TSP

The Federal Retirement Thrift Investment Board (FRTIB) recently issued a new strategic plan that will cover the years from 2017 through 2021.  Many of the items in the plan are internal, but there are some that will impact TSP participants.  This article previously appeared in the newsletter of TSPSafetyNet, a TSP allocation service.

We’ll start by taking a quick look at the strategic plan’s first three objectives, which aren’t as important to participants, because they are more internal to the FRTIB.

Implement a physical and technology infrastructure that optimizes and supports plan administration, agency operations, and the evolution of a new participant experience.
Ensure that the FRTIB has the right skills, competencies, and leadership at all levels.
Optimize business processes to allow continuous improvement of TSP and Agency operations.

Their fourth goal has several items that deal with us, the participants in the TSP.  We’ll list the overall goal and objectives below; words that appear in italics represent my thoughts and comments.

Goal D:  Develop a new participant experience that enables participants to identify and achieve their targeted retirement outcomes.

D1: Educate and proactively engage participants via their preferred communication channels so that they can make smart choices about their TSP accounts.

D1.1:  Identify critical touch points in a participant’s life that represent opportunities for the participant to make important TSP decisions.  This means the TSP will be engaging in more personal and life-cycle directed communications, rather than their past practice of simply sending out newsletters and posting on the TSP website.

D1.2:  Make the policy decision on offering “advice” to participants.  This is an issue that all plan providers struggle with.  Liability concerns (e.g., what if a participant acts on the “advice” and loses their shirt) may drive this decision.  I wouldn’t want to bet on which way they will decide.

D1.3:  Begin collecting key participant demographic data, such as salary, deferral rate and gender data that will facilitate individualized communications.

D1.4:  Implement outbound and individualized communications based on life events.  I suspect we’ll hear from the TSP each time we change our TSP-3 to add or subtract a family member.

D2:  Formulate and implement plan design improvements that increase the likelihood that participants do not outlive their TSP assets.

D2.1:  Implement additional withdrawal options to accommodate post-retirement needs.  FRTIB first announced that they will allow more flexible withdrawal choices back in July of 2015.  This is the first time I’ve seen them mention this since then.

D2.2:  Implement capability to invest and withdraw Roth and traditional balances separately to facilitate participant tax advantages.  This is welcome and long overdue.  Currently, if you have both a Roth and a traditional balance in your TSP, you must withdraw them proportionally  The current set-up results in individuals who begin withdrawing from their TSP’s before age 59 ½ to have to pay tax on the earnings portion of their Roth withdrawal because the withdrawal is not qualified.  It also results in participants who have reached the age of 70 ½ to have to take RMDs from their Roth balance.

D2.3:  Launch additional Lifecycle (L) Funds in five-year intervals, e.g., 2025, 2030, 2035, etc. to allow participants to more closely align their L Fund investment decisions with their future withdrawal plans.  Yay!

D2.4:  Launch Mutual Find Window to increase investment flexibility.  This also was announced as a goal by the FRTIB in July 2015.  Don’t hold your breath waiting for this to be implemented.  I would be surprised if this came to pass before 2019; at least 2019 is within the five-year timeframe of the new strategic plan.

D2.5:  Implement changes on participant annual statements to inform participants on the expected sufficiency of their current and projected TSP savings.  I’ll be interested to see how they implement this one.

This is all welcome news from the FRTIB and continues the gradual increases in flexibility that we have seen since the inception of the TSP almost 30 years ago.  No one ever accused the TSP of moving too fast, but at least they’re moving in the right direction.