Fedweek

The TSP on Monday (July 13) proposed rules to carry out a law enacted last year changing the default investment fund in certain situations from the government securities G fund to the lifecycle L fund most appropriate for the person’s age. That mainly applies to newly hired employees, for whom investments are made by default of 3 percent of salary going into the G fund, unless the individual makes a different election. The change would apply only after finalization of the rules, likely later this year, and would affect, starting from that point: those hired into the government for the first time; those who return to government employment from a break in service with no money in a TSP account (for example, if they transferred the funds to an IRA when they left); and the surviving spouse beneficiary of a deceased TSP participant for whom a beneficiary participant account is established. For rehired employees who have a TSP balance on returning from a break in service but who have no investment allocation in effect, new investments will continue to go into the G fund. Those whose investments will go into an L fund will receive information concerning investment risk. Investors will still be able to change the level or allocation of investment at any time, including opting out entirely. The change was enacted out of concern that many employees are investing too conservatively for their age by sticking with the no-risk but low potential for return G fund out of inertia. Separately, the TSP has said it will put out guidance on a recently enacted change in law ending a tax penalty for law officers, firefighters and air traffic controllers who take withdrawals as young as age 50; that relief will apply to withdrawals taken in 2016 and after.