Lifecycle Fund Changes approved by TSP Board

Lifecycle Fund Changes Approved By TSP Board

tsp boardAt the beginning of September, the Thrift Investment Board directed all investments by new federal employees into life cycle funds by default. This change in policy redirected the funds from the popular G fund to L-funds, unless the employee asks for something else. The purpose of this change was to help distribute investments more evenly.


Since the passing of these new changes, the TSP board has now started to tackle changes to how the board distributes the investments.


Proposed Changes Explained

Director of the External Affairs of the Federal Retirement Thrift Investment Board, Kim Weaver, explained the proposed changes to reporters. “What we’ve determined is given the way interest rates have been remarkably low, we’re going to change some allocations … move it a little bit more to the G fund, a little less to the F fund, a little less to the S fund and a little higher to the I fund.”


These changes come after two months of poor performances for the L funds. Specifically, this last quarter was the worst quarter for the TSP funds since 2008. The G-fund had the highest increases for the month of September and that increase was only .18 percent.


The L Funds of the TSP revolve around five different funds including the G fund (government) F Fund, C Fund, the S Fund and the I Fund. The S fund, which revolves around domestic stocks and the F funds, which revolve around corporate bonds, have performed poorly as of late.


Some board members were concerned that failing to be more aggressive with investments in the L funds would take away from retirement fund goals.


Weaver said that she does not believe that more aggressive investment options would work well for older investors. “As you get closer to retirement you could possibly be in danger of losing capital, which is not good for the person’s retirement. It’s not something we’re taking any look at.”


G-Fund the Safe Fund

Prior to the changes of investments last month, employees were automatically enrolled in the G-fund. However, Weaver said they board noticed that about a quarter of the employees who automatically enrolled in the G-fund never changed their investment. She noted that while the G-fund is safe (you will not lose money) it does not offer the opportunity to earn the bigger returns that are essential over the life of an investment.


The proposed changes to the investments would allow federal employees to diversify their investment portfolio and provide the option for future federal retirees to access better returns on their money. New employees are enrolled in the L funds automatically, however, current and older employees are not automatically shifted to the L Fund, but the TSP board has been marketing the L-funds heavily.


Current investment strategies allow TSP investments to change on a regular schedule. This adjusts investments from riskier options to safer alternatives (like the G fund) over time so that older employees facing retirement do not risk as much as new employees who have more time to add to their retirement investment.


While the proposed changes from this week are designed to take advantage of the L funds that offer better, or more stable, rates of return, the move must first be approved of by Congress.

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