It’s a good news/bad news scenario when it comes to the latest developments out of the world’s largest defined contribution plan, with some interesting news about default contributions thrown in for good measure.
According to reports out of Washington this week, membership in the exclusive federal Thrift Savings Plan millionaire club continues to grow, but September was a period of overall decline for the TSP funds. And new federal employees are now being enrolled at a higher 5% default contribution rate.
The Thrift Savings Plan (TSP), a retirement savings and investment plan for Federal employees and members of the uniformed services, includes just over 5.8 million current, former or retired civilians and military personnel in the program.
More 401(k) millionaires
Membership in the exclusive TSP millionaire club continues to grow. Federal News Network reports there were 55,183 current and retired feds and military personnel in the club as of June 20, 2020. That’s up from 45,219 as of June 30, 2020, and almost double the 27,212 with million-dollar accounts as of March 31 of this year.
Some of the larger accounts represent rollovers from other qualified plans of private sector lawyers named to be federal judges or well-heeled individuals who came into government as members of Congress or political appointees, author Mike Causey notes. Many chose to put their outside retirement accounts in the TSP because of its extremely low administrative fees and strict oversight.
More facts from the report:
- The average number of years the self-made millionaires have been investing is just over 10.8 years.
- The largest account in the TSP as of September is nearly $7.9 million, compared to $7.3 million in June and $6.3 million at the end of March.
- The number of participants who are approaching millionaire status is growing. In March there were 57,082 with balances between $750,000 and $999,000. As of June 30 that number had risen to 71,636.
September dismal for TSP balances
September was a month of overall decline for the TSP according to another report from the FNN.
Returns published by the TSP show the Treasury securities-backed G fund and the fixed income investment F fund may have had slight improvements, but the federal employee 401k plan’s three other stock funds, and all of its Lifecycle (target date) funds had lower performance last month than in August.
The G Fund, which is usually the most reliable yet unchanging, increased from 0.05% to 0.06%, while the F Fund remained in the red—but increased from -0.81% to -0.03%.
As for the other stock funds, international stock index I Fund fell from 5.12% in August to -2.60% in September; the small capitalization stock index S Fund went from 7.20% in August to -3.04% in September; and the common stock index investment C Fund performed the lowest—from 7.19% in August to -3.80% last month.
September returns were down across the board for the Lifecycle Funds. FNN reports the biggest month-over-month decline was for the L 2055 Fund, followed closely by the L 2060 and L 2065 funds. Each had returns of -3.20% last month. The smallest drop was in the L Income Fund, which went from 1.39% in August to -0.66% in September.
Higher TSP default contributions
As of Oct. 1, the TSP implemented changes to how it automatically enrolls new federal employees and members of the military, per an article this week from Government Executive.
All those who began work on or after Oct. 1 now automatically contribute 5% of their salaries to their TSP accounts, a move made to guarantee they receive the full employer match.
Once enrolled, participants still may adjust their contribution rate as they see fit. Employees who are already enrolled in the TSP will not see a change to their contributions.
And finally…
Yet another report from FNN shows the pandemic is slowing federal employee retirement rates. A total 66,510 federal employees retired between January and August—which is 7,543 fewer retirements than during the same period last year.
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