One feature that differentiates the Thrift Savings Plan from other employer sponsored defined contribution plans (e.g., 401(k), 403(b), etc.) is that there aren’t a lot of fund choices. There are only five basic funds available to us. When you include the L funds, which are made up of those five funds in different proportions, we have a total of ten funds in which we can invest.

This simplicity is viewed as good by some and as bad by others. Let’s look at the bad first:
According to the Thrift Board, participant surveys taken in the past have indicated that many TSP participants would like to have a wider variety of investments. Some 45% of TSP participants withdraw their entire account within a year of separating from federal service. I suspect that all 45% do not withdraw the money because of the limited choice of investments. In fact, I think a majority of those who withdraw their money after separation are doing it for one of two other reasons: 1) to escape from the TSP’s restrictive withdrawal choices and take advantage of the flexibility offered by IRAs; or 2) because their financial advisor tells them to.


To be able to retain participants who would otherwise leave the TSP due to limited investment choices, the TSP will be offering what they call a mutual fund window (MFW) in the future to satisfy these participants. Once implemented, Thrift Savings Plan participants will be able to invest part of their TSP holdings in outside mutual funds.

Don’t hold your breath waiting for the implementation of the MFW. The Thrift Board says that the MFW will be in place 18 (or more) months after a contract is awarded. But, they haven’t even released a Request for Proposals for the window yet! Once a RFP is issued we will know much more about what the MFW will look like and how its implementation will affect the money left in the traditional TSP funds.

Many people view the simplicity of the TSP as a positive. John Bogle (founder of Vanguard Funds) has been quoted as saying that the TSP is “…as close to a perfect retirement plan as you can have….” That’s high praise from an investment legend. If you have a limited number of choices, you are less likely to suffer from the “analysis paralysis” that affects those faced with a mind numbing array of items to choose from.

In fact, the TSP is crawling with funds today if you compare it with how it was at its inception in April of 1987; the G Fund was the only fund available for the entire year. In January of 1988 two more funds appeared with the addition of the C and the F funds. It took thirteen more years before there were any more funds added; in May of 2001 the S and I funds were introduced. Since that time, no new individual funds have joined the TSP.

In July of 2005 the TSP created “target date funds” by taking the five existing funds and mixing them up in different proportions. The five L Funds are based on how far a participant is from needing the money. Those who need their money now, or will need it soon, are encouraged to invest in the L Income fund and those who will not need their money until the mid-2040s or later are encouraged to put their money in the L 2050 Fund.