Recently, members of Congress reintroduced the idea of opening the government-employees-only Thrift Savings Plan (TSP) to all Americans not currently covered by an employer-sponsored plan. Right now, that number is estimated at 78 million U.S. workers. According to the Bureau of Labor Statistics, as of early 2013, 68% of all workers had access to a defined benefit (DB) or defined contribution (DC) plan and 54% were enrolled. The vast majority of workers not covered are part-time or seasonal employees. The government recognizes that help is needed, and the TSP proposal is the latest attempt.
In place since 1986, the Thrift Savings Plan (TSP) has provided federal employees and military service members with retirement savings. It is a defined contribution plan, similar to 401(k) plans offered by corporations. A governing board, consisting of six people who are presidentially appointed, administers the plan. A variety of issues should be considered with this proposal, but there are a few important advantages and disadvantages.
• The most important aspect of this proposal is that it would provide payroll-based savings to millions of American workers—people who do not now have access to employer-sponsored retirement savings accounts.
• The Thrift Savings Plan is a simple plan with an auto-enrollment feature, six investment choices, and low fees.
• Because it is run by government agencies, taxpayers are technically funding the costs of the plan, so opening it to all Americans is a fair proposal.
• Increasing the TSP population this significantly would have a profound impact on the retirement savings industry that is hard to predict. Both private and government providers may benefit from increased competition.
• Administration of the TSP would require a major upgrade at a minimum, and possibly an entirely new system.
• With TSP membership this massive, government agencies would have a greatly increased, more powerful role in the retirement savings industry, and selection of investment fund options might take on a political element (at least the perception of such). This is the biggest concern that has been voiced.
• Potential compliance issues would be introduced as the TSP is exempt from ERISA and Internal Revenue Service regulations that govern the private sector. Independent review/oversight of the TSP would have to be in place. The TSP is required to adhere to regulations under the Federal Employees’ Retirement System Act (FERSA). These regulations are more lax.
• The conservative investment options offered by the TSP deliver the security and returns associated with long-term Treasuries, which are not protected against inflation.
All employees deserve the availability of a retirement savings plan. The difficulty lies in determining the best option to accomplish that goal. Inviting American workers not covered by an employer-sponsored plan to the TSP may not represent the best solution. The administration-sponsored “myRA” is already taking a step in that direction. This starter retirement account offered by the Department of the Treasury gives workers access to the most conservative of the six TSP funds, the G fund. MyRA will serve as an important first attempt, on a manageable scale, and will provide important input to the comprehensive solution. The time may be right for Congress to undertake a complete review of this area. Hopefully, employers will be included in these discussions.