Calculating Your FERS Annuity, Changing the TSP and Tobacco: Politics and the Federal Workforce

The House recently passed a bill change the TSP investment philosophy and the annuity calculations for those under FERS. Is it now in effect? What do these changes for the federal workforce have to do with the tobacco industry?

Recent articles on tobacco legislation that has been passed by the House of Representatives have generated several questions from readers. We have published several articles on the changes that would be brought about by the legislation. Because of the complexity of the changes and because the changes are in a bill with a title that addresses tobacco and has no obvious connection to the changes that impact most federal employees, the changes can be confusing. Here are the answers to some of these questions and a quick summary of the changes.

First, while the legislation’s primary purpose is to give the Food and Drug Administration regulatory authority over tobacco, the legislation also impacts the federal Thrift Savings Plan and the annuity calculations for federal employees who are retiring under the FERS program. There is no obvious connection between the primary purpose of the legislation (tobacco) and the inclusion of provisions on the TSP and the federal annuity program. My guess is that the unrelated topics are lumped together because the changes to the TSP are supposedly going to save the federal government enough money to fund the expenses created by the tobacco legislation. (See Funding Tobacco Legislation by Changing the Thrift Savings Plan) Whether that is the case or not, wade through the legislation and, as you get to the end of the large document, you will come to the provisions that are of the most interest to our readers.

The original article we published on these changes addressed changes to the Thrift Savings Plan.

The legislation would:

  • Start the ball rolling to set up a Roth IRA within the TSP structure.
  • Allow the TSP to automatically enroll new TSP participants in the G fund or "such alternative fund or … as the Board may designate in regulations." In other words, new federal employees would be automatically enrolled in the G fund or, perhaps, another fund selected by the TSP. The other fund selected would most likely be the appropriate lifecycle fund.
  • And, it would open the door to changing the investment philosophy of the TSP. (See Money, Congress and Your TSP: Watch Out for Your Retirement Money)

Part of the confusion about what is in this legislation is due to the fact that the original bill with these changes (H.R. 6500) was subsequently included as part of the tobacco legislation (H.R. 1108EH). While the number and the title changed, the substance of the changes of most interest to our readers remains the same.

Second, a number of readers asked if this new legislation is already in effect now  that the House has passed this bill.

The answer is a definite "no." If you are planning to retire this year and hope to take advantage of the changes to the FERS annuity calculation because of the changes to the sick leave policy (See House Passes Legislation to Increase Federal Annuity Increases for Some), you may be out of luck.

The legislation will not become effective unless or until the Senate also passes a bill to implement the new changes. If the Senate passes the bill, the President will have to sign it to make it into law. Moreover, the White House has indicated that the President will veto the bill if it passes the Senate. The rationale for the veto is not related to the changes to the TSP or to calculating federal annuity payments for those under FERS. Rather, the dispute is over the cost of the bill and whether the bill would overload the Food and Drug Administration with responsibilities that are inconsistent with the mission of that agency.

From recent reports, it does not appear that there is enough support in the Senate to override a presidential veto.

In other words, the bill passed by the House is not a law and is not yet effective. It is unlikely to become law this year. It is more likely that it will be taken up by a new Congress in 2009.

I hope this summary is helpful to our readers. Thanks to those who took the time to ask questions about these issues.

About the Author

Ralph Smith has several decades of experience working with federal human resources issues. He has written extensively on a full range of human resources topics in books and newsletters and is a co-founder of two companies and several newsletters on federal human resources. Follow Ralph on Twitter: @RalphSmith47