The Thrift Savings Plan (TSP) is a defined contribution plan for United States civil service employees and retirees as well as for members of the uniformed services. As of December 31, 2018, TSP has approximately 5.5 million participants (of which approximately 3.3 million are actively participating through payroll deductions), and more than $558 billion in assets under management;it is the largest defined contribution plan in the world. The TSP is administered by the Federal Retirement Thrift Investment Board, an independent agency.
The TSP is one of three components of the Federal Employees Retirement System (FERS; the others being the FERS annuity and Social Security) and is designed to closely resemble the dynamics of private sector 401(k) and Roth 401k plans (TSP implemented a Roth option in May 2012). It is also open to employees covered under the older Civil Service Retirement System (CSRS) but with far fewer benefits (mainly the lack of matching contributions).
CSRS employees and members of the uniformed services may join at any time but are not automatically enrolled.
FERS employees are automatically enrolled upon hire and 5% of base pay is automatically withheld unless the employee elects not to participate.
An employee or uniformed service member may change, stop, or restart contributions, at any time, with very few exceptions noted below.
As of October 1, 2020, new civilian employees and servicemembers are automatically enrolled in the TSP with a 5% deduction from their gross pay being deposited into the age-appropriateLifecycle (L) Fund, unless they make another choice or choose not to participate.
All FERS and CSRS employees and members of the uniformed services may contribute up to the Internal Revenue Code limitation, which is $19,500 for 2020. The contribution for FERS and CSRS for civilian employees may be either a specific dollar amount or a percentage of pay (whole dollars or whole percentages only), while uniformed service members can only elect a percentage of pay; any amounts will be adjusted once the annual IRC limitation is reached. Once the contribution is selected it automatically renews each year at the same amount or percentage until the participant elects otherwise.
In addition, participants age 50or older may also make "catch-up" contributions up to the IRC limitation, which is $6,500 for 2020. The catch-up contributions are tax-deferred and allow age eligible participants to defer up to $26,000 (for 2020) in their TSP account. However, unlike the regular TSP contribution, this election does not automatically renew each year; the employee must specifically make a new election each year.
Civilian employees may only contribute from regular pay (the standard pay for their grade plus applicable locality pay); they cannot contribute from bonuses or any overtime.
Uniformed service members are permitted to make contributions from both basic pay as well as from incentive, special, or bonus pay, but are subject to the regular contribution limits. Members of the uniformed services who deploy to designated combat zones are subject to the combat zone tax exclusion, which allows tax-exempt income earned. Contributions to the TSP by uniformed service members in a combat zone are contributed to the TSP as tax-exempt, and accrue tax-deferred earnings. Tax-exempt contributions are not subject to the IRC elective deferral limit.
Participants who are both civilian federal employees and members of the uniformed services will have two separate TSP accounts if they elect to contribute while in civilian and/or uniformed service status, however the total tax-deferred contributions in both may not exceed the IRC elective deferral or catch-up limits.
In addition, the total tax-deferred, tax-exempt, and agency contributions made to both TSP accounts are subject to the IRC Section 415(c) overall limitation, which is $57,000 for 2020. Catch-up contributions made are in addition to the elective deferral and 415(c) limits.
Participants may also rollover existing 401(k) or Individual Retirement Accounts (traditional IRAs only) into the TSP.
All FERS employees automatically have 1% of base pay contributed by their agency, even if the employee does not participate in TSP; the employee cannot waive this requirement. Additional matching contributions are made dollar-per-dollar up to 3% of base pay (e.g. an employee contributing 3% will have 1% automatically contributed plus 3% matched, for a total of 4%), then at $0.50/$1 for each additional dollar up to 5% of base pay; amounts above 5% are not matched nor are "catch-up" contributions regardless of an employee's base pay.
CSRS employees (including CSRS Offset employees) are ineligible for automatic or matching contributions.
Uniformed service members under the legacy system are eligible for matching contributions only if the secretary of the specific service designates as such (as of 2019, no specific specialty has been designated as such). However, in 2006, Congress enacted legislation to sponsor a pilot program to offer matching contributions to new active duty enlistees. This program was administered by the Department of the Army from April 1, 2006 through December 31, 2008. Enlistees who qualified for TSP matching during this period (provided completion and returned paperwork was processed as of initial enlistment) receive a dollar for dollar matching contribution on the first three percent of their contributions from basic pay; and fifty cents on the dollar for the next two percent contributed for the duration of their first term of enlistment. The program has since ended, and according to the TSP as of the end of 2018 only five soldiers who were part of the pilot program are still serving and receiving such matching contributions.Beginning in 2018, the Blended Retirement System (BRS) for members of the uniformed services applies automatically to new enlistees (who may receive matching contributions after two years) and to current members who opted in (those members begin receiving matching contributions automatically).
