[Senate Report 108-290]
[From the U.S. Government Publishing Office]




                                                       Calendar No. 606
108th Congress                                                   Report
                                 SENATE
 2d Session                                                     108-290
======================================================================

 
             THRIFT SAVINGS PLAN OPEN ELECTIONS ACT OF 2004

                               __________

                              R E P O R T

                                 of the

         COMMITTEE ON GOVERNMENTAL AFFAIRS UNITED STATES SENATE

                              to accompany

                                S. 2479

  TO AMEND CHAPTER 84 OF TITLE 5, UNITED STATES CODE, TO PROVIDE FOR 
  FEDERAL EMPLOYEES TO MAKE ELECTIONS TO MAKE, MODIFY, AND TERMINATE 
  CONTRIBUTIONS TO THE THRIFT SAVINGS FUND AT ANY TIME, AND FOR OTHER 
                                PURPOSES




                 June  25, 2004.--Ordered to be printed

                                 _____

                     U.S. GOVERNMENT PRINTING OFFICE
                           WASHINGTON: 2004
29-010



                   COMMITTEE ON GOVERNMENTAL AFFAIRS

                   SUSAN M. COLLINS, Maine, Chairman
TED STEVENS, Alaska                  JOSEPH I. LIEBERMAN, Connecticut
GEORGE V. VOINOVICH, Ohio            CARL LEVIN, Michigan
NORM COLEMAN, Minnesota              DANIEL K. AKAKA, Hawaii
ARLEN SPECTER, Pennsylvania          RICHARD J. DURBIN, Illinois
ROBERT F. BENNETT, Utah              THOMAS R. CARPER, Delaware
PETER G. FITZGERALD, Illinois        MARK DAYTON, Minnesota
JOHN E. SUNUNU, New Hampshire        FRANK LAUTENBERG, New Jersey
RICHARD C. SHELBY, Alabama           MARK PRYOR, Arkansas

           Michael D. Bopp, Staff Director and Chief Counsel
            Jennifer A. Hemingway, Professional Staff Member
      Heather E. Hogg, Professional Staff Member, Subcommittee on
      Financial Management, the Budget, and International Security
      Joyce A. Rechtschaffen, Minority Staff Director and Counsel
                    Larry B. Novey, Minority Counsel
   Nanci E. Langley, Minority Deputy Staff Director, Subcommittee on
      Financial Management, the Budget, and International Security
                      Amy B. Newhouse, Chief Clerk


                                                       Calendar No. 606
108th Congress                                                   Report
                                 SENATE
 2d Session                                                     108-290
======================================================================


             THRIFT SAVINGS PLAN OPEN ELECTIONS ACT OF 2004

                                _______
                                

                 June 25, 2004.--Ordered to be printed

                                _______
                                

Ms. Collins, from the Committee on Governmental Affairs, submitted the 
                               following

                              R E P O R T

                         [To accompany S. 2479]

    The Committee on Governmental Affairs, to which was 
referred the bill (S. 2479) to amend chapter 84 of title 5, 
United States Code, to provide for Federal employees to make 
elections to make, modify, and terminate contributions to the 
Thrift Savings Fund at any time, and for other purposes, having 
considered the same, reports favorably thereon and recommends 
that the bill do pass.

                                CONTENTS

  I. Purpose and Summary..............................................1
 II. Background.......................................................2
III. Legislative History..............................................5
 IV. Section-by-Section Analysis......................................6
  V. Estimated Cost of Legislation....................................7
 VI. Evaluation of Regulatory Impact.................................10
VII. Changes in Existing Law.........................................11

                         I. Purpose and Summary

    S. 2479, the Thrift Savings Plan Open Elections Act of 
2004, is a bill to modernize certain rules relating to 
contributions by federal employees to the Thrift Savings Plan 
(TSP). The purpose of the legislation is to allow employees to 
make, modify, or terminate contributions to the TSP at any 
time, without penalty. In addition, the legislation would 
require the Federal Retirement Thrift Investment Board to 
evaluate its current education program to ensure that 
participants have access to the tools needed to make informed 
investment choices regarding the TSP.

