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By: FEDweek StaffThe role of the lifecycle L funds in the TSP is continuing to grow, with the share of account holders with all of their money in one or more of those funds hitting 40 percent in May for the first time.
Another 15 percent of the above 7.2 million account holders had at least some money in one or more L funds, according to data presented at the June meeting of the TSP governing board.
The L funds collectively held 25.1 percent of the $975 billion total as of the end of May, approaching the 25.9 percent in the government securities G fund; the common stock C fund is the largest at 33.5 percent. Counting their portions in the L funds, the C fund holds 42.2 percent and the G fund 32.8 percent.
The L funds mix investments in the five core funds—the small company stock S fund, the international stock I fund and the bond F fund in addition to the G and C funds—in varying ratios, with a heavier weighting toward stocks in the L funds with dates farther into the future. The mixes get more conservative over time.
A main driver of their growth has been the policy of enrolling newly hired employees—and new members of the military—by default in the L fund appropriate for their age. While they can change that designation at any time, in practice many continue with the default fund.
The growth figures come as the TSP prepares to merge the target-date 2025 fund into the Income fund, as the investment mix of the former has caught up to the latter. The 2025 fund will have a final valuation Friday (June 27). “Participants do not need to take any action” as those assets are transferred to the Income fund, the presentation says.
On June 30 a new L 2075 fund will begin, designed for participants born after 2009. For the immediate future years default enrollees in that fund primarily would be new military personnel, since the federal government hires relatively few employees before their early to mid-20s.
Like the other L funds later than the 2050 fund, it will be 99 percent invested in the three stock-based funds collectively; the ratios vary somewhat.
The $975 billion total on investment at the end of May again puts the TSP within range of crossing the $1 trillion mark for the first time. It previously approached that level at the end of January at $985 billion before retreating to $937 billion at the end of March and then beginning to rise again.
The growth is due to positive investment returns—primarily from the stock markets—since year-to-date investors have taken out $7.3 billion more in loans and withdrawals than they have added through new investments and loan repayments. The TSP first started experiencing such a net cash flow last year, a trend that has continued.
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