Retirement savings plan reforms could unfold rapidly

TSP board prepares to implement at least one provision in recently passed tobacco legislation as early as next month.

Changes to the Thrift Savings Plan passed by Congress last week could begin to take effect in July, the staff of the Federal Retirement Thrift Investment Board said during a meeting on Tuesday.

The board is preparing agencies to implement a provision in broader tobacco legislation (H.R. 1256) that would make new hires immediately eligible for an automatic 1 percent agency contribution to their Thrift Savings Plan accounts, according to Pamela-Jeanne Moran, TSP's deputy director of external affairs. Agencies could be ready to go as early as next month, she said. Currently, there is a waiting period before agencies begin making the automatic contributions, which are separate from funds they deposit to match employees' voluntary contributions out of their salaries.

The move to automatic and immediate agency contributions would bring the government in line with private sector employers, said Tom Trabucco, the board's director of external affairs. TSP Executive Director Greg Long said the regulatory changes needed to move forward were almost ready. President Obama yet to sign the tobacco bill, but has said he will.

Other TSP modifications tucked into the legislation would take longer to implement. Moran said a provision to automatically enroll new employees in the plan would be more involved, and Trabucco called the provision that would create a Roth 401(k) option in the plan "the long pole in the tent."

The Roth option, which would allow employees to invest income that already has been taxed and therefore would not be subject to taxes upon withdrawal, is "a two-year project," Trabucco said. "If we can do it sooner, we will, but we're going to move forward in an orderly fashion."

The board still must decide whether to move forward with a fourth provision: a mutual fund window. But Trabucco said he was pleased Congress settled on language that would make such a change optional.

Board Chairman Andrew Saul praised Trabucco for his work with congressional staff to produce a version of the legislation that "will move the plan forward, there's no question about it." Saul asked Trabucco to update the board in the coming months with a strategy for implementing the legislative reforms.

Congress is not the only factor driving changes at the TSP. BlackRock, an investment management firm, has made an offer for Barclays Global Investors, the company that manages the plan's investment funds. Long said the leadership team at BGI would remain largely in place after the acquisition was complete, but the purchase would affect some of the TSP's contracts.

Tracey Ray, the TSP's chief investment officer, said the merger could be good for the plan's funds.

"BGI is part of a firm whose business is asset management, as opposed to a subsidiary of a bank, and I think there will be good synergy going forward," she said.

The markets also brought good news for TSP investors in May, Ray said. The balance of the 10 funds in the plan jumped from $206.9 billion to $213.5 billion. The government securities (G) fund -- the plan's most stable offering and a safe haven in turbulent financial times -- declined by $984 million as investors became more comfortable putting their money in more volatile funds, Ray said.