TSP ‘catch-up’ bill introduced in House

Federal employees aged 50 and older would be able to contribute an extra $1,000 to their Thrift Savings Plan accounts next year if Congress passes a bill introduced in the House this week. Rep. Connie Morella, R-Md., introduced the Catch-Up Contributions for All Act (H.R. 3340) on Monday. Under the bill, the limit on TSP contributions for federal employees aged 50 or older would be $1,000 higher than for younger workers in 2002, $2,000 higher in 2003, $3,000 higher in 2004, $4,000 higher in 2005 and $5,000 higher in 2006. After 2006, the limit for people 50 or older would remain at $5,000 above the limit for younger people. That means that by 2006, federal employees aged 50 or older would be able to contribute as much as $20,000 a year to their TSP accounts. Congress gave private sector workers the ability to make such catch-up contributions to their 401k plans as part of the tax relief bill this summer. Morella said catch-up contributions would be particularly beneficial to federal workers because the TSP was launched only 15 years ago. "The 'catch-up' contributions will allow workers to make up for years when they weren't employed, didn't contribute to their plan or otherwise weren't able to save," Morella said. "It is also particularly beneficial for women who have returned to the workforce after taking time away to raise families." Next year, employees under age 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. If Congress passes Morella's bill, the catch-up contribution provision would kick in for employees older than 50 once they reach the percentage limit or the annual dollar limit. For example, a FERS employee who makes $50,000 a year will be able to contribute only $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. The percentage and dollar limits on contributions are going up each year, so that in 2006, federal workers will be able to contribute up to $15,000 a year to the TSP. With the catch-up contributions, workers over the age of 50 would be able to contribute up to $20,000. Back in the summer, Morella made sure that the tax bill assumed the costs of extending the catch-up contribution to TSP enrollees. That means cost won't be as much a deterrent to congressional support as it has been in past efforts to beef up the TSP.