Speaking with Sailors - Jim Herdt, petty officer - Interview

All Hands, April, 2001

Master Chief Petty Officer of the Navy MCPON (SS/SW/AW) Jim Herdt

The MCPON answered this question from an all hands call during his recent visit to Mayport, Fla.:

Q: What Is the status of the Thrift Savings Plan?

A: The Thrift Savings Plan (TSP) is a hot topic for Sailors everywhere I visit, and rightfully so. Once in place, it will be a great option for Navy families to better prepare for retirement. We're currently working through the details to make the transitional start-up as smooth as possible.

A quick history lesson as to how we got to this point. The National Defense Authorization Act (NDAA) of FYOO authorized the TSP for military members. The catch was we had to identify money to offset the millions of tax dollars that wouldn't be going into the treasury. The FY01 NDAA resolved the offset issue and mandated the starting date for military participation in TSP.

Initially, the TSP was going to limit Sailors to investing 5 percent of their base pay but recent changes in TSP law has increased the base pay investment limit to 6 percent in 2001 with a 1 percent increase every year until 2006 when the cap is eliminated. IRS law limits annual tax-deffered contributions to $10,500 in 2001. Non-taxable contributions from Combat Zone Tax Exempt Pay and Hazardous Duty Pay are not subject to the $10,500 limit however, IRS law does impose a limit of 25 percent or $35,000 (which ever is less).

Sailors will be able to enroll during the first 60-day "open season" that is tentatively scheduled from Oct. 9, 2001, to Dec. 8, 2001. Anyone already in the Navy who doesn't enroll during this period will have to wait for the next semi-annual 60-day "open season" to enroll. New accessions will be able to enroll during initial training. Active-duty Sailors who take advantage of the initial enrollment season will begin to see TSP deposits from their pay account on Jan. 1, 2002. If you contribute any portion of your base pay, you can also contribute any percentage of your bonus, special or incentive pay up to the applicable IRS limit.

You can choose how you want your money invested from five current options. Each option varies in associated risk and anticipated percentage earnings. Basically this means you can determine to some degree how risky you want to be with your TSP investments. You should remember that the TSP is a retirement account and the money can't normally be withdrawn, without penalty, until you reach the specified age under TSP law. For more details there are a couple of web pages to check out: www.tsp.gov; and www.dfaw.mll.