The top executive overseeing the Thrift Savings Plan said it will take a "minimum of one year, more likely two" to get a Roth investment option in place.

Congress appears likely to add a Roth option to the Thrift Savings Plan that would enable participants to make taxable contributions that could grow and be withdrawn at retirement tax-free. Currently, TSP investments are made tax-free and then taxed when they are withdrawn.

A Roth option will benefit those who have higher incomes during retirement — and, thus, would be in a higher income tax bracket — than during their federal or military careers. Those most likely to benefit are uniformed service members and select groups of federal civilian employees, such as federal judges. Many federal employees — those likely to have lower incomes, and thus lower taxes, in retirement than they do now — would not benefit from a Roth investment option.

In a meeting with Federal Times on June 2, Federal Retirement Thrift Investment Board Executive Director Greg Long and external affairs director Tom Trabucco said the board is already talking to federal agencies and military services about changes they will need to make to payroll systems to accommodate the Roth option.

Click here to read the transcript from the Q&A session.

Agency payroll systems, TSP record-keeping systems and accounting systems, and the TSP Web site will all need to be modified, as will brochures and other publications for TSP participants. The changes could cost as much as $13 million, Long said.

"It is a big deal," Long said.

The board will also have to figure out how best to help participants decide if a Roth option is right for them. Long said the board plans to study private-sector plans that offer a Roth option to see how they educate their participants.

"How do they say, ‘Here's how you understand not just investment allocation strategies, but tax strategies'?" Long said. "This is a tax play. And we've got to figure out how to communicate that effectively to have people ... use that benefit without confusing 4 million people."

The board is trying to decide whether it should send employees written documents or DVDs to explain the details of a Roth option, post guidance online, or whether it should set up a call center to directly answer participants' questions, Long said.

Long said he was initially unsure whether a Roth option would be used widely enough to justify the costs of adding it, but changed his mind after seeing growing and sustained interest among military service members and federal employees.

Trabucco said the Defense Department wants to automatically enroll newly enlisted service members into a Roth TSP plan to benefit young, lower-paid troops. The Pentagon had not supported automatic enrollment previously because uniformed service members do not receive matching funds, as most federal employees do.

Trabucco said the board is glad Congress is also poised to approve a bill that would automatically enroll federal civilian employees and give them full matching benefits right away, and hopes that will encourage more employees to save for their retirements. Trabucco said TSP participation rates have ranged between 84 percent and 87 percent of those eligible for the last decade.

"We've come at it different ways to try to educate people and try to get them early, but that seems to be as far as you can go, given an opt-in system," Trabucco said.

Long hopes participation rates could climb into the low-90 percent range with automatic enrollment. New federal civilian employees would be automatically enrolled in TSP when they start working for the government, but they would be able to opt out of the plan if they choose. He also said that if the Defense Department does automatically enroll new troops, that could push enrollment from more than 4 million participants today to 5 million.

"We help people retire with dignity, and it would translate to us helping a lot more people," Long said.

He said that even though the TSP's stock-based funds dropped in value over the last year and a half due to the stock market crash, he's more confident than ever that the plan's structure is sound.

"If you take a look at our lifecycle funds, our L Funds, and the performance of them relative to competing products [in the private sector], the performance of our [L] 2010 Fund in 2008 was down substantially less than most of the competing products out there," Long said.

The L 2010 Fund dropped 10.53 percent in value in 2008. On the other hand, the 2010 Vanguard Target Retirement Fund — a private-sector lifecycle fund similar to TSP's L Funds — dropped 20.67 percent in value in 2008.

"That says, yeah, we did some things right," Long said. "We took an appropriate level of risk for somebody that's planning on starting to draw down income in 2010, and maybe the marketplace didn't look at it the same way we did.

So even though it was a very difficult period, I think it demonstrated to us that we made some good decisions before I ever got there."

Long said the board has not seen large numbers of participants take hardship withdrawals or loans or stop contributing money to the TSP as the economy has worsened.

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