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Talking TSP

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Some of my recent columns on Thrift Savings Plan-related issues have caused readers to raise some questions and concerns. This week, I thought I’d address a few of them.

Can you please explain how TSP dividend distributions work? In my quarterly statements I don't see the distribution of dividends. My purpose for purchasing stock is to earn dividends to buy additional stock. I checked the TSP website and it says that they don't distribute our dividends to us. According to the website, the dividends we earn are not given to us, but are added to the stock price. That doesn't sound right because that means when we earn a dividend it doesn't buy us more stock. And when the stock price goes down we've lost any earned dividends without having additional stock to offset the price decrease. Is that correct?

Net earnings are reflected in the share price of the funds published by the TSP. The C, S and I Funds include the capital gain or loss (net of trading costs), plus dividends, interest on short-term investments (in the G Fund) and securities lending income. Subtract the TSP’s net expenses from that, and you get net earnings. That means in reality your dividends are being reinvested, but on a large scale rather than on each individual account.

Net rates of return are calculated monthly, but TSP fund share prices are figured daily. There is much more on this topic on the TSP website and on the ThriftLine (877-968-3778), the TSP’s toll-free automated telephone service.

My household has both Civil Service Retirement System and Federal Employees Retirement System participants in the TSP, and I check our progress religiously. I had noted that the 12 month performance percentile of my significant other has always lagged mine significantly. But my own calculations of continuous returns told a different story, with the CSRS returns steadily gaining on my FERS total. It took me awhile but I’ve determined that the FERS 12 month performance actually includes the 5 percent FERS contribution, matching and standard performance amounts in its determination. For the uninitiated, that means our supposed “performance” doesn’t really reflect how our choices have worked out, but simply how the balance changed. This is a significant difference if one is tracking performance and making decisions on that performance.

TSP returns do include the cash flows into and out of your account. According to the TSP’s glossary of terms, “personal investment performance” is defined as follows: “The rate of return earned by your entire account during the 12-month period ending on the date indicated on your annual statement or on your account balance page of the TSP website. The PIP is a time-weighted return that has been calculated using a modified Deitz method (a method used by many financial institutions and an industry standard). The PIP adjusts for the distorting effects of cash flows into or out of your account. It is an estimate; therefore, your PIP may not be the same as the 12-month performance of the TSP funds, which are time-weighted returns.”

Have you ever gotten any information on the proportional change, transfer, and withdrawal requirements of the new TSP Roth option? I would really appreciate some feedback on that for it will determine the six-year strategy I’m formulating now.

The TSP’s withdrawal forms have grown more complicated since the addition of the Roth option. There is detailed information at the TSP website about withdrawals, interfund transfers and management of the TSP and all of it has been updated since the implementation of the Roth option. You just need to do some creative searching to locate specific information. For example, I typed in “withdrawal options,” and here is the first link that came up. It’s a comprehensive resource to all TSP withdrawal information, including the forms you’ll need.

 

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.

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