department of
Energy. My wife and I have completely rearranged our lives and
financial planning in an attempt to meet these requirements.
Between April and July 1996, I had many contacts with the
Inspector General and Department of Energy personnel as well as
OPM. All advised me that resolution of this matter would
require congressional or legal action. OPM advised me that they
were aware of only a few people who were impacted similar to
me.
To protect my interests I retained legal counsel in May
1997, and my attorney filed an administrative tort claim
seeking restitution for the financial impact of being placed in
the wrong retirement system. And on July 28, 1997, I filed a
lawsuit seeking full restitution in the U.S. District Court in
Washington, DC.
The uncertainty of my retirement and future lump sum
payments to the TSP has created a great deal of emotional
stress and strain on my wife and me. We are bitter and
frustrated about this matter and how it has been handled, and
the fact that we have had to spend a great deal of our savings
on legal and expert witnesses. Over 2 years ago Congress tasked
OPM to explore the extent of the problem and to draft
legislation that would correct the problem. OPM has failed.
OPM continues to ignore the problem and has failed to
responsibly address the matter. I believe that Congress should
no longer wait for OPM to address the problem. Congress should
immediately enact legislation that would correct these wrongs
and grant relief to innocent Government employees caught in
this situation.
Congress should direct each agency which erroneously
enrolled an employee in the wrong retirement system to bear the
expenses of getting the employee whole, to include completely
funding the TSP, and do so immediately. For those of us who
have retained legal counsel, I believe we are entitled to full
restitution to the amount specified in the lawsuit.
With respect to the subcommittee's request for review as to
the necessary changes in the law, I am providing a copy of the
July 21, 1997, two-page letter to my attorney, Thomas J.
O'Rourke, from Sanford J. Parnes, counsel to the Inspector
General.
I ask that this letter be identified and received as an
exhibit. Mr. Parnes asserts that the Department of Energy's
authority to pay my claim for damages is a threshold issue that
must be addressed prior to entering specific mediation over
amounts potentially owed. In other words, DOE cannot even
discuss the dollar amount of damages until he is satisfied
there is legislative authority to pay it.
Although I believe that this subcommittee would have
greatly been assisted if DOE had been willing to negotiate
specific damages, Mr. Parnes believes there is a need for
additional legislation that expressly confers authority for
Federal agencies to pay such damages.
Mr. Parnes makes several related statements to indicate a
need for Federal legislation in order to correct the problem
that I and other Federal employees are facing as a result of
being misclassified as CSRS rather than FERS employees.
Thus, Mr. Parnes reports that the Department of Justice
must preapprove payments under the Federal Torts Claim Act. And
DOJ has said it will not approve payments under the Federal
Torts Claim Act for these purposes.
It seems to me that the Federal Torts Claim Act needs to be
amended to allow injured Federal employees like myself a form
of redress. Mr. Parnes also cites a February 1989 decision of
the Comptroller General which states that, ``The Department of
the Interior is without authority to make payments to
employees' Thrift Savings Plan accounts for lost earnings on
issues of deficient agency contributions resulting from
administrative error because earnings on contributions are a
form of interest not expressly provided for by interior
appropriations, and such payments are not otherwise authorized
under the back pay act.''
Again, speaking as a lay person, it seems to me that this
Comptroller General's decision points to the need for
appropriate legislation as well as legislation amending the
back pay act.
Mr. Chairman, this concludes my testimony. On behalf of
myself and my fellow Federal workers who are affected by this
hard situation, I would like to thank you and the members of
the subcommittee for this opportunity to appear and discuss
this important issue.
I would also like to thank many of the Department of Energy
and Inspector General employees for their support throughout
this ordeal. I look forward to answering any questions you and
the subcommittee members may have. Thank you.
[The letter referred to follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Mr. Mica. I thank you for your testimony. And I think we've
heard testimony from all of our witnesses. They've literally
been through Hell in this matter. It's embarrassing for the
Government in bungling in such dramatic proportions to each of
you personally.
Mr. Schrum, did you testify--and let me get this straight--
that you were advised that you could make a lump sum payment,
and you sold your house?
Mr. Schrum. Yes.
Mr. Mica. And then, after that, you were told that you
couldn't make that payment?
Mr. Schrum. Yes, Mr. Chairman, I was.
Mr. Mica. So you sold your residence on advice from Federal
personnel?
Mr. Schrum. From my personnel office--told me that I could
make the lump sum payment of some approximately $35,000. And
then after I sold the house the Department of Energy's payroll
people, personnel people came back and told me that it was
incorrect, that I could not make such a payment.
Mr. Mica. Unbelievable. Mr. White.
Mr. White. Yes, sir.
Mr. Mica. Mr. White, you called the personnel office, you
said. Now, your situation goes back to when, 1984?
Mr. White. Yes, sir. I was hired in August 1984. August 26,
1984.
Mr. Mica. And there was some review, we understand, of your
case, of your personnel situation in 1991?
Mr. White. Yes, sir, in April 1991.
Mr. Mica. There was no problem identified. In 1996, you
called your personnel officer. And what did he say?
Mr. White. In 1996, the only way that this came about or
was detected--and I must interject real quick, I'm glad it was
caught----
Mr. Mica. This is when you got a notice?
Mr. White. I had requested that my personnel file be
reviewed to determine how much it would cost me to pay for
deposit for my military time. During that review, they
detected, ``This guy's in the wrong retirement system.'' And
they sent the appropriate standard form 50's over to finance to
effect that change in February. I did not find out about it
until a month later, until I received my leave and earning
statement and I noticed the difference between the two
balances, the former----
Mr. Mica. Is that in 1996?
Mr. White. Yes, sir. And that was----
Mr. Mica. So you called your personnel office?
Mr. White. I'm the one that initiated the contact with my
personnel office.
Mr. Mica. Right. And what did the personnel officer say?
Mr. White. They were sorry. They had been meaning to
contact me a month ago, but they had been dreading the call,
quite frankly, ``since you've asked.'' That was the quote/
unquote comment.
Mr. Mica. His comment was?
Mr. White. ``I have been dreading this call for a month,
Al.'' That was the response that I got.
Mr. Mica. Was someone else trying to comment on their
particular situation when I was talking to the first witness?
No. OK. I didn't want to ignore anyone; I thought someone was
trying to get my attention.
Have any of you received a full accounting of funds that
were in your CSRS account before corrections to your enrollment
were made? Have you?
Mr. Schrum. No, sir. I have not.
Mr. Mica. Mr. Gabrielli.
Mr. Gabrielli. No.
Mr. Mica. Mr. Mangam.
Mr. Mangam. I received a full accounting of what funds were
there and what the distribution of those funds were made to
date. But not all of those funds have been distributed.
Mr. White. And I have not to this date.
Mr. Mica. You have not. And it's my understanding that
legislation was introduced in 1995.
Mr. White. 1995.
Mr. Mica. And that legislation possibly would have resolved
this problem. And it's my understanding also that OPM opposed
this legislation. Is that your understanding also?
Mr. White. Yes, sir. That's what I was told.
Mr. Mica. OK. Now, one of the purposes of this hearing is
to find a solution. And one thing that's been recommended to me
is that you all be placed back into the old system--CSRS. Would
that be acceptable, Mr. White?
Mr. White. Sir, based on the harm that I've incurred right
now, had I been in FERS from day one, that would have been
better for me. Had I known from day one--I mean, the
calculations now.
At the time that's what I wanted. But with the accounting
or lack of accounting of my civil service trust fund right now,
I would like to get whole in FERS. That would be my first
option. If that were not an option--since they've already made
the change. That's what I would prefer personally.
Mr. Mica. Mm-hmm.
Mr. White. Because it has been very traumatic for me. And
for me to go back now. I would prefer that option if given that
option.
Mr. Mica. Each of these cases have different levels of
trauma.
Mr. White. Sure.
Mr. Mica. For Mr. Schrum, I mean, to sell his house.
Mr. White. Sure.
Mr. Mica. And then be told you could put the money in to
make it up and then be left in that situation is mind-boggling.
I know each of you have different degrees of anxiety about
this. Mr. Mangam, would this be acceptable?
Mr. Mangam. Since that's what I originally expected out of
this employment contract, that would be fine with me as long as
my other costs were taken care of and things were converted.
Mr. Mica. Mr. Gabrielli.
Mr. Gabrielli. Again, at the time I wanted to stay in CSRS
because I compared the two systems. But now I have invested in
the Thrift Savings Plan. I think I would prefer to stay in
FERS, but only with the condition that I could have my CSRS
contributions put in there with matching funds and interest
that would have accrued since 1987, when I would have been
eligible to join the TSP had I known I was in the new
retirement system.
In my statement I indicated that I think we should have the
option to choose between the two. I think there's going to be a
lot of administrative nightmare to figure out all the matching
funds. If I was to go back to CSRS they'd have to take back the
matching funds and all the interest that generated over the
last few years.
I'd still like the option, you know, after it was planned
out, how it would--the smoothest possible transition. Then I
would make a choice at that time. But----
Mr. Mica. Thank you. Mr. Schrum.
Mr. Schrum. I would not want to go back. I would like to
just remain where I am. I've already started making my
contributions. I just would like to be made whole and remain
where I am and not have to have this burden of worrying about
the next 8 years of having a RIF. Because if I have 1 minute of
break in Federal service my wife loses all my benefits.
Mr. Mica. Well, it doesn't sound like there's a simple
solution. And each of the individuals involved just before us,
and the dozens, probably hundreds and maybe thousands of
others, have made different plans or are affected differently
as far as Social Security, Thrift Savings, their plans to enter
FERS or other retirement arrangements. So we've got a very
complicated situation that may require a number of legislative
and administrative remedies.
I will yield now to Mr. Cummings, our ranking member.
Mr. Cummings. I want to thank all of you for being here. As
I was sitting here I was saying to myself, I wish the agency
people could sit where we're sitting so that we could see the
pain on your faces.
And it really--I could see when Mr. Schrum was testifying,
I could see the pain on your face, Mr. White. It was very
clear. So we're going to try to find a solution to this.
