The TSP's Mutual Fund Window

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MichDad
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The TSP's Mutual Fund Window

Post by MichDad »

I received statistics from the Thrift Savings Plan in connection with its Mutual Fund Window (MFW) that allows participants to purchase non-TSP mutual funds within their TSP accounts. The MFW is described at this link:

https://www.tsp.gov/mutual-fund-window/

I obtained MFW statistics from the program’s inception in June 2022 through December 2023, a total of nineteen months. As of December 31, 2023, there were 4,205 MFW accounts containing any funds. The total dollar value of those 4,205 MFW accounts was $139,731,396.07. Thus, the average MFW account held $33,229.82.

I realize it’s not an apples to apples comparison but as of October 31, 2023 (the last date for which I have the TSP’s official statistics), there were 6,951,790 TSP participants holding a total of $771 billion in assets.

So, about 0.06% of TSP participants have opened and funded a MFW account. And about 0.018% of the TSP’s $771 billion in assets are invested through the MFW.

The Roth TSP was far more popular over a comparable period. If I recall correctly, the Roth TSP was launched in May 2012. Nineteen months later, November 2013, about 280,000 TSP participants had invested $855.9 million into the Roth TSP. As of October 31, 2023, TSP participants had invested $47 billion into the Roth TSP.

As of November 2013, about 6.06% of TSP participants had invested into the Roth TSP. Their investments amounted to only about 0.22% of total TSP assets at that time.

My conclusion is that the MFW has not yet proven itself to be a program that TSP participants are excited about. My prediction is that the MFW is not likely to grow significantly in its current form. Time will tell.

MichDad
stan1
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Re: The TSP's Mutual Fund Window

Post by stan1 »

Thanks for the analysis. I think the reasons for the FRTIB to add the mutual fund window were multiple. One was that some participants were asking for more fund choices which the mutual fund window offers. Perhaps those people were hoping the mutual fund window costs would be built into the expense ratios all fund participants pay, but the FRTIB did right by the participants who use the TSP funds by having the mutual fund window users pay their share of extra costs.

But I think another reason is that the mutual fund window enables the FRTIB to avoid pressure from lobbyists to add sector funds, ESG funds, or any variety of other funds someone might advocate for. The FRTIB can say these funds are all available to people if they choose to use them. Hopefully that helps keep additional political influences at bay.

It gives people a choice, if they choose to use it, and hopefully helps preserve the TSP as a very good retirement plan for military, civilians, and retirees. It may not be the best retirement plan any more, but it is still very, very good; low cost (albeit not lowest cost); and better than 401K plans that people have available.
jaMichael
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Re: The TSP's Mutual Fund Window

Post by jaMichael »

The fund selection in the mutual fund window is excellent but the conditions on use make it a nonstarter for most. Specifically, I don’t see why the TSP both charges additional fees for the window ($55 and $95 annual fees plus $29 per trade) and limits the amount you can invest in the window to 25% of your TSP balance. If you are going to charge participants additional fees to cover the costs of the window, then why not let them make full use of the window so the additional costs make economic sense to the participant? Given the combination of high costs and low investment limits, I don’t see the window makes sense except for rare cases, such as someone who really wants to own a TIPS fund and has no other tax-advantaged accounts available.

I like the Roth option (I do 50/50 Roth/traditional contributions) but it is frustrating that you can’t invest the Roth and traditional funds differently. As a result, most of my Roth money is in the G Fund, which means I am wasting much of the advantage of Roth accounts. Again, why? If you are going to allow Roth contributions, why not let people choose Roth-appropriate investments for their Roth funds? I know this problem is not unique to TSP.
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MichDad
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Re: The TSP's Mutual Fund Window

Post by MichDad »

jaMichael wrote: Sat Feb 03, 2024 12:50 pm I like the Roth option (I do 50/50 Roth/traditional contributions) but it is frustrating that you can’t invest the Roth and traditional funds differently. As a result, most of my Roth money is in the G Fund, which means I am wasting much of the advantage of Roth accounts. Again, why? If you are going to allow Roth contributions, why not let people choose Roth-appropriate investments for their Roth funds? I know this problem is not unique to TSP.
jaMichael,

I agree with you that TSP participants should be permitted to invest their Roth TSP assets in different funds and in different amounts than their traditional TSP assets. Most people want to hold their Roth assets longer and weigh them more heavily towards equities (rather than bonds). For that reason, I transferred all of my Roth TSP assets to a Roth IRA in 2019, after the TSP liberalized its withdrawal rules. I still hold a substantial amount of traditional TSP assets in the G Fund.

