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TSP board proposes different default fund for new hires

Dec. 17, 2013 - 06:00AM   |  
By SEAN REILLY   |   Comments
Gregory Long, executive director of the Thrift Savings Plan.
Gregory Long, executive director of the Thrift Savings Plan. ()

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The agency that runs the Thrift Savings Plan will seek a congressional green light to make the Lifecycle Fund (L Fund) the default option for new hires automatically enrolled in the TSP.

Since auto-enrollment began in 2010, new hires have been routed into the G Fund, which is invested in safe, but low-performing, government securities. Under the proposal that the Federal Retirement Thrift Investment Board approved Monday, the default option would become the L Fund. The fund is actually comprised of several different funds with portfolios tailored to enrollees’ ages and expected retirement dates. The change would require legislation; with no action likely before next year, the board is now looking for a lawmaker to sponsor the bill.

The board is concerned that younger workers who need to save for retirement are staying in the G Fund after auto-enrollment instead of looking at funds with better returns. From August 2010, when auto-enrollment began, until this September, the G Fund’s returns totaled 6.33 percent, compared 47.4 percent of the “L 2040” fund, geared to younger federal employees.

Under the proposal, workers wanting to stick with the G Fund would be free to do so, said Greg Long, the thrift board’s executive director. The change would not apply to military personnel, who are not subject to automatic enrollment.

The Employee Thrift Advisory Council, a TSP advisory body made up of representatives from postal and federal worker organizations, endorsed the plan last month.

In other business, Renee Wilder, the board’s director of enterprise planning, said that the number of TSP hardship withdrawals dropped to about 9,700 last month, after hitting a record of almost 14,400 in October, when much of the government was closed for two weeks.

Monday’s meeting came as the Senate prepared to take up a two-year budget deal that would push pension contribution rates for employees hired after this month to 4.4 percent, compared to 0.8 percent for most workers in the Federal Employees Retirement System.

The legislation has already received House approval; while the board is concerned about the potential effect of the increase on TSP participation, there are no data at this point to indicate what the impact could be one way or the other, said Kim Weaver, director of external relations..

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