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Thrift Savings Plan readies for new investment fund
The Federal Retirement Thrift Investment Board voted Monday to officially endorse a plan that would offer federal workers an automatically diversified retirement investment option.
Board members lined up strongly in support of the "life cycle" plan, which Gary Amelio, executive director of the Thrift Savings Plan, wants to offer early next year. The life cycle plan would be a collection of existing funds, automatically diversified and adjusted over time to account for each federal worker's investment preferences. A young worker, for example, could opt for a more aggressive investment strategy to increase potential returns. The program could automatically shift the investments to lower yield, lower risk funds as the worker grew closer to retirement.
Thrift board chairman Andrew Saul said the option is a "major move forward" for participants in the 401k-style TSP.
In an April 14 memo, Amelio said the plan was "the best way to provide professionally managed asset allocation to TSP participants, particularly those who do not have the time, knowledge or interest to actively manage their accounts."
The option will be voluntary, and TSP participants can choose to invest any percentage of their retirement assets in the plan. More than 3 million federal employees and retirees have more than $134 billion invested in the TSP.
The board set aside another investment option, the lifestyle fund, which would have arranged existing funds in a conservative, moderate or aggressive investment structure. According to the April 14 memo, TSP staff, board members, the Employees Thrift Advisory Council, congressional staff and Labor Department officials had agreed the life cycle funds "would be the better choice."
Monday's vote comes after repeated warnings from Amelio that TSP participants are not diversifying their investments efficiently and are potentially losing out on thousands of dollars in retirement savings. Amelio said also that some investors attempt to gain high yields by transferring their savings to better performing options. Those changes, however, usually come too late and investors end up missing valuable appreciation.
To launch the life cycle option, the Thrift Board will hire a contractor to develop the asset allocation program and a communications program to educate participants. A request for vendor proposals is expected by next month's TSP board meeting.
Board members and TSP staff said Monday that the communications program would be helpful in teaching TSP members about asset allocation, even if they decide not to join the life cycle plan. Because of the benefit of the education effort, the cost will be spread across all participants, according to Amelio.
"For simplicity's sake, for efficiency's sake, the cost of this project is going to be allocated across the plan," he said.
Amelio said that in a best-case projection, about 10 percent of TSP investors are expected to join the life cycle plan in its first five years. TSP staff said this is comparable to the industry standard.
Board members supported Amelio and said the plan was necessary to encourage participants to diversify. After reviewing TSP investment numbers, Thrift board member Alejandro Sanchez said the data backs Amelio's push for the life cycle funds.
"If there were any doubters out there," Sanchez said, "they're not doubting you anymore."
The 401(k)-style Thrift Savings Plan currently offers five funds: the C, F, G, S and I funds. The latter two were added to the plan in May 2001. The C Fund invests in stocks of large companies, the F Fund in bonds, the G Fund in government securities, the S Fund in small- and mid-size companies and the I Fund in international stocks.
COMMENTS
- Ok folks let's do this again. If the money is your money why is it the TSP board took it away from you and paid the crooks for their bad programming job? I contend the money you and I put in the TSP belongs to Mr. Amelio. If I am wrong please show me the proof. These people will cave into the government and give your money to them forever unless we, the people, take back OUR money. I have been writing about this for a year and not one person has said the money belongs to me or you. Mr. Amelio is in total control of the money in the TSP and he is a thief. GovExec.com reader Posted May 5, 2004 7:33 AM
- I think "Anti-whiner" is the same person as "Is it worth the whine," and I believe he/she is on the TSP board. GovExec.com reader Posted April 26, 2004 6:31 AM
- It seems not long ago that complaints were raised about the large number of federal employees not queuing up to the TSP bandwagon. Then, federal workers joined in large numbers. The employees later watched as TSP investments were caught in the political tug-of-war between Congress and the President during the mid-1990s--after billions of dollars were earned in the risky "C Fund" bearing stocks. Our politicians started licking their lips over the cash cow created by federal worker contributions in the TSP. Our investments were used to pay government bills then due and owing. This happened twice. Then, as the stock market crashed, the workers who watched their portfolios dwindle, sought refuge, in part, by moving their investments into the conservative G Fund. Some took a risky course of moving investments more often. The TSP Board gave us more flexibility to accommodate all types of investors. Yet, once that flexibility was exercised, Mr. Amelio fingered the TSP participants as the culprits for crashing the computer system. We are the evil poster children because we are either day/weekly or monthly traders or conservative investors. The problems experienced by the TSP with getting the computer system operational for daily valuations were not caused by the participants. Yet, Mr. Amelio fingers the participants as the wrong-doers. His solution is to cook up this new scheme of outsourcing that does nothing more than let someone else feed at the $130 billion trough federal employees funded. Jeff Babcock Posted April 22, 2004 3:59 PM
