A New Life Cycle

The Federal Retirement Thrift Investment Board announced Wednesday that it has selected a consulting company to assist in the development of a new retirement investment option, known as the "life-cycle" fund.

In April, the board voted unanimously to launch the life-cycle alternative. After several months of deliberations and research, the Thrift Board chose Mercer Investment Consulting as the vendor to develop the option. Mercer is the consulting branch of Marsh & McLennan Companies, a global firm with 63,000 employees worldwide and more than $11 billion in annual revenue. Board officials have said they are not able to disclose details about the losing vendors in the competition because of legal restrictions on government procurement.

The life-cycle plan would be a collection of existing funds, automatically diversified and adjusted over time, to account for each federal worker's investment preferences. For example, younger workers could choose to adopt a strategy that initially takes an aggressive investment approach but would automatically transition to lower-risk funds in later years as the worker nears retirement.

The TSP, which operates as a 401(k)-style retirement resource for federal employees, has 3.3 million participants and more than $140 billion in assets. The plan has five existing funds. The G Fund-which is invested in government securities-is the most conservative option. The F Fund is invested in fixed income securities. The C Fund is invested in common stocks, the I Fund invests in international stocks, and the S Fund invests in small and mid-size companies. The S and I Funds were added to the plan in May 2001.

"From an investment perspective, it was the only material gap in the TSP and the next logical step in keeping the TSP consistent with the best plan designs in the industry," said Gary Amelio, the executive director of the Thrift plan. "I'm grateful to all of the vendors who submitted excellent proposals, and energized by the prospect of tapping Mercer's extensive experience in bringing the option of life-cycle funds to TSP participants."

According to previously released TSP estimates, about 10 percent of participants are expected to join the plan in its first five years. The cost-which officials have said will be minimal-will be carried by the entire Thrift plan.

Amelio has said previously that he wants the life-cycle option to launch in early 2005. It has not yet been given an official name, but Thrift officials noted last week that many federal employees are referring to it as the "L Fund." Amelio said that this nickname might be hard to shake, even after an official name is chosen.