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."