Pay & Benefits Watch Pay & Benefits WatchPay & Benefits Watch
Key developments in the world of federal employee benefits: health, pay, and much more.

A quicker TSP start

New federal employees will be able to contribute money to Thrift Savings Plan accounts as soon as they start working, under a law passed by Congress last year. But employees still have to wait for up to a year to begin receiving matching contributions from their agencies. Under the new law, employees hired before July 1 will be able to sign up for the TSP during the open season that runs from May 15 to July 31. Employees hired after July 1 will be able to sign up as soon as they start working. Before the new law, new employees couldn't participate in the TSP until the end of the second TSP open season after they were hired. That meant some employees had to wait up to a year to open TSP accounts and start saving for retirement. The typical private sector firm allows employees to open 401k accounts within the first three months of employment. The change in the TSP makes the government more competitive with private firms in the battle for talented workers, said Rep. Connie Morella, R-Md., the sponsor of the new law. But private sector employers also usually start providing matching contributions to 401k accounts as soon as employees start contributing. Under the new rule, federal workers still have to wait two open seasons before they receive matching contributions from their agencies. Employees also have to wait that long before the government's 1 percent automatic TSP contributions kick in. At the March 12 monthly meeting of the Federal Retirement Thrift Investment Board, which runs the TSP, board executive director Roger Mehle said the board would prefer that the matching and automatic contributions begin immediately, just like employee contributions. The cost, which would be borne by agencies, would be $90 million over five years, the board estimates. The cost of the idea has been a stumbling block in the past. In its 2001 budget proposal, the Clinton administration recommended that matching contributions begin immediately. Congress did not bite. Morella said on Friday that she would support legislation to make matching contributions start as early as employee contributions. But no legislation for the idea has been introduced this year. Healthy, Happy Retirees One benefit of the Thrift Savings Plan is that contributions are tax-deferred. Federal employees also get to make their health insurance premium payments as pre-tax income, lowering the hit they take in taxes each year. Insurance premiums' shift from taxable income to pre-tax income took place last October under one of President Clinton's executive orders. Now federal retirees, represented on Capitol Hill by the National Association of Retired Federal Employees, would like to pay their health insurance premiums out of pre-tax income. Federal employees are among the few employees in the country who can take their health insurance with them into retirement. While the President could use an executive order to make employees' premiums pre-tax income, it would take a change in law for federal retirees to enjoy the same benefit. So Sen. Susan Collins, R-Maine, introduced a bill (S. 561) this week that would extend pre-tax health premiums to federal retirees. Rep. Tom Davis, R-Va., introduced the same bill last year, but has yet to reintroduce it this year. More Hill Happenings Several other pay and benefits related bills were introduced since last Thursday.
  • H.R. 1090, introduced by Rep. Tom Davis, R-Va., to improve retirement benefits for assistant U.S. attorneys.
  • H.R. 1049, introduced by Rep. Rob Andrews, D-N.J., allowing federal employees to obtain health insurance coverage for dependent parents through the Federal Employees Health Benefits Program.
  • H.R. 1073, introduced by Rep. Barney Frank, D-Mass., to improve retirement benefits for federal retirees who make less than $2,000 a year and are affected by Social Security's windfall elimination provision.
  • S. 529, introduced by Sen. Max Cleland, D-Ga., to improve wages for certain Department of Defense prevailing rate employees in Georgia.

Brian Friel is founder of One Nation Analytics, an independent research, analytics and consulting firm for the federal market.

Close [ x ] More from GovExec