One of the nation's largest investment consulting firms has been selected to help develop lifecycle funds for the Thrift Savings Plan, the board that oversees the TSP announced yesterday.
Mercer Investment Consulting Inc., headquartered in New York City, was awarded a $242,250 contract after a "good competition" among vendors, a spokesman for the Federal Retirement Thrift Investment Board said.
TSP officials have been exploring the addition of so-called L funds to the TSP for more than a year because of concerns that some participants, either because of lack of time or lack of sophistication, do not regularly rebalance their accounts to ensure diversification and appropriate risk.
Under current plans, TSP participants who decide to invest in the lifecycle funds would pick the date that they intend to start drawing down their TSP savings, such as at retirement or later. Based on that timeline, the lifecycle option would automatically adjust each participant's portfolio to become more conservative, or less risky, as the draw-down date approached.
The TSP hopes to offer L funds in mid-2005 and Mercer will help with the mechanics of setting up the funds -- deciding how many to offer and in what increments. For example, the funds could be geared to 10-year cycles, so that participants could choose 2015, 2025, 2035, 2045 or other target dates for withdrawals. During the cycle, the funds would undergo periodic and automatic reallocation of their assets.
"From an investment perspective, it was the only material gap in the TSP and the next logical step in keeping the TSP consistent with the best plan designs in the industry," Gary A. Amelio, the thrift board's executive director, said in a statement. Amelio has championed the addition of L funds to the TSP since being named to his job in May 2003.
The TSP has nearly 3.4 million participants -- from the civil service, Postal Service, military and other parts of the government -- and assets totaling more than $143 billion. Participants choose how much to save toward retirement, up to tax code limits, and make investments among five TSP funds. Three funds track major stock indexes, one mirrors a major bond index and one offers government securities.
"The new TSP lifecycle funds will comprise investments in the five existing funds in proportions established by professional asset management principles," the board's statement said.
Wendy Young, Mercer's project manager for the TSP contract, said the firm has helped city and state governments and corporations set up lifecycle funds for their employees. "They are turning out to be very popular with employees," she said.
Mercer Investment Consulting has been providing services to pension funds, foundations, endowments and other investors for more than 30 years. It is a practice within Mercer Human Resources Consulting LLC, which is a part of Marsh & McLennan Cos. Inc.
In its statement, the TSP board said it would select a vendor by year's end to help prepare informational and educational materials that will explain the details of the lifecycle funds. The communication effort will present an opportunity "to rejuvenate interest in the TSP," Amelio said.
"It will be invaluable not only for participants who choose the lifecycle approach, but it also will elevate the knowledge of those who study their options and decide not to do so," he said. "All participants are winners in this process."
Getting Ready for Bush, Part 2
A program on "transitional leadership," focused on preparing federal executives and others for President Bush's second term, is being sponsored by the Senior Executives Association in partnership with the Brookings Institution and the University of Virginia's Darden Graduate School of Business.
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Al Knight, a congressional affairs specialist at the Energy Department, retired Oct. 29 after 31 years of federal service. He served as president of Chapter 213 of the National Treasury Employees Union, which hosted a farewell party Nov. 10.