THE EFFECTS OF MILITARY THRIFT SAVINGS PLAN POLICY CHANGES ON MILITARY PARTICIPATION RATES, CONTRIBUTION RATES, AND CONTRIBUTION ALLOCATIONS

Abstract

The purpose of this research is to analyze the effects of the Department of Defense’s policy changes to the Thrift Savings Plan (TSP), its defined contribution plan, enacted on 1 January 2018. A voluntary and anonymous survey was administered online to approximately 2,000 active-duty Navy personnel at Destroyer Squadron 31 to determine how the new TSP default options affected their TSP utilization and if their actions align with previous studies in behavioral economics. From the 87 survey responses received, 91 percent confirmed participation in the TSP, demonstrating the potential significance of TSP-related policy changes on military members. We found the new default contribution rate had less of an impact than the new default contribution allocation, which shifted from the Government Securities Investment Fund (G Fund) to the Lifecycle Fund (L Fund) aligned to when the service member would reach retirement age. The G Fund has a historic rate of return of 2 percent over the past ten years, whereas the 2050 L Fund has produced a rate of return of 10 percent. We also discovered the majority of individuals who joined under the new system (53 percent) do not know in which funds their retirement TSP savings are invested. Our study demonstrates the substantial impact that current and future policy changes can have on the financial retirement health of service members and provides senior military leaders valuable data to develop training and policies appropriately.