Lawmakers Propose Sweeping TSP Changes

May 21, 2008 ( -A new proposal would allow the federal Thrift Savings Plan (TSP) to institute wide-ranging changes including adding additional investment options on its own, starting auto enrollment with a target-date fund default and adding a Roth option and a mutual fund window.

The Washington Post reported that the sweeping bill submitted Tuesday to theFederal Retirement Thrift Investment Board retirement savings program by three members of the U.S. House of Representatives would change the traditional arrangement for adding to the TSP. The current arrangement reserves the right to approve any new investment vehicles.for Congressional lawmakers. 

The Post said one TSP official has previously been reluctant to change the traditional procedure. Board ChairmanAndrew M. Saul said the current “checks and balances” approach allows TSP staff to recommend changes that have to be approved by both board members and Congress.

In addition to putting in place an auto enrollment program with a target-date default (the current default is a short-term government securities fund), the House proposal allows the addition of the mutual fund window permitting TSP participants to invest in outside fund offerings most likely for an additional fee, the Post said.

Saul said he doubted that the TSP could implement the suggested Roth option before at least a year to 18 months because the agency needs to finish an ongoing systems upgrade.    Last year, the thrift board approved more than $81 million in spending to improve its systems and recordkeeping activities, the Post said.  The newspaper said the TSP board favors auto enrollment with a target-date default (See  TSP Board Approves Auto Enrollment, Default Option ).  

However, the Post said the thrift board has been less enthusiastic about expanding the investment choices in the TSP, which offers stock and bond index funds. Officials want to keep a lid on the program’s operating costs and stress that the current lineup of funds covers the major U.S. and international market sector,

Updating the TSP

The newspaper said the proposed measure came to the TSP from Representatives Henry A. Waxman (D-California), Danny K. Davis (D-Illinois) and Tom Davis (R-Virginia).   Waxman is chairman of the House Oversight and Government Reform Committee, while the other sponsors are also members of the panel.

“We regard the TSP as the premier retirement savings program in the nation,” the three said in a letter to Saul, quoted in the Post news account. “But we also recognize that the law creating the TSP was enacted over 20 years ago and has been only infrequently updated. The provisions in the discussion draft reflect ideas for modernizing and strengthening the TSP that we believe merit additional consideration.”

For their part, TSP officials said they need time to determine whether such a feature would have broad appeal and how much it would cost to set up. “Our position on Roth is that we need to do some homework,” Gregory T. Long chief executive of the TSP, told the Post.

Long said the TSP will survey participants about the services and choices they want and whether participants would be willing to pay extra for certain investments. But he added: “We are a long way from going down this road,” the Post said.