TSP Considers Adding New Investments to Lifecycle Funds

Total assets in the TSP now exceed $400 billion. Also, consideration is being given to changing the investments for the lifecycle funds to include new types of assets such as emerging market stocks.

Here is a summary of some of the latest news from the Thrift Savings Plan.

In February, the total plan assets for the Thrift Savings Plan (TSP) exceeded $400 billion for the first time. Assets in the TSP have grown from $150  billion in 2004.  In addition, the total assets in the G fund dropped to 36% of all assets. This is the lowest percentage in the G fund since December 2007. In fiscal year 2011, the percentage of assets in the G fund was about 48%.

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). The average of FERS employees’ investments in Roth accounts is $4,213. For Civil Service Retirement System (CSRS) employees the average balance in the TSP is $106,761 with an average of $6,734 in Roth accounts.

Average TSP Balances

FERS $109,048 Roth $4,213
CSRS $106,761 Roth $6,734

February 2014 Interfund Transfers

In February, $197 million was transferred from the G fund and $15 million was withdrawn from the F fund. $382 million was withdrawn from the C fund and $166 million was transferred from the I fund. The big winners were the S fund with interfund transfers of $320 million going into the fund and $441 billion transferred into the lifecycle funds.

Changing Automatic TSP Allocation

As noted in a recent article, a bill with bi-partisan support has been introduced in the House on March 11th entitled the “Smart Savings Act.” The “Smart Savings” title refers to changing a basic part the federal government’s Thrift Savings Plan (TSP) for new federal employees. Despite expressed concerns by some readers that the change has been introduced to benefit unknown companies or organizations, the cynicism appears to be unwarranted as the Thrift Savings Plan Board, according to Kim Weaver, Director, Office of External Affairs for the Federal Retirement Thrift Investment Board, said the the Board supports this proposed change.

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.

Possible Additions to Lifecycle Funds

Changes are also being discussed to the investments in the lifecycle funds. Perhaps of most interest to readers, allocations for several scenarios were recently discussed based on a proposal by the Mercer consulting firm.

Among the changes being considered are adding allocations to the lifecycle funds for:

The reasons for considering changes are that incorporating additional asset classes creates an opportunity for higher returns due to the benefits of diversification among different kinds of investments. The Mercer firm notes that emerging markets equities have the highest long term return potential.

Commodities are 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.

No final decision has been made to add any or all the new investment options. Moreover, adding these new options would require Congressional approval. Our guess is that there will be further discussion of these options before any decision is made although it is likely that one or more additional investment classes will eventually be added to the lifecycle fund structure. Also, before a decision is made, there is also likely to be a detailed discussion of whether additional investment options would also be added to the underlying TSP funds as well as to the lifecycle funds.

About the Author

Ralph Smith has several decades of experience working with federal human resources issues. He has written extensively on a full range of human resources topics in books and newsletters and is a co-founder of two companies and several newsletters on federal human resources. Follow Ralph on Twitter: @RalphSmith47