for Service TSP Representatives
Default Investment Fund for Blended Retirement System (BRS) and Beneficiary TSP Participants
On January 1, 2018, the default investment fund for newly enrolled uniformed services Thrift Savings Plan (TSP) members (and spouse beneficiaries of deceased uniformed services members) changed from the Government Securities Investment (G) Fund to an age-appropriate Lifecycle (L) Fund. This change went into effect for those service members who joined the uniformed services on or after January 1, 2018, or elect to be covered by the Blended Retirement System (BRS).
This bulletin discusses how the default investment fund is applied, and how members, services, and payroll TSP representatives are affected. The information found in this bulletin supersedes Section VI (New Default Investment Fund for Blended Retirement and Beneficiary TSP Participants) of TSP Bulletin 17-U-3, Revision to Implementation of the Blended Retirement System, dated August 29, 2017.
What are the Lifecycle (L) Funds?
The L Funds are funds that are invested according to a professionally designed mix of stocks, bonds, and government securities. These funds are designed to provide participants with an easy, convenient way of investing their Thrift Savings Plan (TSP) accounts among the five individual TSP funds based on when the participants will need the money in retirement. Detailed information on the L Funds can be found under the Fund Options section of tsp.gov.
Who is defaulted to an age-appropriate L Fund?
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 primarily affects newly enrolled civilian participants, rehired civilian participants who have $0.00 balances in their TSP accounts, and new beneficiary participants. Participants subject to these default investment rules are 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.
- Newly Enrolled Uniformed Services Members
All uniformed services members first enrolled in the TSP on or after January 1, 2018, and covered by BRS have their TSP contributions invested in an age-appropriate L Fund until they make a contribution allocation with the TSP. Members who were enrolled in the TSP prior to January 1, 2018, retain their current contribution allocations. Members who are not covered by BRS (regardless of when they first enroll in the TSP), and who have not yet made a contribution allocation retain their default investment in the G Fund.
- Uniformed Services Members Who Opt into BRS
Uniformed services members who opt into BRS will retain the last contribution allocation on file with the TSP. If no contribution allocation is on file, a member who opts into BRS will have his or her future TSP contributions invested in an age-appropriate L Fund.
- Beneficiary Participants
When a TSP member dies, the TSP will (once notified) move the deceased member’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 member’s TSP account will have the entire death benefit automatically deposited into a Beneficiary Participant Account (BPA). New BPAs created on or after January 1, 2018, 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 member’s default L Fund determined?
The TSP uses a target retirement age of 63 to determine which L Fund will serve as the default investment fund for uniformed services members and beneficiary participants who are subject to the default investment rules, as described in the previous section. The year the participant reaches age 63 is matched with the corresponding L Fund, rounding up or down as necessary.
On July 1, 2020, the L 2020 Fund was retired, and the TSP added six new L Funds that have 5-year increments rather than the previous 10-year increments. The age-appropriate default investment funds are now as follows:
|Default Fund||For those born in years:||Expected TSP drawdown in:|
|L Income||1957 or earlier||Already withdrawing, or will start withdrawing before 2021|
|L 2025||1958 – 1964||2021 – 2027|
|L 2030||1965 – 1969||2028 – 2032|
|L 2035||1970 – 1974||2033 – 2037|
|L 2040||1975 – 1979||2038 – 2042|
|L 2045||1980 – 1984||2043 – 2047|
|L 2050||1985 – 1989||2048 – 2052|
|L 2055||1990 – 1994||2053 – 2057|
|L 2060||1995 – 1999||2058 – 2062|
|L 2065||2000 and later||2063 and later|
The TSP uses 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 members 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 accession). However, a member who is defaulted into the wrong L Fund as a result of service error is entitled to receive breakage, provided the error is discovered by either the member or the member’s service within 30 days of the date on the Welcome Letter sent by the TSP to the member 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 member’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 service may use its own discretion in deciding whether or not it will pay breakage. The period for which the member is eligible for breakage starts at the time the error is made and ends when the member first reports the error to his or her service, or when the member performs a contribution allocation or interfund transfer, whichever is earlier.
When a service learns that a member’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 member 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 service should notify the affected member that only members are responsible for making investment changes to their TSP accounts. If they wish, members 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 a member, the service should submit Form TSP-U-5-B, Request to Calculate Breakage. The TSP will calculate and charge the service breakage, based on the initial, incorrect L Fund default investment and the accurate, age-appropriate L Fund, regardless of the member’s current contribution allocation. Once the calculation is completed and the member’s account is made whole, Form TSP-U-5-B will be returned to the service contact shown on the form. Section V of the form will show the amount of breakage for which the service is responsible. The service should use the information on the returned form to reconcile their records for TSP purposes.
TSP errors are uncommon because most member data is received electronically and does not require any manual processing. If a TSP error occurs, the member will be entitled to receive breakage from the TSP, subject to the same 30-day window described.