Thrift Savings Plan (TSP)

A thrift savings plan (TSP) is a type of retirement savings plan created by the Federal Employee’s Retirement System Act of 1986 for federal employees and members of the uniformed services, including the Ready Reserve. A TSP serves as a defined-contribution plan designed to give federal employees some of the same retirement-savings benefits offered to workers in the private sector. 

TSP benefits can include automatic contributions and agency matching contributions, as well as catch-up contributions. Federal employees can choose to make tax-deferred contributions into a traditional TSP, which means money that flows into the account won’t be taxed until it’s withdrawn. In this sense traditional TSPs function similarly to employer-sponsored 401(k) plans.

However, participants can also invest in a Roth TSP. This option allows employees to make after-tax contributions into their plans while securing the benefit of making eligible tax-free withdrawals. Employees can also direct 401(K) and individual retirement account (IRA) assets into a TSP and vice versa upon leaving federal employment.

A TSP and Roth TSP offer six different types of funds into which government employees can invest their savings. These options are the Government Securities Investment (G) Fund, the Fixed Income Index Investment (F) Fund, the Common Stock Index Investment (C) Fund, the Small Capitalization Stock Index Investment (S) Fund, the International Stock Index Investment (I) Fund, as well as specific life cycle (L) funds designed from a mix of securities held in each of the individual funds.

The F, S, C, and I funds in the TSP are index funds currently managed by BlackRock Institutional Trust Company as contracted by the Federal Retirement Thrift Investment Board (FRTIB). This independent government agency administers the TSP and is managed by five presidentially appointed board members as well as an executive director. The FRTIB acts as a fiduciary legally liable to manage the TSP prudently and for the best interests of participants and their beneficiaries. In this regard a TSP is different than a 401(K) because it is administered by a government entity as opposed to an employer and/or the parties with which it works. 

Index funds in the TSP are designed to mimic the return characteristics of their corresponding benchmark index. For example, the C Fund is invested in a stock index fund replicating the Standard and Poor’s 500 (S&P 500) Index, which is made up of the stocks of 500 large to medium-sized U.S. companies. L funds are invested in the five individual TSP funds, and their asset allocations are based on individuals’ time horizons, hence the name “life cycle fund.”