What Would a Proposal to Auto-Enroll Troops Mean for the TSP?

A proposal to significantly increase the number of troops enrolled in the government’s 401(k)-style retirement benefit would affect service members, but also the agency that administers the Thrift Savings Plan.

The nine-member Military Compensation and Retirement Modernization Commission in January made 15 recommendations, including creating a blended retirement plan that would phase out the current 20-year cliff-vesting retirement system, and expand the role of the TSP. As part of that, the panel proposed auto-enrolling new service members into the TSP at 3 percent of their pay with a 1 percent government match, the way it works now for federal civilian employees. Military members currently can contribute to the TSP, but are not enrolled automatically and do not receive a matching contribution from the government.

“This is a biggie,” says Kim Weaver, the director of external affairs at the Federal Retirement Thrift Investment Board, which administers the TSP. “For uniformed service members, this would be a real game-changer, to get an employer match and automatic contributions.”

The board manages a program that now has 4.7 million participants, so it’s already big. Auto-enrolling service members, which at this point is still a proposal and would need approval from Congress, would add roughly 250,000 new participants each year. Another 1 million people are covered in the current system and could opt into auto-enrollment under the panel’s proposal. The “investment side” of the TSP would not be affected, Weaver said, but the board, a small federal agency, would have to make sure it had enough staff and resources to manage an influx of participants. “Do you have the people to answer the phone calls, to process the forms, to do all the IT work you would need to support it?” Weaver asked.

The proposal, if it becomes reality, would not just affect the FRTIB, but also the Defense Finance and Accounting Service, which processes payroll for Defense Department civilians and military members. The TSP deduction that comes out of employees’ paychecks is processed by the payroll office, and then that information is sent to the board. “We would have to make sure our systems are capable of handling all this,” Weaver said. “The payroll office in this case is DFAS, and they would also need to make sure they are ready to take that in, and transmit it to us.”

TSP launched a program in August 2010 that automatically signs up all new civilian hires to allocate 3 percent of their basic pay to the G (government securities) fund, unless they choose to end their contributions or change the amount. In December 2014, however, President Obama signed into law the Smart Savings Act which changes the default enrollment fund in the Thrift Savings Plan for new hires from the G Fund to the lifecycle (L) funds, which are designed to move investors to less risky portfolios as they near retirement.

Weaver said she doesn’t know yet if auto-enrolling troops into the TSP would require more staff or other resources at the board. “Not to sound cynical, but we’re not going to do a real in-depth, down and dirty, until we see this is getting real traction,” Weaver said of the panel’s proposal. “We’ve talked to the commission, we’ve talked to the commission staff, we see nothing in their proposal that causes us angst but again, their proposal is just a proposal, and so we don’t want to spend our staff time working toward [that] if what Congress is going to do is going to be meaningfully different.”

The House and Senate Armed Services Committees have been holding hearings to discuss the panel’s proposals to modernize the military’s compensation system, a system which Defense officials and many observers have said is becoming too costly. Lawmakers initially have expressed openness to many of the panel’s recommendations, but it remains to be seen now whether that will translate into successful legislation.

(Image via Africa Studio / Shutterstock.com)