U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON : 

1 

39–010 

" ! SENATE 113TH CONGRESS

2d Session 

REPORT

2014

113–244 

Calendar No. 522 

SMART SAVINGS ACT 

R E P O R T 

OF THE

COMMITTEE ON HOMELAND SECURITY AND 

GOVERNMENTAL AFFAIRS 

UNITED STATES SENATE 

TO ACCOMPANY

S. 2117 

TO AMEND TITLE 5, UNITED STATES CODE, TO CHANGE THE DEFAULT INVESTMENT FUND UNDER THE THRIFT SAVINGS PLAN, 

AND FOR OTHER PURPOSES 

AUGUST 26, 2014.—Ordered to be printed 

Filed, under authority of the order of the Senate of August 5 

(legislative day, August 1), 2014 


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(II) 

COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS 

THOMAS R. CARPER, Delaware Chairman 

CARL LEVIN, Michigan 

MARK L. PRYOR, Arkansas 

MARY L. LANDRIEU, Louisiana 

CLAIRE MCCASKILL, Missouri 

JON TESTER, Montana 

MARK BEGICH, Alaska 

TAMMY BALDWIN, Wisconsin 

HEIDI HEITKAMP, North Dakota 

TOM COBURN, Oklahoma 

JOHN MCCAIN, Arizona 

RON JOHNSON, Wisconsin 

ROB PORTMAN, Ohio 

RAND PAUL, Kentucky 

MICHAEL B. ENZI, Wyoming 

KELLY AYOTTE, New Hampshire 

GABRIELLE A. BATKIN, Staff Director 

JOHN P. KILVINGTON, Deputy Staff Director 

MARY BETH SCHULTZ, Chief Counsel 

LAWRENCE B. NOVEY, Chief Counsel for Governmental Affairs 

KEITH B. ASHDOWN, Minority Staff Director 

CHRISTOPHER J. BARKLEY, Minority Deputy Staff Director 

ANDREW C. DOCKHAM, Minority Chief Counsel 

SALLY ANNE BRAEUER, Minority Counsel 

LAURA W. KILBRIDE, Chief Clerk 


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Calendar No. 522 

113TH CONGRESS SENATE REPORT " ! 2d Session 113–244 

SMART SAVINGS ACT 

AUGUST 26, 2014.—Ordered to be printed 

Filed, under authority of the order of the Senate of August 5 

(legislative day, August 1), 2014 

Mr. CARPER, from the Committee on Homeland Security and 

Governmental Affairs, submitted the following 

R E P O R T 

[To accompany S. 2117] 

The Committee on Homeland Security and Governmental Affairs, 

to which was referred the bill (S. 2117) to amend title 5, United 

States Code, to change the default investment fund under the 

Thrift Savings Plan, and for other purposes, having considered the 

same, reports favorably thereon without amendment and recommends that the bill do pass. 

CONTENTS 

Page 

I. Purpose and Summary .................................................................................. 1 

II. Background and Need for the Legislation ................................................... 2 

III. Legislative History ......................................................................................... 6 

IV. Section-by-Section Analysis .......................................................................... 6 

V. Evaluation of Regulatory Impact .................................................................. 7 

VI. Congressional Budget Office Cost Estimate ................................................ 7 

VII. Changes in Existing Statute Made by the Bill, as Reported ..................... 8 

I. PURPOSE AND SUMMARY

The Smart Savings Act seeks to enhance the retirement security 

of federal employees. It does so by changing the default investment 

for new contributions to the Thrift Savings Plan (TSP)—the government-sponsored retirement savings and investment plan for federal employees—from a low-growth fund to a fund that should generally yield significantly larger account balances over time. Employees would retain the same ability to control their investment 

choices that they have now, and those employees wishing to conVerDate Mar 15 2010 05:40 Aug 28, 2014 Jkt 039010 PO 00000 Frm 00003 Fmt 6659 Sfmt 6602 E:\HR\OC\SR244.XXX SR244

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1See generally, Thrift Savings Plan, ‘‘Purpose and History,’’ available at https://www.tsp.gov/ 

planparticipation/about/purposeAndHistory.shtml; ‘‘Summary of the Thrift Savings Plan: Your 

Plan, Your Future’’ (May 2014), available at https://www.tsp.gov/PDF/formspubs/tspbk08.pdf 

(‘‘TSP Summary’’); 5 U.S.C. chapter 84, subchapter III. 2These descriptions of the fund are based on information in TSP Summary, note 1 above. 

