Cost of managing TSP continues to shrink

The Thrift Savings Plan is cheap and getting cheaper. TSP officials announced Monday that by fiscal 2007, the 401(k)-style retirement savings plan's budget will drop by about 25 percent from three years before.

Fiscal 2004's budget was $101.5 million; for fiscal 2005 it was $94.9 million. The projected budget for fiscal 2006 is $89.4 million and for fiscal 2007 is $76.8 million, TSP spokesmen said. Those administrative costs come directly out of participants' investments.

The TSP, which already is considerably less expensive than equivalent private 401(k) plans such as those offered by Fidelity and Vanguard, is saving money primarily due to the competitive sourcing of administrative duties such as record-keeping, TSP executive director Gary Amelio said.

Functions previously performed by the Agriculture Department's National Finance Center in New Orleans have been contracted out to private bidders. These include a call center in Clintwood, Va., that is operated by SI International and some financial functions now handled by US Bank. Amelio said about $18 million is being saved on functions the NFC used to perform alone.

TSP administrators are "being very frugal while at the same time providing top services to our participants," Amelio said.

While costs are going down, participation is going up, TSP Board Chairman Andrew Saul said. The board is predicting that by fiscal 2007 there will be about $200 billion of assets under management in the TSP, compared to about $159 billion now. That means that the ratio of cost per person is being driven down even farther.

Not all costs are going down, though. The fiscal 2006 budget calls for a $1.2 million increase in salaries and benefits for the 91 full-time and seven part-time TSP staff members. Administrators say this increase is a result of six vacancies which will be filled, as well as employee bonuses.

The TSP Board's operating costs are rising as well. For fiscal 2006, operating expenses will rise $4.4 million to $10.9 million, with a slight projected decrease for fiscal 2007 of $0.8 million, bringing costs to $10.1 million. Part of the extra funds will go to pay an investment consultant being brought on to study the possibility of adding a Real Estate Investment Trust fund to the TSP options. TSP officials will also use funds for travel to their new outsourced operations and a participant survey budgeted to cost $1 million.

In addition, money that was set aside for fiscal 2005 to get out the word on the TSP's new life-cycle funds, including postcards and a DVD advertising the new fund, are not necessary for the following years.

The TSP board voted unanimously to approve the budget at their board meeting Monday.