Issue Briefs

Following is a summary of a recent TSP report on investor behavior, pointing out that while the overall percentage of employees who save in the program is increasing, there is concern about a decrease in the average percentage of salary that they save—a consideration for FERS employees who are losing out on potential agency matching contributions.

The analysis reveals an improvement in the FERS participation with a five-year high of 89.9% by the end of 2014. However, the average contribution deferral rate dropped to 8.1% – the lowest rate in this reporting period. Automatic enrollment was a contributing factor to both of these observations.

Automatic enrollment continues to improve participation among the shortest-tenured participants. Participants with less than two-years of tenure now participate at a rate of 98.4% – the highest rate of participation among all tenure bands. When examining participation through salary, gender, race/ethnicity, and education filters, virtually every cohort experienced an improved participation rate in 2014.

The analysis also revealed that the vast majority of auto-enrolled participants have “engaged” with 62.3% making deferral changes. Nevertheless, the only participant cohort that was hired entirely after the introduction of automatic enrollment in August 2010 has experienced a dip in deferral rates, down to 3.7% in 2014. This lowest tenured cohort is the only cohort not contributing at a level which results in receiving the full Agency match. While deferral rates continue to aggregate in the 5-6% range, with 30.5% of TSP contributors falling in this range, nearly 75% of FERS participants are estimated to be receiving the full match. Participants are gradually increasing their contributions to Roth TSP with average Roth deferral rates growing by a half percent to 4.9% in 2014.

Participants aged 29 and under continue to have a disproportionate percentage (41.7%) of their account balances in the G Fund although this is an improvement from 2013 when 43.6% of their balances where in the G Fund. However, this group also has the highest utilization of the L Funds (29.2%). We further note that L Fund usage is highest among the 2-5 year tenure cohort (26.8%) and the 6-10 years group (27.39%). The majority of these cohorts were hired after the implementation of the L Funds in August 2005. Overall, participants are investing in the L Fund in a manner appropriate for their age cohort.

Loan usage rates are evenly distributed among salary quintiles and between males and females. However, noticeable differences were identified among educational and racial/ethnic cohorts. Among age cohorts, the 30-39 and 40-49 age cohorts have the highest loan usage rate at approximately 11% each although loan usage dropped among all age cohorts in 2014. The age 40-49 cohort also had the highest hardship withdrawal usage, with 4% to 5% of participants in this cohort receiving a hardship withdrawal in each year of this reporting period. It was also found that Blacks utilize loans and hardship withdrawals significantly more than white and Asian participants. Participants who were auto-enrolled and continue to contribute have loan and hardship usage withdrawal rate significantly lower than those who elected to contribute to the Plan. However, those participants who opted out of automatic enrollment had the highest rate of hardship withdrawal usage, with 4.6% of these participants taking a withdrawal.