Employees are fully vested from day one for any employee and agency matching contributions, and earnings thereon.
FERS employees must generally complete three years of Federal civilian service to be fully vested in agency automatic contributions and earnings thereon (certain employees have only a two-year requirement), otherwise the separated employee loses the unvested amount (except in cases of death, in which case the amounts will deem to be vested). Military and civilian service cannot be combined to meet vesting requirements.
TSP's operating expenses are extremely low.This is due to the expenses being subsidized by three major sources: matching contributions and earnings forfeited due to employees not meeting vesting requirements, excess agency contributions and earnings forfeited due to retirement plan corrections (this involves employees placed in FERS who were eligible for, and chose to be placed in, the older CSRS plan), and loan participation fees. However, those sources do not completely cover total expenses, and therefore the balance is taken from investment earnings.
The TSP offers investors 15 funds in which to invest, in both traditional and Roth versions (however, all agency automatic and matching contributions are placed in the traditional version of the fund(s) selected). Five are individual funds (one dealing with government bonds and the other four tracking specific market indices) while the other ten are target date funds (referred to as "Lifecycle" or "L" Funds) designed to professionally change the allocation mix of investments among the individual funds during various stages of the employee's federal service and are composed of various percentages of the individual funds. All TSP funds are trust funds that are regulated by the Office of the Comptroller of the Currency and not the Securities and Exchange Commission; thus, there is no ticker symbol to track actual performance (though with the individual funds except the G Fund, the comparable index is easily tracked).
Employees may choose from any or all of the individual or Lifecycle funds in which to invest (any allocation must be expressed as a whole percentage) and may change their allocation for future pay periods at any time (if the request is received before noon Eastern time it is usually effective as of the close of business that day; otherwise, it is effective the following business day). If no selection is made, the default is 100 percent allocation into an "age-appropriate" L Fund (except for uniformed services whose default is the G Fund). As all funds except the G Fund have a potential risk of loss of principal, an employee is required to acknowledge this risk before investing into those funds.
Participants may also choose to change the allocation percentage of their existing fund balances (referred to as "Interfund Transfers"). Participants may choose to allocate existing balances differently than new contributions, but are limited to two unrestricted transfers per calendar month, all subsequent transfers must be into the G Fund only.Websites such as TSPTALK discuss whether participants should move contributions and balances regularly between funds.
In July 2020, the TSP introduced the Lifecycle Fund series in five-year increments. Lifecycle Funds are target date funds which, over a long period of time (typically the period between an employee's entry/re-entry into Federal service and a presumed age of 63 for first withdrawal), allow for automatic reallocationof assets from more-risky stock funds (the C, I, and S Funds) into less-risky income funds (the F and G Funds) as an employee reaches retirement age, as an employee may lack the time, interest, and/or expertise to determine suitable investments at various life stages.
The current Lifecycle Funds established, along with the corresponding estimated retirement date window, are as follows:
The L 2010 and L 2020 Funds were retired on December 31, 2010 and June 30, 2020, respectively, and merged into the L Income Fund.As new funds are established, older funds will be retired and merged into the L Income Fund.
Because TSP funds are not offered in the public market (especially the G Fund as those securities are special to the TSP), it can be difficult to backtest TSP portfolios. However, most TSP funds track well-known indices and can be approximated using low-cost funds offered to the general public.Below is a list of Vanguard Exchange-Traded Funds (ETFs) that are equivalent to the TSP funds in terms of their content. (Please note: TSP funds have significantly lower expense ratios than the Vanguard funds.)
The TSP can also be approximated by tracking the performance of the index each fund seeks to match.
L funds can be approximated by mixing the above ETFs in percentages matching the allocation percentage of each individual component. For example, the L 2050 fund allocation may be simulated by a portfolio consisting of 41.9% VOO, 24.9% VEA, 17.95% VXF, 9.77% VGSH, and 5.48% BND.
There are two types of loans available (a general purpose loan and a loan for a primary residence); an employee can have only two loans active at any one time, one of each type.
The minimum loan amount is $1,000 and the maximum is $50,000, but the employee must have sufficient assets in the account to take out a loan. The minimum term is one year; the maximum term is five years for the general purpose loan and 15 years for the residence loan. There is a $50 processing fee per loan which is taken out of the loan proceeds. If the employee or servicemember is married the spouse (even if separated) must consent to the loan.
