The Pay Raise State of Play, and TSP Contribution Changes

Although developments regarding the prospect of a pay raise for federal civilian employees next year have been sparse in recent weeks, that could soon change, now that officials have agreed to top-line spending levels for fiscal 2020.

Earlier this week, President Trump announced that he and congressional leaders in both parties had reached a two-year budget deal that would lift spending caps as well as the debt ceiling. The deal gets rid of sequestration, and increases discretionary spending at non-defense agencies by $27 billion.

Although the House last month approved an appropriations package that provides an average 3.1% pay raise for civilian federal workers—a 2.6% across the board raise, and an average 0.5% increase to locality pay—the Senate has not introduced any of its appropriations bills for consideration. Senate Republicans said they would wait until a decision had been made on top-line spending amounts before advancing their spending bills. Now that a budget deal has been reached they can proceed with the appropriations bills. 

President Trump has proposed a pay freeze for civilian federal employees next year, but lawmakers could override that if they agree to the figure in the House bill.

Congress is expected to approve the budget deal by the end of this week. The Senate Appropriations Committee will likely begin advancing its spending bills after lawmakers return from the August recess.

Meanwhile, the Thrift Savings Plan on Tuesday formally announced its plan to streamline administration of catch-up contributions for participants who are at least 50 years old beginning in 2021.

Currently, participants who are eligible to make catch-up contributions above the normal annual limit of tax-free contributions to the 401(k)-style retirement savings program must elect regular contributions and catch-up contributions separately. This system, which requires participants to make an annual election of how much they contribute via catch-up contributions, is complicated and officials have said it often leads to participants neglecting to max out their regular contributions.

Beginning with the first pay period in 2021, participants will no longer need to announce exactly how much they intend to take out of their paychecks for catch-up contributions. Instead, once a participant hits his or her annual limit for regular contributions, TSP will automatically shift paycheck deductions to catch-up contributions.

“Spillover makes it easier for eligible participants to take advantage of the chance to contribute more toward their retirement,” said Tee Ramos, director of participant services at TSP. “Rather than making a separate election and trying to time contributions to reach the [elective deferral limit], participants will keep contributing through their normal payroll deductions up to the catch-up limit. Spillover will also help prevent participants from missing out on the matching they’re already entitled to.”