Federal employees covered either by the Federal Employees Retirement System (FERS) or the Civil Service
Retirement System (CSRS) can elect to have deductions from their pay invested through the federal Thrift
Savings Plan, beginning immediately after entering service. FERS participants also have additional funds
invested on their behalf by their employing agencies, with amounts linked to employee deductions. Employees
who make a hardship withdrawal from their TSP accounts must wait six months after the withdrawal before
they can resume contributing to the TSP.
Make the Most of Your TSP
Good use of your Thrift Savings Plan (TSP) can be key to a comfortable retirement. But
starting and maximizing a TSP can seem intimidating—as with any investment
vehicle there are rules to understand and choices to make. (Choosing
the right TSP fund for each stage of your career can make an enormous difference
in how much money you have when retirement comes!) To explain
all you need to know to take advantage of a TSP, rely on our thoroughly
updated Your
Thrift Savings Plan.
As part of the legislation establishing FERS, Congress created the federal Thrift Savings Plan, a
tax-advantaged savings plan patterned after the “401(k)” savings plans widely available
in the private-sector. Like 401(k) plans, the TSP program is designed to encourage workers to save
toward their wage replacement needs. Two TSP program characteristics provide this encouragement:
an employee’s TSP contributions from pay are deducted before income taxes
are computed, and
the earnings on these pre-taxed contributions are not included as taxable income
each year the account is in operation.
At retirement, or under certain other circumstances, the individual pays taxes on the wages and earned
interest as the account is converted to benefit payments.
Federal and postal employees covered by CSRS or FERS are allowed to participate in TSP. Each year
CSRS and FERS employees can contribute the same maximum dollar amount deducted from their salaries
(for 2007, $15,500 maximum regular contribution and maximum $5,000 “catch-up” contribution
if eligible) to the TSP, although employees covered by FERS are eligible for another important participation
inducement—agency contributions. FERS participants receive an automatic contribution to their
accounts from their employing agencies of an amount equal to one percent of salary, and their agencies
also will contribute additional amounts in the form of matching payments to an employee’s contributions.
Basically, an agency will match each dollar saved up to three percent of pay, and will contribute 50¢ for
each additional dollar up to a total of five percent of pay. TSP accounts are invested in a combination
of government securities and financial market instruments, and employees can control the direction
(although not the actual investment) of a portion of the account.
G Fund—investments in short-term, non-marketable U.S. Treasury
securities.
•
C Fund—large-capitalization U.S. stocks.
•
F Fund—a bond index fund consisting of a mix of government and corporate
bonds.
•
S Fund—small and mid-capitalization U.S. stocks.
•
I Fund—mostly large-capitalization foreign stocks.
All employees may elect to invest any portion of their current account balances or future contributions
in any or all of the funds. All participants also may make interfund transfers. An interfund transfer
is the movement of all or some of the money in a participant’s account among the funds.
The G Fund is managed by the Thrift Investment Board’s staff. The Board has contracted with
Barclays Global Investors to manage the S, I, C and F Funds.
G Fund—By definition, the G Fund never can have a losing month. All investments in the fund
earn interest at a rate equal to the average of market yields on Treasury marketable securities with
four or more years to maturity.
G Fund returns are reduced by administrative expenses, which are about 0.06 percent, or $.60 for
every $1,000 invested.
C, S, I and F Funds—The C, S, I and F Funds can post gains or losses. The capital gain or loss
consists of these elements:
•
the change in the price of the stocks in the equity index funds
(C, S and I Funds) or the notes in the U.S. Debt Index Fund (F Fund);
•
dividend (C, S and I Funds) or interest (F Fund) income credited to the funds;
•
interest on short term investments while contributions are awaiting investment;
•
income from lending securities (C, S and I Funds) or notes and bonds (F Fund)
on a short-term basis;
•
administrative expenses, including management fees paid to Barclays, which
are about 0.06 percent, or $.60 for every $1,000 invested in the C and F Funds
and about 0.05 percent, or $.50 for every $1,000 invested, in the S and I Funds;
and
•
trading costs.
In addition, the I Fund fluctuates relative to the U.S. dollar’s value against the currencies
of the countries in whose stock markets that fund has investments.
Percentages in ( ) are negative.
* The returns for the G, F, C, S and I funs for the past 12 months, assuming that,
with the exception for the crediting of earnings, unchanging balances (time-weighting)
from month to month and assuming that earnings are compounded on a monthly basis.
The monthly G, F, C, S, and I Fund returns represent the actual total rates of return used in the
monthly allocation of earnings to participant accounts. The returns are shown after deduction of accrued
TSP administrative expenses. The F, C, S, and I Fund returns also reflect the deduction of trading
costs and accrued investment management fees. The most current G, F, C, S, and I Fund rates of return
are shown above. Returns are updated after the monthly allocation of earnings, usually by the fourth
business day of the month.
