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THE Thrift Savings Plan covers more than 4.2 million federal workers, along with members of the uniformed services and retirees.

In just 26 years, with assets now totaling more than $234 billion, the TSP has become the largest defined-contribution retirement plan in the world.

Recently, Gregory Long, the TSP's executive director, appeared before the House Subcommittee on the Federal Workforce to update it on the plan's progress in several areas.

He advised members that IT upgrades are under way to enhance the TSP's infrastructure, and about 76 percent ($99.1 million) of its 2010 budget will be spent to improve security and other vital record-keeping activities.

Long noted that TSP's expenses are not borne by the taxpayer but instead are paid by plan participants.

Currently, the TSP expense ratio is 2 basis points, or 20 cents for each $1,000 in an individual's TSP account. The average expense ratio for similar 401(k) plans in the private sector averages 63 basis points.

TSP's head also discussed progress in implementing several recent legislative changes to the plan.

He reported that all FERS employees should now be receiving agency automatic contributions and, if they are contributing to the TSP, agency matching contributions as well.

Automatic enrollment will come next spring, and new federal civilian workers will then make payroll contributions of 3 percent to the TSP. Employing agencies will forward these contributions to the TSP with an additional 4 percent of basic pay for agency and matching contributions.

Long believes that this new procedure will allow new employees to start saving early and achieve potentially greater retirement savings.

The TSP plans to provide a Roth feature in 2011. That will allow contributions on an after-tax basis, and participants will not pay federal income taxes on any funds they withdraw.

Early withdrawals may still be subject to tax penalties if participants don't meet certain age requirements.

Noting that the president's Labor Day address encouraged workers to invest unused vacation or sick days into their retirement plans, Long advised that under current law, federal employees cannot contribute unused leave to their TSP accounts.

He stated that for this to take place, Congress would have to pass legislation to amend the Federal Employees' Retirement System Act of 1986.

When discussing limits on inter-fund transfers, the TSP executive director noted that these restrictions succeeded in providing more predictable cash flows and offsets.

Prior to the new limits, trading costs for the I Fund ballooned to $16.5 million in 2007 but have fallen to $2.1 million so far in 2009.

Addressing current economic turmoil and uncertainty, Long said he is confident that regular payroll withholding, in good times and bad, helps secure the best average price by dollar cost averaging.

Kevin Wilkinson of Spotsylvania County is a veteran federal employee. Write him c/o Federal Feedback, The Free Lance-Star, 616 Amelia St., Fredericksburg, Va. 22401. Or e-mail
Email: kwlknsn@yahoo.com.

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