An aggressive education program has the Navy leading all services in enrolling active-duty and reserve members in the military's Thrift Savings Plan (TSP).
At the start of the second "open season" to elect TSP participation, which will run through 31 July, 68,000 sailors already had signed up and were depositing, automatically, 1% to 7% of basic pay into a tax-deferred account for distribution into one of five investment options.
Participants included 64,800 active-duty sailors and 3,277 reservists. Almost 17,000 Marines, active and reserve, also had enrolled.
TSP participants can place their contributions into one of five investment options, which range from the safety of short-term government securities to the higher-risk stock index funds. With the stock market battered the past two years, military TSP participants appeared to be moving only slowly out of government bonds into riskier index funds with potentially higher yields.
Of 225,000 active-duty and reserve members overall who had active TSP accounts when the second open season began, 164,000 (or 73%) still had all of their money in the safest account available, the Government Securities Investment Fund (or G Fund). At the end of May, the G Fund was paying an annualized interest rate of 5.25%.
The remaining 61,000 military enrollees assumed a little more risk but still stuck to a conservative approach. On average, 34% of their money still was in the G Fund and 10% in the F Fund, a bond market index option. The rest of their savings was spread over the three stock funds: 35% in the C Fund (an index of large U.S. companies), 15% in the S Fund (small- and medium-sized company stocks), and 6% in the I Fund (an index of international stocks).
The statistics were released in late May by the Federal Retirement Thrift Investment Board, which administers the $102billion Thrift Savings Plan for federal civilian employees as well as military personnel.
All participants "will be intrigued" by improvements in TSP's record-keeping system that will take effect in mid-September, said Tom Trabucco, spokesman for the Thrift Investment Board. Savers will be able to track the value of their investments on a daily basis. They also will be able to transfer money between funds daily, if they desire, a procedure that now takes two to six weeks. Loans also will be processed quicker and available sooner.
Under TSP, military savers, including reservists, divert a portion of basic pay into a 401K-like plan. There is, however, no matching by their employer, the federal government. Deposits are made through payroll deductions and invested in one or more of the five bond and stock funds. Those movies and whatever capital gains and interest payments are earned over the years are not taxed until withdrawn. Savers face a penalty if they withdraw money before age 59 and a half, but loans are available.
TSP participants can shelter from taxes any bonuses or special pays received up to a yearly maximum for total deposits that is set in tax law. For 2002, TSP contributions cannot exceed $11,000. That ceiling will rise by $1,000 a year until it hits $15,000.
The 7% limit on basic pay deposits also will climb, by a percentage point a year. In 2006, the year after it reaches 10%, the ceiling will be removed entirely. This should make TSP more attractive, particularly for drilling reservists whose basic pay, at the current 7% cap, can be quite modest.
During the first open season, almost twice as many enlisted members enrolled in TSP as did officers. But in proportion to their numbers in the force, the officer sign-up rate was much higher. O-3s, for example, are 3.3% of the force but 9.6% of TSP participants. O-5s represent 2% of the force but 5.7% of TSP participants.
Defense officials said they were delighted, however, by the number of midgrade enlisted members participating. E-6s, for example, are only 12.3% of the force but 15.6% of TSP enrollees.
"Some people thought this would be a senior officer program. [The statistics] show it's not. We have excellent participation rates by mid-grade NCOs as well as by officers and senior NCOs," said Army Lieutenant Colonel Tom Emswiler, executive director of the Armed Forces Tax Council. Within the Defense Department, the council has oversight responsibility for TSP.
Junior enlisted members, with fewer dollars to save, are underrepresented. E-3s are 14.4% of the force but only 5.5% of TSP enrollees. This imbalance should ease after the services improve TSP educational efforts, Colonel Emswiler said. The services have distributed TSP brochures and a lot of information is available at www.tsp.gov.
"I would like to see youngsters developing a lifelong habit of saving, [say] $100 away each month," said Colonel Emswiler. "If they did that for their careers, they would have an awful lot of money when it is time to retiree."