Are you happy with the Thrift Savings Plan (TSP) for federal employees?
Various financial advisers have described the TSP as a model plan or a platinum version of the private sector 401(k) retirement plans so many workers outside the federal system have a reason to be envious.
The Federal Retirement Thrift Investment Board (FRTIB) runs the TSP and it wanted to know what plan participants thought of the TSP. It contracted for a study of federal employees to gauge their views on the TSP plan. The agency also wanted to see what plan participants thought about potential changes under consideration for the plan.
A survey was conducted in November 2006 through a paper-based mailing to the homes of a random sample of Federal workers and uniformed service members.
The survey results have been released and here are the key points:
- TSP participants are generally more satisfied with the plan than comparable employees in the private sector are with their 401(k) plans.
- TSP participants are satisfied with the administration of the plan and find the web-based information provided by the TSP as critical for building program understanding and financial literacy. Those who make use of this information exhibit significantly different investment behavior in their TSP account.
- The TSP account is a cornerstone of future retirement income for TSP participants
- FERS members identify matching contributions as a key reason why they participate in the TSP program while CSRS employees note tax benefits as their primary motivation for contributing.
- TSP participants believe that adding a Roth 401(k) option to the program will make it a better program. About 12 percent of respondents who were unable or unwilling to answer this item suggesting that some do not understand it.
- TSP participants generally favor adding additional investment options to the TSP. However, they are price sensitive to adding specific investment options – preferring to add options only if they cost about the same as existing funds.
One advantage of the TSP often cited by investment professionals is that it is easy to understand and does not offer too many choices to confuse participants. But, in this survey, 46% of the respondents think the TSP would be better if it offered more investment options. 19 percent did not think the options should be expanded and about 11 percent don’t know or did not respond.
As far as new types of funds to be offered, the biggest preference was for Treasury Inflation Protected Securities (TIPS). The second highest preferences were for an international bond fund and an emerging markets bond fund. While the addition of a real estate investment trusts has made the news because some in Congress were pushing hard to add this as an option to the TSP funds, possibly as the result of heavy lobbying by the real estate industry, the preference for adding this as an option comes in tied for fourth among options along with the preference for a precious metals fund.
In short, the survey found that most federal employees like the TSP program and consider it essential to their future retirement. Readers may want to pay attention to the survey findings–it is probably a precursor to future changes in the program and some of these changes may have a significant positive impact on your investment future.