TSP Board Meeting- from Govexec.com

[James48843]

From Govexec.com today:

TSP moves forward on spousal benefits, IT modernization

By Alyssa Rosenberg arosenberg@govexec.com
June 30, 2008


The Thrift Savings Plan is on track to undergo a major technology modernization and is moving forward with efforts to allow spousal beneficiaries to keep funds in the TSP. But changes to the plan's offerings and the enrollment process were the subject of debate at the first joint meeting of the Employee Thrift Advisory Council and the Federal Retirement Thrift Investment Board on Monday.


While the proposal to allow the spouses of deceased federal employees to continue managing their TSP funds instead of withdrawing them within 60 days would bring the system in line with many private sector plans, it would require the full implementation of other technical upgrades, said Renee Wilder, director of the Office of Research and Strategic Planning at FRTIB.


Thomas Trabucco, the director of external affairs, said more research would have to be done on the tax implications of spousal accounts as well.
"Implementing spousal accounts will touch almost all of the elements of the TSP system and require some significant changes," Wilder said. "We do have some significant homework to do, and we think it's sometime next year that we can say what the timeline is and what the real costs are."


Board Chairman Andrew Saul said spousal benefits should be a high priority and pushed Gregory Long, the plan's executive director, to move quickly on the issue. Creating a spousal benefit requires congressional approval. The Employee Thrift Advisory Council voted unanimously at the meeting to urge Congress to move forward on the issue.


House Oversight and Government Reform Chairman Henry Waxman, D-Calif., ranking member Tom Davis, R-Va., and Federal Workforce Subcommittee Chairman Danny K. Davis, D-Ill., sent a draft bill to the Thrift Investment Board in May, sparking great debate between the board and council members. That legislation would automatically enroll federal employees in the TSP, default those automatic investments into the life-cycle funds, create a Roth Individual Retirement Account option for plan participants, and give the board the authority to create funds for the plan without congressional approval.


James Sauber, chairman of the Employee Thrift Advisory Council and chief of staff of the National Association of Letter Carriers said those members were "dead-set against" any proposal that would give the board the authority to add funds without approval.


"We think this could create a situation where this plan could spin off in a direction that no one intended," he said. "There's a theory to this plan, that it's broad-based, low-cost index funds.... This is an unelected board. This is something that the participants in the plan should have a say in. We [ETAC] have no real power. We can't veto a decision if we don't like it."


Saul said he did not want to see changes to the current process of adding funds, and any change that eliminated chances for input from plan participants and Congress would be "a very big mistake."


Council members also said they were concerned about making the life-cycle funds the default option for automatic enrollment investments. Those funds are designed to produce gains by a certain year, but experience greater fluctuations than other index funds in the TSP.


"If you're going to automatically enroll a quarter-million 18- to 24-year-olds, some number of those won't know they were put in, didn't know they were in [and] didn't want to be in. And we don't want to be in a position of telling them 'we're sorry we invested your money in a 2040 fund, and we can only give you 90 percent of it back,' " said Chuck Witschonke, deputy director for compensation at the Defense Department.


Jacqueline Simon, director of public policy for the American Federation of Government Employees, said the risk of a life-cycle fund default setting was particularly significant because federal employees only rarely take advantage of financial education opportunities and might not be aware of the differences between life-cycle and other funds.


Members of the advisory council and board staff both said more research was necessary to see if TSP participants would actually enroll in Roth IRAs.
The discussion on improving the functionality and security of the TSP's information technology infrastructure was less controversial.


"When we took over, we were totally based in New Orleans. There were backup systems, but it would have taken six months to get them up and running," said Saul. "We were housed in one building that is no longer there, so we're fortunate we got out of there....The really big changes happened over the last six years; this is a continuation of the process."


Mark Hagerty, chief information officer for the Federal Retirement Thrift Investment Board, said the current modernization process was focused on eliminating redundancy and maintaining continuity of operations in case of an emergency, cyberattack or an event that spurred extremely high trading.