3The F Fund is invested with the objective of matching the performance of Barklays Capital 

U.S. Aggregate Bond Fund. See id. 4The C Fund is invested with the objective of matching the performance of the Standard & 

Poor’s 500 (S&P 500) Stock Index. See id. 5The S Fund is invested in stocks that are not included in the C Fund, with the objective 

of matching the performance of the Dow Jones U.S. Completion TSM (Total Stock Market) 

Index. See id. 6The I Fund is invested with the objective of matching the performance of the Morgan Stanley 

Capital International EAFE (Europe, Australasia, Far East) Stock Index. See id. 

tinue investing exclusively in the fund with historically lower 

yields over time, or to invest in any other combination of the funds 

provided by the TSP, would remain able to do so. 

II. BACKGROUND AND NEED FOR LEGISLATION

Congress created the Thrift Savings Plan (TSP) in 1986 to give 

federal employees the same kinds of savings and tax benefits that 

many private employers offer their employees under section 401(k) 

plans.1 In contrast to a defined benefit plan, which provides a set 

pension after retirement, the TSP is a defined contribution plan, 

through which an employee and the employer contribute set 

amounts that are saved and invested in the employee’s account 

until the employee retires. The amount available to the employee 

upon retirement then depends on the individual investment choices 

the employee has made over time, as well as the performance of 

those investments. 

Under current statute, new federal employees are automatically 

enrolled in the TSP, and 3% of each employee’s basic pay each pay 

period is automatically deducted from the employee’s pay and deposited into the employee’s TSP account, unless the employee affirmatively elects otherwise. In addition, the employing agency 

automatically contributes an amount equal to 1% of the employee’s 

basic pay, and also makes matching contributions in an amount 

calculated on the basis of how much the employee contributes to 

the account. 

The TSP offers a number of options for investing assets, from 

among which each employee may choose. Five of the options are individual funds, each invested in a particular class of securities: 2

• The Government Securities Investment Fund (G Fund), invested in short-term U.S. Treasury securities. 

• The Fixed Income Index Investment Fund (F Fund), invested 

in domestic government, corporate, and mortgage-backed bonds.3

• The Common Stock Index Investment Fund (C Fund), invested 

in the stocks of large and medium-sized U.S. companies.4

• The Small Capitalization Stock Index Fund (S Fund), invested 

in the stocks of small to medium-sized U.S. companies.5

• The International Stock Index Investment Fund (I Fund), invested in international stocks of 21 developed countries.6

The G Fund is the least volatile of these funds and has no risk 

of loss of principal, but the earnings are relatively low. The earnings of the other funds are generally higher than those of the G 

Fund, but the other funds are also more volatile and are subject 


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7See id at page 13. 8See id. 

9Thrift Savings Plan, ‘‘Lifecycle Funds, Key Features,’’ available at https://www.tsp.gov/ 

investmentfunds/lfundsheet/fundPerformance_L.shtml. 10See TSP Summary, note 1 above. 11 5 U.S.C. § 8438(c)(2). 12See Federal Retirement Thrift Investment Board, Memorandum for Board Members, From: 

Greg Long, Executive Director, Subject: ‘‘L Fund Default Investment Option’’ (December 16, 

2013), available at http://www.frtib.gov/pdf/minutes/MM-2013Dec-Att3.pdf (‘‘FRTIB Executive 

Director memorandum’’); Federal Retirement Thrift Investment Board, Memorandum for the Executive Director, From: Renee Wilder, Director, Office of Enterprise Planning, Subject: ‘‘Default 

Investment Fund Option’’ (April 9, 2013), available at http://www.frtib.gov/pdf/minutes/MM2013Apr-Att5.pdf (‘‘FRTIB Office of Enterprise Planning memorandum’’). 

