U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON : 

For sale by the Superintendent of Documents, U.S. Government Printing Office

Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800

Fax: (202) 512–2104 Mail: Stop IDCC, Washington, DC 20402–0001

73–450 PDF 2012

THE THRIFT SAVINGS PLAN: HELPING FEDERAL

EMPLOYEES ACHIEVE RETIREMENT SECURITY

HEARING

BEFORE THE

SUBCOMMITTEE ON FEDERAL WORKFORCE,

U.S. POSTAL SERVICE AND LABOR POLICY

OF THE

COMMITTEE ON OVERSIGHT

AND GOVERNMENT REFORM

HOUSE OF REPRESENTATIVES

ONE HUNDRED TWELFTH CONGRESS

FIRST SESSION

JULY 27, 2011

Serial No. 112–112

Printed for the use of the Committee on Oversight and Government Reform

(

Available via the World Wide Web: http://www.fdsys.gov

http://www.house.gov/reform
(II)

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

DARRELL E. ISSA, California, Chairman

DAN BURTON, Indiana

JOHN L. MICA, Florida

TODD RUSSELL PLATTS, Pennsylvania

MICHAEL R. TURNER, Ohio

PATRICK T. MCHENRY, North Carolina

JIM JORDAN, Ohio

JASON CHAFFETZ, Utah

CONNIE MACK, Florida

TIM WALBERG, Michigan

JAMES LANKFORD, Oklahoma

JUSTIN AMASH, Michigan

ANN MARIE BUERKLE, New York

PAUL A. GOSAR, Arizona

RAU ́ L R. LABRADOR, Idaho

PATRICK MEEHAN, Pennsylvania

SCOTT DESJARLAIS, Tennessee

JOE WALSH, Illinois

TREY GOWDY, South Carolina

DENNIS A. ROSS, Florida

FRANK C. GUINTA, New Hampshire

BLAKE FARENTHOLD, Texas

MIKE KELLY, Pennsylvania

ELIJAH E. CUMMINGS, Maryland, Ranking

Minority Member

EDOLPHUS TOWNS, New York

CAROLYN B. MALONEY, New York

ELEANOR HOLMES NORTON, District of

Columbia

DENNIS J. KUCINICH, Ohio

JOHN F. TIERNEY, Massachusetts

WM. LACY CLAY, Missouri

STEPHEN F. LYNCH, Massachusetts

JIM COOPER, Tennessee

GERALD E. CONNOLLY, Virginia

MIKE QUIGLEY, Illinois

DANNY K. DAVIS, Illinois

BRUCE L. BRALEY, Iowa

PETER WELCH, Vermont

JOHN A. YARMUTH, Kentucky

CHRISTOPHER S. MURPHY, Connecticut

JACKIE SPEIER, California

LAWRENCE J. BRADY, Staff Director

JOHN D. CUADERES, Deputy Staff Director

ROBERT BORDEN, General Counsel

LINDA A. GOOD, Chief Clerk

DAVID RAPALLO, Minority Staff Director

SUBCOMMITTEE ON FEDERAL WORKFORCE, U.S. POSTAL SERVICE AND LABOR

POLICY

DENNIS A. ROSS, Florida, Chairman

JUSTIN AMASH, Michigan, Vice Chairman

JIM JORDAN, Ohio

JASON CHAFFETZ, Utah

CONNIE MACK, Florida

TIM WALBERG, Michigan

TREY GOWDY, South Carolina

STEPHEN F. LYNCH, Massachusetts,

Ranking Minority Member

ELEANOR HOLMES NORTON, District of

Columbia

GERALD E. CONNOLLY, Virginia

DANNY K. DAVIS, Illinois
(III)

C O N T E N T S

Page

Hearing held on July 27, 2011 ............................................................................... 1

Statement of:

Long, Gregory, executive director, Federal Retirement Thrift Investment

Board; Clifford Dailing, chairman, Employee Thrift Advisory Council,

Secretary-Treasurer, National Rural Letter Carriers’ Association; and

Joseph Beaudoin, president, National Active and Retired Federal Employees Association ....................................................................................... 7

Beaudoin, Joseph ....................................................................................... 29

Dailing, Clifford ......................................................................................... 23

Long, Gregory ............................................................................................ 7

Letters, statements, etc., submitted for the record by:

