Questions from Industry Day edits.pdf

Questions from FRTIB Roth Education Industry Day 26 Jan 2010 (Answers have been reformatted from the official Industry Day transcript to directly answer the question presented)

Q1. Who manages the call center now? What are the qualifications of the people, and who are they?

A1. FRTIB has two call centers. One is in Western Maryland. The other is in Southwest Virginia. There are 200 personnel split between the two centers and these personnel are not licensed agents. Call center personnel provide education to customers regarding TSP;

calls are primarily about loans and withdrawals. (“Where is my loan?” “What is happening with my withdrawal?” “How do I take a withdrawal?”) Questions regarding investments are extremely low.

Q2. When you say “licensed agent,” what are the qualifications to be a licensed agent?

A2. Usually a Series 6, a Securities License, some are 7s.

Q3. What are the current hours of the call center operations?

A3. The call centers are open from 7:00 a.m. in the morning until 9:00 p.m., Monday through Friday, EST.

Q4. Of the 4-plus million participants, how many of those—are all of them eligible for the new Roth?

A4. All of them will be eligible except for the separated folks because only “new” money can be put into the Roth.

Q5. Have you done any modeling in terms of how many of those will take advantage of the Roth?

A5. No. That is one thing that the TIB is looking at. In regular 401Ks, pickup rates of 5 percent are good. TIB can honestly see that number going to 8 or 9 percent because there is a different psychology with the TSP population. Another thing to consider is that the Department of Defense (DoD) is interested in doing automatic enrollment into a Roth TSP for its uniformed service members. DoD is seen as the primary engine of growth because of the benefits of a Roth feature, especially for individuals who are in Combat Zones receiving tax free income.

Note: DoD has the responsibility of submitting TSP contributions for its civilian and uniformed services population. The interest in the Roth TSP feature is directed towards uniformed service members.

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Q6. Why is it that they’re (DoD) saying it’s okay with the Roth? What is the appeal to the military?

A6. The tax benefits. Take a typical 20 year old military person making $20K a year doing one of the most dangerous jobs on the planet. That individual has meals and quarters provided so they have very few expenses. Because their income is low, they pay almost no current federal tax. The standard 401K tax benefit means virtually nothing to them. However, if they could pay their taxes today, which are very low, and have that grow, (if they’re 20 and have it grow for 40 maybe 50 years) the tax benefits are tremendous. With the added benefit of the possibility of the Combat Zone Tax Exclusion (CZTE), the Roth is very attractive to DoD uniformed services or military members because CZTE and Roth would combine tax-free contributions and tax-free earnings.

Q7. What is your average deferral rate amongst your participant base?

A7. TIB has only been able to estimate the average deferral rate because we don’t have that information; we just get dollars. TIB periodically gets salary information from OPM. The last time this was done in 2005, the rate was between 7 and 8 percent for FERS employees. FERS employees are our model/standard. However, this rate is obsolete because the limits on how much FERS employees can contribute have been lifted; they can now contribute all the way up to the elective deferral limits.

Q8. How do the participants make the deferral election with the agencies?

A8. There are two ways and both are dependant upon the agency or service. There is a generic election form for civilians and another for Uniformed Services. The majority of Federal civilian agencies allow their employees to start, stop, or change their TSP contributions through their HR systems. There are a few that have them go directly to the payroll system. For Uniformed Services, it is entirely payroll generated. So that information, (percentage only for Uniformed Services, dollar amount or percentage of pay for civilian) is maintained inside their particular systems.

It is the agencies that are paying the employees and based on whatever statutory pay earned that’s eligible to be contributed to TSP, the agency is going to deduct from that amount and then submit to TSP the net contribution.

Q9. Have you polled the payroll offices? You mentioned, I believe, 120 different payroll offices. Have you polled them to understand their point of view on what the biggest challenges will be for their participants? Is that information available?

A9. Payroll offices are more concerned with what system changes they are going to have to make in order to accommodate the Roth. There are a couple of Federal agencies that have their own 401K plans aside from TSP and a few have a Roth. For the most part, the payroll offices would have to build their own system. The personnel offices were polled on what they perceived as the biggest challenge and they came back with “educating everyone.” These offices do not give investment advice; their main focus is retirement counseling and education. The information is not available for release.

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Comment [v1]: Gisile: Note: even though the percentage limits were lifted for all participants, we can still measure the deferral rates for FERS employees because we can look at the 1% going in the account and estimate basic pay to then determine what percentage the dollar amount of the employee contribution represents of pay earned. Even though the last measured and noted rate was between 7 and 8 percent, we could still look at the FERS population as we always have to determine their average deferral rate. Did I miss something?

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Q10. Do you also anticipate that financial advisors, financial planners, are an audience in this eventually, or at some point?

A10. There are people/companies out there who advise on TSP. One would then assume that once we have introduced the Roth, they are going to add that to their repertoire.

DoD has legislation that instructs them to provide financial education to military members. In order to comply with this statute, many DoD organizations at installation level have financial educators; many of which are Certified Financial Planners.

Q11. What type of contract vehicle are you considering? And what length of contract?

A11. That has not yet been determined. We know we desire a long term contract but that is something that will be fleshed out during our acquisition planning.

Q12. How important is having control over the call center? If advice is offered, would you want the advice provider to provide the call center with advice?

A12. Very important. TIB is very hands-on about what information is provided by the call centers and how they present it. Likewise, with regards to the Roth, TIB will be involved with what is given out and who sees it, to make sure it falls within the parameters of our mission.

