Fedweek

Effective beginning in March, newly purchased TSP annuities with the inflation protection option will automatically increase in value by 2 percent annually, rather than by up to 3 percent depending on inflation.

The TSP is making the change as part of a new contract with the Metropolitan Life Insurance Company, which has been its annuity provider for many years.

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Annuities can be purchased only after separation and can be made with either a portion or all of a TSP account (investors with both traditional and Roth balances must elect two separate annuities with the same features).

The monthly payment depends on the amount used in the purchase, a current interest rate, and the choice of features including inflation protection, survivor benefits and other options.

The change — which the TSP earlier said in a rules proposal that it intended to make — will mean less upside potential for new inflation-protected annuities. However, the TSP also said at the time that inflation adjustments have averaged 2 percent for many years, even while a 3 percent rate has been used in determining the reduction to pay for that feature.

With a fixed increase of 2 percent, the starting amount of new annuities will be 10 to 15 percent higher than under the traditional method, it said then.

Relatively few TSP withdrawals are made as annuities, largely because federal employees separately are eligible for annuities through their FERS or CSRS coverage.

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