Changes to the Thrift Savings Plan
By Denise Spindler
Denise Spindler helps Federal Employees protect their retirement money by assisting them in putting together their Personal Retirement Plan. Wealth preservation and financial security, when looking at retirement planning, is key for Denise and her clients.
In a statement from the Thrift Savings Plan governing board, they announced changes to both the international stock I Fund as well as L Funds. Essentially, the number of L Funds will be changing in around three years’ time, and there will be alterations to how the I Fund is made up although there isn’t a timescale on this change just yet.
I Fund – Ultimately, the recommendation to change the Thrift Savings Plan I Fund came from a consultant and the board then approved the change soon after. Currently, the fund itself is a reflection of an index monitoring the stocks of the largest companies across a whole host of countries. Although most companies come from the Western world and the Far East, a quarter of the value is now held by Japan. Within Europe, United Kingdom holds the largest share with one-fifth while one-tenth each comes from Switzerland, Australia, France, and Germany.
When the changes finally come into effect, the I Fund will be expanded dramatically regarding the number of countries reflected. For example, Canada will be added as will the stocks of developing countries and small-company international stocks.
Why? – Ultimately, the board wants to make the fund more diversified. Instead of just considering the largest countries in the world, they want the fund to reflect the international scene more accurately. As mentioned, there isn’t yet an introductory date for this, and this is likely to be because the finer details are yet to be revealed. For the change to work successfully, there would need to be a smooth introductory plan to prevent major issues and potential embarrassment.
L Fund – With L Funds, there is a timescale in place, and we are expecting the addition of TSP lifecycle funds in 2020. In this year, it is expected the Income fund will have the same type of standing as the L Fund which will see the two merge. With this, investments will be mixed with C, F, G, I, and S Funds. Once the projected withdrawal date comes nearer, the mixes become more conservative. In addition to this, we will also see the addition of funds for 2025, 2035, 2045, 2055, 2060, and 2065.
Once again, it was the recommendation of a consultant which led to this change. Within the recommendation, they stated that increments of five years were the standard choice within the industry for mutual funds. Interestingly, there was also research into potential funds that could track real estate investment trusts, hedge funds, high-yield bonds, and other industry sectors specifically. However, results were not quite as expected and the consultant eventually withdrew their interest and advised the Thrift Savings Plan board against it.
There we have it, two major changes coming to the Thrift Savings Plan and one each for the I Fund and L Fund. In the next couple of years, everything will remain as normal, but you should be ready for the changes as they come. For example, the L Fund changes are due in 2020 while the finer details of the I Fund changes still have to be calculated. If this will affect you in the coming years, please feel free to talk to a financial professional who can help take the right action both now and long into the future!