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The Federal Retirement Thrift Investment Board is hoping to launch its "life-cycle" retirement option by July, and officials announced Wednesday that a contractor has been chosen to help spread word about the new initiative to the the federal workforce.

Thrift plan Executive Director Gary Amelio said, however, that he doesn't want to set a target date in stone.

"We would like to get this fund up and running and operational by the middle of 2005," Amelio said during a board meeting Wednesday. "But we would rather do it right than rush it out ... we've talked about July 1."

In April 2004, the board voted unanimously to launch the life-cycle fund. Several months later, Thrift officials chose Mercer Investment Consulting to develop the investment option. The plan would be a collection of existing funds, automatically diversified and adjusted over time. The life-cycle plan would generally place the investment in funds with a potentially higher return while employees are younger but would automatically shift money to more conservative investments as the employee nears retirement.

The TSP, a 401(k)-style retirement plan for federal employees, has 3.3 million participants and $152 billion in assets. The plan has five funds, which are invested in government securities, fixed income securities, common stocks, international stocks, and small and mid-size companies.

Amelio said he does not expect any delay with the technical development of the life-cycle plan. He noted, however, that educating the federal workforce about it could take more time than anticipated. To that end, Thrift officials announced that CitiStreet - a joint venture between financial service companies State Street Corp. and Citigroup - has been selected to help develop the communications package. No details of the contract were released, but Thrift officials stressed the importance of the communications portion of the plan.

"You're going to have to explain the difference," said Penny Moran, director of benefits services at the Thrift plan. "It's not just sort of a one-shot deal in the middle of the summer."

Default Investment

While the Thrift Board has been extremely supportive of the life-cycle plan, several members balked at a proposal to make the new option the default investment for federal workers who do not designate a specific fund. Currently, workers who do not select an option have their money directed to the G Fund, which is comprised of government securities and is the most conservative of the choices. More than 20 percent of all Thrift members have all their money invested in the G Fund. TSP officials could not break down how many have chosen that allocation and how many were placed there by default.

"To some extent it is because they don't think about it, to some extent it is because they don't know what to do," Moran said in explaining the high numbers of workers with all their money in the G Fund. Amelio said that congressional action would be required to change the default investment option at the TSP.

"The G Fund is simply too conservative for people who never make a decision," he added.

Several board members objected, however, saying that employees' money should be placed in the safest possible investment unless they chose otherwise.

"You are making a decision for those people," said board member Tom Fink. "Why should we take responsibility for investing?"

Board member Alejandro Sanchez said that the TSP should do everything within its power to educate workers about the new investment option, but they should not place money into it without workers' direct consent.

"I just don't think that is what our mission is," he said.

Board Chairman Andrew Saul asked members to put the issue aside until after the new investment option is launched and fully operational.

COMMENTS

• As long as there are people who do not know or care how to invest then Mr. Amelio has no right to try and place their funds into any investment that posses a potential risk for loss. As long as there is no loss involved they have nothing to complain about. If they lose one penny because their retirement funds were put to risk they will be screaming lawsuit. Then as typical, the payoff to plaintiffs and lawyers, will be charged to the investors. Dave Posted January 26, 2005 12:13 AM
• It occurs to me that Mr. Amelio often chooses the irrational path over more conventional wisdom, when proposing/discussing fiscal policy for our retirement dollars. This is certainly not a fatal quality in a manager, except that Mr. Amelio is charged with overseeing a lot of money that does not belong to him. Do any of his bosses notice his lack of acumen? GovExec.com reader Posted January 21, 2005 10:53 AM
• I for one, NEVER want any employee, or contract employee, of the FRTIB to make any investment decision for me. Having first hand knowledge of the arbitrary nature by which FRTIB awards contracts, I find it troubling that FRTIB even considered making some Lifestyle fund the default account for TSP investors. Perhaps FRTIB will be charged fees for the fund based the amount of monies invested by participants. I applaud the members of the FRTIB who balked at this development, however they are also the people who are directly responsible for the current system that does not balance. Perhaps the pillage of TSP by Republican appointees will come to a stop. TSP Participants need to ask hard questions of the FRTIB, the Department of Labor, and GAO. PS-Where is that GAO report that details the customer service results the FRTIB designed and came back less than glowing. Go read FRTIB November Minutes to find out how concerned FRTIB is that the results might be loose on the street. GovExec.com reader Posted January 21, 2005 8:53 AM