TOPICS
TOPICS
TSP automatic enrollment bill clears House committee
The House Oversight and Government Reform Committee approved legislation on Wednesday that would allow agencies to automatically enroll new employees in the Thrift Savings Plan and set their contributions at 3 percent of basic pay.
The legislation (H.R. 6500) would require agencies to invest the automatic contributions in the plan's stable government securities fund. The bill originally called for default investment in the life-cycle funds, which initially focus on riskier but higher yielding investments and then switch to a more conservative mix of investments as an employee nears retirement.
The life-cycle fund default had met with criticism from employee groups.
"Our executive council weighed in pretty strongly against the idea of life-cycle funds as the default option," Jacqueline Simon, public policy director for the American Federation of Government Employees, said at a joint meeting of the Employee Thrift Advisory Council and the Federal Retirement Thrift Investment Board in late June. "They thought it was an important step to authorize the government to lower an employee's salary by deducting contributions and to go further and expose them to the stock market."
Employee groups said they supported automatic enrollment in general, but some agencies, like the Defense Department, said they preferred that the program remain optional. Senators have called on the board that runs the TSP to increase outreach to boost enrollment in the 401(k)-style plan, especially among members of the military.
House Oversight and Government Reform Federal Workforce Subcommittee Chairman Danny K. Davis, D-Ill., attached an amendment to the legislation that would require the board to collect demographic information on asset managers who work on TSP funds. Davis wants more women and minorities to be involved in managing funds, and said the TSP's passive investment approach precluded many minority-owned firms, most of which focus on active investments, from bidding on opportunities to manage funds.
But another provision of the legislation, which would give the board the authority to add self-directed investment funds to the TSP without congressional approval, is likely to spur opposition.
"Contrary to what you might think -- let's grab some power here -- we think it's a big mistake," Andrew Saul, chairman of the TSP board, said in June. "I think the way it was set up was to make this thing apolitical."
James Sauber, chairman of the Employee Thrift Advisory Council and chief of staff for the National Association of Letter Carriers, echoed Saul's opposition at the meeting.
"All due respect to the board members, we're dead-set against this," Sauber said. "We think this could create a situation where this plan could spin off in a direction that no one intended. There's a theory to this plan that it's broad-based, low-cost index funds. It does open up the idea that every single industry in the country that has an index fund could add it to the TSP."
Employee groups and the TSP board have not yet reached an opinion on a third provision of the legislation, which would require the addition of a Roth Individual Retirement Account option to the plan. TSP Executive Director Gregory Long said the board was studying whether plan participants would actually enroll in a Roth IRA. AFGE's Simon said the union would not lobby against a Roth provision.
COMMENTS
- “The legislation (H.R. 6500) would require agencies to invest the automatic contributions in the plan's stable government securities fund”. Recent hires, new to the system, with funds invested in the stock funds during a market like today might be shocked and more likely to withdraw from participation; hence a long term negative. IMHO, they would benefit more from being in the G, where all their funds will never lose value; until they become more familiar with the system and are earning enough (if they can under NSPS) to take on more risk. Still, there was never any doubt in my mind that IF this was approved the default fund would remain the G Fund; because that is the only fund the Government can, by law, borrow from! “Senators have called on the board that runs the TSP to increase outreach to boost enrollment in the 401(k)-style plan […] among members of the military.” Given to my Orwellian “Big Brother” worries, and having lost more than my share of military benefits, I can foresee this as the beginning of the end for the military retirement pension system. First it was 50% of base pay, then 40% (which, thankfully, I THINK got reversed), and now this? And they say these changes are for recruitment purposes? They had better not forget the retention aspect of manning the force. Just curious, but would one of the later retention moves be to make the vesting period require reenlistment to complete? Regardless, any military contributions to the TSP should be like the CSRS, there as a tool but not a requirement or replacement. Education on the tax benefit/incentive would partially make up for the exclusion of BAQ, BAS, and COLA from their retirement calculations. Chairman “Davis wants more women and minorities to be involved in managing funds, and said the TSP's passive investment approach precluded many minority-owned firms, most of which focus on active investments, from bidding on opportunities to manage funds.” While I have no problem with EO, and like opportunities but request that the FRTIB and Congress do their research, educate us on the possibilities and THEN LET US VOTE TO DECIDE! After all, it IS our money and our future; who would know better how we wish to prepare for it? Tip off Posted July 24, 2008 2:05 PM
- Hold on a minute. If the idea is manadatory participation in the Thrift Plan, then why not bring back CSRS as an option for younger employees? It is still a working system, and not a bad one at that. M Onger Posted July 21, 2008 10:28 AM
- 1. Its automated enrollment, not mandatory enrollment. If an employee consciously decides to be stupid and not enroll, he or she can deliberately opt out. Making it the default option though will at least recognize the inertia that governs so much human behavior and will improve most people's financial conditions. There is no loss of liberty here. 2. The proposal to open it up to self-directed plans sucks, and again shows the evils of the current system of campaign funding and lobbying. Lots of financial planners and brokers see this whole pot of money and all of sheep and are anxious to shear us. 3. Allosing unlimited reallocations between TSP funds drives up the costs of the fund, reducing investments. Anyone who researches this, and reads ethical investors like John Bogle and Warren Buffet, realizes the following: "Small differences in both investment performance and fees and costs can have a substantial impact on your long term returns. For example, total annual fees and costs of 2% of your trust balance rather than 1% could reduce your final return by up to 20% over a 30 year period (for example, reduce it from $100 000 to $80 000). You should consider whether features such as superior investment performance or the provision of better member services justify higher fees and costs." Believe me, the brokers, mutual funds, and financial planners with stuff to sell will not be telling you this (or that most managed plans fail to do as well index funds over a thirty-year period). Rickster Posted July 21, 2008 9:21 AM
