How Does a Thrift Savings Plan (TSP) Work?

What is a Thrift Savings Plan (TSP)? 

The Federal Employees’ Retirement System Act of 1986 (FERSA) administers the TSP as a part retirement plan with an investment-savings plan for both civil and military personnel of the federal US government.

In this plan, both the employee and their hired agency will contribute equally to the investment fund, i.e., a defined contribution. And this fund will be overseen by the FRTIB. This fund has many options, like the Government Securities Investment (G) Fund, Fixed-income Index Investment (F) Fund, Common-Stock Index Investment (C) Fund, Small-Capitalization Stock Index Investment (S) Fund, International-Stock Index Investment (I) Fund, Specific Lifecycle (L) Fund, and Mutual Fund Window.

How Does a Thrift Savings Plan (TSP) Work? 

As we have already seen, a thrift savings plan is an investment savings plan with defined contributions made by both the employee and the hiring agency to the various funds based on the employee's best preferences and options.

One can get better results from its personalized advice to maximize savings and investment. People can access the TSP either through an official mobile app in both Android and Apple app stores or via the website. In that interface, they will have a plethora of fund options to choose from, as we know.

 But there is a catch: contributions to these funds are limited per calendar year for the employee, not for the contributing agency. The limit is set by Internal Revenue Service code rules, based on which only one can contribute. The funds for the calendar year 2023-2024 were recently released by the TSP Bulletin. Let's look at the limit.

From this contribution limit, one can see that TSP is structured in such a way that employees cannot pour all the money into it at once, nor can they withdraw money at their will, as there is a penalty for it and tax rules involved.

So indeed, there are lots of checks and balances involved for employees to guide their savings into the proper channel to get their best possible investment returns when they retire.

Eligibility for Thrift Savings Plan

Eligibility is based on the type of employment. 

• Federal Employees Retirement System (FERS) employee, hired on or after the cutoff date of January 1, 1984.
• A Civil Service Retirement System (CSRS) employee, 
• Members of the uniformed services, including those on active duty or in the Ready Reserve,.
• Civilian in specific other categories of government service.

The employee must be working full-time with any of these organizations and be in a position to get pay that they can contribute to the stock fund. Check with your personnel office for more cutoff date details and the pay amount.

People who are hired after 2020 will have automatic deductions into TSP, so contact your personnel office to see if you are eligible for it.  

What Oversight System Exists in the Thrift Savings Plan if Things Turn South?  

The Thirft Savings Plan is managed by the FRTIB and has evolving oversight mechanisms set by the Congress and various government agencies of the US government, like the government accountability office, the Department of Labor, and Employee Benefits Security Administration (EBSA) audit reports.

The official name for this is the Thrift Savings Plan Fiduciary Oversight Program. The reports were prepared by third-party audits like KPMG, one of the big four accounting firms, which takes on tasks and makes recommendations that are to be completed in a calendar year.

For 2023, the majority of the audit report was about improving the IT-related, finance-related, and plan-management aspects of investing funds through stock channels. The Department of Labour, in its open recommendations report, said many things, but most of them were redacted due to public interference or trust level in the process reforms of the TSP.

Some of them that are not redacted are Account Maintenance Process Recommendations, the board of staff members having proper oversight among its personnel, and internal control mechanisms in its 2018 open recommendation, which were touched upon in a subtle manner in the reports.

So if things do go south, the people of America can have some level of trust that their savings will be in safe and reliable hands by knowing these mechanisms exist and having some sort of accountability from their elected and non elected responsible persons. 

Retirement and Fear of Non-Steady Income After Retirement 

Since 2008, there have been pretty pessimistic opinions about savings investment plans due to the stock market bubble in the housing markets. But after that, people have cultivated the capacity to have confidence in it, not because people will be ethical in their work but because the government will ultimately save them with government money.

But still, retirees have a pinch of anxiety with them. This has been exacerbated by the pandemic anxiety in most people's lives. Many retirees, even though content with their savings, still underspend because of fear of outliving their savings or their gut feeling that they have not saved enough for retirement and, in their minds, have not had proper financial planning for retirement (FPR).

But this fear is somewhat lackluster, as the 2024 hot housing market buyer data points out that most new buyers are from two categories of cohorts: baby boomers, i.e., retirees, and millennials. Even though most retirees have a fear of outliving their savings, this fear has gone down after the first five years or a decade into retirement. So the fear of spending their retirement savings is real, but it's not as alarming as it seems.