June 4, 2009
Planning for the death of a loved one is not pleasant, but it is necessary.
Administrators with the Thrift Savings Plan would like to add an option that would make the financial transition for the surviving spouse of a TSP enrollee easier and more beneficial.
So-called spousal accounts would allow the surviving spouse to continue the TSP account after an enrollee has died. Currently, the beneficiary can inherit the money in the TSP account -- but he or she must withdraw it and deposit it into a private account. Members of the Employee Thrift Advisory Council said access to such accounts should be similar to other benefits available to a surviving spouse, such as the defined benefit plan.
Tom Trabucco, the TSP board's external affairs director, said officials investigated the issue after ETAC brought it to their attention, and found that many private retirement plans offer similar benefits. Establishing spousal accounts would not cost the TSP much, he added. The challenge largely will be to educate beneficiaries, who in most cases will not be former government employees, about the TSP's rules and federal government processes, Trabucco said.
Congress has not voted on legislation creating spousal accounts, but the idea was approved unanimously by the Federal Retirement Thrift Investment Board and could be added to a larger bill which includes many changes to the TSP system.
Here are the answers to some common questions about spousal accounts:
When would these changes take effect?
The TSP board cannot act until Congress does. If the spousal accounts are approved by Congress and signed by the president, Trabucco estimates the time needed to implement the program will be much shorter than the expected two years it will take to create a Roth 401(k) option, which the House passed and the Senate is reviewing.
How do enrollees ensure their surviving spouses will be able to use the accounts?
Enrollees automatically will have the option for a spousal account, Trabucco said. TSP enrollees simply must designate the surviving spouse as a beneficiary in the case of death -- something they do already under the program's current rules.
What are the advantages of a spousal account?
Convenience, mostly. TSP officials assume the surviving beneficiary will be familiar with the plan and won't change it. They also say their plan has the lowest administrative costs of any retirement investment -- an advantage they believe will appeal to survivors.
Who can take advantage of such accounts?
The beneficiary must be the enrollee's spouse, pertaining to the government's standard definition of spouse. Of course, that definition has been hotly debated, and could change.
Can a survivor still receive government contributions?
No. Government contributions to TSP accounts match only employee contributions. If the survivor is a government employee, then the account can be rolled into his or her existing TSP account.
What changes can a survivor make to an account?
Survivors can change which funds a TSP account is invested in. Those options include the five basic funds, as well as the five life-cycle funds. If Congress approves the creation of a mutual fund window, a spouse likely would be able to invest in that as well.
June 4, 2009