Fedweek

A similar outside study in 2018 had concluded that the funds were too conservative, but this year could not identify a clear, meaningful change in makeup. Image: Sergey Nivens/Shutterstock.com

After an outside review ordered by the TSP of its lifecycle L funds, no changes are planned in the makeup of the funds, according to a presentation at the most recent meeting of the TSP board.

The 10 L funds—an Income fund for those who are taking withdrawals or who expect to do so soon, plus target-date funds in five-year increments from 2025 through 2065—are invested in the five core TSP funds in varying ratios. The Income fund’s ratio is the most conservative—the most weighted toward the government securities G fund and the bond F fund—while the target-year funds are progressively more weighted toward the three stock-based funds (S, C and I).

A consultant’s report examined various potential risk/reward scenarios, including changing the amounts and mixes of the funds within each portfolio. It concluded, though, that “there is not a clear alternative investment structure that would meaningfully improve retirement adequacy for TSP participants invested in the L Funds” and the TSP agreed.

A similar outside study in 2018 had concluded that the funds were too conservative, causing the TSP to suspend a policy of the time of having the target-date funds grow slightly more conservative each year. The TSP froze the ratios of those funds then existing—2020, 2030, 2040 and 2050—and started making the Income fund slightly more aggressive over a 10-year period (the 2025, 2035, 2045 funds created at the same time began with ratios proportionate to the funds on either side of them).

The 2020 fund was merged with the Income fund in that year; the ratios of the other 2030, 2040 and 2050 funds will remain frozen until 2025, 2028 and 2032, respectively. Afterward, they will again begin becoming more conservative each year.

The stock-based funds currently make up 26 percent of the Income fund portfolio, while for example stock funds make up about 66 percent of the 2035 fund, 77 percent of the 2045 fund, and 99 percent of the 2055 and 2065 funds.

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