[House Report 113-507]
[From the U.S. Government Publishing Office]
113th Congress Report
HOUSE OF REPRESENTATIVES
2d Session 113-507
======================================================================
SMART SAVINGS ACT
_______
June 30, 2014.--Committed to the Committee of the Whole House on the
State of the Union and ordered to be printed
_______
Mr. Issa, from the Committee on Oversight and Government Reform,
submitted the following
R E P O R T
[To accompany H.R. 4193]
[Including cost estimate of the Congressional Budget Office]
The Committee on Oversight and Government Reform, to whom
was referred the bill (H.R. 4193) to amend title 5, United
States Code, to change the default investment fund under the
Thrift Savings Plan, and for other purposes, having considered
the same, report favorably thereon without amendment and
recommend that the bill do pass.
CONTENTS
Page
Committee Statement and Views.................................... 1
Section-by-Section............................................... 3
Explanation of Amendments........................................ 4
Committee Consideration.......................................... 4
Application of Law to the Legislative Branch..................... 4
Statement of Oversight Findings and Recommendations of the
Committee...................................................... 4
Statement of General Performance Goals and Objectives............ 4
Duplication of Federal Programs.................................. 4
Disclosure of Directed Rule Makings.............................. 4
Federal Advisory Committee Act................................... 5
Unfunded Mandate Statement....................................... 5
Earmark Identification........................................... 5
Committee Estimate............................................... 5
Budget Authority and Congressional Budget Office Cost Estimate... 5
Changes in Existing Law Made by the Bill as Reported............. 6
Committee Statement and Views
PURPOSE AND SUMMARY
The Smart Savings Act, H.R. 4193, would change the default
investment fund for Thrift Savings Plan (TSP) participants from
the G Fund to an age-appropriate asset allocation fund,
consistent with a recommendation from the Federal Retirement
Thrift Investment Board (FRTIB). The change will help ensure
TSP participants are better prepared for retirement, by
investing their contributions in a fund designed to yield
higher returns over the course of their career.
BACKGROUND AND NEED FOR LEGISLATION
The TSP is a tax-deferred defined contribution plan
available to federal workers, administered by the FRTIB. The
TSP is the Nation's largest pension program, with more than 4.6
million participants and assets of more than $400 billion.\1\
The TSP provides participants a choice of investment options,
including 5 core funds: the Government Securities Investment
Fund (G Fund), the Fixed Income Index Investment Fund (F Fund),
the Common Stock Index Investment Fund (C Fund), the Small Cap
Stock Index Investment Fund (S Fund), and the International
Stock Index Investment Fund (I Fund). Participants may also
invest in the Lifecycle Funds (L Funds), which are tied to a
target withdrawal date and invested exclusively in the G, F, C,
S, and I Funds.
---------------------------------------------------------------------------
\1\Data from the Director of External Affairs, Federal Retirement
Thrift Investment Board (March 31, 2014).
---------------------------------------------------------------------------
Employees who are covered by the Federal Employee
Retirement System (FERS) receive contributions from their
employing agency. For FERS employees, federal agencies
contribute an amount equal to 1 percent of the employee's base
pay to the TSP, and also match FERS employee contributions
dollar-for-dollar on the first 3 percent of employee
contributions, and at 50 percent on the next 2 percent.
The Federal Retirement Reform Act of 2009\2\ enabled auto-
enrollment of new federal civilian workers into the TSP.
Contributions for auto-enrolled TSP participants are defaulted
into the G Fund. Participant contributions remain invested in
this fund until the worker makes an election to reallocate his
or her account balance or direct future contributions into one
or more of the other funding options available through the TSP.
---------------------------------------------------------------------------
\2\P.L. 111-31 (2009).
