TSP Board Approves Auto Enrollment, Default Option

June 20, 2007 (PLANSPONSOR.com) - The federal Thrift Savings Plan (TSP) board has voted to ask Congress to approve the adoption of an automatic enrollment plan feature.

According to a FederalTimes.com news report, the proposal calls for new or rehired civilian and military employees to be automatically enrolled in the plan with a 3% deferral rate. The board is also asking Congress to approve a proposal that auto enrolled employees who do not opt out of participating in the plan have their contributions invested in the TSP’s lifecycle funds – a switch from the current default of the TSP’s G fund containing government securities.

A Washington Post news report said TSP executive director Gregory T. Long told the board  the proposal would increase participation by a few percentage points.

Long also recommended to board members that they not ask for Congressional approval to offer Roth 401(k) accounts in the plan, according to the news reports. Long said he opposed the move because it would be complex and cost millions of dollars to reprogram computer and accounting systems and handle telephone inquiries.

He suggested the board revisit the Roth issue in two years – a delay he said would give TSP staff members adequate opportunity to study possible implementation.

Sudan Divestment

In the other major issue of the day, board members voted to oppose current Congressional proposals that the TSP divest holdings in companies tied to Sudan and Iran. According to the Washington Post report, the board approved a measure objecting to any efforts that would “introduce political or social considerations into TSP investment policy.”

Bills pending in Congress would pressure the TSP to stop investing in companies that do business with Iran or that support, directly or indirectly, the Sudan genocide.

TSP Chairman Andrew M. Saulurged his colleagues to signal lawmakers that the plan should not be drawn into social or political debates – even if the underlying cause has wide support. “Personally, I don’t think this is in the participants’ best interest,” Saul said, according to the Post, noting that making exceptions to address the violence in Sudan and to weaken Iran’s oil and gas industry would create “the wrong precedent.”

According to the Post, Tracey A. Ray, TSP chief investment officer, said a report from the Ennis Knupp & Associates consulting firm showed the TSP would have encountered substantial costs if its international stock index fund, the I Fund, had been stripped of foreign companies that do business in Sudan.

Based on the I Fund’s assets of $25 billion, the TSP would have paid about $30 million in one-time transition costs to create a fund without Sudan investments. It would have returned about $171.5 million less than the I Fund did during the 2001-2006 period, the consultant estimated, according to the Post report.

Earlier this month, the TSP’s Employee Thrift Advisory Council gave its nod to a proposal for auto enrollment, but suspended an endorsement to add a Roth 401(k) option (See Thrift Advisory Council Gives Blessing to Auto Enrollment ).