But let me just ask you all a few questions. Mr. White,
when you were testifying and you read the letter of Deborah
Monroe?
Mr. White. That is correct.
Mr. Cummings. I take it that you all know each other. She
referred to Mr. Schrum. Can you tell me--I take it that that's
accurate?
Mr. White. Yes, sir.
Mr. Cummings. And how did you all come together?
Mr. White. This was prompted as a result of the first
Federal Times article that was on July 1, 1996. That's when I
went public with this issue. I knew that I wasn't the only one.
And I knew that there weren't only a few impacted. I suspected
more.
And I was told by the Federal Times that there were other
employees. So they ran an article. So as a result of that I got
literally hundreds of calls from all over the world, all over
the world. My name was mentioned in there as well as my phone
number. That's where I met Mr. Barry Schrum and Deborah Monroe.
And the original three of us have been together
telephonically. Today was the first time that I've ever met
Barry Schrum, although I feel like he's a brethren. Same thing
with Deborah Monroe. I feel like she's a sister of mine.
I mean, we've been through Hell, quite frankly, over the
last 18 months trying to figure out what it is we need to do to
get this thing fixed. And I extremely feel sorry for her,
because, as she mentioned, she's run into a number of stumbling
blocks and has no one to help her there.
At least some of us had some experience, Barry and I, in
what we thought we needed to do to pursue this in the most
logical, professional, but yet administratively correct
process. Deborah did not.
But we were there from day one with her. And we've gone
through countless hours of reliving the emotional things, how
your life is turned upside down. In things like this, it's just
been a tremendous relationship, not necessarily that we wanted
it to come together because of this situation, but it's just
unfolded and evolved.
And that's why she wanted us to read her testimony.
Mr. Cummings. You had testified that this whole situation
has cost $2 million. Can you give us an idea of how you came up
with that figure?
Mr. White. Yes. I'd be more than happy to. When asked would
I want to transfer now, this is why I mentioned that. Had I
been appropriately placed in FERS from day one, with the amount
that I could have contributed, the full 10 percent plus the
pre-tax profit, I would have gotten more each year as far as
real income, not to mention the 5 percent matching funds.
And had I invested in the C fund, which I'm currently
doing, for the brief time I've been in FERS, over the lifetime,
based on my salary as a Federal law enforcement officer--as
you're aware, I can retire earlier. So the impact, I pay more
up front.
But the consequence to me, for example, just up front, is a
difference of 30 percent in annuities under FERS versus CSRS.
Right off the bat it's 30 percent. Now, had I been able to
contribute fully to age 50 or even 57, collectively that's the
combined impact pre-tax--which this amount has been confirmed
by an industry expert that provides these type of monetary
damages both to the Government as well as to the private
industry. That's why this amount is very significant to me and
why I'd prefer to stay in FERS.
Mr. Cummings. Your dealings with OPM have not been good,
have they?
Mr. White. No. Not at all. My contact with them--and I've
been around a long time. And I understand that everything
doesn't revolve around a single individual. But I would expect
that if a 15 had contacted you, you would take it a little bit
serious, as a senior Federal employee, and at least address
this issue, recognizing that not that it just affected me, but
it affected a number of people.
But I didn't get that. They pointed the finger at Congress.
And it just became something that was the same old song and
dance. I got a number of form letters back, even from President
Clinton--it's the same form letter I got back from the Office
of Personnel Management, the only difference was, on behalf of
the President, we'd like to thank you.
But the bottom line was, it was my problem, my agency
caused it, there's nothing we can do, and we're looking at
coverage errors; we're studying the problem.
Mr. Cummings. How high up did you go in OPM, do you know?
Mr. White. I went--I don't know what his grade is--but I
went to the Chief of Retirement Policy Division, Mr. John
Landers. Actually, his boss, too, I originally talked to at the
recommendation of my Congressman, Congressman Ron Packard, was
Mr. John Panagakos.
I made him aware of the problem in April 1996. That's when
I had the first dialog with him.
Mr. Cummings. April 1996?
Mr. White. Yes, sir. April 1996. And that's when I was
advised that there was basically nothing that they could do.
They were studying the problem. It was going to take a
congressional fix.
Repeatedly I asked, please, that's one thing I would like
to know--we didn't jump from a to z on this. We went through
the entire process from MSPB, OPM.
Mr. Cummings. So in other words, you were trying to work
with him?
Mr. White. Absolutely. From start to finish. What do we
need to get this problem fixed? We got nowhere. And, again, we
got the standard reply form letters which not only me but my
colleagues got back, as well, saying, ``It's not our problem.
We're studying it.''
I asked Mr. Landers as recently of February this year. I
said, ``When do you think you will have legislation drafted?''
``I don't have any idea. We're waiting on the
administration.''
I said, ``Aren't you a part of the administration?''
He said, ``Yes. But I have no idea, Mr. White.''
I said, ``So, what you're telling me is that I have no
recourse but to file legal action.''
He said, ``Well, it sounds to me like that's your only
recourse.''
Which was rather unfortunate. But that's where I've been in
my agency, even though they made the original wrongdoing in
this. They relied on OPM to provide them guidance on this. And
they have not got the same two answers twice, either.
Nor have they even been responded to. They wrote them in
July of last year, in 1996, and my IG never got a response back
from them also. So I'm not the only one who is being shunned on
this particular issue. I mean, you have a Presidential
appointee that doesn't even get a response back. Something is
wrong. And, of course, obviously Congresswoman Morella hasn't
got a response, either. So that's rather indicative of how
people are treated. So----
Mr. Cummings. Mr. Schrum, let me ask you just a few
questions. You testified that OPM Director King opposed Senator
Leahy's bill, is that right?
Mr. Schrum. Yes.
Mr. Cummings. Were you given any reasons for that, do you
know?
Mr. Schrum. The only response--I have never--I have made
numerous calls to OPM. I stay in touch with Alan. And the
reason I know that is the documentation that he got and what we
found out about Senator Leahy's bill. They've never even had
the decency to respond back to me even on a telephone call.
Mr. Cummings. Hmm.
Mr. Schrum. My Congresswoman, she wrote the letter. And,
obviously, they didn't think that was important, either, so
they never responded back to her.
Mr. Cummings. This is very painful for you, isn't it?
Mr. Schrum. Yes, it is.
Mr. Cummings. Mr. Gabrielli, you indicated that the
Treasury Department told your agency, IRS, that OPM was
unwilling to seek a legislative solution. Were you given any
reasons for that?
Mr. Gabrielli. No, I wasn't.
Mr. Cummings. Hmm.
Mr. Gabrielli. I'm not aware of any reasons.
Mr. Cummings. I'm sorry, were you finished?
Mr. Gabrielli. Yes.
Mr. Cummings. Oh, I'm sorry. Let me just ask you one last
question. Mr. Mangam, am I pronouncing that correctly?
Mr. Mangam. That is correct.
Mr. Cummings. You testified that the error made in your
case will cost you more than $30,000 a year? Is that what you
estimated?
Mr. Mangam. That is correct.
Mr. Cummings. How did you come up with that figure?
Mr. Mangam. Part of my retirement will be based on bringing
my military service into my Federal combined service
retirement. And if I were to retire at age 55 and continue to
work in some other endeavor, then any income I made over $8,000
and some dollars a year would reduce my annuity by a like
amount until I could get to zero.
I had planned on working from 55 to 65 as a consultant or
something else and banking, basically investing the funds
between those years. If my annuity from the Government was to
be reduced to almost zero for those 10 years, I would not be
able to invest that money, although I would be getting the
retirement of some $34,000 in FERS versus some $49,000 in CSRS.
A little bit convoluted.
Plus I expect to live to 90 like my parents. So, with 30
years of real retirement on top of another 5 to 10 years of
working, you can see how that multiplies. Thirty times $30,000
is $900,000 alone without taking a look at the reinvestment
opportunities for 10 years of working when I have zero annuity
due to the Social Security offsets on the FERS retirement.
Mr. Cummings. Well, I just want you to know that I'm hoping
that you live to be more than 90. And I want to be here with
you so I can say happy birthday.
Mr. Mangam. Thank you. I hope so, too.
Mr. Cummings. Thank you very much.
Mr. Mica. I thank the gentleman. I hope I can be at that
party to blow out the candles. But I'd like to recognize, now,
the gentlelady from Maryland, Mrs. Morella.
Mrs. Morella. Thank you, Mr. Chairman. I heard Mr. White,
Mr. Schrum mention it. But let me just ask all of you. Have any
of you received any assistance from, No. 1, OPM, or your own
agency? Have any of you been able to sit down with somebody
from that agency who told you how they could remedy, resolve
the situation, to give you the kind of advice, counsel that you
deserved?
Mr. White. Mrs. Congresswoman Morella, OPM has provided
absolutely no assistance to me.
Mrs. Morella. Mm-hmm.
Mr. White. Second of all, once my IG became aware of this,
she did get involved to the extent that they could. She wrote
letters, she followed up. But they, too, had to rely on OPM for
guidance, which--we have been provided conflicting guidance on
how to handle my issue, from the funds disbursement to you name
it.
There has been no definitive guidance at all. As of today I
still don't know where my funds are. All I know is that some of
my civil service funds paid my organization's responsibility
for FICA taxes, to what extent, I don't know.
Mrs. Morella. Mm-hmm.
Mr. White. So, again, I think the central theme or burden
clearly rests with OPM.
Mrs. Morella. So you get some comfort from a representative
from your agency----
Mr. White. From Ms. Eleanor Hill and Don Mancuso, correct.
Mrs. Morella [continuing]. But no figures, facts, avenue,
program, nothing from OPM?
Mr. White. No, ma'am.
Mrs. Morella. Mm-hmm. Right. Mr. Mangam.
Mr. Mangam. The local agency has been very supportive in
trying to ferret out information and get decisions. But they've
relied on the higher agency, being Department of Army, who has
gone to OPM and sought answers. The answers coming back are
basically what you've heard read into testimony.
