Catch-up slowdown

A bill that would let federal workers over age 50 contribute more money each year to their Thrift Savings Plan accounts has hit a roadblock on Capitol Hill.

Rep. Connie Morella, R-Md., and her staff are trying to get the bill past the roadblock. The bill would allow feds over the age of 50 to put an extra $1,000 in their retirement nest eggs this year. Next year, they would be able to put in an extra $2,000.

The bill, called the Catch-Up Contributions for All Act, seemed to be on the legislative fast track, sailing out of subcommittees in the House and Senate in March (H.R. 3340 and S. 1822, respectively).

But then the Congressional Budget Office released a statement arguing that the bill's cost still needs to be offset. That statement stopped the bill dead in its tracks, surprising Morella and her staff.

Morella was surprised because she had gained assurances last May from the Joint Committee on Taxation that the catch-up bill's cost had been accounted for in last year's major tax cut legislation. That legislation included a provision allowing participants over 50 in many retirement savings plans to contribute more money each year to their nest eggs. The legislation did not apply to Thrift Savings Plan participants, so Morella decided to introduce separate legislation covering the TSP. But she asked for assurances that the cost of covering the TSP would be covered.

Here is a transcript of an exchange between Morella and Rep. Rob Portman, R-Ohio, on the House floor on May 2, 2001:

Morella's staff has sent a letter to the Joint Committee on Taxation to get a new assurance that the catch-up bill's cost has already been covered. If the committee issues an assurance, then Morella's staff will work with the Congressional Budget Office and the House Budget Committee to get the bill rolling again.

A staffer said the tax committee could issue a new assurance any day now.

Under the bill, 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.

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.

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 were able to 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.