Even more important and useful to me, would be if the TSP would join other large 401(k) plans and allow participants to make in-plan Roth conversions -- in tandem with the change you've suggested.

If you haven't done so already, I suggest that you write to the TSP to express your opinions.

MichDad
stan1
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Re: The TSP's Mutual Fund Window

Post by stan1 »

jaMichael wrote: Sat Feb 03, 2024 12:50 pm The fund selection in the mutual fund window is excellent but the conditions on use make it a nonstarter for most. Specifically, I don’t see why the TSP both charges additional fees for the window ($55 and $95 annual fees plus $29 per trade) and limits the amount you can invest in the window to 25% of your TSP balance. If you are going to charge participants additional fees to cover the costs of the window, then why not let them make full use of the window so the additional costs make economic sense to the participant? Given the combination of high costs and low investment limits, I don’t see the window makes sense except for rare cases, such as someone who really wants to own a TIPS fund and has no other tax-advantaged accounts available.

I like the Roth option (I do 50/50 Roth/traditional contributions) but it is frustrating that you can’t invest the Roth and traditional funds differently. As a result, most of my Roth money is in the G Fund, which means I am wasting much of the advantage of Roth accounts. Again, why? If you are going to allow Roth contributions, why not let people choose Roth-appropriate investments for their Roth funds? I know this problem is not unique to TSP.
I'd agree the "training wheels" limiting the mutual fund window to 25% of TSP balance should be lifted for those who wish use it. As for the amount of fees, I don't think people who just use the standard funds should pay the costs of operating the mutual fund window. Of course the people who use the mutual fund window will think everyone should contribute. And the people who use the mutual fund window will think they should not have to pay for the TSP call center and website in addition to the expense ratios of their mutual funds.

I've sent up feedback before on allowing different investing choices between Roth and Traditional, as well as clearly identifying in the record keeping system what is in Traditional and Roth balances. Most of the website co-mingles both account types. I don't know who their auditor is but I can't see how co-mingling Traditional and Roth balances passes audit. It sure doesn't pass my audit. They know the issue, my guess is their response back would be they want simplicity not complexity. And that it is more expensive to separate them out.

When I retire in a few months I will roll the Roth portion of my TSP over to a Roth IRA almost immediately. Traditional portion I'll decide later, but I have myself fairly convinced that a T-Bill on auto-roll or TIPS ladder at Fidelity is "close enough" to the G Fund. Just a matter of picking what durations to use. For sure I'll roll the Traditional TSP to a Traditional IRA if my health takes a turn for the worst or as I approach QCD eligibility age.
jaMichael
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Re: The TSP's Mutual Fund Window

Post by jaMichael »

stan1 wrote: Sat Feb 03, 2024 2:14 pm
jaMichael wrote: Sat Feb 03, 2024 12:50 pm The fund selection in the mutual fund window is excellent but the conditions on use make it a nonstarter for most. Specifically, I don’t see why the TSP both charges additional fees for the window ($55 and $95 annual fees plus $29 per trade) and limits the amount you can invest in the window to 25% of your TSP balance. If you are going to charge participants additional fees to cover the costs of the window, then why not let them make full use of the window so the additional costs make economic sense to the participant? Given the combination of high costs and low investment limits, I don’t see the window makes sense except for rare cases, such as someone who really wants to own a TIPS fund and has no other tax-advantaged accounts available.

