TSP doubles target-date options for federal workers

The Federal Thrift Savings Plan for government employees is catching up with rest of the 401(k) industry with its target-date investments, adding vintages in five-year increments.

On July 1, the $113 billion L Fund target-date series will have an additional six vintages available, adding to the current total of four, excluding the 2020 Fund, which is being shut down and merged with the Income Fund.

In the private-sector defined-contribution world, target-date fund series that offer funds in five-year increments have been the norm for years, and few investment managers offer their products exclusively in 10-year increments.

The Federal Retirement Thrift Investment Board recognized this. In 2017, after an analysis by Aon Hewitt, it voted to add the five-year vintages by 2020. As of July 1, the L Fund series will include 2025, 2030, 2035, 2040, 2045, 2050, 2055, 2060 and 2065 varieties. The changes also expand the retirement time horizon options for younger federal workers, as the current lineup only goes to 2050.

With five-year vintage increments, rather than just 10-year ones, the plan can place retirement savers in investments that in many cases will be more appropriate for their ages.

The expansion to include the 2055, 2060 and 2065 vintages is notable, given the current reliance on the 2050 fund. That option accounted for nearly 1.1 million participants as of the end of March – nearly double that of any other lifecycle fund in the plan, according to government data. There are more than 2.5 million participants in the plan.

The L Funds invest exclusively in a mix of other TSP funds: the G, F, C, S and I funds, all of which are managed by BlackRock Institutional Trust Co.

The L Funds represented about 20% of the total $557 billion in the Thrift Savings Plan as of the end of March, according to data from the board.