The House of Representatives has approved the Senate version of the tobacco bill. (See The `Thrift Savings Plan Enhancement Act of 2009‘)
Sick Leave, Retirement and the Tobacco Bill
As we pointed out in an article last week (See FERS Sick Leave Changes Dropped in Senate Bill: What Impact Should This Have on Your Retirement?), the Senate version of this bill did not include a provision that would have allowed those under the Federal Employee Retirement System (FERS) retirement system to get credit for unused sick leave in computing their retirement pension.
While sick leave is supposed to be used and approved when a person is sick, a number of federal employees under the FERS system use their sick leave as they near retirement. (See
The provision in the tobacco bill was designed to encourage employees not to use their sick leave unless they needed the leave because of illness by giving them credit for the unused leave.
But, while the provision was not included in the tobacco bill, the topic is still alive in a separate bill introduced by James Moran (D-VA) in February. It is currently still within the House Committee on Oversight and Government Reform.
Impact on the Thrift Savings Plan
The original rationale for including changes to the Thrift Savings Plan in a bill that was crafted for more regulation of the tobacco industry was because the savings to the government were supposed to pay for the increased cost of regulation. According to one report: "Provisions in the bill dealing with retirement accounts had a sufficient amount of savings left over to offset costs associated with the tobacco bill provisions." (See Funding Tobacco Legislation by Changing the Thrift Savings Plan)
The savings rationale may have been a ruse or wishful thinking but the final legislation does still contain changes for the TSP.
First, the legislation will enable creation of a Roth plan. Under this plan, a TSP participant will be able to invest after-tax salary into an account that will grow without any additional tax liability on future earnings. This is different from the current TSP in that income tax is paid when money is withdrawn from the TSP as the initial investment was made from pre-tax dollars.
But, even if President Obama signs the legislation right away, as he is expected to do, it will probably be another 1-2 years before the Roth option will be available.
Second, new federal employees will be automatically enrolled in the TSP. They will be able to opt out and get a refund within 90 days if they do not wish to participate. New federal employees would be automatically enrolled in the TSP’s G fund. The government would match the employee’s contributions up to 5 percent of salary. The matching contributions would start immediately
Third, A survivor benefit that would allow spouses of deceased TSP participants to maintain TSP accounts.
Fourth, the legislation creates a mutual fund option that would allow participants to invest their retirement money in private-sector mutual funds.
There is no guarantee that this option will be implemented by the thrift board but it creates the authority to do so in the future. The Federal Retirement Thrift Investment Board would select the mutual funds that would be available to plan participants and extra costs would be paid by those that selected these mutual funds.