good afternoon thank you for your patience i'll now call the subcommittee on federal workforce u s postal service and labor policy to order i would like to begin this hearing by stating the oversight committee mission statement we exist to secure two fundamental principles first americans have the right to know that the money washington takes from them is well spent and second americans deserve an efficient effective government that works for them our duty on the oversight and government reform committee is to protect these rights our solemn responsibility is to hold government accountable to taxpayers because taxpayers have a right to know what they get from their government we will work tirelessly in partnership with citizen watchdogs to deliver the facts to the american people and bring genuine reform to the federal bureaucracy this is the mission of the oversight and government reform in assets the tsp is the largest defined contribution plan in the world and is a smart choice for federal employees planning for a secure retirement the tsp models private sector practice with twothirds of its employers reporting that  primary retirement savings vehicle for the employees that they cover the tsp provides participants a choice of investment options to allow participants to determine the appropriate amount of risk for their own circumstances participants may currently select from a choice of five funds in addition to life cycle funds tied to a projected retirement date in two thousand and nine congress passed the thrift savings plan enhancement act resulting in a number of significant changes to the t requiring automatic enrollment for new hires has led to an increase in tsp's participation rates expanding survivor spouse benefits allows for federal employee households continued access to lowcost investments implementing a roth tsp contribution program should prove beneficial to employees particularly those at the early stages of their career the two thousand and nine legislation also grants tsp discretionary authority to offer a mutual fund window allowing participants to invest a portion of their savings in mutual funds outside of the t enhancement could help respond to the continued debate in congress on the merits of adding additional investment alternatives increasing the number of tsp investment options similar to those being offered by the private sector k plans could prove to add more flexibility to participants wishing to further diversify their portfolios several legislative proposals have been introduced in the th congress to modify investment options for federal employees participating in tsp with tsp contributions  participants contributing more than two dollars billion per year this hearing presents an opportunity for lawmakers to examine the administration of the tsp including its investment offerings participation rates and expenses as the committee with jurisdiction over the tsp i hope to learn whether further legislative change is needed to ensure that the plan continues to meet participant needs i thank the witnesses for appearing today and i look forward to your testimony i now recognize the distinguished gentleman ranking member from massachusetts mister lynch for his opening statement thank you very much mister chairman i want to thank you for holding this hearing and also want to welcome our witnesses in coming forward to help this committee with its work today's hearing as the chairman mentioned will examine recent developments regarding the federal thrift savings plan the retirement savings plan and investment plan for federal civilian employees and members of the uniformed services with over four point four million participants and more than two hundred and eighty five dollars billion in assets as the chairman noted the thrift savings plan is the largest defined contribution plan in the world and an integral component of our federal employee retirement system in addition through its diverse and sensible investment options and with the average annual fees that are significantly lower than those of our typical private sector plans the thrift savings plan stands as a model k in light of its vital role the thrift savings plan merits continued and careful oversight by our subcommittee so that we can better ensure that our federal employees and service members are afforded the tools necessary to maximize their savings and enhance their retirement security therefore i welcome this opportunity to discuss the status of the thrift savings plan given our current economic climate budgetary challenges faced by the federal retirement thrift investment board and legislative and regulatory changes in particular as we all know congress is currently considering legislation to raise the federal debt limit and tackle the federal deficit notably the past several months have been marked by wide speculation regarding the broad market consequences of a failure to enact a debt limit increase as a result i would be interested in hearing our panelists perspectives on how  treasury debt default and proposed spending reductions may affect the thrift savings plan balances of participants and their beneficiaries as well i also look forward to hearing our panelists thoughts on how the current federal pay freeze may be impacting the thrift savings plan additionally during the previous congress the thrift savings plan underwent a significant modernization with the enactment of provisions collectively known as the thrift savings plan enhancement act specifically that legislation contain several key enhancements to the plan including automatic enrollment and immediate agency contributions for all new federal civilian employees as well as the addition of roth k investment options which allow participants to contribute aftertax dollars to the plan given these significant changes to the thrift savings plan i look forward to examining the progress of implementation of the thrift savings plan enhancement act including the challenges that the federal retirement thrift investment board has faced in terms of increasing plan participation among uniformed service members in establishing the mutual fund options i would also like to revisit the feasibility of permitting federal employees to invest the cash value of unused annual leave in their thrift savings plan retirement accounts i introduced legislation to this effect during the last congress and i'm very interested in again exploring the possibility of allowing federal employees to roll over their lump sum annual leave payments into their thrift