Managing Money

For many years, Thrift Savings Plan (TSP) participants have asked for more investment options. After years of research and studies, the TSP answered participants’ requests and rolled out a mutual fund window in June 2022.

The mutual fund window is a self-directed account that provides TSP participants the ability to invest a portion of their TSP balance in mutual funds. Through the mutual fund window, eligible TSP participants now have access to approximately 5,000 mutual funds across about 300 mutual fund families. Before you get too excited, however, there’s a considerable amount of fine print to be aware of.

Eligibility. For starters, not everyone will be able to participate, due to the financial requirements and limitations. For example, the initial transfer to the mutual fund window must be at least $10,000, and TSP participants may not have more than 25% of their total account balance in the mutual fund window at any time. This means that TSP participants must have at least $40,000 in their TSP accounts to be eligible.

Buyer beware. There’s no fiduciary oversight of the mutual funds offered in the mutual fund window. Unlike the lowcost, core TSP funds, the mutual funds offered through the mutual fund window aren’t vetted by a plan fiduciary. This doesn’t necessarily mean the mutual funds are bad options. It does mean TSP participants need to carefully research and review the prospectus for each mutual fund he or she is considering. Ultimately, it’s up to the TSP participant to decide which mutual fund(s) will best meet their goals and objectives.

The law requires the Federal Retirement Thrift Investment Board (FRTIB) to “ensure that any expenses charged for the use of the mutual fund window are borne solely by the participants who use such window.” 5 U.S.C. 8438(b)(5) (B). As such, participants who choose to use the mutual fund window will incur fees and expenses that do not apply to participants who invest only in the TSP’s core funds.

The additional fees associated with the TSP mutual fund window are:

$95 annual maintenance fee – This fee covers the actual cost of maintaining a mutual fund window account. $55 annual administrative fee - This is a flat, variable fee that will be reviewed every three years and adjusted by multiplying the average mutual fund window account balance by the TSP administrative expense ratio. This fee ensures the use of the mutual fund window does not indirectly increase the TSP core funds’ administrative expenses for TSP participants who do not use the mutual fund window. $28.75 per-trade fee – This fee will be assessed with each purchase or sale of mutual fund shares and comes out of the total trade amount. When a participant sells a mutual fund, the trade fee will be deducted from the proceeds. When a mutual fund is purchased, the trade fee will be deducted from the trade amount. The trade fee goes directly to the mutual fund window provider.

Other fees and expenses specific to the mutual funds – Like the administrative fees associated with the TSPs’ investment funds, each mutual fund will have annual operating expenses, which are disclosed in the form of an expense ratio. Expense ratios and other fees vary widely from fund to fund. It’s important for TSP participants to research and understand all the fees associated with any mutual fund he or she invests in.

Using the mutual fund window. Participants cannot send contributions directly to

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the mutual fund window. Instead, participants will need to perform a fund transfer to move money out of one or more of the TSP investment funds and into the mutual fund window. Fund transfers, along with reallocations among the TSP investment funds, are limited to two transactions per month (there is no limit on fund transfers and reallocations if moving money into the G Fund).

While the mutual fund window provides participants with a tremendous amount of investment options, the costs and risks need to be carefully considered. In fact, participants eligible to withdraw money from their TSP may be better served transferring some money from their TSP to an IRA where they’ll have many of the same funds to choose from without the extra administrative costs.

On September 21, 2022, the NARFE Federal Benefits Institute will be hosting a webinar on the TSP mutual fund window. Please join me then to learn more.

MARK A. KEEN, CFP®, PARTNER, KEEN & POCOCK. SECURITIES OFFERED THROUGH THE STRATEGIC FINANCIAL ALLIANCE, INC. (SFA), MEMBER FINRA/SIPC. ADVISORY SERVICES OFFERED THROUGH STRATEGIC BLUEPRINT LLC AND SFA. MARK KEEN IS A REGISTERED PRINCIPAL OF SFA AND AN INVESTMENT ADVISER REPRESENTATIVE OF SFA AND STRATEGIC BLUEPRINT, LLC. SFA AND STRATEGIC BLUEPRINT ARE AFFILIATED THROUGH COMMON OWNERSHIP BUT OTHERWISE UNAFFILIATED WITH KEEN & POCOCK. NEITHER STRATEGIC BLUEPRINT NOR SFA PROVIDE TAX OR LEGAL ADVICE.

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