Good to be golden

The tax bill that President Bush will sign into law today raises the annual dollar limit on Thrift Savings Plan contributions from $10,500 this year to $11,000 next year. The limit will rise $1,000 more each year until it hits $15,000 in 2006. For people age 50 or over, the tax bill has another provision aimed at helping people save for retirement. If Rep. Connie Morella, R-Md., has her way, the provision will help golden-aged federal employees sometime soon. The provision, Section 631 of the tax bill, allows employees 50 or older to make extra contributions to their employer-sponsored retirement savings programs of $1,000 in 2002, $2,000 in 2003, $3,000 in 2004, $4,000 in 2005 and $5,000 in 2006 and thereafter. The provision was designed for women who took time off from the workplace to raise families, but it's written to allow anyone who turns 50, man or woman, to put "catch-up" contributions into their retirement savings plans. Congress will have to amend the 1986 Federal Employees Retirement System (FERS) Act to allow such extra contributions in the TSP, but Morella is on the case. First, she made sure that the cost estimates in the tax bill awaiting Bush's signature assume that the TSP law will be changed. Now she's working on a change to the FERS Act. More than half a million federal workers-38.6 percent of the workforce-are 50 or older, according to Office of Personnel Management statistics. Another 300,000, or 20 percent, will turn 50 in the next five years. How would the catch-up provision affect federal employees? Next year, employees under 50 enrolled in the Federal Employees Retirement System will be able to make TSP contributions of 12 percent of their pay per pay period, up to an annual limit of $11,000. Under-50 employees in the Civil Service Retirement System will be able to make contributions of 7 percent of their pay per pay period up to the $11,000 limit. For employees older than 50, the catch-up contribution provision would kick in once they reach the percentage limit or the annual dollar limit. For example, a FERS employee who makes $50,000 a year will only be able to contribute $6,000 to the TSP in 2002 under the normal rules. But the employee would be able to contribute an additional $1,000, for a total of $7,000, under the catch-up provision. In 2003, the employee will be able to contribute up to 13 percent of pay, or $6,500, to the TSP. The catch-up provision would allow the employee to contribute an additional $2,000, for a total of $8,500, in 2003. CSRS employees would also be able to take advantage of the catch-up provision. At the high end of the pay scale, a 50-year-old employee who makes $100,000 a year will only be able to contribute $11,000 in 2002 because of the annual dollar limit. But if the catch-up provision takes effect, the employee would be able to contribute $12,000. In 2003, when the annual dollar limit rises to $12,000 and the catch-up limit rises to $2,000, the employee would be able to contribute $14,000. In 2006, the Thrift Savings Plan will eliminate percentage limits on contributions. That means that any employee over the age of 50 would be able to contribute up to $20,000 to the TSP--$15,000 to the annual dollar limit and $5,000 through the catch-up provision. Pay and Benefits Watch will keep you posted as Morella pushes the change to TSP law. No Major Pay and Benefits Reform Do you think the government needs sweeping pay and benefits reform? Office of Management and Budget Deputy Director Sean O'Keefe doesn't-at least not yet. Speaking at a conference earlier this week, O'Keefe, who is helping spearhead the Bush administration's management agenda, said he doesn't foresee major civil service reform legislation for at least two years. In the meantime, he expects soon-to-be-confirmed Office of Personnel Management Director Kay Coles James to help agencies explore existing ways to motivate federal workers. "What we have available right now is a lot more than people realize. … There are all kinds of pay and hiring authorities that have yet to be tapped," O'Keefe said. "And OPM, and I'm taking Kay James' word on this, I'm hopeful, will be less interested in being classification experts and more interested in applying these techniques across agencies." OPM recently published a guide to human resources tools, such as recruiting bonuses and student loan repayment, at www.opm.gov/demos/flex. 10 Today, 11 Tomorrow If you want to contribute the maximum amount to your Thrift Savings Plan account each pay period, then make sure you request a change before the end of the month. The current limit on TSP contributions for Federal Employees Retirement System employees is 10 percent of pay per pay period. During the current TSP open season, which runs until July 31, the limit will rise to 11 percent. The limit for Civil Service Retirement System employees will rise from 5 percent to 6 percent. Change requests that the TSP board gets before July will take effect during the first full pay period of July. Change requests submitted during July will take effect the next full pay period after the TSP board receives them. The percentage limits are on each pay period, so employees won't be able to contribute more than 11 percent per pay period to make up for the fact that they contributed only 10 percent for the first half of the year. In future years, the percentage increases will happen at the beginning of the year. So you'll be able to elect for contributions of 12 percent for every pay period of 2002. But in 2001, the most you'll be able to contribute for the full year is about 10.5 percent of your pay. Special Rates Update The tens of thousands of federal employees who were paid special pay rates between 1982 and 1988 to whom the government owes back pay need to keep holding on. Their case, which has been dragging through the courts for nearly two decades, is again headed to the courtroom of Judge John Garrett Penn of the U.S. District Court for the District of Columbia. Attorneys for the National Treasury Employees Union, who are representing the employees, and attorneys for the Justice Department will update the judge on their progress toward reaching an agreement on how the government will pay the employees. Penn will hear from the two sides on June 14. For more on the case, see www.nteu.org/specrates.html.