to the market risks and other kinds of risks distinctive of the class 

of instruments that each of the other funds is invested in.7

In addition to these individual funds, the TSP offers a series of 

Lifecycle Funds (L Funds), which are invested in professionally designed mixes of the five individual funds.8 Each fund’s name includes a future year, indicating that the fund is invested in a portfolio considered appropriate for employees who plan to retire and 

begin withdrawing the fund within five years before or after that 

year. Also, the asset allocation shifts over time, so that it becomes 

increasingly less volatile as the target year approaches. During 

2014, the TSP offers five L-Funds, with target retirement dates 

ranging from 2015 to 2045.9

The earnings of each L Fund is a composite of the earnings of 

the underlying funds. Moreover, as the TSP program explains, each 

L Fund is exposed to all of the types of risks to which each of the 

individual underlying funds is exposed, but the total risk is reduced through diversification.10

Employees who participate in the TSP can choose to invest their 

current account balances and their future contributions entirely in 

any one of the funds or in a mix of their own choosing. However, 

for employees who have not elected where to direct their TSP investments, the current statute establishes that the employees’ investments by default go to the G Fund.11 This situation arises because a TSP account is automatically established for new federal 

employees to receive the contributions made to the employee’s account by the employing agency and, unless the employee elects not 

to contribute, to receive the contributions from the employee and 

additional matching contributions from the agency. If the new employee does not choose a different investment choice, the contributions are invested by default in the G Fund, and this default investment choice continues to apply to all future earnings and contributions unless and until the employee elects otherwise.12

Putting TSP investments by default into the G Fund avoids certain financial risks, because that fund is invested in Treasury securities, which—unlike stocks and bonds—fluctuate little in value 

and have no risk of loss of principal. However, investing 100% of 

an employee’s account in the G Fund increases other significant financial risks for the employee, including the risk that growth of 

the fund will lag behind inflation, and the risk that the employee’s 

financial needs during retirement will exceed the employee’s assets. 

For these reasons, the Federal Retirement Thrift Investment 

Board (FRTIB), which administers the TSP program, and the Employee Thrift Advisory Council (ETAC), whose members are representatives of unions and other employee and annuitant organizations, evaluated whether the current default rules should be 


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13See Federal Retirement Thrift Investment Board, Minutes of the Joint Meeting of the Board 

Members and the Employee Thrift Advisory Council, April 22, 2013, available at http:// 

www.frtib.gov/pdf/minutes/2013Apr.pdf; Federal Retirement Thrift Investment Board, Minutes 

of the Meeting of the Board Members, December 16, 2013, available at http://www.frtib.gov/ 

pdf/minutes/2013Dec.pdf. 14See id. 15Specifically, the FRTIB adopted a motion that provided: ‘‘The Executive Director shall pursue legislation to make an age-appropriate L Fund the default option for Thrift Savings Plan 

Contributions by FERS participants.’’ Id. The Federal Employees Retirement System, or FERS, 

is the retirement system applicable to great majority of new federal employees. 16See FRTIB Executive Director memorandum, note 12 above. 17See id. 18See id. 19See Thrift Savings Plan, ‘‘Investment Funds, Fund Performance, Annual Returns’’ 

https://www.tsp.gov/investmentfunds/annual/annualReturns.shtml. 

changed.13 Based on that evaluation, both groups determined that 

the default investment option should be changed from the G Fund 

to an L Fund appropriate for the employee’s age, provided that the 

employee should retain the ability to invest in the G Fund or in 

any other TSP fund or combination of funds if the employee so 

chooses.14 To accomplish this change, the FRTIB decided to seek 

legislation like what was subsequently introduced as the Smart 

Savings Act.15

The reasons for changing the default option to be an age-appropriate L Fund, as the FRTIB urges Congress to do, are compelling. 

The L Funds offer professionally designed portfolios of investments 

with earnings that are generally higher than the earnings of the 

G Fund. As the Executive Director of the FRTIB has explained— 

The L Funds, offer professionally managed allocations 

across asset classes and are designed to maximize expected 

performance for the amount of risk taken. The design of 

the L Funds automatically addresses changing asset allocation needs as participants near their draw-down dates. 

