TSP board collects input on potential plan changes

The executive director of the Thrift Savings Plan is seeking feedback from federal employees and agencies on potential changes to the 401(k)-style program, including automatic enrollment of new employees and the addition of a Roth option.

At a monthly TSP board meeting Tuesday, Gregory Long said he is in the process of gathering information to weigh the benefits of adding these new features against the administrative challenges and other drawbacks. Long said the board also is looking into the prospect of changing the default fund for investors who don't express a preference from government securities to the TSP's mix of life cycle funds.

Long said comments from labor organizations and other groups on the Employee Thrift Advisory Council and agency payroll offices should arrive in time for consideration at the board's June meeting. All three reforms would require congressional approval.

"My goal is to make sure that we at least listen to everybody," Long said.

Automatic enrollment and the addition of a Roth option would translate to more work for payroll offices, Long noted. In an April 16 memorandum, he outlined the new demands and asked for estimates of how soon the changes could be implemented, and at what cost.

Should the board adopt automatic enrollment, for instance, payroll offices would need to notify new employees of the policy at orientation and remind them if they didn't act within 60 days. Once a 90-day window is up, agencies would need to start allocating 3 percent of basic pay for anyone who did not select a different allocation. They also would need to process refunds requested within 90 days of the first contribution.

The Roth option would be especially burdensome from an administrative standpoint, because such accounts allow employees to make after-tax contributions. TSP contributions are currently made on a pre-tax basis, which means they do not count toward employees' taxable income, but are taxed later upon withdrawal.

With a Roth option, agencies would need to find a way to track both pre- and after-tax contributions, since the rules are different for each. Employees could not take out loans against savings in a Roth account, for instance.

Feedback received so far has been mixed, Long said, though the idea of switching the default fund for indecisive investors has generally been well-received. The life cycle funds shift participants' investments to a more conservative allocation as they near retirement.

Also at Tuesday's meeting, the board approved a plan to begin sending all TSP participants annual statements. The first will go out in January or February 2008, summarizing activity in 2007.

The annual statements will cost $2.6 million in the first year, but will be helpful for TSP participants who don't track their accounts closely, and also will aid fraud detection and address verification efforts, Long said. In addition, issuing statements would help the TSP get a better handle on dormant accounts. At the end of 2006, there were more than 90,000 TSP accounts that had sat for at least three years without any activity.

The TSP also is taking steps to beef up security, including prompting participants to select new passwords for online access. The new passwords are longer and must include letters as well as numbers. A second step to improve security is expected this fall, when participants will switch from using Social Security numbers to new account numbers.