If you are a federal employee, chances are you are probably already investing in the Thrift Savings Plan (TSP). It is the government’s version of a 401(k) retirement plan and, if you take advantage of the TSP, your financial future during your retirement years is likely to be much brighter. And, if you don’t contribute and you are in the FERS retirement system, your finances during retirement are likely to be difficult.
But, while the government will give you money through a matching contribution of up to 5% of your basic pay that you contribute to the TSP, some employees choose not to participate.
Here is the formula for Agency Matching Contributions:
- Dollar for dollar on the first 3% of basic pay contributed; and
- 50 cents per dollar on the next 2% of basic pay contributed.
- The total cannot exceed 4% of your basic pay.
There are a number of reasons a person may decide not to participate in the TSP. One of the most common reasons is that some people conclude they cannot afford to have the money deducted from their paycheck. Some probably do not participate because they do not understand how the TSP works and are not that interested in learning about it. Others intend to start having money taken out of their check but never get around to it.
Under the current system, the Thrift Savings Plan is available to federal employees but you do not automatically become part of that system. But there is no doubt that Congress thinks federal employees should be participating. As a result, new federal employees will find themselves automatically enrolled in the TSP.
The reason: The Thrift Savings Plan Enhancement Act of 2009. We outlined the provisions of the TSP that were changing in President Signs Tobacco Bill Implementing TSP Changes. For those curious readers who may be wondering why the TSP changes were in a bill to regulate tobacco, you can read Funding Tobacco Legislation by Changing the Thrift Savings Plan.
Beginning with the first full pay period in August, federal employees who are appointed or
reappointed to a covered position will become subject to the automatic
enrollment provisions of the Thrift Savings Plan Enhancement
Act of 2009.
Automatic enrollment applies to all FERS or CSRS employees (including reemployed
annuitants with applicable coverage under FERS or CSRS) who are newly hired or
rehired during or after the first full pay period in August.
Here is what that means in practice.
Unless an employee makes a decision to allocate money into one or more of the Thrift Savings Plan funds, the agency must enroll that employee in the TSP at a contribution rate of 3% of basic pay each pay period.
The contributions will be invested in the Government Securities Investment (G) Fund until the employee makes a contribution allocation with the TSP. (See Understanding the TSP’s G Fund) The G fund was probably selected because it is the safest of the TSP funds, meaning that you won’t lose money in the fund. It may not be the best investment for all of your TSP contributions but that decision will be left up to each investor.
Agencies must also ensure that FERS employees receive the appropriate Agency Automatic (1%) and Agency Matching Contributions.
In some cases, an employee who has been automatically enrolled may decide to terminate future contributions to the TSP. You will be allowed to do that. You may also be eligible to receive a refund of your employee contributions and any associated earnings that were deducted during the first 90 days of being automatically enrolled.
What happens to an employee who is already working for the federal government but has chosen not to participate in the TSP?
Nothing will change. You will not be automatically enrolled in the TSP.
If you are one of these employees, you will retain your existing eligibility to invest in the TSP in the future until your elect to contribute or you leave government service. Also, employees who are rehired without a break in service for TSP purposes will retain their prior TSP eligibility.
For those readers who want to know more about this new process, check out the TSP Bulletin for Agency TSP Representatives.