Two of three military members who separate or retire do so without having opened a government-run Thrift Savings Plan account, a benefit that has been available to service members since 2002.

Those who depart without an account leave behind a valuable tool they could use over and over again to dampen their costs while investing for retirement, said Gregory T. Long, executive director of the Federal Retirement Thrift Investment Board that oversees federal TSP accounts.

Veterans and military retirees with TSP accounts can't continue to make tax-deferred contributions unless they become federal civilian employees or contribute income earned as drilling reservists.

However, Long said, TSP veterans who move from job to job in the private sector, building 401k accounts as they do, can roll those nest eggs into their TSP account where expenses are far lower than other rollover account.

Individual Retirement Accounts also can be transferred at any time.

Because so many TSP-eligible military members and federal civilians don't take full advantage of the benefit, the investment board has asked Congress to pass legislation to require automatic enrollment for new federal employees or service members. They could opt out immediately, however. 

TSP provides ease of savings and tax benefits like most employer 401k plans. Savings build without hassle.  Investment options are varied. Contributions, plus interest or capital gains, are tax exempt until monies are withdrawn.

Withdrawals can begin without penalty at age 59 1/2 or earlier for those who separate from government service after age 55.

"It's a benefit for life," Long said. "If somebody in the Army starts an account, even if they only put a few thousand dollars in, and they leave four years later to work for whomever, we know for sure that placing their 401k  with any other company is going to be substantially more expensive than (depositing it in) their TSP."

Commercial firms that manage investment funds for 401ks typically impose annual fees of from 50 cents to $1 per $100 in account balances. TSP fees are only about two cents per $100. Intel, Mobil and perhaps a few other corporations have gotten employee 401k fees down below 10 cents per $100, Long said, "but nobody does it as cheaply as we do."

"The only two things that can screw it up," he added, "are A) if you don't open an account or B) after you leave the military you withdraw your funds from the TSP. Then you're out."

It's no accident that Long used soldiers in his example.  Army's TSP enrollment rate is 25 percent of active duty members, lowest among the uniformed services. The Navy's enrollment is 51 percent. Public Health Service and NOAA officers enroll at rates of 68 percent and 64 percent, respectively. Air Force, Marine Corps and Coast Guard enrollments are in the middle of the pack, at 35, 33 and 30 percent, in the order given.

Army doesn't encourage TSP participation, at least not with the furor Navy has shown. A retired officer working on Capitol Hill said he heard Army leaders argue against offering TSP accounts years ago. Similar arguments are said to be made today in opposition to automatic enrollment.


Tom Philpott can be contacted at Military Update, P.O. Box 231111, Centreville, Va. 20120-1111, or by e-mail at: milupdate@aol.com