Forty years ago, the first CD was introduced. CD refers to Compact Disc, not Certificate of Deposit. Yet today neither seems up to date. According to my teenage daughter, anything that has been around for four decades needs some updates! She is probably right. The Thrift Savings Plan (TSP) is no exception.
With assets of $760 billion as of June 2021, the Thrift Savings Plan has come a long way since its inception in 1987. The plan initially started with one fund and is still evolving. It’s one of the most popular benefits among federal workers and service members and is well-liked because of its rock-bottom costs. Over the years the Thrift Savings Plan has made changes to include adding funds for a total of 5 standard funds plus the lifecycle options, matching contributions, and automatic enrollment. Yet, both the investment options and technology haven’t kept up with the times.
Good news, in June the Federal Retirement Thrift Investment Board rolled out several updates to provide more investment options, updated technology, and enhanced support. Let’s look at some of the changes.
Among the changes, access to additional funds is probably the most significant and certainly the one getting the most attention. For several years, military members and federal employees have requested more investment choices within their TSP.
With the new options, TSP participants can now access the 5,000 mutual funds through TSP’s mutual fund window. The mutual fund window is a self-directed brokerage account that enables individuals to purchase shares of mutual funds through a broker-dealer that has been selected by their retirement plan or by one of their retirement plan's service providers. A major difference between the new mutual fund choices and the TSP funds is that the original choices are all passively managed index funds. However, with the mutual fund window, TSP participants will obtain access to actively managed mutual funds. As a result, participants will have to research the funds and management fees for the new choices.
If that sounds overwhelming to you, don’t worry; the same standard five funds, G Fund (Government Securities), F Fund (Fixed Income), C Fund (Large Cap Equities), S Fund (Small Cap Equities), and I Fund (International Equities), and the Lifecycle funds which are offerings that provide a pre-selected mix of the standard funds remain.
More choices, more expenses. Participants who continue to invest in the standard five funds or the lifecycle funds will not have to pay extra fees. However, TSP will charge additional fees if the participant selects from the new funds in the mutual fund window.
New expenses compared to the actual historic TSP expenses
Historic TSP Funds Fees
New Mutual Funds Fees
Annual Maintenance Fee
Mutual Fund Specific Fees
TSP Annual Fund Window Administrative Fee
Range from 0.43% to 0.058%
$150 + $28.75 per trade + mutual fund specific fees
Source: Military.com June 7, 2022
TSP explained that people who select the new funds will have to pay the extra costs. In other words, the expenses of providing the additional mutual fund options will be paid for by those who choose to purchase them. As a result, TSP participants can continue with the traditional funds if they would like at the current low cost.
Participating in the Mutual Fund Window
There are new rules about selecting from among the 5,000 funds in the mutual fund window.
- Fund transfers to the new mutual funds must be in whole dollar amounts.
- A participant's initial transfer into their mutual fund window must be at least $10,000 but may not exceed 25% of their TSP account balance (25% of a $40,000 balance would be $10,00).
- Subsequent transfers must not cause the mutual fund window to exceed 25% of the TSP balance.
Expanded Support Options
Federal workers and service members also now have additional options to get their questions answered via expanded customer support. Participants now have 24/7 access support using a virtual assistant, AVA, on the TSP website and in the mobile app. TSP still offers phone support with a representative during business hours.
Efficient Online Transactions
To save time and reduce paperwork, TSP has introduced new ways to complete most transactions and requests online:
- In My Account, participants can request transactions, upload forms and documents, and sign their names electronically.
- With account access on the TSP Mobile App, plan members can scan and deposit checks for rollovers.
- TSP will continue to send members account-specific communications, such as statements, notices, and transaction confirmations through the Secure Participant Mailbox in My Account.
Withdrawals and Distributions
Requesting a withdrawal or distribution is now more efficient and saves time:
- As with other transactions, TSP has introduced the ability to use electronic signatures and submit many requests online.
- Participants can also receive the funds from a withdrawal or distribution as a direct deposit to their bank account or by check. The default payment option is to receive a check by mail.
- If a participant requests a distribution in installments, they can select a start date for installments within six months of the request. After the start date, subsequent installments will be sent out on the fifteenth (or next business day) of the month they are due.
- Participants can choose to receive automatic required minimum distributions (RMDs) electronically by including direct deposit information in My Account, even if they don’t make a specific distribution request to receive their RMD amount.
My daughter is probably right. Four decades from now, who knows what CD will stand for but whatever endures time will need some updates along the way. As for the TSP, the new experience, updated investment options and online features are welcomed. Of course, with such significant updates comes challenges. The website has been updated to provide tips for known issues. Keep evolving TSP. For anyone who needs more information, the tsp website lists a summary of the changes and provides further details.
This material is provided as a courtesy and for educational purposes only. Investing involves risk including loss of principal. Please consult your investment professional, legal or tax advisor for specific information pertaining to your situation. This article contains links to articles or other information that may be contained on a third-party website. River City Wealth Management is not responsible for and does not control, adopt, or endorse any content contained on any third-party website. The information contained herein is derived from sources deemed to be reliable but cannot be guaranteed. Past performance is not indicative of future results.