Beaudoin, Joseph, president, National Active and Retired Federal Employees Association, prepared statement of ................................................ 31

Connolly, Hon. Gerald E., a Representative in Congress from the State

of Virginia, prepared statement of .............................................................. 50

Cummings, Hon. Elijah E., a Representative in Congress from the State

of Maryland, prepared statement of ............................................................ 49

Dailing, Clifford, chairman, Employee Thrift Advisory Council, SecretaryTreasurer, National Rural Letter Carriers’ Association, prepared statement of ........................................................................................................... 25

Langevin, Hon. James R., a Representative in Congress from the State

of Rhode Island, prepared statement of ...................................................... 51

Long, Gregory, executive director, Federal Retirement Thrift Investment

Board, prepared statement of ...................................................................... 9

Lynch, Hon. Stephen F., a Representative in Congress from the State

of Massachusetts, prepared statement of ................................................... 5

(1)

THE THRIFT SAVINGS PLAN: HELPING FEDERAL EMPLOYEES ACHIEVE RETIREMENT

SECURITY

WEDNESDAY, JULY 27, 2011

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON FEDERAL WORKFORCE, U.S. POSTAL

SERVICE AND LABOR POLICY,

COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM,

Washington, DC.

The subcommittee met, pursuant to notice, at 2:16 p.m., in room

2154, Rayburn House Office Building, Hon. Dennis A. Ross (chairman of the subcommittee) presiding.

Present: Representatives Ross, Lynch, and Davis.

Staff present: Jennifer Hemingway, senior professional staff

member; James Robertson, professional staff member; Cheyenne

Steel, press assistant; Peter Warren, legislative policy director;

Nadia A. Zahran, staff assistant; Kevin Corbin, minority staff assistant; and William Miles, minority professional staff member.

Mr. ROSS. 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 Committee.

I’ll now begin with my opening statement. The Thrift Savings

Plan, established in 1986, provides a tax-deferred retirement savings plan to 41⁄2 million Federal participants. With $289 billion 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

two-thirds of its employers reporting that the 401(k) is the primary

retirement savings vehicle for the employees that they cover.
2

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 2009 Congress passed the Thrift Savings Plan

Enhancement Act, resulting in a number of significant changes to

the TSP. 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 low-cost investments. Implementing a Roth TSP contribution program should prove beneficial to employees, particularly

those at the early stages of their career. The 2009 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 TSP. This 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 401(k) plans, could prove to add more flexibility to participants

wishing to further diversify their portfolios. Several legislative proposals have been introduced in the 112th Congress to modify investment options for Federal employees participating in TSP. With TSP contributions—participants contributing more than $2

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, Mr. Lynch, for his opening statement.

Mr. LYNCH. Thank you very much, Mr. 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 4.4 million participants and more than $285 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 401(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
3

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 a 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 contained 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 401(k) investment options which allow

participants to contribute after-tax 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.

Last, 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 would remind my colleagues that the Thrift

Savings Plan is only one element of our three-legged 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 Fed-
4

eral 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, Mr. Chairman. I look forward to discussing these and

other issues with our witnesses this afternoon, and I yield back the

balance of my time.

Mr. ROSS. Thank you, Mr. Lynch, and, without objection, the report will be admitted.

[The prepared statement of Hon. Stephen F. Lynch follows:]
5
6
7

Mr. ROSS. I would now like to also note that Members may have

7 days to submit opening statements for the record.

And we will now recognize our panel. We have Mr. Gregory T.

Long, who is the executive director of the Federal Retirement

Thrift Investment Board; we have Mr. Dailing, who is the chairman of the Employee Thrift Advisory Council; we have Mr. 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.

[Witnesses sworn.]

Mr. ROSS. Thank you. Please be seated. Let the record reflect

that all witnesses responded ‘‘yes.’’

In order to allow for the discussion, please limit your testimony

to 5 minutes. As you know, your entire written statement will be

made part of the record.

And now I would like to recognize Mr. Long for 5 minutes.

