A review of retirement savings plans comparable to the TSP shows that the federal plan in many ways mirrors what is happening in the private sector although in one important way it may be moving in the opposite direction.
The TowersWatson consulting firm examined trends among 401(k) and similar plans, which are increasingly important to private sector employees as their companies have phased out defined contribution plans that pay benefits for life, as do CSRS and FERS.
It found, for example, that like the TSP, plans increasingly are using automatic enrollment of new employees, requiring them to opt out of investing rather than to opt in. Also, like the TSP, those plans tend to keep the default investment rate fixed over time, rather than require ever-increasing investments that would help investors build their accounts faster. Only 28 percent of such plans have that feature although many of them are considering it; the idea currently is a back burner item at the TSP.
Similarly, while plans increasingly have added after-tax Roth investing to their options, only small percentages of investors use that option—as is also true in the TSP, which added that feature in 2012.
One area of difference is in the range of investment options. The TSP offers five basic funds plus five lifecycle funds that contain mixes of those funds depending on projected withdrawal date. It also is considering creating an investment “window” through which investors could put money in an unknown, but probably large, number of outside funds, probably through one or more mutual fund companies.
In contrast, among private sector plans 66 percent offer between 10 and 19 funds and another 26 percent offer 20 or more. However, the report said that the trend there is to streamline, not expand, choices. Forty-three percent have streamlined their options in the last five years and 19 percent plan to do so in the next year, it said. In contrast, only 27 percent have increased the number of available funds and only 6 percent plan to do so.