Effective September 5, 2015, the default investment fund for newly enrolled civilian Thrift Savings Plan (TSP) participants and beneficiary participants changes from the Government Securities Investment (G) Fund to an age-appropriate Lifecycle (L) Fund, in accordance with the Smart Savings Act, Public Law 113-255, which was signed into law on December 18, 2014. The purpose of this bulletin is to discuss how this new plan feature will be implemented, and how participants, agencies, and payroll TSP representatives will be affected.
Detailed information on the L Funds can be found under the Fund Options section of tsp.gov.
Who is affected by this change?
TSP regulations at 5 CFR § 1601.13 state that the default TSP investment fund will be used for new participants who have not made a contribution allocation with the TSP at the time contributions are made. This will primarily affect newly enrolled civilian participants, rehired civilian participants who have $0.00 balances in their TSP accounts, and new beneficiary participants. Participants subject to the new default investment rules will be sent a Welcome Letter from the TSP that includes the date of birth used to determine their age-appropriate L Fund, along with the “acknowledgement of risk” information required by the Smart Savings Act.
The default investment fund for uniformed services participants will remain the G Fund.
Newly Enrolled Civilian TSP Participants
All civilian employees first enrolled in the TSP on or after September 5, 2015 (either through automatic enrollment or their own contribution election) will have their TSP contributions invested in an age-appropriate L Fund until they make a contribution allocation with the TSP. Participants who were enrolled in the TSP prior to September 5, 2015 will retain their current contribution allocations. Participants who were enrolled prior to September 5, 2015 and who have not yet made a contribution allocation will retain their default investment in the G Fund.
Rehired Civilian TSP Participants Who Do Not Have a TSP Account Balance
Civilian employees who are rehired on or after September 5, 2015 and who have $0.00 balances in their TSP accounts from their previous period of employment will have their TSP contributions invested in an age-appropriate L Fund until they make a contribution allocation with the TSP. Those employees who are rehired on or after September 5, 2015 and have an existing TSP account with a balance greater than $0.00 will retain the last contribution allocation on file with the TSP. If no contribution allocation is on file, a rehired employee with a positive account balance will continue to have their TSP contributions invested in the G Fund.
When a TSP participant dies, the TSP will (once notified) move the deceased participant’s entire account balance into the G Fund before processing payment to any designated or statutory beneficiaries. A surviving spouse who is entitled to receive $200 or more of a deceased participant’s TSP account will have the entire death benefit automatically deposited into a Beneficiary Participant Account (BPA). New BPAs created on or after September 5, 2015 will use the age-appropriate L Fund based on the age of the beneficiary participant as the default investment. More information on BPAs is available in a separate bulletin on TSP death benefits.
How is a participant’s default L Fund determined?
Beginning September 5, 2015, the TSP will use a target retirement age of 62 to determine which L Fund will serve as the default investment fund for civilian and beneficiary participants who are subject to the new default investment rules, as described in the previous section. The year the participant reaches age 62 will be matched with the corresponding L Fund, rounding up or down as necessary. For example, the age-appropriate default investment funds for calendar year 2015 will be as follows:
|Default Fund||For those born in years:||Expected TSP drawdown in:|
|L Income||1953 or earlier||Before 2016|
|L 2020||1954 – 1962||2016 – 2024|
|L 2030||1963 – 1972||2025 – 2034|
|L 2040||1973 – 1982||2035 – 2044|
|L 2050||1983 or later||2045 or later|
The TSP will use the date of birth listed on the Employee Data (06) Record (EDR) to determine the appropriate default L Fund for a participant. It is therefore extremely important that the participant’s servicing payroll office submit an EDR with the correct date of birth when enrolling a newly hired or rehired employee. Employing agencies will be responsible for paying breakage (lost earnings) when an incorrect date of birth caused by agency error results in default investment in the wrong L Fund. See the Error Correction section below for more information.
The TSP will use the DOB listed on Form TSP-3, Designation of Beneficiary, or Form TSP-17, Information Relating to Deceased Participant, to determine the appropriate default L Fund for a new beneficiary participant.
What is the procedure for correcting errors?
In accordance with 5 CFR § 1605, TSP participants are not entitled to breakage when they are invested in the wrong default L Fund as a result of their own error (i.e., providing an incorrect date of birth at the time of hire). However, a participant who is defaulted into the wrong L Fund as a result of employing agency error is entitled to receive breakage, provided the error is discovered by either the participant or the employing agency within 30 days of the date on the Welcome Letter sent by the TSP to the participant upon receipt of their first contribution. If the Welcome Letter is returned as undeliverable, the 30-day window is extended to 30 days after the participant’s first quarterly or, if earlier, annual statement is posted to tsp.gov. If the error is discovered after either of these time periods, the employing agency may use its own discretion in deciding whether or not it will pay breakage. The period for which the participant is eligible for breakage starts at the time the error is made and ends when the participant first reports the error to their employing agency, or when the participant performs a contribution allocation or interfund transfer, whichever is earlier.
When an employing agency learns that a participant’s date of birth is incorrect, the servicing payroll office must submit an EDR to the TSP with the corrected date of birth. However, because the TSP will be unaware of the source of the error or whether the participant is entitled to receive breakage, receiving a new date of birth will not trigger corrective action by the TSP, other than to update the date of birth. The agency should notify the affected employee that only participants are responsible for making investment changes to their TSP accounts. If they wish, employees can make an interfund transfer to redirect money already in the account, or a contribution allocation to direct the investment of new contributions going into the TSP.
To request a breakage calculation for an employee, the employing agency should submit Form TSP-5-B, Request for Breakage Calculation. The TSP will calculate and charge the employing agency breakage, based on the initial, incorrect L Fund default investment and the accurate, age-appropriate L Fund, regardless of the participant’s current contribution allocation. Once the calculation is completed and the participant’s account is made whole, Form TSP-5-B will be returned to the agency contact shown on the form. Section V of the form will show the amount of breakage for which the agency is responsible. The agency should use the information on the returned form to reconcile their records for TSP purposes.
TSP errors are uncommon because most participant data is received electronically and does not require any manual processing. If a TSP error occurs, the participant will be entitled to receive breakage from the TSP, subject to the same 30-day window described above.