Proposed Changes to the TSP

Legislation is advancing in Congress that would make changes to the TSP. Here is what this could mean for federal employees.

A number of changes have been proposed to the Thrift Savings Plan (TSP) recently. Here is a roundup of the proposals and what they mean for TSP participants.

I Fund

One recommendation now being considered is expanding the existing I Fund (international stocks) to include emerging market equities. Also, Canadian stocks will be considered for inclusion in the I fund to expand the number of stocks from developed stock markets.

There is also the likelihood of including non-U.S. small-cap equities in the I fund as well.

Currently, the I Fund invests in a stock index fund that fully replicates the MSCI EAFE (Europe, Australasia, Far East) Index.

Lifecycle Funds

The FRTIB is looking at creating a 5-year band instead of a 10-year band to categorize the L Funds. This would provide investors with a fund selection that more closely matches their projected retirement time frame. Plans are in place to implement this by 2020.

TSP Change Legislation

Bills have recently been introduced in both the House and the Senate to “modernize” the TSP. Lawmakers in both branches of Congress said revising plan regulations would allow federal employees to keep their money inside of the TSP after retirement to take advantage of the program’s low fees.

House Legislation

The House bill (H.R. 3031) would make these changes:

  • Make multiple age-based and post-separation withdrawals
  • Revise the timing and amounts of periodic payments
  • Elect to combine partial withdrawals or an annuity with periodic payments
  • Eliminate automatic annuities as a default option in the absence of an election by participants

It has been reported out of Committee and will now be considered by the full House.

Senate Legislation

The Senate bill (S. 873) is similar to the House bill, but offers these changes to the TSP:

  • Allows multiple age-based withdrawals and subsequent post-separation partial withdrawals
  • Allows multiple partial post-separation withdrawals
  • Allows a schedule of quarterly or annual withdrawal payments and also let participants change the payment amounts at any time
  • Eliminates the withdrawal election deadline which currently requires TSP participants to make a post-separation withdrawal election by April 1 of the year following the year in which they turn 70 1/2 and are separated from federal service

The Senate bill also just recently reported out of Committee and will now go before the full Senate for consideration.

About the Author

Ian Smith is one of the co-founders of He has over 20 years of combined experience in media and government services, having worked at two government contracting firms and an online news and web development company prior to his current role at FedSmith.