Are You Contributing Too Little to Your TSP?

A record percentage of federal employees are enrolled in the Thrift Savings Plan, according to the agency that oversees the federal retirement investment accounts, but participants may not be contributing the optimal amount.

Nearly 88 percent of workers enrolled in the Federal Employees Retirement System had TSP accounts at the end of July, marking the highest percentage in the history of the plan, the Federal Retirement Thrift Investment Board announced at its monthly meeting on Thursday. More than one-quarter of those participants, however, are not receiving the maximum benefit from their agency.

Federal agencies fully match the first 3 percent of their employees’ contributions to their retirement investment plans, and match 50 percent of their contributions up to 5 percent. Therefore, agencies contribute up to 4 percent of their employees’ salaries to their TSPs.

FRTIB officials said employees who do not contribute 5 percent of their own salaries to their plans are leaving “free money” on the table. The agency aimed to decrease by 1 percent the number of employees not receiving the full benefit in 2013, but the figure has instead jumped by about 1.3 percent since 2012.

The 2009 TSP Enhancement Act, which instituted automatic TSP enrollment for new employees and is responsible for the record participation rate, authorized the FRTIB’s executive director to set the default deferral rate between 2 percent and 5 percent. In consultation with the agency’s presidentially appointed and Senate-confirmed board, as well as labor groups and other stakeholders, Executive Director Greg Long settled on 3 percent as the default contribution.

Bill Jasien, a member of the board, suggested Long look into raising that figure to the full 5 percent. Long said he would consider the boost, both internally and by pushing legislation. Now-retired Sen. Daniel Akaka, D-Hawaii, introduced a bill last congressional session that would have brought new employees in at a 3 percent contribution, but automatically increased the deferral over time to 5 percent. The proposal never made it out of committee.

TSP legislation to auto-enroll new employees into an age-appropriate lifecycle fund rather than government securities is on track for passage this year, according to FRTIB officials. The bill has already cleared the House and a Senate panel, and Long said it has not yet encountered any resistance in Congress. 

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