TSP council grows wary of proposed change in default fund
By Brittany R. Ballenstedt
bballenstedt@govexec.com February 4, 2009
A federal Thrift Savings Plan advisory panel on Wednesday voiced concern over proposals to change the default fund for indecisive investors and add a mutual fund window to the 401(k)-style retirement savings program.
During a biannual meeting of the Employee Thrift Advisory Council, representatives of labor unions and other federal employee groups expressed concern over portions of a bill passed by the House in 2008 that would place the savings of employees who did not express a preference in the TSP's lifecycle (L) funds, which adjust to a more conservative mix of investments as participants near retirement. The current default is the less-risky government securities (G) fund.
While the council
unanimously agreed during a June 2007 meeting that defaulting to the L funds would be beneficial, many of the employee group representatives on Wednesday noted that the recent downturn in the markets had given them pause. "Based on the six months we've been through, this is probably worth reconsidering," said James Sauber, chairman of the council and chief of staff for the National Association of Letter Carriers. "If this had been the default for a new young federal employee this year, and they weren't wise enough to be on top of their selection, they could be losing big."
But TSP Executive Director Gregory Long noted that TSP officials tracked participant behavior from 2004 to 2007 and found that only one-quarter of 2004 enrollees decided up front to invest in options other than the G Fund. Another 48 percent started out in the G Fund and were still there three years later; of that group, 62 percent were under age 40. "There was a good chunk of young people who went into the G Fund and made no move," he said. "I still believe defaulting to the L funds is the best option; however, I have an open mind."
Chuck Witschonke, senior military assistant at the Defense Department's Office of Military Compensation, noted that an alternative might be to give TSP enrollees two to three reminders throughout their first year in the plan to change their allocation, and if they didn't do so, alert them that their future contributions would go to the appropriate L Fund.
The council also expressed concern over a provision in the 2008 House bill that would have created a window for participants to access a variety of specialized mutual funds, such as those that divest of companies supporting terrorism in Iran and genocide in Darfur, Sudan. Worries centered on the potential lobbying activities that could occur when the TSP goes through the process of selecting which funds to include in its portfolio.
Long said the TSP likely would hire a vendor to conduct the screening process, but some groups pointed out that using a vendor would not curtail lobbying necessarily. Sauber recommended that any legislation creating a mutual fund window require the funds to reveal detailed information on the costs involved. He also recommended placing limits on the percentages TSP enrollees could contribute to a mutual fund.
The council agreed to continue discussing the L fund default and mutual fund proposals and to hold another meeting, should such provisions be reintroduced during the 111th Congress.
The groups expressed their continued support for other legislative proposals, including one that would enroll federal employees into the TSP automatically unless they indicated otherwise. The council also backed proposals to allow spouses of deceased federal workers to leave their savings in the TSP and add a Roth Individual Retirement Account option to the plan.
Long noted that a participant survey found 56 percent supported the Roth option. Since Roth contributions are taken out of income that already has been subject to income taxes, the option would require additional educational efforts, he said. "We'd have to educate not just on investment principles, but on tax principles," he said.
Meanwhile, TSP officials presented a new report by Ennis Knupp & Associates that cautioned against adding a Real Estate Investment Trust fund to the plan. Ennis Knupp noted that based on updated information on the fund, its earlier conclusions from a 2006 report were still valid.
For example, the market capitalization of the U.S. REIT market declined 52 percent, from $400 billion in 2006 to $192 billion as of December 2008, Ennis Knupp found. At $202 billion, the TSP's assets are greater than the market capitalization of the REIT market. "Large TSP transactions could influence the price of the REIT index, causing participants to pay more for purchases and receive less from sales," the report stated.
Ennis Knupp also reported that REITs have become materially more volatile since 2006, particularly during the 2008 economic downturn.
Is Greg Long's best interest really for the TSP participants or himself. With the market the way it is right now how can you force new employees into the L funds. I hope Obama replaces all of these clowns.
, is that it seemed to me with the few dash-in, dash-out that I do is that the same members seem to keep posting new IFT distribution to their funds several times within a week. This would naturally be illegal IFT moves for TSP and this bothers me. Dannyboy is honest, I've only made 2 changes this month and I put them into messages.
I was on the FRTIB website and my TSP account every day this week. I didn't see anything. Did anybody see it???
As of 7:00am EST the international markets are currently buying the news from yesterday. Going to be a tough call whether to get out today or wait and see what happens Tuesday next week. There is a lot of negativity about the stimulus package really helping the market. Investors will have to realize that a chance has to be taken if the market is ever going to recover and industry will start up again. The government can only help to a point. It will be up to the people of this great country to make the difference. Sorry! Off the soapbox.
February 17, 2009
