This article appeared on U.S. Military

Act Paves Way for Military Participation in Thrift Plan

By Jim Garamone
American Forces Press Service

WASHINGTON, Oct. 31, 2000 -- Military members will be able to create their own retirement nest egg by using the Federal Employees Thrift Savings Plan beginning next year, DoD officials said.

A portion of the Floyd D. Spence National Defense Authorization Act for Fiscal Year 2001 that President Clinton signed Oct. 30 allows service members to participate in the civilian retirement plan, said Navy Capt. Elliott Bloxom, DoD's director of military compensation.

The Thrift Savings Plan offers federal civilian employees the same type of savings and tax benefits that many private corporations offer their employees under so-called "401(k)" plans. Money invested in the TSP comes from pre-tax dollars and reduces taxable income; investments and earnings are not taxed until they're withdrawn.

The plan has been in place since 1986.

The authorization act would allow active duty and Ready Reserve service members to invest up to 5 percent of their basic pay in the plan and all of any special and incentive pays they may receive -- including bonuses -- up to a total $10,500 annual limit.

Civilians in the current Federal Employees Retirement System receive matching government funds in the TSP program. The investment benefit for the bulk of the military force, however, will resemble that of workers in the old Civil Service Retirement System. Those employees also have a 5 percent ceiling and receive no matching funds.

Service members may be eligible for matching funds in limited instances. Under the Special Retention Incentive portion of the legislation, members in certain critical specialties may receive matching funds based on their contributions from basic pay. In return, the member would have to agree to spend at least six years in the specialty.

"The match is discretionary by the service secretaries," Bloxom said. "We will be meeting with the services to determine how the services want to implement this. I would envision at this point that the services would offer the match similar to the way they offer the selective re- enlistment bonus."

Bloxom said the services might offer TSP matches instead of a selective re-enlistment bonus, but nothing in the law says service members cannot receive both.

The legislation calls for the plan to be implemented within 360 days of the signing of the legislation. "Of course, the critical date will be determined by when the (Federal Retirement) Thrift Investment Board is able to provide timely and accurate services to our members," Bloxom said. "Accommodating DoD will double the number of individuals who are eligible to participate in the TSP. Right now, we envision that members will be able to enroll in the TSP beginning in October 2001. That will mark the start of a special 60-day open season."

Participation is optional and not automatic. Service members who want to sign up or change their investment levels generally would do so during designated "open seasons" -- the same as civilian employees.

"Actual cash contributions would not start until after that open season," Bloxom said. He estimated service members would actually begin investing by January 2002.

DoD officials are working with the Defense Finance and Accounting Service and the thrift investment board on how to get the whole program up and running. Forms and educational materials will go out to service members so they can make an informed choice during the open season.

The TSP program currently allows employees to invest in any or all of three mutual funds: a government bond fund, a corporate bond fund and a stock fund. TSP administrators currently estimate that May 1, 2001, will be the stand-up of two new mutual fund options: international stocks and small-business stocks.

For more information on how the program works for civilian employees, visit the TSP Web site at . The site includes a range of forms and publications, news releases, FAQs and investment calculators, and it offers online account access. Information on TSP for the Uniformed Services -- UNISERV -- should also be available at the site soon.

Information Courtesy of American Forces Information Service