TSP boosts participation of young, lower-paid employees

Younger civilian workers and those at the lower end of the pay scale are participating in the government's 401(k)-style retirement savings plan at increasing rates, according to newly compiled demographic data.

This is good news because these tend to be the groups where it is hardest to boost participation, said Greg Long, director of product development for the Thrift Savings Plan, in summarizing the data for board members at a meeting Monday. The report focuses on full-time civilian employees and covers the period from 2000 to 2005.

TSP participation rates for Federal Employees Retirement System workers younger than 30 rose from 76.3 percent in 2000 to 83.8 percent in 2005, the report stated. For FERS employees in the lowest-paid quintile, it increased from 75.7 percent in 2000 to 78.8 percent in 2005.

FERS is the newer of two retirement systems for federal employees, and is more dependent on TSP contributions than the older Civil Service Retirement System.

With the exception of these groups, participation rates among civilians topped out at about 88 percent for full-time employees in FERS over the five-year period. This comes on the heels of steady growth in the 1990s, the report said.

The recent civilian participation rates are about as high as can be expected, leaving the military as a key place to concentrate any efforts to expand, TSP board officials said. The services for the most part do not offer to match employee contributions, making participation less enticing.

One exception is an Army pilot project to match contributions of some soldiers at the same rate as that enjoyed by FERS participants. The project is meant to boost recruitment in hard-to-fill specialty posts, and the matching funds only are available to soldiers who enlist in such posts for five years or more. So far, 3,309 soldiers have signed up. The demographics and behavior report also noted that civilian TSP participants have increased the average percentage of pay they contribute. For FERS employees, the average rate grew from 7.1 percent in 2000 to 8.6 percent in 2005. For CSRS employees, it rose from 4.4 percent to 7.5 percent. Those rates are higher than the average in the private sector, Long said.

The growth is partly attributable to an increase in maximum allowable contributions, the report said. The ceiling for contributions as a percentage of pay increased from 10 percent in 2000 to 15 percent in 2005 for FERS employees, and from 5 percent to 10 percent for those in CSRS.

Beginning in 2002, participants age 50 and older were allowed to make "catch-up" contributions above these limits, also contributing to the growth.

The G Fund, which invests in government securities and is less risky than other plan offerings, and the C Fund, which tracks the Standard & Poor's 500 Index of stocks in the largest domestic companies, were the most popular options across all age groups, according to the demographic report.

TSP officials noted at the meeting that participants appear to be responding to the recently volatile stock market with a high volume of trading. Trading in the international stocks (I) fund was especially expensive, at 24.3 basis points -- or $2.43 for every $1,000 invested -- for the month of February.

Plan officials encourage investors to have a long-term strategy and to avoid shifting money in response to short-term fluctuations. They said they will continue to monitor trading, and will also look closely at the performance of the lifecycle (L) funds, which invest in a mix of the underlying funds that grows more conservative as participants near retirement. So far, these funds appear to have been relatively stable amid the recent volatility, officials said.