TSP launches life-cycle funds

New life-cycle investment funds are now available to participants in the Thrift Savings Plan, as of Monday.

The TSP, which is a 401(k)-style retirement savings plan for federal employees, launched its newest set of funds in order to help participants allocate their money more effectively, according to plan administrators.

TSP Executive Director Gary Amelio said that surveys "have all shown that about 90 percent of plan participants either never ever reallocate their account balance or do so less frequently" than they should. "A great number of participants either never get on, or fall off, the participant frontier," Amelio said.

The new fund, which the TSP is advertising as putting investments on "cruise control," automatically shifts participants' money from a mix of riskier to more conservative investments as participants age, according to TSP literature.

Now, participants who log onto their accounts on the TSP Web site have the option to allocate money into the L 2040, L 2030, L 2020, L 2010 and L Income funds. Investors can opt into one of those funds based on the date they expect to start using the money in their account once they leave the civil service, TSP officials said.

Participants can make two changes to their account makeup to divert money into the new fund. They can change their contribution allocation to put any new contributions into the life-cycle fund, or they can perform an interfund transfer which will move an existing account balance into the fund.

On the TSP Web site, advisers warn participants to "think carefully before investing in multiple funds. The L Funds are designed so that 100 percent of your TSP account should be invested in the single L Fund that most closely matches your time horizon. Any other use of the L Funds may result in less than optimal returns, a higher amount of risk in your portfolio, or both."

Until now, the TSP had five investment funds. This sixth set allots resources among the five already existing options: government securities, fixed income securities, common stocks, international stocks, and small and mid-size companies.

For participants who foresee retirement around 2040, for example, 42 percent of their money will be invested in common stocks and 5 percent in government securities, the most conservative fund.

Participants who predict retirement around 2010, on the other end of the spectrum, will have 43 percent of their funds put into government securities and 27 percent in common stocks.

Life-cycle funds are automatically rebalanced daily. Then, each quarter, the investments are shifted to a slightly more conservative mix. TSP officials also review the investment mixes periodically to ensure suitability.

Participants can view pie charts illustrating how investments will change over time in the various "life-cycle" funds on the TSP Web site.

Despite discussion in the past of making this new option the default for participants who do not designate specific funds, the default will remain the G fund for the time being, according to TSP spokesman Tom Trabucco.