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New Retirement Proposal For American Workers Modeled After TSP

The National Savings Plan would incorporate many TSP features, including automatic enrollment, low fees and age-based investment levels.

American workers could benefit more from a retirement program modeled on the Thrift Savings Plan, which is available to federal employees, rather than typical private sector 401(k) options, according to a new proposal from a Washington organization.

The Center for American Progress Action Fund, a sister group to the Center for American Progress, outlined on Thursday its idea for creating a National Savings Plan that workers without access to a retirement account would be automatically enrolled in, and which would adjust investment levels based on the person’s proximity to retirement, similar to how the TSP works. The TSP has approximately 4.7 million participants, including lawmakers and military service members.

TSP launched a program in August 2010 that automatically signs up all new civilian hires to allocate 3 percent of their basic pay to the G (government securities) fund, unless they choose to end their contributions or change the amount. In December 2014, President Obama signed into law the Smart Savings Act which changes the default enrollment fund in the Thrift Savings Plan for new hires from the G Fund to the lifecycle (L) funds, designed to move investors to less risky portfolios as they near retirement.

The architects of a National Savings Plan envision a similar structure for a new program available to workers outside of the federal government who don’t have access to a defined contribution plan at work. “The TSP offers simple, easy-to-understand, and sensible investment options and low fees,” said David Madland, senior fellow at CAP’s Action Fund, and senior adviser to CAP Action’s American Worker Project. The NSP “would automatically escalate its initial default salary deferral rate of 3 percent by 1 percentage point per year until reaching an initial cap of 6 percent,” according to the proposal. The analysis assumes an enrollee saves 12 percent of her annual income from age 30 to 67.

Sen. Jeff Merkley, D-Ore., on Thursday introduced legislation that creates a new system based on the CAP Action Fund idea to help workers who don’t have access to an employer-sponsored annuity plan save for retirement.

“This plan helps millions of American workers to save easily and automatically for retirement with tax benefits, rock-bottom fees and the same types of high-quality investment options already enjoyed by federal workers and members of Congress,” said Merkley.

The CAP Action Fund proposal suggested that the savings plan could be run either by the Federal Retirement Thrift Investment Board, which administers the TSP, “or a new sister organization modeled after it—the head of which would be a board of retirement professionals required by law to manage the plan solely in the interests of participants and their beneficiaries.”

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