- The Washington Times - Monday, June 8, 2009

Congress is working on a major benefit for the surviving spouses of federal and military personnel who invested in the Thrift Savings Plan. The TSP is Uncle Sam’s in-house 401(k).

Under the change, part of the House-passed tobacco bill being considered by the Senate, the surviving spouse of a TSP account holder would be able to keep money in the tax-deferred TSP or roll it over into an IRA. Under current rules, they must take the money and pay taxes on it.

The average TSP account balance for federal workers was in the $60,000 range at the end of April. That is $61,154 for investors who are under the newer Federal Employees Retirement System, and $59,344 for those under the older Civil Service Retirement System. The average account for uniformed military investors was $8,559.

Being able to keep that money in the low-fee TSP (or transfer it to an IRA) would be a major tax break for the surviving spouses. It would also enable them to keep that money working and growing (hopefully) for years before they had to withdraw and pay taxes on it.

The TSP change is one of a number of pro-civil-service benefits embedded in the so-called tobacco bill passed by the House. None of those perks is in the Senate version of the bill, but they could be added on the Senate floor or become the subject of a Senate-House conference that would iron out differences between the two versions.

At stake are House-approved changes that include retirement breaks for employees under both the old Civil Service Retirement System and the newer Federal Employees Retirement System. Under the House bill, CSRS employees could transition into retirement by working part time without reducing their eventual federal retirement benefits. FERS employees — now under a use-it-or-lose-it sick-leave system — would be given service credit when they retire for sick leave they didn’t take. The House-passed bill would also require the government to offer a Roth option within the federal TSP. It would also allow TSP account holders to transfer some of their current funds into outside mutual funds on a tax-deferred basis and to earmark part of their future payroll investment contributions to funds outside of the TSP.

Currently, the TSP offers three stock index funds, a bond index fund, a Treasury securities fund (available only to government-military investors) and a series of Lifecycle funds. Allocation in those funds — which range from present income to the target year 2040 — is changed daily. The funds grow more conservative by reducing exposure to stocks as investors get closer to their target dates for withdrawal.

Some federal investors chafe at what they consider the limited choice of index funds in the TSP. However, financial planners say they are overlooking the fact that index funds generally beat returns of more narrowly focused mutual funds. They also point out that the TSP’s rock-bottom administrative fees keep more money in investor accounts than do comparable managed funds that charge annual fees of up to 2 percent regardless of returns.

Paid parental leave

Federal unions are cheering House passage of a bill that would give federal and postal workers one of the most generous parental leave options in the nation.

Under the plan, feds who have a child, adopt a child or take in a foster child could be given up to four weeks of paid leave. They would not have to take sick leave (accumulated at the rate of 13 days per year) or vacation time, which ranges from 10 to 26 days per year depending on length of service.

If both parents were federal or postal workers, they could each take four weeks of paid parental leave.

Backers say the paid-leave benefit would mirror the best practices of many large U.S. companies and that it would help managers recruit and retain good employees. They also say it would allow people to take leave and return to their jobs (and pay taxes) rather than being forced to choose between having a child or having a job.

Opponents say that it would be a costly benefit that would be unfair to private-sector taxpayers who are taking pay cuts to hold on to their jobs. They also cite internal government studies that show that the issue of paid family leave seldom comes up when potential job applicants ask about government benefits.

Contact Mike Causey at [email protected]

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