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Shows & Panels
Happy Days for TSP Investors
Monday - 6/15/2009, 4:00am EDT
"Horse walks into a bar. The bartender says 'why the long face?'"
Get it? Long face! Horse. Get it?
Now, to the business at hand:
Last week produced some of the biggest wins federal and postal workers have EVER had on Capitol Hill. Think about it.
The Senate approved major (but not all) portions of the House-passed tobacco bill. What both agreed upon, and what the president will sign into law, has an impact on everybody currently working for the government, on future hires and on the spouses of feds with Thrift Savings Plan accounts.
The Senate (final) version of the Tobacco bill:
- Directs the TSP to give investors a Roth option. Those who choose it will be able to invest their money (but not the government match) into a Roth using after-tax funds. There will be no federal taxes on the Roth contributions and earnings when investors withdraw them. Regular (pre-tax) contributions to the TSP will be taxed at the investor's tax rate at the time of withdrawal. The Roth option is huge, especially for younger and mid-career investors who have a long time to (hopefully) see their investments grow with no tax consequences.
- Provides for automatic enrollment in the TSP for new federal hires. Under current rules, new employees can join the optional retirement plan. Under the new provision they will be enrolled in the TSP (with an estimated 3 percent of salary going into the G-fund) unless they opt out, or want more or less invested or want their investments to go to a different fund or funds.
- Provides for an automatic and immediate government match to the TSP accounts of new employees.
- Authorizes the TSP to permit investors to put some of their future contributions, via payroll deduction, into mutual funds outside the TSP.
- Guarantees that the survivor of a federal TSP account holder can keep that account balance in the TSP (with its super-low fees, and super-safe G-fund option). Under current rules that money must be moved out of the TSP, which many top financial planners say is the best 401(k) in the business, into an outside IRA.
So why the long face?
The Senate did not include a variety of House-approved benefits in its final bill. Those changes, which will NOT become law when the Tobacco-bill is signed, include retirement credit for unused sick leave for FERS employees, permitting rehired FERS workers to buy back their service time, allowing CSRS employees to go part-time without any pension penalty, and extension of locality pay to feds in Alaska and Hawaii. That provision was added at the last-minute and some insiders think it dragged down the other proposals.
There is also the outside (as in "very, very remote") chance of a Senate-House conference, but savvy federal lobbyists don't expect that to happen.
To see which proposals didn't make it, click here.
Bottom line: things could have turned out better for feds had the Senate picked up more of the House plan. But it didn't and, as far as the all important TSP is concerned, things turned out pretty well. Many veteran Capitol Hill watchers say this is the biggest victory that groups representing feds have had in decades.
Despite having their biggest wins, maybe ever, last week, many federal workers are unhappy over what Congress didn't do for them.
Nearly Useless Factoid
by Suzanne Kubota
Discovery News reports, "according to new calculations by Italian physicists, a warp drive could easily create a black hole that would incinerate any passengers on a space craft and then suck Earth into a black hole." Happy Monday.
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