I like the Roth option (I do 50/50 Roth/traditional contributions) but it is frustrating that you can’t invest the Roth and traditional funds differently. As a result, most of my Roth money is in the G Fund, which means I am wasting much of the advantage of Roth accounts. Again, why? If you are going to allow Roth contributions, why not let people choose Roth-appropriate investments for their Roth funds? I know this problem is not unique to TSP.
I'd agree the "training wheels" limiting the mutual fund window to 25% of TSP balance should be lifted for those who wish use it. As for the amount of fees, I don't think people who just use the standard funds should pay the costs of operating the mutual fund window. Of course the people who use the mutual fund window will think everyone should contribute. And the people who use the mutual fund window will think they should not have to pay for the TSP call center and website in addition to the expense ratios of their mutual funds.

I've sent up feedback before on allowing different investing choices between Roth and Traditional, as well as clearly identifying in the record keeping system what is in Traditional and Roth balances. Most of the website co-mingles both account types. I don't know who their auditor is but I can't see how co-mingling Traditional and Roth balances passes audit. It sure doesn't pass my audit. They know the issue, my guess is their response back would be they want simplicity not complexity. And that it is more expensive to separate them out.

When I retire in a few months I will roll the Roth portion of my TSP over to a Roth IRA almost immediately. Traditional portion I'll decide later, but I have myself fairly convinced that a T-Bill on auto-roll or TIPS ladder at Fidelity is "close enough" to the G Fund. Just a matter of picking what durations to use. For sure I'll roll the Traditional TSP to a Traditional IRA if my health takes a turn for the worst or as I approach QCD eligibility age.
Thanks. My plan is similar. I think I can roll the Roth portion over at 59 1/2, and I will do so even though I don’t plan to leave federal service until 62. At 62, I will either stick with the G Fund or roll to an IRA for a TIPS ladder, probably the latter. In addition to the superior inflation protection, there is a psychological bonus to having control over your money, and the G Fund may be subject to legislative risk. I’ve placed more emphasis on inflation protection since I leaned that FERS pensions are not fully inflation indexed. I have no problem with charging folks for using the mutual fund window, but then let them actually use it.

Are there any employer sponsored plans that allow participants to buy individual TIPS? That would be a real improvement.
stan1
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Re: The TSP's Mutual Fund Window

Post by stan1 »

jaMichael wrote: Sat Feb 03, 2024 2:39 pm Are there any employer sponsored plans that allow participants to buy individual TIPS? That would be a real improvement.
Just go for the holy grail: unlimited in-service rollovers from a 401K (TSP) to an IRA, or even better eliminate 401K and TSP entirely and have employers allot employee and matching contributions direct to the employee's IRA account.
PersonalFinanceJam
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Re: The TSP's Mutual Fund Window

Post by PersonalFinanceJam »

jaMichael wrote: Sat Feb 03, 2024 2:39 pm
Are there any employer sponsored plans that allow participants to buy individual TIPS? That would be a real improvement.
Yes. Both my wife and myself (different employers) have brokerage windows which let us purchase almost anything. This includes individual treasuries/TIPS. I currently have my TIPS ladder built in my 401k. There is no additional fee for the brokerage window either.

Not all employers with a brokerage window allow this much freedom but we’ve been fortunate. I have had previous employers where there was an annual fee for the brokerage window service. Fifty to 100 bucks a year was the range I saw. As a non TSP participant, I used to be envious of the TSP. It’s still good, but I think good 401k plans have eclipsed it for quite some time. To me, the mutual fund window fees for the TSP seem to be more than covering their costs.
stan1
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Re: The TSP's Mutual Fund Window

Post by stan1 »

PersonalFinanceJam wrote: Sat Feb 03, 2024 3:22 pm To me, the mutual fund window fees for the TSP seem to be more than covering their costs.
We have no data to make any type of evaluation so I'd be careful about making assumptions. The TSP has a contractor managing the mutual fund window, that business has to get paid to offer the feature. Few people are using the mutual fund window. I've forgotten the business that operates it, I'm sure someone will remember and post it.
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Re: The TSP's Mutual Fund Window

Post by Fryxell »

stan1 wrote: Sat Feb 03, 2024 11:50 am Perhaps those people were hoping the mutual fund window costs would be built into the expense ratios all fund participants pay, but the FRTIB did right by the participants who use the TSP funds by having the mutual fund window users pay their share of extra costs.
Problem with this is that all the other changes and updates to the TSP cost money too, but those other costs were spread out over everyone. They made changes to liberalize withdrawals for retirees or for the military. Those cost money. In those cases they didn’t do right by imposing those costs on people that don’t use those features.

