[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]



 
 THE THRIFT SAVINGS PLAN: HELPING FEDERAL EMPLOYEES ACHIEVE RETIREMENT 

                                SECURITY
=======================================================================


                                HEARING

                               before the

                   SUBCOMMITTEE ON FEDERAL WORKFORCE,

                  U.S. POSTAL SERVICE AND LABOR POLICY

                                 of the

                         COMMITTEE ON OVERSIGHT

                         AND GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             FIRST SESSION

                               __________

                             JULY 27, 2011

                               __________

                           Serial No. 112-112

                               __________

Printed for the use of the Committee on Oversight and Government Reform


         Available via the World Wide Web: http://www.fdsys.gov
                      http://www.house.gov/reform




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              COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

                 DARRELL E. ISSA, California, Chairman
DAN BURTON, Indiana                  ELIJAH E. CUMMINGS, Maryland, 
JOHN L. MICA, Florida                    Ranking Minority Member
TODD RUSSELL PLATTS, Pennsylvania    EDOLPHUS TOWNS, New York
MICHAEL R. TURNER, Ohio              CAROLYN B. MALONEY, New York
PATRICK T. McHENRY, North Carolina   ELEANOR HOLMES NORTON, District of 
JIM JORDAN, Ohio                         Columbia
JASON CHAFFETZ, Utah                 DENNIS J. KUCINICH, Ohio
CONNIE MACK, Florida                 JOHN F. TIERNEY, Massachusetts
TIM WALBERG, Michigan                WM. LACY CLAY, Missouri
JAMES LANKFORD, Oklahoma             STEPHEN F. LYNCH, Massachusetts
JUSTIN AMASH, Michigan               JIM COOPER, Tennessee
ANN MARIE BUERKLE, New York          GERALD E. CONNOLLY, Virginia
PAUL A. GOSAR, Arizona               MIKE QUIGLEY, Illinois
RAUL R. LABRADOR, Idaho              DANNY K. DAVIS, Illinois
PATRICK MEEHAN, Pennsylvania         BRUCE L. BRALEY, Iowa
SCOTT DesJARLAIS, Tennessee          PETER WELCH, Vermont
JOE WALSH, Illinois                  JOHN A. YARMUTH, Kentucky
TREY GOWDY, South Carolina           CHRISTOPHER S. MURPHY, Connecticut
DENNIS A. ROSS, Florida              JACKIE SPEIER, California
FRANK C. GUINTA, New Hampshire
BLAKE FARENTHOLD, Texas
MIKE KELLY, Pennsylvania

                   Lawrence J. Brady, Staff Director
                John D. Cuaderes, Deputy Staff Director
                     Robert Borden, General Counsel
                       Linda A. Good, Chief Clerk
                 David Rapallo, Minority Staff Director

Subcommittee on Federal Workforce, U.S. Postal Service and Labor Policy

                   DENNIS A. ROSS, Florida, Chairman
JUSTIN AMASH, Michigan, Vice         STEPHEN F. LYNCH, Massachusetts, 
    Chairman                             Ranking Minority Member
JIM JORDAN, Ohio                     ELEANOR HOLMES NORTON, District of 
JASON CHAFFETZ, Utah                     Columbia
CONNIE MACK, Florida                 GERALD E. CONNOLLY, Virginia
TIM WALBERG, Michigan                DANNY K. DAVIS, Illinois
TREY GOWDY, South Carolina


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on July 27, 2011....................................     1
Statement of:
    Long, Gregory, executive director, Federal Retirement Thrift 
      Investment Board; Clifford Dailing, chairman, Employee 
      Thrift Advisory Council, Secretary-Treasurer, National 
      Rural Letter Carriers' Association; and Joseph Beaudoin, 
      president, National Active and Retired Federal Employees 
      Association................................................     7
        Beaudoin, Joseph.........................................    29
        Dailing, Clifford........................................    23
        Long, Gregory............................................     7
Letters, statements, etc., submitted for the record by:
    Beaudoin, Joseph, president, National Active and Retired 
      Federal Employees Association, prepared statement of.......    31
    Connolly, Hon. Gerald E., a Representative in Congress from 
      the State of Virginia, prepared statement of...............    50
    Cummings, Hon. Elijah E., a Representative in Congress from 
      the State of Maryland, prepared statement of...............    49
    Dailing, Clifford, chairman, Employee Thrift Advisory 
      Council, Secretary-Treasurer, National Rural Letter 
      Carriers' Association, prepared statement of...............    25
    Langevin, Hon. James R., a Representative in Congress from 
      the State of Rhode Island, prepared statement of...........    51
    Long, Gregory, executive director, Federal Retirement Thrift 
      Investment Board, prepared statement of....................     9
    Lynch, Hon. Stephen F., a Representative in Congress from the 
      State of Massachusetts, prepared statement of..............     5