---------------------------------------------------------------------------
As a result, since August 2010 new hires have automatically
had 3 percent of base salary contributed to the TSP, unless an
individual worker elects not to participate, or specifies a
different contribution rate. As a result, TSP participation
rates are now highest among newly hired employees, with
participation at 97.9 percent among workers with less than two
years of tenure, compared to an overall FERS participation rate
of 86.8 percent.\3\ Newly-hired participants also have the
greatest portion of their contributions allocated to the G
Fund, nearly 61 percent,\4\ which the FRTIB Executive Director
suggests is due in part to inertia.\5\ The lowest-paid
participants have approximately 60 percent allocated to the G
Fund, as compared to the highest paid, who allocated 33 percent
to the G Fund.\6\
---------------------------------------------------------------------------
\3\Memorandum from Greg Long, Executive Director, Federal
Retirement Thrift Investment Board, to Board Members, Kennedy, Bilyeu,
Jones, McCray, and Jasien, L Fund Default Investment Option, December
16, 2013.
\4\Federal Retirement Thrift Investment Board, 2012 Annual Report
of the Thrift Savings Plan, December 30, 2013.
\5\Memorandum from Greg Long, Executive Director, Federal
Retirement Thrift Investment Board, to Board Members, Kennedy, Bilyeu,
Jones, McCray, and Jasien, L Fund Default Investment Option, December
16, 2013.
\6\Federal Retirement Thrift Investment Board, 2012 Annual Report
of the Thrift Savings Plan, December 30, 2013.
---------------------------------------------------------------------------
Enrolling new workers in an age-appropriate L Fund would
allow their contributions to be allocated across equity and
bond markets, providing the sort of age-appropriate asset
diversification recommended by most retirement experts. While
the L Funds expose participants to market risk, they address
such risk in their design. According to the FRTIB Executive
Director, had the L Funds been the default investment option
since the beginning of automatic enrollment, participants would
have achieved greater returns than by investing solely in the G
Fund.\7\ Lifecycle funds are increasingly popular among private
sector defined contribution plans, and are often used by such
plans as default investments.
---------------------------------------------------------------------------
\7\Memorandum from Greg Long, Executive Director, Federal
Retirement Thrift Investment Board, to Board Members, Kennedy, Bilyeu,
Jones, McCray, and Jasien, L Fund Default Investment Option, December
16, 2013.
---------------------------------------------------------------------------
On December 16, 2013, the FRTIB adopted a motion, without
objection, directing its Executive Director to pursue
legislation to make an age-appropriate L Fund the default
option for TSP contributions by FERS participants.\8\ The
change was unanimously supported by the Employee Thrift
Advisory Council.
---------------------------------------------------------------------------
\8\Minutes of the Meeting of the Board Members, Federal Retirement
Thrift Investment Board, December 16, 2013.
---------------------------------------------------------------------------
H.R. 4193 implements the FRTIB recommendation that age-
appropriate L Funds be the default option for TSP contributions
for new participants. Participants who conclude they do not
want to assume market risk will continue to have the ability to
change their investment allocation, including e.g.,
transferring their entire account balance to the G Fund.
The International Federation of Professional & Technical
Engineers endorsed the bill, describing H.R. 4193 as ``a
responsible step forward in helping federal workers plan and
save for retirement.''
LEGISLATIVE HISTORY
The TSP was established by the Federal Employees'
Retirement System Act of 1986 (FERSA)\9\ as a tax-deferred
retirement savings plan for federal civilian workers. As
mentioned above, The Federal Retirement Reform Act of 2009\10\
provided for automatic enrollment in the TSP of new federal
civilian workers.
---------------------------------------------------------------------------
\9\P.L. 99-335 (1986).
\10\P.L. 111-31 (2009).
---------------------------------------------------------------------------
Section-by-Section
Section 1. Short title
The short title of the bill is the ``Smart Savings Act.''
Section 2. Thrift Savings Plan default investment fund
Changes the default investment fund for civilian Thrift
Savings Plan participants from the G fund to an age-appropriate
asset allocation fund. The G fund invests exclusively in a
nonmarketable short-term U.S. Treasury security issued to the
Thrift Savings Plan. The earnings come from interest income on
the security. The Thrift Savings Plan offers age-appropriate
asset allocation funds, currently known as the Lifestyle or (L)
Fund(s), designed to automatically address an individual's
changing asset allocation needs and associated risk as they
approach retirement.
