Thrift Savings Plan Features – Low Administrative Fees
The Thrift Savings Plan (TSP) is far from alone in offering “index” funds to investors. Many organizations offer similar funds, but one marked difference are the “administrative expenses” that the TSP and other organizations charge.
Think of TSP administrative expenses as a fee, taken out of someone’s investment in a fund — to pay for operating the fund. The fee is a small percentage of the total investment; but even that small percentage, over time, can take a significant bite out of an investment.
The lower the administrative expenses, the smaller the bite — and the more quickly an investment can grow.
In 2014, the administrative expenses for TSP funds were just under .03%. In other words, for every $1,000 of investment, the admin expenses were about thirty cents.
So, how does that thirty cents per thousand dollars compare with the administrative expenses of other index funds? It compares quite well.
Thrift Savings Plan (TSP) Examples
For example, Vanguard offers a fund that, like the TSP’s C Fund, mirrors the performance of the 500 stocks in the Standard and Poor’s S&P 500 index. However, in the Vanguard fund (Vanguard 500 Index Fund Admiral Shares) the administrative expenses were .05% compared to the .03% for the TSP product.
The Fidelity S&P 500 fund (Fidelity Spartan 500 Index Advantage) had administrative expenses of .07% as did the TIAA-CREF S&P 500 Index Institutional.
Even more striking contracts exists with the TSP’s S Fund and similar funds. The S fund has, as its objective, matching the performance of the Dow Jones U.S. Completion Total Stock Market Index — a broad index of stocks of U.S. companies that are not in the S&P 500 index. The comparable Vanguard fund (Vanguard Extended Market Index Fund Admiral Shares) has administrative expenses of .10%, more than three times higher than the expenses of the TSP’s S Fund.
Another fund that is similar to the TSP S fund is USAA Extended Market Index Fund. It’s administrative expenses were .48%, more than fifteen times higher than the TSP S Fund’s administrative expenses.
The same kinds of comparisons exist in bond funds. The TSP F Fund has as its objective matching the performance of bonds in the Barclays Capital U.S. Aggregate Bond Index. This index represents the broad U.S. bond market. One comparable bond fund is Fidelity’s Spartan U.S. Bond Index Fund – Investor Class. That fund’s administrative expenses came to .22%, more than seven times higher than the S&P’s F Fund expenses.
Advice to investors often includes the recommendation to check administrative expenses before deciding to get into or to stay in a particular fund. In such checks, the TSP Products will likely compare favorably. The favorable comparisons are likely to apply both for TSP’s individual funds (C, S and F, for example) as well as for TSP’s Life Cycle (L) funds.
However, administrative expenses are not the only consideration in choosing an investment. Perhaps the convenience of dealing with one firm over an other offsets paying higher administrative expenses on a similar index fund. Furthermore, since different funds often have very different investment objectives, the purposes of the funds (as they relate to an individual investor’s needs) is likely to be a more important consideration than the funds’ administrative expenses.
To sort out questions of where to put their investment dollars, many investors profit from the advice of a knowledge and well-trained financial advisor. Nevertheless, whether acting on their own or with an advisor, prudent investors may want to add administrative expenses to the factors they consider before making investment decisions.
— by John Zottoli. John is a retired Federal human resources specialist who takes an interest in all aspects of planning for retirement.
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