While investing in an L fund exposes a participant to the 

risk inherent in the capital markets, the L Funds appropriately address those risks in their design. Further, those 

participants who conclude they do not want to assume 

market risk will always have the ability to change their allocations or move their account balances to the G Fund.16

Actual investment results have been consistent with making the 

L Fund the default option. Between August 2005, when the L 

Funds were established, through September 2013, which was a period that included the market downturn of 2008–2009, the cumulative returns for the G Fund were 29.75%. By comparison, the cumulative returns for the L 2040 Fund, which was designed for 

younger employees, were 65.78%.17 Between August 2010 and September 2013, the cumulative returns for the G Fund were 6.33%, 

compared to 47.39% for the L 2040 Fund.18

Of course, the L Funds, being more volatile than the G Fund, 

performs less well than the G Fund at certain times and under certain circumstances. As a recent unusually severe example, in 2008, 

at the depths of the market downturn, while the G Fund had a 

positive return of about 4% annually, the L Funds all dropped in 

value: the least volatile L Fund, designed for employees near or beyond retirement age, dropped about 4.5% in value, while the most 

volatile L Fund, designed for employees for whom retirement was 

still about 30 years away, dropped about 32% in value.19


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20See FRTIB Office of Enterprise Planning memorandum, note 12 above. 21 Id. 22FRTIB Executive Director memorandum, note 12 above. 23See id. 24See id. 

However, the TSP is intended for employees investing for the 

long term, for whom a temporary loss in value is generally outweighed by the opportunity for greater long-term growth of the account. Especially for younger employees, their long investment horizon typically enables them to comfortably weather market cycles.20 And the example from 2008, described above, illustrates how 

the L Funds designed for employees at or near retirement age, who 

will need to withdraw their TSP assets relatively soon, are much 

less susceptible to a large downward swing in value than the L 

Funds for younger employees. As the Director of the FRTIB’s strategic planning office concluded, ‘‘for long-term investors, which includes the vast majority of newly-hired Federal employees and certainly younger participants, the L Fund is a more appropriate default option.’’ 21

To further test these assumptions, the FRTIB’s investment consultant conducted a simulation of potential returns during a wide 

variety of hypothetical economic scenarios, comparing the strategy 

of investing a TSP account in the L Fund with a target retirement 

date of 2030, versus the strategy of investing 100% in the G Fund. 

The TSP Executive Director described the results of the simulation 

this way: 

When modeling a ‘typical’ TSP participant, currently aged 

44 and retiring at age 61, the analysis projected that a 

portfolio 100% invested in the G Fund yielded a less favorable distribution of outcomes (i.e., account balance, replacement ratio [which is the ratio of gross income after 

retirement divided by gross income before retirement]) 

than the outcomes of a portfolio invested in the L Fund.22

This simulation further illustrates that an age-appropriate L Fund 

is a more prudent investment option than a strategy of investing 

100% in the G Fund for long-term investors. 

Actual investment patterns indicate that the assets of too many 

younger federal employees may not be prudently invested. Comparing age cohorts, the percentages of assets allocated to the G 

Fund are higher for older participants, consistent with their needing less-volatile and income-producing assets as they approach or 

exceed retirement age. But the exception to this pattern is that 

participants younger than 30—who should generally be investing 

for long-term growth, not short-term stability—have a disproportionately large percentage of their TSP assets in the G Fund: 

48%.23 Because many younger participants tend to have difficulty 

envisioning their need for retirement planning and saving, it is 

likely that an important reason why so much of their retirement 

assets remain in the default-option G Fund is inertia.24

In changing the default to an age-appropriate L Fund, this bill 

would bring the federal government into line with a substantial 

and growing trend among private-sector companies. A survey of 

nearly 550 employers over a variety of sizes and industries—and 

including 30% of Fortune 500 companies—found a substantial maVerDate Mar 15 2010 05:40 Aug 28, 2014 Jkt 039010 PO 00000 Frm 00007 Fmt 6659 Sfmt 6602 E:\HR\OC\SR244.XXX SR244

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25See AonHewitt, ‘‘2011 Trends and Experience in Defined Contribution Plans: Paving the 

