Thrift Savings Plan: Investment Issues
May 17, 2022
Thrift Savings Plan: Investment Issues
The Thrift Savings Plan (TSP) was created under the
Three investment options—the “C” Fund (a common stock
Federal Employees’ Retirement System Act (FERSA; P.L.
index fund), the “F” Fund (a fixed income index fund), and
99-335; June 6, 1986). TSP is a defined contribution
the “G” Fund (a government security fund)—were
retirement plan for the civilian federal workforce and the
authorized at TSP’s creation under FERSA. Two additional
uniformed services, similar to the 401(k) plans sponsored
index funds, the “S” Fund (a small cap stock index fund)
by many private-sector employers. TSP provides individual
and the “I” Fund (an international stock index fund) were
accounts that serve as a source of income in retirement to
added in 2001 in accordance with the Thrift Savings Plan
participants and their beneficiaries. As of March 2022, there
Act of 1996 (P.L. 104-208; September 30, 1996).
were more than 6.5 million total participants in TSP and
$817.7 billion in total assets.
In 2005, FRTIB introduced “Lifecycle Funds” (L Funds),
which are invested in various combinations of the five
The Federal Retirement Thrift Investment Board (FRTIB)
existing TSP funds with allocations based on the year that
administers TSP. FRTIB is an independent agency that
the participant expects to begin withdrawing money from
receives no appropriations from Congress. Instead,
the TSP. The Smart Savings Act (P.L. 113-255; December
administrative expenses for FRTIB are paid through TSP
18, 2014) changed the default investment option for
loan fees, 1% agency automatic contributions forfeited by
automatic contributions to TSP. Prior to P.L. 113-255, TSP
certain employees who leave federal service before they
default contributions were automatically invested in the
have vested, and administrative charges against participant
“G” Fund of the TSP. (The default contribution rate for
accounts. FRTIB is composed of five board members
most employees is 5% if enrolled in TSP after October 1,
chosen by the President and confirmed by the Senate. The
2020, or 3% if enrolled between August 1, 2010, and
Board also selects an Executive Director who manages
September 30, 2020.) P.L. 113-255 changed the default
daily operations. Under current law, members of the FRTIB
investment option to the age-appropriate Lifecycle Fund.
and the Executive Director serve as fiduciaries, legally
obligated to act “solely in the interest of the [TSP]
Title I of Division B of P.L. 111-31, the Thrift Savings Plan
participants and beneficiaries … and for the exclusive
Enhancement Act (June 22, 2009), provided FRTIB with
purpose of providing benefits to participants and their
the authority to set up a mutual fund window (MFW) “if the
beneficiaries” (5 U.S.C. §8477(b)(1)).
Board determines that such addition would be in the best
interests of participants” (5 U.S.C. §8438(b)(5)(A)).
All TSP investment options are set out under current law (5
U.S.C. §8438). In order to offer these investment options to
Current TSP Investment Options
participants, FRTIB develops specific investment
Participants in the TSP may currently choose among five
policies—for example, selecting benchmarks for the index
funds in which they can invest their TSP contributions:
fund investment options—that provide for “prudent
investments suitable for accumulating funds for payment of
The “C” Fund replicates the Standard and Poor’s 500
retirement income; and low administrative costs” (5 U.S.C.
Index of 500 large to medium-sized U.S. companies.
§8475). Thus, in addition to its fiduciary responsibilities,
FRTIB must adhere to their statutory mandates to keep
The “F” Fund invests in bonds in the same proportion as
administrative costs low and prudently manage returns for
they are represented by the Barclays Capital U.S.
TSP account holders.
Aggregate Bond Index.
Legislative History of TSP Investment Options
The “G” Fund invests in U.S. government securities and
At its creation in 1986, the TSP was designed to be
pays interest equal to the average rate of return on
passively managed in order to avoid political
government securities with maturities of four years or
manipulation—in particular, using the large pool of assets
more.
managed by FRTIB for political purposes. Thus, TSP index
funds are all passively managed by professional fund
The “S” Fund tracks the Dow Jones U.S. Completion
managers, each with an investment objective of matching
Total Stock Market Index of small to medium-sized
the performance of a specific, benchmark index fund. TSP
U.S. companies not included in the “C” Fund.
fund managers do not actively select a fund’s portfolio
assets. Currently, BlackRock and State Street Global
The “I” Fund replicates the Morgan Stanley Capital
Advisors both hold fund manager contracts for all TSP
International EAFE (Europe, Australasia, Far East)
index funds.
Index.
https://crsreports.congress.gov
Thrift Savings Plan: Investment Issues
Finally, the L Funds are composed of the five existing TSP
ACWI ex USA)—for example, S. 1665, S. 1742, S. 1993,
funds and consist of L2025 through L2065 in five-year
H.R. 3295, H.R. 3553, and H.R. 4792.
increments and the L Income Fund, which is a low-risk
option designed to achieve asset preservation for
Second, there has been interest in environmental, social,
participants making withdrawals or nearing retirement. As
and governmental (ESG) issues with regard to TSP
the participant approaches retirement, the proportion of
investments. In a May 2021 report, the Government
contributions invested in the C, I, and S funds—which
Accountability Office recommended that FRTIB evaluate
invest in stocks—is reduced. The proportion invested in the
TSP investment risks with regard to climate change. There
G and F funds—which invest in bonds—is increased. This
has also been legislation introduced in the 117th Congress
helps to protect participants who are nearing retirement
related to TSP investments, fossil fuels, and climate change
from investment losses that would occur from a sharp
(e.g., S. 606 and H.R. 1618); TSP divestment from Russia,
decline in stock prices.
