TSP examining why so many young workers stay in ‘super safe’ G Fund

By Katie Howard
Federal News Radio

While automatic enrollment for new hires has increased participation in the Thrift Savings Plan over the last few years, a recent report suggests many of them are staying in the super-safe G Fund — instead of reallocating money into other funds.

“I think the big takeaway of what we saw is that the number of people that are the youngest that are invested heavily in the G Fund — the super-safe, never-has-a-bad-day G Fund — is higher than we expected,” said Greg Long, executive director of the Federal Retirement Thrift Investment Board in an interview on the Federal Drive with Tom Temin and Emily Kopp.

Unless new hires choose otherwise, their automatic enrollments default into the G Fund.

“So there’s some amount of people that are 28 or 29 years old, haven’t thought about it, automatically enrolled and they’re now in the super-safe G Fund,” Long said, adding that might not be appropriate for a 28-year-old who’s got 30 or 40 years ahead to work for the federal government.

TSP endured ‘bumpy ride’

Long said the Federal Retirement Thrift Investment Board paired the data in its recordkeeping system of TSP participants with the data that the Office of Personnel Management has on tenure, age and salary groupings.

The two sets of data helped educate the board about the current participants, particularly how many employees are participating and how many aren’t. Moreover, the research sought to nail down specifics, such as how much money employees are investing and in what funds broken down by age, salary and tenure.

The report looked at the years 2006-10 which included a “significant market dislocation,” he said.

But that didn’t mean that vast numbers of federal employees bailed out of the TSP.

“The last several years in the marketplace have been a bumpy ride and through that bumpy ride, for the most part, people have stayed in the TSP, they have stayed invested and that is terrific news,” Long sad. “Now what we’re looking to do is how can we improve it.”

One question that looms from the research is establishing whether the younger G Fund participants are naturally more conservative investors or simply didn’t understand the allocation.

“What we’re trying to determine … is how much of that allocation is a rational and affirmative decision that people have said, ‘Yes, I understand the G Fund has less upside but more protection and therefore I want it,’ as opposed to what percentage of those people are there simply because they didn’t think about it,” Long said.

In order to find out, the agency is preparing the data it has now with future survey data as well as working with focus groups and federal-employee unions to find out what these outlets are hearing from members about the G Fund.

“As we put all those pieces of data together, that will eventually form a decision as to whether we continue defaulting to the G Fund or potentially look to default to one of the lifecycle funds,” Long said.

L Funds and Roth option

Lifecycle Funds (also known as L Funds) were created years ago by the agency and are a mix of the five core funds, which change based on the age a worker expects to retire.

“So if you turn 65 in the year 2032 then the L2030 Fund is probably most appropriate for you. It would start off today being more aggressive. But between now and the year 2030, it would slowly become more conservative and so defaulting to a fund like that might be more appropriate and we’re now in the data gathering mode to eventually decide whether that’s the right move,” said Long.

However, to make a change to the default is something that the agency would need to discuss with the Employee Advisory Groups, then with the full board and, eventually, Congress.

Long pointed to the success of the Roth option that has been up and running for participants since last May and for DoD employees and civilians since the summertime. The offering of the Roth option went from zero to 147,000 accounts in a relatively short time, he said.

“So when I say that we’re trying to improve the TSP, that’s just one example of new features and products that we’re rolling out,” he said adding, “We are thrilled and pleased to run such a program that is well-regarded and we do everything we can to earn that trust everyday.”


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