The Possibility of A Super Saver TSP Program: More Detail on How the System Works

Is a “Super Saver” Thrift Savings Plan program a future possibility for TSP investors? The author of a recent FedSmith article advocates a change and also clarifies and expands upon statements in response to observations on the article from an expert at the FRTIB.

An article recently published by FedSmith entitled Will There be a Super Saver TSP Program in Your Future? raised several questions and prompted a response from Kim Weaver, Director, External Relations, for the Federal Retirement Thrift Investment Board (FRTIB). Here is a clarification or explanation by the author on the points addressed by Ms. Weaver.

The FedSmith article stated that “The Thrift Savings Plan (TSP) is a Defined Contribution retirement investment plan sponsored by the Federal government for the sole benefit of its employees. It is authorized under section 401(a) of the Internal Revenue Code.”

Ms. Weaver notes that the Thrift Savings Plan was created by the Federal Employees’ Retirement System Act (FERSA). “[I]t is treated like a trust described in section 401(a) of the Internal Revenue Code for many purposes,” said Weaver. The TSP was not specifically authorized by 401(a) of the Internal Revenue Code but by FERSA.

Author Joel Frank says that “In my view there is no need to use such an elaborate legal description of the statutory authorization. All section 401(a) plans (public and private) come under the same elaborate legal description.  The relative fact is the TSP is a 401(a) Plan.”

Ms. Weaver also observed that FERSA limits matching contributions to 4% and agency automatic contributions to 1%. Federal employees are generally able to contribute $24,000 per year ($18,000 in regular contributions and another $6,000 in catch-up contributions, if the participant is 50 years of age and older) + 4% matching + 1% automatic. “That usually does not add up to $53,000 (largely due to the amount of Federal employee salaries).  So, the 415(c) limit does not apply to most Federal employees participating in the TSP.”

The author notes that this comment highlights the main reason for his article. Mr. Frank observes that “The employee, public or private, and regardless of how much his or her salary is, cannot contribute more than $18,000/24,000. The goal of $53,000 can only be reached by allowing the participant to contribute after-tax dollars.  This is the very essence of my article.”

Ms. Weaver also commented that “Mr. Frank recommends that the Federal Retirement Thrift Investment Board amend the TSP plan document to allow for this new saving strategy. The TSP does not have a plan document. The TSP is administered pursuant to a statute, the Federal Employees’ Retirement System Act.  Only Congress can authorize after-tax contributions to the TSP or expand the TSP’s withdrawal options.”

Mr. Frank responded that “public-sector plans have no Plan Document as such because they must be (are) established by their respective legislatures. The state or federal statute creating the plan acts as the Plan Document. With the TSP, all changes have to be authorized by Congress and not the Federal Retirement Thrift Investment Board as the Plan’s Board of Trustees. This contrasts with private plans where the Board of Trustees is responsible for making plan changes.”

FedSmith appreciates comments or suggestions on our articles, particularly from readers with an intimate knowledge of programs being discussed or analyzed in articles and to give authors an opportunity to elaborate or clarify their comments when necessary.  We hope this expanded explanation will provide further useful information for our readers on the functioning of the TSP and possible consideration of future changes to this very successful federal program benefiting the federal workforce.

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