STATEMENTS OF GREGORY LONG, EXECUTIVE DIRECTOR,

FEDERAL RETIREMENT THRIFT INVESTMENT BOARD;

CLIFFORD DAILING, CHAIRMAN, EMPLOYEE THRIFT ADVISORY COUNCIL, SECRETARY–TREASURER, NATIONAL RURAL

LETTER CARRIERS’ ASSOCIATION; AND JOSEPH BEAUDOIN,

PRESIDENT, NATIONAL ACTIVE AND RETIRED FEDERAL EMPLOYEES ASSOCIATION

STATEMENT OF GREGORY LONG

Mr. LONG. Chairman Ross and members of the subcommittee, my

name is Greg Long, and 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 2009 I am pleased

to discuss.

I would again like to thank this committee and subcommittee for

its initiative on the Enhancement Act. 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 roll-out 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,

long-sought 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 imple-
8

mentation. 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 401(k) plans. However, implementation was complex because

it involved obtaining important decisions from a largely aging cohort of widows and widowers 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 2010. We have now established over 4,800 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

3 percent of basic pay unless they elect otherwise. Automatic enrollment is a game changer for the TSP. Over 97 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 2012 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 27 of our 28 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 post-tax 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 2012.

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 401(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.

Mr. ROSS. Thank you very much.

[The prepared statement of Mr. Long follows:]
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23

Mr. ROSS. Mr. Dailing, you are recognized for 5 minutes.

STATEMENT OF CLIFFORD DAILING

Mr. DAILING. Chairman Ross, members of the subcommittee,

thank you for the opportunity to testify today. As you mentioned,

my name is Clifford Dailing, and I am the secretary-treasurer of

the National Rural Letter Carriers 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 15 years. ETAC is

a Federal advisory committee established by the Federal Employees Retirement System Act of 1986 to give a voice to the participants in the operations of the Thrift Savings Plan, 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 15 unions, employee organizations, and uniformed

services comprise ETAC. Our organizations represent the vast majority of the TSP’s 4.5 million participants. TSP continues to be one

of the best-run 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 2011, the TSP had roughly $289 billion in assets. Protecting these assets is our highest priority. Contributing to

the plan’s current success is the TSP Enhancement Act of 2009.

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 97.4 percent of all new hires are participating in the TSP, with only a minimal of 2.6 percent opt-out

rate. Overall, roughly 85 percent of all Federal and postal employees are participating in TSP.

Compared with the private sector, where roughly 75 percent of

employees are participating in available 401(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 TSP plan is preset to contribute 3 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 97.4 percent participation rate is very encouraging.

In addition to automatic enrollment, the Federal Retirement

Thrift Investment Board has had the arduous task of implementing

the Roth TSP option. Originally scheduled to begin in January

2012, the plan has been delayed several months for more testing

and planning. I encourage the Thrift Board to quickly act toward

completion of the implementation of the Roth TSP and give Federal
24

and postal employees and retirees an additional option to invest for

their retirement needs.

Mr. 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

concerned 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 TSP 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, Mr. 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 cost-of-living 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 very popular

among its 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 have. Thank you.

Mr. ROSS. Thank you, Mr. Dailing.

[The prepared statement of Mr. Dailing follows:]
25
26
27
28
29

Mr. ROSS. Mr. Beaudoin. Is that correct? You are recognized for

5 minutes.

STATEMENT OF JOSEPH BEAUDOIN

Mr. BEAUDOIN. Chairman Ross, Ranking Member Lynch, and

members of the subcommittee, I am Joseph A. Beaudoin, president

of NARFE, and I want to thank you for the 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 annuitants

and 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 for 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 hard-earned dollars in the TSP.

The test of any organization is its performance during a crisis.

We believe that the Thrift Board has 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 is diversified with a three-legged stool, consisting of the TSP, a modest defined benefit annuity, and Social Security benefits. In fact, we believe the FERS defined benefit annuity has become an 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 401(k) plans. We are particularly

pleased with the implementation of three provisions in the Thrift

Savings Plan Enhancement Act of 2009.

First, newly hired Federal employees are now automatically enrolled in TSP and are immediately eligible for an automatic contribution. As a result, 97 percent of newly hired Federal employees

are voluntarily putting their own wages in their TSP account.
30

Second, by the second quarter of 2012 a Roth option will be

added to the TSP. This feature will allow participants to make

after-tax 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 2009, 401(k)

plans could be amended to allow employees to contribute unused

annual leave to their 401(k) account. As a matter of equity, NARFE

supported legislation introduced during the 111th 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 112th Congress, and we encourage this subcommittee

to approve it. NARFE also supports a proposal to allow Federal

workers to contribute bonuses into their tax-deferred account.

