The House of Representatives has passed legislation to give the Food and Drug Administration sweeping new powers over tobacco products.
So, why is that of importance to readers of this site? You would not know it from reading the news reports but, In addition to those who may smoke and who may be impacted if this legislation becomes law, there are also new provisions in this legislation that impact the Thrift Savings Plan (TSP).
Some of these changes are significant. And, the way Congress works, the real significance of the changes may not be apparent.
It would provide for automatic enrollment in the Thrift Savings Plan (section 402) although a person can still elect not to participate in the TSP.
The bill directs the TSP to "provide for the inclusion in the Thrift Savings Plan of a qualified Roth contribution program…." This would have implications for TSP investors and could provide a substantial tax savings for those who are qualified to participate in a Roth program.
Finally, the bill would give the TSP the option of setting up a "self-directed investment window." The restrictions on this option would be limiting these investment options to–
- "(i) low-cost, passively-managed index funds that offer diversification benefits; and
- `(ii) other investment options, if the Board determines the options to be appropriate retirement investment vehicles for participants."
The administrative expenses of this self-directed investment window would have to be paid by those who have elected to participate in the program.
Perhaps this new option to the TSP is unrelated to concerns expressed last year by Illinois Congressman Danny Davis (D-IL). Or, for the more cynical or politically astute readers (take your pick), Congress may be getting around to changing the investment philosophy of the TSP. And, if Congress sees an advantage in changing a program with billions of dollars at stake and some small portion of those billions represent your personal financial future in retirement, you may want to pay attention.
Congressman Davis is concerned about the role of women and minorities and your TSP money. According to a report in Government Executive, the Congressman is bothered that the indexing approach used by the TSP may exclude financial firms run by women and minorities from getting a bigger piece of the billions of dollars in the TSP pool and wants to consider using actively managed funds instead of index funds. The concerned Congressman stated: "The executive director of the Federal Retirement Thrift Investment Board revealed that there are minority firms with talent in long-term financial management. However, most of those firms gravitate toward the active fund management business, which is not an investment strategy of the TSP. Research by the TSP indicates that there may be only one minority-owned firm that deals with passive management of index funds."
In effect, if the Tobacco legislation gets through the Senate and becomes a law, the TSP is free to start investing TSP money "in other investment options, if the Board determines the options to be appropriate retirement investment vehicles for participants."
Congress is clearly moving ahead with changes to the Thrift Savings Plan. Federal employees are often more aware of politics and the implications of new laws on federal pay and benefits. Some of the changes may be beneficial. You may think some of the changes are potentially harmful to your retirement investments. Regardless of your view, this change may be worth your attention because of its potential long-term impact on the TSP and how it may impact your retirement savings.