"We expect that Roth will be a 'game-changer' in terms of interest and, eventually, participation among a large group of uniformed service members, many of whom are not currently contributing to the TSP," executive director Greg Long wrote in a memo released this morning. (Tom Brown / Staff)
The board governing the Thrift Savings Plan is setting aside funds to make major changes as it launches a new Roth option, as early as January 2012.
The Roth option, which Congress in a 2009 law ordered the Federal Retirement Thrift Investment Board to add to its investment offerings, will let participants make taxable contributions to their retirement accounts and then make tax-free withdrawals in retirement. Under the current system, participants make tax-free investments and then pay taxes when they withdraw money.
A Roth option is expected to benefit mostly uniformed service members and select groups of federal civilian employees, such as federal judges. Most federal employees are likely to have lower incomes and lower taxes in retirement than they do while working and making contributions, and would not benefit from a Roth investment option.
"We expect that Roth will be a ‘game-changer' in terms of interest and, eventually, participation among a large group of uniformed service members, many of whom are not currently contributing to the TSP," executive director Greg Long wrote in a memo released this morning.
The Roth option is scheduled to be launched in the first quarter of calendar year 2012. TSP expects its budget will increase by 10 percent from $135 million for fiscal 2011 to $148.5 million in fiscal 2012 because of those changes. TSP is funded by fees collected from fund balances, which in 2009 amounted to roughly $0.28 for every $1,000 in a participants' account.
The board expects to spend $8.2 million on postage, production of a special mailing, and other communications in fiscal 2012 — $3.9 million above what is budgeted for fiscal 2011 — to ramp up its efforts to teach TSP participants what a Roth option offers, and whether it is right for them.
The projected growth in Roth-related transactions will also help push record-keeping costs up almost $4 million in 2012, to $109 million.
The board will also review and revamp its communication strategies in fiscal 2011 to prepare for the Roth outreach effort. The board plans to improve its tax form processing system in fiscal 2011 to allow it to handle both pre-tax and post-tax monies, which is necessary for the Roth option.
The TSP board was budgeted $130.3 million in fiscal 2010. However it expects to spend $115.5 million — almost $15 million under budget. Long said the launch of TSP's new website this year took longer than expected and pushed other costly information technology and communication projects into fiscal 2011.