TOPICS
TOPICS
TSP officials see 'huge growth' in plan
Officials of the Thrift Savings Plan on Wednesday said the plan's already low cost to participants could drop even more in the future.
Board officials also predicted that investments in the plan, which currently stand at $206 billion, could grow to $300 billion in three years.
"Going forward, we must be cognizant of the huge growth this plan is going to undergo in the next three or four years and in the future," said board Chairman Andrew Saul at a special biannual meeting of the Employee Thrift Advisory Council.
The 401(k)-style retirement savings plan allows federal employees to choose from five funds that invest in government securities, stocks and bonds. On top of those funds are the plan's life-cycle funds, which mix the five existing TSP options so investments shift from a mix of aggressive to more secure investments as federal employees near retirement.
The cost of running the TSP compares favorably to private plans. Last year, the administrative costs amounted to three "basis points." For every basis point, 10 cents is spent for every $1,000 invested. So, for the three basis points, 30 cents were spent for $1,000 invested.
TSP Executive Director Gary Amelio said the costs of the plan could eventually drop to one basis point. Private plans often cost 50 to 80 basis points to run.
TSP officials also announced that they had hired a search firm to assist in selecting a candidate to replace Amelio, who announced his resignation last month. Amelio, who has served in his position since 2003, will become president of retirement services for ULLICO Inc., which provides insurance and investments for union members.
Board members said several internal and external candidates would be presented at the next board meeting, scheduled for Feb. 20. The board hopes to fill the position by April 1. TSP General Counsel Thomas Emswiler will serve as acting executive director during the transition.
Board members also discussed legislative priorities for the new Congress, saying they plan to examine the benefits of automatic enrollment for employees, a change in the default fund from the G Fund to the life-cycle funds, and the potential addition of new funds and a Roth 401(k) option in the plan.
The meeting was conducted by the Employee Thrift Advisory Council, composed of representatives of federal labor unions including the American Federation of Government Employees, the National Treasury Employees Union and the American Postal Workers Union, and nonbargaining employee groups such as the National Active and Retired Federal Employees Association, Federally Employed Women, the Federal Managers Association and the Senior Executives Association.
Most of the five basic funds in the Thrift Savings Plan posted gains in January. The S Fund, which invests in small- and mid-sized domestic companies by tracking the Dow Jones Wilshire 4500 Index, led the group with 3.14 percent for a 12-month total return of 11.46 percent.
The C Fund, which tracks the Standard & Poor's 500 Index of stocks in the largest domestic companies, grew 1.53 percent last month for a 12-month total return of 14.52 percent. Following were international investments represented in the I Fund, which grew 1.31 percent for a 12-month gain of 20.57 percent. The G Fund, which consists of short-term Treasury securities without any serious risk from market fluctuations, grew 0.43 percent for a 12-month gain of 5 percent. Finally, the F Fund, invested in fixed-income bonds, made no gains last month, but had a 12-month gain of 4.31 percent.
COMMENTS
- **How are "Basis Points" for the TSP calculated? Butch Posted February 12, 2008 8:50 PM
- Tip, thanks for the compliment. The initiatives you mentioned could add a small boost to the average cash flows, but I don't think that would be enough to close the gap. The hiring programs are not so much to increase the number of civil servants (who, for the purposes of this discussion, would be contributors to the TSP), but rather to replace the brain drain as the boomers retire; so that would be just a swap, not a change in net annual cash flow. The transfer-in provisions have been around for a long time, so the amounts being transferred in each year should have stabilized by now and are already built into the $20-$25 billion annual fund growth rates of recent years. There would have to be a sudden and sustained surge in transfers to bring the yearly growth rate up enough to make the target. Younger new hires aren't going to have huge 401(k) balances, and older new hires might have a substantial portion of their corporate plan balances in an after-tax account which would be foolish to transfer into the TSP. The only way roll-ins could be the key to making the target is if they put together the Roth-type feature that is being mulled. If they decided to go for it, they would still need several years to get the legislation and rebuild the computer systems. That alone would put us past the 3-year assertion. And on the L funds, the really interesting thing that Amelio completely missed is that even if the entire plan were converted overnight to the appropriate L fund for everybody based on their age range, no money would come out of the G Fund. Because the federal workforce is older than the general population, a lot of the L Fund money would be in the L funds that have a heavier proportion of conservative G Fund investment. The surprise is that the C Fund would take the hit as assets move to the international sector in the 2030 and 2040 funds. The fundamental benefit of the L funds is at the individual level, not total TSP asset allocations - it's for the Nervous Nellies with 100 percent G who are afraid of the sky falling and the Wild Willies shooting the moon with 100 percent I (or worse, day-trading yesterday's winner that will likely be today's loser). Numbers Man Posted February 9, 2007 12:12 PM
- I cringe at publicly disagreeing with “Numbers”, he’s been on the money so many times before. At least twice he has pointed out rather obvious flaws in my logic. By the way, thanks for the “FERSA”, but … I think there are a few points, just within the government programs even without considering the market performance, he may have overlooked. First is the announced program to recruit successful and retired alpha types to “give back” to the public sector. IF this program is successful, you will have a number of at least middle managers (GS-11s or 12s?) entering the service who are not primarily concerned with compensation. If they have the disposable income I know that target demographic to have, they will come looking mostly for job satisfaction and benefits. The second point, and probably of greater impact, is the TSP change allowing outside funds to transfer in. With the low costs (regardless if being due to management or mere economies of scale), everyone entering civil service with any 401k savings would be a fool not to seriously consider the transfer. This program change would benefit both young folks, those retirees mentioned earlier, and anyone looking for a tax shelter. Third is the shift from the standard funds to the L-Funds. As with all changes, momentum and trust takes time to build. The only thing keeping so much of the TSP funds in the G so far has been fear. Anyone paying any attention to the TSP has been looking with longing at the I Fund’s returns; and the transfers have only been held in check by the memory of the stock funds’ performances from ’99 to ‘01. The L Funds seem to offer a safer way and I think people are feeling more comfortable with them. As that transition gains momentum, the resulting influx of money into the index fund market should spur the funds’ total and price growth. Of course all of this is codependent on the wartime economy investing in the heavy metals industry, consumption of durable goods, and barring any Nervous Nelly knee jerk responses as occurred from May until September of last year. While there are a number of “ifs” incorporated, and I’m very leery about this upcoming election year, I don’t believe such a rise is beyond the stretches of the imagination. I gladly defer to Numbers on the basis points. Tip off GovExec.com reader Posted February 8, 2007 2:34 PM
