TSP Mutual Fund Update and Regulations

Earlier this month, the agency that manages the federal government’s 401(k)-style retirement savings program has proposed updates to enable the Thrift Savings Plan to grant participants access to thousands of mutual funds sometime this year. 

This proposal of giving federal workers and retirees access to a mutual fund window has been in the works for a while now. Congress initially granted the Federal Retirement Thrift Investment Board the permission to offer a mutual fund window in 2009. The TSP board approved it in 2015, yet implementation was still stalled until the agency signed a contract with a new recordkeeper in 2020. Now the real results can begin. 

So, what does this mean for TSP participants? A mutual fund window will provide participants with access to upwards of 5,000 mutual funds, including important investments such as environmental, governance, and social funds, which cut out major polluters, for example, fossil fuels. These new options also diversify fund portfolios. Climate awareness and diversity in funds were two major points long proposed by lawmakers and activists alike. 

The TSP released an outline of updates required for the onset of the mutual fund window in the Federal Register, which stated that the implementation is set for this summer. A major change amidst the new regulations is how the agency will acquire fees to pay the administration in charge of the new investment option. 

This means new fees for participants, but only those who elect to invest in a mutual fund through the TSP. According to the proposal, participants who choose to invest solely in the lifecycle or “core” funds will not experience increased fees due to a new investment option they are not using. 

Those participants that choose to invest in the mutual fund window will be required to pay a $95 annual maintenance fee; a per-trade fee of $28.75; fees imposed by the specific mutual fund in which the participant chooses to invest, which will vary by fund; and a fee aimed at ensuring “the availability of the mutual fund window will not indirectly increase the share of TSP administrative expenses borne by participants who choose not to use the mutual fund window.” 

Typically, the TSP charges participants a share of the agency’s administrative expenses, but with the new mutual fund window, that number will no longer be sufficient to cover the TSP’s overhead. Due to this update, mutual fund window users must pay an annual fee of $55, and this fee will be subject to updates every three years. 

There is also a new limit set in regards to both how much and how little money participants can transfer between core funds and the mutual fund window. Participants will be required to make an initial transfer of at least $10,000, and participants must also have a minimum TSP balance of $40,000 to become eligible to invest in the mutual fund window. TSP participants are not allowed to invest more than 25% of their total balance into mutual funds. 

Additionally, all transfers to or from mutual fund investments will count toward the maximum of two interfund transfers allowed in a calendar month. Once those two transfers are used, which also includes any transfers between the TSP’s core funds, any other transfer must be into the government securities (G) fund. 

If you want your voice heard and have questions, comments, and concerns, the TSP is requesting comments on these proposed rules between now and March 25th.  

To stay informed on updates pertaining to the federal workforce, check out the Federal News Bulletin for weekly stories. If you want to learn more about the impending mutual fund option for your investment plan, become a member today at Federal Benefits Service and instantly gain access to the TSP Market Watch for fund allocation recommendations. 


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