Fedweek

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The TSP has said that its upcoming “window” allowing account holders to put money in outside mutual funds will come with a number of fees and limitations.

Proposed rules in the January 26 Federal Register with a 60-day comment period flesh out details of that feature, which is to be launched in mid-year as part of an IT upgrade, after years in preparation.

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The proposed rules note that the authorizing law requires that added costs of investments through the window be borne by those investors who use it (in addition to any fees charged by the mutual fund company). They will be charged a $95 annual maintenance fee, a $28.75 fee per trade; and an annual fee “designed to guarantee that the availability of the mutual fund window will not indirectly increase the share of TSP administrative expenses borne by participants who choose not to use the mutual fund window.” That fee will be $55 at first and re-evaluated every three years, the notice said.

Restrictions on use of the window are to include a minimum initial transfer in of $10,000 and a limit of 25 percent of the person’s total account balance to be invested through the window—effectively making it available only to those with accounts above $40,000. The 25 percent maximum would continue to apply for further investments through the window.

The money first would go into a money market fund and the investor would then designate it for one or more of the available funds, which could number in the thousands. Transfers in or out will count against the maximum of two allowed per month without restriction; additional transfers may only move money into the government securities G fund.

New investments could not be made directly into a mutual fund but instead would have to be invested in the TSP’s own funds and then transferred. Similarly, withdrawals could not be taken directly from a mutual fund but would have to be first transferred into TSP funds. In limited circumstances requiring payments from an account such as a court order, the TSP would have authority to force a transfer from the mutual fund window account.

Further, those using the window will have to “sign an acknowledgment which states that the investment is made at the participant’s own risk, that the participant is not protected by the government against any loss on such investment, and that a return on such investment is not guaranteed by the government.”

The notice adds: “The mutual fund window will allow access to funds that are not as diversified as the TSP core funds and therefore may expose participants to greater market risk. The mutual fund window is intended for TSP participants who are experienced investors. It is not suitable for all TSP participants.”

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