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House easily passes TSP restructuring bill
Tuesday - 7/15/2014, 3:55pm EDT
Special to Federal News Radio
The House voted Monday to change automatic enrollments in the Thrift Savings Plan. Currently, new hires are automatically enrolled in the TSP's G Fund when they become federal employees. Under the Smart Savings Act, passed by the House on a voice vote, new hires would be enrolled in an appropriate Lifecycle Fund (L Fund), an age dependent investment and stock portfolio.
L Funds, also known as target-date funds, are made up of a mix of the TSP's five regular funds, which fluctuate automatically over time to balance risk. Early in an employee's career, L Funds contain a larger share of higher-risk stock funds. As employees near retirement, the proportion shifts more to stable but less lucrative G Fund securities. The rates are set based on the expected decade of retirement.
New federal employees have been automatically enrolled in the TSP's G Fund at a contribution rate of 3 percent of their salaries since 2010. That helped boost new hires' participation in the TSP, according to Federal Retirement Thrift Investment Board officials. But the board is concerned too many younger employees, ostensibly with long federal careers ahead of them, are lingering in the G Fund and not maximizing their returns. Employees in their 20s are investing close to half of their TSPs in the G fund, according to TSP officials.
Last year, the TSP board voted to pursue legislation for automatic L Fund enrollment.
A companion bill has been introduced in the Senate and referred to the Homeland Security and Governmental Affairs committee.
Ariel Levin-Waldman is an intern with Federal News Radio