Pay and Benefits Watch: Military not in TSP yet

The fiscal 2000 Defense authorization act, which President Clinton signed into law on Oct. 5, contained a provision allowing military personnel to participate in the Thrift Savings Plan. But for various reasons, service members won't be able to build TSP nest eggs any time soon.

TSP accounts are major components of many civilian employees' retirement savings. Since the TSP, which mirrors 401(k) plans in the private sector, was created in 1986, the amount of money civilians have invested in it has mushroomed to more than $85 billion. About 2.5 million civilians have TSP accounts.

The pool of potential military participants, both active and reserve members, is 2.6 million. If and when the military joins the TSP, the number of accounts could double.

But military members shouldn't count their nest eggs before they hatch.

For starters, the Defense authorization bill doesn't allow military members to start up accounts until 2001. The Federal Retirement Thrift Investment Board, the independent agency that oversees the TSP, has to prepare for the potential influx of new participants.

Furthermore, the TSP board estimates it would need an appropriation of $10 million to offset the administrative costs of handling accounts for reservists. If Congress did not provide an outright appropriation, the board would have to tack on annual administrative charges of 8.4 percent to reservists' accounts and 1.5 percent to active service members' accounts. Military members may be discouraged from participating with administrative rates that high. Civilian employees only pay 0.06 percent in annual administrative fees.

Besides those concerns, another main obstacle is a requirement in the authorization bill that additional legislation affecting tax revenues be enacted before military participation in the TSP is allowed.

Contributions to the TSP are tax-deferred, so military members would pay about $480 million less in taxes from 2001 to 2009, the Defense Department estimates. Before military personnel can set up TSP accounts, Congress must find a way to offset the deferred tax revenues.

If that does happen, military personnel would be allowed to contribute up to 5 percent of their salaries to their TSP accounts, up to a $10,500 annual limit. The government would not match their contributions, as it does for civilian employees enrolled in the Federal Employees Retirement System.

For now, the provision of the 2000 Defense authorization bill allowing military participation in the TSP is only the first step toward a benefit that may or may not ever actually be offered.