Invest More in TSP, Says Head of World's Largest Asset Management Firm

Employees failing to reap the full benefit of their retirement investment accounts is the “biggest problem we have with society today,” according to the chairman of the largest asset management firm on the planet.

BlackRock Chairman and CEO Larry Fink told the agency tasked with managing the Thrift Savings Plan that federal workers should be “maxing out” their accounts, meaning they should contribute 5 percent of their paychecks to their plans to receive the largest possible contribution from their agencies. 

Federal agencies fully match the first 3 percent of their employees’ contributions to their retirement investment plans, and match 50 percent of their contributions up to 5 percent. Therefore, agencies contribute up to 4 percent of their employees’ salaries to their TSPs.

BlackRock -- which oversees $4.59 trillion in assets -- manages four of the TSP’s five individual funds, namely fixed income bonds (F), common stocks that track the Standard and Poor’s 500 Index (C), small cap stocks (S) and international stocks (I). Several members of the firm’s management team briefed Federal Retirement Thrift Investment Board officials on Monday at the agency’s monthly meeting.

FRTIB officials have voiced their own concerns about participants not making the most of their accounts. More than one-quarter of TSP enrollees are not receiving the maximum benefit from their agencies. New employees default at a 3 percent contribution rate.

Amy Schioldager, a senior managing director at BlackRock, praised FRTIB for removing complexity from the process for participants who often have low levels of knowledge about their investments.

“The beauty of the plan is it’s a simple lineup,” Schioldager said in reference to TSP’s five basic funds, which are mixed in various ratios depending on a participant’s anticipated retirement date to make up the lifecycle (L Fund) offerings.

TSP participation among Federal Employees Retirement System workers remained at its all-time high of nearly 88 percent last month. Feds this year are also leaning on their TSP accounts for liquid cash less than they did in 2013. The total number of hardship withdrawals is down 9 percent and the number of loans has fallen 8 percent so far in 2014.

The total amount of cash being taken out due to withdrawals and loans has increased, however, meaning employees who are borrowing off their TSP accounts are doing so to a larger degree than in 2013.

TSP participants are moving out of the I Fund, partially due to volatility in European markets -- including that caused by the ongoing Ukraine-Russia conflict -- according to Board officials. The I Fund is up about 4.6 percent on the year, but has dipped in the last three months. Instead, federal employees and retirees are investing in the S and lifecycle funds.

The Board is attempting to get far more participants to invest in their lifecycle funds, and has pushed for legislation in Congress to make new employees default into the relevant L Fund. Both the House and Senate have passed identical versions of the bill, but for procedural reasons one body still must formally approve the other’s legislation before the bill can be sent to President Obama’s desk.

FRTIB officials were confident this will happen when lawmakers return after the midterm elections. 

(Image via Oldrich / Shutterstock.com)