Road to Retirement,’’ available at http://www.aon.com/attachments/thought-leadership/ 

2011_Trends_Experience_Executive_Summary_v5.pdf; see also FRTIB Office of Enterprise Planning memorandum, note 12 above. 26See id. 27 A FRTIB representative has advised Committee staff that, because L Funds are somewhat 

more volatile than the G Fund, after enactment of the Smart Saving Act the FRTIB would send 

risk-acknowledgement information to each new employee whose TSP assets are automatically 

placed in an L Fund, to help ensure that each employee is aware of the investment, understands 

the risks, and has information on how the employee can elect to change the investment if the 

employee so chooses. 

jority of these plans use target-date retirement funds for their default options: 

Currently, 78% of plans default participants’ funds into a 

target-date fund, up from 69% in 2009 and 50% in 

2007. . . . [S]table value or money market [funds are used 

as the default] by 6% of employers.25

Other surveys of private-sector plans show similar trends.26

The federal government, too, ought to help its employees invest 

appropriately. By changing the default to the long-term investment 

option of an age-appropriate L Fund, the Smart Savings Act would 

help new federal employees invest most appropriately for a secure 

financial future.27

III. LEGISLATIVE HISTORY

S. 2117 was introduced by Senator Warren and Senator Portman 

on March 12, 2014, and was referred to the Committee on Homeland Security and Governmental Affairs. Senators Begich, Enzi, 

and Tester have been added as cosponsors. On June 25, 2014, the 

Committee considered S. 2117 and ordered the bill favorably reported without amendment, by voice vote. Members present for the 

vote were: Carper, Levin, McCaskill, Tester, Heitkamp, Coburn, 

McCain, Johnson, and Portman. 

IV. SECTION-BY-SECTION ANALYSIS

Section 1. Short title 

This section states that the short title of the bill is the ‘‘Smart 

Savings Act.’’ 

Section 2. Thrift Savings Plan default investment fund 

This section would amend 5 U.S.C. chapter 84 to change the default investment fund for civilian TSP participants from the G 

Fund to an age-appropriate target-date asset allocation portfolio of 

funds. Under this section, if an employee has not elected which 

fund or funds the assets in the employee’s TSP account should be 

invested in, the Executive Director of the Federal Retirement 

Thrift Investment Board would select the L Fund with a target 

date that is appropriate considering the age of the employee. In addition, this section provides that, before an employee’s assets are 

invested in an L Fund by default, the employee shall be sent information to acknowledge that the investment is made at the employee’s risk. 

This section would also require the Executive Director to issue 

guidance implementing the legislation no later than nine months 


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after the date of enactment, and the bill would go into effect on the 

date on which the guidance is issued. 

V. EVALUATION OF REGULATORY IMPACT

Pursuant to the requirement of paragraph 11(b)(1) of rule XXVI 

of the Standing Rules of the Senate the Committee has considered 

the regulatory impact of this bill. The enactment of this legislation 

will not have significant regulatory impact. 

VI. CONGRESSIONAL BUDGET OFFICE COST ESTIMATE

U.S. CONGRESS, 

CONGRESSIONAL BUDGET OFFICE, 

Washington, DC, July 3, 2014. 

Hon. TOM CARPER, Chairman, Committee on Homeland Security and Governmental Affairs, U.S. Senate, Washington, DC. 

DEAR MR. CHAIRMAN: The Congressional Budget Office has prepared the enclosed cost estimate for S. 2117, the Smart Savings 

Act. 

If you wish further details on this estimate, we will be pleased 

to provide them. The CBO staff contacts are Santiago Vallinas and 

Dan Ready. 

Sincerely, 

DOUGLAS W. ELMENDORF. 

Enclosure. 

S. 2117—Smart Savings Act 

S. 2117 would change the default investment fund in the Thrift 

Savings Plan (TSP) for government employees. Currently, contributions of employees who are enrolled in the TSP, but have not specified where to invest their funds, are automatically invested in the 

Government Securities Investment Fund. This bill would shift the 

default fund to a Lifecycle fund with an age-appropriate asset allocation. 

