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TSP assets top $400B for first time; L Fund revamp continues
Thursday - 3/20/2014, 3:07pm EDT
All told, assets in the TSP exceeded $400 billion at the end of last month, "which is a first for the plan and a very exciting achievement," said Renee Wilder, director of enterprise planning for the Federal Retirement Thrift Investment Board.
A "strong assist from the markets" as well as an uptick in the number of employees making contributions helped boost the total amount of cash parked in the TSP, Wilder told board members at the group's monthly meeting Thursday.
About 87 percent of eligible employees actively contributed to their accounts last month — a slight increase over recent months, when the participation rate had dipped down to 86 percent. The percentage of employees who opt out of the TSP is "holding steady" at about 2.8 percent, Wilder said. That's well below the average opt-out rate in the private sector, which is about 9 percent.
"We are doing really well gaining participants via automatic enrollment and hanging onto them," she added.
New federal hires are automatically enrolled in the Treasury securities G Fund at a contribution rate of 3 percent.
However, the board is looking to make a significant change to automatic TSP enrollment. Rather than funneling new participants into the G Fund, the board is seeking legislation that would automatically enroll them into an age-appropriate Lifecycle Fund, which is made up of a mix of the TSP's five regular funds that automatically shift to better balance risk.
Currently, about 16 percent of TSP participants invest in the L Funds. In contrast, target-date funds similar to the L Funds are often the default investment option for private-sector 401(k) plans, TSP officials said.
The House Oversight and Government Reform Committee last week approved a bipartisan bill making the L Funds the default option for new enrollees. Companion legislation has also been introduced in the Senate.
Kim Weaver, the board's director of external affairs, said she hasn't heard of any significant opposition to the bill on Capitol Hill. Reps. Darrell Issa (R-Calif.) and Elijah Cummings (D-Md.), the bill's two co-sponsors "were very complimentary of the TSP and complimentary that we were looking out for employees," she said.
Should TSP add emerging markets option to L Funds?
In recent months, the board has sought to revamp the L Funds on a number of different fronts.
Last year, the consulting firm Mercer recommended the board retool the investment mixes that make up the L Funds — boosting the allocation of both the G Fund and the higher- risk-higher-reward stock options.
At Thursday's meeting, Mercer presented data showing that adding whole new categories of asset classes to the L Funds — such as an "emerging markets" fund and "international small cap fund" — would also likely bolster participants' returns.
However, there was little consensus from board members about whether to adopt the company's most recent recommendations.
"There absolutely is an investment benefit to be gained from emerging markets," Greg Long, the board's executive director, told board members. However, data from emerging markets typically isn't reported as often, which would likely increase tracking errors — the extent to which an investment portfolio deviates from the index to which it's benchmarked.
"You can't get both emerging markets and limited tracking error," Long said.
Adding another asset class to the L Funds would also require congressional approval. The board would likely face scrutiny from lawmakers and TSP participants, alike, Weaver said. Why, for example, would the new asset class only be added to the L Fund and not offered as a standalone fund? Legislators might also balk at the increasing amount of international stock options.
Long pledged to board members that his team would keep studying the issue.
"We're not closing the book on this," he said.