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THRIFT INVESTMENT BOARD TO APPEAL RULING BY U.S. DISTRICT COURT; URGES CONGRESS TO ALLAY CONCERNS OF POLITICAL INTERFERENCE THROUGH CLARIFYING LEGISLATION
Washington, D.C. (December 3, 2001) — The Federal Retirement Thrift Investment Board, which manages the Federal employees’ Thrift Savings Plan (TSP or Plan), announced today that it will seek an expedited appeal of a ruling by a U.S. District Court judge which denies the authority of the Board, through its Executive Director, to sue a contractor that has defrauded the Thrift Savings Plan of millions of dollars. Holding approximately $100 billion of retirement monies in trust for 2.6 million current and former Federal and Postal employees, the Thrift Savings Plan is the largest defined contribution plan in the world.
Calling the District Court’s decision of November 30 "clearly erroneous", Board Executive Director Roger W. Mehle said, "It is inconceivable that Congress intended to deny litigation authority to the statutory fiduciaries it mandated and empowered to act solely in the interest of TSP participants and beneficiaries." Mehle said that besides appealing the decision, the Board will also today submit to Congress clarifying legislation to allay the concerns expressed by Plan participants that their legal claims will be subjected to political considerations and interference now and in the future.
The suit in question, Mehle v. American Management Systems, Inc., Civ. No. 01-1544 (JR), was filed in U.S. District Court for the District of Columbia on July 17, 2001. It seeks $350 million in actual and punitive damages from American Management Systems, Inc., (AMS) for breach of contract and fraud in its now-terminated engagement to develop a new TSP record keeping system. The system was to have been completed for the Board in three years for $30 million. After more than four years, with projected costs nearly tripled and no completion date in sight, the Board terminated its contract with AMS for default.
The court’s decision, if allowed to stand, in effect puts the U.S. Department of Justice, and hence the Administration, in charge of initiating and controlling any litigation by the Board against AMS, or any other miscreant contractor. This results in a situation which Congress, in creating the TSP in the Federal Employees’ Retirement System Act of 1986 (FERSA), regarded as anathema.
Indeed, the Justice Department advised the court that it has no fiduciary duty to TSP participants and would consider interests other than those of the Plan in the conduct of TSP litigation. Specifically, the Department of Justice informed the court that it would ensure that the views of the Administration, rather than those of the TSP’s statutory fiduciaries or its participants, "are given a paramount position." According to Mehle, "Such control by political entities is precisely the ‘specter of political involvement’ in TSP management that the TSP’s legislative history shows Congress was at great pains to prevent -- and believed that in fact it had prevented." (FERSA is codified largely at 5 U.S.C. §§ 8401-79; FERSA’s joint House and Senate conference report may be found in 1986 U.S. Code Congressional & Administrative News at page 1508 and following.)
The position of the Justice Department has caused Vincent Sombrotto, President of the National Association of Letter Carriers and Chairman of the statutory Employee Thrift Advisory Council, which comprises fourteen Federal unions and employee associations, to express grave concern to Attorney General John Ashcroft at the prospect of any Justice Department control of the Board’s suit. As Sombrotto stated in a November 19, 2001, letter to Ashcroft, "Keeping politics out of the TSP is crucial to maintaining the high level of trust that participants have in the Plan."
Although the Board will appeal the court’s decision to the U.S. Court of Appeals for the District of Columbia Circuit and, if necessary, to the U.S. Supreme Court, it is submitting the proposed clarifying legislation to Congress because, even though the Board expects its position to be vindicated, the judicial appeal process may take months, if not years. Such a delay could prejudice the TSP participants’ right to a jury trial on the merits of the claims against AMS. Mehle said that the Board is therefore asking Congress for prompt action on the bill to moot the judicial issue, and to assure TSP participants "that Congress’s commitment to the Plan’s independent stewardship by its statutory fiduciaries has not diminished in the fifteen years since FERSA’s enactment."
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