                             II. Background

    Prior to enactment of the Social Security amendments of 
1983,\1\ federal employees were not covered by Social Security, 
and received their pensions through the Civil Service 
Retirement System (CSRS).\2\ The 1983 amendments mandated 
coverage for civilian federal employees hired after January 1, 
1984, and led to enactment of the Federal Employees' Retirement 
System Act of 1986 (FERSA).\3\ The Federal Employees' 
Retirement System (FERS), created by FERSA, consists of three 
elements: (1) Social Security,\4\ (2) a basic annuity, and (3) 
the TSP. Of the 2,670,000 active federal and Postal Service 
employees as of September 30, 2003, 1,882,000 (70 percent) were 
covered by FERS and 788,000 (30 percent) were covered by 
CSRS.\5\
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    \1\ Public Law No. 98-21 (1983).
    \2\ Public Law No. 66-215 (1920).
    \3\ Public Law No. 99-335 (1986).
    \4\ Public Law 98-21 mandated that all federal employees hired on 
or after January 1, 1984, participate in Social Security. Prior to 
enactment of the Social Security Amendments of 1983, no civilian 
federal employees participated in Social Security.
    \5\ Data from the Office of Strategic Human Resources Policy at the 
Office of Personnel Management (June 9, 2004).
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                          THRIFT SAVINGS PLAN

    The TSP is a voluntary, tax-deferred defined contribution 
plan, that is available to both federal civilian employees and 
members of the uniformed services.\6\ The TSP is administered 
by the Federal Retirement Thrift Investment Board.\7\ The plan 
has more than 3.3 million participants with assets of 
approximately $135 billion.\8\ As of April 2004, 86.4 percent 
of FERS employees and 67 percent of CSRS employees had elected 
to make payroll contributions to the TSP.\9\ Among members of 
the uniformed services, 405,000 were participating in the 
TSP.\10\
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    \6\ Public Law No. 106-398 (2000) allows uniformed services 
personnel on active duty or in the ready reserve to participate in the 
TSP under the same terms and conditions as civilian federal employees.
    \7\ The Federal Retirement Thrift Investment Board was established 
by Public Law No. 99-335 (1986) as an independent agency to administer 
the TSP. The Board consists of five members appointed by the President 
and confirmed by the Senate. The Board is charged with diversifying the 
investments of the TSP in order to minimize the risk of large losses 
and to defray the reasonable expenses of administering the TSP.
    \8\ Data from the Director of the Office of External Affairs at the 
Federal Retirement Thrift Investment Board (June 9, 2004).
    \9\ Id.
    \10\ Id.
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    Federal agencies contribute an amount equal to 1 percent of 
an employee's base pay to the TSP for each employee covered by 
FERS, whether or not the employee chooses to contribute 
anything to the plan. Agencies help their employees meet their 
retirement needs by matching FERS employee contributions 
dollar-for-dollar on the first 3 percent of pay and at $.50 on 
the dollar on the next 2 percent of pay. The maximum agency 
contribution is 5 percent of pay. Employees covered by CSRS may 
contribute to the TSP; however, they do not receive matching 
contributions from their agency. Employees electing to 
participate in the TSP are immediately vested in their 
voluntary contributions, agency matching contributions, and any 
growth in the value of their contributions. Participants are 
fully vested in the one percent agency automatic contributions 
to the TSP after two to three years, depending on their place 
of employment.
    The following five funds are currently available to TSP 
participants:
    The Government Security Investment Fund (G Fund), which is 
invested in short-term U.S. Treasury securities specially 
issued to the TSP.\11\
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    \11\ 5 U.S.C. Sec. 8438 (b)(1)(A).
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    The Fixed Income Index Investment Fund (F Fund), which is 
invested in fixed-income securities.\12\
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    \12\ 5 U.S.C. Sec. 8438 (b)(1)(B).
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    The Common Stock Index Investment Fund (C Fund), which is 
invested in a portfolio designed to replicate the performance 
of an index that includes stocks representing the U.S. stock 
market.\13\ The Board has chosen to invest this fund to match 
the performance of the Standards and Poor's Corporation (S&P) 
500 index, which tracks the performance of major U.S. companies 
and industries.
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    \13\ 5 U.S.C. Sec. 8438 (b)(2).
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    The Small Capitalization Stock Index Investment Fund (S 
Fund), which is invested in a portfolio designed to replicate 
the performance of an index of U.S. common stocks, excluding 
those that are held in the C Fund.\14\
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    \14\ 5 U.S.C. Sec. 8438 (b)(3).
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    The International Stock Index Investment Fund (I Fund), 
which is invested in a portfolio designed to track the 
performance of an index of common stocks, representing 
international stock markets outside of the United States.\15\
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    \15\ 5 U.S.C. Sec. 8438 (b)(4).
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    In June 2005, TSP participants will have the option of 
placing their contributions into a life cycle fund, or L fund. 
The L fund would be invested in the five existing TSP funds, 
and its asset allocation would change as the individual 
participant approaches his or her retirement.

