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Thrift Savings Account
Thrift Savings Plan Could Use More Options, Workers Say
By Stephen Barr

TIPS. Bonds. Roth 401(k) accounts. These are among the investment options that government employees would support adding to the Thrift Savings Account Plan (TSP), according to a survey released yesterday.

The survey was the first since 1991 to query civil service employees, postal workers, military personnel and others in government about their satisfaction with the TSP, a 401(k)-type retirement program that has $206.6 billion in assets.

The survey, released at a meeting of the Federal Retirement Thrift Investment Board, found that thrift plan participants are generally more satisfied with the plan than private-sector employees are with their 401(k) plans. But could it be better? The survey included questions on potential changes to the TSP to gauge employee interest in changing the plan's design and options.

The Thrift Savings Account Plan offers four primary stock and bond index funds and a government securities fund. It also includes five life-cycle funds, where participants select an investment mix of the primary funds that are weighted to minimize market risks as they move closer to when they expect to draw down their savings.

The thrift board has been considering new rules and investment options for the Thrift Savings Account for much of the past year, in part because of recent changes to pension law and because some members of Congress and the National Association of Real Estate Investment Trusts have pushed for adding a real estate fund as a way of helping government employees diversify their portfolios.

The board is interested in modifying the Thrift Savings Account, which operates as an opt-in system, so that new federal employees and military personnel are automatically enrolled, in hopes that it will encourage employees to get in the habit of saving for retirement. Sixty-six percent of survey respondents were in favor of that change to the TSP.

Employees surveyed also supported adding new investment options. Sixty percent said providing a Roth 401(k) account would make the TSP a better program, and 46 percent said offering a wide selection of investment options would improve the plan.

With a Roth option, participants would make contributions with money that had been taxed, but the contributions would grow tax-free and account balances could be withdrawn tax-free. Employees investing in the current Thrift Savings Account funds contribute pretax dollars and pay taxes when they withdraw their savings.

The strongest supporters for adding a Roth option came from the military and other uniformed services, the survey found. For many in the military, current incomes and tax rates may be as low or lower than their expected incomes and tax rates.

The survey also found support for several other investment options, including a Treasury Inflation-Protected Securities (or TIPS) fund, an emerging-markets bond fund and an international bond fund.

Gregory Long, who headed up the survey project as the thrift board's director of product development, suggested that the cost of new funds should be considered in any debate on whether to expand the TSP.

The TSP funds cost participants about $4 a year for every $10,000 they have in their accounts. "If new funds are added to the Thrift Savings Account, they might have expenses that are significantly higher than this," the survey report said.

In the survey, 19 percent disagreed that adding options would make the program better, and most in this group signaled that they were not interested in expanding TSP options if it increased administrative and other overhead costs.

Despite concerns about costs, many survey respondents appear interested in adding investment options. For example, of those who believe expanding the Thrift Savings Account will make it a better program, 59 percent support adding a TIPS fund "if costs are the same" and 35 percent favor adding TIPS "even if costs are higher." TIPS are tied to the consumer price index, eliminating the risk of inflation eroding the investment.

Of the respondents favoring an expanded TSP, 53 percent supported adding a real estate investment trust fund if costs stay the same and 35 percent favored the real estate option even if costs were higher.

The survey was conducted by mail in November, and 3,467 TSP participants completed it, a response rate of 20 percent. While the rate was lower than Thrift Savings Account Plan officials expected, Long said the results were "representative of what people think." The survey's margin of error was 1.7 percentage points.

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