[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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73-450 WASHINGTON : 2012
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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
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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
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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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