July 5, 2013
A recent study of TSP participant behavior found the age group allocating one of the largest amounts to the G Fund is…20-somethings. As a group, 20-somethings had almost 45% of their of their TSP funds allocated to the G Fund.
Only 60-somethings and 70-somethings allocated more to the G Fund, at about 50% and 55% respectively. This is according to a demographic study of TSP participant behavior from 2006 to 2010 (see slide 18).
The G Fund may be the least volatile fund, but it has yielded a paltry 1.44% over the past 12 months and 3.61% over the past 10 years. As a 70-something participant, it makes sense to have that much allocated to the G Fund. But 20-somethings have 40 years or more of saving and investing ahead of them, so why allocate so much to the G Fund? A comparison of the funds over the life of the TSP (26 years) shows the relative performance of the funds, even with the sometimes extreme ups and downs over the past 12 or so years.
One reason is that with the automatic 3% enrollment for new participants (who are usually young), the G Fund is the default option unless participants choose otherwise. According to the TSP’s Office of Enterprise Planning, 1/3rd of those who have been automatically enrolled since 2010 do not elect to change their contribution allocation. OEP has proposed switching the default option from the G Fund to an age-appropriate L Fund, citing a 2006 survey that indicated half of TSP participants favored this option compared to 27% who favored the G Fund as the default option.
This proposal met with a range of reaction when discussed with the Employee Thrift Advisory Council (ETAC) in late April. According to the meeting minutes:
“Some members of ETAC voiced strong opposition to the proposed change, instead favoring the current G Fund default option. Others expressed a desire for more information, particularly about current education efforts for those who do not make an election out of the G Fund, and others voiced support for the changed option. All ETAC members agreed to discuss the potential change with their representative groups, and resume discussion in the fall.”
Reminds me of meetings of the People’s Front, but I digress. OEP will have to wait awhile before it can move on its proposal. At any rate, the proposal would require an act of congress to enact anyway, and how likely is that these days?
Speaking of the People’s Front, um, I mean ETAC, has anyone actually heard from their “representative”? I would wager that about 0.005% of TSP participants would have any clue what ETAC is. It’s purely advisory, according to the legislation enacting ETAC (“The Council shall advise the Board and the Executive Director on matters relating to investment policies of the Thrift Savings Fund; and the administration…and perform such other duties as the Board may direct…”). And they are all appointed by…the Chairman of the Thrift Investment Board! I would call that a bit of an incestuous relationship except that the exact makeup of the Council is fairly well spelled out in the legislation enacting it in the first place. I just wonder, why do postal union reps get six out of the fifteen rep slots?
In all seriousness, ETAC is doing a disservice by not embracing OEP’s recommendation. If new participants want absolute stability of the G Fund, they can always request an allocation change back to the G Fund. If they don’t make any effort to change their allocation, then they probably aren’t paying that much attention to their TSP in the first place. For those participants who aren’t interested in following their TSP accounts, the L Fund is the best placed to be.