Playing Stupid Pet Tricks with the TSP

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Happy Memorial Day!

Since the Thrift Savings Plan (TSP) might soon be the cornerstone of the Military Retirement System, I though I’d take some time to highlight some of the attempted shenanigans taking place with the TSP.

I say attempted because it literally takes an act of Congress (that’s the entire Congress) to alter the TSP’s charter/regulations.  This is by design, because the TSP is deliberately designed to be apolitical and avoid the business of picking winners and losers.  This prevents a Congressman/Senator from creating a fund designed to funnel federal employee retirement savings to his or her district/state/pork project.

Enter Congressman Don Beyer (D-VA).  

Congressman Beyer thinks Military and Federal participants in TSP should have the option to funnel money to a new TSP fund focused on ‘Gender Diversity’ (see H.R. 2432).

The Federal Government already funnels billions of dollars in ‘Small Business Set-Asides’ every year, both through direct funding and through regulations force-fed to Government Contractors.  These Small Disadvantaged Businesses are sometimes known as ‘Women-Owned Small Businesses‘ and ‘Economically Disadvantaged Women-Owned Small Businesses’.   For example, not less than 3% of all government prime contracts awarded each year are mandated for Service-Disabled Veteran Owned businesses.

…And if you’re an Economically Disadvantaged Woman with a Service Connected Disability, you’ve won the lottery – you could feasibly sell the Government life vests made out of concrete in perpetuity.

Before I rant too much further, you can see for yourself that there are plenty of Government handouts allocations to disadvantaged businesses.  There’s really no need to funnel more taxpayer money in this direction from the TSP retirement savings of Veterans and Federal Employees.

So, Congressman Beyer, if you really want to help Veterans and  Federal Employees have a better retirement, I recommend you work on the REAL shortcomings of the TSP:

• TSP only allows a retiree to make 4 different withdrawals (and that’s if you have a PhD in TSP regulations).  If the TSP wants to be more competitive with IRA’s, then the TSP should allow retirees to withdraw any dollar amount at any time.
• The TSP does not allow you to allocate which TSP Funds to liquidate when making withdrawals- All withdrawals are taken proportionally from each TSP fund in the participant’s account balance.  Depending on the participant’s allocation, this could result in ‘reverse dollar-cost-averaging‘.
• TSP only offers 5 index funds to choose from.  Some key diversifying sectors – Like REITs and Emerging Markets – Are not offered.
• There’s no way to choose between taxable (Traditional) TSP and tax-free (Roth) TSP withdrawals in retirement– All TSP withdrawals are taken proportionally from the  participant’s Traditional TSP balance and Roth TSP balance.   That is, retirees have little choice but to roll their entire TSP balance to an IRA if they want to choose the timing of their Taxable Retirement Account and Roth Retirement Account withdrawals.

 

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