 THE THRIFT SAVINGS PLAN: HELPING FEDERAL EMPLOYEES ACHIEVE RETIREMENT 
                                SECURITY

                              ----------                              


                        WEDNESDAY, JULY 27, 2011

                  House of Representatives,
    Subcommittee on Federal Workforce, U.S. Postal 
                          Service and Labor Policy,
              Committee on Oversight and Government Reform,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 2:16 p.m., in 
room 2154, Rayburn House Office Building, Hon. Dennis A. Ross 
(chairman of the subcommittee) presiding.
    Present: Representatives Ross, Lynch, and Davis.
    Staff present: Jennifer Hemingway, senior professional 
staff member; James Robertson, professional staff member; 
Cheyenne Steel, press assistant; Peter Warren, legislative 
policy director; Nadia A. Zahran, staff assistant; Kevin 
Corbin, minority staff assistant; and William Miles, minority 
professional staff member.
    Mr. Ross. Good afternoon. Thank you for your patience. I'll 
now call the Subcommittee on Federal Workforce, U.S. Postal 
Service and Labor Policy to order.
    I would like to begin this hearing by stating the Oversight 
Committee mission statement. We exist to secure two fundamental 
principles. First, Americans have the right to know that the 
money Washington takes from them is well spent; and, second, 
Americans deserve an efficient, effective government that works 
for them. Our duty on the Oversight and Government Reform 
Committee is to protect these rights. Our solemn responsibility 
is to hold government accountable to taxpayers because 
taxpayers have a right to know what they get from their 
government. We will work tirelessly, in partnership with 
citizen watchdogs, to deliver the facts to the American people 
and bring genuine reform to the Federal bureaucracy. This is 
the mission of the Oversight and Government Reform Committee.
    I'll now begin with my opening statement. The Thrift 
Savings Plan, established in 1986, provides a tax-deferred 
retirement savings plan to 4\1/2\ million Federal participants. 
With $289 billion in assets, the TSP is the largest defined 
contribution plan in the world and is a smart choice for 
Federal employees planning for a secure retirement. The TSP 
models private sector practice, with two-thirds of its 
employers reporting that the 401(k) is the primary retirement 
savings vehicle for the employees that they cover.
    The TSP provides participants a choice of investment 
options to allow participants to determine the appropriate 
amount of risk for their own circumstances. Participants may 
currently select from a choice of five funds in addition to 
life cycle funds tied to a projected retirement date. In 2009 
Congress passed the Thrift Savings Plan Enhancement Act, 
resulting in a number of significant changes to the TSP. 
Requiring automatic enrollment for new hires has led to an 
increase in TSP's participation rates. Expanding survivor 
spouse benefits allows for Federal employee households 
continued access to low-cost investments. Implementing a Roth 
TSP contribution program should prove beneficial to employees, 
particularly those at the early stages of their career. The 
2009 legislation also grants TSP discretionary authority to 
offer a mutual fund window, allowing participants to invest a 
portion of their savings in mutual funds outside of the TSP. 
This enhancement could help respond to the continued debate in 
Congress on the merits of adding additional investment 
alternatives. Increasing the number of TSP investment options, 
similar to those being offered by the private sector 401(k) 
plans, could prove to add more flexibility to participants 
wishing to further diversify their portfolios. Several 
legislative proposals have been introduced in the 112th 
Congress to modify investment options for Federal employees 
participating in TSP.
    With TSP contributions--participants contributing more than 
$2 billion per year, this hearing presents an opportunity for 
lawmakers to examine the administration of the TSP, including 
its investment offerings, participation rates, and expenses. As 
the committee with jurisdiction over the TSP, I hope to learn 
whether further legislative change is needed to ensure that the 
plan continues to meet participant needs. I thank the witnesses 
for appearing today, and I look forward to your testimony.
    I now recognize the distinguished gentleman, ranking member 
from Massachusetts, Mr. Lynch, for his opening statement.
    Mr. Lynch. Thank you very much, Mr. Chairman. I want to 
thank you for holding this hearing and also want to welcome our 
witnesses in coming forward to help this committee with its 
work.
    Today's hearing, as the chairman mentioned, will examine 
recent developments regarding the Federal Thrift Savings Plan, 
the retirement savings plan and investment plan for Federal 
civilian employees and members of the uniformed services. With 
over 4.4 million participants and more than $285 billion in 
assets, as the chairman noted, the Thrift Savings Plan is the 
largest defined contribution plan in the world, and an integral 
component of our Federal Employee Retirement System.
    In addition, through its diverse and sensible investment 
options and with the average annual fees that are significantly 
lower than those of our typical private sector plans, the 
Thrift Savings Plan stands as a model 401(k). In light of its 
vital role, the Thrift Savings Plan merits continued and 
