The administrators of the 401(k)-style retirement savings plan for federal employees are on track to end this fiscal year with leftover funds, despite growth in the plan and costs associated with Hurricane Katrina.
The Thrift Savings Plan had a budget of $89.4 million for fiscal 2006; officials expect to have used only $83.4 million when the fiscal year closes Sept. 30, said Executive Director Gary Amelio at a Monday board meeting. That would put the plan $6 million, or 7 percent, under budget for the year, without any compromises in service, he said.
Andrew Saul, chairman of the TSP Board, praised staff members for steadily reducing costs while improving service, even as the plan grows. The amount invested is fast approaching the $200 billion mark, having grown just during the past three months from about $185 billion in June to nearly $191 billion at the end of August.
The TSP does not receive annual appropriations. Its funding comes from two sources: forfeitures of agency matching contributions by participants who leave before they are vested in the TSP, and administrative fees deducted from the earnings of the TSP funds. The budget figures for fiscal 2006 include costs associated with transferring TSP support work at the National Finance Center, an Agriculture Department facility in New Orleans, to a contractor. The transfer happened ahead of schedule because Hurricane Katrina left the facility understaffed and in poor physical condition.
Costs for this transition left the TSP $3.9 million in excess of its budget for record-keeping. Savings in other areas, including personnel and communications to participants, offset the spending, allowing for the overall $6 million surplus.
TSP officials expect the trend of decreasing costs to continue. At the Monday meeting, the board approved a budget of $87.6 million for next fiscal year, which begins Oct. 1. That represents a $1.8 million decrease over the amount budgeted for fiscal 2006, though it is an increase of $4.2 million over the actual amount expected to be spent.
Some board members questioned whether the 2007 request might be too lean. TSP needs the capacity to respond to emergencies, such as a severe downturn in the stock market that could spur sharp declines in participation without adequate outreach to maintain confidence, board members said.
But Amelio said the budget request is ample, and includes money for key features including $3 million allotted for security enhancements. The upgrades will help implement changes such as granting participants access to the plan using account numbers instead of Social Security numbers, and encrypting data that rests on agency systems, as already is done with information that is in transit.
The fiscal 2007 budget also includes $8.2 million for communications to TSP participants, an increase of $5.3 million over this year's expenditures. Amelio said recent communications efforts designed to increase participation in the TSP's life-cycle (L) fund offerings were highly effective.
The L funds, which automatically shift participants' money from a mix of riskier to more conservative investments as they age, celebrated their one-year anniversary on Aug. 1. By the end of August, almost 365,000 participants had invested a total of $13.2 billion in the L funds.
Resources in the communications portion of the budget also will go toward distributing information on how recently enacted pension reform legislation will affect the federal plan. Many of the legislation's provisions take effect at the start of the calendar year in January, but some of the new materials have to wait until the Internal Revenue Service issues enacting regulations, TSP officials said.
The budget also allows for adequate staff levels, Amelio assured board members. TSP plan went through a streamlining in fiscal 2006, bringing it down to 69 full-time permanent employees from 91 positions budgeted at the start of that year. Plan officials have room to hire six or seven additional employees this year for targeted positions. The plan can afford a smaller staff because of technological developments and the outsourcing of day-to-day work.
"I think we've given you the Rolls-Royce of budgets," Amelio said.