No Fed Left Behind

Retirement savings aren't just for those at higher pay levels.

When the administrators of the Thrift Savings Plan-the retirement plan for the majority of the nation's federal employees-released the results of a recent participant survey, most media organizations reported that TSP participants wanted more investment options. One newspaper columnist focused on how many feds do not contribute to TSP-failing to take advantage of the government's matching funds-and quoted an expert who said they were "beyond dumb and dumber."

The critical question is: Why do these employees choose not to contribute? Do they understand the damaging impact on their ability to retire? Why does the TSP appear to be leaving them behind?

To its credit, the Federal Retirement Thrift Investment Board, which oversees TSP, asked in its survey why people don't participate. But only 113 of the 3,467 respondents were noncontributors to the Federal Employees Retirement System, the plan in which all feds hired since 1984 are automatically enrolled. (Employees in the old plan, the Civil Service Retirement System, can contribute to the TSP, but the government doesn't match their funds and they receive a pension whether they contribute or not.) Of the FERS noncontributors, 24 percent said they don't have enough money to contribute; 17 percent said they were precluded from contributing because they'd taken hardship withdrawals from their TSP funds; and 8 percent said they were not sure how to sign up.

Most of the people who believe they lack enough money to contribute likely work at lower pay levels. They probably live paycheck to paycheck and have little in retirement savings. These are the most vulnerable federal workers.

Rather than focusing so heavily on how to make participants happier with more diversified portfolios, the TSP should concentrate more energies on helping nonparticipants find their way to saving something, even the smallest amount, for their retirements. These workers might not understand that if they contribute just $20 per biweekly pay period, the government will give them $20 toward their retirement. They would double their $520 annual investment. Also, they can take all of that money with them if they leave government.

The government automatically contributes 1 percent of salary toward retirement savings for FERS nonparticipants. But if employees rely only on that amount and leave federal employment before they are vested, they would lose it all.

The federal government takes seriously its mandate to educate employees about their benefits, but it needs to do more. The Office of Personnel Management and the Thrift board can partner with federal unions, associations and even the Federal Employee Education and Assistance Fund-a charity that serves federal workers-on a campaign to enroll disenfranchised employees. These people have been largely forgotten in the TSP success story.

The TSP is considering turning enrollment into an opt-out program rather than the current opt-in. But employees need counseling on a realistic amount to save. Contributing too much retirement savings could force lower-paid enrollees to take hardship withdrawals. Too many would preclude them from the program. Any effort will take education, planning and follow-up to help these employees save over the long term.

By focusing greater attention on why employees don't contribute, the Thrift board can avoid inadvertently creating a retirement system of haves and have-nots.

Susan Holliday, a freelance communications consultant and writer, has worked with federal sector organizations for more than 20 years.