Publisher's Perspective

The advent of the TSP's investment window in June comes with a host of new fees, new risks - and opportunities - to consider, where you'd have to have success just to break even. Image: Hyejin Kang/Shutterstock.com

Several years back a touring pro golfer was asked by an interviewer for a magazine article what the starting salary was for that position. His response: “Minus $200,000.”

That amount likely would be well higher today, and reflected the up-front costs of the profession. Travel, lodging and food costs on the road week after week, sometimes including costs for accompanying family members. Tournament entrance fees. A base salary to the caddie (who also gets a percentage of winnings on a scale with more for top finishes and wins). Potentially costs of coaches, personal trainers, nutritionists and on and on.

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Truly a “pay-to-play” situation, where one measure of success is actually breaking even.

That’s something to keep in mind as the TSP program opens its investment window in June, allowing investors — within limits — access to outside mutual funds. That’s in response to demand over the years from a vocal group of investors who believe the options offered directly by the TSP—only broad, passive index-based funds—are too constraining. They got what they wanted, but at a price.

That will be the next step in the TSP’s transition into a pay to play operation of its own. That started with the program’s decision to start charging $50 for investors who take out a loan, in response to a minority who were using their TSP savings more like passbook banking accounts than long-term retirement savings. For example, they would take a loan for purposes such as paying a semester’s college tuition, pay it back over several months through payroll withholding, then take out another one when the next bill was coming due.

Each of those transactions added some cost to the TSP’s overhead and the program finally decided that those who were causing the costs should pay for them.

So it shouldn’t be surprising that the TSP is following the same philosophy regarding the investment window. Those who wish to use it will have to pay an annual maintenance fee of $95 plus a separate $55 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,” as a TSP rule-making notice put it.

In addition, there will be a per-trade fee of $28.75. That means that someone moving the $10,000 initial minimum to outside investing will start out nearly 2 percent behind, not even counting any investment fees that the mutual fund itself charges.

Can a well-performing mutual fund specializing in stocks of a certain market sector, or even a broader one with a successful money manager, beat a TSP stock index fund? Sure. But it will have to do at least that much better to avoid losing money. And if it does worse, the losses will be all the more severe.

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Incidentally, the TSP intends to “redetermine” those fees — and you know what that means — every three years.

Also in the fine print of the upcoming broader set of changes to the TSP linked to a new record-keeping system is that the origination fee for one of the types of loan, the residential loan, will rise to $100 and there will be a new $600 fee for processing alimony and child support orders.

In the TSP, the general costs of the program are spread out across all investors, at a level that compares well against the costs of investing almost anywhere else. But certain services involve added costs and those who use them are being made to pay that expense.

That’s the direction the TSP is moving, even if those who have to pay those fees get a little teed off.

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