careful oversight by our subcommittee so that we can better 
ensure that our Federal employees and service members are 
afforded the tools necessary to maximize their savings and 
enhance their retirement security.
    Therefore, I welcome this opportunity to discuss the status 
of the Thrift Savings Plan, given our current economic climate, 
budgetary challenges faced by the Federal Retirement Thrift 
Investment Board, and legislative and regulatory changes. In 
particular, as we all know, Congress is currently considering 
legislation to raise the Federal debt limit and tackle the 
Federal deficit. Notably, the past several months have been 
marked by wide speculation regarding the broad market 
consequences of a failure to enact a debt limit increase. As a 
result, I would be interested in hearing our panelists' 
perspectives on how a Treasury debt default and proposed 
spending reductions may affect the Thrift Savings Plan balances 
of participants and their beneficiaries as well.
    I also look forward to hearing our panelists' thoughts on 
how the current Federal pay freeze may be impacting the Thrift 
Savings Plan.
    Additionally, during the previous Congress, the Thrift 
Savings Plan underwent a significant modernization with the 
enactment of provisions collectively known as the Thrift 
Savings Plan Enhancement Act. Specifically, that legislation 
contained several key enhancements to the plan, including 
automatic enrollment and immediate agency contributions for all 
new Federal civilian employees as well as the addition of Roth 
401(k) investment options which allow participants to 
contribute after-tax dollars to the plan.
    Given these significant changes to the Thrift Savings Plan, 
I look forward to examining the progress of implementation of 
the Thrift Savings Plan Enhancement Act, including the 
challenges that the Federal Retirement Thrift Investment Board 
has faced in terms of increasing plan participation among 
uniformed service members in establishing the mutual fund 
options. I would also like to revisit the feasibility of 
permitting Federal employees to invest the cash value of unused 
annual leave in their Thrift Savings Plan retirement accounts.
    I introduced legislation to this effect during the last 
Congress, and I'm very interested in again exploring the 
possibility of allowing Federal employees to roll over their 
lump sum annual leave payments into their Thrift Savings Plan 
accounts as a means of ensuring equity with their private 
sector counterparts. In fact, I hope the chairman will agree to 
join me in working to find a legislative solution to this issue 
as well as other administrative modifications to the Thrift 
Savings Plan.
    Last, I look forward to examining the various legislative 
proposals relating to the Thrift Savings Plan put forward by my 
colleagues on both sides of the aisle. However, as we continue 
to seek ways to enhance Federal retirement security that are 
also mindful of the Federal deficit, I would remind my 
colleagues that the Thrift Savings Plan is only one element of 
our three-legged stool--so-called--Federal Employee Retirement 
System, which also includes the Federal Employee Retirement 
System defined benefit plan and, of course, Social Security.
    During the current Congress I've increasingly heard the 
majority suggest the possibility of eliminating the pension 
portion of the Federal Employee Retirement System and instead 
providing the Thrift Savings Plan as the only retirement 
security option for Federal workers. I believe that this would 
be a step in the entirely wrong direction. Since its inception, 
our Federal Employee Retirement System has been praised on a 
bipartisan basis as a fair and equitable framework that 
promotes retirement security for our Federal workers and 
achieves cost savings for the Federal Government. We should 
keep it that way.
    Before closing, I would also like to ask unanimous consent 
that the written statement of Colleen Kelly, national president 
of the National Treasury Employees Union, highlighting the 
value of the TSP as well as the Federal Employees Retirement 
System in general, be included for the record.
    Thank you, Mr. Chairman. I look forward to discussing these 
and other issues with our witnesses this afternoon, and I yield 
back the balance of my time.
    Mr. Ross. Thank you, Mr. Lynch, and, without objection, the 
report will be admitted.
    [The prepared statement of Hon. Stephen F. Lynch follows:]
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    Mr. Ross. I would now like to also note that Members may 
have 7 days to submit opening statements for the record.
    And we will now recognize our panel. We have Mr. Gregory T. 
Long, who is the executive director of the Federal Retirement 
Thrift Investment Board; we have Mr. Dailing, who is the 
chairman of the Employee Thrift Advisory Council; we have Mr. 
Joseph Beaudoin, who is the president of the National Active 
and Retired Federal Employees Association.
    As is custom and policy with the Committee on Oversight, 
all witnesses will be sworn in before they testify. Please rise 
and raise your right hands. Thank you.
    [Witnesses sworn.]
    Mr. Ross. Thank you. Please be seated. Let the record 
reflect that all witnesses responded ``yes.''
    In order to allow for the discussion, please limit your 
testimony to 5 minutes. As you know, your entire written 
statement will be made part of the record.
    And now I would like to recognize Mr. Long for 5 minutes.