            ELECTIONS FOR THRIFT SAVINGS PLAN CONTRIBUTIONS

    The TSP currently holds two open seasons annually, during 
which federal employees can join the fund and begin to receive 
matching contributions from their agencies or adjust the amount 
of employee contributions. Newly hired employees can elect to 
contribute to the TSP within a 60-day period after the start of 
employment.\16\ Contributions will begin no later than the 
first full pay period after the agency accepts the employee's 
election. If an employee does not make an election within this 
60-day period, he or she must wait until an open season to do 
so. The two open seasons are April 15 through June 30 and 
October 15 through December 31. Generally, elections are made 
effective during the last month of the open season.
---------------------------------------------------------------------------
    \16\ Public Law No. 106-361 (2000).
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    Under current law, employees can stop contributing their 
own money to the TSP at any time; however, the employee must 
wait before resuming contributions. If an employee elects to 
stop contributing during an open season, he or she must wait 
until the next open season to start again. If an employee 
elects to stop contributing outside an open season, he or she 
must wait until the second open season after the election has 
ended before contributions can begin again.
    In testimony before the Subcommittee on Financial 
Management, the Budget, and International Security, Andrew 
Saul, Chairman of the Federal Retirement Thrift Investment 
Board, stated that the Board supports the elimination of the 
open season requirement because it would expand participant 
access and simplify the administration of the TSP.\17\ Saul 
noted that the open seasons were ``useful when the Plan was 
conceived because they provided a structure for the initial 
implementation. They are no longer useful in a daily-valued 
plan environment.'' \18\ Jim Sauber, Chairman of the Employee 
Thrift Advisory Council,\19\ testified that eliminating the TSP 
open season is perhaps the single best way to reach the 13 
percent of employees in the Federal Employees Retirement System 
who still do not make contributions to the TSP.\20\
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    \17\ Testimony of Andrew M. Saul, Chairman, Federal Retirement 
Thrift Investment Board, before the Subcommittee on Financial 
Management, the Budget, and International Security, March 1, 2004, p. 
3.
    \18\ Id. On June 16, 2003, the TSP launched a new daily valued 
record keeping system. The automated system accepts new contributions 
and loan payments made via payroll deduction, and allows participants 
to request loans and conduct interfund transfers or withdrawals using 
web-based tools. The new system values funds daily, and transactions 
such as interfund transfers, loans, and withdrawals are processed more 
quickly.
    \19\ The Employee Thrift Advisory Council is a 15-member body 
established by Public Law No. 99-335 (1986) to advise the Federal 
Retirement Thrift Investment Board on matters related to the Thrift 
Savings Plan. 5 U.S.C. Sec. 8473.
    \20\ Testimony of James Sauber, Chairman, Employee Thrift Advisory 
Council, before the Subcommittee on Financial Management, the Budget, 
and International Security, March 1, 2004, p. 4.
---------------------------------------------------------------------------
    The Thrift Savings Plan Open Elections Act of 2004 would 
allow federal employees to enjoy the opportunities afforded to 
many private sector workers to modify their contributions at 
any time, without penalty. The Committee believes that the 
removal of restrictions placed on employees by the biannual 
open season requirement will encourage greater participation in 
this important element of the federal retirement system.
    While the bill would allow employees to make contributions 
to the TSP at any time, it would not change the existing 
statutory requirements for the agency automatic 1 percent and 
matching contributions, which do not begin until the second 
open season, a period that may last from six months to one year 
depending upon the employee's date of hire.

