The House on Monday evening passed legislation that would automatically enroll new federal employees in a more diverse, age-appropriate retirement fund rather than the less lucrative government securities offering.
The bipartisan Smart Savings Act, sponsored by House Oversight and Government Reform Chairman Darrell Issa, R-Calif., would change the default enrollment fund in the Thrift Savings Plan for new hires from the G Fund to the lifecycle (L) funds, which are designed to move investors to less risky portfolios as they near retirement. H.R. 4193 passed the House on a voice vote under a suspension of the rules.
The Senate Homeland Security and Governmental Affairs Committee approved a companion bill in late June.
The legislation would only apply to new federal employees who are auto-enrolled in the TSP. It will not affect TSP participants who are currently auto-enrolled. The G Fund would continue to be the default enrollment for service members under the bill.
The TSP launched a program in August 2010 that automatically signs up all new civilian hires to allocate 3 percent of their basic pay to the G fund, unless they choose to end their contributions or change the amount. Participants also receive a 3 percent match and a 1 percent contribution from their agencies, unless they opt out of automatic enrollment. The G fund is the most stable investment of the TSP’s options, while the L funds are a mix of the TSP’s government securities, fixed income bonds, common stock, small cap stock and international stock offerings, and are crafted to help yield higher returns through diversity.
The Federal Retirement Thrift Investment Board, which administers the TSP, last year requested legislation to switch the default fund from the G Fund to the lifecycle funds. The Employee Thrift Advisory Council, which advises the TSP board on investment policies and the plan’s administration and is made up of representatives from employee organizations, unions and the uniformed services, endorsed the legislative proposal in November after initially opposing it.
FRTIB has found that while automatic enrollment has increased TSP participation, new government hires under the age of 29 have too much money invested in the G Fund – likely a result of auto-enrollment’s G Fund default option. The government securities offering, while traditionally very stable, also does not yield very high returns.
In a move that could perhaps put some detractors of the switch at ease, FRTIB announced last year the lifecycle funds would allocate a larger proportion of their total configuration to the G Fund. The board contracted a consulting firm to review its lifecycle fund allocations and opted to make the change in light of the findings.