The TSP is Popular; Should a Similar Program Exist for Other Americans?

The Thrift Savings Plan is one of the most popular benefits available to federal employees. Should a comparable program modeled after the TSP be set up for all Americans? One Senator from Oregon thinks so.

The Thrift Savings Plan (TSP) is one of the most popular benefits available to federal employees. It is also a major portion of the retirement plan for federal workers. It has the advantages of being inexpensive, streamlined with a limited number of options available, and its returns since its inception have been good. There is also a match for contributions for federal workers, within limits, that are made into this investment plan. The TSP currently has about $458 billion the plan.

Consideration is being given for the TSP to allow investments into mutual funds and consideration is also being given to expanding the role of the TSP to provide investment advice for plan participants.

The TSP has been popular and successful (not necessarily in that order). In fact, it has been so successful, one Senator wants to create a new government entity to run just like the TSP for other Americans.

Senator Jeff Merkey (D-OR) thinks creating American Savings Accounts (ASAs) would be a good deal for Americans who work in organizations without a retirement plan. He has introduced the American Savings Act, described in a press release as “major new national retirement security legislation.”

The plan would legislate for many Americans “the ability to save for retirement through their own, personal retirement savings account modeled on the same high-quality retirement savings plan already used by federal workers and members of Congress.”

Under this legislation, employees who work for a company without a retirement plan would automatically receive an American Savings Account (ASA). By default, the employer would contribute 3% of an employee’s earnings into the account with each paycheck. Employees could adjust their contribution to as low as 2% or as high as $18,000 per year. They could also choose to opt out of the system altogether.

ASAs would have the same investment options as federal employees receive through the Thrift Savings Plan.  A company would be required to send an employee’s contributions to the ASA to the federal government in addition to taxes being withheld.

Contributions to an ASA would be tax-deductible. Participants would also be able to withdraw their money from private sector IRA’s to put into the investment system modeled after the TSP. 

The legislation would establish a new federal organization to serve as the Board of Directors.

The goal of the legislation is to set up an investment vehicle that would have the same low fees and expenses offered by the TSP. The legislation states that “If the fees and expenses…exceed the fees charged to a similarly situated individual who contributes to the Thrift Savings Fund…the information required under the preceding sentence shall include a statement identifying the reason for such excess.”

While the legislation is endorsed by liberal organizations such as the Center for American Progress, it is likely that organizations that currently invest money in IRA’s for Americans would oppose the government setting up a competing investment organization. Since existing money in IRA accounts could be transferred into the program set up by the ASA, the result could be to have a large amount now invested by private companies controlled by a government entity.

American Savings Act of 2016

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