Time Is on TSP’s Side

Time is running out to pass legislation this year. The Senate will begin a monthlong district work period on Aug. 9, and the House will follow two days later. Both chambers will be back in early September following the political conventions, but lawmakers are likely to get sidetracked by fall holidays and frantic campaign schedules.

These time constraints might be cause for concern when it comes to measures such as the spending bill that contains the federal pay raise. But for one particular bill, it could be a good thing if lawmakers ran out of time to take a final vote this session. That legislation is H.R. 6500, which would make some substantial changes to the federal employee Thrift Savings Plan.

Change can be a good thing, of course, and the TSP has made adjustments on its own and is considering more. Those changes generally have been aimed at preserving the 401(k)-style plan's core mission while expanding participation and access.

A decision earlier this year to restrict interfund transfers to two per month, for example, supported the TSP board's vision that the retirement plan should maintain a more passive approach to investment and should not become a venue for aggressive stock trading.

Some of the provisions in H.R. 6500 are in line with the plan's philosophy. One provision would allow agencies to automatically enroll new federal employees in the plan, for example, in keeping with the goal of increasing participation. And agencies would be required to exercise caution by investing the automatic contributions in government securities, the plan's most conservative offering.

But some of the changes that H.R. 6500 proposes would represent significant departures from the core principles of the TSP. The bill would allow the TSP board to create new funds at its own discretion, increasing the board's power and limiting congressional oversight. Lawmakers seem to want the board to use its new authority to expand the plan's offerings. This could include branching out into funds that are managed actively, or investing in specific industries such as real estate. Historically, the board has tried to avoid both.

There are a number of motives for giving the board more authority. Some members of the House want to be sure that the plan has a broad enough range of investment options to produce the maximum possible returns. Rep. Danny K. Davis, D-Ill., chairman of the House Oversight and Government Reform Subcommittee on the Federal Workforce, wants to increase the participation of minority-owned firms, which typically specialize in active fund management.

These are all worthy goals, and they raise relevant questions about the TSP. But they should be weighed against the principles of stability and caution that have governed the plan. At a recent hearing, TSP Executive Director Gregory Long found himself explaining to lawmakers that passive fund management is not just a choice; it is a statutory requirement imposed by the lawmakers who established the plan. The requirement was designed to keep federal employees' retirement funds safe.

It would be better for the clock to run out on H.R. 6500 than for it to be passed too swiftly and without sufficient debate. The TSP board doesn't want all the new powers it is being offered, and the groups that make up the Employee Thrift Advisory Council want Congress to have a role in the creation of new funds. The board and the groups represented on the advisory council should be given adequate time to outline their objections, and lawmakers should listen. There should be a real conversation before H.R. 6500 is brought up for a vote on the House floor.