Chairman Ross, Ranking Member Lynch, we commend you for

your interest in ensuring that the Thrift Savings Plan continues to

thrive. Thank you, and I’ll answer any questions you have.

Mr. ROSS. Thank you very much.

[The prepared statement of Mr. Beaudoin follows:]
31
32
33
34
35
36
37
38
39
40
41
42
43

Mr. ROSS. I’ll now recognize myself for 5 minutes, and I will say

for someone who has just come from the private sector in a 401(k)

and now under the TSP, I think it’s a phenomenal program, and

I think that you are doing a very good job with it.

Mr. Dailing, you talked about communication to the members

and what not. What recommendations would you give in terms of

flexibility or more products to entice more people to join them?

Eighty-five percent is pretty good, but any suggestions?

Mr. DAILING. The core, I think, is 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 get-go as they begin

their career.

Mr. ROSS. Mr. Long, in 2009 with the changes, did we see an increase in participation? I mean, we did, but we’re at 85 percent

now. What was it prior to the act?

Mr. LONG. It was down to 82 percent, and so 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 slowly been creeping up by one- or twotenths of a percent each month. We’re in a long, slow march toward

90 percent.

Mr. ROSS. Let me ask you this. If a person does not participate

in it, they’re still enrolled in it; is that correct?

Mr. LONG. Today, under automatic enrollment, if a participant

takes no action, they are automatically enrolled at 3 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 rate is

now 3 percent.

Mr. 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 that there is going to be a

contribution made I think of 1 percent of his salary annually in the

TSP.

Mr. LONG. The 1 percent is automatic, that is absolutely correct.

Mr. ROSS. Would you recommend an opt-out provision, if someone, for whatever reason, chose to do so?

Mr. LONG. Administratively, that 1 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 1 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.

Mr. ROSS. But that 85 percent enrollees does not take into account somebody who would not want to enroll and still getting a

1 percent; is that correct?

Mr. LONG. The colleague that you referenced would actually fall

under the about 2.4 percent of people that joined after automatic
44

enrollment and the very small percentage that actually chose to do

zero.

Mr. ROSS. Okay. In terms of your budget, your budget’s at, what,

$143 million or thereabouts? It was frozen, I think, this last year?

Mr. LONG. Yes; $131 million for fiscal year 2011.

Mr. ROSS. Okay, and you’re requesting a 12 percent increase——

Mr. LONG. That is——

Mr. ROSS [continuing]. For next year?

Mr. 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 147, and now I scaled that back to about

145.

Mr. ROSS. Okay. And then what would you say the budget was

in about 2006? Do you have any of those numbers?

Mr. LONG. Yep. About $90 million.

Mr. ROSS. Okay. And so in 5 years it’s increased about $45 million?

Mr. LONG. Yes. It is substantial.

Mr. ROSS. And any particular reason? I mean, was there capital

improvements or something?

Mr. LONG. Well, several reasons. When I initially 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 state-of-the-art 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.

Mr. ROSS. Last, I’ve got just a couple seconds. Any suggestions

as to streamline, to help reduce costs in the operation of the TSP?

Mr. LONG. 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 everything is a give and take. If you want

to reduce costs, there’s something that you’re planning on providing

that you will no longer provide, and that’s a discussion that I’ll

have with the board.

Mr. ROSS. Thank you. My time’s expired. I’ll now recognize the

distinguished gentleman from Massachusetts, the ranking member,

Mr. Lynch, for 5 minutes.

Mr. LYNCH. Thank you, Mr. Chairman.

Mr. Long, let’s stay right on that same thought. I know that the

TSP provides to its 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,
45

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?

Mr. LONG. We are constantly taking a look at data that comes

out, and just a couple weeks ago we had a report that came out

from one of the large consulting firms which takes a look at the average recordkeeping and total investment charges that are allocated to the typical 401(k) participant. Right now a TSP participant

pays 21⁄2 basis points, 25 cents on every thousand dollars. Compare

that to about 65 to 75 basis points for the largest plans. Some

401(k) plans pay 200 basis points or 2 full percentage points in

fees. We are tiny relative to the typical 401(k) plan, and it’s a result of, yes, economies of scale, but also our efficiencies that we create through our design.

