Savings plan needs options
- By Milt x_Zall
- Jan 23, 2000
Congress is contemplating much-needed changes to the government's voluntary
401(k)-type program, the Thrift Savings Plan, which places too many restrictions
on its clients.
One restriction limits federal workers' options for investing in the
stock market. The TSP only offers the C-fund, which is a Standard and Poor's
500 index fund, and other investments may make more sense to federal workers.
S&P 500 companies have fared well during the past five years, but
they haven't performed as well over the long term as broader market indexes
such as the Wilshire 5000 or the Russell 2000. The Nasdaq market index is
outperforming the S&P 500 by a substantial amount. And what about diversification
The Thrift Savings Board plans to address this lack
of choice, but it has delayed the introduction of new stock investment options
until Oct. 1. Added to TSP investment choices will be the I-fund, an international
stock index fund, and the S-fund, which will track the Wilshire 5000 stock
Another unacceptable limit is the way the TSP handles retirement payments.
When federal employees retire, they can elect to receive a monthly payment
amount of their choice. That's great. But if federal retirees want a different
monthly payment amount a year or two later, there's nothing they can do.
They are committed to the chosen amount.
Rep. Connie Morella (R-Md.) has introduced a reform bill that addresses
other TSP limitations. H.R. 208 includes provisions that would eliminate
the waiting period for newly hired feds to begin participating in the TSP.
The bill also would permit transfers of funds from a qualified retirement
plan of a previous employer to a TSP account. I believe those provisions
are sound and should be enacted.
Senate Republican leaders have said that one of their top priorities
is a military pay and retirement benefits package that includes a provision
to allow military personnel to join the TSP. Their plan is to allow members
of the military to contribute 5 percent of their base pay with no mandatory
employer match, which is exactly what feds who are in the Civil Service
Retirement System can do.
The Republican plan also would allow the armed services to offer matching
TSP contributions to military personnel as a retention inducement in exchange
for a six-year service commitment. It would also allow military personnel
to deposit enlistment or re-enlistment bonuses in the TSP on a pre-tax basis.
Participation in the TSP is on the rise. According to the TSP governing
board's latest plan participation report, from 1997, older and higher-income
federal workers are more likely to invest in the TSP. The report indicated
that 86 percent of federal employees are investing in the TSP, up from 83
percent in 1996. TSP participants are investing a higher percentage of their
salary — an average of 6.8 percent — up from 6.4 percent in 1996.
With this growing interest in TSP, it is more important than ever to
give its users more choices.