                          RETIREMENT EDUCATION

    The Office of Personnel Management (OPM) has broad 
authority to design and implement a retirement education 
program for federal employees covered by CSRS and FERS. OPM 
works with agencies to meet their statutory requirement to 
provide retirement counseling that is designed to promote fully 
informed retirement decisions by employees.\21\ As part of its 
retirement education efforts, OPM is currently working with the 
International Foundation for Retirement Education (InFRE) to 
develop the Retirement Readiness Project that will be used to 
evaluate how well the federal workforce is prepared for 
retirement.\22\ OPM is also hosting a series of financial 
literacy fairs throughout the country. The TSP is participating 
in these fairs.
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    \21\ 5 U.S.C. Sec. 8350 (c).
    \22\ The outline of the Retirement Readiness Project was provided 
in the conference report to accompany Public Law No. 108-7 (2003), 
Report 108-10 (2003), pp. 1352-53.
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    The Federal Retirement Thrift Investment Board provides 
training and information on the TSP; however, it is not 
responsible for providing retirement education for the federal 
workforce. The Federal Retirement Thrift Investment Board makes 
available educational materials to enable federal employees to 
make informed decisions regarding the TSP. The Committee 
recognizes the Board's recent revision of educational materials 
as part of the Board's ongoing effort to inform participants of 
the diversity of investment options available.\23\ The 
legislation ensures that the current Board's commitment to 
improve educational materials will continue by requiring the 
Board to conduct periodic evaluations of the educational 
materials available to TSP participants. In evaluating the 
existing tools available to TSP participants, the Committee 
urges the Federal Retirement Thrift Investment Board to ensure 
that participants retain their current option to receive such 
information in writing instead of electronically.\24\
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    \23\ Testimony of Gary A. Amelio, Executive Director, Federal 
Retirement Thrift Investment Board, before the Subcommittee on 
Financial Management, the Budget, and International Security, March 1, 
2004, p. 3.
    \24\ As of November 30, 2004, approximately 10,000 participants 
have elected to receive written copies of their quarterly statements.
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    As with all Americans, federal employees face increasingly 
complex financial decisions that will affect their retirement 
security. The Committee commends the Board and OPM for seeking 
ways to provide retirement education. To further these efforts 
the Thrift Savings Plan Open Elections Act of 2004 would also 
require the OPM, in consultation with the Federal Retirement 
Thrift Investment Board, to develop a retirement financial 
literacy and education strategy for federal employees as part 
of its existing retirement education activities, and report 
such strategy to the Committee on Governmental Affairs and 
House Committee on Government Reform. The Committee believes 
that the financial literacy and education strategy contemplated 
under the legislation will improve federal employees' access to 
information to make well-informed retirement planning 
decisions. Consultation with the Board will ensure that federal 
employees have access to the complete array of materials that 
discuss the importance of TSP as a component of their 
retirement. The Committee intends to use both the OPM strategy 
and TSP's periodic reports to measure the level and quality of 
the retirement education program available to federal 
employees, including those participating in the TSP.

                        III. Legislative History

    S. 2479 was introduced by Senators Susan Collins, Daniel 
Akaka, Peter Fitzgerald, Joseph Lieberman, and George Voinovich 
on May 21, 2004, and was referred to the Committee on 
Governmental Affairs. The legislation was subsequently referred 
to the Subcommittee on Financial Management, the Budget, and 
International Security that same day. On June 1, 2004, the 
Subcommittee on Financial Management, the Budget and 
International Security favorably polled out S. 2479 to the full 
Committee.
    On June 2, 2004, the Committee on Governmental Affairs 
considered S. 2479 and ordered the bill reported by voice vote 
without amendment. Senators present: Akaka, Bennett, Carper, 
Collins, Fitzgerald, Lautenberg, Levin, Lieberman, and 
Voinovich.

