TSP 'catch-up' contributions clear Senate committee

Federal employees aged 50 and older would be able to boost their retirement savings under a bill approved by the Senate Governmental Affairs Committee Thursday.

Under the bill, S. 1822, federal employees who are 50 or older in 2003 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. There's also a possibility that they will be allowed to make up to $1,000 in extra contributions this year.

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.

Under the bill, the limit on TSP contributions for federal employees aged 50 or older would be $2,000 higher than for younger workers in 2003, $3,000 higher in 2004, $4,000 higher in 2005 and $5,000 higher in 2006. After 2006, the limit for the 50-and-over group would remain at $5,000 above the limit for those under 50. Coupled with planned increases in normal TSP contributions, federal employees aged 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 legislation says that the catch-up rule, once approved by Congress and signed by President Bush, will take effect "as of the earliest practicable date, as determined by the executive director" of the Federal Retirement Thrift Investment Board, which runs the TSP.

If the TSP board can change its administrative systems to allow the catch-up rule to take effect this year, then federal workers aged 50 and over would be able to contribute an extra $1,000 to their TSP accounts in 2002. For 2002, normal TSP rules limit employees under the Federal Employees Retirement System to annual contributions of $11,000, or 12 percent of salary per paycheck, whichever is lower. Employees under the Civil Service Retirement System and military personnel are limited to annual contributions of $11,000, or 7 percent of salary per paycheck, whichever is lower.

But the TSP board is in the midst of updating its computer system, which could delay the start date for the catch-up contributions until next year. The contractor working on the computer system is scheduled to complete its work in July, at which time the board expects to announce a rollout of the new system. While it's possible that the catch-up contribution rule could take effect this year, it's more likely that it will take effect next year.

The House Government Reform Committee approved an identical measure (H.R. 3340) last week.

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