TSP board mulls loan restrictions, automatic enrollment

Board members and high-level staff running the Thrift Savings Plan are trying to figure out how they can persuade Congress to approve desired improvements to the plan without inviting any unwelcome additions.

Gary Amelio, executive director of the TSP, the government's version of a 401(k) retirement savings plan, wants Congress to pass four legislative initiatives that would change the plan significantly by placing limits on loans, automatically enrolling new hires, changing the default fund and revising fund definitions.

But Amelio and the board are concerned that if Congress endorses these changes, it might at the same time approve other proposals to add funds to the TSP. The unwelcome additions could include funds that invest in real estate or precious commodities, and socially conscious funds that, for example, do not invest in Sudan.

In testimony this spring before a House Government Reform subcommittee, Amelio and TSP Board Chairman Andrew Saul voiced particularly strong opposition to the potential addition of a real estate fund. Both have said funds should not be added due to political considerations, including pressure from real estate interests or humanitarian concerns.

Additions should be made solely for the benefit of plan participants, Amelio and Saul have said.

At a meeting Tuesday, Amelio told the board that it needs to be careful about bringing any of its initiatives to Congress, because lawmakers could tack on changes of their own.

"I think to be prudent, we're just not ready," Amelio said. "If we were to go up and ask for a group of features to be passed, [we need to make sure] nothing else will be added to it."

Amelio said he would like to limit participants to one outstanding loan from their TSP fund. Right now, employees can take out one general purpose loan and one residential loan at a time.

He added that his "greatest concern as to the pushback" from Congress is that the proposal to limit outstanding loans could be perceived as an attempt to eliminate a benefit for federal employees. But he argued that multiple loans are not in the best interest of participants because such loans hamper the TSP's growth potential.

Federal employees should be automatically enrolled in the TSP upon being hired, with 3 percent, for example, of their income automatically invested in the funds, Amelio said. Automatic enrollment still would give employees the ability to opt out of the TSP.

It's a problem of inertia," Amelio said. "If you don't get them signing up when they come in the door, they'll never get it."

Amelio also said he wants to make the life-cycle (L) fund the new default fund for indecisive participants. The government securities (G) fund is currently the fallback choice.

The director said Congress needs to correct a technicality as well, by revising the definitions of the common stock (C) fund and the small- and mid-sized companies (S) fund in the law to clarify the difference between the two.

All of these changes are still just suggestions. Amelio said he feels more strongly about some--particularly the L-fund default--than others. The changes would have to be approved by the TSP board before being presented to Congress.

Saul said at the meeting that the board, along with Amelio and his staff, should "come to grips with [which initiatives to push] during this year." If the board and the staff decide the initiatives are worthy, he said, "I think we should go for it."

The board could consider recommending just one or two of the initiatives rather than the whole group, to avoid group add-ons, Saul said.