It's a problem. It's based in law. And go seek your own
resolution. And they have not provided very clear-cut policy or
procedures in rectifying any of the transition problems that
are involved in this. As I testified, to date they have not
provided a policy of what to do with the residual CSRS funds,
which there is, in my case, $32,000-some out there which has
been laying fallow since last November, not gaining interest.
And they have said that they will never pay interest on that.
So it's just laying there.
That's just one small example. The local command has been
very supportive. But above that, the support policy procedure
is not there.
Mrs. Morella. Mm-hmm. Mr. Gabrielli.
Mr. Gabrielli. When the problem came to light, again, as I
said, the Internal Revenue Service sought guidance through the
regional office, and the region through the national office,
and Treasury sought opinions from OPM. And also the district
director in my district at that time had written letters on my
behalf.
The agency tried to do something. But ultimately it was OPM
who came back and cited law that there was nothing in the
provisions of law that would allow them to make any concessions
to allow me to stay in CSRS. I never dealt with OPM directly
myself.
Mrs. Morella. So, basically, you got tea and sympathy from
your agency, but no resolution.
Mr. Gabrielli. There was a lot of hand wringing and----
Mrs. Morella. Right. And no resolutions from OPM.
Mr. Gabrielli. Sure.
Mrs. Morella. And you didn't really deal with OPM, Mr.
Gabrielli. Mr. Schrum, you stated that in 1987 you were given
the option of switching to FERS, but no one told you that you
were ineligible to stay in CSRS. Is that correct?
Mr. Schrum. That is correct.
Mrs. Morella. Absolutely ridiculous. So, after their
initial error, they had another opportunity to see that they
put you in the wrong system, but it took them several more
years.
Mr. Schrum. That is correct.
Mrs. Morella. Correct. Absolutely unbelievable.
Mr. Schrum. And in 1991 they again put me in the wrong
retire- ment system when they put me in the civil service
offset. So that was what? The third time?
Mrs. Morella. I want to thank all of you for being here,
because it's difficult. You've been victimized already by the
system, and then to come and to reiterate all of that, to go
through it all again, is pretty anguishing, and I appreciate
it.
Now, some of you have filed lawsuits and some of you have
not. What do you hope to get from the lawsuits?
Mr. White. Personally, what I hoped to get from the lawsuit
was to be made whole. Since I had already been changed to
FERS--and that's in response to Congressman Mica's comment.
That's the track that I'm pursuing now. I've accepted the fact
that's what I'm in. And I expect to get whole.
I expect to get compensated fully. And I don't know what
sort of restitution I would get for emotional strain and
anguish, but I have followed this from--again, going through
every legitimate process possible which has forced me now to
take legal action to do that. So whatever the court decides is
appropriate to address my particu- lar situation as well as--
there's four others of us--then so be it.
But we've been out an extensive amount of money--legal
fees-- to get just to this point. Not to mention expert witness
fees. Which, you talk about outrage. That outrages me more than
anything, that I had to spend my own money to sue to get to
where we are today. That outrages me more than anything.
Mrs. Morella. Have your attorneys given you any idea of how
long the case would take?
Mr. White. No. We had no idea. Monday--the statute ran out
for me on Tuesday of this week. We waited until the last
possible minute. And Monday it was filed. The 28th--this
Monday.
Mrs. Morella. Any of the rest of you who have attorneys
like to comment on that? What you hope to gain from it? How
many of you have attorneys? You also?
Mr. Mangam. I also have an attorney. But my goal is to get
whole, whether that is returning back into CSRS and return of
the funds that have been--my word--absconded with, and made
whole monetarily and put back into the CSRS. Failing that, then
I need to protect my family and myself and my continuing life.
And so that's my goal. And it will cost money. But I hope that
the restitu- tion will happen. And I've been told that it can
take 1 to 2 years.
Mrs. Morella. One to two years. Mr. Schrum, you hired an
at- torney?
Mr. Schrum. Of course, my attorney is Mr. White's attorney.
Just like Alan said, I want to be made whole.
Mrs. Morella. Mr. Gabrielli, you did it through the union.
Do you have an attorney?
Mr. Gabrielli. No.
Mrs. Morella. You didn't, did you?
Mr. Gabrielli. No. Frankly, I don't have the means to
pursue this through the courts. I just don't have the means.
Mrs. Morella. That was what I was going to ask. Why did you
not. Any other comments that you'd like to make that we haven't
asked that you think link up to our resolution of this? You
know, we're going to have the agencies, as you know, right
after this panel--are going to testify.
Mr. White. Mm-hmm.
Mrs. Morella. Is there something you want us to ask them
besides the fact, why did you do this, what are you going to do
about it, look at what you've done to people's lives? This is
your last shot.
Mr. White. It's not so much a question as it is a
recommendation that I think, based on the seriousness of the
situation and the responsiveness of the Thrift Savings
Investment Board, that they should be the one that should
monetize the impact.
Mrs. Morella. Mm-hmm.
Mr. White. Look at this issue as opposed to OPM. It's clear
it's not a high priority issue. It's something that TSP--the
Thrift Savings Investment Board--was acutely aware of in 1991,
made OPM aware of this. I throw that out as a recommendation
that, I think, to follow Mr. Cummings' comment.
If you want a time table, I think that organization would
respond and would be able to monetize the impact very quickly
and get you the answers you need for those who have been
harmed.
Because there are literally thousands who don't even know.
And there are some right now that know that have not been
transferred to FERS. I've received dozens of calls from fellow
law enforcement officers that were hired in 1985 that say, ``I
am still in CSRS, and my organization has not transferred me
yet. What should I do?''
You know, I've just told them to stay tuned, hopefully
Congress can get to this. Which, leaving them in CSRS would be
the answer for those people. But for those of us who have come
out of the woodwork, so to speak, and have had to go through
this----
Mrs. Morella. You mean, some have been changed because they
were incorrectly kept in CSRS and then changed to FERS, some
who have been changed don't even know they have been changed?
Mr. White. Don't even know.
Mr. Schrum. That's right.
Mrs. Morella. Others have not even been changed that have
gone beyond that time limit?
Mr. White. That's correct.
Mr. Schrum. Right.
Mr. White. There are many other----
Mrs. Morella. It's a total flub-up.
Mr. Schrum. Yes.
Mr. White. Yes, ma'am. And there are people that are aware
they're in the wrong system because of reading the Federal
Times and articles in the Federal law enforcement officers
association that know that they're in the wrong system based on
what I have advised them, but their organization has not
detected it yet.
So they're in a precarious situation. What do I do? Do I
notify them? They don't want to wait until the day they walk
out the door to have this detected. So that's why, again, I
applaud all of you for having these hearings. It's so timely,
so critical.
And if it doesn't get resolved now the problem is going to
be so costly for the Government either through litigation or
just downright getting people whole at some point in time. It
needs to be fixed, and fixed now.
Mrs. Morella. Anyone else want to make any comments? Then I
yield back my time. Thank you, Mr. Chairman.
Mr. Mica. I thank the gentlelady. I am going to dismiss
this panel. But I want to thank--I think Mr. White and Mr.
Schrum have also helped Deborah Monroe with some of her legal
expenses.
Mr. White. Yes, sir.
Mr. Schrum. Yes.
Mr. Mica. That's most admirable. And I understand NTEU has
helped support you and also bring you here today, Mr.
Gabrielli. And we're grateful for their cooperation so we can
show this committee and Congress the direct effect that this
has had on some of our employees and how it has affected them
personally.
And I might say also, to you, Mr. Schrum, and others that
have been so dramatically personally affected, that the system
does work. Sometimes it does take some time.
Mr. Schrum. Mm-hmm.
Mr. Mica. You've tried to work through the system. And we
appreciate that. And through your representatives. We will find
a solution to this problem. And sometimes it's slow and
cumbersome. And it takes a while to get to us and get our
attention.
But do hang in there and have faith. And we'll try to make
you and your retirement benefits whole. So we thank you for
your cooperation and appreciate your being before the
subcommittee this morning. I'd like to call our next panel.
You're excused.
Mr. White. Thank you.
Mr. Mica. Our next panel this morning is William Flynn, who
is the Associate Director of the Retirement and Insurance
Service of the Office of Personnel Management, Sarah Hall-
Ingram, Associate Chief Counsel, the Employee Benefits/
Exemption Organizations of the Internal Revenue Service, Dr.
Diane Disney, Deputy Assistant Secretary of Civilian Personnel,
the Department of Defense, and Linda Oakey-Hemphill, who is an
agency retirement counselor with the Department of the
Treasury.
Some of you have been with us before and know that this is
an investigations and oversight subcommittee of Congress. We do
swear in our witnesses. If you would please stand, and raise
your right hands.
[Witnesses sworn.]
Mr. Mica. The witnesses answered in the affirmative. We're
going to go directly first to Mr. Flynn and then we're going to
intervene for some quick questions because our ranking member
must leave. But Mr. Flynn, you're recognized.
STATEMENTS OF WILLIAM E. FLYNN, ASSOCIATE DIRECTOR, RETIREMENT
AND INSURANCE SERVICE, OFFICE OF PERSONNEL MANAGEMENT; SARAH
HALL INGRAM, ASSOCIATE CHIEF COUNSEL, EMPLOYEE BENEFITS/
EXEMPTION ORGANIZATIONS, INTERNAL REVENUE SERVICE; DIANE
DISNEY, DEPUTY ASSISTANT SECRETARY, CIVILIAN PERSONNEL,
DEPARTMENT OF DEFENSE; AND LINDA OAKEY-HEMPHILL, AGENCY
RETIREMENT COUNSELOR, DEPARTMENT OF THE TREASURY
Mr. Flynn. Thank you, Mr. Chairman and members of the
subcommittee. On behalf of Jim King, the Director of OPM, we
appreciate the opportunity to be here today to discuss the
subject of erroneous enrollments in the Federal retirement
systems.
