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[TSP_Strategy] L Fund as Default

 


New Feds Will Default Into Riskier TSP Fund Starting Next Week

2:20 PM ET

New federal employees will automatically see 3 percent of their paychecks deposited into a lifecycle fund of the Thrift Savings Plan beginning next week, the plan's governing board has announced.

The Federal Retirement Thrift Investment Board issued a final rule to note the default plan will change beginning Sept. 5. It will mark the first time since federal agencies began automatically enrolling new employees in the TSP in 2010 that the government securities (G) fund will not be the default investment. Congress approved the change last year, and the board finalized the plan after its proposed rule in July received no comments.

Employees that do not proactively opt into another plan will, starting next week, see their funds invested in the age-appropriate lifecycle, considered riskier but ultimately higher yielding than the G Fund. The G Fund is the most stable investment of the TSP's options, while the L Funds are a mix of the TSP's G, F, C, S and I offerings, and are crafted to move investors to less risky portfolios as they near retirement. The L Funds are composed of the L Income, L 2020, L 2030, L 2040 and L 2050 to mark anticipated retirement dates.

The change will only apply to new or rehired federal employees who are auto-enrolled in the TSP. It will not affect TSP participants who are currently auto-enrolled.

The board will notify new employees of the default plan and of their ability to request a refund of any default contributions. Furthermore, an investment in any fund other than the G Fund is made at the employee's risk, without protection from the government or the board.

The board in 2013 requested the legislation to switch the default fund from the G Fund to the lifecycle funds. The Employee Thrift Advisory Council, which advises the TSP board on investment policies and administration matters, is made up of representatives from employee organizations, unions and the uniformed services. It endorsed the legislative proposal in November 2013 after initially opposing it.

FRTIB has found that while automatic enrollment has increased TSP participation, new government hires under the age of 29 have too much money invested in the G Fund, probably because few have opted for alternatives to the default auto-enrollment in the G Fund. While traditionally very stable, the government securities fund does not yield very high returns.

In a move that could perhaps put some detractors of the switch at ease, the board decided in 2013 that lifecycle funds would allocate a larger proportion of their total configuration to the G Fund. The board contracted a consulting firm to review its L Funds allocations and opted to make the change in light of the findings.

(Image via sheff/Shutterstock.com)


2:20 PM ET

New Feds Will Default Into Riskier TSP Fund Starting Next Week


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Posted by: sarah_oz@yahoo.com
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Neither the TSP Strategy group, nor individual members, are licensed or authorized to provide investment advice. Any statements made herein merely reflect the personal opinions of the individual group member. Please make your own investment decisions based upon your personal circumstances.

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