TSP — Thrift Savings Plan — Division and Conservation
The TPS (TSP) is a retirement investment vehicle similar … but certainly very different from .. a non-Federal employee’s 401K Plan. A majority of Federal Workers have invested in the TSP already. For those under the FERS (Federal Employee Retirement System) it is a prime component of their retirement assets. Military personnel have had the opportunity to enroll in the TSP along with their Civil Service brethren for a few years now. their participation is not yet as large, but certainly it will increase.
For the purposes of the target reader here … division of assets at divorce,. the TSP presents the separate and potentially opposing challenges.
First of all, at the time of divorce, the TSP is an asset and must be valued and divided or offset just as any other asset. The TSP can be divided by a specific court order. The administrator of the plan, detailed information, forms and sample orders are available here.
But the straight mechanics of division may not be all there is to think about. The TSP consists of a number of separate funds. There are “L” or Lifecycle funds that automatically move assets from higher risk to lower risk vehicles as an employee approaches retirement age. There is a “G” or General fund which acts pretty much like a passbook savings account, paying a guaranteed, fixed interest rate. There are also common stock and bond funds. An employee can allocate both the money s/he already has on deposit as well as all future contributions to any or all of these funds.
Here’s some current comment on how Federal Employees are doing in their management:
As the markets move up and down, you need to keep an eye on your allocation, to make sure it is what you want it to be.
John Bernards of the Harvey Group tells FederalNewsRadio, “that’s one of the biggest problems with most company 401(k)s, is that there’s no one doing the checks and balances.”
Let’s face it, Bernards says, “we all have jobs, we’re all very busy, we all have families, we all have things going on in our life. Unfortunately, the last thing that gets addressed is our retirements. And so, often times, they’re very out of balance or out of whack. They might be more aggressive than you might want them to be, or they might be more conservative.”
“We often find,” says Bernards, “federal employees (who) have been working for twenty years, participating in the Thrift Savings Plan, who are putting all their money in the G fund. It’s very safe, but the reality is, they’re only getting about four percent a year, inflation’s growing at about 3.1% a year, and essentially, they’re almost losing the purchasing power of their money over time.” Rest of Article Here:
An up to dater TSP “Ticker” for current rates of return is here: So what does this mean for a divorcing couple? Plenty, especially if both have TSP accounts.
You can’t just do a straight NPV (Net Present Value) calculation on $xxx amount of dollars in the plan based on YY years of life expectancy. Unless the valuation makes the proper assumptions about future plan investments and carefully explains those assumptions it will not present a true picture.
Here’s another scenario that may be worth examining. Suppose your client is due several thousand dollars in cash to make the division of assets spreadsheet balance. The other side has no cash to spare but has TSP holdings. One course of action, perhaps the most obvious, is to order payment to the non-TSP spouse with a court order. But what if your client were to take a percentage view and make a loan back to the TSP-spouse with the court directing him to pay either the original amount or the original amount plus interest earned at a future date? Wouldn’t be a solution for everyone, but could result in your client getting a lot more money, if proper safeguards are in place.
Just one scenario where you can’t treat the TSP as just another savings account.
Disclaimer
As always remember that this site, although written by a retiree with substantial experience in the school of hard knocks, it is for personal, lay opinions and informational purposes only. If you have a legal question you should seek help from a legal professional. If you have questions involving current or future values of pensions you need an actuary or competent pension valuation expert. If your questions are tax-related, seek a competent tax advisor. In other cases, I recommend the base chaplain.
Related posts:
- TSP — Thrift Savings Plan — Division and Conservation
- Catch 62 and Valuation and Division of Assets
- HERO Act and Divorce Division
- TSP — New Withdrawal and Transfer Considerations
- TSP — New Withdrawal and Transfer Considerations
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