Share price calculation
The value of your TSP account is determined each business day based on the daily share price and the number of shares you hold in each fund.
At the end of each business day, after the stock and bond markets have closed, the total value of the funds’ holdings (net of accrued administrative expenses) is divided by the total number of shares outstanding to determine the share price for that day.
Your earnings (that is, the increase or decrease in the value of a fund) in the TSP and other similar defined contributions plans (e.g., 401(k) plans) are not considered taxable income (but rather, tax deferred) under the Internal Revenue Code. What’s more, interest, dividends, capital gains, and/or tax deferred contributions are not taxed even if you withdraw money from your plan. Therefore, there is no need for you to report dividends and capital gains separately for your tax-deferred accounts.
BlackRock Institutional Trust Company, N.A, manages the index funds in which the F, C, S, and I Funds are invested, and credits interest and dividend income each business day. This income is then reflected in your TSP’s share prices.
The daily change in your TSP’s share prices reflects all investment income (interest on short-term investments, dividends, capital gains or losses, and securities lending income) net of TSP administrative expenses.
Your employee contributions, Agency/Service Automatic (1%) Contributions, and Agency/Service Matching Contributions, as well as loan payments and transfers from other eligible retirement plans, are all used to purchase shares in each TSP fund based on your contribution allocation.
For example, if your employee contribution each pay period is $100 and you have elected to invest in one TSP fund, $100 will be used to purchase shares in that fund. The calculation is done the same way if you’re eligible for Agency/Service Automatic (1%) Contributions and Agency/Service Matching Contributions.
The number of shares purchased by each contribution source is calculated by dividing the contribution ($100 in the above example) by the applicable share price. The number of shares purchased is then rounded to four decimal places.
When you borrow or withdraw from your TSP account, the shares are sold from your account at the applicable share price. The number of shares sold is calculated by dividing the amount required from each fund/source combination by the share price for that fund. The result is rounded to four decimal places.
On some days, the percentage change in the I Fund share price that we report can be significantly different from the percentage change reported for the MSCI EAFE (Europe, Australasia, Far East) Index, which the I Fund tracks. These differences usually occur when our investment manager finds it necessary to reprice its EAFE Equity Index Fund, in which we invest, to reflect changes that happen after international markets close.
This adjustment process, known as “fair valuation” or “fair value pricing”, occurs when there are U.S. market or currency movements between the time international markets close and 4:00 p.m., eastern time, when the EAFE Equity Index Fund share prices are determined. International markets around the world close in different time zones.
For example, the Far East markets close at 3:00 a.m., Eastern time. If there is a major event afterwards—whether a natural disaster or even a major U.S. market swing that affects the pricing of the stocks in the EAFE Equity Index Fund—without fair value pricing, that event’s impact on share pricing would be ignored. That is, the price information from the international markets can become “stale”, or out of date, by the close of the U.S. markets at 4:00 p.m., Eastern time—a full 13 hours later. Without fair value pricing, market timers could buy the I Fund and sell their holdings on the following day in order to benefit from the “stale” pricing. They would accomplish this transaction at the expense of other investors in the fund.
Fair value pricing ensures that traders do not benefit from trading on stale prices. It prevents traders from using events that may have occurred between the close of international markets and the close of the U.S. market, which may have affected EAFE Index Fund prices, to achieve an unfair trading and profit advantage at the expense of long-term shareholders.