TSP

The Thrift Savings Plan Modernization Act mandated that the TSP make certain changes in the withdrawal options available to separated employees. The Thrift Board announced in May that they would implement those changes in September 2019. The TSP Modernization Act said nothing about changing the options that are available in TSP Life Annuities, so there are no pending changes to this withdrawal option.

In fact, the TSP has a contract with MetLife to provide the TSP Life Annuity and that contract runs through July 17, 2019. MetLife has held the contract to provide TSP annuities since annuities were introduced thirty years ago in 1988. The expiration of the contract with MetLife next year will give the Thrift Board the opportunity to make changes that will make the TSP annuity option more flexible.

5 USC 8434 lists the annuity options that must be offered and those offerings are described in more detail at 5 CFR 1650.14. It is important to note that the statute, prior to listing the options that must be offered states that they “shall include, but not be limited to –“ the options listed in the statute.

So, what does the statute specify and how do the implementing regulations expand on the statute? Numbers 1 through 4 are specified in the statute and numbers 5 through 8 are added in the regulations.

1) A single life annuity with level payments.

2) A joint life annuity for the participant and spouse with level payments.

3) A joint life annuity for the participant and another person with level payments. The CFR expands on this by stating that the other person must be either a former spouse or a person with an insurable interest in the participant.

4) Either a single life or joint (with spouse) life annuity with increasing payments.

5) Among joint annuities (with spouse, former spouse or insurable interest) there is a choice of electing a 50% or a 100% survivor benefit. A 100% survivor benefit cannot be elected for an insurable interest joint annuitant who more than 10 years younger than the participant.

6) A cash refund feature will be made available and can be combined with any type of TSP Life Annuity.

7) A ten-year certain feature will be made available and can only be combined with a single life annuity.

8) The annuity choice is irrevocable.

The Thrift Board has an announced goal of retaining as many separated members as possible; currently 45% of separated participants withdraw their money from the TSP within a year of their separation. One would think that, because The Board is not limited to the options specified in the statute or regulations, they would want to expand the options available to separated participants so that more of them remain with the TSP. There have been a lot of changes in the annuity marketplace since the TSP Life Annuity was introduced thirty years ago and perhaps some of them should be considered by the Thrift Board when letting the new annuity contract.

I would expect the Thrift Board to issue a Request for Proposals (RFP) before the end of 2018. If you’re a subscriber to FEDweek’s TSP Investment Report TSP participant and have any ideas about how you would like to see the TSP Life Annuity improved, send your ideas to me at federalcareerexperts@comcast.net and I’ll compile your responses and send them into the Thrift Board. Note: This is for TSP participants only, responses from outside financial planners, broker/dealers, etc. will not be considered. Please have your comments in by November 6, 2018!