                    IV. Section-by Section Analysis


Section 1. Elections for Thrift Savings Plan Contributions

    This section would amend chapters 83 and 84 of title 5, 
United States Code, to allow federal employees to make, modify 
and terminate contributions to the Thrift Savings Fund at any 
time.
    Subsection (a) titles the bill as the ``Thrift Savings Plan 
Open Elections Act of 2004.''
    Subsection (b) would amend section 8432(b)(1)(A) of title 
5, United States Code, to require the Executive Director of the 
Federal Retirement Thrift Investment Board to prescribe 
regulations under which federal employees may begin, modify, 
and terminate contributions to the Thrift Savings Fund at any 
time. The subsection states that contributions will take effect 
on the earliest date after the election that is 
administratively feasible, and will remain in effect until such 
contributions are modified or terminated.
    Subsection (c) would amend section 8432(b)(4)(C) of title 
5, United States Code, to make clear that the automatic agency 
contributions and employer matching contributions will not 
begin to be made with respect to an employee or member until 
the date that such contributions would have begun to be made in 
accordance with the paragraph as administered on the date 
preceding the date of enactment of the Thrift Savings Plan Open 
Elections Act of 2004.
    Subsection (d) would make technical and conforming 
amendments to chapters 83 and 84 of title 5, United States 
Code.
    Subsection(d)(1) would amend section 8351(a)(2) of title 5, 
United States Code, to allow employees under the Civil Service 
Retirement System to begin, modify, and terminate contributions 
to the Thrift Savings Fund at any time.
    Subsection (d)(2) would amend section 8432(b)(2) of title 
5, United States Code, to allow contributions by previously 
ineligible employees to be made at any time.
    Subsection (d)(3) would amend section 8439(c)(2) of title 
5, United States Code, to require the Federal Retirement Thrift 
Investment Board to provide information about their enrollment 
options on a regular basis to individuals for whom an account 
is maintained. Section 8439(c)(2) of title 5 requires the 
information to be designed in a manner to facilitate informed 
decisionmaking.
    Subsection (d)(4) would amend section 8440a(a)(2) of title 
5, United States Code, to allow justices and judges of the 
United States as defined by section 451 of title 28, United 
States Code, to begin, modify, and terminate contributions to 
the Thrift Savings Fund at any time.
    Subsection (d)(5) would amend section 8440b(a)(2) of title 
5, United States Code, to allow bankruptcy judges and 
magistrates to begin, modify, and terminate contributions to 
the Thrift Savings Fund at any time.
    Subsection (d)(6) would amend section 8440c(a)(2) of title 
5, United States Code, to allow a judge of the United States 
Claims Court who is covered by section 178 of title 28, United 
States Code, to begin, modify, and terminate contributions to 
the Thrift Savings Fund at any time.
    Subsection (d)(7) would amend section 8440d(a)(2) of title 
5, United States Code, to allow a judge of the United States 
Court of Appeals for Veterans Claims to begin, modify, and 
terminate contributions to the Thrift Savings Fund at any time.
    Subsection (d)(8) would amend section 8440e(b)(2)(A) of 
title 5, United States Code, to allow a member of the uniformed 
services as defined by section 211 of title 37, United States 
Code, to begin, modify, and terminate contributions to the 
Thrift Savings Fund at any time.

Section 2. Enhancing financial literacy

    This section would amend title 5, United States Code, by 
adding a new section to improve the educational materials 
available to Thrift Savings Plan participants.
    Subsection (a) would require the Federal Retirement Thrift 
Investment Board to periodically evaluate whether the tools 
available to participants provide the information needed to 
understand, evaluate, and compare financial products, services, 
and opportunities offered through the Thrift Savings Plan.
    Subsection (b) would require the Federal Retirement Thrift 
Investment Board to provide an annual report, to the Senate 
Committee on Governmental Affairs and the House Committee on 
Government Reform, of its Thrift Savings Plan education efforts 
on behalf of plan participants.
    Subsection (c) would require the Office of Personnel 
Management, in consultation with the Federal Retirement Thrift 
Investment Board, to develop a retirement financial literacy 
and education strategy for federal employees no later than six 
months after the date of enactment of the Thrift Savings Plan 
Open Elections Act of 2004. In consulting pursuant to this 
section, the Federal Retirement Thrift Investment Board is 
limited to providing the Office of Personnel Management with 
information concerning the features of the TSP. This subsection 
would also require the Office of Personnel Management, in 
consultation with the Federal Retirement Thrift Investment 
Board, to submit a report to the Committee on the strategy 
developed under this subsection.

                    V. Estimated Cost of Legislation


                  CONGRESSIONAL BUDGET OFFICE ESTIMATE

S. 2479--Thrift Savings Plan Open Elections Act of 2004

    Summary: S. 2479 would make changes to the rules that 
govern participation in the federal employees' Thrift Savings 
Plan (TSP). Namely, it would allow federal employees and 
members of the uniformed services to begin or alter their TSP 
contributions at any time instead of limiting such changes to 
biannual open-season periods. The bill also would require the 
Federal Retirement Thrift Investment Board--the agency which 
administers the TSP--to evaluate and report on efforts to 
increase education programs for TSP participants. CBO estimates 
that implementing the bill would cost $2 million in 2005 and 
$30 million over the 2005-2014 period, subject to the 
appropriation of the necessary amounts. We also estimate the 
bill would decrease tax revenues by $1 million in 2005 and $23 
million over the 2005-2014 period. Finally, the bill also would 
affect spending and collections of the U.S. Postal Service, but 
CBO estimates that those changes would result in no significant 
net effect on direct spending in any year.
    The bill contains no intergovernmental or private-sector 
mandates as defined by the Unfunded Mandates Reform Act (UMRA) 
and would impose no costs on state, local, or tribal 
governments.
    Estimated costs to the Federal Government: The estimated 
budgetary impact of S. 2479 is shown in the following table. 
The costs of this legislation would fall within multiple budget 
functions.

