New TSP system on track, but at a higher cost

A much-delayed computer system that would give federal employees more control over their retirement savings accounts is still on track to debut in mid-June, officials said Monday. But the new system will cost more than originally expected.

The new system will allow federal workers to make daily changes to their 401k-style Thrift Savings Plan investments. Currently, such changes can only be made monthly. The 3 million TSP account holders will also be able to look up their account balance updates online each day, change the amount of their monthly payouts after they retire and make a partial withdrawal of money, rather than a full withdrawal, as soon as they retire.

TSP officials said at a monthly board meeting Monday that a specific date had not yet been set for the new system's debut, but the system is still on track for mid-June. The TSP board started developing the new system six years ago with a contract award to Fairfax, Va.-based American Management Systems. Originally scheduled to debut in 2000, the system has been delayed seven times. The TSP board fired American Management Systems in July 2001 after paying the contractor $31 million and spending $20 million in related costs.

After firing American Management Systems, the board hired Materials, Communication & Computers Inc., of Alexandria, Va., to head up a new modernization effort. At the time, TSP officials said building the new system would take one year and would not cost more than $20 million, though officials expected additional costs for testing the system and maintaining the system once it was completed.

Instead, the modernization has taken two years. Total costs are up to more than $32 million. TSP officials said the system was built for $22 million including $2 million that the new contractor spent reviewing the work of American Management Systems. The board had to pay Materials, Communication & Computers an unexpected $4.4 million to make required overnight updates work. Another $6 million has been slated for testing. The additional testing costs were expected, TSP officials said. The board will pay the contractor additional money to tweak and maintain the system once it's up and running.

The TSP's administrative costs are borne by participants, who have about $100 billion invested in the program, a key element in federal workers' retirement packages. The TSP is open to civilian federal workers, postal employees and military personnel. About 2.7 million civilian and postal employees and retirees and 330,000 military personnel have accounts.

In other TSP news:

• For the first time this year, TSP investors in April transferred more money into the plan's three stock funds (the C, S and I Funds) than they transferred out. Investors also moved more money out of the bond (F Fund) and government security (G Fund) funds than they transferred in. The change suggests that investors have more confidence in the stock funds now than they did in the first three months of the year.
• The Senate Governmental Affairs Committee on Thursday will consider the nomination of Terrence Duffy to the five-member Federal Retirement Thrift Investment Board, the presidentially appointed panel that oversees the TSP. Duffy is chairman of the Chicago Mercantile Exchange.
• The TSP board is continuing its search for an executive director. Roger Mehle resigned from the position in November 2002. Mehle is suing several of the board's members, alleging that they forced Mehle's hand-picked successor, James Petrick, to resign. Petrick is now serving as acting executive director while the board looks for a permanent replacement. Petrick has not said whether he was forced to resign or whether he resigned voluntarily. At its monthly meeting on Monday, the board held a closed session to discuss the search.
• The board is still suing American Management Systems for $350 million for the botched modernization effort. American Management Systems in turn is suing the board for $60 million in unpaid bills. The board held a closed session Monday to discuss the litigation.
• TSP investors aged 50 and older will be able to put up to $2,000 extra into their TSP accounts this year. TSP participants will be able to sign up for the so-called catch-up contributions in July and begin making the contributions in August.