Thrift Savings Plan Problems

Just over two years ago, the Thrift Savings Plan (TSP) introduced a new online system aimed at modernizing and enhancing user access to federal retirement savings. However, problems arose almost immediately after its launch, with users experiencing significant difficulties accessing their accounts and retirement savings information. By the end of the first day, TSP’s hotline received 120,644 calls, with many users enduring long wait times to resolve access issues.

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The Government Accountability Office (GAO) also received numerous requests for assistance from users who reported being unable to access funds to pay bills or obtain time-sensitive information required for loans and mortgages.

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In response to these widespread concerns, Congress requested that GAO investigate the root causes of these issues and examine what actions are being taken to prevent similar problems in the future. Our latest WatchBlog post highlights key findings from our report on this matter. Federal Pension Advisors also have this TSP calculator for federal employess.

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Why Was The TSP System Updated?

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2. Outdated Technology: The previous system was antiquated and lacked the capabilities of modern technology, including the absence of a mobile application.

1. Improved User Experience: The new system aimed to provide a more user-friendly experience, offering features such as 24/7 self-service access to transactions and account information, simplified online processes, and enhanced customer support options.

However, the initial launch encountered major setbacks, including extensive technical difficulties and customer service challenges, which affected users' ability to access their accounts and manage their retirement savings effectively.

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What Went Wrong With TSP’s New System Launch?

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Some participants reported being unable to:

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• Access their TSP retirement accounts,

• Complete basic transactions,

• Obtain the minimum distributions required by the Internal Revenue Service,

• Receive beneficiary benefits and court order awards, and

• Get adequate assistance through TSP contact center - the ThriftLine.

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1. Lack of Investment Diversification

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The Issue: The TSP offers a limited number of investment funds compared to many private-sector 401(k) plans. This can restrict diversification options for some investors, potentially increasing their risk.

Impact: If an investor's portfolio is not diversified, a downturn in a specific sector or asset class could significantly impact their overall returns.

2. Not Choosing the Best Thrift Savings Plan

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The Issue: The TSP offers several different investment options, each with varying levels of risk and potential returns. Choosing the wrong option for your individual circumstances (age, risk tolerance, time horizon) can negatively impact your retirement savings.

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Impact: Investing in overly aggressive options when nearing retirement could lead to significant losses during market downturns. Conversely, overly conservative options may not generate sufficient returns to meet long-term financial goals.

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3. Contributions Can Only Be Made During Service

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The Issue: Unlike some private-sector retirement plans, contributions to the TSP can generally only be made while actively employed by the federal government. This limits the opportunity to continue contributing during periods of unemployment or career changes.

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Impact: This restriction can hinder the ability to maximize retirement savings, especially for individuals with career breaks or those who change employment sectors.

4. Required Minimum Distributions (RMDs)

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The Issue: Once you reach a certain age (generally 73), you are required to take minimum distributions from your traditional TSP account.

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Impact: These mandatory withdrawals can have tax implications and may force you to sell investments at an inopportune time, potentially impacting your overall returns.

5. Neglecting Updates

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The Issue: Failing to regularly review and adjust your TSP investment allocations based on your changing age, risk tolerance, and financial goals can significantly impact your retirement outcomes.

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Impact: Neglecting to rebalance your portfolio can lead to an overconcentration in certain asset classes, increasing your risk and potentially reducing your long-term returns.