Thrift Savings Plan Roth option delayed for Pentagon employees

By Amanda Palleschi

April 13, 2012

The Thrift Savings Plan Roth option slated to launch May 7 will not be available to civilian Defense Department employees and service members until summer or early fall.

The Federal Retirement Thrift Investment Board, which oversees the TSP, said earlier this week that not all federal agencies have completed the transition required to implement the Roth 401(k) and some would need additional time after May 7.

The Roth option will be available to Marine Corps members in June; to Defense and Veterans Affairs Department civilians in July; and to Army, Navy and Air Force service members by October; according to the Defense Finance and Accounting Service, which cites complicated pay systems as the reason for the delay.

The Army, Navy and Air Force have the most complicated systems because each has a different pay structure, and active-duty service members often change posts, DFAS spokesman Tom LaRock said.

According to TSP officials, military service members are among those most likely to benefit from the Roth option. For young service members who might receive an annual allowance of $20,000 to $25,000, a Roth plan would ensure they are taxed on those earnings in the current year, rather than on presumably higher income upon retirement.

The Roth offering is similar to the one available to private sector employees. It will allow federal employees to invest money that’s already been taxed so it cannot be taxed again upon withdrawal, unlike a traditional TSP investment.

With the change, participants will be able to invest pretax or after-tax dollars in any of TSP’s funds as long as their total contributions are within Internal Revenue Service limits. The IRS increased the cap on individual TSP contributions in 2012 from $16,500 to $17,000, due to a change in the cost-of-living index. Employees 50 and older can contribute an additional $5,500.

“We have millions of people stationed everywhere around the world. When it comes to pay, you better get it right the first time,” DFAS spokesman Steve Burghardt said. “We tread carefully in order to make sure that what we do works, and it works today and it works tomorrow and it works for every person.”

Employees of other agencies and departments also will have to wait longer to invest with a Roth account. Although TSP officials will be ready to enroll all beneficiaries in the new option by May 7, some of the more than 100 payroll offices that submit funds to the TSP will not be ready to process Roth investments by that date, said Kim Weaver, external affairs director for the Federal Retirement Thrift Investment Board.

Many of those offices provide services to several agencies, Weaver said, and FRTIB does not have a list of which payroll offices will be ready. She confirmed the Defense Department will not be ready in response to media inquiries.

(Image via Spartak/Shutterstock.com)


By Amanda Palleschi

April 13, 2012

http://www.govexec.com/pay-benefits/2012/04/thrift-savings-plan-roth-option-delayed-pentagon-employees/41771/