Participation in the window—which allows access to more than 5,000 funds from mutual fund companies—is limited. Image: leungchopan/Shutterstock.com
Two years after the TSP opened its mutual fund window, usage of that feature barely registers in terms of either number of investors or amount invested, data at the latest TSP board meeting show.
As of the end of July, about 5,500 account holders had invested in outside mutual funds, out of a total TSP population of just under 7.1 million, and those accounts collectively held $400 million of the $927 billion on investment—in both cases, well below even 1 percent.
When the TSP launched the feature in mid-2022—after years of preparation and years of anticipation by a vocal segment of investors—it projected that two to three percent of investors would use the window within about two to three years. The TSP cautioned at the time, though, that that was just an estimate based on the experience of other 401(k)-type plans that had added similar features, and was not an expectation.
Participation in the window—which allows access to more than 5,000 funds from mutual fund companies—is limited by rules requiring a minimum initial transfer of at least $10,000 and a requirement that no more than a quarter of an account balance may be invested in outside funds. That effectively makes it available only to those with at least $40,000 in their accounts.
The costs associated with mutual fund window accounts also have continued to be a disincentive for some TSP investors—annual fees totaling $150 plus a $28.75 per-trade fee and the additional fees charged by the outside funds. The TSP has said it must charge those fees to make all the costs of the mutual fund window be borne by those using it.
The window meanwhile has continued to draw scrutiny from Republicans on Capitol Hill, with an amendment pending for a spending bill when Congress reconvenes in September to prevent investments in any funds using environmental-social-governance criteria in selecting companies whose stock it holds. The TSP has said that would require it to end the feature, saying it does not have the resources to monitor all the available outside funds to assure that they met such a standard.
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