October 22, 2012
The Federal Retirement Thrift Investment Board is in the early stages of deciding whether or not to allow Thrift Savings Plan beneficiaries the ability to direct a portion of their assets to private mutual funds.
FRTIB is researching the option and will present a paper on the issue in the next year, Executive Director Greg Long said Monday at the board’s monthly meeting. The issue has been pending since Congress passed the 2009 Thrift Savings Plan Enhancement Act, which gave FRTIB the authority to allow TSP participants to invest in mutual funds of their choosing.
“The board has the ability, but not the requirement, to establish a mutual fund plan where a participant who has, say, five core funds plus five life-cycle funds, would eventually direct a portion of those assets to an external platform that has an almost unlimited menu of mutual funds,” Long explained. “The open question is whether that would be a good idea.”
Some TSP participants have said they are too limited by the TSP’s current offerings. For example, there is no mechanism for a government employee to buy gold or invest in international bonds. “That’s the pro,” Long said of the potential new option. “It allows you to pick very specific investments that we don’t have.” A downside to allowing beneficiaries to invest in private mutual funds is “if you give people enough rope, they can hang themselves,” he said, adding, “and the cost.”
FRTIB Director of External Affairs Kim Weaver said the Employee Thrift Advisory Council, which represents several large federal unions and meets with the board at least once a year, is “leery” of allowing the mutual fund option. “They do not see much demand for a mutual fund window for participants,” Weaver said, referring to ETAC members. The Labor Department has had similar concerns about cost to the government, she added.
“One of the big things here is we have to do more than just say, ‘We think it’s going to be expensive,’” Long said. “Well, how expensive? That requires significant homework on the marketplace.”
(Image via JohnKwan/Shutterstock.com)
October 22, 2012