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TSP automatic enrollment explained
Monday - 7/11/2011, 4:56pm EDT
Federal News Radio
New hires under the Federal Employees Retirement System are automatically enrolled into the Thrift Savings Plan.
Tom Trabucco, director of external affairs at the Federal Retirement Thrift Investment Board, said in an interview with Federal News Radio that since the middle of last year, new federal employees, by default, gain access to the government's retirement plan.
"For FERS people, you're automatically enrolled at 3 percent of your pay. That 3 percent that you're putting in generates actually 4 percent of pay in contributions by the government," Trabucco said.
That 1 percent comes from your agency's contribution. Trabucco said, "Whether or not you put your own funds as a FERS employee, you're entitled to that agency automatic 1 percent."
Besides the standard 3 percent of their salary, many employees under their own volition choose to invest even more of their TSP retirement plans. Trabucco said that 85.4 percent of employees under TSP contribute more than 3 percent.
Since 2006, federal employees could contribute as much as $16,500 a year, he said.
The success of TSP rests with the government's cautious investment in indexes, Trabucco said.
"Congress did decide that it wanted to be conservative in setting this up 25 years ago. That's why it selected the index fund approach, because what that does is produce a couple of good results. Congress did not want the federal employees retirement organization to be a market mover," he said.
"Going through index funds means that we are simply tracking all of the market activity that is going on out there, and giving people who are employed by the federal government an opportunity to invest in what is known as a broad index," Trabucco said. "Investing broadly is a way to get average stock market returns which over time have shown that they will grow.
Trabucco said the next step for TSP is to get the word out so employees can capitalize on this retirement investment opportunity.
"What we've done is taken a low-key approach, working very closely with the employing agencies of government and making sure that good educational information gets out there to the eligible pool of participants."
Jory Heckman is an intern with Federal News Radio.
(Copyright 2011 by FederalNewsRadio.com. All Rights Reserved.)