It’s been about two years since the Federal Retirement Thrift Investment Board increased the default investment amount for new federal employees in the Thrift Savings Plan, from 3% up to 5%.

Now, FRTIB is backtracking to try to bring more TSP participants initially invested at 3% up to that 5% salary contribution rate. It’s the percentage required for participants to receive the maximum matching rate from the federal government.

The board always tries to encourage participants to invest at least 5% of their salaries to get the full match. Contributing to TSP is an essential part of federal employees’ retirement, said Kim Weaver, FRTIB’s director of external affairs.

“Of course, people are free to change their contribution amount. Not many do, but some do. We just want to make sure that people are aware of the benefits of saving,” Weaver said in an interview.

Since the board increased that default enrollment back in 2020, the percentage of feds in FERS (Federal Employees Retirement System) who receive the full matching rate increased from 79.4% in 2020, to 85.4% in 2022. After fluctuating around 79% for a couple years, the numbers jumped in 2021, likely because of the automatic enrollment increase for new feds. But of course, that still leaves some participants who joined the federal government before the switch was made, and who still aren’t getting as much as they could be from the TSP.

The board is looking at different ways to get the message across to TSP participants still invested at 3%, and encourage them to increase their investments to get the full match. In an email communications study this year, the board sent a couple different email messages to participants to see what would resonate the most, and ultimately what would lead to the largest number of participants deciding to invest more toward their retirement savings.

The pilot emails went out to roughly 3,000 participants in the study, all of whom had salaries in the lowest fifth income bracket for the federal government.

About a third of participants in the study received an email showing how much money they missed out on, and another third saw a message that detailed how many feds were already contributing at least 5% of their salaries to the TSP. The last third of the study was a control group that didn’t get an email at all.

At the end of the three-month campaign, both of the test messages got pretty similar results. Up to 16.7% of those who had received one of the two emails elected to increase their investments, the board said. That’s compared with just about 9.5% of participants in the control group, with no email, who decided to contribute more to the TSP. The average monthly increase for participants in the study was about $70, which can compound to big savings over time.

“If that is maintained until age 65, you’re looking at roughly $73,000 more in their accounts, which is almost double their current salary, or potentially another year or more in retirement,” said Elizabeth Perry, a social scientist at FRTIB’s Office of Communications and Education.

The board has been conducting similar types of studies for at least the last couple of years. In this instance, Weaver said the emails that were most effective will now start going out to larger swaths of TSP participants.

How many participants use the mutual fund window?

There are other new ways that TSP participants may be able to invest and earn more over the course of their federal careers. Earlier this year, FRTIB opened a voluntary mutual fund window to give participants the option to look at, and potentially invest in, a combined total of about 5,000 different mutual funds.

So far, enrollments in the mutual fund window have lined up with the board’s expectations, Weaver said. Currently, about 7,000 participants have set up a mutual fund account. Half of those participants — about 3,500 people — have actually invested in at least one mutual fund, reaching a combined $140 million in mutual fund investments. In total, there are about 6.7 million TSP participants.

There’s a cost to the mutual fund window, but only if participants actually make an investment. Simply setting up the mutual fund window account comes at no cost to participants. Those who choose to invest will see the following costs:

• An administrative fee of $55 per year
• A maintenance fee of $95 per year
• A per trade fee of $28.75

Plus, participants will have to pay any additional fees and expenses from the specific mutual funds in which they invest.

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