As you've pointed out, Mr. Chairman, in the Senate
committee report attached to the Treasury, Postal Service and
General Government Appropriations Act of 1996, OPM was directed
to review the problem of employees who have been placed in the
wrong retirement system.
Now, in addition to OPM, a solution to this problem affects
the policies and operations of the Federal Retirement Thrift
Investment Board, the Social Security Administration, and the
Treasury Department.
Before our report can be issued more discussions with those
agencies on an approach to this issue are needed. I'm hopeful
that we'll be able to present our report, including
recommendations for a legislative solution to the Congress in
the near future.
Nonetheless, at today's hearing I would like to share with
the subcommittee our perspective on this problem as well as the
general objectives we believe should be sought in molding a
remedy.
Retirement coverage errors are generally the result of
difficulties government agencies have experienced in the still-
ongoing transition that began in 1984 from the Civil Service
Retirement System [CSRS] to the Federal Employees Retirement
System [FERS]. As you know, two sets of statutory transition
rules must be applied. Both contain various exceptions to
Social Security coverage. And one set of rules required
retroactive amendments to coverage determinations made during a
period of time in 1984. The statutes also created the hybrid
retirement system known as CSRS offset.
When agencies find a mistake in an employee's retirement
coverage, they are required by the law to correct it currently.
After discovery of a coverage error, the law requires that an
employee's defined benefits coverage, including Social
Security, be fully corrected with retroactive amendments to
retirement records and reallocation of employee and agency
contributions. Coverage errors that negatively affect the
employee's defined contribution plan participation are those
that may in fact disadvantage the employee, as you've heard
today from the witnesses earlier. An employee's participation
in the Thrift Savings Plan is a matter of personal choice
affected by the employee's available income and personal
retirement planning. Those decisions, in turn, rely on correct
coverage determinations by the employer.
Now, apart from the 1 percent government contribution and
its associated earnings, which must be deposited for all
employees covered in the Federal Employees Retirement System,
regardless of whether or not the employee contributes; the
total amount of the agency's make-up contribution when errors
are discovered depends on the employee's past contributions to
the Thrift Savings Plan and his or her future salary
withholdings to make up for the period of the erroneous
coverage.
This approach to making an employee whole after retirement
coverage error has been determined has significant gaps, again,
as you have heard from the witnesses earlier this morning.
First, because it relies on future salary withholdings, an
employee whose coverage error is discovered upon separation
does not have an opportunity at all to make up lost
contributions. An employee who does not have income available
for this purpose can be similarly affected. Second, if an
employee did not participate in the Thrift Savings Plan during
the period of the error, retroactive earnings on make-up
contributions are calculated using the G fund as opposed to the
other fund rates of return. And third, some highly paid
employees may be unable to maximize their Thrift Savings
Program benefits due to the tax code's elective deferral
limitation that applies to such contributions.
This is a general outline of the problem. OPM does believe
that a comprehensive solution is desirable, one that addresses
situations in which a long-term coverage error has been
corrected as well as those in which the error has not yet been
discovered.
In addition, we believe the solution should address current
and former employees and retirees and survivors since members
of each group have been affected by retirement coverage errors.
I would like to lay out for the subcommittee our major
objectives for this remedy. OPM recognizes that some employees
have been truly disadvantaged by being placed in the wrong
retirement system.
Our first and most important objective is that a remedy
should demonstrate that the Government is committed to an
equitable solution for these employees and their families.
Because retirement planning is a career-long affair, a long-
term error can be truly harmful. This is the case where an
employee misclassified as Civil Service Retirement System or
offset must be retroactively switched to the Federal Employees
Retirement System, but because of the error did not save for
retirement to supplement the defined benefits of FERS and
Social Security benefits.
Our second major objective is to provide employees with a
choice between corrective coverage and a benefit the employee
reasonably expected to receive. Employees should not simply be
forced to retain erroneous coverage following discovery of a
long-term error. Some employees who have been misclassified as
Civil Service Retirement System or offset may prefer a benefit
equivalent to what they have come to expect. But an employee
who contributed a significant amount to the Thrift Savings
Program may feel equally strongly that retaining Federal
Employees Retirement System coverage would be beneficial. And
you've heard some comments to that effect, again, from the
witnesses earlier this morning.
Our third objective is that the options provided to
employees should be easy to understand. Both for the people who
must counsel employees and for the affected individuals, we
should avoid complex rules, conditions, and exceptions.
I trust that we can build a choice that leaves each
individual with a clear understanding of his or her retirement
coverage, enabling him or her to plan for their income security
in retirement.
In conclusion, Mr. Chairman, I expect that a proposal for a
comprehensive remedy to the current problem will be sent to the
Congress in the near future. In the meantime, I hope this
information has been helpful, and I'd be glad to answer any
questions the subcommittee may have.
Mr. Mica. Thank you for your testimony, Mr. Flynn. We're
going to break from our regular order. Our ranking member has
another commitment. But I'm going to yield to him for
questions, at first, to you.
Mr. Cummings. Mr. Chairman, I want to thank you for your
courtesy and thank you for yielding. And, to our witnesses,
unfortunately I've got another matter that I've got to get to.
And to the witnesses on the first panel., I echo the sentiments
of our chairman. We will find a solution. I promise.
Mr. Flynn, let me ask you something. You said something
just a moment ago that, when you first started about finding a
solution to the problem, and I think you said something about
the near future?
Mr. Flynn. Yes, sir.
Mr. Cummings. One of our members on the other side talked a
little bit earlier about how deadlines are met and deadlines
are broken. And when those deadlines are broken every time
they're broken it affects somebody's life. Here we don't even
have a deadline. And I'm just wondering when can we expect
resolution.
These people and people in like circumstances I can imagine
when they heard ``near future,'' they probably almost slid down
in their chairs and said, ``Not again.''
And I don't think that either side--and this is bipartisan,
by the way--either side wants to be part of a conspiracy where
nothing happens. You follow what I'm saying?
Mr. Flynn. Yes, sir.
Mr. Cummings. And so when will we be effective, can you
give us an idea of what we're talking about date-wise?
Mr. Flynn. I believe I can.
Mr. Cummings. And what is blocking us from getting there?
How long have you been working on this problem?
Mr. Flynn. We've been working on this problem about 18
months since the Senate appropriations committee report
requested recommendations from us.
Mr. Cummings. OK. Was a deadline set then?
Mr. Flynn. We were expected to have completed that in
January of this year, Mr. Cummings.
Mr. Cummings. OK. So you see what I'm talking about.
Mr. Flynn. Exactly.
Mr. Cummings. It's now, we're about to go into August. And
so, I guess what I want to know is, what has blocked you from
getting to a solution and some kind of date by which we can
expect a solution?
Mr. Flynn. I know, Mr. Cummings, that you have to leave in
a minute. I'll try to answer that very shortly. We fully
expected to be able to issue a report in January 1997, earlier
this year. There were two court cases that had a direct bearing
on this issue that were decided that did, in fact, alter and
influence the way in which our recommendations were going.
We are close. I would expect that we can complete the
consultations that we need to complete with the affected
agencies--the Federal Retirement Thrift Investment Board,
Social Security, and Treasury--and I'm hopeful, Mr. Cummings,
that we can do that within the next 30 days.
Mr. Cummings. Well, we come back here what? Early
September?
Mr. Mica. The 3rd.
Mr. Cummings. Yes. So you actually have 2 or 3 extra days.
So I hope that you do that. You said something about--when you
were talking about your objectives--and I think you were sort
of talking about the parameters of your trying to find a
solution.
Mr. Flynn. Yes, sir.
Mr. Cummings. You said the words, something to the effect
that you're trying to get these Federal employees who had been
victimized--those are my words--these were yours--what funds
that they reasonably expected to receive. Is that a difficult
thing to calculate for you? You follow what I'm saying?
Mr. Flynn. It is not a difficult thing to calculate with
respect to a current employee who is currently working for the
Federal Government. It becomes more difficult, Mr. Cummings,
when we look at all the different types of employees that we
have here and their current status in life.
Mr. Cummings. Mm-hmm.
Mr. Flynn. If I could, just very quickly, as you've heard,
we do know of a number of employees where errors have been
identified and where subsequently the employees have been
placed in the correct system. Those are the individuals that we
know about.
We also know that there are individuals who are in the
incorrect retirement system now and their agencies or they have
not yet identified that. Those are current employees. We have
separated employees, some of whom have left their
contributions, who are waiting for either a return to Federal
employment after a period of private employment, or who may be,
in fact, waiting to elect a deferred annuity at age 62.
In addition to that we have some retirees who are also
affected by this. And in addition to that we have survivors of
retirees who are affected. Providing those other types of
individuals with choices, one of which might give them a
benefit that they would have reasonably expected to receive is
a somewhat more difficult matter, but we can get there. And we
will.
Mr. Cummings. Do you think that this is something that
requires congressional action or can this be administratively
addressed? Or do we have to have a combination of both?
Mr. Flynn. Mr. Cummings, the solution that we are talking
about the parameters of here would require legislative action
and probably some administrative action as well. I do know that
we have used in our view, and in the views of agencies, as much
of the administrative flexibility that is available within the
current system.
So this is primarily going to be a legislative proposal
that will then entail some administrative action after that.
Mr. Cummings. There have been some estimates by, I think
Mr. White, about how many people are affected by this. Can
you--were those figures accurate? Did you hear his testimony?
Mr. Flynn. Yes, I did, Mr. Cummings.
Mr. Cummings. OK.
Mr. Flynn. I can tell you that there is no single source of
information on how many error situations have occurred. That is
because there is simply no mechanism to track that. We do have
anecdotal information from departments and agencies with whom
we've worked on correcting these errors over the years that
suggest different numbers for different departments and
agencies.
In the aggregate, let me try it this way. I can tell you on
the basis of everything that I have seen that the overwhelming
number of participants in the retirement systems we administer
are in the correct system. As a proportion of the total number
of participants, this is a small proportion of people even if
it were, as Mr. White has indicated, several thousands of
people.
