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Thrift Savings Account
Thrift Savings Plan Could Use More Options, Workers Say
By
Stephen Barr
TIPS. Bonds. Roth 401(k) accounts. These are among the investment options
that government employees would support adding to the Thrift Savings
Account Plan (TSP),
according to a survey released yesterday.
The survey was the first since 1991 to query civil service employees,
postal workers, military personnel and others in government about their
satisfaction with the TSP, a 401(k)-type retirement program that has $206.6
billion in assets.
The survey, released at a meeting of the Federal Retirement Thrift
Investment Board, found that thrift plan participants are generally more
satisfied with the plan than private-sector employees are with their 401(k)
plans. But could it be better? The survey included questions on potential
changes to the TSP to gauge employee interest in changing the plan's design
and options.
The Thrift Savings Account Plan offers four primary stock and bond index funds and a government
securities fund. It also includes five life-cycle funds, where participants
select an investment mix of the primary funds that are weighted to minimize
market risks as they move closer to when they expect to draw down their
savings.
The thrift board has been considering new rules and investment options
for the Thrift Savings Account for much of the past year, in part because of recent changes to
pension law and because some members of Congress and the National
Association of Real Estate Investment Trusts have pushed for adding a real
estate fund as a way of helping government employees diversify their
portfolios.
The board is interested in modifying the Thrift Savings
Account, which operates as an opt-in
system, so that new federal employees and military personnel are
automatically enrolled, in hopes that it will encourage employees to get in
the habit of saving for retirement. Sixty-six percent of survey respondents
were in favor of that change to the TSP.
Employees surveyed also supported adding new investment options. Sixty
percent said providing a Roth 401(k) account would make the TSP a better
program, and 46 percent said offering a wide selection of investment options
would improve the plan.
With a Roth option, participants would make contributions with money that
had been taxed, but the contributions would grow tax-free and account
balances could be withdrawn tax-free. Employees investing in the current Thrift Savings
Account
funds contribute pretax dollars and pay taxes when they withdraw their
savings.
The strongest supporters for adding a Roth option came from the military
and other uniformed services, the survey found. For many in the military,
current incomes and tax rates may be as low or lower than their expected
incomes and tax rates.
The survey also found support for several other investment options,
including a Treasury Inflation-Protected Securities (or TIPS) fund, an
emerging-markets bond fund and an international bond fund.
Gregory Long, who headed up the survey project as the thrift
board's director of product development, suggested that the cost of new
funds should be considered in any debate on whether to expand the TSP.
The TSP funds cost participants about $4 a year for every $10,000 they
have in their accounts. "If new funds are added to the Thrift Savings
Account, they might have
expenses that are significantly higher than this," the survey report said.
In the survey, 19 percent disagreed that adding options would make the
program better, and most in this group signaled that they were not
interested in expanding TSP options if it increased administrative and other
overhead costs.
Despite concerns about costs, many survey respondents appear interested
in adding investment options. For example, of those who believe expanding
the Thrift Savings Account will make it a better program, 59 percent support adding a TIPS fund
"if costs are the same" and 35 percent favor adding TIPS "even if costs are
higher." TIPS are tied to the consumer price index, eliminating the risk of
inflation eroding the investment.
Of the respondents favoring an expanded TSP, 53 percent supported adding
a real estate investment trust fund if costs stay the same and 35 percent
favored the real estate option even if costs were higher.
The survey was conducted by mail in November, and 3,467 TSP participants
completed it, a response rate of 20 percent. While the rate was lower than
Thrift Savings Account Plan officials expected, Long said the results were "representative of what
people think." The survey's margin of error was 1.7 percentage points.
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