Retirement & Financial Planning Report

The government contributions for FERS employees are one of the most attractive features of the TSP but fewer employees are taking full advantage of it and that will cost them in the long run, the TSP has said.

The TSP analyzed what it calls “participation rates” in a recent study done for its governing board, which is considering whether to seek legislation to have default investments increase automatically if the investor makes no decision. It would be a followup to a recent change that made the default investment fund for those newly hired starting September 5 to be the lifecycle fund appropriate for their age rather than the government securities G fund.


While default investing policies apply only to those newly hired–and to those returning after a break in service under some circumstances–the study looked in general at investment rates and found discouraging news. Automatic enrollment has caused the percentage of FERS employees who are investing their own money to rise above 90 percent, up about four points in several years, but the average investment rates have declined–over the last decade, from 8.3 percent of salary to 7.1 percent.

“While there may be a number of factors causing the decline in deferral rates, it must be noted that current rates are even lower than they were in 2008 and 2009 at the height of the economic downtown. In comparison, participation rates have improved steadily since the economic downturn,” it said.

“Many participants are leaving free money on the table when their deferral rate drops below 5 percent,” it added, since that is the level needed to capture the maximum government matching contributions. Nearly a quarter of FERS employees don’t invest at that level or above, meaning on average they lost $727 in matching contributions.”

“Assuming that participants missed out annually on the same amount of matching contributions over a 30-year career, they would potentially have $59,000 less in employer-contributed retirement savings,” it said, assuming a 6 percent rate of return.