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In finalizing rules on the upcoming mutual fund investment window, the TSP noted that many of those who commented on the rules in draft form objected to the restrictions and fees that will come with using the window.

Regarding the restrictions—which the TSP said some commentors called “paternalistic”—it said for example that the law authorizing the investment window allows only for mutual funds, and not in other vehicles such as exchange-traded funds or stocks of individual companies. Nor does the law allow for the TSP to offer mutual funds of its own, it said.

Some commentors further said the TSP should “respect their autonomy when it comes to making financial decisions” and not limit outside investment to 25 percent of the total account value at the time of the investment. The TSP did note that it is “very common” for retirement savings programs to allow as much as 50 percent to be invested a program’s core offerings but said that for larger programs, a limit of 20 percent “is not uncommon.”

“Given the TSP’s size, and the extraordinary amount of trust placed in us by more than 6.5 million participants, we believe it is appropriate for the minimum core balance to be near the higher end of the range of minimum core balances that are common in the private sector,” it said.

Regarding the fees—which the TSP said some commentors called “punitive”—the TSP noted that the law authorizing the window specified that those who use it would have to pay all associated costs. It said that while many mutual funds advertise that they have no-transaction fees or zero cost trades, they do incur such costs in the course of doing business which are ultimately passed on to the investor in the form of lower returns on the investment. Disclosures of such costs can be “opaque” and “most participants in private sector plans have no idea” how much those costs reduce their returns, it said.

“We believe TSP participants need, and deserve, to see the dollar amount of the fees they pay for their mutual funds,” it said.

It added: “We intend to provide ongoing communication and education to TSP participants about the impact of fees on their retirement goals. We will also ensure that participants have convenient access to mutual fund prospectuses prior to making investment decisions.6 In addition, participants will have access to a tool that allows them to sort mutual funds by expense ratio, starting with the lowest expense ratios first.”

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