Thrift Savings Plan Guidance for Federal Furlough

While congress was hemming and hawing this past week about forcing TSP Investors to defer salary in to ‘Age Appropriate’ TSP Lifecycle funds (in lieu of the G Fund) as their automatic investment, a piece of key TSP news slipped past the radar of the Beltway Bloggers…

Recently the TSP publicized a study sanctioned by its Board of Directors to investigate the feasibility of a ‘Mutual Fund Window’ option within the TSP. This would let participants buy and sell 3rd party mutual funds in a ‘Mutual Fund Supermarket’ from agencies such as Fidelity, Schwab, Vanguard, etc.

Why? Roughly one third of TSP participants- Yours truly included- Have become a ‘very vocal minority’ and are clamoring for a few more flavors of TSP ice cream beyond Vanilla.

I’ve said it here before, and I’ll say it here again, I am a HUGE fan of the TSP and believe Feds and Veterans should always leave some of their Qualified Retirement Plan assets in the TSP- even after separating from service.  However, the TSP needs to provide some more options for Retirement Savers looking for more asset diversification.  Addition of a Mutual Fund Window would be HUGE, and would make the TSP a complete Qualified Retirement Plan.

Pros of a ‘Mutual Fund Supermarket’ within TSP:

  • By offering a Mutual Fund Window (MFW), TSP becomes more competitive with Private Sector 401k fund offerings.
  • Possible REDUCED overall TSP costs, as fewer participants leave TSP each year when the MFW option becomes available.
  • More data available to TSP board- Popularity of 3rd party Mutual Funds could lead to another ‘Capital Letter’ Fund for the TSP.

Cons of a ‘Mutual Fund Supermarket’ within TSP:

  • $6 to $10 Million in costs to establish the Mutual Fund option.
  • $1 Million in annual costs to maintain the MFW option.
  • Some TSP participants may be intimidated by too many options (this mindset fails the ‘Hometown Buffet’ test).

The TSP Chairman voiced his concern regarding costs to implement the MFW option, and the board stated that a decision is not likely until the end of 2014.

GubMints’ take:

Don’t hold your breath. TSP has blown-off some very thoroughly-researched and reasonable recommendations before, such as the recommendation to add more  nations to the makeup of the I Fund.

GubMints’ recommendation:

YES! BRING ON THE OPTION for a Mutual Fund Window (MFW) within the TSP.

If plan costs are a concern, TSP could keep costs down by:

  • Only allow the Mutual Fund Window option if participant account balance is greater than $10,000 AND their employee and employer matching contributions are fully vested; AND
  • The minimum transaction for a Mutual Fund Window is $1,000. This will keep trading commissions to a minimum in comparison with investments made.

Would you like to have a Mutual Fund Window within the TSP?  Here’s what you can do:

  1. Tweet: TSP to add Fidelity, Schwab Mutual Fund Choices? @TSP4govTWEET this to @TSP4Gov
  2. Leave direct comments (automated response from TSP) on TSP’s Comment Page
  3. Call the TSP Thrift Line at 1-TSP-YOU-FRST

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