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Federal Eye
Posted at 02:41 PM ET, 02/09/2012

Investment of leave payments considered

Federal employees could invest in their retirement savings program the value of unused annual leave to their credit when they separate from employment, under a bill that could reach a House floor vote next week.

The language is part of a highway funding bill that also contains provisions previously passed by the House to increase the required employee contributions toward their annuity benefits and to create a new, less generous retirement program for those hired starting in 2013, among other changes.

Federal and postal employees invest in the 401(k)-style Thrift Savings Plan through payroll withholding and cannot contribute lump-sum amounts with one exception: They may transfer into the program funds from similar retirement savings plans of prior employers.

Congress for several years has considered allowing employees to invest the lump-sum annual leave payments they receive on separation, but prior proposals did not advance. The issue was raised most recently last summer in a House subcommittee hearing, where a TSP official noted that many similar private-sector plans offer such investments.

Federal employees typically may carry up to 30 days of unused annual leave from one year to the next, although the limit can be higher in certain situations. The additional amount they receive each year varies with length of service, with employees with 15 years or more getting 26 days a year. The value of unused annual leave is paid as a lump-sum when they separate for retirement or other reasons.

If the proposed change becomes law, the combined investment of annual leave and payroll withholding would have to remain within the maximum that participants can contribute toward their retirement savings in a year, currently $17,000, and there would be no matching contributions from the government, the official said at the hearing.

The TSP meanwhile has released further information on its upcoming introduction of a Roth investment alternative, following publication Wednesday of proposed rules to allow that form of investing as early as April. The TSP said, for example, that existing account balances that were invested on a pretax basis could not be converted to Roth status. In a Roth design, investments are made with after-tax money that is tax-free along with its earnings on withdrawal if certain conditions are met.

The TSP also specified that a participant’s decision on how to allocate new investments among the available investment funds, as well as a decision to move existing money among the funds, would apply to both traditional and Roth balances.

By  |  02:41 PM ET, 02/09/2012

 
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