House panel casts leery eye toward TSP mutual fund option

The Thrift Savings Plan, on which millions of current and retired Feds stake their life savings and retirement, will be changing in the very near future.

Yesterday, the House Subcommittee on the Federal Workforce, Postal Service and the District of Columbia, held an oversight hearing on those changes to the TSP.

Changes that subcommittee Chairman Steven Lynch (D.-Mass.) says were made possible by recently passed legislation:

Instituting both auto-enrollment, and immediate agency contributions, as well as creating a Roth 401(k) option, and authorizing a mutual fund window.

Greg Long, executive director of the Federal Retirement Thrift Investment Board, told the panel that the foundation for all the changes coming to the TSP will be recently-approved spending for IT infrastructure.

The FY 2010 TSP budget approved by the board just last month demonstrates our committment to infrastructure, security, and other vital record-keeping activities. $99.1 million, or approximately 76% of our total FY 2010 budget, is dedicated to these areas.

In general, changes like auto-enrollment, immediate agency contributions, and creation of the Roth 401(k) option were met with approval by the federal worker witnesses. But one red flag after another was raised regarding the TSP new authority to create a self-directed mutual fund option for plan participants.

Margaret Baptiste is President of the National Active and Retired Federal Employees Association.

While some TSP participants might enjoy this "self-directed option", the administrative costs incurred by funds beyond TSP are typically much higher than our program. For that reason, NARFE is concerned that such a self-directed option could result in federal workers taking on too much risk.

The thrift board's Greg Long estimates that 1-to-4 percent of TSP participants might take advantage of a self-directed mutual fund option, describing that small group as "a vocal minority" who are unhappy with last year's announcement of a monthly limit on the number of changes one can make to an account, or limitations on which firms are included in the indexed funds that make up the TSP.

Other union witnesses expressed concern that, at a time when the TSP is making so many changes, the availability of human resource officers at many federal agencies is dwindling, which means feds may have more trouble getting one-on-one financial advice regarding their investment options.

Following the hearing, Federal News Radio spoke to Chairman Lynch about the concerns over the mutual fund issue. He says history suggests an explanation for the cautionary mood.

In our own experience, there was a group a couple of years ago that REITS, these real estate investment trusts, be part of the menu of options for retirees. And then we all saw those blow up. So we've been a little chastened on the committee. We're much more cautious now about suggesting different investment options available to these retirees.

Lynch promised future oversight hearings as future changes, including an updated TSP website, are rolled out.

Learn more about this and other issues impacting federal pay and benefits this morning in an hour-long conversation with Randy Erwin, the legislative director of the National Federation of Federal Employees. Your Turn with Mike Causey starts at 10:00 am eastern on federalnewsradio.com and WFED 1500 AM.

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On the Web:

House - Subcommittee on the Federal Workforce, Postal Service, and the District of Columbia.

FederalNewsRadio - TSP: Most funds down for October but up for year

FederalNewsRadio - Mike Causey's Federal Report

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