Automatic Enrollment 3% in L Funds?

[luv2read]

FRTIB is proposing 3% automatic enrollment in an age-appropriate L fund for all new hires. They said that 14% of all FERS employees are not enrolled in TSP. Of that 14%, 24% said they don't have the money to contribute. So, big brother is going to MAKE you do it. They also made an issue of the fact that over 75% of participants in the G fund never rebalance their funds so will be short in retirement. That's what got my attention.

Excerpt from 05/01/08 Govexec.com. Read the whole article at this link:

http://www.govexec.com/story_page.cfm?articleid=39889&dcn=e_gvet

Meanwhile, Long and Brown also expressed support for a proposal that would switch the default fund for investors who did not express a preference from the less-risky government securities (G) fund to the TSP's life-cycle (L) options, which invest in a mix of funds that grows more conservative as an employee nears retirement.

Long said a review by the TSP Board found that of those participants whose contributions were invested initially in the G Fund during the first quarter of 2004, only 26 percent submitted a request to move their money to other funds by the end of the following quarter, Long said. The board tracked the same group in the first quarter of 2007, and found that 48 percent of the investors never moved their money out of the G Fund.

Of most concern, Long said, was that 62 percent of the participants tracked were under 40 years of age. "For these participants," he said, "L Fund investments are a more appropriate default option and will enhance their retirement security."

Subcommittee chairman Danny K. Davis, D-Ill., indicated that the costs associated with proposed legislation would determine which bills would go to the House floor this year. While a change in the TSP's default fund likely wouldhave little cost associated with it, Davis expressed concern over the cost of the automatic enrollment proposal, noting that it could lower revenue for the U.S. Treasury, since more employees would be reducing their taxable income. TSP officials have said that an unofficial accounting indicates the proposal could deprive the Treasury of hundreds of millions in tax dollars.

"I hope that a way can be found to overcome that obstacle so more employees will make full use of the TSP in order to be better prepared for their retirement," Long said.

If TSP members not rebalancing their funds often enough was of such great concern, then why not EDUCATE THEM to do what the 1% who WERE actively and successfully managing their money were doing? The law specifically delegates this responsibility to FRTIB. Reading this article, does imposing IFT limits on TSP members make any sense?




OK. Does anybody else see the twin reasons for the limits?

1. Barclays liquidity issues and incompetent FV calculations.
2. Push the L Funds - which Barclay's gets paid to rebalance daily.