savings plan accounts as a means of ensuring equity with their private sector counterparts in fact i hope the chairman will agree to join me in working to find a legislative solution to this issue as well as other administrative modifications to the thrift savings plan lastly i look forward to examining the various legislative proposals relating to the thrift savings plan put forward by my colleagues on both sides of the aisle however as we continue to seek ways to enhance federal retirement security that are also mindful of the federal deficit i my colleagues that the thrift savings plan is only one element of our threelegged stool socalled federal employee retirement system which also includes the federal employee retirement system defined benefit plan and of course social security during the current congress i've increasingly heard the majority suggest the possibility of eliminating the pension portion of the federal employee retirement system and instead providing the thrift savings plan as the only retirement security option for federal workers i believe that this would be a step in the entirely wrong direction since its inception our federal employee retirement system has been praised on a bipartisan basis as a fair and equitable framework that promotes retirement security for our federal workers and achieves cost savings for the federal government we should keep it that way before closing i would also like to ask unanimous consent that the written statement of colleen kelly national president of the national treasury employees union highlighting the value of the tsp as well as the federal employees retirement system in general be included for the record thank you mister chairman i look forward to discussing these and other issues with our witnesses this afternoon and i yield back the balance of my time mister ross thank you mister lynch and without objection the would now like to also note that members may have seven days to submit opening statements for the record and we will now recognize our panel we have mister gregory t long who is the executive director of the federal retirement thrift investment board we have mister dailing who is the chairman of the employee thrift advisory council we have mister joseph beaudoin who is the president of the national active and retired federal employees association as is custom and policy with the committee on oversight all witnesses will be sworn in before they testify please rise and raise your right hands thank you do you solemnly swear that the testimony you are about to give this committee will be the truth the whole truth and nothing but the truth thank you please be seated let the record reflect that all witnesses responded yes  order to allow for the discussion please limit your testimony to five minutes as you know your entire written statement will be made part of the record mister ross and now i would like to recognize mister long for five minutes mister long chairman ross and members of the subcommittee my name is greg long i'm the executive director of the federal retirement thrift investment board the five members of the board and i serve as the fiduciaries of the thrift savings plan for federal employees i've submitted my statement for the record and i will summarize here your letter of invitation explained that the purpose of this hearing is to review the thrift savings plan including implementation of the thrift savings plan enhancement act of two thousand and nine i am pleased to discuss i would again like to thank this committee and subcommittee for its initiative on the enhance the agency began working with the employing agencies of the government toward implementation even before the ink was dry we devised a plan for an orderly rollout of the new provisions starting with those which could provide the most immediate value for our participants i will briefly discuss each element first immediate employer contributions this very valuable longsought benefit was first on the list for implementation because it would immediately increase the amounts being contributed to the tsp accounts of participants covered by fers hundreds of dedicated payroll and personnel professionals throughout the government stepped up to the plate and performed admirably in implementing this feature next beneficiary participant accounts this was another provision of the enhancement act that fully warranted prompt implementation under previous law surviving spouses were required to withdraw tsp account balances which they inherited as beneficiaries of their deceased spouses our review of this matter found that spousal beneficiary accounts were available in many private sector k plans however implementation was complex because it involved obtaining important decisions from a largely aging cohort of widows and w who had never worked for the government previously our process that included special communications to the spouse beneficiaries a welcome package as well as tailored account maintenance and withdrawal forms that was completed in december of two thousand  we have now established over four thousand eight hundred beneficiary accounts and that number continues to grow the next provision was automatic enrollment i'm pleased to say that since last august all new federal civilian employees are being automatically enrolled in the tsp at an initial contribution rate of three percent of basic pay unless they elect otherwise automatic enrollment is a game changer for the tsp over ninety seven percent of those hired since automatic enrollment began in august are now contributing their own funds to the tsp our overall participation rate is now slowly but steadily climbing as a result the next item is roth and two thousand and twelve will be a year of significant change to the tsp and the agency i help run most notably because of the implementation of roth tsp with roth comes sweeping changes as this new offering touches virtually every element of the plan the roth this will require us to change twenty seven of our twenty eight recordkeeping and accounting systems all of our phone reps our psrs need to be educated in how to answer a wide variety of new types of questions this is a pretax versus a posttax decision and that's going to be highly complex and we need to provide assistance to the employees as well as the agency reps that in turn need to provide advice and guidance to their employees additionally our legal team is currently drafting regulations covering all aspects of the roth project and our timetable is to obtain three publication