Thrift Savings Plan Funds Are Only Getting Bigger

The biggest retirement plan in the United States is only going to get bigger.

The TSP (Thrift Savings Plan) which is the retirement fund used by all 5.4 million federal workers and uniformed service members, has consistently grown, and as of September 30th will reach $578.8 billion dollars. This is a yearly average growth of 8.9 percent.

Here we will look at two articles of recent legislation that will aid in that continued growth for many years to come.

The first was the Blended Retirement System, a plan within the TSP, which came to us in late 2015 as the National Defense Authorization Act for Fiscal Year 2016. This finally took effect on Jan 1st, 2018. As director of external affairs, Kim Weaver, informed us: a little over a year later and now the Blended Retirement System bolsters nearly 408,000 participants.

The other was the TSP Modernization Act, which will go into effect in September, in which the Federal Retirement Thrift Investment Board (who are the ones who run the TSP) will be able to do what Weaver refers to as “additional withdrawal projects.”

These “projects” are intended to vary how and when employees can get to the money in their TSP fund.

The idea behind this is to thwart the transfer of funds out of the TSP into higher-fee accounts after the worker ceases employment with the federal government. While the TSP Modernization Act was being considered, it was estimated that $9 billion dollars were transferred out of TSP accounts yearly for this very reason.

A Brief History

The TSP was established in 1986 and consists of several parts: five investment funds, four index funds (managed by BlackRock) and one fund of securities of the Treasury that is internally controlled by the TSP board.

As of 2017, the executive director of the board is former TSP chief investment officer Ravindra Deo. She’s been on record saying that her main priority as the executive director is the BRS and the expansion of options for all TSP members. But, according to her, that’s just the start.

The board is proposing that two investment managers manage part of each of the index funds. This should be coming by the end of 2019. This has more to do with lowering risks than with any questions the TSP has with BlackRock.

BlackRock itself is also planning to enter a bid. A decision into this matter is expected to be arrived at by sometime in 2020.

Overhauls to the TSP I Fund (one of the index funds centered around international investments) are looking to tap into more markets as they emerge. This will happen once the managers are chosen.

In addition to that, participants should have greater options of when they can pull from their TSP accounts once the new withdrawal polices begin in September.

Blended System

Jan 1st, 2018 marked one of the most significant changes to the TSP.

Before, service members had to put in 20 years or more to receive an annuity in their defined benefit plan. But now, new service personnel will be automatically entered into the Blended Retirement System. Additionally, as of Jan 1st of this year, anyone with less than 12 years of service is also able to enroll in the BRS.

The amount they were paid was figured out using the average of their basic pay plus their years of service rendered.

The worry was that members weren’t saving for retirement, and only a fraction of people actually made it to that 20-year mark. Now that the BRS is a part of the TSP, that 20-year landmark will come with a reduced pension payment should they reach it.

There has also been an increase in participants who have left employment with the federal government but have their TSP up to date. This hit 1.46 workers as of September 30th. This is up from five years ago when that number was.