Having said that, however, let me also quickly emphasize
that we understand and appreciate for individuals, whether it's
one or whether it's a thousand times one, this is a personal,
vexing, traumatic issue. And it's something that we must find a
solution for, not only for the individuals that we know about,
but for the individuals we may discover in the future.
Mr. Cummings. Well, I'm glad you said the second part of
that, because I was going to tell you that one, one is too
many.
Mr. Flynn. Yes.
Mr. Cummings. Let me ask you just a last question. I wish I
had more time, but I've got to go. But let me ask you this. Are
these errors still going on? In other words, are we still
running into problems?
Mr. Flynn. Mr. Cummings, you will hear, I'm sure, from the
testimony that the majority of these errors occurred during
that transition period from 1984 to 1987.
Mr. Cummings. Right.
Mr. Flynn. It is true, nonetheless, that errors can yet
still prospectively occur.
Mr. Cummings. Mm-hmm.
Mr. Flynn. And that's why, again, part of the parameters of
the solution we want to devise here is something that can be
applied 5 years, 10 years from now, whenever these types of
situations present themselves. Hopefully they will be very
small in number, if not nonexistent altogether, but I cannot
say that to you with certainty.
Mr. Cummings. One of the earlier witnesses called for a
review of all hires during the mid-1980's in order to find all
the remaining enrollment errors. How do you feel about that?
Mr. Flynn. I think that you will hear both from the
agencies and from me that that is a very significant
administrative burden to apply what still to this day, Mr.
Cummings, remains a relatively complex set of rules. If we can
create this solution that enables employees to be equitably
treated with respect to their income, security and retirement
prospectively, then such a comprehensive folder-by-folder
review wouldn't be immediately necessary because we could
create mechanisms that dealt with this as they presented
themselves in the future.
Mr. Cummings. Let me ask you this--and I wish I could ask
it of all the witnesses--but I want to ask you. It's a very
simple question. Could you feel their pain as I did this
morning?
Mr. Flynn. Yes, sir, Mr. Cummings, I could.
Mr. Cummings. Well, I ask all of you to do me a favor, that
as you move toward this 30-day deadline, and as you sit there
in the room and try to resolve that, I hope that you will think
about the pain that you felt coming from them today, because I
certainly felt it.
And I hope that you'll think about that pain and multiply
it by the fact that each one of these witnesses, there are
whole lot of other people affected, too, but they also have
families that are affected.
And sometimes I think it's good for us in government--and
that includes us in the Congress--to reverse roles and put
ourselves in the places of people who are, in this instance,
harmed by what we or the government has done in the past. Thank
you very much.
And, Mr. Chairman, thank you very much for the courtesy,
again. I appreciate it.
Mr. Mica. Thank you, Mr. Cummings. And thank you also for
your suggestion of setting a deadline. And we're going to meet
in my office on Wednesday, September 10, at 11:30, to hear from
Mr. King or his designee, Mr. Flynn, their solution.
So we give them not only 30 days, but a couple to spare.
Eleven-thirty in my office. And we'll have a solution from
them. Of course, we will finalize the solution at that time.
I'd like to recognize now the gentlelady from Maryland, Mrs.
Morella.
Mrs. Morella. Thank you, Mr. Chairman. I look forward to
being at that meeting post-Labor Day around September 10,
knowing that OPM has been spending like 18 months, you say,
working on the problem.
Now, from what I understand, you do not know all of the
Federal employees who are affected, right, Mr. Flynn?
Mr. Flynn. That is correct, Mrs. Morella.
Mrs. Morella. Because you're got different categories that
you just mentioned. You've got your retirees, those who have
been separated, those who are still actively working there who
may not even know it. Would it not be for those people, a
simple solution to let them just stay where they are and
continue in the system that they happen to be in?
Mr. Flynn. Mrs. Morella, let me try and answer that for you
by mentioning two factors. First, it's important, I think, to
remember that while an employee is in an active status working
for a Federal agency the personnel operations that affect him
or her are actually carried out on a day-to-day basis by
personnel and payroll offices of the various departments and
agencies worldwide.
So it would not be unusual for the Office of Personnel
Management not to have a name-by-name listing of all the
employees who have been affected by these errors. I know, and I
know that you'll hear from the agencies this morning that as
they have identified these errors, they have identified the
individuals so that when we arrive at a solution that everyone
can agree to, we can then go to these individuals and work with
them on that solution.
With respect to the second part of your question, and that
is, wouldn't it just be easier to leave people where they are,
I think as you heard from the group that testified earlier,
people's individual personal financial circumstances differ
from one to the other. And you heard amongst the four people
this morning preferences to stay under the Federal Employees
Retirement System if they were given perhaps some expanded
opportunity to do make up contributions and to receive----
Mrs. Morella. That's because they knew that they were given
not only the wrong advice but put into the wrong system.
Mr. Flynn. You're absolutely correct.
Mrs. Morella. Had they not known that--I mean, think of the
trauma that they went through and the anguish in trying to
rearrange. But if they didn't know that, if they are receiving
retirement, everything seems to be fine, why go back to those
people and kind of ignite the explosive quality of combined
mistakes?
Mr. Flynn. You raise a very valid question, Mrs. Morella.
And to the degree that we can build into this solution
something that enables employees to make choices about what
they perceive as being in their best interests, then you might
very well have a situation where most people discovered
prospectively would prefer to retain the coverage that they
were originally incorrectly placed in, though it is also true
that some people whose coverage errors have been corrected
already might today see that as being in their interest.
I spent a number of years as a head teller with a bank
before I came to work for Government. And I know from that
experience how deeply personal information about one's finances
and the implications of one's finances for the future are.
One of the things that we've learned in this process of
studying the issue is that different people do in fact come to
this issue with very different ideas about what would be an
appropriate remedy for them. And we want to try and develop a
solution that is responsive to that diversity of views.
Mrs. Morella. I guess I'm trying to understand what you're
saying. I'm just simply saying that if they don't even know
that they're in the wrong system and they're happy where they
are, then why do anything more about it. Because it seems like
you're planning to find out who they are. And are you planning
to notify them?
When you listen to Mr. Schrum, just as an example of all
those thousands of others, he, in 1987, was given the option of
switching to FERS, but no one told him that he was ineligible
to stay in CSRS. And then even after that initial error, there
was another opportunity to be told that he was in the wrong
system, but it took several years for that. See what I'm
saying?
Mr. Flynn. Absolutely, Mrs. Morella. That is a distressing
rendition of how an individual was provided with minimal
guidance and assistance during that period of time. I am
obviously not personally aware of Mr. Schrum's situation, but
if that, in fact, is the case, we made several errors and then
compounded it. And that should not have occurred.
Mrs. Morella. Mm-hmm. Now, are there many who are affected
who have not been notified? I mean, there are some affected you
don't even know.
Mr. Flynn. That is correct, Mrs. Morella.
Mrs. Morella. Right. Now, those that you do know, have they
been notified?
Mr. Flynn. The law does require that when an individual's
misclassified retirement coverage is identified that the
individual be notified and that under current law corrective
action be taken to correct the retirement records to reflect
the correct system and to reallocate the contributions from the
Civil Service Retirement and Disability fund to the Social
Security Administration, and so on and so forth.
Mrs. Morella. And nobody on the first panel indicated
getting advice, counsel, direction, or assistance from OPM. And
I didn't even get a response to my letter. What's happening?
Mr. Flynn. Mrs. Morella, first with respect to your letter,
I hope that we will be able, in our response to that letter, to
lay out for you, as we have talked about here this morning, a
way to address this, that represents agreement among all the
respective agencies within the executive branch and that looks
at this issue from a comprehensive standpoint. I apologize that
you have not received a response to that letter as of yet.
Mrs. Morella. No, it was simply that when I asked the
panelists about whether they had gotten assistance from OPM----
Mr. Flynn. Yes. Right.
Mrs. Morella [continuing]. They all said they had gotten
some comfort from somebody within their agency, but OPM did not
give them help.
Mr. Flynn. Thank you. I appreciate refreshing my memory on
the main thrust of your question. As I mentioned earlier, we do
rely heavily on departments and agencies to provide counsel and
assistance to employees when they're in active status, because
that's where they get most of the services.
So it was heartening for me to hear that from their local
personnel and payroll offices, these individuals received what
assistance was available. To the degree that we at OPM, in
responding to inquiries, telephone calls, questions, from any
of these individuals or any others who have been similarly
affected, have given the impression that we didn't care, that
we didn't want to provide any assistance, I apologize. That's
certainly not our intent.
I think what we were trying to convey was that in the
framework of existing law and regulation, these are the only
activities that are possible and that we are studying this
matter with an eye toward recommending a solution that would
deal with this issue on a broader, more comprehensive,
equitable basis.
That's really the message we should have been conveying.
Now, we have worked very hard with departments and agencies
across government providing them materials, training aids,
information, training. We had at our benefits officers
conference just this past June a session on this issue, so that
they in turn can provide the direct face-to-face assistance to
individual employees who are affected by this. We can always do
that better. But that's the primary avenue of that support for
current employees.
Mrs. Morella. We are here now to look at what remedies we
can find for the future and I'm reminded that as we look back,
Shakespeare once wrote, ``Things without remedy should be
without regard. What's done is done.''
Now we move ahead to the future and look for your
resolution when we meet on September 10. Thank you, Mr. Flynn.
Thank you, Mr. Chairman.
Mr. Flynn. Thank you.
Mr. Mica. Mr. Flynn, just a couple of quick questions,
comment. First of all--and I hope you take this back to
Director King--I do expect that when a member of this panel or
I write to you that we get some response, even an interim
response. When did you write, Mrs. Morella, May?
Mrs. Morella. May 20.
Mr. Mica. May 20. That's not satisfactory. I mean, even--
the last thing I did yesterday to my staff was, I said, I want
a report tomorrow on every piece of correspondence from
constituents that's over a week old. And my staff gives me an
accounting. I report to my constituents. We're only here as
temporary representatives of the people. And you, in this
function, report to us.