    STATEMENTS OF GREGORY LONG, EXECUTIVE DIRECTOR, FEDERAL 
RETIREMENT THRIFT INVESTMENT BOARD; CLIFFORD DAILING, CHAIRMAN, 
EMPLOYEE THRIFT ADVISORY COUNCIL, SECRETARY-TREASURER, NATIONAL 
   RURAL LETTER CARRIERS' ASSOCIATION; AND JOSEPH BEAUDOIN, 
   PRESIDENT, NATIONAL ACTIVE AND RETIRED FEDERAL EMPLOYEES 
                          ASSOCIATION

                   STATEMENT OF GREGORY LONG

    Mr. Long. Chairman Ross and members of the subcommittee, my 
name is Greg Long, and I'm the executive director of the 
Federal Retirement Thrift Investment Board. The five members of 
the board and I serve as the fiduciaries of the Thrift Savings 
Plan for Federal employees. I've submitted my statement for the 
record, and I will summarize here.
    Your letter of invitation explained that the purpose of 
this hearing is to review the Thrift Savings Plan, including 
implementation of the Thrift Savings Plan Enhancement Act of 
2009 I am pleased to discuss.
    I would again like to thank this committee and subcommittee 
for its initiative on the Enhancement Act. The agency began 
working with the employing agencies of the government toward 
implementation even before the ink was dry. We devised a plan 
for an orderly roll-out of the new provisions, starting with 
those which could provide the most immediate value for our 
participants. I will briefly discuss each element.
    First, immediate employer contributions. This very 
valuable, long-sought benefit was first on the list for 
implementation because it would immediately increase the 
amounts being contributed to the TSP accounts of participants 
covered by FERS. Hundreds of dedicated payroll and personnel 
professionals throughout the government stepped up to the plate 
and performed admirably in implementing this feature.
    Next, beneficiary participant accounts. This was another 
provision of the Enhancement Act that fully warranted prompt 
implementation. Under previous law, surviving spouses were 
required to withdraw TSP account balances which they inherited 
as beneficiaries of their deceased spouses. Our review of this 
matter found that spousal beneficiary accounts were available 
in many private sector 401(k) plans. However, implementation 
was complex because it involved obtaining important decisions 
from a largely aging cohort of widows and widowers who had 
never worked for the government previously. Our process that 
included special communications to the spouse beneficiaries, a 
welcome package, as well as tailored account maintenance and 
withdrawal forms, that was completed in December 2010. We have 
now established over 4,800 beneficiary accounts, and that 
number continues to grow.
    The next provision was automatic enrollment. I'm pleased to 
say that since last August, all new Federal civilian employees 
are being automatically enrolled in the TSP at an initial 
contribution rate of 3 percent of basic pay unless they elect 
otherwise. Automatic enrollment is a game changer for the TSP. 
Over 97 percent of those hired since automatic enrollment began 
in August are now contributing their own funds to the TSP. Our 
overall participation rate is now slowly but steadily climbing 
as a result.
    The next item is Roth, and 2012 will be a year of 
significant change to the TSP and the agency I help run, most 
notably because of the implementation of Roth TSP. With Roth 
comes sweeping changes, as this new offering touches virtually 
every element of the plan. The Roth--this will require us to 
change 27 of our 28 recordkeeping and accounting systems. All 
of our phone reps, our PSRs, need to be educated in how to 
answer a wide variety of new types of questions. This is a 
pretax versus a post-tax decision, and that's going to be 
highly complex, and we need to provide assistance to the 
employees as well as the agency reps that in turn need to 
provide advice and guidance to their employees.
    Additionally, our legal team is currently drafting 
regulations covering all aspects of the Roth project, and our 
timetable is to obtain three publication comments from ETAC 
this fall, followed by publication in the Federal Register. We 
expect to roll this out in the second quarter of 2012.
    Attached to my statement is a document entitled ``Thrift 
Savings Plan Statistics.'' The data displayed on this page 
provides an excellent overview of the status of the TSP. It is 
updated and publicly distributed each month at board meetings. 
Plan activities should be and are conducted in full public view 
in order to maintain the confidence of participants. We work 
hard to ensure that neither the participant nor the Congress or 
any other observers are surprised by what we do. We function 
just like a 401(k) plan, and we strive to excel. Our 
responsibility is to act solely in the interest of participants 
and their beneficiaries.
    Our goal is dignity in retirement for those participants 
who in their day jobs secure our Nation, deliver the mail, and 
perform countless other necessary functions. In today's world, 
saving and investing for retirement is essential. Congress has 
given us the program with which we can accomplish that goal, 
and we work hard every day to achieve it. That concludes my 
statement.
    Mr. Ross. Thank you very much.
    [The prepared statement of Mr. Long follows:]
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    Mr. Ross. Mr. Dailing, you are recognized for 5 minutes.

