Sen. Marco Rubio (R-Fla.) is proposing that everybody be allowed to join the federal Thrift Savings Plan to bolster their after-retirement income. Rubio says the popular TSP program, now limited to federal workers and military personnel, should be open to all.
Many people in the “all” category would agree with him once they understood what the TSP is, how it works and how little it costs its clients, including U.S. senators like Rubio. So the question is this …
Suppose you have 4.6 million customers, some very high-maintenance, and somebody offers you a chance to have 40 million more? You’ve been set up by law to keep the process simple — and inexpensive. Would you be happy or alarmed at the prospect of many, many more accounts to handle?
Many businesses would love to have lots more clients and business. But not the small federal agency that handles Uncle Sam’s in-house 401(k) plan program. The Federal Retirement Thrift Investment Board was set up by Congress to manage the Thrift Savings Plan. It offers federal workers and military personnel their own 401(k)-style supplemental retirement package. A majority of the participating feds are eligible for a government match on their contributions.
The TSP offers an array of stock and bond funds comparable to those available to nonfederal investors. It also offers the super-safe (if not financially sexy) G Fund made up of special Treasury securities not available to the general public. And it also charges investors the lowest administrative fees in the mutual-fund business. Vanguard’s John Bogle, father of the index-fund, has said too many investors pay way too much in administrative fees. He’s a fan of the TSP.
So what do the people who run the TSP think of the Rubio plan? While details are sketchy on how it would work, Kim Weaver, spokeswoman for the TSP said “We do have serious concerns” based on the talking points in Rubio’s plan.
“Our Board and Executive Director are fiduciaries who owe a duty to our current 4.6 million participants. That responsibility to our participants is why we would be very concerned about opening the plan” to non-federal, non-military people. Expanding the plan to include millions more people “would be greatly diluting our focus on our participants,” Weaver said.
The reason the TSP can charge such low administrative fees is the way it was designed by Congress. Currently, it gets payroll data from about 100 federal payroll offices. Trying to get the same kind of data from millions of nonfederal employers (if the TSP is opened to all) “would require a completely different set of operational capabilities,” she said.
Sort of like another IRS, maybe?
“The Board’s responsibility is to act solely in the interests of our participants and beneficiaries,” she said. “That is the standard by which we will evaluate” the senator’s proposal.