Lifecycle funds that have been targeted within the 10 years before the participant’s retirement date have now been approved to within five-year increments. The panel that oversees the retirement savings plan for federal employees on Wednesday approved this unanimously.
Investors can move to a more conservative portfolio as they near their anticipated retirement date — on a five-year basis as recommended by consultants at Aon Hewitt following a trend in private 401(k) providers to offer lifecycle funds.
“Most have been moving to five-year increments,” Bill Ryan, a partner at the firm, told the Federal Retirement Thrift Investment Board. “It helps bridge the gap for participants, and it’s easier to figure out where to place someone based on their age.”
The TSP (Thrift Savings Plan) will implement the new L Fund increments in 2020.
It was also recommended by Aon Hewitt that the TSP’s I Fund, which is made up of international stocks and bonds, be diversified to include stocks in Canada, emerging markets, and international small-cap markets.
“These are large markets to which we have no exposure,” Ryan said. “By adding these, we would improve the risk portfolio for participants, as well as improve outcomes on a forward-looking basis.”
The board during approved further examination of expanding the I Fund’s portfolio during the monthly meeting, which Sean McCaffrey, deputy chief investment officer for the FRTIB, said could be done by this fall.
“We want everyone to be fully comfortable with what we’re getting into,” he said. “We’ve got a little more studying to do just to be prudent.”
“We must be thoughtful about this because of the different risks associated with various markets,” said board chairman Michael Kennedy.
TSP officials also briefed the board on their progress with preparing for the onset of the blended retirement system for the military, which is scheduled to come online in January. New troops would automatically be enrolled in the TSP and receive a matching contribution from the government under the new system. One to five percent of the service member’s salary will be contributed by the government toward their TSPs, depending on what they elect to contribute themselves. Although they will be defaulted into contributing 3 percent of their paychecks. The TSP account will begin 60 days into their service. Those who stay in the military for 20 years, and are thereby entitled to a retirement pension, would receive a less generous calculation for their annuity.
The new blended retirement system only automatically affects new service members starting Jan. 1, 2018. Current service members can opt into the new system but are grandfathered into the existing system. More than 163,000 people have signed up for the online opt-in website for service members launched in April. More have signed up through offline training events says Tom Emswiler, a senior adviser for uniformed services at TSP.
Service members will have all of 2018 to make that decision. Emswiler said testing of the TSP and military services’ payroll systems will commence next month, and beginning June 6 the Defense Department website will offer an online calculator for service members to determine whether to opt in to the blended system or stay with their current pension plan.
The agency is expecting an influx of calls and online inquiries and is working to increase its IT and call center capacity in time for the automatic enrollment system to come into effect, says TSP project manager Tanner Nohe.
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