TSP prepares for increased activity due to stock market plunge
Officials overseeing the Thrift Savings Plan said Tuesday that they are prepared to handle an influx of calls and other activity resulting from market volatility.
At a monthly meeting of the Federal Retirement Thrift Investment Board, officials said they have increased call center support for participants worried about their plan assets. Stock markets worldwide took a nosedive on Monday, while U.S. markets were closed for the Martin Luther King Jr. holiday. On Tuesday, the S&P 500 index lost 1.1 percent, ending the day at a more than 16-month low.
"Obviously the markets are going through some sizable amount of volatility both here and around the world," said Andrew Saul, chairman of the board. "Long-term investing has proved a very sensible thing, but on the other hand, this is a free country, and everyone has to make their own decisions as to how they want to handle their own finances."
The news comes as officials are working to limit the number of interfund transfers participants can conduct to two each month. They plan to publish final regulations on transfers in the Federal Register in February. The rules will take effect in late March or April.
Still, trading was down slightly in December, when 133,550 interfund transfers were processed, compared with 188,623 in November. Officials chalked up the decrease to media reports on the potential impact of interfund transfers on the overall cost of running the plan.
"People have read that this is an issue of concern," said Gregory Long, TSP executive director. "Some have calmed down; others haven't."
Meanwhile, officials noted that for 2007, the administrative costs to TSP participants were only one basis point, or 1 cent for every $100 invested. Last year's low cost was largely due to a significant amount of money being forfeited to the plan to cover employees who were placed in the wrong retirement system.
The forfeitures are a result of the 2000 Federal Erroneous Retirement Coverage Corrections Act, which sought to provide relief to employees who spent at least three years in the wrong retirement plan after the Federal Employees Retirement System was introduced in 1987. Once the law is phased out, officials said, administrative costs likely will increase to what they were in recent years. In 2006, TSP participants paid three basis points, still far below comparable private sector plans, which often cost 50 to 80 basis points to run.
"It's really how many angels can dance on the head of a pin because we're talking about such small numbers," Long said. "The primary point is to say that the one basis point figure may go up."
TSP Legislative Director Thomas Trabucco said officials recently met with members of Congress to make minor changes to legislation that would allow automatic employee enrollment in the plan and change the default fund for indecisive investors to the appropriate life-cycle fund. Trabucco said the legislation should be ready for introduction soon.
Lawmakers have expressed concern over the cost implications of the automatic enrollment proposal, since it would result in more federal employees deferring some of their salary from their taxable income. While a Congressional Budget Office estimate cannot be made until the legislation is introduced, Trabucco acknowledged that an unofficial accounting indicates the proposal could deprive the U.S. Treasury of hundreds of millions in tax dollars.
The legislative proposals will be discussed further at TSP's next board meeting, set for Feb. 19. Officials also plan to provide an update on the potential for creating customizable user identifications to replace the 13-digit account numbers participants have been using since October 2007.
"The 13-digit account number is very challenging for folks to remember," said Mark Hagerty, TSP chief information officer. "There's lots of work required to get the [customizable identification] up and operational, but it should make the site more user-friendly."
COMMENTS
- I’ve been reading the “dollar-cost-averagers” lambaste the “day-traders” (please excuse the inaccuracies, you know of whom I speak). Please remember that these folks are not mutually exclusive. There are two transactions involved here. Purchasing and holding. The purchasers (aka: the “dollar-cost-averagers”) are correct that when stock prices are depress, treat it like a K-mart, blue light special. But that is on the purchase side. The “day-traders” (once more, I admit to inaccuracies but … you know whom I mean) are seeking to preserve capital (aka: sunk funds). Now the purchasing side is pretty much a no-brainer. You buy more stocks as the prices sink. The capital preservation is a little trickier. Okay, it’s a LOT trickier; but there are great potential gains that should not be ignored by either the target population nor the TSP managers. Once more, I decry the fraud we have experienced of paying for a VERY expensive computer system TWICE (please remember the original contractor’s default and subsequent buy out, then the last contractor) to allow us to do just that, trade daily. We (the TSP fund) are once more entering a computer system maintenance upgrade. Will we get what we want now? Will the contractor provide what we need now? I ask “How can they?” The board doesn’t even know (or at least acknowledge) our desires. Mr.s Long and/or Saul, can you hear the words coming out of our mouths? Think daily transactions (with individual costs assessed) and ROTH!! Tip off Posted February 5, 2008 7:54 AM
- Mr. Doane, I agree. Please note that while the automatic enrollment may be depriving the US government of hundreds of millions of dollars in the current year; but using the Rule of 72, given a 8% average annual increase, it should take 9 years to double those monies diverted into the TSP. I could use the average 30 year career but with all the mil-to-civ actions and my own estimate of increased job rotation due to NSPS, I’ll use a 20 year career. That means every $100 dollars put into the TSP will double twice, or rather quadruple, and come out the back side as taxable income. I really don’t foresee too many complaints from the Feds on this topic. Now the Roth is a very different animal. I figure it will be a HARD fought win; IF we win. Tip off Posted February 5, 2008 7:34 AM
- I tried to do a transfer out of one fund into another. But the transfer screen on the web site required that I enter percentages for all the funds I own. Since the transfer screen did not allow for fractional shares I had to move those fractional shares out of the funds that I did not want to touch. This is VERY BAD design, that requires many more transfers than necessary. Michael Boggi Posted January 28, 2008 8:17 AM
