A bill that just passed the House would put newly hired federal employees into a new default investment in the Thrift Savings Plan.
The Smart Savings Act would automatically enroll new federal workers in the appropriate Lifecycle fund instead of the G fund, the current default investment for new employees who don’t choose their investment allocations in the TSP. The bill was originally proposed back in March.
The G fund is usually considered the safest investment in the TSP as particpants’ money is invested in government securities that are specifically issued for the TSP. Historically, the G fund also provides a low return compared to the stock funds and, whether they realize it or not, G fund investors may lose purchasing power due to inflation.
Will this prove to be beneficial for TSP participants? In all likelihood, an employee who is in the TSP for the long haul over a long career with the government will do much better investing in the TSP’s stock funds versus the G fund. To understand how this is possible and see how one financial advisor recommends allocating investments within the TSP, see Will My TSP Go Down?.
The TSP also encourages employees to put at least 5% into their accounts with each paycheck to ensure that they take full advantage of their agencies’ matching funds. For more on this see, Are You Losing Free Money in your TSP Account?.