Thrift Savings Plan staff gears up to launch Roth option

Program allowing employees to invest income that already has been taxed will be operational in spring 2012.

Federal employee retirement savings funds for October enjoyed "a good month in a tough year for capital markets," in the words of Gregory Long, executive director of the Federal Retirement Thrift Investment Board.

During a Tuesday meeting of the Thrift Savings Plan's Employee Thrift Advisory Council, Long also reported an uptick in the Federal Employees Retirement System participation rate, which stands at 85.4 percent, and progress by TSP staff on implementing the coming Roth 401(k) option, which would allow employees to invest income that already has been taxed.

Long told the board that TSP aims to get the participation rate up to 90 percent. The rate had dropped after the 2009 TSP Enhancement Act brought in more employees through automatic enrollment. He mentioned a recent change in the annual participation statement (5 million of which are mailed out after Jan. 1) to add a number extrapolating an approximate monthly annuity from lifetime income. The idea is "to use some psychology to get people to stop thinking of it solely as a balance and more as a source of future paychecks," Long said.

Half the TSP's staff is involved in a multistage, multiyear effort to set up the Roth plans, expected to be operational in spring 2012. Staff worked this summer and fall to install software for record-keeping of the tax options selected by participants. The next stage will allow participants to transfer funds in from other employers, and the third stage will allow them to transfer money out when they leave the plan.

The effort involves rethinking some 140 forms along with explanatory brochures. The legal team is drafting regulations on TSP Roth that will be presented to the board in December. The board also noted that TSP Roth rules for characterizing the tax status of income and for withdrawing funds differ from those for Roth IRAs.

The advisory board discussed the cuts in federal pay likely to come out of Congress' super committee -- either through a bipartisan deal or a triggered sequestration if the committee cannot agree on a deficit reduction plan. A representative from the American Federation of Government Employees pointed out that TSP's budget is safely outside the core federal budget, but lower salaries probably would prompt federal employees to trim their TSP contributions.