Mr. LYNCH. Now, also the fees for—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.

Mr. LONG. Yes. Well, my investment staff internally is two people, so——

Mr. LYNCH. Okay.

Mr. LONG. And all of the agency employees fall under the standard pay scale, government pay scale structure.

Mr. LYNCH. Okay, great. The last time you were up we actually

asked about providing a mutual fund window 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.

Mr. LONG. Uh-huh.

Mr. LYNCH. And it encourages employees to use their own

money.

Mr. LONG. Uh-huh.

Mr. 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 so-called mutual fund window?

Mr. LONG. The mutual fund window was a provision that was in

the TSP Enhancement Act of 2009, 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.

Mr. LYNCH. What is the big drawback here? Is it just simply

risk?

Mr. LONG. Well, I think there is a concern, and some of it is a

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 poten-
46

tial that those offerings have a higher level of volatility than what

we have because we rely on——

Mr. 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.

Mr. 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

25—some other percentage.

Mr. 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 20 percent, and then track it.

Mr. LONG. Yeah.

Mr. LYNCH. Track it, and see what the usage is and what the

danger might be. But I think it is a good opportunity for—you need

some flexibility, you know, for employees. I know you’re doing very,

very well, but I still think there’s a need to diversify our options

within that plan.

And I yield back the balance of my time. Thank you.

Mr. ROSS. Thank you. The gentleman from Illinois, Mr. Davis, is

recognized for 5 minutes of questions.

Mr. DAVIS. Thank you very much, Mr. Chairman. I want to

thank 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

2nd and therefore defaults on some of its legal obligations.

I believe it is in your written statement, Mr. Dailing, that you

mentioned that the G fund is safe and fully protected during debt

issuance suspension periods, and that’s a quote.

Would you mind elaborating on that point a little bit further for

the committee?

Mr. LONG. Oh, I’m sorry.

Mr. DAILING. Me, Mr. Davis?

Mr. DAVIS. Yes.

Mr. 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
47

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 of 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 explanation, that’s from our members’ concern.

Mr. DAVIS. Well, let me ask Mr. Beaudoin and Mr. Long if they

agree with that basic assertion or explanation.

Mr. LONG. I do, yes. And I think this is an area in which the

board and Congress could, frankly, appropriately anticipate a disadvantage, and it was largely driven by what was going on in 1987.

When the TSP started early that year, 1987, there was a debt crisis then, and to assure G fund investments, the board, my predecessors, formally requested legislation guaranteeing G fund earnings. The Thrift Savings Plan Investment Act of 1987 was then

signed by President Reagan at the time. It included the makewhole provision. So what this means is that under FERSA, our governing legislation, when G fund—when securities are issued to the

G fund, we have—investors are protected.

In 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 on our Web site, through our partners in ETAC, through our

communications with the newsletters, and all of our mediums.

We’ve tried to get this message out, but grant you there are some—

we can’t always get through clearly, but we try.

Mr. DAVIS. Thank you very much. Mr. Beaudoin, could you just

react to that?

Mr. BEAUDOIN. Yes, sir. Although the NARFE would prefer that

the funds be used for the retirement annuities and benefits——

Mr. ROSS. Mr. Beaudoin, is your button pushed there?

Mr. BEAUDOIN. Oh, I’m sorry.

We do acknowledge that such extraordinary measures ensure

that annuities in TSP savings continue to be paid. We just want

to ensure that once Congress raises the debt limit and 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 Mr. Long and Mr.

Dailing.

Mr. DAVIS. Well, let me thank each one of you. You sounded pretty positive, so I think I’ll just end at that. You did say, ‘‘once Congress does raise the debt limit.’’

Thank you, Mr. Chairman.
48

Mr. ROSS. Thank you, Mr. Davis.

That concludes our questioning and our hearing for today.

I thank the witnesses for being here and taking the time out of

your busy schedules to testify. With that, our subcommittee stands

adjourned.

[Whereupon, at 2:58 p.m., the subcommittee was adjourned.]

[The prepared statements of Hon. Elijah E. Cummings, Hon.

Gerald E. Connolly, and Hon. James R. Langevin follow:]
49
50
51Æ