CBO estimates that enacting S. 2117 would not affect direct 

spending. The Joint Committee on Taxation (JCT) estimates there 

could be a small revenue effect because enacting the bill might 

change the number of federal employees who choose to contribute 

to the TSP, thus modifying their total tax liability. Therefore, payas-you-go procedures apply. However, JCT estimates that any revenue effects would be negligible. 

S. 2117 contains no intergovernmental or private-sector mandates as defined in the Unfunded Mandates Reform Act and would 

impose no costs on state, local, or tribal governments. 

On May 7, 2014, CBO transmitted a cost estimate for H.R. 4193, 

the Smart Savings Act, as ordered reported by the House Committee on Oversight and Government Reform on March 12, 2014. 

The two bills are substantively identical and the cost estimates are 

the same. 

The CBO staff contacts for this estimate are Santiago Vallinas 

and Dan Ready. This estimate was approved by Theresa Gullo, 

Deputy Assistant Director for Budget Analysis. 


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VII. CHANGES IN EXISTING STATUTE MADE BY THE BILL, AS

REPORTED

In compliance with paragraph 12 of rule XXVI of the Standing 

Rules of the Senate, changes in existing law made by S. 2117, as 

reported, are shown as follows (existing law proposed to be omitted 

is enclosed in black brackets, new matter is printed in italic, and 

existing law in which no change is proposed is shown in roman): 

UNITED STATES CODE 

TITLE 5—GOVERNMENT ORGANIZATION 

AND EMPLOYEES 

* * * * * * * 

PART III—EMPLOYEES 

* * * * * * * 

Subpart G—Insurance and Annuities 

* * * * * * * 

CHAPTER 84—FEDERAL EMPLOYEES’ RETIREMENT 

SYSTEM 

* * * * * * * 

Subchapter III—Thrift Savings Plan 

* * * * * * * 

§ 8438. Investment of Thrift Savings Fund 

(a) * * * 

* * * * * * * 

(c)(1) * * * 

ø(2) If an election has not been made with respect to any sums 

in the Thrift Savings Fund available for investment, the Executive 

Director shall invest such sums in the Government Securities Investment Fund.¿ 

(2)(A) Except as provided in subparagraph (B), if an election has 

not been made with respect to any sums available for investment in 

the Thrift Savings Fund, the Executive Director shall invest such 

sums in an age-appropriate target date asset allocation portfolio of 

the funds described in subsection (b), as determined by the Executive Director. 

(B) If an election has not been made by a member (as defined in 

section 211 of title 37) contributing to the Thrift Savings Fund 

under section 8440e with respect to any sums available for investment in such member’s Thrift Savings Fund account, the Executive 

Director shall invest such sums in the Government Securities Investment Fund. 

* * * * * * * 


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§ 8439. Accounting and information 

(a) * * * 

* * * * * * * 

(d)(1) Each employee, Member, former employee, or former Member who elects to invest in any investment fund or option under 

this chapter, other than the Government Securities Investment 

Fund, shall sign an acknowledgement prescribed by the Executive 

Director which states that the employee, Member, former employee, or former Member understands that an investment in any 

such fund or option is made at the employee’s, Member’s, former 

employee’s, or former Member’s risk, that the employee, Member, 

former employee, or former Member is not protected by the Government against any loss on such investment, and that a return on 

such investment is not guaranteed by the Government. 

(2) Before the date on which an individual covered under section 

8438(c)(2)(A) begins contributing to the Thrift Savings Fund, the individual shall sign a risk acknowledgment described under paragraph (1). 

* * * * * * * 

Subchapter VII—Federal Retirement Thrift Investment 

Management System 

* * * * * * * 

§ 8472. Federal Retirement Thrift Investment Board 

(a) * * * 

* * * * * * * 

(g)(1) * * * 

(2) Except in the case of investments [required by section 8438 

of this title to be invested in securities of the Government] under 

section 8438(c)(2)(B), the Board may not direct the Executive Director to invest or to cause to be invested any sums in the Thrift Savings Fund in a specific asset or to dispose of or cause to be disposed 

of any specific asset of such Fund. 

* * * * * * * 

Æ 


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