although none of the TSP funds have any Russian holdings
currently (e.g., H.R. 7113); and the use of diverse asset
Recent Policy Interest Related to TSP Investments
managers by federal institutional investors, including
Recent policy interest in TSP investment has focused on
FRTIB (e.g., S. 4097 and H.R. 7594). As explained below,
two issues. First, I Fund investment practices have drawn
the upcoming mutual fund window will provide ESG
attention from policymakers—specifically, the deliberation
investment options to TSP participants.
surrounding whether to change the I Fund benchmark. In
November 2017, after consulting with experts, FRTIB
Upcoming TSP Mutual Fund Window
made the decision to move from the current I Fund
The FRTIB has announced that it will exercise the optional
benchmark—the Morgan Stanley Capital International
authority provided by P.L. 111-31 to offer a new MFW to
(MSCI) EAFE (Europe, Australasia, Far East) Index—to a
TSP participants. FRTIB has stated that the implementation
new benchmark: the MSCI ACWI ex. U.S. IMI (All
date for the MFW will be summer 2022 and provided the
Country World ex USA Investable Market Index). FRTIB
following additional details: “Of the more than 5,000
justified this decision using the following arguments: (1)
mutual funds available through the MFW, there will be
the MSCI ACWI ex USA represents 99% of the
funds that are designed for ESG [environmental, social, and
international equity market (vs. the MSCI EAFE Index,
governance] investment (however a participant may define
which represents only 58%) and, thus, is a more
that), as well as commodity specific funds, actively
representative benchmark that better fulfills the statutory
managed funds, and emerging manager funds.” (Emerging
requirement of a complete representation of the
manager funds generally refer to newer, smaller funds or
international equity markets; and (2) the MSCI ACWI ex
funds with diverse asset managers.)
USA would be more in line with the investment policies of
other large retirement plans in the private and public
In a final rule for the MFW, released on May 10, 2022,
sectors, which offer the ability to invest in Canada and
FRTIB sets out terms and conditions of MFW participation:
emerging markets.
(1) a minimum initial transfer of $10,000 into the MFW; (2)
a limit of no more than 25% of a TSP account holder’s
Before the change to the I Fund benchmark could be
balance into the MFW (thus, a minimum balance of
implemented, however, this FRTIB decision received
$40,000 is required); and (3) inclusion of transfers to and
attention from policymakers. This interest focused on issues
from the MFW in the overall limit on interfund transfers
raised by investments in certain Chinese companies. For
(two per month). FRTIB also specified fees for TSP
example, in August 2019, Senators Rubio and Shaheen sent
participants who choose to invest in the MFW: an annual
a letter to FRTIB outlining concerns with the proposed I
$55 administrative fee, an annual $95 maintenance fee, a
Fund benchmark change as “a decision to invest in China-
per-trade fee of $28.75, and any fees and expenses imposed
based companies, including many firms that are involved in
by the specific mutual fund(s).
the Chinese government’s military, espionage, human rights
abuses and ‘Made in China 2025’ industrial policy, and
Additional Resources
therefore poses fundamental questions about the board’s
For more information on the TSP investment options, see
statutory and fiduciary responsibilities to American public
“TSP Fund Information,” March 2022,
servants who invest in federal retirement plans.” In
https://www.tsp.gov/publications/tsplf14.pdf.
November 2019, FRTIB reviewed its decision and
announced that it was moving ahead to finalize the I Fund
For FRTIB discussions and decisions, see
benchmark change. In May 2020, however, FRTIB
https://www.frtib.gov/meeting-minutes/.
announced that it was deferring any action on the I Fund
benchmark due to (1) the “meaningfully different economic
FRTIB, “Mutual Fund Window,” 87 Federal Register
environment related in large part to the impact of the global
27917-27923, May 10, 2022, https://www.govinfo.gov/
COVID-19 pandemic” and (2) the nominations of new
content/pkg/FR-2022-05-10/pdf/2022-09972.pdf.
FRTIB members. Since May 2020, there have been no
further plans or announcements by FRTIB related to the I
For background on ESG, see CRS In Focus IF11716,
Fund benchmark. Congress is currently considering a slate
Introduction to Financial Services: Environmental, Social,
of FRTIB nominations. Additionally, several pieces of
and Governance (ESG) Issues.
legislation have been introduced in the 117th Congress that
would prohibit any TSP investment in Chinese firms (thus,
Katelin P. Isaacs, Specialist in Income Security
preventing the I Fund benchmark change to the MSCI
IF12110
https://crsreports.congress.gov
Thrift Savings Plan: Investment Issues
Disclaimer
This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan shared staff to
congressional committees and Members of Congress. It operates solely at the behest of and under the direction of Congress.
Information in a CRS Report should not be relied upon for purposes other than public understanding of information that has
been provided by CRS to Members of Congress in connection with CRS’s institutional role. CRS Reports, as a work of the
United States Government, are not subject to copyright protection in the United States. Any CRS Report may be
reproduced and distributed in its entirety without permission from CRS. However, as a CRS Report may include
copyrighted images or material from a third party, you may need to obtain the permission of the copyright holder if you
wish to copy or otherwise use copyrighted material.
https://crsreports.congress.gov | IF12110 · VERSION 1 · NEW