Military Can Now Join Savings Plan

The Thrift Savings Plan, the government’s 401(k)-type savings program, opened its doors recently to a new group of investors: members of the armed services.

The savings plan had been available only to the civil service and postal employees, and about 2.5 million employees and retirees have set up accounts.

During a special “open season” that runs through Jan. 31, members of the military services can enroll in the savings plan and start making contributions in January.

The program will be open to uniformed members of the Army, Navy, Air Force, Marine Corps, Coast Guard, Public Health Service and NASA on active duty and to members of the Ready Reserve or National Guard while on military-pay status.

Uniformed personnel who don’t join the plan during the initial open season will have to wait until the regular open enrollment season, which begins May 15.

The Thrift Savings Plan has created a separate set of forms for military participants, which are available through military service savings plan representatives and through the Thrift Savings Plan’s Internet site ( https://www.tsp.gov ).

Congress opened the savings plan to the uniformed services in the fiscal 2001 Defense Authorization Act. But Pentagon officials have worked on the plan expansion since 1999, when Congress signaled it would make the benefit available to the uniformed services.

By and large, the plan will operate for the more than 2.5 million uniformed personnel in the same way it does for other federal employees. Uniformed personnel will have the same five investment funds to choose from and will have essentially the same loan and withdrawal options.

Uniformed personnel will fall under the same investment limits that apply to federal workers covered by the Civil Service Retirement System. Participants can contribute 7% of pay in 2002, with the limit increasing by 1 percentage point a year until the percentage limit is eliminated in 2006. The amount is also subject to a tax code dollar cap ($11,000 in 2002).

There are several important differences, however. For example, though Civil Service Retirement System employees never get matching contributions from their employer and Federal Employees Retirement System employees automatically get them, military personnel may or may not get contributions from their services. It’s up to the secretary of each military service to designate which personnel will receive matching contributions, and they will be paid only to members agreeing to serve for at least six more years.

Further, military personnel will be able to invest their special pay, incentive pay and bonuses, as long as they already are contributing from basic pay.

Military personnel also will be able to contribute from tax-free compensation, such as combat zone pay. Special rules will apply to loans and withdrawals of accounts containing tax-free money.

For federal employees who are reservists, the beginning of military Thrift Savings Plan accounts carries several special considerations. They can open second accounts to invest from their pay while in military status.

Individuals with civilian and military savings plan accounts will have to make sure the combined investments do not exceed the annual tax code dollar maximum.

However, the accounts will be treated separately for other purposes. For example, the account holder would have to submit separate requests to transfer money among the investment funds.