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Thrift Savings Plan: Groups ask about retirement benefits changes

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If federal employees are forced to contribute more toward their civil service retirement benefits, many might have to cut back on their investments in the Thrift Savings Plan, employee organization officials said Monday.

“We’re very concerned about what the reactions are going to be” if the government requires higher contributions, said Clifford Dailing, secretary-treasurer of the National Rural Letter Carriers’ Association. Federal employees’ current needs for money could win out, and “I have very grave concerns they’re going to live for today and not save for retirement,” he said.

NRLCA and other unions, management associations and employee groups are members of the Employee Thrift Advisory Council, which met Monday with the governing board of the TSP, the 401(k)-style retirement savings program for federal employees and retirees and uniformed services members and retirees.

Several members of the council raised concerns about pending legislation to increase required employee contributions toward annuity benefits in the Federal Employees Retirement System and the Civil Service Retirement System. Last week, a House committee approved a bill to raise those contributions by 5 percent of salary, phased in over five years starting in 2013.

That bill could come to a House floor vote soon but is not expected to advance in the Senate.

A separate plan before the House would increase contributions by 1.5 percent of salary over three years. A law enacted this year already requires a 2.3 percent increase for those hired into the government starting next year who have fewer than five years of prior federal service.

Currently, employees under FERS pay Social Security taxes — usually 6.2 percent, but 4.2 percent this year — plus 0.8 percent of salary toward their civil service benefit; those under CSRS pay 7 percent of their salary toward a more generous civil service benefit but don’t receive a Social Security benefit.

“If you increase the amount the employees contribute to their base retirement system, they’re going to reduce the amount they pay into the TSP,” said Myke Reid, legislative and political department director for the American Postal Workers Union. “I think there’s a direct correlation. After you get to 12 percent of salary, there’s very little left to invest in the TSP.”

Reid noted that the FERS system, which covers about four-fifths of executive branch and postal workers, was designed as a three-part system consisting of a smaller civil service annuity, Social Security and the TSP with employer contributions. FERS employees can receive employer contributions equaling up to 5 percent of salary, but only by investing at least that much themselves.

The TSP does not determine the formula for matching investments and has no role in the level of required contributions toward civil service annuities. However, Jacqueline Simon, public policy director for the American Federation of Government Employees, asked the TSP for data that could help gauge whether employees, especially those at lower salary levels, would react to higher contributions toward FERS and CSRS by cutting back on their TSP savings.

“When we tell people about what’s being proposed, that’s the natural response, because it’s a 5 percent pay cut,” Simon said in an interview.

TSP officials said that they plan to issue a report on investment demographics but that it won’t be available for some time. Meanwhile, they said, they could more quickly gather data on relatively new enrollees that might be useful.

About one-seventh of employees under FERS do not invest any of their own money; they receive only an automatic 1 percent employer contribution. About one-third of employees under CSRS, who do not qualify for employer contributions, also don’t invest in the TSP. Lack of available money and the need for access to money before retirement were among the top reasons for not investing that were cited in an employee survey whose results were released at the meeting.

Among those who do invest, the average saving is 10.2 percent of salary under CSRS and 11.6 percent under FERS.

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