TSP Executive Director Gregory Long said some agencies may not be able to offer the new Roth option on its scheduled launch date. (Tom Brown / Staff)
The launch of the Thrift Savings Plan's new Roth option will be delayed until at least April 2012, the board governing the plan said Monday.
The Federal Retirement Thrift Investment Board had expected to unveil the Roth option as early as January. But the board is concerned that several agencies will not be able to finish upgrading their payroll systems in time to meet that deadline. Even with the delayed launch, some agencies may not be able to offer a Roth option on the first day, Executive Director Greg Long said. He did not name the agencies.
Under a Roth option, participants would invest after-tax earnings into TSP funds that will grow without tax liability on future earnings. This differs from the standard TSP plan, where before-tax dollars are invested and taxed when they are withdrawn. The Roth option is expected to primarily benefit military service members and select groups of federal employees, such as 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.
The board also wants to avoid vital last-minute software preparations in December — when it is already busy with year-end activities. — and the risk of another major mistake like it made last year. The TSP made a coding error last December as it set up a new program for heirs of deceased participants and as a result, sent $58 million in improper payments to 9,721 participants. After a review of the incident, Long concluded the board shouldn't further complicate the end of the year by trying to enact major system changes.
In a March 16 memo, Renee Wilder, the board's research and strategic planning director, said that TSP is making significant progress toward enacting the Roth option. It is almost finished installing OmniPay, a computer program that will help the board keep track of which monies are pretax and which are post-tax, she said. The agency is also drafting new regulations and making necessary changes to forms.
Long said the Roth changes are "the biggest thing on our plate — it affects virtually everything."
Wilder said the board will include information about the Roth launch in next year's annual participant statement, which will be mailed out in February. The board said it will save money by not mailing the Roth announcement separately.