The mutual fund window fees are rapacious and way more expensive than what you could get from a Fidelity or Schwab. It’s clear they don’t want people to use the window. They just added it to say they are giving people options but make them so expensive and restricted that no one wants to use it.

People that want options are just going to have to rollover out of the TSP as soon as they can to avoid the rapacious TSP fees. Who would’ve thought? Now it’s the TSP that is high cost.
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Re: The TSP's Mutual Fund Window

Post by Fryxell »

Speaking of, TSP mutual funds no longer have the lowest fees either. Can get lower fees at Vanguard or Fidelity.
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Re: The TSP's Mutual Fund Window

Post by grabiner »

MichDad wrote: Sat Feb 03, 2024 10:43 am I received statistics from the Thrift Savings Plan in connection with its Mutual Fund Window (MFW) that allows participants to purchase non-TSP mutual funds within their TSP accounts. The MFW is described at this link:

https://www.tsp.gov/mutual-fund-window/

I obtained MFW statistics from the program’s inception in June 2022 through December 2023, a total of nineteen months. As of December 31, 2023, there were 4,205 MFW accounts containing any funds. The total dollar value of those 4,205 MFW accounts was $139,731,396.07. Thus, the average MFW account held $33,229.82.
And this suggests that many of the investors should not have been using it. It costs $178.75 per year to use the mutual fund window and make one trade per year, so that is an average cost of more than 0.5% in addition to any mutual fund fees.

The fee is reasonable if you can put $100K into the window (which requires a $400K TSP balance), and you have one fund that you want to hold $100K in; this is an extra cost of 0.18%. Even then, it may not be worthwhile; most investors with a TSP that large also have a Roth IRA or taxable account with other investment options.
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Re: The TSP's Mutual Fund Window

Post by Dan-in-Virginia »

MichDad wrote: Sat Feb 03, 2024 10:43 am I received statistics from the Thrift Savings Plan in connection with its Mutual Fund Window (MFW) that allows participants to purchase non-TSP mutual funds within their TSP accounts. The MFW is described at this link:

https://www.tsp.gov/mutual-fund-window/

I obtained MFW statistics from the program’s inception in June 2022 through December 2023, a total of nineteen months. As of December 31, 2023, there were 4,205 MFW accounts containing any funds. The total dollar value of those 4,205 MFW accounts was $139,731,396.07. Thus, the average MFW account held $33,229.82.

I realize it’s not an apples to apples comparison but as of October 31, 2023 (the last date for which I have the TSP’s official statistics), there were 6,951,790 TSP participants holding a total of $771 billion in assets.

So, about 0.06% of TSP participants have opened and funded a MFW account. And about 0.018% of the TSP’s $771 billion in assets are invested through the MFW.

The Roth TSP was far more popular over a comparable period. If I recall correctly, the Roth TSP was launched in May 2012. Nineteen months later, November 2013, about 280,000 TSP participants had invested $855.9 million into the Roth TSP. As of October 31, 2023, TSP participants had invested $47 billion into the Roth TSP.

As of November 2013, about 6.06% of TSP participants had invested into the Roth TSP. Their investments amounted to only about 0.22% of total TSP assets at that time.

My conclusion is that the MFW has not yet proven itself to be a program that TSP participants are excited about. My prediction is that the MFW is not likely to grow significantly in its current form. Time will tell.

MichDad
Use of the MFW would explode if the fee structure and restrictions to 25% of account value were not in place. It's not a problem if you have $500K in the MFW and never trade except to add additional funds once or twice a year.