Loans must be repaid via payroll deduction (though an employee may also make additional repayments outside this process) and the interest rate charged is the G Fund return rate at the time the application is processed. After repayment an employee must wait 60 days before applying for another loan of the same type. If the employee separates from federal service before the loan is paid, the employee must repay the loan balance within 90 days or it will be reported as taxable income. In addition, any overdue amount not repaid by the end of the following calendar quarter is also reported as taxable income.
Employees may make either an "age-based" withdrawal or a "financial hardship" withdrawal. The minimum withdrawal amount is $1,000 (or the account balance, if smaller). For married FERS employees and uniformed service members the spouse must consent to the withdrawal; for married CSRS employees the spouse need only be notified. Any funds withdrawn cannot be repaid to the TSP, and subject the employee to both taxes (including penalties if the employee is under age 59½) and loss of potential future earnings.
An employee must be over age 59½ to request an "age-based" withdrawal, and need not specify any reason for doing so. Employees may make up to four such withdrawals per calendar year, but no sooner than every 30 days between them.
A "financial hardship" withdrawal can only be made once every six months, and is limited to one of four specific needs:
Separated and retired participants are not eligible for TSP loans.
Participants who retire under age 59½ and who withdraw their balances (either in a lump sum, partial withdrawal, or by annuity) are not subject to the early withdrawal penalty.
Participants who leave Federal service may leave their accounts with the TSP, rollover the TSP accounts into an IRA or (if leaving for a non-Federal employer, and where eligible) a retirement account with the new employer, subject to the requirements below.
Upon separation, any balances less than $200 (but at least $5) will be automatically cashed out in a single payment; amounts less than $5 are not automatically cashed out and are forfeited to the TSP, but the participant may later request payment. The participant then has 60 days to complete the rollover of the funds to a qualifying account to preserve their tax-deferred status.
For participants having balances of $200 or more, upon separation the following options are available (spouses' rights apply when the balance exceeds $3,500):
If an employee has both a traditional and a Roth account, withdrawals may be made from one or the other, or proportionally from both (but if one account reaches zero future withdrawals will be made from the other). For employees having multiple TSP accounts, the rules apply to each account separately. However, an employee cannot choose to withdraw from only certain funds (e.g. only from the C Fund), any withdrawals are made proportionally across all funds.
Any funds remaining in a TSP account will accrue earnings and participants may make interfund transfer allocation changes to the balance.
If a participant dies, then any unpaid balance is paid to the beneficiary(ies) designated. If the participant did not designate any beneficiary(ies), then the "statutory order of precedence"is used, as follows:
From time to time TSP announces changes to regulations affecting it; the intent is usually to increase participation and investment.
Changes which have been announced, but not yet implemented, are as follows:
Currently, employees who want to make catch-up contributions as permitted by IRS, must submit two forms to their payroll office: a form for regular contributions (which on an annual basis must total the regular IRS limit) and a separate form for catch-up contributions, and the catch-up form must be re-submitted annually. Since matching contributions are not made on catch-up contributions, this has resulted in some employees reaching their limit too early, thus missing out on additional matching funds, and thus additional TSP investment and related earnings.
Under changes effective with the first payroll period in 2021, TSP will go to the "spillover" method. This will require only one form from an employee, electing an amount or percentage to be withheld each pay period, which does not have to change annually unless the employee wants to make a change. Any amounts which exceed the regular IRS limit will "spill over" into the catch-up limit, but as long as the amount withheld each pay period is >=5% of gross pay, the full amount available for matching will be provided.
In the United States, a 401(k) plan is an employer-sponsored defined-contribution pension account defined in subsection 401(k) of the Internal Revenue Code. Employee funding comes directly off their paycheck and may be matched by the employer. There are two main types corresponding to the same distinction in an Individual Retirement Account (IRA); variously referred to as traditional vs. Roth, or tax-deferred vs. tax exempt, or EET vs. TEE. For both types profits in the account are never taxed. For tax exempt accounts contributions and withdrawals have no impact on income tax. For tax deferred accounts contributions may be deducted from taxable income and withdrawals are added to taxable income. There are limits to contributions, rules governing withdrawals and possible penalties.