comments from etac this fall followed by publication in the federal register we expect to roll this out in the second quarter of two thousand and twelve attached to my statement is a document entitled thrift savings plan statistics the data displayed on this page provides an excellent overview of the status of the tsp it is updated and publicly distributed each month at board meetings plan activities should be and are conducted in full public view in order to maintain the confidence of participants we work hard to ensure that neither the participant nor the congress or any other observers are surprised by what we do we function just like a k plan and we strive to excel our responsibility is to act solely in the interest of participants and their beneficiaries our goal is dignity in retirement for those participants who in their day jobs secure our nation deliver the mail and perform countless other necessary functions in today's world saving and investing for retirement is essential congress has given us the program with which we can accomplish that goal and we work hard every day to achieve it that concludes my statement mister ross thank you very much  association today i come before you as chairman of the employee thrift advisory council etac i was elected chairman by my peers at our last meeting in april prior to becoming chairman i was nrlca's representative on the council for the previous fifteen years etac is a federal advisory committee established by the federal employees retirement system act of one thousand nine hundred and eighty six to give a voice to the participants in the operations of the thrift savings tsp we provide advice on matters relating to investment policies and the administration of the tsp the thrift savings plan is an extremely important part of the federal retirement system and is very popular among its participants currently fifteen unions employee organizations and uniformed services comprise etac our organizations represent the vast majority of the tsp's four point five million participants tsp continues to be one of the bestrun and largest defined contribution plans in the world in fact tsp administrative costs are mere cents on the dollar making tsp perhaps the least expensive defined contribution plan in the nation at the end of june two thousand and eleven the tsp had roughly two hundred and eighty nine dollars billion in assets protecting these assets is our highest priority contributing to the plan's current success is the enhancement act of two thousand and nine two of the key components of this law include immediate agency contributions and automatic enrollment both of these features in my opinion are part of the reason we have seen a significant increase in participation levels particularly among younger employees and new hires currently ninety seven point four percent of all new hires are participating in the tsp with only a minimal of two point six percent optout rate overall roughly eighty five percent of all federal and postal employees are participating in tsp compared with the private sector where roughly seventy five percent of employees are participating in available k plans federal and postal employees are doing extremely well planning for their retirement as the law stands every new hire that is automatically enrolled into the t is preset to contribute three percent into the g fund this amount does change if participants elect to increase or decrease their contribution levels or to opt out altogether educating new hires about the thrift savings plan continues to be a priority but i would think everyone can agree that ninety seven point four percent participation rate is very encouraging in addition to automatic enrollment the federal  investment board has had the arduous task of implementing the roth tsp option originally scheduled to begin in january two thousand and twelve the plan has been delayed several months for more testing and planning i encourage the thri board to quickly act towards completion of the implementation of the roth tsp and give federal and postal employees and retirees an additional option to invest for their retirement needs mister chairman i also need to address the national administration's decision to suspend all federal employees investments into the g fund until the debt ceiling has been resolved i and probably other members of the etac have received numerous calls from concern members who have had retirement investments into the g fund wanting to know what will become of their retirement however despite the fact our members who have invested in the g fund are protected it is imperative that this information is distributed to all participants to maintain confidence in the tsp we need to ensure that a strong line of communication is maintained between federal agencies and their employees so that t participants have a high level of confidence during the ongoing debt issuance suspension period if this information is not dispersed its impact becomes minimal as many participants will reduce their contribution from fear of loss of their investment this can only be done if the administration congress and etac maintain a line of communication among each other and remain in contact as the debt ceiling is resolved finally mister chairman i urge you to proceed with caution as deficit reduction measures are debated i fear we may see a decrease in employees tsp contributions as federal and postal employees will plan for the present rather than invest for the future we cannot afford to have our members reduce their tsp contributions because costofliving adjustments are deferred or federal employees are required to pay a higher share of their health care costs this could have a negative effect on our members financial security in retirement once again thank you for giving me the opportunity to testify before you today as i mentioned earlier tsp is a very popular among  participants and part of the reason for that is the strong backing congress has traditionally shown i urge you to continue protecting tsp by insulating it from political and budgetary pressures i would be happy to answer any questions you may opportunity to testify we continue to be pleased with the performance of the thrift savings plan we believe that the thrift board has acted as dutiful fiduciaries on behalf of federal civilian workers and an uniformed military personnel and retirees for example narfe supports the thrift board's ongoing commitment to offering diversified index funds which has minimized risk and created retirement security  