TSP L Funds Exceed Expectations
To encourage participation, the TSP implemented an extensive education campaign, Amelio said to PLANSPONSOR.com , including the availability of information about the L funds on the TSP Web site, an article in the July edition of the TSP Highlights newsletter, and the mailing of a post card encouraging participants to enroll in the “L” funds. Additionally, in the next few weeks, a specially-made DVD will be sent to all participants, which includes virtually all federal employees, including members of the armed forces, postal staffers, and employees of the legislative, judicial, and executive branches of government.
The education seems to be paying off: during the first five days the L funds were offered, participants in the $160 billion plan directed $1.4 billion into the funds. Over 31,000 participants enrolled in the models, a number that pleased Amelio. “It’s almost 1% of plan participants, and larger than some small cities,” he commented. After that first week, the numbers continued to be encouraging; govexec.com reported that as of this week, $2.8 billion had been invested in the funds by nearly 73,000 participants.
During the first week the funds were available, some interesting trends emerged, though Amelio was quick to say he was unsure what might happen over time. Significantly, those who enrolled in the L funds appeared to be using them properly: those people in the Civil ServiceRetirementSystem ( CSRS ), who have been hired before 1983 are directing their assets into short-term funds such as the L 2010 (targeting a retirement in the year 2010) and L Income funds, while those in the military are leaning to 2040. Moreover, not only are the age groups appropriating their funds correctly, but most of those going into the funds are putting 100% of their money into one fund.
During that brief window participants who are in the military were using the L funds significantly more than civilians, making up 25% of the first group of enrollees. The Director hypothesized that this resulted from a significantly young military, who might be more adept at enrolling in the plan online. This is encouraging because, “while we want all participants to use the funds, it is most important that those with the longest time horizon use the funds,” Amelio says.
The TSP now includes five so-called “L” funds tailored to retirement dates that will automatically shift to more conservative allocations as the funds near their target date of retirement. The “L” funds are asset allocation models investing in the five funds currently offered in the TSP, and therefore already approved by Congress: the Common Stock Index Investment (C) Fund, the Small Capitalization Index Investment (S) Fund, the International Stock Index Investment (I) Fund, the Fixed Income Index Investment (F) Fund, and the Government Securities (G) Fund. There will be no additional charge to the participants for the asset allocation model, above the expense ratios of the funds, which are about five basis points.
The L funds are asset allocation models and not new funds because the TSP is a government plan, which means Congress needs to approve any fund additions or subtractions to it, Amelio explained. Additionally, he says, being asset allocation models instead of new funds not only facilitates implementation, it also makes the education easier.