During a monthly Federal Retirement Thrift Investment Board meeting on Tuesday, Chairman Andrew Saul said he wanted to reopen discussions on shifting the default option from the government securities (G) fund to the L funds, which automatically move investors to less aggressive and more stable portfolios as they near retirement.
The L funds are riskier than the G Fund, but are designed to produce higher returns over the long run. Board members agreed that life-cycle offerings are good tools for participants who might not be financially savvy, and appeared open to re-examining the option of making them the default investment.
But TSP Executive Director Gregory Long reminded the board, "Timing is everything." In 2009, labor unions and federal employee group representatives on the Employee Thrift Advisory Council voiced concern over a bill the House passed in 2008 that would move indecisive investors to the L funds.
During the 2009 meeting, James Sauber, chairman of the advisory council and chief of staff for the National Association of Letter Carriers, said, "If this had been the default for a new young federal employee this year, and they weren't wise enough to be on top of their selection, they could be losing big."
Before the economic downturn, however, the advisory board unanimously supported the legislation.
Shifting the default for TSP participants would affect more federal employees than even before. As of Aug. 1, agencies have automatically enrolled all new civilian employees in the retirement program. Those who do not want to participate must opt out. Long said 51,545 employees have been automatically enrolled in TSP since August. Of those, 27,790 participants, or 53.9 percent, failed to designate how they wanted their money invested, and they were placed in the G Fund.
Saul recommended the board set up a joint meeting with the Employee Thrift Advisory Council in early 2011 to further explore the possible shift. "We've always brought the unions in," he said.
Also during Tuesday's meeting, TSP Chief Investment Officer Tracey Ray gave a brief report on plan's performance and noted a significant drop in L 2010 Fund participation -- from 111,773 at the end of September to 101,527 at the end of October. The L 2010 Fund will close at the end of the calendar year, and any money invested in it will be rolled into the L Income Fund, designed for those who have reached retirement and plan to withdraw savings monthly. Ray said the drop in L 2010 Fund participation could reflect investors' reservations about moving their savings to the L Income Fund.
The board also is planning to distribute in January 2011 an interactive DVD that will provide a thorough introduction to TSP for recently enrolled participants. It is producing separate copies of the DVD for the civilian workforce and military service members. Long said the DVDs should make up for other communications programs cut due to budget constraints.
The board's next meeting will be a teleconference in December.