We tell you all the time about the Thrift Savings Plan, but it seems that not everyone in the federal government participates — and some of the numbers are pretty disproportionate.
A recent report by the Office of Personnel Management finds that women and minorities are less likely to join the TSP.
How does the Federal Retirement Thrift Investment Board reach out to people — and specifically these groups that seem to be less apt to invest in the TSP?
Tom Trabucco is the Director of External Affairs for the Federal Retirement Thrift Investments Board.
He tells us that, in addition to the OPM report, last summer a survey was done of private sector investor habits and discovered a similar trend.
“[Ariel Education Initiative and Hewitt Associates] looked at nearly 3 million employees in 57 different plans and found that there was a significant participation distinction. 66 percent of African American employees participated in their private sector plans, while 77 percent of white workers in those plans participated. That caused [Wisconsin] Senator Herb Kohl to ask OPM to take a look at what’s going on in the federal plan.”
Comparing federal employee benefits to those of their private sector counterparts isn’t exact, however.
FERS employees have a three-part retirement plan, with two mandatory components.
This, Trabucco says, guarantees some equality when it comes to comparing minorities and whites who are in the federal system.
Participation in the TSP, however, is optional, and this is where the disparities emerge.
“OPM did . . . [find] that this pattern does exist in the TSP, although to a significantly lesser extent [when compared to the private sector]. . . . When they looked at the federal plan, they found that participation is much higher in the federal plan than in other plans. We’ve kind of known that. But even with the breakdown by race, we find that 82.5 percent of minorities participate, while 87.8 percent of non-minorities participate. So, all groups participate at a higher level and the distinction is less.”
One statistic that is unlike the private sector in the least has to do with the participation rates of women.
“[They] participate in the TSP at a slightly higher rate than men. That’s not the case in the private sector; however, the study did show that women are contributing less dollars, but have a higher participation rate. That may be that their income levels are lower, and one of the things that we’ve always known is that income level does have an impact on, first of all, whether one makes voluntary contributions, and, second of all, by how much.”
The Board is working on closing the gap, and Trabucco says they are hoping participation among minorities and women will increase when automatic enrollment begins later this summer.
Part of the benefit of getting people to participate in retirement plans from the moment they’re hired has to do with compound interest. The more money there is in the pot, the more can be invested and therefore had by all.
On top of automatic enrollment, Trabucco says he and other members of the Board believe in the power of repetition.
“Sometimes it takes awhile to get through, and I think that’s what you’re going to hear a lot of over the coming years — the importance of contributing, contributing what you can, and contributing early. I know that OPM said it tends to address this issue through its financial literacy activities to educate employees. We conduct a lot of financial literacy activities out there, as well.”
The Board is looking specifically at reaching out because, as plan administrators, it is their job to look out for plan participants first and encourage all eligible employees to take advantage of the benefits.
“That’s the only way that employees of the federal government are going to obtain the maximum contributions and tax benefits provided. I think the education can go so far, but you’ve got to get people out there to listen to it before they learn that it’s in their self interest, [and] that is the fundamental reason why, rather than just continuing with the education approach, we asked Congress in 2008 for the authority to automatically enroll all new FERS employees in the TSP.”
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