TSP holds steady amid economic downturn

After a tumultuous October, the board and staff of the Thrift Savings Plan said on Monday that the program is fundamentally strong, and they are monitoring allocations and the investment practices of the major contractors who handle TSP funds.

"I think everyone knows that October was a difficult month in the capital markets," said TSP Executive Director Greg Long on Nov. 24 at the organization's monthly meeting. "Volumes have been high, activity's been high, we've had significant funds move to the G Fund, but we have weathered those storms and are helping participants as best we can."

In particular, Long was referring to a sharp spike in queries to the TSP's call centers on Oct. 10. Pamela-Jeanne Moran, TSP's director of participant services, said the call volumes have returned to normal, and most callers were asking about withdrawals from their TSP investments and loans.

TSP participation was constant between September and October, hovering at 85 percent, down from a high of 86 percent in May. Participation among members of the uniformed services actually rose slightly from September to October, from 27.1 percent to 27.5 percent, driven mostly by a 1.1 percent increase in enrollment among members of the Ready Reserves.

Those members, however, were moving their money. The balance of the G (government securities) Fund increased by $5.5 billion from September to October as investors sought a safe haven in the TSP's most stable offering. Fifty-one percent of all TSP funds are now in the G Fund. In contrast, investors transferred $2.3 billion out of the C Fund, which tracks Standard & Poor's 500 Index, and the fund's value dropped 16.83 percent in October. Its overall value is down 36.08 percent since October 2007.

While Tracey Ray, TSP's chief investment officer, acknowledged during Monday's meeting that losses have been substantial in some funds, she said it could have been worse, and TSP investors are protected by more conservative allocations in certain funds.

"Our [Life-cycle Income Fund, for federal employees about to retire] is 85 percent income and 15 percent equities," she said. "But that's not a rule. That's determined by the individual [investment firms]. Other organizations, maybe for marketing purposes, make their allocations more aggressive."

That caution extends into other areas of TSP oversight. Barclays Global Investors, a British firm that oversees funds that four TSP funds buy into, engages in some securities lending, a practice where large lenders take collateral and fees in exchange for some of their securities, which borrowers then use in other transactions. This is a common approach, and Long wrote in a memo to the Federal Retirement Thrift Investment Board that Barclays is conservative in its securities lending, and the practice should not be a cause for concern.

"We were very clear that we understood the risk controls and properties," Long said during the meeting. "We are comfortable that BGI has the appropriate processes set up around securities lending. It doesn't mean we have to stop looking at this."

While the board and staff are confident they are safeguarding participants' investments to the best of their ability, they are still bracing themselves for negative reviews on a survey given to 35,000 federal employees and military members on Nov. 14. Survey responses are due by Nov. 16.

"Even if our services are better in every conceivable way, there's the reality that if your account is down 10 percent or 15 percent, than you're likely to be dissatisfied," Long said. "I don't know how we're going to correct for that."