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[House Report 113-507]
[From the U.S. Government Publishing Office]

113th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 2d Session                                                     113-507

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                           SMART SAVINGS ACT

                                _______
                                

 June 30, 2014.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

   Mr. Issa, from the Committee on Oversight and Government Reform, 
                        submitted the following

                              R E P O R T

                        [To accompany H.R. 4193]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Oversight and Government Reform, to whom 
was referred the bill (H.R. 4193) 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, report favorably thereon without amendment and 
recommend that the bill do pass.

                                CONTENTS

                                                                   Page
Committee Statement and Views....................................     1
Section-by-Section...............................................     3
Explanation of Amendments........................................     4
Committee Consideration..........................................     4
Application of Law to the Legislative Branch.....................     4
Statement of Oversight Findings and Recommendations of the 
  Committee......................................................     4
Statement of General Performance Goals and Objectives............     4
Duplication of Federal Programs..................................     4
Disclosure of Directed Rule Makings..............................     4
Federal Advisory Committee Act...................................     5
Unfunded Mandate Statement.......................................     5
Earmark Identification...........................................     5
Committee Estimate...............................................     5
Budget Authority and Congressional Budget Office Cost Estimate...     5
Changes in Existing Law Made by the Bill as Reported.............     6

                     Committee Statement and Views

                          PURPOSE AND SUMMARY

    The Smart Savings Act, H.R. 4193, would change the default 
investment fund for Thrift Savings Plan (TSP) participants from 
the G Fund to an age-appropriate asset allocation fund, 
consistent with a recommendation from the Federal Retirement 
Thrift Investment Board (FRTIB). The change will help ensure 
TSP participants are better prepared for retirement, by 
investing their contributions in a fund designed to yield 
higher returns over the course of their career.

                  BACKGROUND AND NEED FOR LEGISLATION

    The TSP is a tax-deferred defined contribution plan 
available to federal workers, administered by the FRTIB. The 
TSP is the Nation's largest pension program, with more than 4.6 
million participants and assets of more than $400 billion.\1\ 
The TSP provides participants a choice of investment options, 
including 5 core funds: the Government Securities Investment 
Fund (G Fund), the Fixed Income Index Investment Fund (F Fund), 
the Common Stock Index Investment Fund (C Fund), the Small Cap 
Stock Index Investment Fund (S Fund), and the International 
Stock Index Investment Fund (I Fund). Participants may also 
invest in the Lifecycle Funds (L Funds), which are tied to a 
target withdrawal date and invested exclusively in the G, F, C, 
S, and I Funds.
---------------------------------------------------------------------------
    \1\Data from the Director of External Affairs, Federal Retirement 
Thrift Investment Board (March 31, 2014).
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    Employees who are covered by the Federal Employee 
Retirement System (FERS) receive contributions from their 
employing agency. For FERS employees, federal agencies 
contribute an amount equal to 1 percent of the employee's base 
pay to the TSP, and also match FERS employee contributions 
dollar-for-dollar on the first 3 percent of employee 
contributions, and at 50 percent on the next 2 percent.
    The Federal Retirement Reform Act of 2009\2\ enabled auto-
enrollment of new federal civilian workers into the TSP. 
Contributions for auto-enrolled TSP participants are defaulted 
into the G Fund. Participant contributions remain invested in 
this fund until the worker makes an election to reallocate his 
or her account balance or direct future contributions into one 
or more of the other funding options available through the TSP.
---------------------------------------------------------------------------
    \2\P.L. 111-31 (2009).
---------------------------------------------------------------------------
    As a result, since August 2010 new hires have automatically 
had 3 percent of base salary contributed to the TSP, unless an 
individual worker elects not to participate, or specifies a 
different contribution rate. As a result, TSP participation 
rates are now highest among newly hired employees, with 
participation at 97.9 percent among workers with less than two 
years of tenure, compared to an overall FERS participation rate 
of 86.8 percent.\3\ Newly-hired participants also have the 
greatest portion of their contributions allocated to the G 
Fund, nearly 61 percent,\4\ which the FRTIB Executive Director 
suggests is due in part to inertia.\5\ The lowest-paid 
participants have approximately 60 percent allocated to the G 
Fund, as compared to the highest paid, who allocated 33 percent 
to the G Fund.\6\
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    \3\Memorandum from Greg Long, Executive Director, Federal 
Retirement Thrift Investment Board, to Board Members, Kennedy, Bilyeu, 
Jones, McCray, and Jasien, L Fund Default Investment Option, December 
16, 2013.
    \4\Federal Retirement Thrift Investment Board, 2012 Annual Report 
of the Thrift Savings Plan, December 30, 2013.
    \5\Memorandum from Greg Long, Executive Director, Federal 
Retirement Thrift Investment Board, to Board Members, Kennedy, Bilyeu, 
Jones, McCray, and Jasien, L Fund Default Investment Option, December 
16, 2013.
    \6\Federal Retirement Thrift Investment Board, 2012 Annual Report 
of the Thrift Savings Plan, December 30, 2013.
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    Enrolling new workers in an age-appropriate L Fund would 
allow their contributions to be allocated across equity and 
bond markets, providing the sort of age-appropriate asset 
diversification recommended by most retirement experts. While 
the L Funds expose participants to market risk, they address 
such risk in their design. According to the FRTIB Executive 
Director, had the L Funds been the default investment option 
since the beginning of automatic enrollment, participants would 
have achieved greater returns than by investing solely in the G 
Fund.\7\ Lifecycle funds are increasingly popular among private 
sector defined contribution plans, and are often used by such 
plans as default investments.
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    \7\Memorandum from Greg Long, Executive Director, Federal 
Retirement Thrift Investment Board, to Board Members, Kennedy, Bilyeu, 
Jones, McCray, and Jasien, L Fund Default Investment Option, December 
16, 2013.
---------------------------------------------------------------------------
    On December 16, 2013, the FRTIB adopted a motion, without 
objection, directing its Executive Director to pursue 
legislation to make an age-appropriate L Fund the default 
option for TSP contributions by FERS participants.\8\ The 
change was unanimously supported by the Employee Thrift 
Advisory Council.
---------------------------------------------------------------------------
    \8\Minutes of the Meeting of the Board Members, Federal Retirement 
Thrift Investment Board, December 16, 2013.
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    H.R. 4193 implements the FRTIB recommendation that age-
appropriate L Funds be the default option for TSP contributions 
for new participants. Participants who conclude they do not 
want to assume market risk will continue to have the ability to 
change their investment allocation, including e.g., 
transferring their entire account balance to the G Fund.
    The International Federation of Professional & Technical 
Engineers endorsed the bill, describing H.R. 4193 as ``a 
responsible step forward in helping federal workers plan and 
save for retirement.''

