GovernmentExecutive.com

Many investors in the Thrift Savings Plan's life-cycle funds are tempering their effectiveness by continuing to invest in traditional stand-alone funds too, officials said at a board meeting Monday.

The 401(k)-style retirement savings plan for federal employees began offering life-cycle funds in August. The funds automatically move from a more aggressive to a more conservative mix of investments as participants approach their target retirement dates.

But TSP officials said they are finding that 55 percent of participants still have money in at least one of the five stand-alone funds too. The life-cycle funds were designed to hold the entire balance.

The most striking number may be this: 16 percent of life-cycle investors also have money in all five of the TSP's stand-alone funds. Those funds are the government securities (G) fund, fixed-income securities (F) fund, common stocks (C) fund, international stocks (I) fund and the small- and mid-sized companies (S) fund.

Six percent of life-cycle participants also have money in four stand-alone funds, 11 percent have money in three, 9 percent have money in two and 13 percent also have money in one additional fund.

One of the primary reasons TSP officials developed the life-cycle option was to wean participants from their overdependence on the G fund. That fund has no risk because its returns are guaranteed by the government, but it also doesn't offer an opportunity for the high returns that are important to funding a comfortable retirement.

Participants still seem attached. Of investors with one stand-alone fund in addition to the life-cycle option, 74 percent were in the G fund.

That instinct is understandable, said Andrew Saul, chairman of the TSP board.

"[The G fund] is such a great investment, let's be honest," Saul said. "It gives you such a great rate at no risk at all. So you'll always have more investors in the money market than you would in other plans."

There is another reason the G fund may still be popular, said Gary Amelio, executive director of the TSP. For new participants, the first month's assets go directly into the G fund regardless of fund selection. Participants might unknowingly be keeping one month's investments in that fund.

TSP officials said they will consider sending targeted educational mailings to investors who are using the life-cycle funds improperly.

The good news is that 95 percent of life-cycle investors are putting their money into just one of the five life-cycle options, as intended. The TSP offers distinct life-cycle funds for federal employees planning retirement around the year 2040, 2030, 2020, 2010 or in the next few years. Employees are meant to choose the one that most closely matches their target retirement date.

Participation in the life-cycle funds has been very strong. To date, about 214,000 investors have poured $7.3 billion into the funds. In less than five months, those figures already have surpassed the TSP board's goal for the first year.

COMMENTS

• This author is out of her league. Why does she assume that TSP is the only investment these people have? I have more invested in IRAs and savings outside of TSP than in TSP. I use TSP for the "risky" stuff (S and I funds). The life cycle funds are for those that do not know how to invest and that invest only in TSP. There is no reason to have "balance" in TSP if you have more outside TSP than inside. TSP performance is no great deal -- Legg-Mason Value Trust has outperformed TSP as long as I can remember. Why not have you contributions go the Legg Mason Value Trust? You do this with an IRA rollover at Legg Mason and transfer your TSP funds to the Legg Mason mutual fund. You can do this with any investment you can establish as an IRA. On another note, why do you have money in savings certificates and money market funds? You can earn much more on government securities that are free from state income tax. You can set up the treasury account on line easily and invest as you desire on a tax free basis for state income taxes. Taxpayer Posted January 6, 2006 7:35 AM
• What gives? Why do Amelio and the rest of these people want investors to surrender investment decisions? I kinda thought self determination of savings (is/was a big part of Bush's so-called ownership society) was the needed tonic. Personally, I think Bush, Amelio and the rest believe most federal employees are sufficiently institutionalized to go along with whatever scheme they propose. Come on folks, show them all different come the next mid-term elections with a "clean sweep" of any anti-American. Before you vote, think hard about who's been doing what to whom. Remember congressional spending excesses approved, no vetoes so far by the Bush Administration. Now what political party is that? Think hard now! One last thing, who vilified American citizens? (The Minutemen Project equated to vigilantes) while steadfastly refusing to do anything to secure the southern border for a full three years following 9/11. Please think before you pull the chain on America at the polling booths! Cracked & Wired Posted December 22, 2005 10:56 AM
• As the popularity of 401(K)-style retirement systems have grown, perhaps investors are more comfortable in balancing their own portfolio's rather than relying on unaccountable fund manager's ideas of "balance." As all of the funds are indexed anyway, who needs more "Nanny-State" decisions? Barry Lewis Posted December 22, 2005 8:48 AM