                 STATEMENT OF CLIFFORD DAILING

    Mr. Dailing. Chairman Ross, members of the subcommittee, 
thank you for the opportunity to testify today. As you 
mentioned, my name is Clifford Dailing, and I am the secretary-
treasurer of the National Rural Letter Carriers Association.
    Today I come before you as chairman of the Employee Thrift 
Advisory Council, ETAC. I was elected chairman by my peers at 
our last meeting in April. Prior to becoming chairman, I was 
NRLCA's representative on the Council for the previous 15 
years. ETAC is a Federal advisory committee established by the 
Federal Employees Retirement System Act of 1986 to give a voice 
to the participants in the operations of the Thrift Savings 
Plan, TSP. We provide advice on matters relating to investment 
policies and the administration of the TSP.
    The Thrift Savings Plan is an extremely important part of 
the Federal retirement system and is very popular among its 
participants. Currently 15 unions, employee organizations, and 
uniformed services comprise ETAC. Our organizations represent 
the vast majority of the TSP's 4.5 million participants. TSP 
continues to be one of the best-run and largest defined 
contribution plans in the world. In fact, TSP administrative 
costs are mere cents on the dollar, making TSP perhaps the 
least expensive defined contribution plan in the Nation.
    At the end of June 2011, the TSP had roughly $289 billion 
in assets. Protecting these assets is our highest priority. 
Contributing to the plan's current success is the TSP 
Enhancement Act of 2009. Two of the key components of this law 
include immediate agency contributions and automatic 
enrollment. Both of these features, in my opinion, are part of 
the reason we have seen a significant increase in participation 
levels, particularly among younger employees and new hires. 
Currently 97.4 percent of all new hires are participating in 
the TSP, with only a minimal of 2.6 percent opt-out rate. 
Overall, roughly 85 percent of all Federal and postal employees 
are participating in TSP.
    Compared with the private sector, where roughly 75 percent 
of employees are participating in available 401(k) plans, 
Federal and postal employees are doing extremely well planning 
for their retirement.
    As the law stands, every new hire that is automatically 
enrolled into the TSP plan is preset to contribute 3 percent 
into the G fund. This amount does change if participants elect 
to increase or decrease their contribution levels or to opt out 
altogether. Educating new hires about the Thrift Savings Plan 
continues to be a priority, but I would think everyone can 
agree that 97.4 percent participation rate is very encouraging.
    In addition to automatic enrollment, the Federal Retirement 
Thrift Investment Board has had the arduous task of 
implementing the Roth TSP option. Originally scheduled to begin 
in January 2012, the plan has been delayed several months for 
more testing and planning. I encourage the Thrift Board to 
quickly act toward completion of the implementation of the Roth 
TSP and give Federal and postal employees and retirees an 
additional option to invest for their retirement needs.
    Mr. Chairman, I also need to address the national 
administration's decision to suspend all Federal employees' 
investments into the G fund until the debt ceiling has been 
resolved. I and probably other members of the ETAC have 
received numerous calls from concerned members who have had 
retirement investments into the G fund, wanting to know what 
will become of their retirement. However, despite the fact our 
members who have invested in the G fund are protected, it is 
imperative that this information is distributed to all 
participants to maintain confidence in the TSP. We need to 
ensure that a strong line of communication is maintained 
between Federal agencies and their employees so that TSP 
participants have a high level of confidence during the ongoing 
debt issuance suspension period. If this information is not 
dispersed, its impact becomes minimal, as many participants 
will reduce their contribution from fear of loss of their 
investment. This can only be done if the administration, 
Congress, and ETAC maintain a line of communication among each 
other and remain in contact as the debt ceiling is resolved.
    Finally, Mr. Chairman, I urge you to proceed with caution 
as deficit reduction measures are debated. I fear we may see a 
decrease in employees' TSP contributions as Federal and postal 
employees will plan for the present rather than invest for the 
future. We cannot afford to have our members reduce their TSP 
contributions because cost-of-living adjustments are deferred 
or Federal employees are required to pay a higher share of 
their health care costs. This could have a negative effect on 
our members' financial security in retirement.
    Once again, thank you for giving me the opportunity to 
testify before you today. As I mentioned earlier, TSP is very 
popular among its participants, and part of the reason for that 
is the strong backing Congress has traditionally shown.
    I urge you to continue protecting TSP by insulating it from 
political and budgetary pressures. I would be happy to answer 
any questions you may have. Thank you.
    Mr. Ross. Thank you, Mr. Dailing.
    [The prepared statement of Mr. Dailing follows:]
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    Mr. Ross. Mr. Beaudoin. Is that correct? You are recognized 
for 5 minutes.

