3 Takeaways From the latest TSP Highlights letter - P1

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oldjack
Posts: 124
Joined: Sun Oct 17, 2010 9:24 pm

3 Takeaways From the latest TSP Highlights letter - P1

Post by oldjack »

TSP recently published their Highlights letter for Jan/Feb 2018 which covers the year stats for 2017. You may have received it in the mail.

Before getting into the 3 takeaways, let me put on my tin foil hat because I know many people vehemently protest when the facts don't fit their narrative - surprising how the one pointing out facts can be wrong; it's only human I guess.

Now that I'm all defensive and have agitated everyone :mrgreen:, let's get on with the facts.

1. The first is fairly benign, likely no one currently in TSP has been harmed by it yet.
I refer to the Expenses by Fund list on the bottom of page 2, you'll see that ALL funds have Gross Expense Ratios ranging from 0.51-0.53%.
The Net Expense Ratio for each fund is 0.38% with the sole exception of the I Fund at 0.39%.

It should be noted that the Net Expense Ratio has a footnote showing the reason Net is less than Gross:
a. loan fees - at $50 dollars a pop, this has got to amount to nearly nothing.
b. account forfeitures

OK. Fact posted.
Here's my takeaway - :shock: :shock: :shock:
Holy Smokes!!! That's a lot of account forfeitures to drop the expense ratio of EVERY fund by ~1/4 or 25%!

Due to the length of this entry, I probably should break this up into 3 parts to spare your time, the 2nd and 3rd points are in my opinion worse facts but let's see if I survive the flaming to present them. Unfortunately, I won't likely get back around to much commenting as it takes a lot for me, so please note the facts and go forward better armed in your investing.

Cheers to all! [where's the beer mug smiley?]

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fordest
Posts: 605
Joined: Wed Sep 26, 2012 3:48 pm

Re: 3 Takeaways From the latest TSP Highlights letter - P1

Post by fordest »

The account forfeitures are not as bad as they sound. I think it's rarely a case of somebody not wanting (or knowing they have) a TSP account that they are entitled to. But more likely the following:

--- from: Thrift Savings Plan
BULLETIN for Agency TSP Representatives
Federal Retirement Thrift Investment Board • 1250 H Street, NW • Washington, DC 20005
Subject: Participation in the Thrift Savings Plan
Date: July 22, 2010

K. Forfeiture – The removal of agency contributions and associated earnings by
the TSP from a participant’s TSP account. Forfeitures of the Agency Automatic
(1%) Contributions are taken from the accounts of separated FERS employees
who do not meet the TSP’s vesting requirements. Forfeitures of the associated
Agency Matching Contributions are taken at the time a FERS employee requests
and receives a refund of employee contributions associated with the first 90 days
of automatic enrollment. The TSP will also remove agency contributions from
the TSP account of a participant who was incorrectly covered under FERS and
whose record is later corrected to coverage under CSRS. The agency contributions
that are forfeited are not returned to the agency but are used by the TSP to
offset administrative expenses to operate the Plan.
100% in the daily system since August 2, 2017.
Following strategy (current pick) #88676. 2020 real life has been following #110838

oldjack
Posts: 124
Joined: Sun Oct 17, 2010 9:24 pm

Re: 3 Takeaways From the latest TSP Highlights letter - P1

Post by oldjack »

Thanks for pointing that out. My first thought on that - can you imagine how inconsequential the accounts are that are being forfeited under this description? We're talking about funds from new employee accounts that been open less than 90 days and some few CSRS employees. I would guess the forfeiture amounts will drop significantly as time goes on and less people are covered under CSRS.

My 2nd thought is the money probably either belongs to the agency the employeed worked for or to the taxpayer and so should be credited accordingly, I don't see how it could belong to the TSP, though I might just not understand the whole picture there.

Anyway, good point fordest, but still it covers about 25% of the cost of the funds which is surprising to me.