As far as the “what advice is to be offered?” That is still up in the air depending on how TIB decides to handle this issue and whether or not a third call center is necessary.

Who would run it, how it would be structured, etc; these are the issues TIB was hoping this Industry Day would ferret out. TIB wants to know how it is done in the commercial sector.

As mentioned previously, TIB is very hands-on. TIB provides the formal training program for agency representatives as well as for the call center representatives. In addition, the call centers have their own internal training sessions based off of materials provided by TIB. To sum up, there is a formal program and ongoing education program with a lot of communication between TIB and the call centers.

Q13. Is there a service level or average speed of answer required for your contract call centers?

A13. 90 percent in 20 seconds; absent anything going on externally. Whether Roth would have the same or different parameter is still under discussion.

Q14. Coincident to the introduction of Roth, are you looking at adding a new call center? If so, would it handle Roth questions only, or all questions? Are you looking for someone to expand the exiting call center?

A14. See question 12.

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Q15. You mentioned maintaining email addresses, but I believe you mentioned not mailing any quarterly statements. Are quarterly statements provided only via web?

A15. Quarterly statements are available for everyone via the web and they are available for anybody who requests them via mail. We have a little over 10 percent of our participants that have taken the steps to request the quarterly statement be mailed to them.

So we mail about half a million statements each quarter. Annual statements are mailed to all participants.

Q16. What were your reservations about offering advice in the past?

A16. Offering advice, even if it is internet only advice, is not cheap. TIB expenses are tremendously low and the concern is, is it going to translate to a real benefit? The primary objective of offering advice is to get deferral rates to a reasonable level; the TIB deferral/allocation rates are already pretty good.

TIB is contemplating offering advise because Roth has become such a complex decision than in the past and needs to be considered. Offering tax advice on Roth but not providing advice on the whole TSP picture does not make sense.

Q17. Is any financial education delivered online today?

A17. Yes. The TSP website provides all of the materials and messages. The current website (tsp.gov) is functional and gets the information disseminated but does not have a slick and polished look. The new website design, which has been in the works for the past two years, is currently scheduled for release this spring and is what TIB considers to be the best in class.

Q18. What types of financial modeling tools are currently available to participants via the web?

A18. The tsp.gov website has a number of calculators. An additional calculator for paychecks is about to be added to show the impact of increasing the contribution limits.

The website is also linked to the Ballpark Estimator which can be used by the entire population. The Office of Personnel Management also has a calculator which allows CSRS and FERS employees to input Social Security, Pension, and their TSP input to help them with their savings amount. TIB is adding similar types of calculators to the new website.

Q19. Do you track how many people use the different calculators available?

A19. We do not have this information available at this time.

Q20. Are costs [for Roth advice] going to be segregated and the charges to the Funds going to vary for Roth participants versus the traditional--…?

A20. TIB has thought about this and the question to be answered before that is: “Do participants want advice? And what is the tolerance for paying for that advice?” A

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Comment [v2]: Getting data from

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survey was completed and it showed that 51 percent of the respondents wanted advice.

Of that 51 percent responding, about 35 percent said that they would be willing to pay for advice. Interestingly enough, 30 percent said that they would not. The remaining balance was indifferent.

Q21. Are you looking for the call centers to provide tax advice about Roth?

A21. Roth is a tax-minimizing strategy. So if you are going to provide Roth advice, you may be essentially providing tax advice.

Q22. Is the FRTIB really open to offering advice, given the fiduciary responsibilities that generally accompany advice?

A22. Yes. Advice is something that TIB hasn’t touched. It will be looked at and if it is prohibitively expensive, TIB will step back from that line to provide guidance and counseling.

Q23. Would you please describe the most likely participant in more detail; such as age range, education level, income, marital status, percent that will likely be military or nonmilitary?

A23. This is unknown at this point in time. The FRTIB website (www.frtib.gov) has the result of the participant survey as well as the most recent Participant Behavior and Demographics Report which contain a lot of information on the demographics of the TIB base.

Q24. Has the TSP put in the programming for systems changes that may be required for Roth? If not, when do you anticipate it?

A24. The engine behind the TSP recordkeeping is a product called SunGard OMNI. A few months ago, the system was upgraded to OMNI 5.75 which contains Roth features built into its core capabilities. It is in the works to execute OMNIPAY at the agency level and since all agencies are not standardized in this, it will be up to the individual agencies to eventually figure out what changes they need to make within their own systems.

Q25. A year after the Roth is introduced, what will you point to as evidence that the introduction was a success?

A25. TIB has not defined what success is in terms of Roth but the metrics commonly used by the commercial marketplace would most likely be applied as well as any change that occurs to the allocations compared with the norm. Bottom line is if participant satisfaction is up after the rollout, this in itself is a success.

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Q26. Could Greg [Long, FRTIB Executive Director] please elaborate on the likelihood of the auto-enrollment feature for the TSP?

A26. Although there is a great deal of interest in Roth in DoD for the uniformed services, it is unknown whether an auto-enrollment feature will be installed for this population. It is anticipated that once Roth is up and running for a few years, the issue automatic enrollment for Uniformed Services will be revisited. It would not be a surprise to TIB if the Uniformed Services chooses to automatically enroll its participants if they would be automatically in Roth. Comment [v3]: Gisile: Note: As we all know (!) automatic enrollment will be implemented by late August/September 2010 for Federal civilian employees covered under FERS and CSRS. We may have forgotten in our Roth focus to mention this to the group during the industry day.