So I do expect that courtesy. We've had a good working
relationship. And even if it's, ``We're working on it,'' the
members of the subcommittee do deserve a response.
Is there any dollar price tag? Now, you said this may be in
the thousands of people. Is there any price tag to potential
financial obligation that we may incur to correct this? Can you
give us any guesstimate at this point?
Mr. Flynn. That's a very difficult thing to do, Mr.
Chairman. And I can tell you quite honestly that there is no
single estimate of what it might cost to correct these
situations.
Mr. Mica. If we have several thousand, though, we're
probably talking of tens of millions, hundreds of millions?
Mr. Flynn. I would be hesitant, Mr. Chairman, right now to
put a number on that. Once we have nailed down the specifics of
the proposal that we will bring to you, we will nail down at
the same time an estimated impact of the costs associated with
that.
Mr. Mica. You're probably talking a pretty significant
amount of money.
Mr. Flynn. Well, that's a possibility, Mr. Chairman. We
will provide you with estimates as best we're able to when we
do that.
Mr. Mica. And we may be looking at some either
opportunities to open up Thrift Savings to folks or repayment
of Social Security or access to systems. But there are
definitely going to be some substantial costs to bring these
various individual situations to a corrected status. Is that
correct?
Mr. Flynn. We are certainly looking, Mr. Chairman, at all
of those options. Whether or not they involve substantial costs
or not for the individuals who have testified and for the
others who have been similarly affected is a matter that I
would like to spend time analyzing before I answer that one way
or the other.
Mr. Mica. Why did OPM oppose the legislation last year?
Mr. Flynn. The legislation that was proposed at the time,
Mr. Chairman, and if you would give me an opportunity, I might,
when I get back to the office, perhaps provide a full response
for the record. But the legislation that was proposed at the
time, in our view, only dealt with a portion of this problem.
And as I said earlier today, we have many different types
of people facing many different types of situations. And we
think that rather than attempt to deal with this piecemeal, and
perhaps in the process create inequities between different
groups of people, it was important to come at this from a
comprehensive standpoint that attempts to meet the objectives
that I've outlined earlier this morning.
Mr. Mica. We will meet on the 10th to resolve this matter.
Mr. Ford, you're recognized.
Mr. Ford. Thank you, Mr. Chairman. I'll be very brief. And
I thank all the panelists and want to apologize to the former
panel. I'm from the State of Tennessee, and Secretary Shalala
and Glickman and Bruce Reid from the White House were here to
talk about the tobacco agreement, so forgive me for having to
leave in the middle of your testimony.
I sympathize and certainly support all that you said. And
I'm pleased to hear the chairman and certainly the ranking
member, and certainly pleased to hear the panelists talk in
terms of a September 10 date to hopefully bring some resolution
that speaks to fundamental fairness and equity issues.
I join with all of my colleagues in wanting to see this
resolved. But I would just ask one question. I know that, Mr.
Flynn, you've been discussing, I guess, this problem with the
Social Security Administration, the Thrift Investment Board,
for some 18 months now.
Any sense of what they've offered in terms of helping to
bring some resolution to this problem and help make some these
affected employees whole?
Mr. Flynn. Well, Mr. Ford, we've talked about a number of
things both within the Office of Personnel Management and with
the Office of Management and Budget and other agencies that do
have various aspects of this program to administer. I think
that we are all in agreement on the broad overall goals.
I think what we're doing now is coming to some conclusions
about what specific mechanisms that may be administered by the
various agencies may need some analysis or review in terms of
the mechanisms used to meet those goals.
It would be premature for me to say specifically what they
are. But it does involve, for example, addressing the issue
where it's possible to do so, of allowing employees perhaps to
find a way to maximize the investment in their personal savings
that they were unable to do so during the period of the error,
things like that, so that when we present employees with
choices, or former employees or retirees, they have the
opportunity of knowing if they take action a, b, and c, this
will be the result, if they take action d, e, and f, this will
be the result.
And we want to nail those down and then bring those
together in the form of a specific proposal very shortly.
Mr. Ford. Thank you, Mr. Chairman.
Mr. Mica. Thank you, Mr. Ford. Now, we've heard from OPM.
Now we'll hear from the agencies. And the first panelist from
the agencies--we have Internal Revenue Service--Sarah Hall
Ingram, Associate Chief Counsel of Employees Benefits/Exemption
Organizations. Welcome, and you're recognized.
Ms. Ingram. Thank you, Mr. Chairman and members of the
subcommittee. My name is Sarah Hall Ingram. I'm the Associate
Chief Counsel for Employee Benefits and Exempt Organizations at
the Internal Revenue Service. I appreciate the opportunity to
be here today to discuss some of the tax issues that face
Federal employees who have been enrolled in the incorrect
portion of the Federal retirement system.
I've submitted a written statement for the record. And all
I wish to do this morning is just highlight a few things.
Mr. Mica. Without objection, that will be part of the
record.
Ms. Ingram. Thank you, Mr. Chairman. As is apparent from
the previous testimony, the question of whether and how these
erroneous enrollment mistakes should be corrected raises a
number of important legal and policy considerations, many of
which do not depend on the tax law. But I would like to focus
this morning on two of the Federal tax issues that are raised
by the situation. And this is with the IRS wearing the hat as
tax administrator.
Since we do not have the specific proposal that is being
worked on before us today, my testimony will necessarily relate
to the discussion of generally applicable principles of tax law
that would be at play in this situation.
The first issue relates to the FICA taxes. The Internal
Revenue Service administers and collects the FICA taxes, which,
as you know, are in two pieces, both the Medicare portion which
applies to most Federal employees, and also the OASDI portion,
commonly known as Social Security taxes, which are different
for people in different programs.
Under the Internal Revenue Code sections 3101 and 3111, the
responsibility for the liability for Social Security taxes are
split between the employer and the employee. And there is a
mechanism under 3102 for the employer to withhold from the
employee's wages the employee's portion of the liability and
then remit to the Service both the employee's portion and the
employer's portion.
And under the normal procedures, the employer is required
to deposit these taxes with the IRS shortly after the salary is
paid. And there are deposit timing rules, as you know. These
deposits do not identify the individual employees for whose
account the payments are made.
To report the taxes there is a two-part system. The
employer is required to file with the IRS a quarterly return,
which is the return 941. And then after the close of the year
the employer provides forms W-2 both to the Social Security
Administration and to each employee. And that is taxpayer-
specific data.
The Federal Government, including the IRS as an employer,
is generally subject to these same requirements for reporting
wages and doing the information reporting. Now, if the employer
discovers an error on the 941 that has been filed with the IRS,
it is generally required to provide corrected information with
its next quarterly filing of the form 941 and to include a
941C, which flags the fact that a correction is being made and
needs to be made.
Likewise, if an employer discovers an error on the W-2s
that have been issued to the employee or the Social Security
Administration there is a procedure for the employer to issue
corrected W-2Cs to both parties so they have the correct
information for all purposes.
While these correction procedures are reasonably workable
in situations in which the error is discovered relatively
promptly and employers and the Government are used to dealing
both with the original forms and the corrected forms, they were
not really designed to deal with a situation in which an error
persists over an extended period of time. And so that is
certainly one of the issues in play in any solution.
We understand as an agency that receives instructions from
OPM that, obviously, we need to issue correct W-2 information
and if there are errors, issue corrected W-2 information, in
part so that employees can be assured that the correct benefits
calculations are performed by the Social Security
Administration at the end of the day when they are in a benefit
receipt mode.
The Internal Revenue Service is currently working with the
Department of Treasury and other Federal agencies and obviously
also with OPM to analyze the more complex issues that can arise
with the possible need to correct FICA tax liability reporting
when there are problems over an extended period of time.
Another aspect of the general situation you've been hearing
about this morning relates to the limitations on employee
contributions to the Thrift Savings Plan. As noted in my
written testimony and as mentioned this morning by others, an
employee who has been incorrectly assigned to the CSRS program
would not have been allowed at that point to take advantage of
the higher Thrift Savings Plan contribution limitations that
were available to employees under the FERS program.
In general, the Internal Revenue Code limits the amount
that an employee may contribute to a tax-deferred savings plan.
That applies to private sector plans as well as to the Thrift
Savings Plan. The subcommittee asked the IRS whether we had a
position on proposals to waive those limits for situations in
which Federal employees have been misclassified because of an
agency mistake.
The Internal Revenue Code does not include any specific
authorization that permits us to do an administrative waiver of
those limitations that are established in the Code and, as I
mentioned, apply to both the private sector as well as the
Thrift Savings Plan.
And we would recommend that any legislative proposal to
provide such authority should be considered as part of an
integrated package that would address the entire solution so
that the appropriate legislative changes, if any, to the Code,
can be made as part of a whole.
Mr. Chairman, that concludes my prepared testimony, but I'd
be pleased to respond to any questions you or the panel may
have.
[The prepared statement of Ms. Ingram follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Mr. Mica. Thank you for your testimony. And now I'd like to
recognize Dr. Diane Disney, Deputy Assistant Secretary,
Civilian Personnel, at the Department of Defense. Welcome back.
And you're recognized.
Ms. Disney. Thank you, Mr. Chairman and members of the
subcommittee. I'm pleased to be here today to describe the
experiences of the Department of Defense in managing the issues
related to employees who have been enrolled in the wrong
Federal retirement system. I've submitted a written statement
for the record and would like just to highlight some of that
testimony.
Mr. Mica. Without objection, that complete statement will
be made part of the record.
Ms. Disney. Thank you. Let me begin by noting that DOD
truly cares about its current and past employees and is
committed to finding and correcting errors that cause hardship.
As previous speakers have indicated, retirement system
determinations are very complex. Between January 1984 and
January 1987, DOD placed approximately 170,000 new hires into
the transitional system. Our recent search of the data records
of the interim category hires has revealed about 3,100 records
of employees who were hired after December 31, 1983, but placed
in the Civil Service Retirement System.
Most of these records were coded correctly because of prior
Federal service. At the beginning of this fiscal year, however,
the department had about 500 cases at the Defense Accounting
and Finance Service for corrective action.