At $150/year over 4,205 MFW accounts, that's total income (excluding trading fees) of $630,750. The thrift board should have contracted with Fidelity or Vanguard. Both companies know they'd be more likely to gain the rollovers at retirement.

https://www.fedweek.com/tsp/why-so-few- ... nd-window/
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Re: The TSP's Mutual Fund Window

Post by Dan-in-Virginia »

MichDad wrote: Sat Feb 03, 2024 10:43 am I received statistics from the Thrift Savings Plan in connection with its Mutual Fund Window (MFW) that allows participants to purchase non-TSP mutual funds within their TSP accounts. The MFW is described at this link:

https://www.tsp.gov/mutual-fund-window/

I obtained MFW statistics from the program’s inception in June 2022 through December 2023, a total of nineteen months. As of December 31, 2023, there were 4,205 MFW accounts containing any funds. The total dollar value of those 4,205 MFW accounts was $139,731,396.07. Thus, the average MFW account held $33,229.82.

I realize it’s not an apples to apples comparison but as of October 31, 2023 (the last date for which I have the TSP’s official statistics), there were 6,951,790 TSP participants holding a total of $771 billion in assets.

So, about 0.06% of TSP participants have opened and funded a MFW account. And about 0.018% of the TSP’s $771 billion in assets are invested through the MFW.

The Roth TSP was far more popular over a comparable period. If I recall correctly, the Roth TSP was launched in May 2012. Nineteen months later, November 2013, about 280,000 TSP participants had invested $855.9 million into the Roth TSP. As of October 31, 2023, TSP participants had invested $47 billion into the Roth TSP.

As of November 2013, about 6.06% of TSP participants had invested into the Roth TSP. Their investments amounted to only about 0.22% of total TSP assets at that time.

My conclusion is that the MFW has not yet proven itself to be a program that TSP participants are excited about. My prediction is that the MFW is not likely to grow significantly in its current form. Time will tell.

MichDad
Use of the MFW would explode if the fee structure and restrictions to 25% of account value were not in place. It's not a problem if you have $500K in the MFW and never trade except to add additional funds once or twice a year.

At $150/year over 4,205 MFW accounts, that's total income (excluding trading fees) of $630,750. The thrift board should have contracted with Fidelity or Vanguard. Both companies know they'd be more likely to gain the rollovers at retirement.

https://www.fedweek.com/tsp/why-so-few- ... nd-window/
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Re: The TSP's Mutual Fund Window

Post by MichDad »

Dan-in-Virginia wrote: Sun Feb 04, 2024 8:55 pm
MichDad wrote: Sat Feb 03, 2024 10:43 am I received statistics from the Thrift Savings Plan in connection with its Mutual Fund Window (MFW) that allows participants to purchase non-TSP mutual funds within their TSP accounts. The MFW is described at this link:

https://www.tsp.gov/mutual-fund-window/

I obtained MFW statistics from the program’s inception in June 2022 through December 2023, a total of nineteen months. As of December 31, 2023, there were 4,205 MFW accounts containing any funds. The total dollar value of those 4,205 MFW accounts was $139,731,396.07. Thus, the average MFW account held $33,229.82.

I realize it’s not an apples to apples comparison but as of October 31, 2023 (the last date for which I have the TSP’s official statistics), there were 6,951,790 TSP participants holding a total of $771 billion in assets.

So, about 0.06% of TSP participants have opened and funded a MFW account. And about 0.018% of the TSP’s $771 billion in assets are invested through the MFW.

The Roth TSP was far more popular over a comparable period. If I recall correctly, the Roth TSP was launched in May 2012. Nineteen months later, November 2013, about 280,000 TSP participants had invested $855.9 million into the Roth TSP. As of October 31, 2023, TSP participants had invested $47 billion into the Roth TSP.

As of November 2013, about 6.06% of TSP participants had invested into the Roth TSP. Their investments amounted to only about 0.22% of total TSP assets at that time.

My conclusion is that the MFW has not yet proven itself to be a program that TSP participants are excited about. My prediction is that the MFW is not likely to grow significantly in its current form. Time will tell.

