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- Value of Health IT
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Shows & Panels
House committee OKs bill making TSP's L Funds the default for new hires
Tuesday - 3/11/2014, 4:14pm EDT
New Thrift Savings Plan participants would be automatically enrolled in an age- appropriate Lifecycle Fund — instead of the G Fund — under a bipartisan bill approved Wednesday by the House Oversight and Government Reform Committee.
The Smart Savings Act, introduced by the committee's chairman, Rep. Darrell Issa (R-Calif.), is supported by the Federal Retirement Thrift Investment Board, which oversees federal employees' 401(k)-style TSP accounts.
Late last year, the TSP board voted to pursue legislation that would automatically enroll new participants in the L Funds.
"The Smart Savings Act will ensure that workers who are planning ahead for retirement are investing in an account that works for them at every stage of their career," Issa said in a statement after the committee OK'd the measure.
The committee's ranking member, Rep. Elijah Cummings (D-Md.), also supports the measure, calling it a "commonsense change."
L Funds, also known as target-date funds, are made up of a mix of the TSP's five regular funds, which fluctuates automatically over time to balance risk. Early in an employee's career, for example, L Funds contain a larger share of higher-risk stock funds. As employees near retirement, the allocation shifts more toward the super-safe securities G Fund.
New federal employees have been automatically enrolled in the TSP's G Fund at a contribution rate of 3 percent of their salaries since 2010. That helped boost new hires' participation in the TSP, according to board officials. In 2012, for example, more than 97 percent of employees with fewer than two years of experience contributed to TSP accounts — up from about 81 percent in 2008.
But the board is concerned too many younger employees, ostensibly with long federal careers ahead of them, are lingering in the G Fund and not maximizing their returns.
The TSP board is also considering rebranding the L Funds, possibly opting for term "Lifecyle Strategy" instead of "Lifecycle Fund."
"The mutual fund industry and the investment industry, generally, have spent decades telling people to diversify," the board's executive director Greg Long said during the board's monthly meeting last month. While investors are told not to put all their eggs in one basket, that advice could perplex TSP participants, since the TSP's L Funds are both a single investment option and also a diversified portfolio in and of themselves.
Last fall, consulting firm Mercer recommended several tweaks to the composition of the L Funds. The board should increase allocations of both the G Fund and higher-risk- higher-reward stock options in the Lifecycle options.
The oversight committee is set to consider a slew of bills Wednesday at a committee business meeting. Among the other legislation up for debate are a bill aiming to reduce the number of government reports produced by agencies and another to modernize the Federal Register — both also introduced by Issa.