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evilanne
Posts: 2067
Joined: Thu May 14, 2015 6:52 pm

Re: 3 Takeaways From the latest TSP Highlights letter - P1

Post by evilanne »

Make sure that if something happens to you, your beneficiary(s) knows that there is a TSP account they need to do something with so it isn't forfeited. This is more likely reason for the expense reduction when you consider how much money TSP manages.
1. Deadline for Withdrawing Your TSP Account
By April 1 of the year following the year you become age 70 1⁄2 and are separated from federal service, the TSP requires that you make an election to begin receiving monthly payments, purchase a life annuity, withdraw your account balance in a single payment, or use a combination of these three options.
If you do not make a withdrawal election by the required deadline, your account balance will be forfeited to the TSP. You can reclaim your account, but your account balance will not accumulate earnings after it is forfeited. In order to reclaim your account, you must make a full withdrawal election using Form TSP-70-A, Late Request for Full Withdrawal. Additionally, if we do not receive your properly completed withdrawal election by February 14, we will also issue you a required minimum distribution on March 1. (See Section 3.)
https://www.tsp.gov/PDF/formspubs/tsp-775.pdf

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Scarfinger
Posts: 810
Joined: Mon Jan 30, 2012 12:00 am

Re: 3 Takeaways From the latest TSP Highlights letter - P1

Post by Scarfinger »

Basically you just have to set up withdraws. You don't have to withdraw the whole amount.

Most people I would assume will be setting up withdraws at retirement before age 70 1/2. Unless a spouse was not aware that the deceased partner worked for the federal gov. and had no idea that they had a TSP, there could be a problem.

I think it reads scarier than it actually is.
I am just an average Joe. I have no clue to what the market will do.
TimboSlice wrote: "People really need to stop overthinking this."
Paul Merriman 2 fund strat: (age - 25) x2.5 = TDF + balance into S fund or variation of

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evilanne
Posts: 2067
Joined: Thu May 14, 2015 6:52 pm

Re: 3 Takeaways From the latest TSP Highlights letter - P1

Post by evilanne »

I recently met a person that recently started getting RMDs from TSP. They had been RIF'd when their organization closed years ago but did not have enough years to retire at that time. TSP tracked them down and started RMDs. They also were not aware that they were entitled to any pension since they had less than 20 years with the federal government. They recently applied for retirement benefits, which they would have been eligible for over 10 years ago--it will be interesting to see what they will actually get now or how long it will take to get their pension benefit. Individual is not married and has no children so if they had died before 70.5 the TSP funds would most likely have been forfeited. This is just one example, but I'm sure that there are quite a few uninformed prior employees out there with similar situations that are totally unaware of their deferred benefits under CSRS or FERS.

nodak
Posts: 69
Joined: Sun Apr 02, 2017 6:36 pm

Re: 3 Takeaways From the latest TSP Highlights letter - P1

Post by nodak »

oldjack wrote:TSP recently published their Highlights letter for Jan/Feb 2018 which covers the year stats for 2017. You may have received it in the mail.

Before getting into the 3 takeaways, let me put on my tin foil hat because I know many people vehemently protest when the facts don't fit their narrative - surprising how the one pointing out facts can be wrong; it's only human I guess.

Now that I'm all defensive and have agitated everyone :mrgreen:, let's get on with the facts.

1. The first is fairly benign, likely no one currently in TSP has been harmed by it yet.
I refer to the Expenses by Fund list on the bottom of page 2, you'll see that ALL funds have Gross Expense Ratios ranging from 0.51-0.53%.
The Net Expense Ratio for each fund is 0.38% with the sole exception of the I Fund at 0.39%.

It should be noted that the Net Expense Ratio has a footnote showing the reason Net is less than Gross:
a. loan fees - at $50 dollars a pop, this has got to amount to nearly nothing.
b. account forfeitures

OK. Fact posted.
Here's my takeaway - :shock: :shock: :shock:
Holy Smokes!!! That's a lot of account forfeitures to drop the expense ratio of EVERY fund by ~1/4 or 25%!

Due to the length of this entry, I probably should break this up into 3 parts to spare your time, the 2nd and 3rd points are in my opinion worse facts but let's see if I survive the flaming to present them. Unfortunately, I won't likely get back around to much commenting as it takes a lot for me, so please note the facts and go forward better armed in your investing.

Cheers to all! [where's the beer mug smiley?]
oldjack;


This is from 2013 but shows the breakdown really well.

https://www.frtib.gov/pdf/minutes/MM-2014Jan-Att6.pdf

Almost $15 million in loan fees, so it does amount to quite a bit.

And just to clarify the forfeitures: if you quit (or get fired) before 3 years (2 for some jobs), you lose all of the 1% plus interest accrued, not just 90 days of it. Just over $46 million in 2013.

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