November 3, 2009

National Active and Retired Federal Employees Association (NARFE) President Margaret L. Baptiste told the House Subcommittee on the Federal Workforce today that while the first 23 years of the federal Thrift Savings Plan (TSP) has been a huge success, NARFE is concerned that the current volatile financial market is forcing federal employees at or near retirement to keep working until they can regain their losses.

The TSP is the tax-deferred retirement savings program created by Congress in 1986 and is similar to 401(k) plans offered to workers in the private sector.

"Federal workers years away from retirement should have time to recover.  But employees at or near retirement don't have that luxury," Baptiste testified.  "Most of them will either retire with a smaller nest egg or work until the market rebounds."

Baptiste noted that retirement plans were created so that employees could avoid working into old age and also to make room for younger workers to take their places. "But the purpose of retirement programs are negated when workers cannot afford to retire until they make up for lost gains," she testified.  "That's why, as evidenced by the recent market slump, the relatively modest 'defined benefit' annuity earned by Federal Employees Retirement System (FERS) retirees has become an essential safety net."

In addition, NARFE's President praised Subcommittee Chairman Stephen F. Lynch, D-MA, and others for working with the Association and other federal/postal organizations on including several TSP improvements in the Tobacco Regulatory bill, which became law in June.  That new law provides: 

• Automatic enrollment of, and immediate matching contributions for, newly hired federal employees.
• A "Roth" option to the TSP to allow participants to make after-tax contributions to the plan and withdraw their earnings tax-free upon retirement.  
• Surviving spouses with the same rights over their inherited accounts as any other TSP participant. 

However, Baptiste said that NARFE was concerned about a provision in the new law that will allow participants to invest their accounts in funds outside the TSP. 

"TSP's index plans are large, well-diversified portfolios of securities that have reduced risk to investors and have a proven performance, over the long term.  The same cannot be said for many funds outside of the TSP," she testified.  "For that reason, NARFE is concerned that such a 'self-directed' option could result in federal workers taking on too much risk."  

Baptiste suggested that the Federal Retirement Thrift Investment Board consider limitations on funds invested outside of the TSP "to ensure that participants do not put all their eggs in one basket."

She also noted that, in September, President Obama announced that private 401(k) plans could allow their workers to put payments for unused vacation and sick days into their retirement savings.  "As a matter of equity, NARFE believes that federal workers should have this choice if it is offered to private-sector employees."

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