----------------------------------------------------------------------------------------------------------------
                                                           By fiscal year in millions of dollars--
                                           ---------------------------------------------------------------------
                                             2005   2006   2007   2008   2009   2010   2011   2012   2013   2014
----------------------------------------------------------------------------------------------------------------
                                  CHANGES IN SPENDING SUBJECT TO APPROPRIATION

Estimated Authorization Level.............      2      2      3      3      3      3      3      3      4      4
Estimated Outlays.........................      2      2      3      3      3      3      3      3      4      4

                                               CHANGES IN REVENUES

Estimated Revenues........................     -1     -2     -2     -2     -2     -2     -3     -3      3     -3
----------------------------------------------------------------------------------------------------------------
Note.--Enacting S. 2479 also would affect direct spending, primarily at the U.S. Postal Service; but CBO
  estimates that there would be no significant net effect on direct spending in any year.

    Basis of estimate: For the purposes of this estimate, CBO 
assumes this would be effective in January 2005 and that the 
necessary appropriations for the additional federal agency 
contributions would be provided.

Background

    The TSP is a tax-deferred, defined contribution pension 
plan open to most federal employees and members of the 
uniformed services. Federal employees who are covered by the 
Federal Employees' Retirement System (FERS) may contribute up 
to 14 percent of basic pay to their TSP account up to the 
Internal Revenue Service (IRS) statutory maximum ($13,000 in 
2004). Employees who are covered by the Civil Service 
Retirement System (CSRS) and members of the uniformed services 
may contribute up to 9 percent of basic pay up to the IRS 
maximum. Participants who are 50 years old or older may 
contribute an additional $3,000 above the caps that would 
otherwise apply to their contributions.
    Employees who are covered by FERS are also eligible to 
receive contributions from their employing agency. Agencies 
automatically contribute 1 percent of basic pay toward the TSP 
accounts of employees who are covered by FERS, regardless of 
whether the employee is making a contribution. Employing 
agencies then match employee contributions up to 5 percent of 
pay. Agency matches are dollar for dollar on the first 3 
percent of employee contributions and 50 percent on the next 2 
percent. Agency contributions begin after the second open 
season after an employee becomes eligible to participate in the 
TSP. CSRS employees and members of the uniformed services do 
not receive agency contributions to their TSP accounts.
    Under current law, newly hired federal employees and 
members of the uniformed services have a 60-day period in which 
they may begin making ASP contributions. If they fail to do so, 
employees must wait until an open season period to begin making 
contributions. Open seasons run each year from April 15 to June 
30 and from October 15 to December 31. In addition, current TSP 
participants may only change their contributions during an open 
season period. Participants may elect to increase or decrease 
the amount of money they are contributing during those periods, 
with changes effective during the first pay period after the 
close of the open season. Participants may choose to terminate 
their TSP contributions at any time, although they must wait 
until the second open season after contributions are terminated 
before they can start contributing again.
    S. 2479 would eliminate the initial enrollment period and 
allow participants to change their contributions at any time. 
Once a participant elects to change his or her contribution 
amount, the change would take effect almost immediately. The 
bill places no limit on how many times participants may change 
contributions, or how large such changes can be, as long as 
they remain within the overall contribution limits. Changes to 
agency contributions that would be initiated by changes to 
participant contributions would also take effect immediately. 
The bill would not affect when agency contributions begin for 
newly eligible employees--those would still start after the 
second open season after which an employee is first eligible to 
participate in the TSP.

