![handle is hein.crs/govefto0001 and id is 1 raw text is: Thrift Savings Plan: Investment Issues
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May 17, 2022
The Thrift Savings Plan (TSP) was created under the
Federal Employees' Retirement System Act (FERSA; P.L.
99-335; June 6, 1986). TSP is a defined contribution
retirement plan for the civilian federal workforce and the
uniformed services, similar to the 401(k) plans sponsored
by many private-sector employers. TSP provides individual
accounts that serve as a source of income in retirement to
participants and their beneficiaries. As of March 2022, there
were more than 6.5 million total participants in TSP and
$817.7 billion in total assets.
The Federal Retirement Thrift Investment Board (FRTIB)
administers TSP. FRTIB is an independent agency that
receives no appropriations from Congress. Instead,
administrative expenses for FRTIB are paid through TSP
loan fees, 1% agency automatic contributions forfeited by
certain employees who leave federal service before they
have vested, and administrative charges against participant
accounts. FRTIB is composed of five board members
chosen by the President and confirmed by the Senate. The
Board also selects an Executive Director who manages
daily operations. Under current law, members of the FRTIB
and the Executive Director serve as fiduciaries, legally
obligated to act solely in the interest of the [TSP]
participants and beneficiaries ... and for the exclusive
purpose of providing benefits to participants and their
beneficiaries (5 U.S.C. §8477(b)(1)).
All TSP investment options are set out under current law (5
U.S.C. §8438). In order to offer these investment options to
participants, FRTIB develops specific investment
policies-for example, selecting benchmarks for the index
fund investment options-that provide for prudent
investments suitable for accumulating funds for payment of
retirement income; and low administrative costs (5 U.S.C.
§8475). Thus, in addition to its fiduciary responsibilities,
FRTIB must adhere to their statutory mandates to keep
administrative costs low and prudently manage returns for
TSP account holders.
Legislative History of TSP Investment Options
At its creation in 1986, the TSP was designed to be
passively managed in order to avoid political
manipulation-in particular, using the large pool of assets
managed by FRTIB for political purposes. Thus, TSP index
funds are all passively managed by professional fund
managers, each with an investment objective of matching
the performance of a specific, benchmark index fund. TSP
fund managers do not actively select a fund's portfolio
assets. Currently, BlackRock and State Street Global
Advisors both hold fund manager contracts for all TSP
index funds.
Three investment options-the C Fund (a common stock
index fund), the F Fund (a fixed income index fund), and
the G Fund (a government security fund)-were
authorized at TSP's creation under FERSA. Two additional
index funds, the S Fund (a small cap stock index fund)
and the I Fund (an international stock index fund) were
added in 2001 in accordance with the Thrift Savings Plan
Act of 1996 (P.L. 104-208; September 30, 1996).
In 2005, FRTIB introduced Lifecycle Funds (L Funds),
which are invested in various combinations of the five
existing TSP funds with allocations based on the year that
the participant expects to begin withdrawing money from
the TSP. The Smart Savings Act (P.L. 113-255; December
18, 2014) changed the default investment option for
automatic contributions to TSP. Prior to P.L. 113-255, TSP
default contributions were automatically invested in the
G Fund of the TSP. (The default contribution rate for
most employees is 5% if enrolled in TSP after October 1,
2020, or 3% if enrolled between August 1, 2010, and
September 30, 2020.) P.L. 113-255 changed the default
investment option to the age-appropriate Lifecycle Fund.
Title I of Division B of P.L. 111-31, the Thrift Savings Plan
Enhancement Act (June 22, 2009), provided FRTIB with
the authority to set up a mutual fund window (MFW) if the
Board determines that such addition would be in the best
interests of participants (5 U.S.C. §8438(b)(5)(A)).
Current TSP Investment Options
Participants in the TSP may currently choose among five
funds in which they can invest their TSP contributions:
The C Fund replicates the Standard and Poor's 500
Index of 500 large to medium-sized U.S. companies.
The F Fund invests in bonds in the same proportion as
they are represented by the Barclays Capital U.S.
Aggregate Bond Index.
The G Fund invests in U.S. government securities and
pays interest equal to the average rate of return on
government securities with maturities of four years or
more.
The S Fund tracks the Dow Jones U.S. Completion
Total Stock Market Index of small to medium-sized
U.S. companies not included in the C Fund.
The I Fund replicates the Morgan Stanley Capital
International EAFE (Europe, Australasia, Far East)
Index.
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