Retirement Planning Retirement PlanningRetirement Planning
Advice on how to prepare for life after government.

The TSP’s Future -- and Yours

ARCHIVES
Recently on Federal News Radio's weekly program, For Your Benefit, I had the opportunity to talk with Gregory T. Long, who has been executive director of the Federal Retirement Thrift Investment Board since March. Along with Bob Leins, CPA at the National Institute of Transition Planning, I asked Long about the present and future of the government's 401(k)-style Thrift Savings Plan, which is becoming an increasingly important part of federal employees' retirement planning. (Click here to listen to the full archived broadcast of the interview.)

Here are some highlights of our conversation.

TSP Tour

Long provided a series of noteworthy facts about the TSP:

  • It is the world's largest defined contribution savings plan. As of July 1, the balance of funds in the TSP totaled $224 billion.
  • There are 41 accounts with balances of more than $1 million within the TSP. Of those, about half were helped in getting there by transferring money in from other sources, such as 401(k) plans or rollover IRAs.
  • The TSP has very low administrative expenses. Long said the expense ratio of all of the TSP funds is 3 basis points (100 basis points would be 1 percent.) The average mutual fund's administrative expenses exceed 100 basis points.
  • More than 86 percent of people covered by the Federal Employees Retirement System actively contribute to a TSP account.

Encouraging Participation

Even with that level of participation, Long wants even more federal employees to sign on. He noted that a 1 percent increase would mean an additional 20,000 employees would have a better chance of living a higher quality of life in retirement.

To accomplish this increase, the thrift board has backed the idea of making TSP contributions automatic for new hires. Currently, new employees must choose to participate. Legislation will be required to implement the change, which would have employees automatically contribute 3 percent of salary to the TSP. Unless the employee chose otherwise, the funds (and agency matching contributions) would be directed to the TSP life cycle (L) fund appropriate to his or her age.

For now, though, the board has decided not to endorse the idea of adding a Roth 401(k) type of account to the TSP. Such an option might be attractive to military investors and younger employees, as well as those in the upper pay brackets. But usage rates of such an option within large 401(k) plans have been low. It would cost more than $10 million to create a Roth option, Long said, and payroll offices have indicated that it would cause processing complications. The board has agreed to revisit this issue within two years. Security Issues

Long said the TSP Board has a series of initiatives under way aimed at improving security. For example, it is now using eight-digit alpha/numeric personal identification numbers, replacing four-digit numeric PINs. By September, Social Security numbers no longer will be used on the TSP Web site.

The fund also is making changes to withdrawal processing. From now on, when former employees go online to withdraw funds, they will receive payment by paper check. Conversely, if they request the withdrawal by paper form, then it can be directly deposited into a bank account. TSP officials don't want the process to be entirely electronic, because that's how thieves were able to steal money from some former employees last December.

In the scam, the Social Security numbers and passwords of some former employees and retirees were stolen, and the information was used to request withdrawals, with the money electronically deposited into bank accounts. All of the banks involved gave the money back to the employees who were affected.

Statements in the Mail

The TSP will go back to mailing annual participant statements next year. The board has found that 16 percent of participants rarely or never check their account balances. By providing an annual mailing, officials hope participants will notice their balances at least once a year, so they can check up on their investments and rebalance accounts, if necessary.

Withdrawal Options

About 2,000 people chose a TSP annuity as their withdrawal choice last year. That's not a big number, which could be due to the fact that most current retirees are covered under the Civil Service Retirement System, which has a more attractive basic annuity than FERS. Many folks under CSRS don't need steady income from their TSP investments.

An advantage of choosing a TSP annuity is that it will provide steady income for life. Those participants who are in good health and manage to outlive their life expectancy will receive more than they contributed and will not have to worry about "outliving their money." But remember, once chosen, the annuity cannot be changed, stopped or recomputed -- it is yours for life.

New L Fund

Finally, if you're wondering what will happen to the L2010 fund when the year 2010 rolls around, Long said it will go out of existence. It will roll into the L Income Fund, and, at the other end of the spectrum, the L2050 fund will be created for employees just beginning their federal careers. This does not take an act of Congress. The TSP Board already has the authority to make the change.

Tammy Flanagan is the senior benefits director for the National Institute of Transition Planning Inc., which conducts federal retirement planning workshops and seminars. She has spent 25 years helping federal employees take charge of their retirement by understanding their benefits.

 

Tammy Flanagan has spent 30 years helping federal employees take charge of their retirement by understanding their benefits. She runs her own consulting business at www.tammyflanagan.com and provides individual counseling as well as online training for the National Active and Retired Federal Employees Association, Plan Your Federal Retirement as well as the Federal Long Term Care insurance Program. She also serves as the senior benefits director for the National Institute of Transition Planning Inc., which conducts federal retirement planning workshops and seminars.

For more retirement planning help, tune in to "For Your Benefit," presented by the National Institute of Transition Planning Inc. live on Federal News Radio on Mondays at 10 a.m. ET on WFED AM 1500 in the Washington-metro area. Archived shows are available on NITPInc.com.

FROM OUR SPONSORS
JOIN THE DISCUSSION
Close [ x ] More from GovExec
 
 

Thank you for subscribing to newsletters from GovExec.com.
We think these reports might interest you:

  • Sponsored by G Suite

    Cross-Agency Teamwork, Anytime and Anywhere

    Dan McCrae, director of IT service delivery division, National Oceanic and Atmospheric Administration (NOAA)

    Download
  • Data-Centric Security vs. Database-Level Security

    Database-level encryption had its origins in the 1990s and early 2000s in response to very basic risks which largely revolved around the theft of servers, backup tapes and other physical-layer assets. As noted in Verizon’s 2014, Data Breach Investigations Report (DBIR)1, threats today are far more advanced and dangerous.

    Download
  • Sponsored by One Identity

    One Nation Under Guard: Securing User Identities Across State and Local Government

    In 2016, the government can expect even more sophisticated threats on the horizon, making it all the more imperative that agencies enforce proper identity and access management (IAM) practices. In order to better measure the current state of IAM at the state and local level, Government Business Council (GBC) conducted an in-depth research study of state and local employees.

    Download
  • Sponsored by Aquilent

    The Next Federal Evolution of Cloud

    This GBC report explains the evolution of cloud computing in federal government, and provides an outlook for the future of the cloud in government IT.

    Download
  • Sponsored by LTC Partners, administrators of the Federal Long Term Care Insurance Program

    Approaching the Brink of Federal Retirement

    Approximately 10,000 baby boomers are reaching retirement age per day, and a growing number of federal employees are preparing themselves for the next chapter of their lives. Learn how to tackle the challenges that today's workforce faces in laying the groundwork for a smooth and secure retirement.

    Download
  • Sponsored by Hewlett Packard Enterprise

    Cyber Defense 101: Arming the Next Generation of Government Employees

    Read this issue brief to learn about the sector's most potent challenges in the new cyber landscape and how government organizations are building a robust, threat-aware infrastructure

    Download
  • Sponsored by Aquilent

    GBC Issue Brief: Cultivating Digital Services in the Federal Landscape

    Read this GBC issue brief to learn more about the current state of digital services in the government, and how key players are pushing enhancements towards a user-centric approach.

    Download

When you download a report, your information may be shared with the underwriters of that document.