TSP Board statement on AMS lawsuit

Washington, D.C. (January 30, 2002) - The Federal Retirement Thrift Investment Board, which manages the Federal employees' 401(k)-like Thrift Savings Plan (TSP or Plan), today charged the Bush Administration with attempting to thwart the TSP fiduciar-ies' pursuit and control of a claim for $350 million in damages from a fraudulent contractor. On January 25, the Department of Justice asked a Federal appellate court not to hear the TSP man-aging fiduciary's appeal of the dismissal of Mehle v. American Management Systems, Inc.

In seeking to frustrate the managing fiduciary's appeal of the district court decision to the U.S. Court of Appeals, "the Department of Justice is continuing its efforts to stop the Plan fiduciaries from acting independently of the Bush Administration in initiating and maintaining litigation on behalf of the 2.6 million TSP participants", said Roger W. Mehle, Executive Direct-or and managing fiduciary of the $100 billion Plan. "This is in direct contravention of the law which created the TSP fifteen years ago; the fiduciaries, and only the fiduciaries, may manage the assets of the TSP, including its legal claims. We will de-monstrate that to the appellate court, but the Department of Jus-tice is trying to deny us even the opportunity to do so."

Executive Director Mehle, with the unanimous approval of the five presidentially appointed Board members, filed suit against AMS on July 17, 2001, seeking damages for fraud and breach of its contract with the Board to create a new computer-based TSP record keeping system. [The complaint is posted on the Board's Web site, www.frtib.gov.] On November 30, the district court decided that the fiduciaries could not bring the suit without the per-mission and control of the Department of Justice. This decision, which the Department of Justice urged on the court, flies in the face of the critical and historical independence of the Board and its fiduciaries from any political influence, and was promptly appealed by Mehle. Now the Bush Administration is attempting to stifle the appeal, while again opposing the fiduciaries' independence.

The Employee Thrift Advisory Council, which includes four-teen employee unions and associations, voted unanimously at its January 15, 2002, meeting to file an amicus curiae brief support-ing the Board's legal position in the appellate proceeding that the Department of Justice is trying to terminate. Council Chair-man Vincent R. Sombrotto, who is also President of the National Association of Letter Carriers, in a November 19, 2001, letter to Attorney General John Ashcroft, had already advised that "keeping politics out of the TSP is crucial to maintaining the high level of trust that participants have in the Plan."

"Bush Administration officials at the Department of Justice seem intent on obstructing and opposing the independent litigat-ing authority of the Plan," said Mehle. "On behalf of the mil-lions of current and future Plan participants, including the 2.7 million members of the uniformed services now eligible to join, the five Board member fiduciaries and I cannot allow that to be successful."

Since the TSP's creation over 15 years ago, the fiduciaries' insulation from political pressure and their unique fiduciary re-sponsibility to act solely in the interest of Plan participants have been fully accepted by past administrations and congresses alike. Indeed, in its December 21, 2001, final report [page 55], the President's Commission to Strengthen Social Security cites the Board as a model of independence for a proposed privatized Social Security system because of its rigid fiduciary structure, which recognizes that TSP participants, not the Federal Govern-ment, own the assets of the Plan:

The TSP Board has a strict fiduciary responsibility to holders of individual TSP accounts. Neither the Con-gress nor the President controls the Board's budget. The Board appoints a full-time Executive Director who serves as chief executive officer. Each of these six fiduciaries is required to act solely in the interest of plan participants and must have substantial experi-ence, training, and expertise in the management of fi-nancial investments and pension benefit plans. These safeguards have helped insure that the TSP remains un-wavering to outside political pressures.

"Ironically," said Mehle, "the President's Department of Justice is attempting to undermine the TSP's fiduciary structure at the same time his commission is extolling it. The Department of Justice has told the court that it would represent the TSP in litigation 'without assuming the obligation of a Fund fiduciary to take into account only the narrow and limited considerations' of their statutory fiduciary duties. Instead, rather than having exclusive loyalty to Plan participants in litigation, the Department of Justice will 'consider interests other than those of the Fund, if necessary' and will 'ensure that the interests of the United States as a whole, as articulated by the [President] are given a paramount position' over those of TSP participants." "I have no doubt", said Mehle, "that this is not what Congress want-ed, or wants, for the retirement assets of Federal employees, whether they be money, securities, or legal claims. It should not be what the Administration wants either."

According to Mehle, "The fiduciary structure of the Board is designed to ensure that Plan participants' interests, not those of the President or any other person or group, are given the 'paramount position' in all decisions about their retirement as-sets. The Board members and I intend to do everything we can to make sure that happens. It would be a breach of our fiduciary duty if we did not."

In that regard, the Board has formally asked the 107 th Con-gress to moot the legal dispute with legislation confirming the fiduciaries' authority to pursue the Board's claims in court in-dependent of any Administration involvement. "We would like to see Congress promptly pass the legislation that the Board has submitted," said Mehle. "It will save needless legal expenses and time and will enable the fiduciaries to bring AMS - and any other wrongdoers against the Plan - to a trial by jury. Such legislation should have the full support of the White House as well, in light of the current nationwide concern about the in-tegrity of 401(k) plan management following Enron's bankruptcy." - end -