The Thrift Savings Plan is on track to undergo a major technology modernization and is moving forward with efforts to allow spousal beneficiaries to keep funds in the TSP. But changes to the plan's offerings and the enrollment process were the subject of debate at the first joint meeting of the Employee Thrift Advisory Council and the Federal Retirement Thrift Investment Board on Monday.
Comment on this article in The Forum.While the proposal to allow the spouses of deceased federal employees to continue managing their TSP funds instead of withdrawing them within 60 days would bring the system in line with many private sector plans, it would require the full implementation of other technical upgrades, said Renee Wilder, director of the Office of Research and Strategic Planning at FRTIB.
Thomas Trabucco, the director of external affairs, said more research would have to be done on the tax implications of spousal accounts as well.
"Implementing spousal accounts will touch almost all of the elements of the TSP system and require some significant changes," Wilder said. "We do have some significant homework to do, and we think it's sometime next year that we can say what the timeline is and what the real costs are."
Board Chairman Andrew Saul said spousal benefits should be a high priority and pushed Gregory Long, the plan's executive director, to move quickly on the issue. Creating a spousal benefit requires congressional approval. The Employee Thrift Advisory Council voted unanimously at the meeting to urge Congress to move forward on the issue.
House Oversight and Government Reform Chairman Henry Waxman, D-Calif., ranking member Tom Davis, R-Va., and Federal Workforce Subcommittee Chairman Danny K. Davis, D-Ill., sent a draft bill to the Thrift Investment Board in May, sparking great debate between the board and council members. That legislation would automatically enroll federal employees in the TSP, default those automatic investments into the life-cycle funds, create a Roth Individual Retirement Account option for plan participants, and give the board the authority to create funds for the plan without congressional approval.
James Sauber, chairman of the Employee Thrift Advisory Council and chief of staff of the National Association of Letter Carriers said those members were "dead-set against" any proposal that would give the board the authority to add funds without approval.
"We think this could create a situation where this plan could spin off in a direction that no one intended," he said. "There's a theory to this plan, that it's broad-based, low-cost index funds.... This is an unelected board. This is something that the participants in the plan should have a say in. We [ETAC] have no real power. We can't veto a decision if we don't like it."
Saul said he did not want to see changes to the current process of adding funds, and any change that eliminated chances for input from plan participants and Congress would be "a very big mistake."
Council members also said they were concerned about making the life-cycle funds the default option for automatic enrollment investments. Those funds are designed to produce gains by a certain year, but experience greater fluctuations than other index funds in the TSP.
"If you're going to automatically enroll a quarter-million 18- to 24-year-olds, some number of those won't know they were put in, didn't know they were in [and] didn't want to be in. And we don't want to be in a position of telling them 'we're sorry we invested your money in a 2040 fund, and we can only give you 90 percent of it back,' " said Chuck Witschonke, deputy director for compensation at the Defense Department.
Jacqueline Simon, director of public policy for the American Federation of Government Employees, said the risk of a life-cycle fund default setting was particularly significant because federal employees only rarely take advantage of financial education opportunities and might not be aware of the differences between life-cycle and other funds.
Members of the advisory council and board staff both said more research was necessary to see if TSP participants would actually enroll in Roth IRAs.
The discussion on improving the functionality and security of the TSP's information technology infrastructure was less controversial.
"When we took over, we were totally based in New Orleans. There were backup systems, but it would have taken six months to get them up and running," said Saul. "We were housed in one building that is no longer there, so we're fortunate we got out of there....The really big changes happened over the last six years; this is a continuation of the process."
Mark Hagerty, chief information officer for the Federal Retirement Thrift Investment Board, said the current modernization process was focused on eliminating redundancy and maintaining continuity of operations in case of an emergency, cyberattack or an event that spurred extremely high trading.
Among those measures, the board has moved operations to two centers, one based in Reston, Va., and a backup in Pittsburgh. The backup center does not run at full capacity at all times to keep costs low, but it can be brought up to operate in the event that something happened to the Reston center, ensuring continuity of operations and guaranteeing that no more than 59 minutes of data would be lost, Hagerty said.
"Business assurance and business continuity are baked into the process," Hagerty said. "When we think of any kind of change, it's not one, it's two. Anything that's done at Reston is done in Pittsburgh, and it's done at the same time."
The board has brought on an IT security-certified staffer to oversee the TSP's security program and hired contractor personnel to help out. The board also is exploring enterprisewide security solutions to ensure more seamless protection and to minimize the effects on plan users, so federal employees would not have to adapt to more changes like the 13-digit user identification numbers implemented last year.
Board member Thomas Fink said plan participants constantly are reminded to safeguard their Thrift Savings Plan information and to be alert to security breaches.
"It has to be emphasized that the members have responsibility to look at their quarterly statements to see if something doesn't look right," Fink said. "People tend to get bank statements and put them on the desk."
Sauber said he was grateful for the joint meeting, and hoped the nominations of some board members, which have not yet been voted on, would be resolved quickly.
Saul agreed: "I thought this was a really good experiment. I learned a lot."