Among those measures, the board has moved operations to two centers, one based in Reston, Va., and a backup in Pittsburgh. The backup center does not run at full capacity at all times to keep costs low, but it can be brought up to operate in the event that something happened to the Reston center, ensuring continuity of operations and guaranteeing that no more than 59 minutes of data would be lost, Hagerty said.


"Business assurance and business continuity are baked into the process," Hagerty said. "When we think of any kind of change, it's not one, it's two. Anything that's done at Reston is done in Pittsburgh, and it's done at the same time."


The board has brought on an IT security-certified staffer to oversee the TSP's security program and hired contractor personnel to help out. The board also is exploring enterprisewide security solutions to ensure more seamless protection and to minimize the effects on plan users, so federal employees would not have to adapt to more changes like the 13-digit user identification numbers implemented last year.


Board member Thomas Fink said plan participants constantly are reminded to safeguard their Thrift Savings Plan information and to be alert to security breaches.


"It has to be emphasized that the members have responsibility to look at their quarterly statements to see if something doesn't look right," Fink said. "People tend to get bank statements and put them on the desk."


Sauber said he was grateful for the joint meeting, and hoped the nominations of some board members, which have not yet been voted on, would be resolved quickly.


Saul agreed: "I thought this was a really good experiment. I learned a lot."

From: http://govexec.com/story_page.cfm?ar...dcn=todaysnews

[squalebear]

It's my understand that the contributions you pay into the FERS Pension
Plan are not subject to Federal Tax because they are mandated to be
taken out of your biweekly check. I believe they called the Pension a
"Contributory" Plan due to the mandatory contributions.

In a somewhat related manner, wouldn't the TSP (if participation was
mandated) become a "Contributory" plan. If so, when we withdraw our
monies, wouldn't our contributions be a Tax Free Portion of any such
withdraw.?

Or am I comparing apples to oranges ?

[alevin]

It's my understand that the contributions you pay into the FERS Pension
Plan are not subject to Federal Tax because they are mandated to be
taken out of your biweekly check. I believe they called the Pension a
"Contributory" Plan due to the mandatory contributions.

In a somewhat related manner, wouldn't the TSP (if participation was
mandated) become a "Contributory" plan. If so, when we withdraw our
monies, wouldn't our contributions be a Tax Free Portion of any such
withdraw.?

Or am I comparing apples to oranges ?

Squalebear, I'm a FERS employee. All my "contributions" are pretax, including the 1% FERS, as well as additional I put into TSP voluntarily. That means that any withdrawals, contributions or earnings, that come out for income purposes (rollovers to IRAs and loans don't count), it will be taxed as ordinary income, since I've never paid tax on any of it up to that point. Hope that helps.

[squalebear]

Squalebear, I'm a FERS employee. All my "contributions" are pretax, including the 1% FERS, as well as additional I put into TSP voluntarily. That means that any withdrawals, contributions or earnings, that come out for income purposes (rollovers to IRAs and loans don't count), it will be taxed as ordinary income, since I've never paid tax on any of it up to that point. Hope that helps.

Thanks Alevin, your information is appreciated. Its understood that all
our contributions are from pre-tax dollars. While reading the Tax Laws
concerning Pensions, I found that mandatory contributions within FERS
is tax free upon withdraw. The 1.3% of my FERS Pension Contributions
will accumulate to $13606.00 and the OPM website has a calculator to
figure out how much of your pension is Tax Free. The IRS calls this type
of pension a "Contributory" pension.

With That In Mind;

The Thrift Savings Board is considering New Mandatory Participation with
(default) Mandatory Contributions to the L-Fund. I was wondering if this
policy came to be, would the TSP be looked at like a "contributory plan"
and thereby making our contributions taxable. Just like they do in FERS.
This is nothing more then food for thought and totaly hypothetical. Of
coarse, I'm always mixing up Pension Plans with 401k's. Maybe thats
where the confusion came in when I originally posed the question.

[EW_ret]

The mandatory contribution to FERS (0.8%) is taxed so when you start receiving your FERS pension this money is not taxed. Therefor, a small amount of the FERS pension is not taxed because it is a return of your FERS contributions.

When TSP contributions become mandatory for new employees, the contributions are tax-deferred. The employee can always stop the contributions, and I belive have the money returned within the initial six months.

