Savings plan needs options

Congress is contemplating much-needed changes to the government's voluntary

401(k)-type program, the Thrift Savings Plan, which places too many restrictions

on its clients.

One restriction limits federal workers' options for investing in the

stock market. The TSP only offers the C-fund, which is a Standard and Poor's

500 index fund, and other investments may make more sense to federal workers.

S&P 500 companies have fared well during the past five years, but

they haven't performed as well over the long term as broader market indexes

such as the Wilshire 5000 or the Russell 2000. The Nasdaq market index is

outperforming the S&P 500 by a substantial amount. And what about diversification

through investing

The Thrift Savings Board plans to address this lack

of choice, but it has delayed the introduction of new stock investment options

until Oct. 1. Added to TSP investment choices will be the I-fund, an international

stock index fund, and the S-fund, which will track the Wilshire 5000 stock

index.

Another unacceptable limit is the way the TSP handles retirement payments.

When federal employees retire, they can elect to receive a monthly payment

amount of their choice. That's great. But if federal retirees want a different

monthly payment amount a year or two later, there's nothing they can do.

They are committed to the chosen amount.

Rep. Connie Morella (R-Md.) has introduced a reform bill that addresses

other TSP limitations. H.R. 208 includes provisions that would eliminate

the waiting period for newly hired feds to begin participating in the TSP.

The bill also would permit transfers of funds from a qualified retirement

plan of a previous employer to a TSP account. I believe those provisions

are sound and should be enacted.

Senate Republican leaders have said that one of their top priorities

is a military pay and retirement benefits package that includes a provision

to allow military personnel to join the TSP. Their plan is to allow members

of the military to contribute 5 percent of their base pay with no mandatory

employer match, which is exactly what feds who are in the Civil Service

Retirement System can do.

The Republican plan also would allow the armed services to offer matching

TSP contributions to military personnel as a retention inducement in exchange

for a six-year service commitment. It would also allow military personnel

to deposit enlistment or re-enlistment bonuses in the TSP on a pre-tax basis.

Participation in the TSP is on the rise. According to the TSP governing

board's latest plan participation report, from 1997, older and higher-income

federal workers are more likely to invest in the TSP. The report indicated

that 86 percent of federal employees are investing in the TSP, up from 83

percent in 1996. TSP participants are investing a higher percentage of their

salary — an average of 6.8 percent — up from 6.4 percent in 1996.

With this growing interest in TSP, it is more important than ever to

give its users more choices.