A pension is a fund into which a sum of money is added during an employee's employment years and from which payments are drawn to support the person's retirement from work in the form of periodic payments. A pension may be a "defined benefit plan", where a fixed sum is paid regularly to a person, or a "defined contribution plan", under which a fixed sum is invested that then becomes available at retirement age. Pensions should not be confused with severance pay; the former is usually paid in regular installments for life after retirement, while the latter is typically paid as a fixed amount after involuntary termination of employment prior to retirement.
An individual retirement account (IRA) in the United States is a form of "individual retirement plan", provided by many financial institutions, that provides tax advantages for retirement savings. An individual retirement account is a type of "individual retirement arrangement" as described in IRS Publication 590, individual retirement arrangements (IRAs). The term IRA, used to describe both individual retirement accounts and the broader category of individual retirement arrangements, encompasses an individual retirement account; a trust or custodial account set up for the exclusive benefit of taxpayers or their beneficiaries; and an individual retirement annuity, by which the taxpayers purchase an annuity contract or an endowment contract from a life insurance company.
A registered retirement savings plan (RRSP), or retirement savings plan (RSP), is a type of financial account in Canada for holding savings and investment assets. RRSPs have various tax advantages compared to investing outside of tax-preferred accounts. They were introduced in 1957 to promote savings for retirement by employees and self-employed people.
Universal life insurance is a type of cash value life insurance, sold primarily in the United States. Under the terms of the policy, the excess of premium payments above the current cost of insurance is credited to the cash value of the policy, which is credited each month with interest. The policy is debited each month by a cost of insurance (COI) charge as well as any other policy charges and fees drawn from the cash value, even if no premium payment is made that month. Interest credited to the account is determined by the insurer but has a contractual minimum rate. When an earnings rate is pegged to a financial index such as a stock, bond or other interest rate index, the policy is an "Indexed universal life" contract. Such policies offer the advantage of guaranteed level premiums throughout the insured's lifetime at a substantially lower premium cost than an equivalent whole life policy at first. The cost of insurance always increases, as is found on the cost index table. That not only allows for easy comparison of costs between carriers but also works well in irrevocable life insurance trusts (ILITs) since cash is of no consequence.
A retirement plan is a financial arrangement designed to replace employment income upon retirement. These plans may be set up by employers, insurance companies, trade unions, the government, or other institutions. Congress has expressed a desire to encourage responsible retirement planning by granting favorable tax treatment to a wide variety of plans. Federal tax aspects of retirement plans in the United States are based on provisions of the Internal Revenue Code and the plans are regulated by the Department of Labor under the provisions of the Employee Retirement Income Security Act (ERISA).
A qualified domestic relations order, is a judicial order in the United States, entered as part of a property division in a divorce or legal separation that splits a retirement plan or pension plan by recognizing joint marital ownership interests in the plan, specifically the former spouse's interest in that spouse's share of the asset. A QDRO's recognition of spousal ownership interest in a plan participant's (employee's) pension plan awards a portion of the plan participant's benefit to an alternate payee. An alternate payee must be a spouse, former spouse, child or other dependent of the plan participant. A QDRO may also be entered for spousal support or child support.
The Federal Retirement Thrift Investment Board was established as an independent agency of the United States government by the Federal Employees Retirement System Act of 1986. It has roughly 270 employees. It was established to administer the Thrift Savings Plan, which is a retirement savings and investment plan for federal employees and members of the uniformed services, including the Ready Reserve. The Thrift Savings Plan is a tax-deferred defined contribution plan similar to a private sector 401(k) plan. The Thrift Savings Plan is one of the three parts of the Federal Employees Retirement System, and is the largest defined contribution plan in the world with over 5 million participants and assets worth over $500 billion. The board members and its chairman are nominated by the president and confirmed by the United States Senate. The current chairman is Michael Kennedy.
A traditional IRA is an individual retirement arrangement (IRA), established in the United States by the Employee Retirement Income Security Act of 1974 (ERISA). Normal IRAs also existed before ERISA.
The Civil Service Retirement System (CSRS) was organized in 1920 and has provided retirement, disability, and survivor benefits for most civilian employees in the United States federal government. Upon the creation of a new Federal Employees Retirement System (FERS) in 1987, those newly hired after that date cannot participate in CSRS. CSRS continues to provide retirement benefits to those eligible to receive them.
The Federal Employees' Retirement System (FERS) is the retirement system for employees within the United States civil service. FERS became effective January 1, 1987, to replace the Civil Service Retirement System (CSRS) and to conform federal retirement plans in line with those in the private sector.
