The Senate last week passed the Smart Savings Act, a bill that would tweak the way federal employees are auto-enrolled in the Thrift Savings Plan.
The proposal aims to auto-enroll younger workers into a less conservative retirement savings fund.
An explanation of how the bill would change things and what it means for workers:
The Smart Savings Act would change the automatic enrollment for federal employees enrolling in the Thrift Savings Plan (TSP) from the overly conservative “G Fund” to an age-appropriate, lifecycle “L Fund” with higher returns. Employees will retain their existing discretion to elect for more or less conservative investment options.
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Federal workers are given the option to invest in the Thrift Savings Plan (TSP) as part of their retirement planning. Currently, new workers are automatically enrolled in the “G Fund,” which is made up entirely of U.S. Treasury Bonds. While the G Fund is very safe, it is widely viewed by investment professionals as an overly conservative investment, particularly for younger workers, and can leave many unprepared for retirement. TSP administrators support changing the default enrollment to the lifecycle funds, or “L Funds,” which adjust automatically for participants as they age. The Federal Retirement Thrift Investment Board approved the plan to seek this legislative change in December 2013, after the Employee Thrift Advisory Council endorsement in November 2013. From the beginning of auto-enrollment in August 2010 until September 2013, the “G Fund’s” returns totaled 6.33 percent, compared to a 47.4 percent return for the “L 2040” fund, which is geared toward younger federal employees. As of July 2013, 39 percent of all TSP funds were invested in the G fund, with 29 percent of recently hired Federal employees auto-enrolled. The passage of the Smart Savings Act will ensure that more federal workers are enrolled in a plan that helps them adequately save for retirement.
The senators involved in authoring the bill gave their reaction on its passage through the Senate:
“I’m glad Congress has passed this bipartisan legislation, which will help many federal employees and their families save for retirement,” said Senator Warren. “This bill is a straightforward way to improve the retirement security of federal workers at no additional cost to the government.”
“I’m pleased this commonsense bill will now become law because it will help ensure that the default TSP enrollment option for federal employees provides a larger nest egg and more security as they move towards retirement,” said Senator Portman.
“I am glad this bipartisan bill will become law and help keep Alaska families and our economy strong. This measure will make sure federal retirees will have more financial security, earn more savings, and have a better quality of life,” said Senator Begich.
“This bill is a practical example of how Congress is able to find common ground, work together, and pass legislation that will improve the lives of federal workers without additional costs to taxpayer,” said Senator Enzi. “Smart investments now will help pay for the future.”
“We need to help all Americans prepare for retirement, and this bipartisan bill supports federal employees and their families as they plan ahead and make smart investments,” said Senator Tester.
The text of the bill can be read here.
Photo by Tony Brooks via Flickr CC License
