The Game of Life(cycle)

As of this week, nearly 73,000 Thrift Savings Plan participants had invested $2.8 billion in assets in the TSP's new life-cycle funds, according to plan administrators.

The TSP Board, which oversees the government's 401(k)-style retirement savings plan, designed the funds to automatically shift participants' money from a mix of riskier to more conservative investments as participants age, allowing for automatic money management.

The life-cycle option was created when TSP officials found that federal employees weren't making the wisest choices when it came to their investments. Too many employees simply plunked their savings into the ultra-safe government securities G fund and didn't get the kinds of returns they could have achieved with a more diversified mix of funds.

How many people ultimately will decide to put their nest eggs in the life-cycle basket? Last week, Gary Amelio, executive director of the TSP board, shed light on that question.

Amelio said that "based on an extensive survey of vendors," the TSP board, prior to launching the new life-cycle option, set a goal of a 5 percent participation rate over the next five years, and 10 percent in the five years after that.

Amelio noted that in the first two weeks the life-cycle funds were offered, nearly 50,000 participants had invested $2.1 billion in the funds, figures he said were "far beyond my wildest expectations." At that point, the TSP already was almost a third of the way toward its five-year participation goal and had achieved one-fourth of its goal for assets.

With just a bit of quick math, one can deduce what the TSP board is aiming for: nearly 170,000 participants and about $8.2 billion in asset allocations over the next five years. In 10 years, they'd like to see 340,000 participants and $16.4 billion in assets. That's out of a total of 3.4 million participants and $159 billion in resources.

TSP officials have another goal: They want participants in the L Funds to allocate 100 percent of their TSP savings into them, in order to get the most out of the investment principle behind the funds. Amelio reports that, indeed, "most participants" who are investing in the life-cycle funds are putting 100 percent of their savings into them.

Who's In?

Amelio also provided a few more interesting L Fund stats. For one, he said that there's a much higher participation rate from the armed services than civilians in the new funds. He speculates that the reason for this is that demographically, members of the armed forces tend to be younger than their civilian counterparts. Younger investors may be more attracted to the life-cycle concept because the funds are designed to work over a lifetime of employment. Indeed, members of the armed services have invested heavily in the 2040 fund, which is intended for workers whose target retirement date lies around the year 2040.

But the life-cycle funds are appealing to some older investors, too. Significant L fund investments have come from employees who are part of the Civil Service Retirement System. Those workers mostly have invested in the L income and 2010 funds, which are targeted for employees nearing retirement.

Employees in the Federal Employees Retirement System have put their money primarily in the 2020 and 2010 funds; they're aiming for retirement slightly later than their CSRS colleagues.

All of these numbers make "complete sense," Amelio said.

Those who have joined so far have opted in even before the TSP Board has sent out an explanatory DVD on life-cycle funds to all TSP participants. Look for the DVD in your mailbox in the weeks to come.