There have been many changes to the Thrift Savings Plan over its 34 year history, and there will be more coming. One could steal the 1968 advertising slogan, “You’ve come a long way baby!” that was used to push Virginia Slims (cigarettes specifically marketed to women) to describe how the TSP has changed and improved over the years. In fact, it was Virginia Slims who had the last cigarette ad that appeared on broadcast media three years later in 1971. You will still run across the occasional cigarette ad in print media, but you’ll no longer hear that you’ve come a long way baby.
Let’s look at some of the more significant changes that have occurred to the Thrift Savings Plan since its inception. In the opinion of most, these changes have all been for the better and have continued to add value to the TSP.
On April 1, 1987, the TSP opened its doors with one fund – the G Fund. If you wanted to participate, you had no choice other than G. Changes occurred in: 1988 with the addition of the C and F Funds; 2001 with the addition of the S and I Funds; 2005 with the advent of the L Funds; and 2020 with the expansion of the number of L funds. Each change gave TSP participants more choices of funds into which to invest their payroll deductions. Even though you’ll find private sector 401(k) plans with more choices, the TSP’s lineup should satisfy most of us.
When the TSP started, employees couldn’t participate until they had been on the rolls as FERS employees for at least 6 months. For example, an employee who was hired between January 1, 1991 and June 30, 1991 was first eligible to participate on January 1, 1992. Several changes took place over the years and, since 2009 employees have been eligible to participate in the TSP and to receive matching contributions immediately upon being hired. Contribution elections had to be made during a twice annual open season until 2005, at which time they were allowed to be changed at any time.
Since 1996 the amount that could be contributed to the TSP has been tied to the Internal Revenue Service’s elective deferral amount ($19,500 for 2021). Before then it had been an arbitrary percentage of one’s salary that favored FERS employees over the still more numerous CSRS employees. FERS participants could contribute 10% of their salary, while CSRS folks were limited to 5% of theirs.
Speaking of contributions, it wasn’t until 2003 that catch-up contributions were allowed and 2012 that the Roth TSP was established.
Until 2019 the Thrift Plan had quite restrictive withdrawal rules. The TSP Modernization Act relaxed the rules quite a bit, though the TSP still doesn’t have the withdrawal flexibility on an Individual Retirement Arrangement (IRA). Some of us old-timers remember when the withdrawal rules were even more restrictive. Would you believe that for several years in the beginning, those who elected monthly payments of a fixed amount were never allowed to change them?
More changes are on the horizon as the TSP moves into the future. At some point soon we should be hearing about how the Thrift Plan is going to allow participants to participate in mutual funds. We might also get a resolution to the question of which International Index will be tracked by the I Fund.
We could steal another add line from the time of the first Nixon administration to describe the TSP’s progress, this one is from Loving Care Hair Color back in 1971: “You’re not getting older, you’re getting better.”
What it Takes to Be a TSP Millionaire in Today’s Dollars
With a long enough timeline, involving consistent large contributions and decent long-term stock returns during the period, it’s possible to become a millionaire from compounding a middle-class or upper middle-class income, including most jobs in federal service.