Countdown to Life Cycle

The Federal Retirement Thrift Investment Board is hoping to launch its "life-cycle" retirement option by July, and officials announced Wednesday that a contractor has been chosen to help spread word about the new initiative to the the federal workforce.

Thrift plan Executive Director Gary Amelio said, however, that he doesn't want to set a target date in stone.

"We would like to get this fund up and running and operational by the middle of 2005," Amelio said during a board meeting Wednesday. "But we would rather do it right than rush it out … we've talked about July 1."

In April 2004, the board voted unanimously to launch the life-cycle fund. Several months later, Thrift officials chose Mercer Investment Consulting to develop the investment option. The plan would be a collection of existing funds, automatically diversified and adjusted over time. The life-cycle plan would generally place the investment in funds with a potentially higher return while employees are younger but would automatically shift money to more conservative investments as the employee nears retirement.

The TSP, a 401(k)-style retirement plan for federal employees, has 3.3 million participants and $152 billion in assets. The plan has five funds, which are invested in government securities, fixed income securities, common stocks, international stocks, and small and mid-size companies.

Amelio said he does not expect any delay with the technical development of the life-cycle plan. He noted, however, that educating the federal workforce about it could take more time than anticipated. To that end, Thrift officials announced that CitiStreet-a joint venture between financial service companies State Street Corp. and Citigroup-has been selected to help develop the communications package. No details of the contract were released, but Thrift officials stressed the importance of the communications portion of the plan.

"You're going to have to explain the difference," said Penny Moran, director of benefits services at the Thrift plan. "It's not just sort of a one-shot deal in the middle of the summer."

While the Thrift Board has been extremely supportive of the life-cycle plan, several members balked at a proposal to make the new option the default investment for federal workers who do not designate a specific fund. Currently, workers who do not select an option have their money directed to the G Fund, which is comprised of government securities and is the most conservative of the choices. More than 20 percent of all Thrift members have all their money invested in the G Fund. TSP officials could not break down how many have chosen that allocation and how many were placed there by default.

"To some extent it is because they don't think about it, to some extent it is because they don't know what to do," Moran said in explaining the high numbers of workers with all their money in the G Fund. Amelio said that congressional action would be required to change the default investment option at the TSP.

"The G Fund is simply too conservative for people who never make a decision," he added.

Several board members objected, however, saying that employees' money should be placed in the safest possible investment unless they chose otherwise.

"You are making a decision for those people," said board member Tom Fink. "Why should we take responsibility for investing?"

Board member Alejandro Sanchez said that the TSP should do everything within its power to educate workers about the new investment option, but they should not place money into it without workers' direct consent.

"I just don't think that is what our mission is," he said.

Board Chairman Andrew Saul asked members to put the issue aside until after the new investment option is launched and fully operational.