Superannuation in Australia are the arrangements put in place by the Government of Australia to encourage people in Australia to accumulate funds to provide them with an income stream when they retire. A type of employment funded pension, superannuation in Australia is partly compulsory, and is further encouraged by tax benefits. The government has set minimum standards for contributions by employees as well as for the management of superannuation funds. It is compulsory for employers to make superannuation contributions for their employees on top of the employees' wages and salaries. The employer contribution rate has been 9.5% since 1 July 2014, and as of 2015, was planned to increase gradually from 2021 to 12% in 2025. People are also encouraged to supplement compulsory superannuation contributions with voluntary contributions, including diverting their wages or salary income into superannuation contributions under so-called salary sacrifice arrangements.
A defined contribution (DC) plan is a type of retirement plan in which the employer, employee or both make contributions on a regular basis. Individual accounts are set up for participants and benefits are based on the amounts credited to these accounts plus any investment earnings on the money in the account. In defined contribution plans, future benefits fluctuate on the basis of investment earnings. The most common type of defined contribution plan is a savings and thrift plan. Under this type of plan, the employee contributes a predetermined portion of his or her earnings to an individual account, all or part of which is matched by the employer.
A private pension is a plan into which individuals contribute from their earnings, which then will pay them a private pension after retirement. It is an alternative to the state pension. Usually individuals invest funds into saving schemes or mutual funds, run by insurance companies. Often private pensions are also run by the employer and are called occupational pensions. The contributions into private pension schemes are usually tax-deductible. This is similar to the regular pension.
A Leave and Earnings Statement, generally referred to as an LES, is a document given on a monthly basis to members of the United States military which documents their pay and leave status on a monthly basis.
Congressional pension is a pension made available to members of the United States Congress. As of 2019, members who participated in the congressional pension system are vested after five (5) years of service. A full pension is available to members 62 years of age with 5 years of service; 50 years or older with 20 years of service; or 25 years of service at any age. A reduced pension is available depending upon which of several different age/service options is chosen. If Members leave Congress before reaching retirement age, they may leave their contributions behind and receive a deferred pension later. The current pension program, effective January 1987, is under the Federal Employees Retirement System (FERS), which covers members and other federal employees whose federal employment began in 1984 or later. This replaces the older Civil Service Retirement System (CSRS) for most members of congress and federal employees.
Andrew Marshall Saul is an American businessman from Katonah, New York who serves as the Commissioner of the Social Security Administration. Saul previously served as the Chairman of the Federal Retirement Thrift Investment Board (FRTIB) and Vice Chairman of the Metropolitan Transportation Authority (MTA) in New York City, United States. Saul has been a General Partner in the investment firm Saul Partners, L.P., since 1986. As Chairman of the Thrift Investment Board, he was responsible for overseeing the Thrift Savings Plan (TSP) which is the retirement savings account for employees of the Federal Government and soldiers of the armed services. The TSP is known to reap higher returns for their retirement than comparable private-sector workers, and is immune from many of the problems that plague mutual funds. During Saul's tenure, the TSP was grown to over $200 billion in assets by 2007, making it twice as large as when he began in 2003. He also cut operating expenses by over $20 million. The TSP is the largest defined contribution plan in the world with over 3.7 million participants and assets worth over $210 billion. The plan is expected to grow to at least $300 billion by 2010.
A defined benefit pension plan is a type of pension plan in which an employer/sponsor promises a specified pension payment, lump-sum or combination thereof on retirement that is predetermined by a formula based on the employee's earnings history, tenure of service and age, rather than depending directly on individual investment returns. Traditionally, many governmental and public entities, as well as a large number of corporations, provided defined benefit plans, sometimes as a means of compensating workers in lieu of increased pay.
A Solo 401(k) is a 401(k) qualified retirement plan for Americans that was designed specifically for employers with no full-time employees other than the business owner(s) and their spouse(s). The general 401(k) plan gives employees an incentive to save for retirement by allowing them to designate funds as 401(k) funds and thus not have to pay taxes on them until the employee reaches retirement age. In this plan, both the employee and his/her employer may make contributions to the plan. The Solo 401(k) is unique because it only covers the business owner(s) and their spouse(s), thus, not subjecting the 401(k) plan to the complex ERISA rules, which sets minimum standards for employer pension plans with non-owner employees. Self-employed workers who qualify for the Solo 401(k) can receive the same tax benefits as in a general 401(k) plan, but without the employer being subject to the complexities of ERISA.
The Smart Savings Act made the default investment in the Thrift Savings Plan (TSP) an age-appropriate target date asset allocation investment fund instead of the Government Securities Investment Fund.
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Thrift Savings Plan