There are many options when it comes to your Thrift Savings Plan, and For Your Benefit hosts Bob Leins and Tammy Flanagan got a great deal of information on a variety of topics concerning the TSP during this week’s show.
During the show, the gang talked a lot about changes coming to your TSP now that the TSP Enhancements Act of 2009 is law.
They also discussed prospects for achieving legislation to allow contributions from lump sum terminal annual leave payments.
(Hear Long and Trabucco talk more about the Roth option on Monday’s Daily Debrief.)
In addition, they chatted about annuities, which was also the subject of Flanagan’s most recent column.
She said that the two most common questions she gets involves whether or not there are costs and fees involved with an annuity once it is purchased, and whether or not it is safe to buy one in the first place.
The TSP’s current annuity provider is MetLife, and Long explained how the Board came to pick that company.
“We compete to figure out which insurance company should be the annuity provider for the TSP. That is MetLife right now. This year we’re working on rebidding it because that’s up at the beginning of next year. So, we will compete that again. One of the key things that we look at is . . . safety — the financial resources and stability to pay whichever company we select.”
That said, Long explained, the guarantee that is provided in the annuity is done through the insurance company, not the TSP.
“All of the insurance industry, AIG being the most obvious, has been under some level of stress. But, we take a look at every company — what their rating was, their financial analysis — and we report this on a quarterly basis in an open session in our board meetings. We are very much on top of this and making sure that the provider of those annuities is financially secure. That said, it’s not a government guarantee. It’s a guarantee from the insurance company.”
As for fees, Long said they exist because MetLife, like every other insurance company, is in business to make a profit. Thus, he added, there are pros and cons to purchasing an annuity.
“In effect, you’re trying to decide — am I going to outlive the company’s assumption of how long I’m going to survive. If you live longer than they think you’re going to live, then it’s in your best interest, and if you don’t, then the insurance company ends up a little bit better off. The key, I think, is to make sure that this is a way to make sure that you never outlive your money.”
The number of TSP participants who purchase annuities with their own money is relatively small by comparison.
Trabucco said there is a good explanation for this.
“In the last two years, 2,520 participants have purchased annuities. . . . It’s really for people who want to have that assurance of income for the remainder of their lifetime. Remember, the TSP is part of FERS — and FERS has three elements, and two of them are, in effect, annuities. The social security and the FERS benefit. I wouldn’t overlook that FERS benefit. After 30 years, at one percent a year, and then after 30 years it goes to 1.1 percent accrual. Although it doesn’t have the full cost of living adjustment that the CSRS has, it has a quite good cost of living adjustment when compared to most.”