BOSTON — A retirement savings plan that covers more than 3.7 million federal workers may take a page from an increasing number of corporate 401(k) plan sponsors and institute automatic enrollment.
If adopted, auto-enrollment would mean that new federal workers — among them senators, postal workers, janitors and military personnel — would have to opt out of the Thrift Savings Plan instead of opting to participate in the plan.
Some of those who don’t participate would participate if it weren’t for inertia, said Gregory T. Long, executive director of the Federal Retirement Thrift Investment Board in Washington, which oversees the plan. “Because we understand that, and we want to help our participants plan for retirement, we’re considering using automatic enrollment,” he said.
The Thrift Savings Plan had assets of $219 billion as of April 30.
The Pension Protection Act of 2006 encourages auto-enrollment, and a number of companies have adopted it. When Congress created the Thrift Savings Plan in 1986, however, it required that workers sign up to participate.
“Legislators on Capitol Hill really recognized that inertia is a problem and that automatic enrollment is one way to take inertia and the power of that and use it for a beneficial effect,” Mr. Long said. “We do look at the policies and practices of 401(k) plans across the country when we’re considering changes,” though the Thrift Savings Plan isn’t technically a 401(k) plan.
Whereas corporate 401(k) plans choosing to adopt automatic enrollment can do so readily, Mr. Long and other officials who oversee the Thrift Savings Plan would need to seek legislation. “We would need an act of Congress,” he said. But first, Mr. Long is set to meet June 12 with an advisory group comprising the 15 largest unions and associations that represent federal and postal em- ployees to discuss auto-enrollment and other issues. They include the American Federation of Government Employees, the American Postal Workers Union and the National Treasury Employees Union, all of Washington. Of all the workers eligible to participate in the plan, those in the uniformed services, including active-duty and ready reserve personnel, have the lowest participation rates at 25%, or 553,000 people, Mr. Long said.
By contrast, workers who fall under the Federal Employees Retirement System — which includes mail carriers and
Internal Revenue Service workers hired since 1984 — had a participation rate of 86.2% as of April, he said.
“Certainly here, we care very much about their retirement, but they might not be putting that first, and we understand why,” Mr. Long said.
But auto-enrollment does indeed appeal to those in the uniformed services. Based on conversations she has had with service members, auto-enrollment sounds like a good idea to them, said Jessica Perdew, deputy director of government relations at the National Military Family Association, a private non-profit group based in Alexandria, Va.
“We see a lot of positives to it in terms of those folks who maybe have even intended to sign up and just haven’t gotten around to it because there is a step involved,” she said. “There might be a little bit of push-back just because there is an entire group of folks who don’t want to be told what do to with their money.”
Still, the concept resonates with at least one financial planner. Auto-enrollment is a “great idea,” said Patrick Beagle, managing owner of Providium Financial Planning LLC, a Fairfax Station, Va., firm where federal workers and military personnel make up nearly 100% of the client base.
“We’ve already seen these kinds of changes take place in many of the private-sector plans,” he said. “It’s not anything new or novel, and it has a proven track record of working.”
Unlike Federal Employees Retirement System workers, military personnel don’t receive matching contributions from the Thrift Savings Plan; however, it still makes sense for most people to contribute to the plan, Mr. Beagle said.
“If a [military] member stays for 10 years in service, and they walk out the door, they don’t have anything; there’s no pension,” he said. “There’s no vested asset that they have other than that TSP.”
In addition to auto-enrollment, whether to use the Thrift Savings Plan’s L Funds, or life cycle funds, as default options also is slated for discussion at the June 12 meeting.
Federal Employees Retirement System workers receive a contribution to the Thrift Savings Plan ac-count equal to 1% of their basic pay each pay period once they are eligible.
Currently, when the plan doesn’t receive direction from a participant, the money defaults to the plan’s “G Fund,” which comprises U.S. Treasury securities.
The Thrift Savings Plan offers L Funds in 10-year increments ranging from 2010 to 2040, plus an income fund. The L Funds are age-appropriate asset-allocation products based on passively managed, commingled funds run by
Barclays Global Investors of San Francisco.
Thought also is being given to adding a Roth-type feature to the Thrift Savings Plan, Mr. Long said. Participants who choose it would make after-tax contributions, and withdrawals after retirement wouldn’t be subject to federal income tax.