These retirement system errors come to light in a variety
of ways. Most commonly, they are discovered during an audit of
the personnel folder. An audit is routinely done when employees
transfer or return from overseas. Personnel files are also
audited when former employees are rehired.
Errors may be discovered when employees seek retirement
credit for previous service or after they receive pre-
retirement counseling. We've also found that erroneous coding
is uncovered by specialists after they receive the classroom
training that we provide.
Nearly all of the erroneous enrollments at DOD date back to
those years between 1984 and 1987. Thus we're faced with a task
of correcting actions that are 10 or more years old. Now
although the correction of the actual error is fairly
straightforward, the subsequent correction of all the
supporting records is complex and involves several other
agencies, including OPM, the Internal Revenue Service, the
Social Security Administration, and the Thrift Investment
Board.
While we would like to make each employee whole for
retirement coverage, doing so is often impossible under
existing laws. The department has developed and is using a
variety of tools to advise personnel offices of this issue and
to get the word out to employees themselves.
The benefits and entitlements branch of our Field Advisory
Service, for example, has done an outstanding job in this area.
It publishes articles addressing corrections of errors,
coverage rules, and changes to those rules. The articles also
serve to inform employees.
We've developed and published a retirement plan decision
logic tree. And while it sounds very boring and it looks
complex, this has received very good reviews from the personnel
community and OPM. And we've now put it on the World Wide Web
so employees can use it themselves, as well, if they're
concerned at what their circumstances might be.
We've published an easy-to-use, easy-to-understand
reference guide designed to walk personnel specialists through
the entire process. This guide also contains sample letters
that can be sent.
In addition, we offer training classes to all DOD personnel
specialists without charge. And our benefits and entitlements
staff are available by phone, fax or e-mail 12 hours a day
Monday through Friday.
As you know, we are regionalizing much of our civilian
personnel management operation. As the personnel folders are
moved into the new regional centers, we have another
opportunity for review. Then, too, our Defense Finance and
Accounting Service has developed and is staffing a series of
memoranda to its center directors, providing information on how
to adjust civilian pay records.
Of course, we also rely upon OPM guidance on corrective
procedures and on litigation affecting benefits. OPM has
already testified to its actions in this area. The solution to
this problem is not easy.
We can use our data base to identify employees who may have
been encoded erroneously. We've done that. The next step is to
continue screening individual records to discover who might
have been enrolled erroneously. Our installation personnel
officers are doing that. Those are the relatively easy parts.
The hard part comes after corrections have been made. In
order to make or keep employees whole, tax, Social Security,
and Thrift Savings issues must be addressed. But they are
beyond the control of DOD. We would welcome the opportunity to
work on developing alternatives that are simple to understand,
are simple to apply, and cause no financial hardship for
employees or retirees.
That concludes my prepared remarks. I thank you again for
this opportunity to describe our experiences and would be
pleased to answer any questions you might have.
[The prepared statement of Ms. Disney follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Mr. Mica. Thank you for your testimony. I will now
recognize Linda Oakey-Hemphill, agency retirement counselor
with the Department of the Treasury. Welcome, and you're
recognized.
Ms. Oakey-Hemphill. Mr. Chairman and members of the
subcommittee, I've previously submitted written testimony. And
with your permission, I will just provide a brief summary of
that testimony.
Mr. Mica. Without objection, that will be made part of the
record. You're recognized.
Ms. Oakey-Hemphill. Thank you. I'm pleased to appear today
to discuss with you a matter of interest and serious concern:
erroneous enrollment in the Federal retirement systems.
The Department of the Treasury's Office of Personnel
Policy, in which I work, is responsible for providing technical
and policy guidance in the various personnel specialties and
liaison with other agencies for the Department's 13 bureaus.
As the Department's chief personnel expert in the area of
retirement I have participated in initiatives directed toward
preventing coverage errors or minimizing the negative effects
entailed in the correction of such errors. Many of these
initiatives which are noted in my written testimony have been
inter-agency efforts.
In order to determine correct retirement coverage a set of
complex laws must be applied to an individual employee's unique
employment history. Employees cannot be expected to be familiar
enough with the coverage rules to discover an error and,
therefore, are generally unaware when one has occurred.
Additionally, there is no completely reliable way to use
the automated personnel payroll system to identify errors.
Consequently, many coverage errors have gone undetected for
years. It is also not uncommon for an employee to transfer from
agency to agency without detection of a coverage error.
Usually, the longer an error goes uncorrected, the more severe
the effects on the employee's financial planning and the
greater the staff resources required to make the correction.
Despite the good will and substantial cooperative efforts
of key agencies involved, which are reflected in my written
testimony, we have found the available administrative remedies
to be insufficient for preventing coverage errors or for making
all affected employees whole with respect to their retirement
planning.
I'd be happy to answer question you may have concerning my
experiences in this area.
[The prepared statement of Ms. Oakey-Hemphill follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Mr. Mica. Thank you for your testimony. Dr. Disney, did I
hear you correctly? Did you say in 1984, I guess, through this
period you enrolled 170,000 folks?
Ms. Disney. Yes, sir. In the transitional program.
Mr. Mica. In the transitional program.
Ms. Disney. That was--the 1980's, as you know, was a period
of considerable hiring in the department.
Mr. Mica. Right. And we heard that there--I had one report
that in the Air Force they may have enrolled as many as 1,000
people a month in that wrong system. Is that an accurate
estimate?
Ms. Disney. That I have no information on.
Mr. Mica. If they had a 5 percent error rate, and we did
170,000 folks, we're looking at 8,500 folks possibly improperly
enrolled.
Ms. Disney. We have looked very carefully in our records
and have found a maximum of 3,100 where we believe there could
possibly be an error.
Mr. Mica. So you have 3,100 just in DOD?
Ms. Disney. No, sir. We don't have 3,100.
Mr. Mica. Possible.
Ms. Disney. That's the outside. And I have reason to
believe that most of those were properly coded. We know we have
500 cases. We know that. So if the ratio holds, we would
probably end up with 1,000. We're trying everything we can to
identify everybody who was misclassified.
Mr. Mica. So, in DOD we have an estimate of about 1,000?
Ms. Disney. Yes, sir.
Mr. Mica. Ms. Oakey-Hemphill, how long have you been
working on this inter-agency task force to resolve this
problem?
Ms. Oakey-Hemphill. I have been working with other agencies
for literally years to try to either prevent errors or to
minimize problems associated with them.
Mr. Mica. How long?
Ms. Oakey-Hemphill. Well, basically, when I started this
job back in 1983 we were preparing for the Social Security Act
changes, the implementation in 1984.
Mr. Mica. But working with them trying to correct the wrong
enrollment since when?
Ms. Oakey-Hemphill. Well, I guess the bulk of my efforts
have really been since maybe 1992 or 1993 just in terms of
internally in Treasury. Much more activity because many more
errors started to surface around that time.
Mr. Mica. How many errors do you think in Treasury?
Ms. Oakey-Hemphill. There's almost no way of estimating.
Mr. Mica. How many have you uncovered so far?
Ms. Oakey-Hemphill. Well, from the period 1994--calendar
year 1994--through the present, there were approximately 600
errors corrected. And these are errors of all types. But that--
that required intervention by our payroll system, that weren't
just automatically processed through the payroll system.
So 600 errors that had gone on for more than a year during
the last 3 to 4 years.
Mr. Mica. Ms. Hall Ingram, you said basically it's going to
take a legislative solution to go back and correct some of the
IRS problems. Is that correct?
Ms. Ingram. I think that's probably accurate. In terms of
which ones will be necessary to change legislatively, that will
depend on which package looks to be the best fit for the
variety of problems. Whether one would suggest changing the
$9,500 limitation, for example, would depend on whether that
turned out to be a necessary part of the solution.
Mr. Mica. If a private sector hadn't properly set aside
some of these funds for Social Security and some of the other
accounts, they probably would have been noticed by IRS and
probably would have been threatened by IRS and had their
account seized, probably their property. Have you ever thought
of maybe putting a lean on the Capitol building to resolve this
matter?
Ms. Ingram. I think that the issue of what happens in the
private sector is an interesting one and is certainly part of
what we're looking at.
Mr. Mica. You have a handle.
Ms. Ingram. Pardon?
Mr. Mica. You have a handle. I've seen a couple of your
threatening letters. But you don't have that same handle with
the agencies or the Federal Government, I guess not.
Ms. Ingram. For purposes of Social Security taxes we have
generally the same requirements and the same procedures. And we
do approach Federal and State government employers in much the
same manner we would approach a private sector employer.
In the private sector one of the things that it's important
to remember is that the retirement plan regime and the Social
Security regimes are decoupled in the private sector for the
most part.
Mr. Mica. Mm-hmm.
Ms. Ingram. And so solutions to Social Security problems in
the private sector are generally handled with one set of rules
and procedures. And solutions for errors in covering employees
or making employees whole who have been omitted from plans or
programs is done under a separate regime.
It would appear to be somewhat more complicated in the
Federal sector. And that's one of the things that has to be put
together--all those different pieces.
Mr. Mica. Now I take it that you or someone from your
agency has been working with OPM to come up with suggestions
for a solution to your particular element and problems, is that
correct?
Ms. Ingram. Right. Both as a Federal--employer of employees
who have such issues, we've obviously been working with
Treasury in keeping people informed about what issues we're
seeing and the people affected. Also as a regulator in the area
of Social Security rules and also in pension plan or retirement
plan rules, we've also been flagging issues and trying to
provide analysis that could be used.
Mr. Mica. Have you submitted written recommendation to OPM
to resolve some of the problems in your specific area? And if
so, when?
Ms. Ingram. The IRS, itself, has not submitted a specific
legislative proposal. We've submitted analyses of some possible
options through the Treasury Department. And I understand that
those have been shared. The issue of legislative change
obviously ultimately has to come out of the Office of Tax
Policy for us.
