Bullishreturn
06-20-2007, 11:33 AM
Thrift Savings Plan board to seek legislative changes
By TIM KAUFFMAN (tkauffm@federaltimes.com?subject=Question%20from% 20FederalTimes.com%20reader)
June 19, 2007
The board that oversees the Thrift Savings Plan voted Tuesday to seek legislation allowing the plan to automatically enroll new and returning civilian and military employees in the TSP lifecycle funds unless they choose otherwise.
The board also voted to postpone for up to two years any decision to add a Roth 401(k) option to the plan. They also voted to oppose congressional efforts to require the plan to make investment decisions based on social or political considerations.
The legislative proposal would make two changes to new TSP enrollments:
• First, new or rehired employees would be automatically enrolled in the retirement savings program so they would not need to elect to make contributions to TSP. Under the proposal, new employees would have 3 percent of their basic pay automatically contributed to TSP as soon as they begin work unless they complete a form declining to participate. Those who decide they don’t want to participate would have 90 days from the date of the first contribution to stop the contributions and get a refund.
• Second, the default setting — the fund in which participants are enrolled if they don’t select an option — would switch from the G Fund to the L Fund. The G Fund is a government securities fund, while the five L Funds are mixes of TSP’s stock, bond and government securities funds that differ based on when a participant expects to begin making withdrawals. The L Funds’ goal is to provide the highest possible rate of return for the risk taken.
Both changes are supported by plan participants and the Employee Thrift Advisory Council, a group of 14 union and management association representatives and one military representative that advises the Federal Retirement Thrift Investment Board on matters affecting the 3.7 million TSP participants.
Board member Thomas Fink opposed the proposed move to automatic enrollment because he believes some new employees won’t be able to afford losing 3 percent of their take-home pay. Gregory Long, executive director of the thrift board, said those employees would be able to stop the deductions within 90 days of the first contribution without losing any pay.
The board voted unanimously to delay seeking authority to add a Roth 401(k) option to the plan until it can gauge reception to the new option in the private sector. Fourteen percent of large private-sector 401(k) plans made the option available in 2006, the first year it was allowed by law, although just 1 percent of plan participants invested in it, said Long.
The Roth option would allow participants to invest after-tax earnings into an account that grows tax-free and can be withdrawn at retirement without taxes being applied. Participants invest pretax earnings in the current funds, and they must pay taxes when the money is withdrawn.
http://federaltimes.com/index.php?S=2844257
By TIM KAUFFMAN (tkauffm@federaltimes.com?subject=Question%20from% 20FederalTimes.com%20reader)
June 19, 2007
The board that oversees the Thrift Savings Plan voted Tuesday to seek legislation allowing the plan to automatically enroll new and returning civilian and military employees in the TSP lifecycle funds unless they choose otherwise.
The board also voted to postpone for up to two years any decision to add a Roth 401(k) option to the plan. They also voted to oppose congressional efforts to require the plan to make investment decisions based on social or political considerations.
The legislative proposal would make two changes to new TSP enrollments:
• First, new or rehired employees would be automatically enrolled in the retirement savings program so they would not need to elect to make contributions to TSP. Under the proposal, new employees would have 3 percent of their basic pay automatically contributed to TSP as soon as they begin work unless they complete a form declining to participate. Those who decide they don’t want to participate would have 90 days from the date of the first contribution to stop the contributions and get a refund.
• Second, the default setting — the fund in which participants are enrolled if they don’t select an option — would switch from the G Fund to the L Fund. The G Fund is a government securities fund, while the five L Funds are mixes of TSP’s stock, bond and government securities funds that differ based on when a participant expects to begin making withdrawals. The L Funds’ goal is to provide the highest possible rate of return for the risk taken.
Both changes are supported by plan participants and the Employee Thrift Advisory Council, a group of 14 union and management association representatives and one military representative that advises the Federal Retirement Thrift Investment Board on matters affecting the 3.7 million TSP participants.
Board member Thomas Fink opposed the proposed move to automatic enrollment because he believes some new employees won’t be able to afford losing 3 percent of their take-home pay. Gregory Long, executive director of the thrift board, said those employees would be able to stop the deductions within 90 days of the first contribution without losing any pay.
The board voted unanimously to delay seeking authority to add a Roth 401(k) option to the plan until it can gauge reception to the new option in the private sector. Fourteen percent of large private-sector 401(k) plans made the option available in 2006, the first year it was allowed by law, although just 1 percent of plan participants invested in it, said Long.
The Roth option would allow participants to invest after-tax earnings into an account that grows tax-free and can be withdrawn at retirement without taxes being applied. Participants invest pretax earnings in the current funds, and they must pay taxes when the money is withdrawn.
http://federaltimes.com/index.php?S=2844257