Attachment_1-_SOO.pdf

6HQOIG-16-A-0012 Attachment 1 1

United States Postal Service Office of Inspector General

Risk Analysis and Research Center (RARC)

Retiree Funds Investment Strategies

STATEMENT OF OBJECTIVES (SOO)

1. Introduction

The United States Postal Service Office of Inspector General (OIG) intends to award a contract to a Supplier who possesses specific subject matter expertise in the area of investing retiree benefit funds.

The Postal Service’s pension and retiree health assets are currently held in government trust funds and invested in U.S. Treasury securities. For research purposes, the OIG is seeking a Supplier to provide a report discussing alternatives for investing these funds. The report should include a discussion assessing the current investment strategy and also provide an analysis and discussion of three to five alternative investment approaches including a discussion of the strengths and weaknesses of each. In addition, the report should provide an estimate of the expected returns from existing and alternative methods.

The contract type is a hybrid, with two parts:

I. Firm Fixed Price (FFP) for report and follow-up presentation II. Labor Hour to assist in follow-up work or other potential queries.

2. Background

The OIG is an independent federal law enforcement agency within the U.S. Postal Service.

Its mission is to conduct and supervise objective and independent audits, reviews, and investigations relating to Postal Service programs and operations; to promote economy, efficiency, and effectiveness within the Postal Service; and to keep the Postal Service Governors, Postal Service management, and Congress informed of problems, deficiencies, and corresponding corrective actions. The Risk Analysis Research Center (RARC) within the OIG conducts research on economic, business, and policy issues related to the Postal Service.

The U.S. Postal Service participates in two pension plans: the Civil Service Retirement System (CSRS) and the Federal Employees Retirement System (FERS). In addition, eligible postal employees can continue to participate in the Federal Employees Health Benefits Program following retirement. The Postal Service is responsible for paying the employer’s share of premium costs for these retiree health benefits. The Postal Service has set aside substantial funds to pay future retiree benefits. Currently, these amounts are held in government trust funds that the Postal Service does not manage. Under current law, the funds must be invested in Treasury securities or other securities guaranteed by the U.S.

6HQOIG-16-A-0012 Attachment 1 2 government, but recent proposals have suggested that the Postal Service could receive higher returns if it were permitted to follow a broader investment strategy similar to those used by private sector firms and state governments. The OIG intends to conduct research examining this issue.

3. Scope of Work

The OIG is seeking an expert to examine the current investment plan and suggest sound alternatives to it, taking into consideration the fact that the Postal Service is a government-owned institution, the current status of its obligations, and the need to find the right balance of risk and return.

Travel may be required to support this effort. If it is deemed necessary, the OIG will reimburse the Supplier for allowable travel expenses. Travel must be authorized in advance by either the Contracting Officer or the COR.

At minimum, this SOO supports the following goals:

I. Report and Presentation (Firm Fixed Price).

The Supplier must provide a report of no more than 35 pages analyzing the current investment rules and three to five alternative investment strategies for each of the three funds FERS, CSRS and Retiree Health Benefits Fund. In addition, the Supplier must provide an in-person presentation, possibly in a public forum, describing the results of the research.

a. Within 5 business days of the contract award, the Supplier must schedule and coordinate a Project Kick-Off Meeting at the location approved by the OIG. The meeting must provide an introduction between the Supplier personnel and OIG personnel who must be involved with the contract. At a minimum, the attendees must include Key Supplier Personnel, representatives from the project team, other relevant OIG personnel, and the OIG COR. During this meeting, the Supplier must interactively discuss the specific proposed methodologies for completing the items outlined in the scope of work section of this task order. In addition, project milestones for deliverables and dates must be discussed and confirmed during the meeting. The meeting must also provide the opportunity to discuss technical, management, and security issues, and travel authorization and reporting procedures.

b. As needed throughout the project, the Supplier must meet weekly or biweekly with designated RARC team member(s) to discuss work product and content used to address the items listed in the description/scope of work in this task order. Meetings can be by phone.

c. Provide a draft report in Microsoft Word format, addressing in detail each of the items listed below. The report should not exceed 35 pages.

i. An analysis of the current investment plan for the Postal Service’s benefit funds (U.S. Treasuries).

6HQOIG-16-A-0012 Attachment 1 3

ii. A high level discussion of three to five alternative proposals and their strengths and weaknesses. In developing these alternatives and in the discussion of the strengths and weaknesses of these proposals, the Supplier must consider and discuss the following general questions:

o What investment strategies do other institutions follow? Are there other government (either federal, state, or local) or private sector retirement programs that have demonstrated consistent success in portfolio management that results in acceptably low risk and significantly higher returns?

o What constraints should be placed on retiree fund managers? Should the funds be actively or passively managed?

o Should triggers be used to increase or decrease contribution rates to the funds in the event of sustained poor or strong investment performance? Similarly, should benefits be decreased or increased under such circumstances?

o How are successful retirement system investment funds governed?

What are the best practices that ensure that funds will be invested for the sole benefit of plan participants?

o What are the potential pitfalls and risks of moving to a diversified portfolio model? When retiree funds fail, why do they fail and how can these failures be avoided?

o How should any transition from the current system to a new system be conducted?

o How should the alternatives differ among the three retiree funds (CSRS, FERS, and the Retiree Health Benefit Fund)?

iii. An estimate of the expected returns from the proposed alternatives, and a comparison of these estimates to the status quo.

d. RARC will review the report and provide the Supplier with suggestions for revisions, and the Supplier must work with RARC until the final report is produced.

e. At the OIG’s request, the Supplier must be available to provide an in-person presentation, possibly in a public forum, describing the results of the research.

II. Follow-up Work or Potential Queries (Labor Hours)

Under Part II of the hybrid contract, the OIG may request additional expert services to conduct potential follow-up work or answer queries that may arise as a result of the effort conducted in Part I above.

4. Deliverables

The Supplier must complete the following deliverable due dates.

6HQOIG-16-A-0012 Attachment 1 4

Deliverable Number

Description Due Date(s) Reference SOW Section

4a Kick-off meeting Within 5 days after contract award (ACA)

3Ia

4b Periodic meetings (Offeror to propose in SOW)

3Ib

4c Provide First-Draft of the report

(Offeror to propose in SOW)

3Ic

4d Provide the Final Report to the OIG

(Offeror to propose in SOW)

3Id

4e In person presentation Within 3 weeks of request by COR.

3Ie

4f Follow-up work or potential queries

To be determined

ACA

3II