Saving While Serving

By Stephen Barr
Thursday, May 29, 2008

Six years ago, Congress opened the Thrift Savings Plan to military personnel and other uniformed services. It is proving to be one of the government's quiet success stories.

The most recent data released by the TSP show that 36.1 percent of active-duty military personnel are saving for their retirement through the 401(k)-type program. An additional 12.2 percent of the military reserves have joined the TSP.

Those numbers may not sound impressive, but soldiers, sailors and other military personnel have joined the TSP even though the Defense Department does not make a matching contribution.

Under law, the Pentagon is not required to contribute to TSP accounts but may do so if it determines that matching contributions help with recruitment and retention. The issue comes up for debate from time to time, but many Defense officials think the troops would rather receive cash bonuses than tax-deferred money subject to restrictions on when it can be withdrawn.

The rules are different for most civilian employees in the government, and matching contributions clearly increase the number who participate in the TSP.

Civilians covered by the Federal Employees Retirement System are entitled to matching contributions, and nearly 86 percent of FERS employees are making payroll deductions to the Thrift Savings Plan. FERS employees receive an automatic employer contribution of 1 percent of salary, and the government contributes up to an additional 4 percent in matching funds.

Still, TSP data show that the number of troops joining the savings plan inches up almost every month. As of April, 52 percent of Navy active-duty personnel were making contributions, along with 35.7 percent of the Marine Corps, 33.8 percent of the Air Force and 26.4 percent of the Army.

Other uniformed services in the TSP are the Coast Guard, the Public Health Service and the National Oceanic and Atmospheric Administration.

As a group, the uniformed services invest in the TSP in slightly different ways than the civilians, probably because of timing.

The TSP has been in business for 20 years, and many joined when the plan offered only a large-company stock index fund, a bond index fund and a government securities fund. In contrast, the uniformed services were permitted to join in 2002, after the TSP had expanded and offered a small-company index fund and an international stock index fund. Many also have joined since the launch of age-appropriate "life cycle" funds.

As of April, a higher percentage of uniformed personnel were saving in the small-company and international stock funds and in the life cycle funds than were FERS employees, who tend to cluster in the government securities and large-company stock funds.

At the TSP board's meeting May 19, a briefing paper noted that uniformed personnel who invest in the life cycle funds have put 38 percent of their contributions into the fund that assumes retirement withdrawals in 2040 vs. only 15 percent of FERS employees who have selected 2040 as their target date for withdrawals.

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