Bill to boost TSP contribution rates set for official debut

Lawmakers will introduce legislation next week to automatically increase contribution levels in some federal employees’ Thrift Savings Plan accounts.

The Save More Tomorrow Act, a bill that has been circulating throughout Capitol Hill in draft form, will be officially introduced Monday. The measure would automatically increase the amount some civilian employees contribute to their TSP accounts gradually over several years.

Currently, civilian employees who are enrolled in the retirement savings plan automatically contribute 3 percent of their basic pay to the government securities (G) fund. They can opt out of the automatic contributions, change the amount, or reallocate money to other funds in TSP’s portfolio. Under the legislation, sponsored by Sen. Daniel Akaka, D-Hawaii, an individual’s contribution rate would increase by 1 percent annually until the full employer match takes effect -- usually at 5 percent -- two years after the initial contribution.

The bill is based on the 2009 TSP Enhancement Act, which created automatic enrollment, and encourages the small number of employees who choose not to take full advantage of agencies’ matching contributions to save more. The 2009 law builds on the 2006 Pension Protection Act, which lawmakers believe is effective at increasing employee savings rates, particularly for lower-income workers. Academics, including professors Richard Thaler at the University of Chicago and Shlomo Benartzi of the University of California Los Angeles, were architects of the concept behind Akaka’s bill.

“Automatic enrollment is a great way to help people overcome inertia and start saving for retirement; however, many employees get stuck at that initial 3 percent rate and stay there,” the professors said in a statement Friday. “This proposal will encourage federal employees to gradually increase their saving rates by 1 percent a year, while maintaining everyone’s flexibility to opt out.”

Akaka’s staff will release the full text of the legislation and a statement Monday. The Federal Retirement Thrift Investment Board, which oversees the TSP, is at work on an analysis of the bill.