                  STATEMENT OF JOSEPH BEAUDOIN

    Mr. Beaudoin. Chairman Ross, Ranking Member Lynch, and 
members of the subcommittee, I am Joseph A. Beaudoin, president 
of NARFE, and I want to thank you for the opportunity to 
testify.
    We continue to be pleased with the performance of the 
Thrift Savings Plan. We believe that the Thrift Board has acted 
as dutiful fiduciaries on behalf of Federal civilian workers 
and annuitants and uniformed military personnel and retirees.
    For example, NARFE supports the Thrift Board's ongoing 
commitment to offering diversified index funds, which has 
minimized risk and created retirement security for participants 
and beneficiaries. We urge Congress and the Thrift Board to 
work together and to base fund decisions on carefully crafted 
objective financial analysis. Most of all, Congress and the 
Thrift Board must act in the best interests of Federal civilian 
workers and military personnel who put their hard-earned 
dollars in the TSP.
    The test of any organization is its performance during a 
crisis. We believe that the Thrift Board has continued to 
perform admirably during the most volatile financial market 
periods of the recession. Unfortunately, because of events 
beyond our control, nearly all Americans who participate in a 
defined contribution retirement plan, including TSP 
participants, lost a significant amount of their saving value 
during the economic downturn.
    Federal workers who are years away from retirement should 
have plenty of time to make back what they lost and hopefully 
gain ground along the way. The same is not true for workers who 
are at or near retirement. Those employees are caught between a 
rock and a hard place: Either retire with a smaller nest egg 
than they had hoped for or defer retirement until some point in 
the distant future, after the market sufficiently rebounds.
    Fortunately, the retirement security of FERS workers is 
diversified with a three-legged stool, consisting of the TSP, a 
modest defined benefit annuity, and Social Security benefits. 
In fact, we believe the FERS defined benefit annuity has become 
an increasingly important safety net for FERS workers, 
particularly given the recent market slump of the country's 
economic recession. Indeed, the construct of FERS is a delicate 
balance. We strongly hold that the integrity of FERS must be 
preserved to ensure that the Federal Government is able to 
attract and retain the best employees. This is no small point, 
because Americans increasingly appreciate that Federal 
employees protect us and drive America's progress.
    For several years we have worked with Congress and the 
Thrift Board on legislation to add new features to the TSP that 
have succeeded when offered in private 401(k) plans. We are 
particularly pleased with the implementation of three 
provisions in the Thrift Savings Plan Enhancement Act of 2009.
    First, newly hired Federal employees are now automatically 
enrolled in TSP and are immediately eligible for an automatic 
contribution. As a result, 97 percent of newly hired Federal 
employees are voluntarily putting their own wages in their TSP 
account.
    Second, by the second quarter of 2012 a Roth option will be 
added to the TSP. This feature will allow participants to make 
after-tax contributions to the plan and withdraw their earnings 
tax free upon retirement.
    Third, the retirement security of the surviving spouses of 
workers and retirees has been enhanced by granting them the 
same rights over their inherited accounts as any other TSP 
participant.
    Although NARFE is delighted with most of the provisions in 
the TSP Enhancement Act, we continue to be interested in 
advancing the program further. For instance, since September 
2009, 401(k) plans could be amended to allow employees to 
contribute unused annual leave to their 401(k) account. As a 
matter of equity, NARFE supported legislation introduced during 
the 111th Congress by Representative Lynch and Chaffetz that 
would have allowed Federal workers to do the same. We support 
reintroduction of this bill in the current 112th Congress, and 
we encourage this subcommittee to approve it. NARFE also 
supports a proposal to allow Federal workers to contribute 
bonuses into their tax-deferred account.
    Chairman Ross, Ranking Member Lynch, we commend you for 
your interest in ensuring that the Thrift Savings Plan 
continues to thrive. Thank you, and I'll answer any questions 
you have.
    Mr. Ross. Thank you very much.
    [The prepared statement of Mr. Beaudoin follows:]
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    Mr. Ross. I'll now recognize myself for 5 minutes, and I 
will say for someone who has just come from the private sector 
in a 401(k) and now under the TSP, I think it's a phenomenal 
program, and I think that you are doing a very good job with 
it.
    Mr. Dailing, you talked about communication to the members 
and what not. What recommendations would you give in terms of 
flexibility or more products to entice more people to join 
them? Eighty-five percent is pretty good, but any suggestions?
    Mr. Dailing. The core, I think, is to--the core I think in 
this, to answer your question, is just to ensure from all 
directions that information, no matter what type the material, 
is given either by the employer, in verbal, in written form, 
that the individuals know the aspects, all the directions, the 
parameters of the TSP, and the importance of that for planning 
initially from the get-go as they begin their career.
    Mr. Ross. Mr. Long, in 2009 with the changes, did we see an 
increase in participation? I mean, we did, but we're at 85 
percent now. What was it prior to the act?
    Mr. Long. It was down to 82 percent, and so it's a little 
bit confusing, but when the immediate contributions were put 
into place directly after the act was signed, our participation 
rate actually dropped, and it slowly, since automatic 
enrollment was implemented in August, has slowly been creeping 
up by one- or two-tenths of a percent each month. We're in a 
long, slow march toward 90 percent.
    Mr. Ross. Let me ask you this. If a person does not 
participate in it, they're still enrolled in it; is that 
correct?
    Mr. Long. Today, under automatic enrollment, if a 
participant takes no action, they are automatically enrolled at 
3 percent. They can choose zero or any other amount, but we 
needed to take inertia off the table. Instead of a default rate 
of zero, the default rate is now 3 percent.
    Mr. Ross. And just help me with this, because I just 
coincidentally talked to a colleague of mine a little while ago 
who doesn't want to participate in the TSP for philosophical 
reasons or whatever reasons. I didn't question that. But he 
said that he can't get out of it. He cannot opt out of it, and 
