Thrift Savings Plan (TSP): Major Changes to the I Fund Benchmark Index in 2024
In a significant move that will impact the investment choices of millions of federal employees and military personnel, the Federal Retirement Thrift Investment Board (FRTIB) has approved a change to the I Fund, one of the core investment options within the Thrift Savings Plan (TSP).
Current Index – MSCI Europe, Australasia and Far East (EAFE)
The I Fund currently tracks the MSCI Europe, Australasia, and Far East (EAFE) Index, which comprises stocks of companies in developed markets outside the United States. This index has been in place since the inception of the TSP in 1987. While this index presents international funds, it is missing key areas such as emerging markets and other major US trade partners such as Mexico & Canada.
The New Index – MSCI ACWI IMI ex USA ex China ex Hong Kong Index
The FRTIB has unanimously voted to transition the I Fund to a new benchmark index, the MSCI All Country World ex USA ex China ex Hong Kong Investable Market Index. This broader index includes stocks from developed markets around the world and emerging markets, with restrictions spanning China and Hong Kong. The board insisted that it is not a current investment restriction on China. According to Aon Investments, the consultant assisted with this decision, it was the increased risk profile on Chinese Securities that drove their decision.
Rationale for Change
The board’s decision to change the I Fund’s benchmark index was motivated by several factors, including:
Diversification: The new index will provide participants with greater exposure to a wider range of markets, potentially reducing overall risk and enhancing potential returns.
Market Representation: The MSCI ACWI IMI ex USA ex China ex Hong Kong Index is a more comprehensive representation of the global equity market with exposures to 21 developed markets and 23 emerging markets.
Alignment with Investment Trends: The shift to a more global index aligns with the growing trend of diversification among institutional investors.
Implementation Timeline
The Trump Administration and Republican lawmakers blocked the board’s original decision in 2017 to change the I Fund. The November 2023 decision to transition to the new benchmark is expected to take place in 2024, allowing the fund managers to implement a smooth and efficient process.
Impact on Participants
The change to the I Fund will impact the fund’s overall performance. However, federal retirees should focus on their overall allocation and make adjustments that align with their retirement goals and risk tolerance.
Additional Considerations
Besides the I Fund, it is also important to point out that there is a $500 increase to the contribution limit in 2024, meaning you can contribute $23,000. For those over age 50, the catch-up contribution is unchanged at $7,500.
Reach Out to Us!
If you have additional federal benefit questions, reach out to our team of CERTIFIED FINANCIAL PLANNER™ (CFP®) and Chartered Federal Employee Benefits Consultants (ChFEBC℠). At PlanWell, we focus on retirement planning for federal employees. Learn more about our process designed for the career federal employee.
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