MichDad
Use of the MFW would explode if the fee structure and restrictions to 25% of account value were not in place. It's not a problem if you have $500K in the MFW and never trade except to add additional funds once or twice a year.

At $150/year over 4,205 MFW accounts, that's total income (excluding trading fees) of $630,750. The thrift board should have contracted with Fidelity or Vanguard. Both companies know they'd be more likely to gain the rollovers at retirement.

https://www.fedweek.com/tsp/why-so-few- ... nd-window/
Thank you for the link to the FedWeek article. The article states that the TSP expects between one and two percent of TSP participants will open a Mutual Fund Window account but it doesn’t say how long it will take to achieve that. Granted, we’re only nineteen months into the MFW program but the TSP is far from achieving its very modest goals. They’re not yet even at one tenth of one percent of the TSP participants. At the current rate, achieving even a minimal one percent market penetration will take years.

I have the month by month MFW statistics and can report that most people who opened MFW accounts did so early after the program began. The rate of new account growth seems to have slowed and plateaued.

MichDad
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Re: The TSP's Mutual Fund Window

Post by Taz »

I'm not surprised by the lack of interest in a mutual fund window. Most individuals are content to maintain fairly static positions in their TSP. Those timing the market may play the in/out of the G fund game, but aggressive traders will move balances out.

I think the same applies to non-TSP 401k plans. When I was in charge of finance and HR at a small company, we added a trading window" to our Vanguard/Ascensus 401k. Only 1 out of 40 employees signed up.

Frankly, it's a waste of money/effort which should be used to cut expenses and improve service. We only hold the G Fund which continues to disappoint.
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Re: The TSP's Mutual Fund Window

Post by nps »

Taz wrote: Fri Feb 09, 2024 9:42 pm We only hold the G Fund which continues to disappoint.
It does what it says it will do. Being disappointed in the G fund is like being disappointed that there is an inverted yield curve.
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Re: The TSP's Mutual Fund Window

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nps wrote: Sat Feb 10, 2024 7:18 am
Taz wrote: Fri Feb 09, 2024 9:42 pm We only hold the G Fund which continues to disappoint.
It does what it says it will do. Being disappointed in the G fund is like being disappointed that there is an inverted yield curve.
I know. Glad to have had it as a major part of our fixed component ... but one can dream.
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Re: The TSP's Mutual Fund Window

Post by MnD »

I had an interest in the MFW due to the lack of EM and mid/small cap international in the I fund - until I saw the fee schedule.
Completely out of line compared to MFW fees at other large employer plans.

Now that the I fund is converting to a total international index (ex-China and Hong Kong) I would never even give the MFW another look.
Trading friction/costs associated with the August 2023 ban on US investments in certain chinese sectors now probably outweighs any benefits of holding that particular slice of EM.

And if one just had to have China+Hong Kong, it would be very simple and much cheaper to take a 3% position in a global market cap weighted equity portfolio via a China+Hong Kong ETF like Ishares MCHI in some account outside the TSP. Since I'm 70/30 that would be a 2% portfolio position and I just don't see that moving the needle in any meaningful way.
70/30 AA for life, Global market cap equity. Rebalance if fixed income <25% or >35%. Weighted ER< .10%. 5% of annual portfolio balance SWR, Proportional (to AA) withdrawals.
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Re: The TSP's Mutual Fund Window

Post by stan1 »

MnD wrote: Sun Feb 11, 2024 9:17 am Completely out of line compared to MFW fees at other large employer plans.
In most large employer plans the 401K administrator such as Fidelity also operates the mutual fund window. Fidelity and Schwab are both experts at running mutual fund windows and they make a lot of revenue (and likely profit) off them.

TSP is its own plan administrator but they aren't a brokerage.

https://www.frtib.gov/pdf/reading-room/ ... e_2022.pdf

So they had to contract it out and per above link it was bundled with the record keeping contract. Another situation where the TSP is not like a 401K because the Federal Government is not a business. I knew the company that ran the mutual fund window at one point (it's an obscure company that focused on running mutual fund windows). But I can't remember the companys name or find it via search right now.
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