The TSP in 2009 began preparing for the introduction of a Roth 401(k) plan, which would allow employees to invest income that already has been taxed and therefore would not be taxed upon withdrawal. The Roth option, originally scheduled for January 2012, now will be delayed several months for additional planning and testing, according to Renee Wilder, TSP's director of research and strategic planning.
The TSP already has made major changes to software systems to support the rollout and has provided guidance to agency payroll offices, but a new target date in the second quarter of 2012 will accommodate agencies that need more time to prepare, officials said.
"All of them are working very, very hard to meet our date," said Pamela-Jean Moran, TSP's director of participant services. "These are not small changes. That's one of the reasons we don't want anyone to trail, or be way far out."
The delay also separates the rollout of new Roth-related software from the TSP's high-volume transaction period at the end of the calendar year. More than 9,700 of the plan's 4.4 million participants in December 2010 erroneously received checks for the distribution payments required when investors reach age 70 ½, the result of a software change accompanying the introduction of spousal beneficiary participant accounts.
Board members applauded the success of the TSP's auto-enrollment program, which signs up all new civilian hires to contribute 3 percent of their basic pay to the government securities (G) fund, unless they choose to terminate their contributions, or change the amounts. Since Aug. 1, 2010, 45,442 newly hired federal employees who initially did not elect to participate have been auto-enrolled in the TSP. An additional 66,107 new hires chose to invest in the TSP. The process is capturing 97.5 percent of new federal workers, according to Wilder.
Military personnel are not eligible for auto-enrollment. About 49.5 percent of active-duty service members participated in the TSP in February, while ready-reserve participation totaled 15.4 percent. The overall participation rate for Federal Employees Retirement System enrollees is 84.9 percent.
TSP Executive Director Greg Long said while the auto-enroll process has produced excellent results, they are unlikely to be sustainable.
"This suggests that we would get to an entire plan participation rate at 97 percent," he said. "I don't think that's real. I do think this is the beginning of a long, slow march to 90 percent."
Board members also questioned whether the two-year federal pay freeze would affect employee contributions to the TSP.
"I don't think it's going to have a positive one," Long said. "Does it cause people to retire who otherwise would have waited another year or two? Probably. Does it cause people not to participate? Probably. But I can't quantify that right now."