Roth plan faces delay, accounting service says

April 20, 2012

The Defense Finance and Accounting Service, which provides payroll services to three large departments apart from Defense, plus several smaller entities including the White House, has said it will not be ready for the start-up next month of the Thrift Savings Plan’s new investment alternative.

The TSP, which received authority for Roth-type investing three years ago, recently announced that it will begin accepting such investments by May 7. But it added that some agency payroll providers might not be ready by then to distinguish between traditional and Roth investing when they forward employee money to the TSP for investment. Until a payroll office can separate the two, investments must be made with the TSP’s traditional tax treatment.

Under the TSP’s traditional design, investments are made with pretax money that is taxable along with its earnings on withdrawal. Roth investments are made with after-tax money that is tax-free along with its earnings on withdrawal, as long as certain conditions are met.

The TSP doesn’t have a list of agencies that won’t be ready, spokeswoman Kim Weaver said.

“There are more than 100 payroll offices that provide payroll deductions to the thrift plan, and many of those payroll offices ser­vice more than one agency,” she said.

One of those providers is DFAS, best known as the pay distributor for active and retired military personnel and for civilian employees of the Defense Department. It also provides payroll services for the Energy, Veterans Affairs, and Health and Human Services departments, as well as for the Executive Office of the President, the Environmental Protection Agency and the Broadcasting Board of Governors, DFAS spokesman Thomas LaRock said.

“They, along with all DoD civilian employees, are affected by the delay,” LaRock said in an e-mail. DFAS plans to phase in Roth investing from June through October for military personnel, with the option beginning in July for civilian employees of DoD and the client agencies.

As of year-end 2011, DFAS-serviced agencies accounted for 1.2 million of the 2.1 million executive branch federal employees, not counting postal employees, making DFAS by far the government’s largest payroll services provider. It provides payroll services for the entirety of its client agencies, as well as for Defense, LaRock said.

Once Roth-style investing begins, employees and uniformed military personnel will be able to invest through one or the other or both types of balances, up to a combined annual dollar limit that this year is $17,000.

Those 50 and older similarly will be able to invest an additional amount up to a separate combined limit that this year is $5,500. Agency contributions on behalf of employees under the Federal Employees Retirement System will continue to have the traditional tax treatment whether or not the employee personally invests in a Roth balance.

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