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TSP CATCHUP PLAN GETS A BOOST The bill that would allow 50-plus feds to make from $1,000 to $5,000 in catchup contributions to their Thrift Savings Plan accounts has cleared a big hurdle on Capitol Hill! Under the plan introduced by Rep. Constance Morella (R-Md.) federal, postal and military TSP investors 50 and older could make the tax-deferred catchup contributions. The tax-deferred catchups would be made via payroll deduction and would not be subject to any caps or limits put on the amount of individual contributions to 401k plans. The catchup amount would be $1,000 this year and go up an additional $1,000 each year until 2006 when it would hit $5,000. After that time, anyone eligible (by being 50 or older) could make a $5,000 catchup contribution EVERY year thereafter. That would boost the maximum amount they could put into the TSP to $20,000 per year. The White House and Congress like the catchup for feds. Catchups were okayed last year for private 401k plans in the Tax Relief Act. But Congress must take special action to amend TSP rules before federal and military personnel can make these kinds of contributions. The TSP catchup plan was sailing along, with White House endorsement, until it hit a major procedural bump. That was when the Congressional Budget Office pointed out the tax revenue that would be lost (actually delayed) by extending the extra investment option to feds. Now, in what amounts to a positive break for catchups, the Joint Congressional Committee on Taxation has okayed it for feds and said the bill is good to go. The committee pointed out that catchup contributions are already being made by many private sector investors and that private-sector 401k plans have amended their rules accordingly. The Morella bill, and its counterparts introduced by Sens. Daniel Akaka (D-Hawaii) and John Warner (R-Va.), were authorized by the Tax Relief Act of 2000. These bills would allow Congress to make modifications to the federal 401K similar to the ones made in the private arena. In a letter to Morella, the Joint Committee said in part: "...Last year, in making our revenue estimate of the cost associated with the catchup contribution proposal, we assumed that Congress's intent was to provide for such contributions to all public plan participants, including...the TSP, and that Congress would modify the TSP plan documents to allow for such contributions. Therefore, our revenue estimate for the provision included the cost associated with federal employees electing to contribute catch-up contributions..." Translation: It's okay. Get the bill moving. Backers of the bill---which includes just about everybody---have been looking for a diplomatic way to get it through the House and Senate and to the President's desk. The CBO was doing its job in alerting Congress to the revenue-shortfall. The letter from the Joint Committee should let CBO off the hook and permit Congress to pass the bill quickly. The catchup plan isn't home free, but at least it has rounded second base.
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