Panel approves TSP 'catch-up' contributions

Federal employees age 50 and older would be able to contribute an extra $2,000 to their Thrift Savings Plan accounts next year, under a bill approved by the House Government Reform Committee Thursday.

Under the Catch-Up Contributions for All Act, H.R. 3340, federal employees age 50 or over would be able to make up to $2,000 in so-called "catch-up" contributions on top of the contributions they make under normal TSP rules.

For 2003, normal TSP rules will limit employees under the Federal Employees Retirement System to annual contributions of $12,000, or 13 percent of salary per paycheck, whichever is lower. In 2003, employees under the Civil Service Retirement System and military personnel will be limited to annual contributions of $12,000, or 8 percent of salary per paycheck, whichever is lower.

On top of the normal limits, federal employees age 50 or older would be able to contribute another $2,000 to their TSP accounts in 2003, under the committee-approved bill. The maximum limit on extra contributions for employees age 50 or older would rise to $3,000 in 2004, $4,000 in 2005 and $5,000 in 2006. After 2006, the extra contributions limit for people age 50 or older would remain at $5,000 above the normal limit. Coupled with planned increases in normal TSP contributions, federal employees age 50 or older would be able to contribute as much as $20,000 a year to their TSP accounts beginning in 2006. Under the bill, the limit on TSP contributions for federal employees age 50 or older would be $2,000 higher than for younger workers in 2003, $3,000 higher in 2004, $4,000 higher in 2005, $5,000 higher in 2006. After 2006, the limit for people age 50 or older would remain at $5,000 above the limit for younger people. Coupled with planned increases in normal TSP contributions, federal employees age 50 or older would be able to contribute as much as $20,000 a year to their TSP accounts beginning in 2006.

Congress gave private sector workers the ability to make such catch-up contributions to their 401k plans as part of the tax relief bill last summer. Special legislation is required to extend the benefit to TSP participants.

"The 'catch-up' provision is particularly justifiable for the federal plan since the TSP was not created by law until 1986," said Rep. Connie Morella, R-Md., the bill's sponsor. "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. It is also particularly beneficial for women who have returned to the workforce after taking time away to raise families."

Last 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.

The full House has to take up the bill and the Senate must pass it before it can go to President Bush for his signature.