Spending Subject to Appropriation

    Over time, participants generally increase the percentage 
of pay they contribute to their TSP accounts. The longer one 
has worked for the federal government, the greater percentage 
of pay one usually devotes to TSP contributions. According to 
data from the Thrift Investment Board, FERS employees who first 
participated in TSP in 1989 contributed an average of 5 percent 
of pay during their first year of participation. By the fifth 
year of participation, the average level of contribution for 
this group was about 6 percent, and by the 14th year of 
participation the average contribution level was almost 8 
percent.
    By providing participants with greater flexibility to 
start, stop, and change contributions, S. 2479 would cause some 
people to increase or decrease contribution levels sooner or 
later than they do under the current open season system. 
However, given the tendency for participants to increase their 
contributions over time, CBO assumes that allowing greater 
flexibility would generally lead participants to increase their 
contributions slightly sooner than they would have otherwise. 
On average, participants increase their contributions by 
roughly 0.2 percent of pay each year, and CBO predicts that 
under S. 2479 this increase would take place one month earlier 
then under the current system. For those in FERS who are 
contributing less than 5 percent (about 500,000 federal 
workers), the faster increase in participant contributions 
would increase agency matching contributions as well. Agency 
contributions, which are paid from personnel budgets, are 
usually spending subject to appropriation. CBO estimates that 
S. 2479 would cause agency contributions to increase by $2 
million in 2005, $13 million over the 2005-2009 period, and $30 
million over the 2005-2014 period.

Revenues

    Because income taxes are deferred on TSP contributions, the 
anticipated increase in participant contributions initially 
would result in lower income tax revenue.\1\ The program 
maintains nearly 3 million accounts, with approximately 2.3 
million participants currently making their own contributions. 
Social insurance taxes would not be affected by the bill, as 
wages invested in TSP remain subject to social insurance taxes. 
CBO estimates S. 2479 would reduce income tax revenue by $1 
million in 2005, $9 million over the 2005-2009 period, and $23 
million over the 2005-2014 period.
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    \1\ TSP assets and earnings on those assets are subject to tax once 
they are drawn on.
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Direct Spending

    CBO anticipates that S. 2479 would have a similar effect on 
contributions among employees of the U.S. Postal Service as it 
would on participants employed by other federal agencies. As 
such, increases in TSP contributions among Postal Service 
employees would increase slightly, as would agency matching 
contributions for those in FERS contributing less than 5 
percent of pay. However, unlike most other agencies, the Postal 
Service has the ability to increase its income to cover 
increases in its operating costs, which are classified as 
direct spending. CBO assumes the bill would increase Postal 
Service matching contributions by about $1 million to $2 
million annually, but that such increases would be offset by 
increased receipts from postal rates. Such changes may not be 
simultaneous, so there could be some small net effect on direct 
spending in any particular year, but CBO estimates that there 
would be no significant net effect in any year.
    In addition to granting increased flexibility over 
participant contributions, S. 2479 also would require the 
Federal Retirement Thrift Investment Board to periodically 
study and report on efforts to educate TSP participants about 
the financial products and services which the program offers. 
Operations of the Board are funded from forfeitures of the 
automatic 1 percent agency contribution for employees who 
separate before vesting and from a share of earnings on 
participant and agency contributions. CBO does not anticipate 
the bill would cause a significant increase in the Board's 
administrative costs. Any cost increases which do occur would 
be offset by drawing funds available from contribution 
forfeitures or by increasing the share of investment earnings 
that are used to cover administrative expenses. Therefore, S. 
2479 would have no net effect on direct spending over time.
    Intergovernmental and private-sector impact: S. 2479 
contains no intergovernmental or private-sector mandates as 
defined by UMRA and would impose no costs on state, local, or 
tribal governments.
    Estimate prepared by: Federal Outlays: Geoffrey Gerhardt; 
Federal Revenues: Barbara Edwards; Impact on state, local, and 
tribal governments: Leo Lex; and Impact on the Private Sector: 
Karen Raupp.
    Estimate approved by: Peter H. Fontaine, Deputy Assistant 
Director for Budget Analysis and G. Thomas Woodward, Assistant 
Director for Tax Analysis.

                  VI. Evaluation of Regulatory Impact

    Pursuant to the requirements of paragraph 11(b) of rule 
XXVI of the Standing Rules of the Senate, the Committee has 
considered the regulatory impact of this bill. CBO states that 
there are no intergovernmental or private-sector mandates as 
defined in the Unfunded Mandates Reform Act and no costs on 
state, local, or tribal governments. The legislation contains 
no other regulatory impact.

