Why are so many people who are retiring from federal service turning around and emptying their Thrift Savings Plan accounts?
That’s what the Federal Retirement Thrift Investment Board, which oversees the 401(k)-style retirement plan for federal employees, wanted to find out. So, it recently surveyed individuals who had separated from government service in 2012 and withdrawn all of the money in their TSP accounts in 2013.
“The good news is our service got high marks,” said Kim Weaver, the board’s director of external affairs. “People were not leaving because they were not happy with the quality of service.”
She shared some of the highlights of the survey on In Depth with Francis Rose. The finalized report will be released in November.
The main reason survey respondents gave for why they emptied their accounts was to pay for “life expenditures.”
“People were retiring and they wanted to pay off their mortgage. They wanted to remodel. They had medical expenses,” Weaver said. “Things like that, which is what you would expect retirement money to be used for.”
Next, the respondents said they wanted more withdrawal flexibility than the TSP currently offers.
“It’s not an unreasonable desire to want a little bit more flexibility in how you take your money out of the TSP,” Weaver said. “We actually have a group here that’s already been looking at that, seeing what others in the private sector do in terms of allowing people access to their retirement money.”
About 25 percent of those who responded to the survey said they wanted additional investment options.
The board is currently considering including a mutual fund window to add more investment options to the TSP.
About 15 to 20 percent of survey respondents said they were looking for financial advice.
“Those three sort-of action items — withdrawal flexibility, additional investment options and financial advice — are where we’re going to be focusing some attention to see what we think is a good idea to do, what we can accommodate, what we think would raise costs too much,” Weaver said. “There’s any number of factors that we would have to evaluate, but that’s our road map forward.”
Any new withdrawal options would most likely be applied across the board to all TSP accounts, according to Weaver.
“That’s a basic tenet of the program of what’s available to people,” she said. “You wouldn’t want to pay extra to access your money.”
It remains unclear how the financial advice or the mutual fund window would be implemented, whether on a fee-for-service basis or some other way.
“Those decisions are nowhere near being made,” Weaver said.
The TSP board also recently received some good news regarding the Roth asset accounts, which originated in May 2012. Assets for the 417,000 Roth accounts passed $1.7 billion at the end of August. Now, almost 9 percent of the plan’s participants have Roth TSP accounts.
“We had anticipated that we would get to 8 to 10 percent Roth pickup, but we thought it would take five or six years,” Weaver said. “So, we hit where we sort of where we thought we were going to be in a much faster way.”
The board had thought the Roth TSP accounts would be attractive to members of the military, who would likely benefit by paying taxes on what they contribute at a lower pay grade.