Employees under FERS are automatically enrolled in TSP because federal agencies are required to contribute an amount equal to 1 percent of their employees’ salaries to the plan. Salary Deferral Rates Have Increased, but Lower-Wage Employees’ Rates Remain Lower Than Others

Overall, in 1993 FERS-covered employees making voluntary contributions were deferring an average of 5.7 percent of their salaries compared with 3.7 percent in 1987. TSP Contributions Needed to Reach Target Retirement Replacement Rates

Our analysis showed a disparity in the extent to which higher- and lower-paid employees under FERS may need to contribute to TSP to achieve total FERS retirement benefits that would be commensurate with their preretirement standard of living. Effect of Preretirement Contributions Not Explained in TSP Educational Materials

The TSP Board produces and provides to federal agencies a variety of educational materials for their employees. However, TSP’s educational materials are not explicit in discussing the importance of employee TSP contributions in achieving total FERS retirement benefits that would be commensurate with preretirement living standards, that is, benefits in the range of 60 to 80 percent of earnings. On average, most private sector section 401(k) plans offer four or more investment options that include a number of bond and stock funds of varying risk. The new options would allow TSP participants to diversify their investments. Recommendation to the Congress

We recommend that to help ensure that TSP participants have investment opportunities similar to those available under comparable private sector plans, the Congress enact legislation adding the two investment options sought by TSP’s Board. A recorded menu will provide information on how to obtain these lists. Address Correction Requested
Why GAO Did This Study

Pursuant to a congressional request, GAO provided information on the Federal Employee Retirement System (FERS), focusing on: (1) the extent to which employees under FERS voluntarily contribute to the Thrift Savings Plan (TSP); (2) how well TSP educational materials address the importance of employee participation; and (3) whether there should be additional TSP investment options.

What GAO Found

GAO found that: (1) as of September 1994, about 76 percent of FERS employees voluntarily contributed an average of 5.7 percent of their salaries to TSP; (2) most of the non-contributing employees were in lower pay grades; (3) lower paid workers contribute less of their salaries to TSP because social security benefits are proportionally higher for lower income workers; (4) these workers may not need to contribute as much to TSP in order to maintain their preretirement standard of living; (5) mid- and high-pay level workers need to contribute at least 5 percent of their salaries over their careers to achieve 60 to 80 percent of preretirement income; (6) although TSP educational materials extensively discuss the plan's financial aspects, they do not explicitly discuss the importance of employee participation in TSP; (7) the TSP Board is seeking legislation that would add two stock fund options to the three investment options it already offers in order to make these options more similar to those available in private-sector plans; and (8) although they carry a higher investment risk, these new investment options could potentially produce higher earnings for plan participants.