Thrift Savings Plan

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Thrift Savings Plan

The Federal Thrift Savings Plan, or TSP, is a retirement savings plan for civilians who are, or previously were, employed by the United States Government and for members of the uniformed services. The TSP encompasses many investors and has substantial assets. As of February 2009, the TSP had US$ 191B among 4.06 million investors,[1] and maintained a markedly low overhead of 30 cents for every $1,000 invested.[2]

The TSP is a defined contribution plan administered by the Federal Retirement Thrift Investment Board. In most ways, the TSP closely resembles the dynamics of 401(k) plans. The retirement assets derived from a TSP account will depend on how much has been contributed to the account (both by the employee, and if applicable, his or her agency) during the account holder's working years and the earnings on those contributions. The government will make automatic and matching contributions, for civilians covered under the Federal Employees Retirement System (FERS), based on the employee's pay and contributions. Employees under the CSRS (Civil Service Retirement System) may participate in the TSP, but are not eligible for matching contributions. The typical FERS agency contribution formula is: 1% regardless of employee contribution (even if zero), then 1% for each 1% contributed by the employee (to a maximum of 3%), then 0.5% for each 1% contributed by the employee (to an additional 1% match maximum). In other words, the employee may receive up to 1%+3%+1% = 5% agency automatic and matching contributions. The FERS employee is always entitled to keep any agency matching contributions received (based on their contributions to the TSP), however the 1% agency automatic is subject to a 3 year vesting requirement (which includes all civilian service performed). Uniformed Service members (includes Military members) are generally not eligible for matching contributions but can contribute from additional source of pay such as special, incentive, and bonus pays. In addition uniformed service members deployed to a designated combat zone may contribute tax-exempt contributions from tax-free pay earned each month. The tax-exempt contributions to the TSP allow uniformed service members to contribute a greater amount to the TSP with the deferred and exempt amounts combined and subject to the IRS Annual Addition Limit ($49,000 for 2009). The tax-exempt contribuitons made by uniformed service members remain exempt from taxation and accrue tax-deferred earnings. Both civilian and uniformed service members may elect to contribute a separate over-50 catch up contribution, which allows an additional deferral of income earned ($5,500 for 2009).

Prior to 2006, the amount that could be contributed was limited to a certain percentage of basic pay. In 2006, this percentage limit was removed; the only remaining restriction on contributions is that imposed by the Internal Revenue Service. However, matching contributions, as outlined above, are limited to 4% on the first 5% of pay contributed each pay date.

The TSP offers the same type of savings and tax benefits that many private corporations offer their employees under 401(k) and similar plans. TSP regulations are published in title 5 of the Code of Federal Regulations, Parts 1600 — 1690, and are periodically supplemented and amended in the Federal Register.

Contents

[edit] TSP funds

The TSP offers investors the following choice of funds:

  • Individual funds
    • G fund[3] - Government Securities fund. These are unique government securities, backed by the full faith and credit of the US Government, available only through the G Fund.
    • F Fund[4] - Fixed Income Index fund. Invested in Barclays U.S. Debt Index Fund. Tracks the Barclays Capital Aggregate Bond Index.
    • C fund[5] - Common Stock Index fund. Invested in Barclays Equity Index Fund. Replicates the total return version[6] of the S&P 500 index.
    • S Fund[7] - Small Capitalization Stock Index fund. Invested in Barclays Extended Market Index Fund. Tracks the float-adjusted total return version[6] of the Wilshire 4500 Completion index.
    • I Fund[8] - International Stock Index fund. Invested in Barclays EAFE Index Fund. Replicates the net version[6] of the MSCI EAFE index.
  • Lifecycle (L) funds, described below, which maintain a dynamic melange of the Individual TSP funds, appropriately and frequently rebalanced in anticipation of employee's retirement or future date when he/she expects to begin drawing from their TSP account.

Four of the Individual funds, managed by Barclays Global Investors, are commingled trust funds open only to tax-exempt employee benefit plans. These funds are not mutual funds and are not open to individual investors. As such, there are no tickers for the funds reported in the financial press.

