Federal employees who make investments in the Thrift Savings Plan by default would have those investments increased until they reach the level capturing the maximum government contribution unless they chose otherwise, under legislation offered in the Senate this week.
The bill, introduced by Senate federal workforce subcommittee chairman Daniel K. Akaka (D-Hawaii) on Monday, would build on the automatic enrollment feature that was introduced two years ago to encourage new employees to invest through the 401(k)-style program. It would increase the default savings rate, now 3 percent of salary, by an additional 1 percent of salary in each of the first two years after hiring.
“Today’s federal workers must plan carefully to ensure their retirement security,” Akaka said in a statement. “Fortunately, the vast majority of the federal employees are responsibly saving for retirement, exhibiting average savings rates that are far greater than the private sector. However, I am concerned that the most financially vulnerable federal employees, individuals earning less than $25,000 a year, are saving at a lower rate that will hinder their ability to retire with dignity.”
Newly hired employees fall under the Federal Employees Retirement System, which consists of Social Security, a civil service annuity and the TSP. Those workers receive employer contributions into a TSP account equal to 1 percent of salary regardless of whether they invest from personal funds. Any personal investments are matched dollar-for-dollar for the first 3 percent of salary invested and 50 cents on the dollar for the next 2 percent.
There is no employer contribution above 5 percent of salary invested for a FERS employee. Employees under the Civil Service Retirement System receive no employer contributions.
TSP investments are voluntary and are separate from the required contributions toward the retirement annuity that has been the subject of several proposals before Congress. About 14 percent of FERS-covered employees do not invest personal money, losing the potential for matching contributions.
However, the participation rate is up by about 3 percentage points since automatic enrollment began for new employees. Automatic enrollment does not apply to those hired before August 2010; they still must opt into the program.
For those hired since then, 3 percent of pay is invested in the TSP by default unless they change their investment level or opt out entirely. The default investments go into the program’s most conservative fund, the government securities G fund, unless the investor chooses among other available funds.
TSP figures show that only 3 percent of those automatically enrolled have opted out while 31 percent have made no changes in the automatic enrollment, either by changing the level of their savings or the funds in which they invest.
Those people “likely were not going to enroll in the TSP” had they not been enrolled automatically, Renee C. Wilder, TSP director of research and strategic planning, said at the most recent meeting of the program’s governing board.