Officials will study diversifying International Fund this summer.
The panel that oversees the retirement savings plan for federal employees on Wednesday unanimously approved offering lifecycle funds targeted to within five years of participants’ expected retirement date rather than the current 10-year increments.
A report on the TSP’s investment options by consultants at Aon Hewitt recommended following a trend in private 401(k) providers to offer lifecycle funds – which move investors to a more conservative portfolio as they near their anticipated retirement date -- on a five-year basis.
“Most have been moving to five-year increments,” Bill Ryan, a partner at the firm, told the Federal Retirement Thrift Investment Board. “It helps bridge the gap for participants, and it’s easier to figure out where to place someone based on their age.”
The TSP will implement the new L Fund increments in 2020.
Aon Hewitt also recommended that the TSP’s I Fund, which is made up of international stocks and bonds, be diversified to include stocks in Canada, emerging markets, and international small-cap markets.
“These are large markets to which we have no exposure,” Ryan said. “By adding these, we would improve the risk portfolio for participants, as well as improve outcomes on a forward-looking basis.”
The board during its monthly meeting approved further examination of expanding the I Fund’s portfolio, which Sean McCaffrey, deputy chief investment officer for the FRTIB, said could be done by this fall.
“We want everyone to be fully comfortable with what we’re getting into,” he said. “We’ve got a little more studying to do just to be prudent.”
“We must be thoughtful about this because of the different risks associated with various markets,” said board chairman Michael Kennedy.
Elsewhere on the agenda, TSP officials briefed the board on their progress with preparing for the onset of the blended retirement system for the military, which is scheduled to come online in January. Under the system, new troops would automatically be enrolled in the TSP and receive a matching contribution from the government. The government will contribute between 1 percent and 5 percent of service members’ salaries toward their TSPs, depending on what they elect to contribute themselves, though they will be defaulted into contributing 3 percent of their paychecks. The TSP account will begin 60 days into their service. Those who stay in the military for 20 years, and are thereby entitled to a retirement pension, would receive a less generous calculation for their annuity.
The new blended retirement system only automatically affects new service members starting Jan. 1, 2018. Current service members are grandfathered into the existing system, but can opt into the new one. The online opt-in website for service members launched in April, and more than 163,000 people have already signed up online. Tom Emswiler, a senior adviser for uniformed services at TSP, said more have signed up through offline training events.
Emswiler said testing of the TSP and military services’ payroll systems will commence next month, and beginning June 6 the Defense Department website will offer an online calculator for service members to determine whether to opt in to the blended system or stay with their current pension plan. They will have all of 2018 to make that decision.
TSP project manager Tanner Nohe said the agency is working to increase its IT and call center capacity to deal with the influx of new enrollees in time for the automatic enrollment system to come online.