that there is going to be a contribution made I think of 1 
percent of his salary annually in the TSP.
    Mr. Long. The 1 percent is automatic, that is absolutely 
correct.
    Mr. Ross. Would you recommend an opt-out provision, if 
someone, for whatever reason, chose to do so?
    Mr. Long. Administratively, that 1 percent automatic is 
very beneficial in running the plan. One of the things that 
other plans struggle with is they don't know who doesn't 
participate. Now we know everybody. Everybody gets 1 percent. 
So I can track all participants. And now I need to know--now I 
know who you need to target as far as automatic enrollment. So 
it's--administratively it's very beneficial.
    Mr. Ross. But that 85 percent enrollees does not take into 
account somebody who would not want to enroll and still getting 
a 1 percent; is that correct?
    Mr. Long. The colleague that you referenced would actually 
fall under the about 2.4 percent of people that joined after 
automatic enrollment and the very small percentage that 
actually chose to do zero.
    Mr. Ross. Okay. In terms of your budget, your budget's at, 
what, $143 million or thereabouts? It was frozen, I think, this 
last year?
    Mr. Long. Yes; $131 million for fiscal year 2011.
    Mr. Ross. Okay, and you're requesting a 12 percent 
increase----
    Mr. Long. That is----
    Mr. Ross [continuing]. For next year?
    Mr. Long. Well, I have put forth an estimate. I will 
actually put forth a formal request in September, but I have 
put forth an initial estimate to the board of 147, and now I 
scaled that back to about 145.
    Mr. Ross. Okay. And then what would you say the budget was 
in about 2006? Do you have any of those numbers?
    Mr. Long. Yep. About $90 million.
    Mr. Ross. Okay. And so in 5 years it's increased about $45 
million?
    Mr. Long. Yes. It is substantial.
    Mr. Ross. And any particular reason? I mean, was there 
capital improvements or something?
    Mr. Long. Well, several reasons. When I initially joined, 
one of the things that we dedicated a significant amount of 
resources to was a TSP systems modernization. We had an 
infrastructure which created risk, and we actually had 
situations in which hardware and network failures put us out of 
business for short periods of time. That's bad. And so we 
needed to invest significant dollars in infrastructure 
modernization.
    Then we moved to a significant change in our Web. The 
Congressman from Massachusetts previously referred to that as 
the equivalent of ``pong.'' If you look at it today, you will 
notice it is far improved. It's a state-of-the-art Web site. 
And now after those two things, we moved to the TSP Enhancement 
Act, automatic enrollment, spousal accounts, immediate 
contributions. And finally the big one, which is Roth that 
we're in the middle of now.
    Mr. Ross. Last, I've got just a couple seconds. Any 
suggestions as to streamline, to help reduce costs in the 
operation of the TSP?
    Mr. Long. Well, we have--we're constantly taking a look at 
anything that creates expenses. I've put forth in my budget 
proposal several recommendations to the board as to how we can 
reduce costs at the agency, but everything is a give and take. 
If you want to reduce costs, there's something that you're 
planning on providing that you will no longer provide, and 
that's a discussion that I'll have with the board.
    Mr. Ross. Thank you. My time's expired. I'll now recognize 
the distinguished gentleman from Massachusetts, the ranking 
member, Mr. Lynch, for 5 minutes.
    Mr. Lynch. Thank you, Mr. Chairman.
    Mr. Long, let's stay right on that same thought. I know 
that the TSP provides to its members and investors a great 
advantage in that it charges, I think the last time we looked 
at this, very small fees as a percentage of revenue for its 
operations, and I believe it can do this because it doesn't 
seek to make a profit. You are just basically maintaining the 
service. You are not looking to, as I said, to make money off 
this. And you also have huge economies of scale in terms of 
your operation.
    Have you done any analysis in terms of how your fee 
structure compares with the private sector?
    Mr. Long. We are constantly taking a look at data that 
comes out, and just a couple weeks ago we had a report that 
came out from one of the large consulting firms which takes a 
look at the average recordkeeping and total investment charges 
that are allocated to the typical 401(k) participant. Right now 
a TSP participant pays 2\1/2\ basis points, 25 cents on every 
thousand dollars. Compare that to about 65 to 75 basis points 
for the largest plans. Some 401(k) plans pay 200 basis points 
or 2 full percentage points in fees. We are tiny relative to 
the typical 401(k) plan, and it's a result of, yes, economies 
of scale, but also our efficiencies that we create through our 
design.
    Mr. Lynch. Now, also the fees for--well, the salaries that 
you are paying for your investment people, I imagine those are 
also drastically lower than what we are seeing hopefully in the 
private sector.
    Mr. Long. Yes. Well, my investment staff internally is two 
people, so----
    Mr. Lynch. Okay.
    Mr. Long. And all of the agency employees fall under the 
standard pay scale, government pay scale structure.
    Mr. Lynch. Okay, great. The last time you were up we 
actually asked about providing a mutual fund window as one of 
the options. You know, I'm a participant. You know, I think the 
TSP is great. I think it offers a lot of folks an opportunity 
to invest in their own retirement.
    Mr. Long. Uh-huh.
    Mr. Lynch. And it encourages employees to use their own 
money.
    Mr. Long. Uh-huh.
    Mr. Lynch. That's a great advantage to the taxpayer, that 
these employees are using their own money to sustain their 
retirement. It's a good idea, I think. There is some 
volatility.
    But let me ask you about the mutual fund option. Right now 
you can select the G fund, you know, so forth, the I fund, all 
that. What are we doing about the opportunity to give 
participants a chance to invest through a so-called mutual fund 
window?
    Mr. Long. The mutual fund window was a provision that was 
in the TSP Enhancement Act of 2009, so it is authorized but it 
is not required. We've also taken no action to implement it. 
This is a provision which I know will require significant 
discussions with members on the Employee Thrift Advisory 
Council as well as my board before we move forward, and we may 
never move forward, quite frankly.
    Mr. Lynch. What is the big drawback here? Is it just simply 
risk?
    Mr. Long. Well, I think there is a concern, and some of it 
is a paternalistic concern; that being that if we provide a 
window to access mutual funds, those mutual funds will 
virtually all be more expensive than what our core offerings 
