OPM revises costs for RetireEZ

Agency excludes $69.6 million from life cycle costs of federal retirement systems modernization

The Office of Personnel Management spent $69.6 million on efforts to automate the processing of federal retirement benefits before deciding to outsource that function two years ago, OPM disclosed in a new report on its retirement systems modernization (RSM) program, now known as RetireEZ.

Responding to a Government Accountability Office review of RSM, OPM recently stated that previous estimates of RSM’s life cycle costs erroneously included millions of dollars spent on earlier efforts to acquire modern retirement processing systems. RetireEZ life cycle cost estimates now total $360.7 million, compared with the  previous estimate of $421.6 million.

“This $69.6 million was generated by attempts [to build new systems] that dated back even into the ’90s,” Linda Springer, OPM’s director, said in an interview. Under Springer, OPM abandoned that approach in favor of outsourcing federal retirement benefits processing.

Springer said she became aware of the accounting problem earlier this year when she questioned cost estimates included in OPM’s business case for the project. OPM is required to submit a business case, known as Exhibit 300, to the Office of Management and Budget to justify its spending on RetireEZ.

“That’s when I learned that it included the money expended for these entirely different, older attempts,” Springer said. There seemed to be little point in including $69.6 million for abandoned projects in the estimate because “there was a clear break between the past and what we’re doing with RetireEZ,” she said.

In May 2006, OPM took RSM in a new direction, awarding a 10-year, $290 million contract to Hewitt Associates to provide the information technology systems for RetireEZ. Hewitt is modifying its commercial systems, the Defined Benefits Technology Solution, to comply with federal laws and regulations, according to OPM.

After discovering that the historical expenditures were part of the Exhibit 300 cost estimate, OPM conferred with OMB officials, who agreed that the $69.6 million should be removed, Springer said.

The new $360.7 million estimate includes $106.5 million for planning and acquisition and $254.2 million for operations and maintenance through fiscal 2016. The latter amount  is roughly what will be paid to Hewitt for its services, Springer said.

OPM and GAO have debated the RSM cost estimate for the past three months. The cost is particularly relevant as congressional appropriations committees weigh OPM’s budget request for fiscal 2009. That request includes $15.2 million in no-year funds for RSM. Agencies don’t need to spend no-year funds in a particular fiscal year.

Valerie Melvin, director of human capital and management information systems at GAO, questioned the reliability of OPM’s cost-estimating processes in a letter she sent to members of the House and Senate appropriations committees. Melvin said OPM had not addressed cost-estimating weaknesses in its February report to Congress on RSM. OPM was required to submit the report under the 2008 Consolidated Appropriations Act.

“The report did not provide new information or describe the progress the agency has made to address weaknesses in the RSM cost estimate,” she said.

OPM said in response that it has initiated a cost/estimate analysis to address those weaknesses, adding that more than 85 percent of the costs “have been well-defined under firm fixed-price contracts for the RSM program.”

In late February, OPM implemented the first phase, or Wave 1, of RetireEZ, which covers about 26,000 employees at four agencies. 

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