TSP

2020 will be a long year for the Thrift Savings Plan – and not just due to recent, and possibly protracted, market upheaval as the world buckles down to weather the coronavirus pandemic. The board will be busy changing the TSP (presumably) for the better, in a few ways. Let’s take a look at what they have already done and what they will do.

The Thrift Board has already awarded a new contract to provide TSP life annuities for those who choose them. It’s hard to call the awarding of the new contract a change, as the insurance company that previously provided the TSP annuity (MetLife) will continue being the annuity provider and there was only one change in the contract.

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That change was lowering the inflation adjustment on the “increasing payments” option from 3% to 2%; hardly a beneficial move.

The Thrift Board expects to award a contract to an investment firm, or firms, to provide a “mutual fund window” sometime this year. The request for proposals went out in 2019 and implementation is expected in 2022. Once the award is made and announced, there will be a lot of specific information available.

You can be one of the first to know or this, and other, changes if you like the TSP on Facebook or follow it on Twitter. You can also continue to read FEDweek’s TSP Investment Report, where you will get both fact and opinion on all items TSP.

In the third quarter of calendar year 2020, changes will come to the Lifecycle (L) Funds. The L 2020 Fund will cease to exist (after all, it is 2020) and will be merged into the L Income Fund. At the same time, we will see an expansion in the number of L Funds available. The TSP will go from the current 10-year intervals to 5-year intervals (from 2025 to 2065).

On October 1st the default contribution rate for new hires will increase from the current 3% to 5%. This will result in an amount equal to 10% of a new hire’s pay (5% employee and 5% agency) being invested for retirement.

This is a welcome change, as the more we can save for retirement, the better it is. Those hired through September 30, 2020 will still be auto-enrolled at 3%. With some elected officials calling for the abolishment of FERS, we need to do as much as we can on our own. Ideally, we all should be contributing as much as we can. Of the three major savings goals (home, retirement, and college for the kids), there’s only one that a bank won’t give us a loan for.

And there may, or may not, be a change in the investment mix of the International (I) Fund. The Thrift Board would like the mix of investments in this fund to represent the entire world, as opposed to the developed world that it currently represents.

The TSP originally wanted to switch from the current MSCI EAFE index to the MSCI All World index in 2019, but was held up by certain politicians who objected to the fact that China made up part of the All World index, and was not represented in the current EAFE index. BTW, EAFE stands for Europe, Australasia and Far East.

In 2019, after having considered the concerns of the politicians, the Thrift Board decided to move forward with the move to the new index. We will see.

Stay tuned for more in-depth information on these changes as they happen.

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