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TSP Investments

The Thrift Savings Plan (TSP) has a selection of individual and lifecycle funds that offer broad market diversification. You can choose to have your retirement dollars invested in everything from a short-term U.S. Treasury security to index funds comprised of domestic and international stocks.

The Thrift Savings Plan (TSP) is a defined contribution plan for United States civil service employees and retirees as well as for members of the uniformed services. As of August 31, 2017, there were more than 5 million participants, and more than $500 billion in assets under management.

The TSP is one of three components of the Federal Employees Retirement System (FERS; the others being the FERS annuity and Social Security) and is designed to closely resemble the dynamics of private sector 401(k) and Roth 401k plans (Roth TSP was implemented in May 2012). It is also open to employees covered under the older Civil Service Retirement System (CSRS).

FERS employees are eligible to join TSP immediately upon starting work and may join at any time thereafter. Prior to June 22, 2009, new employees had to wait at least one year before receiving matching contributions (including Agency Automatic Contributions); after this date employees were eligible for automatic contributions from day one of employment, and are immediately eligible for matching contributions once the employee begins contributing to the TSP.

CSRS employees and members of the uniformed services may join at any time.

TSP matching contributions

Employees under CSRS are ineligible for matching contributions.

Matching contributions for FERS employees are made dollar-per-dollar for up to 3% of base pay, then at fifty-cents-per-dollar for each additional percent up to 5%. Thus,

  • An employee contributing 3% of base pay would receive an additional 3% matching contribution (dollar-per-dollar matching contribution on the whole 3%) plus an additional 1% agency automatic contribution. Total agency contribution is 4%.
  • An employee contributing 4% of base pay would receive an additional 3.5% matching (dollar-per-dollar matching contribution on the first 3%, plus .5% for the fourth percent contribution) plus an additional 1% agency automatic contribution. Total agency contribution is 4.5%.
  • An employee contributing 5% of their base pay would receive an additional 4% (dollar-per-dollar matching contribution on the first 3%, plus .5% for each of the fourth and fifth percent contributions (making 1% total)) plus an additional 1% agency automatic contribution. Total agency contribution is 5%.

FERS employees are automatically enrolled with a contribution of 3%, but can change that amount at any time.

TSP contributions in excess of five percent are not matched, nor are “catch-up” contributions matched.

Uniformed service members are eligible for matching contributions only if the secretary of the specific service designates as such. As of 2017, no specific specialty has been designated as such. However, in 2006, Congress enacted legislation to sponsor a pilot program to offer matching contributions to new active duty enlistees. This program was administered by the Department of the Army from April 1, 2006 through December 31, 2008. Enlistees who qualified for TSP matching during this period (provided completion and returned paperwork was processed as of initial enlistment) receive a dollar for dollar matching contribution on the first three percent of their contributions from basic pay; and fifty cents on the dollar for the next two percent contributed for the duration of their first term of enlistment.

Vesting Requirements for the Thrift Savings Plan (TSP)
FERS employees must complete three years of Federal civilian service to be fully vested in agency automatic contributions and any earnings thereon. Unless vesting requirements for matching contributions are met, the separated employee loses the unvested amount. Unvested surrendered funds are used to subsidize operating expenses, leading to the extremely low costs of the program to participants (typically 1/40th that of commercial funds).

TSP Investment options

Thrift Savings Plan (TSP) Fund Selection
The TSP offers investors 10 funds in which to invest. Five are individual funds (one dealing with government bonds and the other four tracking specific market indices) while the other five are “Lifecycle Funds” designed to professionally change the allocation mix of investments among the individual funds during various stages of the employee’s federal service. All TSP funds are trust funds that are regulated by the Office of the Comptroller of the Currency and not the Securities and Exchange Commission; thus, there is no ticker symbol to track actual performance (though with the individual funds except the G Fund, the comparable index is easily tracked).

Employees may choose from any or all of the individual or Lifecycle funds in which to invest (any allocation must be expressed as a whole percentage) and may change their allocation for future pay periods at any time (if the request is received before noon Eastern time it is usually effective as of the close of business that day; otherwise, it is effective the following business day). If no selection is made the default is 100 percent allocation into an age-appropriate Lifecycle (L) Fund (except for uniformed services whose default is the G Fund). As all funds except the G Fund have a potential risk of loss of principal, an employee is required to acknowledge this risk before investing into those funds.

Participants may also choose to change the allocation percentage of their existing fund balances (referred to as “Interfund Transfers”). Prior to May 2008 participants could change the allocation as often as possible (limited to one per day) among any and all funds; beginning in May 2008 participants are limited to two unrestricted transfers per calendar month, all subsequent transfers must be into the G Fund only.

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TSP Individual Funds

  • G Fund- Government Securities fund. These are unique government securities not available to the general public and are backed by the full faith and credit of the US Government. The G Fund was the initial fund established by the TSP when it began operations on April 1, 1987.
  • F Fund- Fixed Income Index fund. Invested in BlackRock’s U.S. Debt Index Fund. Tracks the Barclays Capital Aggregate Bond Index. The F Fund was opened to Federal employees in January 1988 but was limited to only a portion of contributions; beginning January 1991 all restrictions on F Fund contributions were lifted.
  • C Fund- Common Stock Index fund. Invested in BlackRock’s Equity Index Fund. Replicates the total return version of the S&P 500 index. The C Fund also opened to employees in January 1988 and was subject to the same restrictions as the F Fund until January 1991.
  • S Fund – Small Capitalization Stock Index fund. Invested in BlackRock’s Extended Market Index Fund, which tracks the Dow Jones U.S. Completion TSM index. The S Fund opened to employees in May 2001.
  • I Fund – International Stock Index fund. Invested in BlackRock’s EAFE Index Fund. Replicates the net version of the MSCI EAFE index. The I Fund opened to employees in May 2001.

TSP Lifecycle Funds (Target Date Retirement Funds)
In 2005, the TSP introduced the Lifecycle Fund series. The purpose of the Lifecycle Funds are to allow for automatic reallocation of assets from more-risky stock funds (the C, I, and S Funds) into less-risky income funds (the F and G Funds) as an employee reaches retirement age, as an employee may lack the time, interest, and/or expertise to determine suitable investments at various life stages.

The current TSP Lifecycle Funds established, along with the corresponding retirement date window, are as follows:

  • L2050 – Retirement date of 2045 and thereafter
  • L2040 – Retirement date between 2035 and 2044
  • L2030 – Retirement date between 2025 and 2034
  • L2020 – Retirement date between 2015 and 2024
  • L Income – Individuals currently receiving monthly payments

The L 2010 Fund was retired on December 31, 2010. Plan participants nearing retirement age can invest in the L Income fund: its allocations are identical to the L 2010 fund as of mid-2010.

Simulating TSP Portfolios
Because TSP funds are not offered in the public market, it can be difficult to backtest TSP portfolios. However, most TSP funds track well-known indices and can be approximated using low-cost funds offered to the general public. Below is a list of Vanguard Exchange-Traded Funds (ETFs) that are equivalent to the TSP funds in terms of their content. Please note TSP funds have significantly lower expense ratios than the Vanguard funds.

The TSP can also be approximated by tracking the performance of the ETF each fund seeks to match.

L funds (TSP Lifecycle Funds) can be approximated by mixing the above ETFs. For example, the L 2050 fund allocation may be simulated by a portfolio consisting of 41.9% VOO, 24.9% VEA, 17.95% VXF, 9.77% VGSH, and 5.48% BND.

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