Starting in 2019, the Thrift Savings Plan (TSP) will increase the proportion of its L Funds,, or “Lifecycle” funds, that are invested in stocks. The TSP said Thursday it is planning adjustments to the L Funds L Funds “in an effort to improve your investment outcomes.”
“Effective in January 2019, we will increase exposure to international stocks (the I Fund) from 30% to 35% of the overall stock allocation in all L Funds. The L Income Fund stock allocation (C, S, and I Funds combined) will increase from 20% to 30% over a period of up to 10 years,” a TSP notice said. “The L 2030, L 2040, and L 2050 overall stock allocations will hold steady for a period of years before resuming their transitions from stocks to bonds. In addition to improving investment outcomes, this pause will align the L 2030, L 2040, and L 2050 Funds with the L 2060 Fund, which will be introduced in 2020 with an initial stock allocation of 99%. Visit Lifecycle Funds to learn more.”
The L Funds, use professionally determined investment mixes of the G, F, C, S, and I Funds in the TSP for a particular time horizon, or target retirement date. The objective of the L Funds is to strike an optimal balance between the expected risk and return associated with each fund. The investment mix of each L Fund becomes more conservative as its target date approaches.
Earlier this year, the Federal Retirement Thrift Investment Board (FRTIB) commissioned Aon Hewitt Investment Consulting to make recommendations for the change. “The desired outcome is to create a series of L Funds such that an ‘average participant’ in those L Funds, in combination with the FERS defined benefit plan and Social Security, will be projected to have sufficient assets to maintain a reasonable standard of living throughout retirement,” Aon Hewitt wrote in its review to the FRTIB.