Staying the Course

The Thrift Savings Plan now boasts more than 4 million participants, and the overwhelming majority of them are content with the 401(k)-style retirement savings program despite the volatile financial market.

A November 2008 survey by the Federal Retirement Thrift Investment Board and consulting firm Watson Wyatt indicated that 81 percent of TSP participants were satisfied with the plan. That represents a slight decrease from a 2006 survey, when 85 percent of respondents said they were satisfied.

The latest survey was conducted through a paper-based mailing to the homes of a random sample of federal employees and uniformed service members who have participated in the TSP. Nearly 5,000 participants completed the questionnaire; 27 percent of respondents were in the Federal Employees Retirement System, 28 percent were in the Civil Service Retirement System, 21 percent were members of the active-duty uniformed services and 24 percent were from the ready reserves.

Most respondents noted they had not made any major changes to their retirement savings patterns in the face of the uncertain economy. Eighty-six percent said they had not reduced their TSP contributions; 90 percent said they were still contributing something.

The economic downturn did prompt some participants to transfer or consider transferring some or all of their account balance to the less-risky government securities (G) fund. Nineteen percent said they moved at least a portion of their investments to the G Fund; another 16 percent said they were thinking about transferring their account balance to the more stable option.

The survey also provided some insight into why employees are satisfied with the TSP. Participants said their top five reasons for contributing to the plan were: the tax benefits, convenience of payroll deductions, freedom to retire when ready, matching contributions from the government, and its low administrative costs.

A majority of respondents (56 percent) said the program could be enhanced by the addition of a Roth 401(k) option, which would allow for after-tax contributions. Forty-two percent said they would allocate some or all of their contributions to a Roth account if given that choice.

In addition, 39 percent of participants said they believed the TSP would benefit from a self-directed mutual fund window that would offer a choice of hundreds of publicly-traded mutual funds. But 50 percent of respondents said they would seek professional investment assistance before taking advantage of such an option.

The Roth addition and mutual fund window could help entice employees to join the TSP, respondents noted. Forty-four percent recommended the Roth option as a way to increase participation and 24 percent suggested the mutual fund window. Other suggestions for boosting enrollment included matching new employees' contributions immediately (69 percent encouraged this) and signing up new recruits automatically (51 percent recommended this).

Ten Years in the TSP

Fixed-income bonds represented in the plan's F Fund earned the highest returns since 1999, coming in at 5.69 percent. The TSP's most reliable investment option, the government securities (G) fund, posted gains of 4.92 percent for the decade.

Returns for the S Fund, which invests in small- and mid-size companies by tracking the Dow Jones Wilshire 4500 Index, came in at 1.74 percent since 2001, the year the fund was created. International stocks represented in the I Fund, which also was created in 2001, posted minimal gains of 0.84 percent since the fund's inception.

The C Fund, composed of common stocks on the Standard & Poor's 500 Index of the largest domestic companies, was the sole loser over 10 years, posting losses of 1.40 percent.

None of the TSP's five lifecycle options, which were created in August 2005, have fared well in the long term. The L funds are a blend of the five basic investment options that automatically grows more conservative as participants near retirement.

L 2040, intended for employees with a target retirement date around 2040, lost 31.53 percent since 2005; L 2030 dropped 27.50 percent; L 2020 fell 22.77 percent; and L 2010 lost 10.53 percent. The L Income Fund, designed for employees planning to retire in the near future, decreased 5.09 percent since 2005.