GovernmentExecutive.com

With less than a month left before the midterm elections, the board of the Thrift Savings Plan has started crafting a legislative agenda for the next Congress that may include requests for new rules for automatic enrollment and for default investments.

At a monthly meeting Monday, TSP Executive Director Gary Amelio also laid out three other areas in which the board could potentially ask members of the 110th Congress for legislation: post-tax investment options, loan restrictions and fund choices. He said none of the options would be worked out until after the holidays.

Perhaps the biggest of the possible changes would be a switch to automatic enrollment. Right now, employees have to actively opt into investing in the $194 billion federal employee 401(k)-style retirement savings plan when they join the civil service. Automatic enrollment would require employees to actively opt out of the plan instead.

Congress gave fiduciaries of private 401(k) plans the authority to use automatic enrollment in the Pension Protection Act it passed this year, but separate legislation would be necessary before the TSP could mirror that practice.

Already, more than 85 percent of employees in the Federal Employees Retirement System invest in the TSP and more than 67 percent of those in the Civil Service Retirement System do. But TSP also is open to members of the uniformed services, and only 23.6 percent of them participate.

The uniformed services generally do not match employee contributions to the TSP, which could account for some of the lower participation numbers. But there is a small pilot project under way to test TSP matching contributions as a recruitment and retention tool for the military. The TSP board is eager to bring more military members into the plan.

Switching to automatic enrollment would come at a price, Amelio said. Even if a small percentage of employees opt out, with 3.6 million participants, the change could mean 50,000 to 100,000 people would need new paperwork and systems.

The second potential change is an idea Amelio and board members raised several times during the past year: altering the default TSP investment for participants who do not designate how they want their savings allocated.

With Congress' approval, the default could be changed from the G Fund, made up short-term Treasury securities specially issued to provide a higher return than inflation, to the new life-cycle (L) funds. The L funds are mixes of the five standard TSP funds that automatically shift money from riskier to more conservative allocations as participants age, and will likely provide a greater return than the very conservative G Fund.

Still, the board would have to decide which employees are placed in which L Fund, Amelio said: "Do we default everyone to the same L Fund, or pick funds based on age or years of service?"

Another possible legislative change, although less definite, is the addition of a Roth option to the TSP. Roth options allow employees to pay taxes at the time of investment instead of when they take their money out upon retirement. This could mean some employees would pay less overall in taxes.

"For [some] people, it's good," Amelio said. "For a large percentage of people, it doesn't make sense. It's going to cost all the participants money to implement."

Amelio and the board offered much less information on the last two potential items on the legislative agenda: added loan restrictions and more fund options.

Amelio said he is still looking for ways to "continue belt-tightening on the loan program," which allows participants to take out loans on their savings and then pay themselves back. Since becoming executive director in June 2003, Amelio added fees and restricted the number of general purpose loans to one for each participant. This brought the number of borrowers down to about 750,000 as of September, from about 800,000.

As for the possibility of new funds, the board is in a standoff with some members of Congress who are pressuring it to add a Real Estate Investment Trust option. Board members are waiting for consultants from Ennis Knupp & Associates to complete a review of all possible fund additions.

The board also is awaiting results of a TSP participant survey, the first of its kind in 16 years. About 20,000 participants will be randomly selected to complete a mail-in survey, which will ask for opinions on all of the TSP board's legislative ideas. Results are expected by the end of the year.

COMMENTS

• First off, I would truly love to see a solicitation from the board to the participants requesting input prior to their agenda presentation. One of the concerns I’ve had about op-out versus opt-in on TSP participation is which fund would be chosen as the default. Logic dictates the same one, G Fund. The TSP board comments suggest one of the L funds. Regardless of which, while I encourage participation in the TSP, I wonder at what level of participation would they start? The maximum level of participation, under 50, is $576, an unlikely number considering its likely impact on the new employee’s budget. The logical level for participation would be up to matching funds. That is to say, every new employee might be automatically enrolled up the point where they are receiving the maximum matching funds. That beggars the question of just how much would that cost? What I mean to say is, believe it or not, there are some FERS employees who do not participate in the TSP up to the matching 4 percent now because they feel they can not afford to will lose 5 percent of their net salary (5 percent of yours gets you the 4 percent matching). I wonder how many that could be at what total cost to the government? I think this has good overall potential but, as always, the "Devil is in the details" and this advocate would appreciate having his day and say. Tip off. GovExec.com reader Posted November 1, 2006 12:02 PM
• The TSP board needs to ask Congress for legislation to allow workers who retire from federal service on federal disability or who are out on federal workers compensation for a long period of time to continue contributing to their thrift savings accounts. It's just plain unfair to cut federal workers out if they are injured while doing their job. They still have incomes, albeit a reduced amount, and they still need to put money away for when they are older or for their survivors. The government wouldn't necessarily have to match their contributions. But, it does seem like they are kicking a person when they are down. Wouldn't you want the same if you become injured? Robert M. Posted October 17, 2006 1:47 PM