TSP Changes That Affect Everyone

A mutual fund window and mobile app are among the changes that are coming to the TSP in early June.

A series of changes are coming to the Thrift Savings Plan (TSP) starting in early June. For the changes to be implemented, however, there will first be a blackout period that will restrict access to TSP accounts, including more than two weeks where withdrawals will be suspended, starting May 16th. Starting May 26th no investment transactions – including inter-fund transfers – will be possible. The word from TSP is that in the first week of June full access and transactions will be restored. I wonder what the first week of June means exactly?

TSP Modernization 

There are several reasons why changes are happening. 

Some time ago, you may remember that the TSP Modernization Act of 2017 mandated the implementation of changes, some of which happened on Sep 15th of 2019, allowing not one Age-Based In-Service Withdrawal at age 59 ½, but four of them while still working.

They also initiated online forms for notarization that were mandatorily pre-populated to avoid failed forms that wasted so much of the TSP’s time and manpower, also a much-needed window of opportunity that allowed participants to change monthly withdrawals every 30 days, not once a year!

Well, modernization continues. Now there will be the introduction of a mobile app, which is pretty cool, and hopefully, this app will work smoothly with few bugs, if any.

At its inception, the TSP had just 3 funds, the G F, and C funds, starting in the late 80s. Then in 2001 two funds were added, the S & I funds, to give participants more choices. Then in 2005, the Lifecycle funds were offered, which basically balances between the 5 funds, and increases substantially towards the G fund as you close in on that Lifecycle target year for income.

There has been a big clamoring for expanded fund choices, especially for an ESG fund. Maybe we should address these 2 issues separately.

TSP Mutual Fund Window

Starting the first week of June, there will be a mutual fund window that opens on TSP for each account participant. I think it best to simply copy exactly what tsp.gov says below:

Mutual fund window

The mutual fund window is designed for TSP participants who are interested in greater investment flexibility. If your account meets certain eligibility criteria, you can choose to access a selection of more than 5,000 mutual funds. As with most mutual funds, this flexibility comes with fees:

  • $55 annual fee to ensure that use of the mutual fund window does not indirectly increase TSP administrative expenses for TSP participants who choose not to use the mutual fund window.
  • $95 annual maintenance fee
  • $28.75 per trade fee
  • Other fees and expenses specific to chosen mutual funds

If you choose to invest through the mutual fund window, your initial investment must be at least $10,000, and you may not invest more than 25% of your total account in the mutual fund window.

So the TSP mutual fund window will come with fees, but this was expected with broader choices. Three charges are listed above, and there are also fees that exist inside each mutual fund.

Interestingly, one of the charges (the $55 annual fee) is to protect the other TSP participants that are not participating in the mutual fund window from potential rising costs to the TSP for adding all of these options. All things considered, it seems to be a prudent move. Don’t forget that each time you trade a mutual fund, whether buying or selling, it creates a $28.75 transactional fee.

ESG Funds Available

ESG funds were likely a big impetus for the creation of the mutual fund window, as there has been so much interest in these types of funds as of late. If someone can invest their money and help the planet’s environment and mankind, then all the better for many. Some are willing to give up some growth for the potential good for all.

Let’s define an ESG fund, as taken from Investopedia:

What Are Environmental, Social, and Governance (ESG) Criteria?

Environmental, social, and governance (ESG) criteria are a set of standards for a company’s operations that socially conscious investors use to screen potential investments. Environmental criteria consider how a company performs as a steward of nature. Social criteria examine how it manages relationships with employees, suppliers, customers, and the communities where it operates. Governance deals with a company’s leadership, executive pay, audits, internal controls, and shareholder rights.

Investors might even be able to avoid companies that increase their risk due to less than favorable environmental practices.

Virtual Assistant & Live Agent Chat

There will now be a virtual assistant, called AVA, to ask account-specific questions. You can also connect directly to a ThriftLine Representative during business hours for a live chat session.

Term Changes

You’ll have to get used to new terms (and a new website entirely). 

  • Inter-fund Transfer will now be listed on the new website as “reallocation” and means just that, a reallocation of existing balances.
  • Contribution Allocations will now be called “investment elections” on the website. This is the money per pay period and how you want it invested into the various funds.
  • A new option is called “fund transfer” and will move money from one fund to another fund without affecting the rest of your account balances.

In Conclusion

New terms on the new website, new mobile app, live chat, access to ESG and 5,000 mutual funds (with associated fees)… wow, it’s a lot to take in. Oh, did I mention possible electronic signature expansion, that perhaps replaces the entire notarization issue? We will see what unfolds in June.

About the Author

Charles Dzama is the principal founder and director of CD Financial, the host of the CD Financial YouTube channel, and the author of FedWise, a free monthly newsletter focused on topics of importance and interest to federal employees. He has been assisting federal agencies and federal employees for well over 15 years in fully understanding their benefits. For a complimentary 15-minute phone call, click here to schedule. To request retirement training at your agency, email Charles your workforce development or HR trainer’s contact info.