Additional Lifecycle funds coming to TSP next year

Participants in the Thrift Savings Plan should have access to a series of new lifecycle funds starting in 2020.

The Federal Retirement Thrift Investment Board plans to adjust the L fund to reflect five-year increments, which it said will give participants a more targeted window of time to match their intended retirement date with their asset allocation.

The board approved a plan to implement five-year L fund increments back in 2017. At the time, the FRTIB said the change would move the TSP in line with other comparable private sector plans and is considered an industry best practice.

The agency is currently reviewing requirements for the five-year lifecycle fund project with contractors, Sean McCaffrey, the FRTIB’s chief investment board, said Monday at the board’s monthly meeting. The goal is to implement five-year L funds in the third quarter of 2020, he said.

“It was important for us to set the stage for future generations of participants, not just the civil servants who joined the government on average in their mid-thirties but also the growing number of uniformed services personnel who are joining the TSP as a result of the blended retirement system,” McCaffrey said.

Currently, TSP participants have access these L funds: L Income, L 2020, L 2030, L 2040 and L 2050.

In the future, the TSP will retire the L 2020 fund and roll it into the L income fund. Once fully implemented, TSP participants will have access to these lifecycle funds:

  • L Income
  • L 2025
  • L 2030
  • L 2035
  • L 2040
  • L 2045
  • L 2050
  • L 2055
  • L 2060
  • L 2065

An independent consulting group reviewed the TSP’s funds and assets back in 2017 and made several suggestions, including to move the L fund to five-year increments.

In addition, the FRTIB is continuing planned efforts to slowly shift more stock into its participants’ lifecycle investments.

The 15-year-plan is designed to create a series of L funds for the average participant that, in combination with the Federal Employee Retirement System-defined benefit plan and Social Security benefits, would leave a retiree with enough assets to maintain a comfortable standard of living.

When the TSP opens the next L fund, L 2060, it will begin to invest 99% of participants’ holdings in stock, instead of the current 90%. Specifically, the agency will invest the L funds more heavily in stock in the beginning of a federal employee’s participation in the fund, but that allocation will decrease as the participant gets closer to his or her retirement date.

The TSP agency is deploying what it referred to as a “glide path,” which will facilitate this transition over the next 15 years.

“We developed a detailed transition plan to carry the glide paths to a higher level of equity over multiple years,” McCaffrey said. “At the same time, we instituted a bit more of a tilt toward international stocks.”

At the same time, McCaffrey’s office is preparing to change the benchmark for the TSP’s I fund. Currently, the I fund benchmarks to the MSCI Europe Australasia Far East index, which includes 21 developed markets, not including the U.S. and Canada. The current index includes large and mid-cap stocks from more than 900 companies.

In the future, the TSP will use the MSCI All Country World Investable Market ex-U.S. index. It includes 22 developed and 26 emerging markets and consists of large, mid- and small-cap stocks from more than 6,000 companies.

IT security risks remain high

Beyond implementing upcoming changes to the TSP itself, the FRTIB is also continuing to address 21 self-identified risks that impact the agency and its operations. It’s part of the agency’s ongoing and strategic effort to treat these risks particularly the five the FRTIB identified as “high.”

IT security, which the agency has struggled with for several years, is one of those high risks. The FRTIB has failed the independent Federal Information Security Modernization Act (FISMA) audit since it began to review compliance back in fiscal 2016. The agency suffered a cyber breach back in 2012, when hackers accessed personal information for 123,000 TSP participants through one of its contractors.

Jay Ahuja, the FRTIB’s chief risk officer, said IT security will continue to rank high as an FRTIB risk for at least two years.

“The solutions are not immediate,” he said. “There are multiple activities and tasks that have to happen that are multi-year. You’re not necessarily going to see a change in six months. It’s not like [we] have a setting we can change on the mainframe or any of [our] operating systems or develop a policy and implement the policy in six months. Those kinds of things we’re obviously doing, but we’re looking at risk from a collective view. We don’t see this risk changing at the end of the year.”

The FRTIB is taking steps to address IT security risks, which independent auditors have continued to identify as an agency challenge.

FRTIB, for example, has begun a partnership with the Department of Homeland Security to implement its continuous diagnostics and mitigation program.

The agency is also beginning to migrate some email and phone applications to the cloud. More migrations to cloud-based services are in the works, Ahuja said.

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