Federal program for pension savings of employees for a wide expansion of investment opportunities

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From next month, federal and military officials will have a wide range of investment opportunities for their retirement savings program.

The Thrift Savings Plan, the federal government’s 401 (k) version, said Tuesday it would open a long-planned “window” of mutual funds on June 1, giving investors access to about 5,000 funds offered by about 300 mutual funds. funds. stock companies and allows targeted investment in stocks, bonds, commodities and other markets in addition to index-based funds that TSP itself offers.

The option will come with eligibility restrictions and fees, and several financial advisers who have advised federal officials about their TSP accounts warn that the option should be treated with caution.

The date of June 1 was announced at the monthly meeting of the program’s board, which had previously said only that the option would become available sometime in June.

Enlargement has been under development for years since a law was passed in 2009 to allow wider options for TSP, which has more than 6.5 million account holders and about $ 740 billion in investment by the end of April. It is part of an upgrade to the TSP operating platform, which also adds new online services and security protections and a mobile application.

“For those of us who have been on this whole journey, this is a really special moment,” said current board chairman David A. Jones, a veteran of the financial industry. “We had a vision of what a TSP should be – it’s very much in line with our expectations.”

The mutual fund window will only be available for those with a minimum of $ 40,000 investment due to a combination of two restrictions: The initial investment through the window will have to be at least $ 10,000 and no new investment can bring the external share over a quarter of the total account amount.

About 2.3 million of the 4.1 million current and former TSP federal workers have balances above this threshold, while only about 350,000 of the nearly 2.5 million current and former military employees have accounts.

In addition, because the 2009 law requires mutual fund window users to bear its costs, they will have to pay annual fees totaling $ 150 plus a $ 28.75 transaction fee.

“We’re not trying to stand in the way, but we’re trying to make sure people have thought about it and studied it a little bit,” said TSP spokeswoman Kim Weaver. “We wanted to make sure that the amount that people go through is significant enough so that it is not significantly affected by the fees. We also wanted to make sure that the people who use it have some experience in investing. “

TSP traditionally offers only five funds, tracking broad indices of stocks and bonds and government securities, plus funds that mix the shares of these funds in different proportions depending on the expected date of commencement of the withdrawal. Prior to the forthcoming change, the most significant expansion of options was the increase in the number of funds with a target date of five to 10 in 2020.

Over the years, a number of bills have been introduced in Congress that seek to add investment to the TSP by focusing on certain market sectors or excluding investment in certain types of companies. On its own initiative, the program planned to expand its international stock tracking fund to include markets in about two dozen more countries in 2020, but withdrew after the emergence of political opposition, as this expansion would include shares of Chinese companies. .

This opposition reappeared just hours after the TSP made its announcement Tuesday, when several Republicans in Congress called on the TSP to cancel or postpone the mutual fund window until “it can ensure that TSP funds are not invested in dangerous, non-compliant or opaque Chinese securities’. TSP has no immediate response.

“We’re reviewing the letter,” Weaver said. “I would like to point out that the TSP mutual fund window will be entirely voluntary and TSP participants will not be required to invest through it.

Weaver said the TSP expects 2 to 3 percent of foreign fund account holders to reach a steady state in a few years. “There will be people who are looking forward to it, and there will be others who will look into it and decide later,” she said.

“This will open it up to many more choices. That’s great, “said Ian Arrowsmith, managing partner at Scarborough Capital Management in Annapolis, Maryland. I’m retiring. “

Jim Musgrave, a financial adviser with Research Financial Strategies in Rockville, Maryland, said he had seen many federal officials transfer their TSP money to the IRA after retirement to gain a wider range of investment opportunities.

“I think it’s very profitable for participants to be able to go beyond TSP funding,” he said. “There are many people who are more sophisticated who would like the opportunity to go beyond these means.”

“The downside is that many investors are chasing returns,” he said. “They will say, ‘This sector has performed really well over the last six months. I’ll put my money there. This hot sector will eventually die and something else will replace it. They will have a lot of weight in the sector when they have to start cutting it. “

Eligible investors will have access to the window through their online accounts, which will include a verification tool that allows them to choose mutual funds that meet their chosen criteria, including what the funds invest in and what fees they charge.

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