House approves TSP catch-up contributions

Federal workers aged 50 and older would be able to contribute more money to their Thrift Savings Plan accounts each year, under a bill approved by the House Monday.

The so-called "catch-up contributions" bill (H.R. 3340), which the Senate must approve before it goes to President Bush, would let 50-and-over feds contribute as much as $2,000 more to their 401k-style TSP accounts in 2003 than under-50 feds will be allowed to contribute.

"The catch-up contributions will allow workers to make up for years when they were not employed, did not contribute to their plan, or otherwise were unable to save," said Rep. Connie Morella, R-Md., the sponsor of the bill. "It is also particularly beneficial for women who have returned to the workforce after taking time away to raise families."

The TSP is a retirement savings plan through which employees invest their money in stocks, bonds and government securities. Under normal limits on TSP contributions next year, employees under the Civil Service Retirement System will be able to contribute up to 8 percent of basic pay each pay period to their TSP accounts. Employees in the Federal Employees Retirement System will be able to contribute up to 13 percent of their basic pay each pay period. An annual contribution cap of $12,000 for 2003 ultimately limits both groups.

Under the catch-up contributions bill, however, 50-and-older feds could contribute up to $2,000 beyond the limits for the year. For example, an employee under the Federal Employees Retirement System who makes $60,000 a year under normal rules would be able to contribute only $7,800 (13 percent) to the TSP next year. If the catch-up contributions bill takes effect, the employee could contribute $9,800 next year.

The earliest federal workers would be able to sign up for the extra contributions would be during the TSP open season next spring.

The catch-up contributions limit would rise to $3,000 in 2004 and $4,000 in 2005. From 2006 on, the limit would be $5,000 per year.

TSP contributions are made before taxes. The more employees contribute, the lower their annual tax bills.

Congress approved the catch-up contributions rule for private sector 401k plans in 2001, but applying the rule to the TSP requires a change in the law governing the program.

The bill approved by the House also includes a provision that lets employees and retirees of the Overseas Private Investment Corporation, a small federal agency, transfer into the Federal Employees Health Benefits Program. The agency runs its own health plan, but doing so has become too expensive for the agency.

The bill also reauthorizes the Merit Systems Protection Board and the Office of Special Counsel, two agencies set up to protect federal workers' employment rights.