Opening the Federal Thrift Savings Plan to everyone?

[Peter Gulia]

What do you think about Senator Rubio's idea of allowing non-governmental employees to contribute to (and invest under) the Federal Thrift Savings Plan?

[K2retire]

The available funds are widely reported to be among the lowest cost in the industry. Since my husband retired and moved his money to an IRA I haven't kept up with their returns, but they were pretty much middle of the road in the late 90s and early 00s. The rather generic fund descriptions would probably be helpful to those who are overwhelmed by investment choices that they don't understand. The default distribution is a QJSA that very few participants seem to want, although that seems to be changing since 2008.

As an option for those who are not covered by a workplace retirement plan, I think it has potential.

[Kevin C]

I think it is interesting that a Senator thinks people would be better off under a plan that isn't subject to the rules and participant protections that he and his cohorts have required the rest of us to comply with. As much as I dislike some of those rules, I understand that they were implemented to prevent real and perceived abuses by plan sponsors. Those rules also increase the cost of operating a DC plan.

I also wonder what protections participants have under the federal thrift plan. One of my aunts worked for a large local city in the late 80's and contributed to their DC plan. When she left, they sent her a letter saying that if she did not take a complete distribution within 2 years, her entire balance, including her deferrals, would be forfeited. At the time, I asked an ERISA attorney I knew about it and he said a governmental plan could do that.

[david rigby]

Likely, taxpayers subsidy of administration cost(s).

[GMK]

^ Could we recover some of those subsidies by taxing those persons who do not enroll in the Thrift Plan and do not have other savings that are adequate to provide them with essential retirement benefits? ... just asking. I haven't read the Senator's proposal.

I agree it could be an option for those without a workplace plan, but the Plan literature better have bold print warnings to the unsuspecting citizens about what the protections are under the plan and what rules the Plan doesn't have to follow.

[Peter Gulia]

If one follows Senator Rubio's idea, is there an advantage to an employer?

An employer's role would be limited to sending the contributions; an employer would be excused from responsibility for selecting investment alternatives, selecting service providers, and otherwise administering the plan.

Would anything about Senator Rubio's idea be a disadvantage for an employer?

[GMK]

they sent her a letter saying that if she did not take a complete distribution within 2 years, her entire balance, including her deferrals, would be forfeited. ... a governmental plan could do that.

Peter - If employees received a letter like this unexpectedly, they would be upset with the employer, which would be a disadvantage for the employer, both because the employees will bad mouth the "employer's plan," and because the employer couldn't do anything about how the plan treats participants.

"At no cost to the company," except besides sending in the contributions, the employer would have to keep track of initial and revised deferral amounts or percentages for each employee, add the contribution calculations and amounts to the payroll and tax reporting software, and take the heat if contributions were sent in "late" (however late is defined for this). For a small company, this will be an added burden for the small (and probably overworked) accounting department. For a large company, it's no biggie, but they likely have a better retirement plan in place already.

and what Kevin C said.

[Kevin C]

What about employer contributions? My guess is there would either be a single required level of employer contributions or none allowed. Otherwise, there would be discrimination issues the Thrift Plan has never had to deal with. Can you imagine the fun of trying to keep track of contributions under several million different allocations in a single plan and trying to make sure everything is done properly?

[K2retire]

The TSP actually encourages you to leave money in the plan and annuitize distribution payments at normal retirement age.

[Tom Poje]

here was an article on the issue from the Benefits Link newsletter

http://blog.heritage.org/2014/05/15/qa-americans-join-retirement-plan-members-congress/

[Bird]

Ultimately...it seems not to be a big deal. OK, so if we assume the government continues to subsidize admin costs, folks can save on some fees. But (while I'm very fee-conscious and recognize that small differences in fees can add up), you're probably not talking about a lot of dollars for small savers.

And if you read the comments, you see that it's just an opening for crazies on both sides to vent their misdirected nuttiness. This country is collectively f-ing stupid.

[Kevin C]

I was really shocked to see Blackrock and "low cost" in the same sentence. Then, I followed one of the links and found out how the plan is "low cost".

Expenses are offset by the forfeitures of Agency Automatic (1%) Contributions of FERS employees who leave Federal service before they are vested, other forfeitures, and loan fees. Because these amounts are not sufficient to cover all of the TSP's expenses, TSP participants share in the remainder of the costs.

https://www.tsp.gov/investmentfunds/fundsoverview/expenseRatio.shtml

The published TSP expense ratios are calculated using net expenses after they are offset by forfeitures. Then, they compare it to the average expense ratios of other mutual funds. Anyone can look "low cost" if they exclude most of the fees and expenses they are paying from the expense calculation.

[Tom Poje]

and lobby fees to push this through? (I didn't imply something did I?)