The bill applies to civilian employees enrolling in the
Thrift Savings Plan on or after the date the Executive Director
of the Federal Retirement Thrift Investment Board issues
implementing guidance. Such guidance must be issued no later
than nine months after the date of enactment.
Explanation of Amendments
No amendments were offered to H.R. 4193.
Committee Consideration
On March 12, 2014, the Committee met in open session and
ordered reported favorably the bill, H.R. 4193, by voice vote,
a quorum being present.
Application of Law to the Legislative Branch
Section 102(b)(3) of Public Law 104-1 requires a
description of the application of this bill to the legislative
branch where the bill relates to the terms and conditions of
employment or access to public services and accommodations.
This bill would change the default investment fund for TSP
participants from the G Fund to an age-appropriate asset
allocation fund, consistent with a recommendation from the
Federal Retirement Thrift Investment Board. Legislative branch
employees and their families, to the extent that they are
otherwise eligible for the benefits provided by this
legislation, have equal access to its benefits.
Statement of Oversight Findings and Recommendations of the Committee
In compliance with clause 3(c)(1) of rule XIII and clause
(2)(b)(1) of rule X of the Rules of the House of
Representatives, the Committee's oversight findings and
recommendations are reflected in the descriptive portions of
this report.
Statement of General Performance Goals and Objectives
In accordance with clause 3(c)(4) of rule XIII of the Rules
of the House of Representatives, the Committee's performance
goals and objectives are reflected in the descriptive portions
of this report.
Duplication of Federal Programs
No provision of H.R. 4193 establishes or reauthorizes a
program of the Federal Government known to be duplicative of
another Federal program, a program that was included in any
report from the Government Accountability Office to Congress
pursuant to section 21 of Public Law 111-139, or a program
related to a program identified in the most recent Catalog of
Federal Domestic Assistance.
Disclosure of Directed Rule Makings
H.R. 4193 requires the Executive Director of the Federal
Retirement Thrift Investment Board to develop implementing
guidance within nine months of the date of enactment of the
bill.
Federal Advisory Committee Act
The Committee finds that the legislation does not establish
or authorize the establishment of an advisory committee within
the definition of 5 U.S.C. App., Section 5(b).
Unfunded Mandate Statement
Section 423 of the Congressional Budget and Impoundment
Control Act (as amended by Section 101(a)(2) of the Unfunded
Mandate Reform Act, P.L. 104-4) requires a statement as to
whether the provisions of the reported include unfunded
mandates. In compliance with this requirement the Committee has
received a letter from the Congressional Budget Office included
herein.
Earmark Identification
H.R. 4193 does not include any congressional earmarks,
limited tax benefits, or limited tariff benefits as defined in
clause 9 of rule XXI.
Committee Estimate
Clause 3(d)(2) of rule XIII of the Rules of the House of
Representatives requires an estimate and a comparison by the
Committee of the costs that would be incurred in carrying out
H.R. 4193. However, clause 3(d)(3)(B) of that rule provides
that this requirement does not apply when the Committee has
included in its report a timely submitted cost estimate of the
bill prepared by the Director of the Congressional Budget
Office under section 402 of the Congressional Budget Act.
Budget Authority and Congressional Budget Office Cost Estimate
With respect to the requirements of clause 3(c)(2) of rule
XIII of the Rules of the House of Representatives and section
308(a) of the Congressional Budget Act of 1974 and with respect
to requirements of clause (3)(c)(3) of rule XIII of the Rules
of the House of Representatives and section 402 of the
Congressional Budget Act of 1974, the Committee has received
the following cost estimate for H.R. 4193 from the Director of
Congressional Budget Office:
U.S. Congress,
Congressional Budget Office,
Washington, DC, May 7, 2014.
Hon. Darrell Issa,
Chairman, Committee on Oversight and Government Reform, House of
Representatives, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for H.R. 4193, the Smart
Savings Act.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is Santiago
Vallinas.
Sincerely,
Douglas W. Elmendorf.
Enclosure.
