GovernmentExecutive.com

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.

COMMENTS

• I would like to see the expeses for the TSP funds be disclosed. The .03% does not properly identify the cost of these funds."Stop The 401K Rip-Off" by David Loeper was interesting reading and makes me wonder if we are still paying thousands of dollars for a hammer. I would hope that Barclays would just step up to the plate and disclose it properly without being strong armed by the law.....ooops.....I guess it is legal, but is it ethical Barclay? I would also like an after tax contribution opportunity to the TSP opened. As of today, 15500/yr and an IRA is quite limiting. s.d.g.v. Posted February 26, 2008 10:02 PM
• We need the Roth, I only contribute 5% because I am in the 15% tax bracket, and I know in retirement I will be in at least the same bracket. I would max our my contibution if the ROTH is an option (not to mention transfer my ROTH 401K from my previous employer. WE WANT THE ROTH!!!! mike Posted June 7, 2007 10:05 AM
• I am an ardent supporter of a ROTH Option for the TSP, so much so that I have written all of my elected representatives regarding the topic. I can not write all the comments I would prefer because the response frame is limited, but the main points are: (1) I don't think administrative cost argument holds water when comapred to the numerous benefits to Federal employees. (2) Benefits include curreent $15,000 annual limit for ROTH pensions versus $5,000 for ROTH IRA's and benefits, if eligible; and tax diversification as employees reach retirement age. (3) Cost argument fails to consider the current tax benefit of collecting tax on post-tax contributions, as well as the substantially lower future costs for both employees and government in not having to track and report taxable income in the future - a huge savings compared to current pre-tax plans' future costs. (4) Why are Federal employees denied the same benefits as available in the private sector, seems unreasonable. With all the human resource channenges faced by Federal personnel system today, is just does not make sensse to deny a benefit that might help attract professional talent into Federal service. Thanks you for the opportunity to comment! John Wotring Posted June 5, 2007 1:30 PM