On Wednesday, May 31, the Thrift Board announced upcoming changes that will be made to the family of L funds, and that they will consider expanding the investment options in the I fund. The Board retained consulting firm Aon Hewitt to investigate and report on TSP investment options and the firm recommended changes to both areas in their report.
The Thrift Board accepted Aon Hewitt’s recommendation on changing the L funds so that they are structured in five year increments, rather than the current ten year increments. This would bring the L funds into closer alignment with “target date” funds in the private sector and would allow TSP participants to pick funds that were more closely targeted to when they would begin withdrawing their money from the TSP. The Thrift Board announced an implementation date of the year 2020, so don’t hold your breath waiting for this change.
Another recommendation of Aon Hewitt’s, expanding I fund investment options, was not approved, though the Thrift Board agreed to look further into it. The I fund currently tracks the Morgan Stanley Capital International Europe, Australasia and Far East (MSCI EAFE) index. This index contains primarily developed countries and is heavily biased towards Europe (63.1% of the fund was invested in Europe as of December 31, 2016). Large swaths of the world are not covered at all in the I fund as it is currently constituted. For example the entire Western Hemisphere is excluded, as is Africa and mainland Asia.
The consulting firm recommended that Canada, emerging markets and international small cap stocks be included. It sounds like a good idea to me and I hope the Thrift Board accepts it. Stay tuned for more developments.