H.R. 4193--Smart Savings Act
H.R. 4193 would change the default investment fund in the
Thrift Savings Plan (TSP) for government employees. Currently,
contributions of employees who are enrolled in the TSP, but
have not specified where to invest their funds, are
automatically invested in the Government Securities Investment
Fund. This bill would shift the default fund to a Lifecycle
fund with an age-appropriate asset allocation.
CBO estimates that enacting H.R. 4193 would not affect
direct spending. The Joint Committee on Taxation (JCT)
estimates that there could be a small revenue effect because
enacting the bill might change the number of federal employees
who choose to contribute to the TSP, thus modifying their total
tax liability. Therefore, pay-as-you-go procedures apply.
However, JCT estimates that any revenue effects would be
negligible.
H.R. 4193 contains no intergovernmental or private-sector
mandates as defined in the Unfunded Mandates Reform Act and
would impose no costs on state, local, or tribal governments.
The CBO staff contact for this estimate is Santiago
Vallinas. This estimate was approved by Theresa Gullo, Deputy
Assistant Director for Budget Analysis.
Changes in Existing Law Made by the Bill, as Reported
In compliance with clause 3(e) of rule XIII of the Rules of
the House of Representatives, changes in existing law made by
the bill, as reported, are shown as follows (existing law
proposed to be omitted is enclosed in black brackets, new
matter is printed in italic, existing law in which no change is
proposed is shown in roman):
TITLE 5, UNITED STATES CODE
* * * * * * *
PART III--EMPLOYEES
* * * * * * *
SUBPART G--INSURANCE AND ANNUITIES
* * * * * * *
CHAPTER 84--FEDERAL EMPLOYEES' RETIREMENT SYSTEM
* * * * * * *
SUBCHAPTER III--THRIFT SAVINGS PLAN
* * * * * * *
Sec. 8438. Investment of Thrift Savings Fund
(a) * * *
* * * * * * *
(c)(1) * * *
[(2) If an election has not been made with respect to any
sums in the Thrift Savings Fund available for investment, the
Executive Director shall invest such sums in the Government
Securities Investment Fund.]
(2)(A) Consistent with the requirements of subparagraph (B),
if an election has not been made with respect to any sums
available for investment in the Thrift Savings Fund, the
Executive Director shall invest such sums in an age-appropriate
target date asset allocation investment fund, as determined by
the Executive Director. Such investment fund shall consist of
any of the funds described in subsection (b).
(B) If an election has not been made by an eligible member
under section 8440e with respect to any sums available for
investment in such member's Thrift Savings Fund account, the
Executive Director shall invest such sums in the Government
Securities Investment Fund.
* * * * * * *
Sec. 8439. Accounting and information
(a) * * *
* * * * * * *
(d)(1) Each employee, Member, former employee, or former
Member who elects to invest in any investment fund or option
under this chapter, other than the Government Securities
Investment Fund, shall sign an acknowledgement prescribed by
the Executive Director which states that the employee, Member,
former employee, or former Member understands that an
investment in any such fund or option is made at the
employee's, Member's, former employee's, or former Member's
risk, that the employee, Member, former employee, or former
Member is not protected by the Government against any loss on
such investment, and that a return on such investment is not
guaranteed by the Government.
(2) Prior to enrollment in the Thrift Savings Plan, an
individual covered by section 8438(c)(2)(A) shall sign the risk
acknowledgment described under paragraph (1).
* * * * * * *
SUBCHAPTER VII--FEDERAL RETIREMENT THRIFT INVESTMENT MANAGEMENT SYSTEM
* * * * * * *
Sec. 8472. Federal Retirement Thrift Investment Board
(a) * * *
* * * * * * *
(g)(1) * * *
(2) Except in the case of investments [required by section
8438 of this title to be invested in securities of the
Government] under section 8438(c)(2)(B), the Board may not
direct the Executive Director to invest or to cause to be
invested any sums in the Thrift Savings Fund in a specific
asset or to dispose of or cause to be disposed of any specific
asset of such Fund.
* * * * * * *