Thrift Savings Plan: Changes and Performance
Changes and Performance in the Thrift Savings Plan
Beginning September 5, the default Thrift Savings Plan for new federal employees will be a lifecycle fund. Government securities funds are run by the government securities (G) fund. Congress approved the change to the riskier investment last year and the TSP board finalized the changes last month.
Federal employees still have the option to use the G-fund, but they must actively select the option. New employees who opt to choose the default investment will have 3 percent of their paychecks deposited into the age-appropriate lifecycle fund. This fund is a riskier investment than the G-fund, but generally offers higher returns.
New employees should be aware that although their money automatically diverts to this higher risk fund, it is at the employee’s risk. The government and TSP fund only offer protection for G Funds.
New Employees Only
Only new or rehired federal employees will be auto-enrolled in the more aggressive Thrift Savings Plan. Current participants will not see a change to their investment. Per regulation, the TSP board will notify new employees of the default plan and allow them the option to switch to a different fund. They may also request a refund of default contributions.
The G fund is the most popular option for federal employees as it provides the most stable investment. Other options include the L fund, which mix several different TSP funds. This particular option allows investors to take advantage of higher risk, higher yield investments in their early days of employment while gradually returning to more stable options as retirement age nears.
TSP Board Requested Change
The initial proposal for this change was submitted to legislature in late 2013 at the request of the TSP board, which is comprised of members of employee organizations, unions and the uniformed services. The purpose of the change was to help diversify investments. Automatic enrollment in the TSP has increased participation among federal employees, however, this also resulted in younger employees (under the age of 29) investing too much money into the G-fund. Experts attribute this to the fact that most employees do not bother to change the default investment.
The G-fund is the most stable investment option, however, it typically does not offer high returns. The change will allow new employees the chance to earn more on their investment.
For some employees this change may have come at an inconvenient time, as August’s Thrift Savings Plan numbers were less than ideal. Recent hiccups in the stock market affected retirement funds landing the G fund in the only spot to come out win the black and that increase was a minute .18 percent growth. Despite the small growth, the G-fund is up 1.33 percent year-to-date.
The Lifecycle Funds (which new employees will now automatically invest in), all came in at a loss this month. The lowest loss was at 1.1 percent. L2050 suffered the biggest hit with a loss of 5.37 percent. This rather nasty plunge took most L funds between .31 and point 89 percent lower than year to date last year.
New employees hired on or after September 5 will have to request a different investment if they wish to stay away from these riskier L funds.