In 2005, the TSP introduced the Lifecycle funds (L2040, L2030, L2020 L2010, L Income), which are composed of percentages of the five Individual funds based on target retirement year or when the participant needs to draw on their TSP account after retirement. The composition of the L funds starts more aggressive, investing initially in the C, S, and I Funds, then will shift more to the G and F Funds as the target years approach. For instance, around 2010, the L2010 fund will be given a makeup similar to the current L Income fund, and an aggressive L2050 fund will be established. These asset shifts are automatic and the advantage of the L funds.

The following percentages indicate the initial breakdown of the L funds at the time of their creation. According to TSP literature, these funds are rebalanced on a quarterly basis, becoming less risky (higher percentage in the G fund), as they eventually align with the initial L Income percentages by their "target dates".

  • L2040 [9] - 5%G, 10%F, 42%C, 18%S, 25%I
  • L2030 [10] - 16%G, 9%F, 38%C, 16%S, 21%I
  • L2020 [11] - 27%G, 8%F, 34%C, 12%S, 19%I
  • L2010 [12] - 43%G, 7%F, 27%C, 8%S, 15%I
  • L Income [13] - 74%G, 6%F, 12%C, 3%S, 5%I

[edit] Options and features available to TSP investors

  • TSP members may, if they switch to non-governmental employment, roll-over their TSP accounts into qualifying retirement accounts with their new employer.
  • It is also possible for those moving into federal employment to roll-over their existing 401(k) into the TSP. The TSP also allows participants who are active employees to move assets from regular IRAs into the plan.
  • Any TSP member may change the fund allocation of future contributions at any time. He or she may also redistribute the existing assets into any of the TSP funds at any time which is called an "Interfund Transfer" or IFT. If the IFT is submitted before 12pm Eastern, then the IFT is generally effective at close of business that day. If the IFT is submitted after 12pm Eastern, then the IFT is generally effective at close of business the following day. The Thrift Savings Plan implemented restrictions on the number of interfund transfers a participant can make per month in order to curb frequent trading and its associated costs to TSP participants. However, the TSP does want to provide the opportunity for participants to rebalance their accounts and to permit unrestricted access to the Government Securities Investment (G) Fund. Accordingly, the restrictions would be as follows:

Participants can make two (2) interfund transfers per calendar month. After that, they may only move money from the Fixed Income Index Investment (F) Fund, the Common Stock Index Investment (C) Fund, the Small Capitalization Stock Index Investment (S) Fund, the International Stock Index Investment (I) Fund, and the L Funds to the G Fund. [14]

  • TSP participants may leave their balance in the TSP to continue to accrue earnings without a mandatory withdrawal until April 1st of the year after the participant is separated and age 70 1/2. The TSP will accept transfer and rollovers from deductible IRAs or eligible employer plans from separated participants who haven't started receiving a full withdrawal request.
  • Separated TSP participants may request a one-time partial post-service withdrawal of a portion of their balance while leaving the remainder in until ready to begin a full withdrawal election or the mandatory withdrawal date is reached.
  • When a participant reaches the mandatory withdrawal date, they are not required to fully close out their account; they are required to submit withdrawal forms to begin to receive one or all three of the TSP full withdrawal options elected.
  • TSP participants may, upon separation or retirement, choose to allocate a percentage of their entire balance among one, two or all three post-service withdrawal options. These options include:
  • The purchase of a TSP life annuity which provides various kinds of annuity options and features with some or all of their account assets;
  • A single payment (which all or a percentage of the single payment elected - can be transferred or rolled over to an IRA or other eligible employer plan); and
  • Monthly payments from a participant's TSP account either by selecting a dollar amount or to choose TSP compute lifetime payments from the account.
  • TSP participants may, during their working years, take out two types of loans from the assets of their account, which must be repaid via payroll deduction at a self-paid interest rate based upon the current G fund return.

[edit] TSP history

[edit] External links


[edit] References

  1. ^ [1]
  2. ^ [2]
  3. ^ [3]
  4. ^ [4]
  5. ^ [5]
  6. ^ a b c "TSP Individual funds". http://tsp.peacefulgains.com/TSP-Individual-funds/. Retrieved 2008-12-22. 
  7. ^ [6]
  8. ^ [7]
  9. ^ [8]
  10. ^ [9]
  11. ^ [10]
  12. ^ [11]
  13. ^ [12]
  14. ^ TSP: FAQ Ch 14, IFT Restrictions; 2008 Apr 24
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