participants and beneficiaries we urge congress and the thrift board to work together and to base fund decisions on carefully crafted objective financial analysis most of all congress and the thrift board must act in the best interests of federal civilian workers and military personnel who put their hardearned dollars in the tsp the test of any organization is its performance during a crisis we believe that the thr continued to perform admirably during the most volatile financial market periods of the recession unfortunately because of events beyond our control nearly all americans who participate in a defined contribution retirement plan including tsp participants lost a significant amount of their saving value during the economic downturn federal workers who are years away from retirement should have plenty of time to make back what they lost and hopefully gain ground along the way the same is not true for workers who are at or near retirement those employees are caught between a rock and a hard place either retire with a smaller nest egg than they had hoped for or defer retirement until some point in the distant future after the market sufficiently rebounds fortunately the retirement security of fers workers i diversified with a threelegged stool consisting of the tsp a modest defined benefit annuity and social security benefits in fact we believe the fers defined benefit annuity has becom increasingly important safety net for fers workers particularly given the recent market slump of the country's economic recession indeed the construct of fers is a delicate balance we strongly hold that the integrity of fers must be preserved to ensure that the federal government is able to attract and retain the best employees this is no small point because americans increasingly appreciate that federal employees protect us and drive america's progress for several years we have worked with congress and the thrift board on legislation to add new features to the tsp that have succeeded when offered in private  plans we are particularly pleased with the implementation of three provisions in the thrift savings plan enhancement act of two thousand and nine first newly hired federal employees are now automatically enrolled  tsp and are immediately eligible for an automatic contribution as a result ninety seven percent of newly hired federal employees are voluntarily putting their own wages in by the second quarter of two thousand and twelve a roth option will be added to the tsp this feature will allow participants to make aftertax contributions to the plan and withdraw their earnings tax free upon retirement third the retirement security of the surviving spouses of workers and retirees has been enhanced by granting them the same rights over their inherited accounts as any other tsp participant although narfe is delighted with most of the provisions in the tsp enhancement act we continue to be interested in advancing the program further for instance since september two thousand and nine k plans could be amended to allow employees to contribute unused annual leave to their k account as a matter of equity narfe supported legislation introduced during the th congress by representative lynch and chaffetz that would have allowed federal workers to do the same we support reintroduction of this bill in the current th congress and we encourage this subcommittee to approve it narfe also supports a proposal to allow federal to the core i think in this to answer your question is just to ensure from all directions that information no matter what type the material is given either by the employer in verbal in written form that the individuals know the aspects all the directions the parameters of the tsp and the importance of that for planning initially from the getgo as it's a little bit confusing but when the immediate contributions were put into place directly after the act was signed our participation rate actually dropped and it slowly since automatic enrollment was implemented in august has under automatic enrollment if a participant takes no action they are automatically enrolled at three percent they can choose zero or any other amount but we needed to take inertia off the table instead of a default rate of zero the default  now three percent mister ross and just help me with this because i just coincidentally talked to a colleague of mine a little while ago who doesn't want to participate in the tsp for philosophical reasons or whatever reasons i didn't question that but he said that he can't get out of it he cannot opt out of it and  there is going to be a contribution made i think of one percent of his salary annually in the tsp mister long the one percent is automatic that is absolutely correct mister ross would you recommend an optout provision if someone for whatever reason chose to do  administratively that one percent automatic is very beneficial in running the plan one of the things that other plans struggle with is they don't know who doesn't participate now we know everybody everybody gets one percent so i can track all participants and now i need to know now i know who you need to target as far as automatic enrollment so it's administratively it's very beneficial mister ross but that eighty five percent enrollees does not take into account somebody who would not want to enroll and still getting a one percent is that correct mister long the colleague that you referenced would actually fall under the about two point four percent of people that joined after automatic enrollment and the very small percentage that actually chose to long well i have put forth an estimate i will actually put forth a formal request in september but i have put forth an initial estimate to the board of one hundred and forty seven and now i scaled that back to about one  ross okay and then what would you say the budget was in about two thousand and six do you have any of those numbers joined one of the things that we dedicated a significant amount of resources to was a tsp systems modernization we had an infrastructure which created risk and we actually had situations in which hardware and network failures put us out of business for short periods of time that's bad and so we needed to invest significant dollars in infrastructure modernization then we moved to a significant change in our web the congressman from massachusetts previously referred to that as the equivalent of pong if you look at it today you will notice it is far improved it's a stateoftheart web site and now after those two things we moved to the tsp