Lawmaker introduces automatic TSP enrollment bill

Rep. Stephen Lynch, D-Mass., has introduced legislation (H.R. 1263) that would automatically enroll new federal employees and members of the military in the Thrift Savings Plan and assign their investments to the government securities fund.

"Currently, 14 percent of the eligible federal civilian and 75 percent of uniformed service members are not participating in TSP," Lynch, the new chairman of the House Oversight and Government Reform Federal Workforce Subcommittee, said in a statement. "Therefore they are less likely than participants to be financially self-sufficient."

Automatic enrollment is supported by both the Federal Retirement Thrift Investment Board and a range of federal employee groups, all of which argue the practice makes it easier for workers to save for retirement. The thrift board met with congressional leaders in February to discuss what the automatic enrollment legislation might entail.

The contribution for employees who are enrolled automatically in the TSP would be set at 3 percent of basic pay, although the thrift board would have the authority to reduce it to as low as 2 percent, or to raise it as high as 5 percent.

Putting new enrollees' money in the government securities, or G Fund, is a safe option, proponents say, because the fund is the most conservative offering in the TSP. The G Fund has made small gains even as other funds have been roiled by the financial crisis. If employees who are enrolled automatically in the TSP eventually decide that they do not want to invest in the TSP and choose to withdraw the money that was invested for them, they are least likely to suffer losses if their money is invested in the G Fund.

The legislation also requires the thrift board to design a Roth Individual Retirement Account option and include it in the plan. Similar legislation passed the House last summer, but the Senate did not take it up.

The bill also addresses a number of issues for federal retirees. It would allow Federal Employee Retirement System enrollees to cash out their unused sick days when they retire, and would allow annuitants to buy health insurance through the Federal Employees Health Benefits Program with pre-tax dollars.

"We strongly support Chairman Lynch's legislation because it addresses a number of inequities endured by federal workers and annuitants," said Margaret Baptiste, president of the National Active and Retired Federal Employees Association. "Uppermost in our minds is the premium conversion benefit. All federal and military retirees devoted their working lives to the common good, and as a matter of equity, the health tax relief should be offered to the entire federal family."