January 30, 2012

In 2012, we marked the 25th birthday of the TSP.

On April 1, 1987, the Thrift Savings Plan became operational and approximately 600,000 individual accounts were opened for employees who began Federal Government service after January 1, 1984. The TSP was created as part of “Federal Employee Retirement System Act” (FERS Act), signed by President Reagan on June 6, 1986 to reform the federal employee retirement benefit system. While federal employees faced a reduced pension under this new system, they became eligible for Social Security and also received government matching funds for payroll contributions in the new individual accounts in the TSP.

The FERS Act originally called for its implementation by January 1, 1987. The Act immediately authorized the president to appoint five members of the new “Federal Retirement Thrift Investment Board” (FRTIB), which would oversee the TSP. The board chairman would in turn appoint a 14-member Employee Thrift Advisory Council to advise the board, and an Executive Director to manage the day-to-day operations of the plan.

According to Government Accountability Office reports from 1987 and 1988, however, delays in appointing members of the new FRTIB delayed the establishment of the TSP by several months. The president did not appoint the board members until October 1986, for example. This delayed the appointment of the Executive Director, who assumed his duties on November 1, 1986—almost five months after the Act was signed into law. These delays resulted in the postponement of the TSP until April 1 the following year.

To manage the employee contributions and accounts throughout government, the FRTIB arranged for the Department of Agriculture’s National Finance Center to receive payroll deductions from approximately 600 government offices, maintain the thrift accounts, and advise the Board on fund balances. Later the Board planned to transition these functions to the private sector once the TSP was up and running. The FERS Act also made the Department of Labor responsible for the administration and enforcement of fiduciary standards for the Board and the TSP, although the FRTIB was not accused of any fiduciary issues according to GAO reports at the time.

Separately, the Office of Personnel Management was charged with administering the transition to the new (reduced) pension plan, while the Social Security Administration would take over the administration of new FERS employees’ Social Security earnings and coverage information. OPM trained 4,000 “decision advisors” to assist employees hired before January 1, 1984 in making the choice to switch from the Civil Service Retirement System to the Federal Employee Retirement System established as part of the new FERS Act (transition to FERS was not mandatory for those hired before 1984). OPM also helped in the preparation of instructional materials such as pamphlets, workbooks, videos, and a computer program for employees to learn about the new system. Some of the material was not available during the first Open Season (February 15–April 30, 1987) until mid-March, however, slowing the decision process for some federal employees. SSA also provided instructional material during this time.

The first $150 million was deposited into the newly created TSP accounts in early April to retroactively cover the January 1, 1984 to January 1, 1987 time frame. This amount represented 1% of earnings for these employees plus interest over this period. Government offices deposited another $30 million to cover the January 1, 1987 to April 1, 1987 period, which also represented about 1% of employees’ salaries plus interest, granted due to the delay in implementing the system.

According to the FERS Act, all employee and government contributions were to be invested in 1987 in nonmarketable securities issued by the U.S. Treasury – the G Fund. The Act permitted FERS employees to invest contributions – and later, a portion of their government contributions – beginning in January 1988 in two newly created funds, the C Fund (a U.S. stock index fund modeling the S&P 500) and the F Fund (a U.S. bond index fund). Interestingly, because the Wells Fargo Company managed the C Fund, the company did not include its own stock in the C Fund even though it was part of the index. By May 1988, over 22,000 FERS employees had invested around $1.25 million in the C Fund and $875,000 in the F Fund. In total, by May 1988 over 1 million federal employees had TSP accounts with a total value of $1.6 billion. Forty-five percent of FERS employees were contributing to the TSP, while twenty percent of CSRS employees were contributing.

The number of participants and total amount invested in the Thrift Savings Plan has grown immensely since 1987. There are now over 4.5 million individual TSP accounts, with almost $300 billion in total invested assets. Members of the uniformed military services are now allowed to save and invest in the TSP as well. And the number of index funds has grown with the addition of a new international stock index fund (the I Fund), and the small U.S. company stock index fund (the S Fund). There are also lifestyle funds that automatically shift investments from stock funds to bond funds slowly over time. With automatic enrollment of all new federal employees, the number of participants and total invested in the TSP is sure to continue to grow in the coming years.

Related topics: long-term-investing c-fund g-fund f-fund tsp-updates