Understanding Thrift Savings Plan Problems: Leadership and Investment Vulnerabilities

At the onset of Trump’s second term, we highlighted potential problems with how the TSP is governed and structured. After the recent tariffs have caused chaos in the markets, there is even more worry growing over the federal employees’ retirement savings plan. This article will go into more depth regarding the TSP’s governing body, but also explore how the federal government’s recent downsizing could negatively impact service. Also, we’ll look at why the investment options within the plan might be ill-equipped to withstand down markets when compared to an IRA.

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 Potential Oversight and Management Problems that Could Significantly Impact Your Retirement Savings

Will Trump Influence Leadership at TSP’s Governing Body? 

The Federal Retirement Thrift Investment Board (FRTIB) is comprised of a Chairman, four board members (although one seat is currently vacant), and an executive director. Each serve four-year terms although there is no law restricting the number of terms they can serve. Along with these six individuals, there is the Employee Thrift Advisory Council (ETAC), made up of fifteen councilmembers who each represent a different aspect of government needs, such as military members, the senior executive service, and postal employees. While ETAC is chosen by the chairman and the executive director is picked by the five people on the board, those five seats are selected by either the president, the speaker of the house, or the Senate majority leader. If appointed, confirmation from the Senate is only required for the chairman. In 2022, the Senate blocked Biden’s original pick for chairman, Javier Saade.  In fact, the only requirement under the FERS Act is that the board members each have “substantial experience, training, and expertise in the management of financial investments and pension benefit plans.”

FRTIB Board Members, Terms, and How They Get Picked

*the fifth seat has been vacated since 2020

Recent Downsizing of Federal Government Employees and Impact on TSP Service

The Thrift Savings Plan launched a new system for managing service requests in 2022. The transition to the new portal was a mess that resulted in long wait times over the phone and restricted access for account holders. Although users continue to report issues, the new online portal introduced along with a new recordkeeping system by Accenture federal services (and a mobile application) has greatly improved access to TSP accounts. Instead of mostly paper-based processes, the new TSP website can handle customer requests for loans, withdrawals, and beneficiary updates. However, if unable to access funds due to login access issues, users still have to contact the TSP by phone. The recent buyout offers and RIFs (reduction-in-force) has led to approximately 900,000 federal employees leaving their government job… and they all have to make decisions regarding the retirement assets in their TSP. The uptick in requests and questions is unlikely to improve customer service at the TSP, which employs around just 250 workers, to assist with the tax-deferred retirement savings plan that holds more than US$ 895 billion in assets. 

Customer service representatives at TSP can’t help with investment advice. Schedule a meeting with a Fed-Expert. 

Investment Challenges and Potential Changes

Will Trump Change How the G Fund Rate is Calculated?

The G Fund Return Rate is guaranteed to be not negative (it can be get to 0% technically) and it is currently calculated, as stated on TSP.gov, “by the U.S. Treasury as the weighted average yield of approximately 198 U.S. Treasury securities on the last day of the previous month.” Similar to the proposed change to make the FERS high-three salary into a high-five average, the idea of changing how the G Fund return is determined was floated by a GOP-led congress in 2018 during Trump’s first term in the White House. If able to fill the FRTIB with his preferred board members, reconfiguring how the G-Fund works may be on the table. A spokesperson for NARFE at the time remarked the proposed change would render the G fund practically useless. 

Recent Market Turmoil from Tariffs Exposes Investment Challenges with the Thrift Savings Plan

The TSP system is designed to provide federal employees with a straightforward way to invest in their retirement. However, the simplicity of the system can sometimes limit the investment choices available to participants. This has become evident once again with the recent tariffs causing markets to dip. The TSP offers a limited selection of funds, which can restrict diversification opportunities, such as targeting . This limitation can be particularly challenging during down markets when diversification is crucial for mitigating risks. Participants must carefully consider their investment strategy and risk tolerance within the constraints of the TSP system to ensure their retirement savings are adequately protected. The S&P 500 for instance, which is the underlying index for the C fund, is being particularly hurt as tariffs go into effect. Although the TSP mutual fund window offers more investment choices, the mutual fund window is restrictive when it comes to access and costs. 

How Can TSP Participants Mitigate Investment Risks?

TSP participants can mitigate investment risks by adopting a diversified investment strategy that aligns with their retirement goals. While the TSP offers limited fund options, participants can still diversify by allocating their contributions across different funds, such as the G Fund, F Fund, C Fund, S Fund, and I Fund. Additionally, participants should regularly review their investment allocations and adjust them as needed to respond to market changes and personal financial goals. Staying informed about market trends and the performance of TSP funds is also crucial for effective risk management.

Need a TSP Planner? The financial advisors at PlanWell can help Federal Employees with Retirement and Financial Planning

What Leadership Issues Are Affecting the Thrift Savings Plan?

What Role Does the Federal Retirement Thrift Investment Board Play?

The Federal Retirement Thrift Investment Board (FRTIB) is responsible for overseeing the TSP and ensuring its effective management. The FRTIB’s role is to safeguard the interests of TSP participants by managing the funds prudently and ensuring the system operates efficiently. However, the board’s decisions can significantly impact the performance of the TSP, influencing the returns on investment for federal employees. The FRTIB must balance the need for stability with the potential for growth, a task that requires careful oversight and strategic planning.

What Are the GAO’s Concerns Regarding TSP Management?

The Government Accountability Office (GAO) has raised concerns about the management of the TSP, particularly in relation to the oversight and strategic planning of the FRTIB. The GAO has highlighted issues such as the need for improved risk management practices and greater transparency in decision-making processes. These concerns underscore the importance of strong leadership and effective governance in maintaining the integrity and performance of the TSP. Addressing these issues is crucial for ensuring the long-term success of the retirement savings program.

How the New Online System Impacted TSP Participants

What Changes Were Made During the TSP System Update?

The TSP recently launched a new online system meant to modernize the retirement savings program. This update introduced several changes, including enhanced online tools for managing TSP accounts and improved access to retirement savings and account information. The new system aims to provide a more user-friendly experience for TSP participants, allowing them to make informed investment decisions with greater ease. However, the transition to the new system has not been without challenges, as some participants have reported widespread problems accessing their retirement savings.

Required Minimum Distributions and Federal Retirement Savings

RMDs from the TSP

Required Minimum Distributions (RMDs) are mandatory withdrawals that TSP participants must begin taking from their accounts once they reach  72. RMDs are designed to ensure that individuals do not defer taxes on their retirement savings indefinitely. For TSP participants, understanding the rules and implications of RMDs is crucial for effective retirement planning. Failure to comply with RMD requirements can result in significant tax penalties, impacting the overall value of federal retirement savings.

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