By Stephen Barr
Wednesday, April 30, 2008; D04

There's nothing like the power of inertia.

A substantial number of federal employees never get around to joining the Thrift Savings Plan, a 401(k)-type savings program for retirement. Now, the TSP hopes to change the rules, so that new employees would be automatically enrolled by their agencies.

Employees who never sign up for the TSP "are less likely to be financially self-sufficient in retirement than their counterparts who do contribute," Gregory T. Long, executive director of the Federal Retirement Thrift Investment Board, told a House subcommittee yesterday.

The board, which oversees the TSP, is proposing legislation that would permit the automatic enrollment of new employees, with 3 percent of their basic pay deducted for investment in the savings program.

The enrollment, however, would not be binding if an employee objected. Employees would be able to opt out, with a 90-day grace period to withdraw funds and avoid a tax penalty. They also would be permitted to change the amount they contribute to the plan, which offers investment choices in stocks, bonds and Treasury securities.

Much as inertia has kept employees from signing up for the TSP, "automatic enrollment uses inertia to encourage retirement savings," Long said at the hearing held by the House federal workforce subcommittee.

Richard N. Brown, president of the National Federation of Federal Employees and vice chairman of the Employee Thrift Advisory Council, joined Long in urging the subcommittee to approve automatic enrollment. Under the current arrangement, too many employees are missing out on money that agencies are required to kick in, Brown said.

Currently, if civil service and postal employees sign up for the TSP, they qualify to receive matching contributions from their agencies (dollar for dollar on the first 3 percent of basic pay and 50 cents on the dollar for the next 2 percent).

The law also provides for an agency automatic contribution of 1 percent of basic pay for workers covered by the Federal Employees Retirement System, or FERS. These employees are entitled to an agency automatic contribution (1 percent of basic pay) regardless of whether they contribute to the TSP.

At the end of March, about 278,000 FERS employees were not making payroll contributions to the TSP, apparently content with a 1 percent contribution by their agency. In contrast, about 1.67 million FERS employees make contributions that also trigger an agency match.

In response to questions from Del. Eleanor Holmes Norton (D-D.C.), Long said that some people could not afford to divert part of their salary into long-term retirement savings.

Two years ago, a TSP survey of employees who did not make contributions found that 20 percent said they did not have enough money to invest for retirement. Twenty percent also said they save for retirement in other ways. Only 4.8 percent said they were not sure how to sign up for the TSP, and 3.2 percent said they found the TSP too complex to understand.

Norton urged the TSP to survey employees again, saying she was concerned that 14 percent of FERS-covered employees were not making contributions. "I would like to know who they are, their GS [General Schedule pay and grade] ratings, and where they work," Norton said.

Long said the TSP was trying to reach out to those who do not contribute. This year, the plan will send letters to employees who get the 1 percent agency match required by law but who have not signed up for payroll deductions.

Rep. Danny K. Davis (D-Ill.), chairman of the federal workforce subcommittee, pointed out that cost considerations were a key factor in deciding which bills go to the House floor for votes this year. Automatic enrollment would probably lower revenue for the Treasury because contributions are made with pretax dollars, reducing taxable income.

Long said the proposal "could generate a potentially significant cost. I hope that a way can be found to overcome that obstacle so that more employees will make full use of the TSP in order to be better prepared for their retirement."

Rep. Elijah E. Cummings (D-Md.), a subcommittee member, briefly changed the hearing's focus, telling Long that he found the TSP Web site "not the easiest thing to navigate."

Cummings said he had spent about half an hour trying to figure out how to use the Web site and then called for help. "I was so frustrated," he said.

Long said the TSP hired a consultant to conduct focus groups and recommend ways to improve the Web site. He said a report with recommendations should be available in about three months.

Cummings urged Long to move faster on the project, noting that many agencies promise action but don't follow through. Long said he would send Cummings a letter within a week setting a date for an overhaul of the TSP Web site.