                          LEGISLATIVE HISTORY

    The TSP was established by the Federal Employees' 
Retirement System Act of 1986 (FERSA)\9\ as a tax-deferred 
retirement savings plan for federal civilian workers. As 
mentioned above, The Federal Retirement Reform Act of 2009\10\ 
provided for automatic enrollment in the TSP of new federal 
civilian workers.
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    \9\P.L. 99-335 (1986).
    \10\P.L. 111-31 (2009).
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                           Section-by-Section

Section 1. Short title

    The short title of the bill is the ``Smart Savings Act.''

Section 2. Thrift Savings Plan default investment fund

    Changes the default investment fund for civilian Thrift 
Savings Plan participants from the G fund to an age-appropriate 
asset allocation fund. The G fund invests exclusively in a 
nonmarketable short-term U.S. Treasury security issued to the 
Thrift Savings Plan. The earnings come from interest income on 
the security. The Thrift Savings Plan offers age-appropriate 
asset allocation funds, currently known as the Lifestyle or (L) 
Fund(s), designed to automatically address an individual's 
changing asset allocation needs and associated risk as they 
approach retirement.
    The bill applies to civilian employees enrolling in the 
Thrift Savings Plan on or after the date the Executive Director 
of the Federal Retirement Thrift Investment Board issues 
implementing guidance. Such guidance must be issued no later 
than nine months after the date of enactment.

                       Explanation of Amendments

    No amendments were offered to H.R. 4193.

                        Committee Consideration

    On March 12, 2014, the Committee met in open session and 
ordered reported favorably the bill, H.R. 4193, by voice vote, 
a quorum being present.

              Application of Law to the Legislative Branch

    Section 102(b)(3) of Public Law 104-1 requires a 
description of the application of this bill to the legislative 
branch where the bill relates to the terms and conditions of 
employment or access to public services and accommodations. 
This bill would change the default investment fund for TSP 
participants from the G Fund to an age-appropriate asset 
allocation fund, consistent with a recommendation from the 
Federal Retirement Thrift Investment Board. Legislative branch 
employees and their families, to the extent that they are 
otherwise eligible for the benefits provided by this 
legislation, have equal access to its benefits.

  Statement of Oversight Findings and Recommendations of the Committee

    In compliance with clause 3(c)(1) of rule XIII and clause 
(2)(b)(1) of rule X of the Rules of the House of 
Representatives, the Committee's oversight findings and 
recommendations are reflected in the descriptive portions of 
this report.

         Statement of General Performance Goals and Objectives

    In accordance with clause 3(c)(4) of rule XIII of the Rules 
of the House of Representatives, the Committee's performance 
goals and objectives are reflected in the descriptive portions 
of this report.