are. And there is the potential that those offerings have a 
higher level of volatility than what we have because we rely 
on----
    Mr. Lynch. Let me just go back a little bit. Is there a way 
for you to say, you know, in order to be eligible within this 
mutual fund window--we are not talking about opening it up to 
the entire universe of mutual funds out there, but is there an 
opportunity for you to use your leverage because this is the 
largest plan out there to say, okay, we are going to allow this 
window, we are going to allow our members to have access to the 
funds within this window. However, you know, use the leverage 
and say we want your fees to be, you know, comparable to our 
own or certainly at a much greater discount, so you can use the 
leverage of your size to encourage those private mutual funds 
to give a better deal to the, you know, Federal employees as a 
group.
    Mr. Long. Yes. Would we be using our leverage? If we move 
forward with this, we would compete it in the marketplace. We 
would, we feel, command best pricing because of our size. The 
other way to limit the potential risk and concern is to not 
allow participants to put all of their money through this 
window. You might say only 25--some other percentage.
    Mr. Lynch. Yeah, and I know--thank you for your indulgence. 
The other way to do this is to say, look, we're not going to 
allow participants to invest any more than 20 percent, and then 
track it.
    Mr. Long. Yeah.
    Mr. Lynch. Track it, and see what the usage is and what the 
danger might be. But I think it is a good opportunity for--you 
need some flexibility, you know, for employees. I know you're 
doing very, very well, but I still think there's a need to 
diversify our options within that plan.
    And I yield back the balance of my time. Thank you.
    Mr. Ross. Thank you. The gentleman from Illinois, Mr. 
Davis, is recognized for 5 minutes of questions.
    Mr. Davis. Thank you very much, Mr. Chairman. I want to 
thank our witnesses for being with us.
    One area that I am interested in exploring relates to the 
potential consequences, if any, of raising or not raising the 
Federal debt ceiling and what impact it might have on TSP fund 
balances and the participants.
    All of us have listened over the last several months as 
there has been a tremendous amount of speculation as to what 
might happen to global financial markets, particularly the bond 
market, if the Federal Government fails to increase its debt 
ceiling by August the 2nd and therefore defaults on some of its 
legal obligations.
    I believe it is in your written statement, Mr. Dailing, 
that you mentioned that the G fund is safe and fully protected 
during debt issuance suspension periods, and that's a quote.
    Would you mind elaborating on that point a little bit 
further for the committee?
    Mr. Long. Oh, I'm sorry.
    Mr. Dailing. Me, Mr. Davis?
    Mr. Davis. Yes.
    Mr. Dailing. I guess I will ask Director Greg to help me 
with the technical pieces of this as well, too, in the 
explanation. But as we have been elaborating to our members and 
trying to give it in a layman's term of a movement of money on 
paper and IOUs prepared, if you will, to ensure that our 
members--the understanding of the action from the Secretary of 
the Treasury during the suspension period of the G fund. Our 
members did not understand fully what that meant, and their 
initial reaction was: Is my retirement money safe? Is it going 
to be there when I draw from that? And I think that was the 
biggest issue in the overall explanation of what that did mean, 
and trying to draw that down to our members.
    The first reaction that I heard from some individuals that 
I spoke to from our respective group was that their 
contribution to the TSP, that they were going to change it, and 
that they would withdraw or reduce their amount into the G 
fund. They were concerned of the government, if you will, using 
their money in the issue of the debt ceiling situation and 
wanted to withdraw that back to where they knew it was in their 
hands. With absence of a technical explanation, that's from our 
members' concern.
    Mr. Davis. Well, let me ask Mr. Beaudoin and Mr. Long if 
they agree with that basic assertion or explanation.
    Mr. Long. I do, yes. And I think this is an area in which 
the board and Congress could, frankly, appropriately anticipate 
a disadvantage, and it was largely driven by what was going on 
in 1987. When the TSP started early that year, 1987, there was 
a debt crisis then, and to assure G fund investments, the 
board, my predecessors, formally requested legislation 
guaranteeing G fund earnings. The Thrift Savings Plan 
Investment Act of 1987 was then signed by President Reagan at 
the time. It included the make-whole provision. So what this 
means is that under FERSA, our governing legislation, when G 
fund--when securities are issued to the G fund, we have--
investors are protected.
    In the other scenario in which securities are not issued, 
we have this Thrift Savings Plan Investment Act that protects 
them. Whether they're issued or whether they're not issued, G 
fund investors are protected, and that's the message that we 
have tried to deliver on our Web site, through our partners in 
ETAC, through our communications with the newsletters, and all 
of our mediums. We've tried to get this message out, but grant 
you there are some--we can't always get through clearly, but we 
try.
    Mr. Davis. Thank you very much. Mr. Beaudoin, could you 
just react to that?
    Mr. Beaudoin. Yes, sir. Although the NARFE would prefer 
that the funds be used for the retirement annuities and 
benefits----
    Mr. Ross. Mr. Beaudoin, is your button pushed there?
    Mr. Beaudoin. Oh, I'm sorry.
    We do acknowledge that such extraordinary measures ensure 
that annuities in TSP savings continue to be paid. We just want 
to ensure that once Congress raises the debt limit and the 
period of debt suspension ends, the Treasury Secretary fully 
complies with the Federal law which requires him to make whole 
the retirement funds with back interest, but we do agree with 
Mr. Long and Mr. Dailing.
    Mr. Davis. Well, let me thank each one of you. You sounded 
pretty positive, so I think I'll just end at that. You did say, 
``once Congress does raise the debt limit.''
    Thank you, Mr. Chairman.
    Mr. Ross. Thank you, Mr. Davis.
    That concludes our questioning and our hearing for today.
    I thank the witnesses for being here and taking the time 
out of your busy schedules to testify. With that, our 
subcommittee stands adjourned.
    [Whereupon, at 2:58 p.m., the subcommittee was adjourned.]
    [The prepared statements of Hon. Elijah E. Cummings, Hon. 
Gerald E. Connolly, and Hon. James R. Langevin follow:]
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