White House Budget Plan Praises the TSP, Then Cuts It
1:18 PM ET
Although President Trump's fiscal 2019 budget request touts the popularity and success of the federal government's 401(k)-style retirement savings program, policies in the fiscal roadmap would significantly reduce the Thrift Savings Plan's effectiveness.
Among other proposals to change federal employee pay and benefits, the White House plans to study whether offering a retirement package consisting solely of the TSP—with no defined benefit program—would improve agencies' ability to recruit young people.
"The TSP, one of the largest defined contribution plans in the world, is popular among federal employees, who appreciate having a pre-tax investment vehicle with low administrative costs and employer matching contributions," officials wrote in the budget documents. "[The] TSP is a particularly attractive benefit to young, mobile workers not intending to make a career of federal service. The budget, therefore, funds a study to explore the potential benefits, including the recruitment benefit, of creating a defined-contribution only annuity benefit for new federal workers, and those desiring to transfer out of the existing hybrid system."
But officials with the TSP and advocates for federal employees and retirees say that overall, Trump's budget would significantly impair workers' ability to save for retirement at a critical time. The plan also proposes reducing the statutorily mandated rate of return for the government securities (G) fund to be based on either the three-month or four-week Treasury bill, at a projected savings of $8.9 billion over 10 years.
"G Fund investors benefit from receiving a medium-term Treasury Bond rate of return on what is essentially a short-term security," the White House wrote. "The budget would instead base the G-fund yield on a short-term T-bill rate."
TSP spokeswoman Kim Weaver said changing the G Fund's yield, which is currently 2.75 percent annually, would have a disastrous effect on participants' ability to save for retirement. If Congress changed the G Fund to track the three-month Treasury bill, the yield would decrease to 1.46 percent, and for the four-week bill it would drop to 1.43 percent.
"Such a change would make the G Fund inadequate and ineffective from an investment standpoint for TSP participants who are saving for retirement," Weaver said in an email. "More than 3.6 million TSP participants (69 percent) have all or some of their account balance invested in the G Fund. Of those with money in the G Fund, 2 million (39 percent) hold the G Fund as their sole investment choice."
For a TSP participant who has just retired and is invested entirely in the L Income Fund, which is designed for people who have begun taking annuity payments, they would run out of money at age 84 instead of the current projected age of 92, Weaver said.
Jessica Klement, staff vice president for advocacy at the National Active and Retired Federal Employees Association, said the change would make G Fund investments "useless" and likely force TSP administrators to divest from it entirely.
"[The new rate] would not even keep up with inflation," she said. "So if you wanted to keep your money in a mostly secure fund, you would not be getting any return, and you'd actually be losing money. And if you took your money out, there would be no other safe, secure investment for those nearing or in retirement."
If the Federal Retirement Thrift Investment Board, which administers the TSP, were to divest from the G Fund, it could have the side effect of reducing the Treasury Department's ability to use so-called "extraordinary measures" when the government approaches the debt ceiling. The agency routinely borrows from the G Fund in order to pay other bills, and then pays the TSP back once the debt limit has been lifted.
Weaver also noted that the proposal to cut the G Fund rate comes at a time when the agency is working in conjunction with the Defense Department to encourage members of the military to invest in the TSP. The Blended Retirement System came online Jan. 1 and marks the first time that the federal government has offered service members an employer contribution to the retirement savings program, in exchange for a less generous defined benefit annuity.
"More than 100,000 members of the uniformed services have opted in to date," she said. "All projections made by Congress and the DoD assumed that the G Fund and the L Funds exist as they currently do today. To the extent the G Fund interest rate is dramatically reduced, impacting the L Fund returns, that adversely affects the retirement readiness and financial well-being of the uniformed services."
Klement said it seemed odd that Trump would propose cuts to the TSP, while simultaneously exploring its expansion and just months after he signed the 2017 TSP Modernization Act, which made changes designed to encourage more former federal employees to stay invested in its funds.
"[The two proposals] are absolutely at odds with one another," she said. "I can tell you that changes to the G Fund, and any negative changes to the TSP, always elicit a very strong reaction from the federal community. And this is coming at a time of heightened awareness of retirement security, at a time where every politician is telling us that we don't have enough money to retire."
Despite the budget's mixed signals on the TSP, Klement said it is always good to consider whether other retirement benefit offerings may be more attractive to people considering whether to enter federal service.
"It's always worth taking a look at whether the total compensation structure appeals to today's jobseekers, and any good business would do that," she said. "But we're not usually having this conversation within the confines of attracting talent. It's usually when we're talking about decreasing the size of the federal budget."
1:18 PM ET
http://www.govexec.com/pay-benefits/2018/02/trump-budget-praises-tsp-then-cuts/146060/
Posted by: sarah_oz@yahoo.com
| Reply via web post | • | Reply to sender | • | Reply to group | • | Start a New Topic | • | Messages in this topic (1) |
Belum ada komentar untuk "[TSP_Strategy] White House Praises and Cuts the TSP"
Post a Comment