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Federal thrift savings plan assets now exceed $400 billion

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On the evening of March 20, FedSmith published results from the latest minutes of the Federal Retirement Thrift Investment Board Meeting. The minutes and hand-outs for this meeting show that the total assets for the Thrift Savings Plan (TSP) are growing and, as of February, plan assets exceed $400 billion for the first time.

Assets in the TSP have grown from total assets of $150 billion in 2004.

The Thrift Savings Plan is similar to a 401(k) retirement plan used by many American companies. It is a straight-forward system consisting of five basic funds: two bond funds and three stock funds.

The stock funds are the C fund (an index fund based on the S&P 500 index), an international stock fund, a small company fund, a government bond fund that contains bonds issued specifically to the TSP (the G fund) and a bond fund (the F fund) that consists of government, corporate, and mortgage-backed bonds.

In addition, there are five lifecycle funds in the TSP. These are funds consisting of the primary TSP funds with automatic allocations designed to provide more risk with greater potential returns for employees who may retire around 2050 to the income fund which is the most conservative fund consisting primarily of bond funds for employees who are already retired or about to retire.

The fund with the largest percentage of assets is the G fund--the fund which contains the Treasury securities that are issued specifically for the TSP each month. The G fund now has 36% of all of the TSP assets. There are now more than 4.6 million participants in the TSP.

The average TSP balance is now $109,048 for TSP investors in the Federal Employee Retirement System (FERS). This is the newer version of the federal employee retirement system. The average of FERS employees’ investments in Roth accounts is $4,213.

For Civil Service Retirement System (CSRS) employees (the CSRS is the older federal retirement system) the average balance in the TSP is $106,761 with an average of $6,734 in Roth accounts.

A bill with bi-partisan support was introduced in the House of Representatives on March 11 entitled the “Smart Savings Act.” The “Smart Savings” title refers to changing a basic part the federal government’s Thrift Savings Plan for new federal employees. Currently, new federal employees are automatically enrolled in the G fund. Under the provisions of this bill, new employees would be enrolled in the appropriate lifecycle fund.

Despite cynicism the proposal was introduced to benefit unknown companies or organizations, Kim Weaver, Director, Office of External Affairs for the Federal Retirement Thrift Investment Board, said the Board supports this proposed change. The change, if enacted, would provide greater potential returns for these investors by investing in stocks in addition to one bond fund that often pays little in interest and does not benefit from increases in stock market prices.

The bill has bi-partisan support having been introduced by Congressman Darrell Issa (R-CA) and co-sponsored by Elijah Cummings (D-MD), Rob Woodall (R-GA), Stephen Lynch (D-MA), Gerald Connolly (D-VA), and Blake Farenthold (R-TX). Congressman Issa is Chairman of the House Oversight and Government Reform Committee. The proposed change, which has to be approved by Congress, would put new TSP participants’ investments in the appropriate lifecycle fund rather than the G fund.

Changes are also being discussed to the current investments in the lifecycle funds.

Allocations for several scenarios are being considered by TSP officials. Among the changes being considered are adding allocations to the lifecycle funds for:

  • Emerging Markets Equities
  • International Small Cap
  • Global Real Estate Investment Trusts (REITS)
  • Commodities
  • All of the above.

The reason for considering changes to incorporate more asset classes is to create an opportunity for higher returns for TSP investors with more diversity through different kinds of investments. The consulting firm that made the recommendation for consideration notes that emerging markets equities have the highest long term return potential. Commodities would be the least correlated with the existing L fund lineup and this asset class would provide the most potential diversification benefit but expected returns for commodities are lower than the other types of investments.

Overall, the consulting firm suggested that adding emerging markets equities or adding all four combined classes would be likely to provide the best improvement in investment results. Despite the recommendation, no final decision has been made to add any or all the new investment options. Moreover, adding these new options would require Congressional approval.

No action will be taken on these recommendations in the near future. While it is likely that one or more additional investment classes will eventually be added to the lifecycle fund structure a decision has not been reached. There will also be discussions on a decision to add these new asset classes to the underlying TSP funds as well as to the lifecycle funds.

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