[squalebear]

The mandatory contribution to FERS (0.8%) is taxed so when you start receiving your FERS pension this money is not taxed. Therefor, a small amount of the FERS pension is not taxed because it is a return of your FERS contributions.

When TSP contributions become mandatory for new employees, the contributions are tax-deferred. The employee can always stop the contributions, and I belive have the money returned within the initial six months.

I'm comparing apples to oranges !
FERS Contributions are 1.3% for Law Enforcement.
Thanks EW_ret

[luv2read]

New hires will be able to opt-out of TSP and/or the L Funds - just like we can. The issue is RETIREMENT EDUCATION during new employee orientation. They will be AUTOMATICALLY enrolled unless they choose to opt-out, and this needs to be made clear to them by their HR office when they are hired.

[camper65]

New hires will be able to opt-out of TSP and/or the L Funds - just like we can. The issue is RETIREMENT EDUCATION during new employee orientation. They will be AUTOMATICALLY enrolled unless they choose to opt-out, and this needs to be made clear to them by their HR office when they are hired.

Gee-Wizzzz, and deny the government the chance to grab more cash out of the G fund?
Automatic enrollment will either be buried in small print or be declared a sacrament from God!

[alevin]

The mandatory contribution to FERS (0.8%) is taxed so when you start receiving your FERS pension this money is not taxed. Therefor, a small amount of the FERS pension is not taxed because it is a return of your FERS contributions.

Thanks for , EW_Ret, I must be really slow, thought I had this straight in my head after 20 years...., I tend to forget that the 0.8 for the "basic annuity" (first leg of FERS tripod) is separate from the 1% auto TSP gov contribution. You refer to the 0.8% tho as my FERS contributions, which I never have referred to that part (the basic annuity part), as my FERS "contributions". Partly a semantics problem, I suspect tho. The TSP site only seems to refer to the govt TSP 1-5% (auto and matching) and my voluntary TSP, as "contributions" and talks about them as pre-tax, to be taxed on withdrawal. Not trying to argue, tho. Yours and Squale's responses were helpful, considering ...

I don't think I ever really understood before, that any part of the 0.8 (basic annuity) was considered part of current taxable income, don't think I've ever read that explicitly anywhere in FERS literature. Could you point me to somewhere on FERS/TSP sites, or can I figure that out from my pay statement somehow?

And Squale, you made reference to an OPM calculator that helps us figure out what part of the basic annuity+TSP retirement payouts would be non-taxable. I've searched all over the OPM website since yesterday looking for that calculator, couldn't find it. Would you be kind and post that link here or in your thread? In any case, I do thank you and EW for not nailing my hide to the wall too forcefully.

[squalebear]

Thanks for , EW_Ret, I must be really slow, thought I had this straight in my head after 20 years...., I tend to forget that the 0.8 for the "basic annuity" (first leg of FERS tripod) is separate from the 1% auto TSP gov contribution. You refer to the 0.8% tho as my FERS contributions, which I never have referred to that part (the basic annuity part), as my FERS "contributions". Partly a semantics problem, I suspect tho. The TSP site only seems to refer to the govt TSP 1-5% (auto and matching) and my voluntary TSP, as "contributions" and talks about them as pre-tax, to be taxed on withdrawal. Not trying to argue, tho. Yours and Squale's responses were helpful, considering ...

I don't think I ever really understood before, that any part of the 0.8 (basic annuity) was considered part of current taxable income, don't think I've ever read that explicitly anywhere in FERS literature. Could you point me to somewhere on FERS/TSP sites, or can I figure that out from my pay statement somehow?

And Squale, you made reference to an OPM calculator that helps us figure out what part of the basic annuity+TSP retirement payouts would be non-taxable. I've searched all over the OPM website since yesterday looking for that calculator, couldn't find it. Would you be kind and post that link here or in your thread? In any case, I do thank you and EW for not nailing my hide to the wall too forcefully.

First FERS Pension is called a Annuity. Not much different then the TSP
annuity they offer. The Link you requested is as follows;

http://apps.opm.gov/tax_calc/index.cfm