Federal employees have their pick of retirement plans, but by far one of the most popular is the government’s Thrift Savings Plan (TSP). For employees under the Federal Employees Retirement System (FERS), the TSP is a 401(k) equivalent of a retirement plan, offering them many of the same benefits as their counterparts in corporations. This year, reactions to the TSP has been riding on the negative side. From proposed budget cuts to discouraging investment reports, things do not seem to be working out for TSP investors this year. However, financiers have expressed the opinion that despite the tumultuous behavior of the TSP, these bonds and stock investments might still be a good retirement benefit for federal employees.
Volatile Market is a Contributing Factor
The TSP works like a 401(k) plan in that employees can defer payment on their investments therefore allowing their money to work for them. Getting into a TSP is a straightforward process for employees. During any open period, employees choose a plan for their TSP accounts. Open periods run between April 15 and June 30 as well as October 15 through December 31. The plans are range from G funds to F, C, S and I funds. After choosing a plan, employees then contribute an amount of their choice towards the account. There is a limit to the size of the contribution employees can make. Typically, employers match the contribution made by employees under the FERS plan, while civilian employers are not obligated to do so.
In the past, many employees chose to utilize the G Fund plan – which deals in Treasury bills – when planning their retirement. TSP spokeswoman Kim Weaver wrote back in February that about 39% of federal employees who used the TSP placed all their savings in this security. Of all the employees using the TSP, 69% have some or all their savings in the G Fund plan, Weaver said in an email. However, a budget proposal announced back in February might curtail the effectiveness of this plan. According to TSP officials, the proposed cuts by the White House would reduce the yield of the G Fund almost by half. This is concerning especially during a time when the G Fund looks like the most effective TSP plan.
Over the past four months, F, C, I and S Funds have been on a downward spiral. G Funds also suffered a decline but remained the highest performing investments in the TSP in Q1 of 2018. This is in direct contrast to the bonds’ 2017 performance, notes financial planner Arthur Stein. Stein postulates that the present market volatility could be due to the political and economic instability currently plaguing the United States. However, he holds out that there might be hope for TSP investors in the long-term.
The decline of the investments’ performance also comes after a change in management in the TSP. Earlier this year, Sean McCaffrey took over from Ravindra Deo as the agency’s Chief Investment Officer.
It is not clear how the second quarter will treat Thrift Savings Plan investors but one thing remains clear: the market remains volatile and they should be prepared to accept any outcome in that period.