                    Duplication of Federal Programs

    No provision of H.R. 4193 establishes or reauthorizes a 
program of the Federal Government known to be duplicative of 
another Federal program, a program that was included in any 
report from the Government Accountability Office to Congress 
pursuant to section 21 of Public Law 111-139, or a program 
related to a program identified in the most recent Catalog of 
Federal Domestic Assistance.

                  Disclosure of Directed Rule Makings

    H.R. 4193 requires the Executive Director of the Federal 
Retirement Thrift Investment Board to develop implementing 
guidance within nine months of the date of enactment of the 
bill.

                     Federal Advisory Committee Act

    The Committee finds that the legislation does not establish 
or authorize the establishment of an advisory committee within 
the definition of 5 U.S.C. App., Section 5(b).

                       Unfunded Mandate Statement

    Section 423 of the Congressional Budget and Impoundment 
Control Act (as amended by Section 101(a)(2) of the Unfunded 
Mandate Reform Act, P.L. 104-4) requires a statement as to 
whether the provisions of the reported include unfunded 
mandates. In compliance with this requirement the Committee has 
received a letter from the Congressional Budget Office included 
herein.

                         Earmark Identification

    H.R. 4193 does not include any congressional earmarks, 
limited tax benefits, or limited tariff benefits as defined in 
clause 9 of rule XXI.

                           Committee Estimate

    Clause 3(d)(2) of rule XIII of the Rules of the House of 
Representatives requires an estimate and a comparison by the 
Committee of the costs that would be incurred in carrying out 
H.R. 4193. However, clause 3(d)(3)(B) of that rule provides 
that this requirement does not apply when the Committee has 
included in its report a timely submitted cost estimate of the 
bill prepared by the Director of the Congressional Budget 
Office under section 402 of the Congressional Budget Act.

     Budget Authority and Congressional Budget Office Cost Estimate

    With respect to the requirements of clause 3(c)(2) of rule 
XIII of the Rules of the House of Representatives and section 
308(a) of the Congressional Budget Act of 1974 and with respect 
to requirements of clause (3)(c)(3) of rule XIII of the Rules 
of the House of Representatives and section 402 of the 
Congressional Budget Act of 1974, the Committee has received 
the following cost estimate for H.R. 4193 from the Director of 
Congressional Budget Office:

                                     U.S. Congress,
                               Congressional Budget Office,
                                       Washington, DC, May 7, 2014.
Hon. Darrell Issa,
Chairman, Committee on Oversight and Government Reform, House of 
        Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 4193, the Smart 
Savings Act.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Santiago 
Vallinas.
            Sincerely,
                                              Douglas W. Elmendorf.
    Enclosure.

H.R. 4193--Smart Savings Act

    H.R. 4193 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 H.R. 4193 would not affect 
direct spending. The Joint Committee on Taxation (JCT) 
estimates that 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, pay-as-you-go procedures apply. 
However, JCT estimates that any revenue effects would be 
negligible.
    H.R. 4193 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.
    The CBO staff contact for this estimate is Santiago 
Vallinas. This estimate was approved by Theresa Gullo, Deputy 
Assistant Director for Budget Analysis.

         Changes in Existing Law Made by the Bill, as Reported

  In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italic, existing law in which no change is 
proposed is shown in roman):

                      TITLE 5, UNITED STATES CODE

           *       *       *       *       *       *       *
PART III--EMPLOYEES

           *       *       *       *       *       *       *

SUBPART G--INSURANCE AND ANNUITIES

           *       *       *       *       *       *       *

CHAPTER 84--FEDERAL EMPLOYEES' RETIREMENT SYSTEM

           *       *       *       *       *       *       *

SUBCHAPTER III--THRIFT SAVINGS PLAN

           *       *       *       *       *       *       *

Sec. 8438. Investment of Thrift Savings Fund

  (a) * * *

           *       *       *       *       *       *       *

  (c)(1) * * *
  [(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) Consistent with the requirements of 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 investment fund, as determined by 
the Executive Director. Such investment fund shall consist of 
any of the funds described in subsection (b).
  (B) If an election has not been made by an eligible member 
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.

           *       *       *       *       *       *       *

Sec. 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) Prior to enrollment in the Thrift Savings Plan, an 
individual covered by section 8438(c)(2)(A) shall sign the risk 
acknowledgment described under paragraph (1).

           *       *       *       *       *       *       *

SUBCHAPTER VII--FEDERAL RETIREMENT THRIFT INVESTMENT MANAGEMENT SYSTEM

           *       *       *       *       *       *       *

Sec. 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.

           *       *       *       *       *       *       *

                                  
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