enhancement act automatic enrollment spousal accounts immediate contributions and finally the big one which is roth that we're in the middle of now mister ross lastly i've got just a couple seconds any suggestions as to streamline to help reduce costs in the operation of the  well we have we're constantly taking a look at anything that creates expenses i've put forth in my budget proposal several recommendations to the board as to how we can reduce costs at the agency but  members and investors a great advantage in that it charges i think the last time we looked at this very small fees as a percentage of revenue for its operations and i believe it can do this because it doesn't seek to make a profit you are just basically maintaining the service you are not looking to as i said to make money off this and you also have huge economies of scale in terms of your operation  have you done any analysis in terms of how your fee structure compares with the private sector mister long we are constantly taking a look at data that comes out and just a couple weeks ago we had a five cents on every thousand dollars compare that to about sixty five to seventy five basis points for the largest plans some k plans pay two hundred basis points or two full percentage points in fees we well the salaries that you are paying for your investment people i imagine those are also drastically lower than what we are seeing hopefully in the private sector mister long yes well my investment staff internally is two people so   as one of the options you know i'm a participant you know i think the tsp is great i think it offers a lot of folks an opportunity to invest in their own retirement and it encourages employees to use their own money mister long uhhuh mister lynch that's a great advantage to the taxpayer that these employees are using their own money to sustain their retirement it's a good idea i think  there is some volatility but let me ask you about the mutual fund option right now you can select the g fund you know so forth the i fund all that  what are we doing about the opportunity to give participants a chance to invest through a socalled mutual fund window mister long the mutual fund window was a provision that was in the t of two thousand and nine so it is authorized but it is not required we've also taken no action to implement it this is a provision which i know will require significant discussions with members on the employee thrift advisory council as well as my board before we move forward and we may never move forward quite frankly mister lynch what is the big drawback here is it just simply risk mister long well i think there is a concern and some of it is  paternalistic concern that being that if we provide a window to access mutual funds those mutual funds will virtually all be more expensive than what our core offerings are and there is the potential that those offerings have a higher level of volatility than what we have because we rely on mister lynch let me just go back a little bit is there a way for you to say you know in order to be eligible within this mutual fund window we are not talking about opening it up to the entire universe of mutual funds out there but is there an opportunity for you to use your leverage because this is the largest plan out there to say okay we are going to allow this window we are going to allow our members to have  access to the funds within this window however you know use the leverage and say we want your fees to be you know comparable to our own or certainly at a much greater discount so you can use the leverage of your size to encourage those private mutual funds to give a better deal to the you know federal employees as a group mister long yes would we be using our leverage if we move forward with this we would compete it in the marketplace we would we feel command best pricing because of our size the other way to limit the potential risk and concern is to not allow participants to put all of their money through this window you might say only twenty five some other percentage mister lynch yeah and i know thank you for your indulgence the other way to do this is to say look we're not going to allow participants to invest any more than twenty percent and then track our witnesses for being with us one area that i am interested in exploring relates to the potential consequences if any of raising or not raising the federal debt ceiling and what impact it might have on tsp fund balances and the participants all of us have listened over the last several months as there has been a tremendous amount of speculation as to what might happen to global financial markets particularly the bond market if the federal government fails to increase its debt ceiling by august the nd and therefore defaults on some of dailing i guess i will ask director greg to help me with the technical pieces of this as well too in the explanation but as we have been elaborating to our members and trying to give it in a layman's term of a movement of money on paper and ious prepared if you will to ensure that our members the understanding of the action from the secretary of the treasury  during the suspension period of the g fund our members did not understand fully what that meant and their initial reaction was is my retirement money safe is it going to be there when i draw from that and i think that was the biggest issue in the overall explanation of what that did mean and trying to draw that down to our members the first reaction that i heard from some individuals that i spoke to from our respective group was that their contribution to the tsp that they were going to change it and that they would withdraw or reduce their amount into the g fund they were concerned  the government if you will using their money in the issue of the debt ceiling situation and wanted to withdraw that back to where they knew it was in their hands with absence of a technical the other scenario in which securities are not issued we have this thrift savings plan investment act that protects them whether they're issued or whether they're not issued g fund investors are protected and that's the message that we have tried to deliver the period of debt suspension ends the treasury secretary fully complies with the federal law which requires him to make whole the retirement funds with back interest but we do agree with mister long and mister dailing mister davis well let me thank each one of you you sounded ross i thank the witnesses for being here and taking the time out of your busy schedules to testify with that