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TSP Expense Ratio History...How Do They Do IT?
Old 09-20-2010, 07:15 PM   #1
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TSP Expense Ratio History...How Do They Do IT?



The TSP expense ratio represents the amount that participants' investment returns were reduced by TSP administrative expenses, net of forfeitures.
Expense ratios may also be expressed in basis points. One basis point is 1/100th of one percent, or .01%. Therefore, the 2009 expense ratio of .028% is 2.8 basis points. Expressed either way, this means that expenses charged to each TSP account in 2009 were approximately 28 cents per $1,000 of investment.
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Old 09-20-2010, 07:31 PM   #2
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I don't know what the TSP does specifically, but a couple of typical methods are:
- abandoned accounts that are returned to the coffers to defray expenses, and
- earning fees for loaning out shares for bears to sell short.

I guess a third way would be to just make up the numbers a la Madoff.

I know the TSP went through a few rough years with one contract administrator in the late 1990s. I wonder if bringing in a new contractor also updated & automated a lot of the systems.
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Old 09-20-2010, 07:54 PM   #3
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Volume of captive participants. It's the same number of people you have to employ to look at an index fund holding $200 million or $200 billlion dollars.

Suppose the 401(k) law was changed so that there were no other 401(k) or 403(b) plans except the TSP. Other than massive unemployment in the financial services industry, it would be a good deal for most folks.
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Old 09-20-2010, 10:00 PM   #4
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Old 09-21-2010, 07:09 AM   #5
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Old 09-21-2010, 11:31 AM   #6
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I read an article this morning saying their expenses went up 70% over the past few years.

TSP costs are close to tipping point (9/20/10) -- GovExec.com

I'm looking forward to the Roth option.
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Old 09-21-2010, 11:37 AM   #7
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I read an article this morning saying their expenses went up 70% over the past few years.
Wouldn't be surprising if most of their administrators are federal employees under CSRS.
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Old 09-21-2010, 11:52 AM   #8
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Is the ER a complete picture? In other words, are there a whole lot of federal employees helping to cut checks, audit, deal with accounts, etc that aren't included in the expense ratio or management costs?. Are they using federal buildings to house any employees that deal with the TSP?

I truly don't know, so these questions are more than rhetorical.
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Old 09-21-2010, 12:06 PM   #9
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Is the ER a complete picture? In other words, are there a whole lot of federal employees helping to cut checks, audit, deal with accounts, etc that aren't included in the expense ratio or management costs?. Are they using federal buildings to house any employees that deal with the TSP?

I truly don't know, so these questions are more than rhetorical.
Good question. This is a little OT, but I know many federal credit unions get free space and services (including utilities, furniture and equipment) in federal buildings. I'm sure it helps their ERs too....

Electronic Code of Federal Regulations:
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Old 09-21-2010, 12:20 PM   #10
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Good question. This is a little OT, but I know many federal credit unions get free space and services (including utilities, furniture and equipment) in federal buildings. I'm sure it helps their ERs too....

Electronic Code of Federal Regulations:
That is what I was getting at. Vanguard can run similar funds for under 10 basis points, but Vanguard is paying for marketing, office space, leases, mortgages, utilities, property tax, legal/compliance fees, employee training, individual account maintenance, statements, maintaining a web presence, etc. Are all those expenses included in the TSP ER's?
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Old 09-21-2010, 02:14 PM   #11
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Here are the financials:

https://www.tsp.gov/PDF/formspubs/financial-stmt.pdf
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Old 09-21-2010, 02:21 PM   #12
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Ok, from that link we have ~$113 million in administrative expenses and $244 billion in assets. Or roughly 4.6 basis points in expense. There are some asset manager rebates that more than offset other investment expenses, so the ER may be lower than 4.6 bp (as the OP's graph suggests).
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Old 09-21-2010, 02:52 PM   #13
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Volume of captive participants. It's the same number of people you have to employ to look at an index fund holding $200 million or $200 billlion dollars.

Suppose the 401(k) law was changed so that there were no other 401(k) or 403(b) plans except the TSP. Other than massive unemployment in the financial services industry, it would be a good deal for most folks.
Congressmen Paul Ryan wants us all to have TSP as an option, but so far he hasn't gotten very far..........
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Old 09-21-2010, 04:00 PM   #14
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Congressmen Paul Ryan wants us all to have TSP as an option, but so far he hasn't gotten very far..........
I assume that doesn't include the G fund. If it did I might contribute to his reelection campaign.
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Old 09-21-2010, 04:36 PM   #15
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TSP has the lowest ER on the planet. I wish my 401k was that good. I think Barclay's has the management contract? Most of the expense and budget items mentioned were for customer service.
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Old 09-21-2010, 06:14 PM   #16
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That is what I was getting at. Vanguard can run similar funds for under 10 basis points, but Vanguard is paying for marketing, office space, leases, mortgages, utilities, property tax, legal/compliance fees, employee training, individual account maintenance, statements, maintaining a web presence, etc. Are all those expenses included in the TSP ER's?
Vanguard is also paying for magazine ads and for the costs of enticing FOX Business News to send over a camera crew...

But just to be fair, I'm not sure which part of Fidelity's expense ratios covers the prostitutes and the midgets.
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Old 09-22-2010, 08:24 AM   #17
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TSP has the lowest ER on the planet. I wish my 401k was that good. I think Barclay's has the management contract? Most of the expense and budget items mentioned were for customer service.
After posting to this thread yesterday, I went and checked DW's 401k options at MegaInvestmentBank and their plan is almost as good as the TSP. Most of the major asset classes have Vanguard Institutional or vanguard proprietary funds with ER's around 8-10 bp. The only big exception is the international fund that is the investor class with ER around 25 bp.

Of course the 401k plan has billions in assets and I assume at least a few competent people are employed by MegaInvestmentBank that are cognizant of the fact that low expenses tend to lead to higher returns.
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Old 09-22-2010, 01:02 PM   #18
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... and I assume at least a few competent people are employed by MegaInvestmentBank that are cognizant of the fact that low expenses tend to lead to higher returns.
That's a lot of assumptions!

I always thought that high expenses led to higher returns... for the 401(k) industry.
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Old 09-22-2010, 01:30 PM   #19
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That's a lot of assumptions!

I always thought that high expenses led to higher returns... for the 401(k) industry.
I'm just playing the odds - they employee tens of thousands of people.

And looking at their 401k plan, they couldn't have constructed it by accident. It is too good to be something created by a group of employees that were not knowledgeable.
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Old 09-22-2010, 05:24 PM   #20
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yeah...lots of assumptions, but I was impressed that the overall ratios for the family of TSP funds is so low. I knew their S&P fund was ultra-low and it probably reflects that their funds are mostly/all index funds. A good example of the problem is that for some mysterious reason, my 401k has the retail S&P fund available, but not the institutional version which has a much lower ER......so I have to roll out of my Fidelity 401k into a Fidelity IRA just to get access to the institutional fund.
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