And they are involved in those discussions both as to the
Thrift Savings Plan rule about the cap on contributions. And,
also, as to the Social Security, we have looked at whether
there are administrative ways within our power to deal with
both of those issues. And we have shared our concerns about our
inability to deal with them and why. And we've shared those,
yes.
Mr. Mica. But you're saying your determination is you
cannot deal with it administratively to resolve some of these
situations?
Ms. Ingram. Our flexibility is severely limited.
Mr. Mica. Limited.
Ms. Ingram. Yes.
Mr. Mica. Ms. Oakey-Hemphill, have you all prepared any
written recommendations to OPM to resolve the matter from your
perspective? I take it you work with them constantly?
Ms. Oakey-Hemphill. Yes.
Mr. Mica. Or are you just working on trying to find
individual solutions to individual problems?
Ms. Oakey-Hemphill. Well, both, rather.
Mr. Mica. Have you submitted a written plan, a
recommendation?
Ms. Oakey-Hemphill. Not specific recommendations on how to
fix the errors. There are so many different kinds of errors.
And the solutions for different employees present themselves
differently. I think Mr. Flynn suggested personal preferences
largely figure into these. So no, we have not. Though from time
to time we have discussed informally with staff just what kind
of shape a fix would take.
Mr. Mica. Well, every time, Mr. Flynn, you resolve one of
these or reach some accommodation, administrative solution,
whatever, aren't you setting a precedent? Are you considering a
freeze until some overall solution is developed or legislative
solution?
Mr. Flynn. I think, Mr. Chairman, if a freeze were
available to us administratively, it would be something that we
would want to consider. Our view of the situation is that the
law is fairly specific. When an error is discovered, it must be
corrected retroactively at the point in time that it's
discovered. So I don't think that option has been available to
us as we have worked on the development of a broader solution.
Mr. Mica. How many lawsuits are pending, or have there
been? Are you aware, Mr. Flynn?
Mr. Flynn. Mr. Chairman, I am aware of several, but I do
not have a full accounting of lawsuits which may be pending in
individual agencies.
Mr. Mica. Is there also a class action suit brought?
Mr. Flynn. Not that I'm aware of, sir.
Mr. Mica. No? Not yet? I don't have any further questions
at this time. Mrs. Morella.
Mrs. Morella. Thank you. DOD, Dr. Disney, appears to be
more aware and responsive to this problem than other agencies.
And yet you expect there are still at least 500 people out
there who don't know. And, of course, this is troubling.
Ms. Disney. Those individuals know, but we have not been
able to resolve their circumstances.
Mrs. Morella. But they do know?
Ms. Disney. Yes, ma'am.
Mrs. Morella. Mm-hmm. Which is also troubling. Right. Have
other agencies followed your example of outreach in trying to
identify errors? Do you work with the other agencies? Is there
communication?
Ms. Disney. We try to work very hard with individual
agencies in part through the inter-agency advisory group, which
OPM sponsors, and where we meet biweekly. We also make the
other agencies aware of all the material that we're putting out
on the web that is, we think, useful for others. We have made
deliberate efforts to share the reference guide that we have
developed.
As to what is actually happening in individual agencies,
I'm not in a position to say.
Mrs. Morella. Mm-hmm. It would be nice at those meetings if
they responded also so that you had a discussion about what
that they have done, that it is working, that you have some
idea of who is following and they have some idea of what other
agencies are doing, also.
Has, I guess to all of you, has OPM been helpful both
technically and in offering guidance? I'll ask all of you.
Ms. Ingram. OPM provides us with guidelines and regulations
and procedures that we try to follow so that all the Federal
agencies are following the same procedures. And in that manner
we get a great deal of guidance out of OPM. We recognize,
partly because we administer a piece of this puzzle ourselves,
that there are some tough issues that have been under
discussion and under analysis, issues that belong to a number
of different agencies, whether it's IRS or SSA or whoever.
And we've been interacting with OPM to get our share of
those issues identified and analyzed. So we welcome the
opportunity to get this package put together and get a solution
done that integrates those pieces since no one of us holds all
the pieces of the puzzle.
Mrs. Morella. An addendum to the question too is, is there
another--any information or advice you could offer where OPM
could be more helpful?
Ms. Ingram. I think the commitment that you've heard this
morning and that we've heard previously to get the pieces put
together, whether they're the tax questions or the benefits
side of the questions or whatever, and get that resolved, is
exactly what we need from an agency point of view. And we
welcome this putting together of all these pieces into a
proposal. So I think that is, from our perspective, the right
direction.
Mrs. Morella. Dr. Disney, do you want to comment on OPM?
Ms. Disney. Yes. I'm very pleased that we have a definite
time table on which to move forward because this is an
extraordinarily complex issue that causes great anguish to
individuals and their families. And having a target to shoot
for, I think, helps focus all of our attention.
Mrs. Morella. Dr. Hemphill, would you like to comment on
OPM's role, if any, and have they been helpful and what you
might suggest?
Ms. Oakey-Hemphill. I've always found OPM staff to be
extremely supportive. We've worked together on a lot of
projects. And I've never had to ask twice. They are very, very
supportive. And we look forward to working cooperatively with
OPM and the other agencies involved in the future.
We've expressed our eagerness to do so. And we're very glad
that the level of interest in this problem that's been
expressed here today is surfacing and there's going to be
action.
Mrs. Morella. You've all given very nice answers. I
understand. But we're talking about whether there really is
that kind of help that you needed. I guess I understand where
you're coming from.
Do any of you maintain records to ensure the consistency of
settlements so that employees in similar situations would be
treated equally? I guess I could start with Ms. Ingram.
Ms. Ingram. I don't have in hand today. We're pulling the
information together.
Mrs. Morella. Yes.
Ms. Ingram. And I can provide it to the committee later----
Mrs. Morella. OK.
Ms. Ingram [continuing]. Exactly how many historical
corrections have been made or what--you used the term
``settlements''--have been effected. So I really can't give you
information about that. Certainly, our efforts both on the IRS
side of the house in the personnel office and also on the legal
side of the house of the IRS has been to try to have consistent
treatment and integrated answers.
So, but if you wish to have the data, I would need to go
back and get that and submit it to the committee.
Mrs. Morella. Mm-hmm. If you could do that it would be
appreciated.
Ms. Ingram. OK.
Mrs. Morella. Dr. Disney? Whether you've maintained any
record.
Ms. Disney. We maintain personnel records and payroll
records on all of our decisions and try very hard to ensure
that there is consistency of treatment of all of the
individuals.
There are two separate sides. The personnel side of the
house and the payroll side of the house. And I cannot speak
today for all of the payroll records. But I can certainly
determine the answer to your question from that perspective and
provide that later.
Mrs. Morella. All right. Splendid. That would be great. Ms.
Hemphill.
Ms. Oakey-Hemphill. By settlements, do you mean court
settlements for people who have sued or do you mean just the
corrections of the errors themselves?
Mrs. Morella. Actually both.
Ms. Oakey-Hemphill. As far as court settlements are
concerned I have no data at all to be able to offer you.
Mrs. Morella. Right.
Ms. Oakey-Hemphill. And I'm not sure that I could provide a
comprehensive or complete----
Mrs. Morella. OK.
Ms. Oakey-Hemphill. I suspect that we have had very few, if
any.
Mrs. Morella. Right.
Ms. Oakey-Hemphill. As far as the corrections of these
errors are concerned, depending upon the type of the error,
going back and correcting the error is pretty much a cut and
dried thing. There are only so many things that you can do and
so many choices that you can offer to the employees.
Administratively, our hands are tied. We can't get creative
with them. If we do we're stepping outside our boundaries. So,
in terms of having to keep records on how we've corrected
things, I think we would pretty much know that if we had done
something properly, how we had done it. Who we have corrected
and identifying people whose records were corrected, that could
pose some difficulties because of payroll system changes and a
variety of other factors. A length of time, that sort of thing.
Mrs. Morella. It sort of sounds as though you need some
legislation or you need something to give you more authority to
be able to settle these claims, something coming from Congress
through OPM. Is that correct?
Ms. Ingram. Yes.
Ms. Oakey-Hemphill. Potentially, yes.
Mrs. Morella. I mean, your hands are tied to a great
degree.
Ms. Disney. We have situations where we have identified
that there was an erroneous placement. And we've identified the
amount of money involved. We cannot apply all of that money to
a correction. Therefore, that money must be held in escrow
until some further court case or legislation comes about.
Mrs. Morella. OK. Great. Well, I think you've answered my
questions. Thank you very much for appearing here today. And
thank you, Mr. Chairman.
Mr. Mica. Mr. Ford, you're recognized.
Mr. Ford. Thank you, Mr. Chairman. Very briefly. I thank
Mrs. Morella. She really sort of exhausted many of the
questions. And I thank the panelists. And I look forward to
September 10. I'm pleased that there is a bipartisan
cooperation on the committee.
And I'm hoping that we'll be able to make whole and restore
the benefits for not only the four panelists we had earlier but
certainly the affected families and loved ones who have been
harmed and impacted by what seems to be an egregious oversight.
So thank you, Mr. Chairman.
Mr. Mica. Thank you, Mr. Ford and thank you, Mrs. Morella.
I'd like to thank our panelists for their participation today.
We've heard a story of a real nightmare for some of our Federal
employees affected by this problem. Our goal is to find a
solution and try to expedite decisionmaking to resolve these
issues.
I'm concerned about what I've learned about this period of
the change in system and enrollment. I guess I learned
yesterday, and I don't have all the details, that they may
freeze the District enrollment or change that. I hope we don't
see a similar disaster occur now with making changes in the
District retirement plan.
Hopefully, we can learn by this mistake and we won't repeat
it again. But we will meet on September 10th, and we will find
a solution. And I look forward to working with each of our
panelists and others.
The record will be left open for 2 weeks. There may be
additional questions that we'll submit to this panel. If
there's no further business to come before the subcommittee, at
this time the committee is adjourned. Thank you.
[Whereupon, at 11:45 a.m., the subcommittee was adjourned.]
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