Default investing, which started in 2010, was introduced out of concerns that younger and lower-paid employees were not receiving the full potential benefit of the TSP. Image: Dilok Klaisataporn/Shutterstock.com
By: FEDweek StaffThe percentage of FERS employees who are investing at least some of their money in the TSP, and the percentage that investors are putting in, continue to increase but rates remain lower among younger and lower-salaried employees, the TSP has said.
In a recent report, the TSP said that over 2020-2024 the percentage of FERS employees who “participate” by making personal investments rose from 94.6 to 95.5 percent, while the average investment rose from 8.1 to 9.2 percent of salary. In 2020, TSP raised the default investment rate for newly hired employees from 3 percent of salary to 5 percent of salary, an amount that captures the full possible government contribution.
Default investing, which started in 2010, was introduced out of concerns that younger and lower-paid employees were not receiving the full potential benefit of the TSP, and “continues to keep participation rates high for the youngest and lowest paid participants,” it said. Further, in part due to the increase in the default investment percentage in 2020, the average investment rate rose from 8.1 percent in that year to 9.2 percent in 2024.
About 97 percent of employees below age 40 now make personal investments, with those in older age groups—generally hired before default personal investments and who had to opt in to making them—lower, down to 94.2 percent for those 60-69.
However, affordability comes into play regarding investment rates for lower-paid employees. Among those in those in the lowest-paid quintile, 93.8 percent make personal investments—the same as in 2020—while the percentage is 98.2 in the highest-paid quintile.
Similarly, the average investment rate for those in the lowest quintile who invest was 7.3 percent of salary, compared with the 10.7 percent of salary average for the highest quintile. However, even those at the lower rate still are investing enough to receive the maximum government contribution, the TSP’s analysis noted.
The same pattern held true by age, with the savings rate for those under 30 at 7.6 percent, a percentage that rises by each age group to 10.6 for those 60-69.
The TSP added that more highly paid employees “take a more active role in managing their retirement accounts, with more than 32% either raising their total contributions above 5% or engaging in other activities, such as changing their contributions to Roth or modifying their investment portfolio.”
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