House approves TSP automatic enrollment measure
The provision would protect board from legal action over automatic enrollment and self-directed funds.
The House passed legislation on Wednesday that would automatically enroll new federal employees in the Thrift Savings Plan and set their contributions at 3 percent of basic pay.
The funds from automatic enrollments would be invested in the stable government securities fund to insulate new participants from any potential large losses. The original version of the legislation would have invested those funds in the TSP's life-cycle funds, which begin with a more aggressive mix of investments and switch to a more conservative portfolio as an employee approaches retirement. Employee advocates had expressed concern that investing automatic enrollment funds in the lifecycle funds would expose employees to more risk than they might be comfortable with.
The bill was rolled into a larger piece of legislation, the Family Smoking Prevention and Tobacco Control Act (H.R. 1108), which also advances a measure that grants federal employees who were hired after 1984 credit for unused sick time in their pension calculations.
The measure makes two other significant changes to the TSP. First, it would require the Federal Retirement Thrift Investment Board to include a Roth Individual Retirement Account option in the plan. TSP Executive Director Gregory Long has said the board is studying whether or not plan participants would select a Roth IRA. Roth contributions are taken out of income that already has been subject to income taxes, while TSP contributions come from pre-tax income.
The measure rolled into the larger legislation also contained a new provision relieving the TSP's fiduciaries of legal liability for allowing plan participants to invest in self-directed investment funds or restricting them from making such investments. The stand-alone bill contained two other liability provisions that were included in the measure passed by the House, one of which blocked federal employees from suing the fiduciaries over automatic enrollment or investing automatic enrollment funds in the government securities fund.
Tom Trabucco, the TSP's director of external affairs, said the board supported the new liability language, which grew out of discussions with Congress.