The Federal Retirement Thrift Investment Board (FRTIB) will make a mutual fund window available to participants in the Thrift Savings Plan (TSP), beginning in the summer of 2022.
While the TSP mutual fund window will provide a wider range of investment options, the funds will come with some fees and limitations according to proposed rule in the Federal Register published on Jan, 26, 2022.
What is a mutual fund window?
A mutual fund window is a type of self-directed brokerage account that gives investors the ability to buy shares of mutual funds through a broker-dealer that has been selected by their retirement plan or by one of their retirement plan’s service providers. Unlike a plan’s core funds, the investments available through a brokerage account are not ordinarily vetted by a plan fiduciary to determine whether they are prudent investments.
TSP Mutual Fund Window Fees
According to the proposed rule:
“Participants who choose to invest through the mutual fund window will incur fees and expenses that do not apply to participants who invest only in the TSP core funds. These fees and expenses fall into four general categories: (1) An annual maintenance fee of $95, (2) a per trade fee of $28.75, (3) fees and expenses imposed by the specific mutual fund(s) in which the participant chooses to invest, and (4) a fee designed to guarantee that the availability of the mutual fund window will not indirectly increase the share of TSP administrative expenses borne by participants who choose not to use the mutual fund window. The scope of this proposed rule includes only the latter category of fees and expenses.”
TSP Mutual Fund Window Restrictions
The proposed rule includes some of these restrictions:
“[T]he TSP is proposing to require an initial fund transfer of at least $10,000 to the mutual fund window. Second, this initial investment may not cause the portion of the participant’s TSP balance that is invested through the mutual fund window to exceed 25 percent of the participant’s total TSP balance. These two restrictions, taken together, would require a participant to have a minimum TSP balance of $40,000 before becoming eligible to invest through the mutual fund window. Third, subsequent transfers to the mutual fund window would be limited to amounts that do not cause the portion of the participant’s TSP balance that is invested through the mutual fund window to exceed 25 percent of their total TSP balance.”
A 2008 TSP Participant Survey indicated that 39% of participants believed that the addition of a mutual fund window would improve the TSP. The Thrift Savings Plan Enhancement Act of 2009 authorized a mutual fund window instead of adding more funds to the TSP’s statutorily mandated menu of core funds.
Comments on the proposed rules in the Federal Register must be received on or before March 28, 2022