Auto-Enrollment: An Important Improvement
Auto-enrollment is perhaps the single most important improvement to retirement savings plans for many years, and adding it to TSP will help federal employees to achieve retirement security. Under the current TSP structure, a worker who is considering enrolling must make several decisions that he or she may not feel qualified to make. These include how much to save and what investments to choose. Faced with important decisions that could cause a loss if the wrong choice is made, many workers simply do nothing. As a result, they do not save, and their retirements will be less secure.

Under auto-enrollment, the situation would be reversed. Unless the worker chooses otherwise, he or she would be automatically enrolled in TSP, contribute a set proportion of income, and invest in the retirement fund (the L Fund) that is most likely to produce a suitable level of retirement savings. The worker will still have the right to change any of those decisions, but in this case, inertia works to his or her benefit, increasing the worker's retirement security. Studies of auto-enrollment in 401(k) plans show that participation rates reach and exceed 80 to 85 percent of the workforce for all groups, including lower income workers, younger workers, women, and minorities. Without auto-enrollment, members of these groups are the least likely to save for retirement and the most likely to need additional retirement income beyond that provided by Social Security.

In the case of TSP, auto-enrollment offers several advantages. While participation among civilian workers is already high, participation for military personnel is only about 25 percent. Under the FRTIB proposal, all workers, both new and returning, would be auto-enrolled at the time of employment and would contribute 3 percent of income to TSP. Those who decide not to participate would have 90 days to opt out and would receive their contributions back.

Equally as important, the FRTIB plan would change TSP's automatic investment option from the G Fund, which invests in government bonds, to the L Fund, a mixture of stocks, commercial bonds, and government bonds. The investment mix of the L Fund changes gradually and automatically over time based on when the individual worker plans to retire, shifting into more conservative investments as the worker ages. This serves to enable larger investment gains while the worker is younger and then to protect those gains from market volatility as the worker nears retirement age.

The difference between automatic investment options is especially significant for younger workers. For the 12 months ending in May 2007, the G Fund had a rate of return of 4.92 percent, while the L Fund for those retiring after 2035 earned 20.92 percent and the L Fund for those retiring in the next few years earned 8.64 percent. Though the L Fund has a higher level of risk than the G Fund, the difference in rates of return, especially for younger workers who can and should bear more risk as they are decades away from the end of their working lives, could result in a much greater retirement income.

Mixing Retirement Savings and Foreign Policy
Early in the 110th Congress, Members of the House and Senate introduced three bills that threatened TSP's focus on improving federal employees' retirement security. Two were amended to drop language directly affecting TSP, passed the House by wide margins on July 31, and are now before the Senate. The third is unlikely to see further action. These bills may, however, presage future legislative initiatives.

Section 4(b) of the Darfur Accountability and Divestment Act (HR 180), introduced by Representative Barbara Lee (D–CA), would have required the Government Accountability Office (GAO) to "investigate the existence and extent of all Federal Retirement Thrift Investment Board investments in companies" identified as doing business in Sudan. That information would be reported to Congress annually. The clear intention was for Congress to use the information to pressure FRTIB to stop investing in those companies. This provision was deleted before the bill was considered by the House of Representatives.

Similarly, Section 7 of the initial version of the Iran Sanctions Enabling Act (H.R. 2347), introduced by Representative Barney Frank (D–MA), would have stated the sense of Congress that "the Federal Retirement Thrift Investment Board should initiate efforts to provide a terror-free international investment option among the funds of the Thrift Savings Fund" that would not invest in "the stock of companies that do business in any country the government of which the Secretary of State has determined… is a government that has repeatedly provided support for acts of international terrorism." While a sense of Congress resolution does not carry the force of law, FRTIB would have seen it as a threat to legislate if it failed to act. This provision also was deleted before the bill received House consideration.

Finally, Section 1(d) of Rep. Illeana Ros-Lehtinen's (R–FL) H.R. 1357, which also concerns pension investments in Iran, would have required TSP, "to the extent consistent with legal and fiduciary duties," to divest investments in any companies identified as having invested more than $20 million in Iran's energy sector since August 5, 1996, and Section 1(f) would have prohibited any future investment in those companies. H.R. 1357 has not been considered.