Feasibility of Thrift Savings Plan Contributions by Military Spouses

Civilians married to servicemembers face employment challenges tied to their spouses’ service that are unlike those faced by civilians married to other civilians. Many such challenges arise from servicemembers’ constant moves, which can interrupt employment, discourage job seeking, and preclude effective saving, putting stress on military families’ finances in both the short and long term.

To address this issue, the 2021 National Defense Authorization Act directed the Secretary of Defense to conduct a study on the effects of allowing military spouses to contribute to the Thrift Savings Plan (TSP) accounts of the servicemembers to whom they are married. That is, would allowing military spouses to contribute to servicemembers’ retirement plans be both feasible and advisable? The Deputy Assistant Secretary of Defense, Military Personnel Policy asked CNA to conduct a study to examine legislative or policy requirements and beneficial or harmful implications of enacting such a policy.

Approach

To determine the feasibility and advisability of allowing military spouses to contribute to servicemembers’ TSP accounts, our analysis addresses the following research questions:

• What employment challenges do military spouses face?
•  What laws currently prevent the implementation of spousal TSP eligibility, and what policy issues might remain even if these laws are modified?
•  How does the TSP differ from other retirement savings vehicles, and what access do military spouses have to alternative savings vehicles?
•  What factors are associated with higher (civilian) retirement savings, and what are some common obstacles to higher retirement savings?
•  What are the potential direct and indirect costs to the Department of Defense (DOD) and the government of allowing spousal TSP contributions?

To answer these questions, we reviewed the scholarly literature on employment challenges facing military spouses, determinants of retirement savings rates, and challenges facing would be savers. We also reviewed the laws governing retirement savings vehicles, including the TSP. To expand on our own review efforts, we discussed each of these issues with both civilian and military policy experts. Finally, we estimated two sets of potential annual costs to the government if spousal TSP contributions are implemented.

Feasibility and implications

Spousal TSP contributions are not currently feasible under US law. Amending the law alone would not be sufficient to permit such contributions; policies would need to be rewritten and administrative systems overhauled. However, permitting spousal TSP contributions would not necessarily lead to an increase in military families’ retirement savings—many military spouses would be unable to contribute, and few others would have exhausted all other savings opportunities already available to them. Other strategies likely would improve military families’ financial stability more effectively and efficiently.

We identified the following legal obstacles to implementation of spousal TSP eligibility:

• The US legal code prohibits individuals other than “employees” or “members” of the federal government from contributing to the TSP. Congress would need to either expand the definition of “employees” or “members” to include spouses or define spouses as a separate eligible category of contributors.
• TSP accounts must be held in one person’s name and cannot be jointly owned. Congress would need to either define a new class of retirement account that can be jointly owned or trust that policy-makers can adequately address any risks associated with incentivizing one spouse to put their assets in the other’s name.
• Congress would need to either appropriate additional funds for matches based on spousal contributions or state that such contributions are not eligible for matching. The amount appropriated would depend on how spousal matches are implemented; annual estimates range from less than $25 million to more than $1 billion.

If these legislative issues were addressed, several policy challenges would remain: 

• Although divorce law is handled at the state level, military spouses who contribute to a servicemember’s TSP account would need some form of protection in the event of divorce to avoid losing their assets.
• TSP eligibility for servicemembers’ spouses could set precedent for similar eligibility for others, including foreign service officers’ spouses.
• Military administrative systems would have to be modified to allow either irregular voluntary contributions or regular paycheck deductions from civilians and to allow military spouses to access servicemembers’ TSP accounts.

Assuming these policy issues were addressed, several factors might prevent spousal TSP eligibility from translating into an increase in TSP contributions:

• Spouses who are unemployed or otherwise financially constrained will not be able to contribute their own income to servicemember TSP accounts.
• Military spouses have access to other retirement savings vehicles that do not require legal or policy changes. If a military spouse has no active or passive income, the servicemember may contribute a portion of their income to an individual retirement account (IRA) in the spouse’s name, provided they file a joint tax return. If a military spouse is employed, retirement plans may be available through their employer. If military spouses have any form of income, they can set up IRAs in their own names.
• Military spouses with any form of income already can “implicitly” contribute to servicemember TSP accounts by having day-to-day expenses come from their income and retirement savings come from the servicemember’s income.

Ultimately, spousal TSP eligibility would require legislative action, would place an administrative burden on DOD, and, unless matching contributions were provided, would be unlikely to concretely improve military families’ short- or long-term financial stability. If spousal TSP eligibility were instituted with no further legal or policy changes, most families would be unable to take advantage of this eligibility or would find that its benefits merely reproduce savings opportunities elsewhere. If military spouses were to have their own contribution limit but not receive matching funds, the main beneficiaries of spousal TSP eligibility would be families who already have contributed the maximum amount to all other eligible retirement vehicles, rather than those who currently are saving too little; the former group is both much smaller and far more financially stable than the latter, making it a poor target for policy.

Although we do not believe that spousal TSP eligibility would be beneficial enough to military families to offset the challenges associated with its implementation, other efforts might prove more effective. DOD is working with state legislatures and state licensing boards to reduce the barriers to transferring spouses’ occupational licenses across state lines; doing so may prevent or limit transitory spells of unemployment associated with moves and make it easier for licensed spouses to remain in the workforce. In addition, the expansion of remote work in the wake of COVID-19 may present opportunities to help spouses find jobs that are location independent and therefore unaffected by moving; for example, targeting military spouses for the approximately 900,000 telework-eligible federal government jobs could help them to access the TSP through their own employment. Spouses whose work cannot be done remotely may forgo employer matches if they have not stayed long enough at their previous employer for these matches to vest, and even guaranteeing seamless employment transitions would not fix this issue. One way to address this issue might be for Congress to make immediate vesting mandatory for military spouses.