                      VII. Changes in Existing Law

    In compliance with paragraph 12 of rule XXVI of the 
Standing Rules of the Senate, changes in existing law made by 
the bill, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italic and existing law, in which no 
change is proposed, is shown in roman):

TITLE 5, UNITED STATES CODE

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GOVERNMENT ORGANIZATION AND EMPLOYEES

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PART III--EMPLOYEES

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Subpart G--Insurance and Annuities

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CHAPTER 84--FEDERAL EMPLOYEES' RETIREMENT SYSTEM

           *       *       *       *       *       *       *



Subchapter III--Civil Service Retirement

           *       *       *       *       *       *       *



Sec. 8351. Participation in the Thrift Savings Plan

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    (a)(2) An election may be made under subparagraph (1) [only 
during a period] as provided under section 8432(b) for 
individuals who are subject to chapter 84 of this title.

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Subchapter III--Thrift Savings Plan

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Sec. 8432. Contributions

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    (b)(1)(A) (i) The Executive Director shall prescribe 
regulations under which employees and Members [shall be 
afforded a reasonable period every 6 months to elect to] may 
make contributions under subsection (a), to modify the amount 
to be contributed under such subsection, or to terminate such 
contributions. [An election to make such contributions shall 
remain in effect until modified or terminated.]
    (ii) An election to make contributions under the 
paragraph--
          (I) may be made at any time;
          (II) shall take effect on the earliest date after the 
        election that is administratively feasible; and
          (III) shall remain in effect until modified or 
        terminated.
    (b)(2) Under the regulations.--
          (A) an employee or Member who has not previously been 
        eligible to make an election under this subsection 
        shall not become so eligible until the [second period] 
        date (described in paragraph (1)) beginning after the 
        date of commencing service as an employee or Member;
          (B) an employee or Member whose appointment or 
        election to a position or office in the Federal 
        Government follows a previous period of service during 
        which that individual met the requirements of 
        subparagraph (A) shall be eligible to make an election 
        under this subsection notwithstanding any period of 
        separation;
          (C) an employee or Member who elects under 
        subparagraph (D) to terminate contributions shall not 
        again become eligible to make an election under this 
        subsection until the [second period] date (described in 
        paragraph (1)) commencing after the election to 
        terminate; and
          (D) an election to terminate may be made under this 
        subparagraph at any time [other than during a period 
        afforded] as provided under paragraph (1).
    (b)(4)(C) (i) Notwithstanding the preceding provisions of 
this paragraph, contributions under paragraphs (1) and (2) of 
subsection (c) shall not be payable with respect to any pay 
period before the earliest pay period for which such 
contributions would otherwise be allowable under this 
subsection if this paragraph had not been enacted.
    (ii) Notwithstanding subparagraph (A) or (B), contributions 
under paragraphs (1) and (2) of subsection (c) shall not begin 
to be made with respect to an employee or Member described 
under paragraph (2) (A) or (B) until the date that such 
contributions would have begun to be made in accordance with 
this paragraph as administered on the date preceding the date 
of enactment of the Thrift Savings Plan Open Elections Act of 
2004.

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Sec. 8439. Accounting and information

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    (c)(2) Information under this subsection shall be provided 
[at least 30 calendar days before the beginning of each 
election period under section 8432(b)(1)(A) of this title] on a 
regular basis, and in a manner designed to facilitate informed 
decisionmaking with respect to election under section 8432 and 
8438 of this title. Nothing in this paragraph shall be 
considered to limit the dissemination of information only to 
the time required under the preceding sentence.

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Sec. 8440a. Justices and judges

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    (a)(2) An election may be made under paragraph (1) [only 
during a period] as provided under section 8432(b) for 
individuals subject to this chapter.

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Sec. 8440b. Bankruptcy judges and magistrates

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    (a)(2) An election may be made under paragraph (1) [only 
during a period] as provided under section 8432(b) for 
individuals subject to this chapter.

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Sec. 8440c. Claims Court judges

           *       *       *       *       *       *       *


    (a)(2) An election may be made under paragraph (1) [only 
during a period] as provided under section 8432(b) for 
individuals subject to this chapter.

           *       *       *       *       *       *       *


Sec. 8440d. Judges of the United States Court of Appeals for Veterans 
                    Claims

           *       *       *       *       *       *       *


    (a)(2) An election may be made under paragraph (1) [only 
during a period] as provided under section 8432(b) for 
individuals subject to this chapter.

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Sec. 8440e. Members of the uniformed services

           *       *       *       *       *       *       *


    (b)(2)(A) Except as provided in subparagraph (b), an 
election to contribute to the Thrift Savings Fund under this 
section may be made [only during a period] as provided under 
section 8432(b)[, subject to the same conditions as prescribed 
under paragraph (2) (A)-(D) thereof.].

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