GubMints is a huge fan of the TSP, so I eagerly downloaded this week’s podcast interview with the TSP Executive Director. Here are some of the highlights of the discussion.
Breakdown of the TSP:
- 4M total participants
- 1.3M of whom are separated/retired
- ~ $330B in assets invested the TSP
- Average FERS TSP account value is $88,000
- 43% of TSP assets are invested in ‘G’ Fund (1st place by asset size)
- 23% of TSP assets are invested in ‘C’ Fund (2nd place by asset size)
- Other fund (S-, F-, I-Fund) allocation percentages are smaller but were not mentioned.
Other TSP notes:
Since the October 2012 Roth TSP rollout, there are 73,000 participants so far. Many of them are active military (Yay!)
Roth TSP has been implemented by all ‘large’ payroll offices, but DFAS has not completed to rollout to National Guard/Reservists. Rollout to NG/Reserves should take place in 2013.
The TSP Executive Director re-iterated that the Treasury Secretary borrowing from the ‘G’ Fund is legal, has already been done 10 times in the history of the TSP, and that each and every time the TSP ‘G’ Fund has been made whole (as required by law).
GubMints Analysis of the above TSP figures:
1) The $88K account balance per TSP participant seems low at first glance. Let’s plug in some numbers. Given:
- The average FERS employee age is 47.
- The “average public sector employee tenure” (per the BLS) is roughly 8 years .
- The average FERS salary is 90k, and
- Assume all FERS TSP participants save 10%/year of salary (employee defers 5% of salary and takes the maximum TSP ‘matching contribution’ of 5%).
- Assume an average rate of return of a balanced fund is ~5% per year (we assume that with 43% of TSP assets invested in the ‘G’ Fund, the investment return behaves like a 50% stock/50% bond ‘balanced’ mutual fund).
THEN grab your HP-12C calculator (or use the 12C Calc app on your smartphone):
90,000 [Enter] .1 X [Enter] [PMT] ; 8 [n]; 5 [i]; 0[PV]; [FV] = 85,942
… well, I guess an average $88k balance per FERS employee is not that far off.
2) 43% of assets are in the ‘G’ Fund? Wow. Are we Feds that paranoid about the future outlook of the private sector?
Let’s assume the 1.3M ‘separated’ TSP participants are retired, living off income from the ‘L Income’ Fund, which is 74 % ‘G’ Fund:
The allocation of ‘G’ Fund assets attributable to TSP retirees is:
(1.3M / 4M) X 74% = .24 in ‘ G’ Fund assets, from separated participants alone
Let’s assume the remaining 2.7M participants are of ‘average’ public sector employee age at ~45 yrs old, invested in the Lifecycle fund that matures when they are projected to reach age 65 (~ L 2030), which is composed of 23% ‘G’ Fund.
The allocation of ‘G’ Fund assets attributable to active FERS employees and active military are:
(2.7M / 4M) x 23% = .16 in ‘G’ Fund assets, from wage slaves.
Adding the G Fund allocation of TSP retirees + working stiffs is
.24 + .16 = 40%.
Ok, pretty close to the 43% stated ‘G’ Fund allocation, so the math checks once again. Once you also factor in that a ‘mature’ account is likely to have a higher balance than an ‘average’ working employee still accumulating TSP funds for retirement, this is probably enough to tilt the scales the additional 3% in favor of ‘G’ Fund allocation.
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