Retirement & Financial Planning Report

Just under 95 percent of FERS employees now are investing their own money in the TSP, up by 3 percentage points from 2016, and the average investment rate rose from 7.8 to 8.1 percent of salary in that time, according to new data from the TSP.

An analysis of participant data—excluding what is now a relatively small population of investors in the TSP currently employed under the CSRS system—attributes much of the increase in the percentage who invest to the effects of automatically enrolling newly hired employees, which started in 2010. The default investment level was 3 percent of salary, until last October when it changed 5 percent.

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Previously, employees had to opt into investing; only small percentages of those who are automatically enrolled then opt out.

“In contrast to the trend prior to auto-enrollment, the younger the participant, the more likely they are to participate. As these participants are also the most likely to have been hired after the introduction of automatic enrollment in 2010, there is a clear linkage between the trend in these rates and automatic enrollment,” it said.

Of employees under age 30, 97.3 percent invest their own money, compared with 92.6 percent of those age 60 and older.

Automatic enrollment also has contributed to increasing investment rates—what the TSP calls “deferral rates”—among lower-paid employees, it said. Among the lowest-paid quintile, 93.8 percent now invest in comparison with 89.1 percent in 2016.

Younger and lower-paid employees—two groups that overlap substantially—tend to invest less than older and higher-paid ones. Among employees under age 30, the average is 5.8 percent of salary while among those age 60 and above it’s 10.2 percent. Similarly, among those in the lowest-paid salary quintile, the average is 6.1 percent while among the highest-paid quintile it’s 10 percent.

While FERS employees get an automatic employer contribution equal to 1 percent of salary into their accounts regardless of whether they invest personally, they must invest personally to capture matching contributions of up to another 4 percent.

“Still of significant note, 26.5% of participants are not receiving the full matching contribution as they are contributing less than 5%; however, this continues to decline. The percent of participants not receiving full matching contributions is expected to decrease more rapidly due to increasing the default level,” it said.

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