TSPs Vs. Pensions
When assessing how to proceed with your retirement planning, it can be frustrating when trying to choose the "right" plan. This can also be the case for employers who must choose what type of retirement plans and benefits to offer to employees. Two such retirement accounts, TSPs and pensions, are different plans, but both have certain advantages.
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TSPs
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A TSP, or thrift savings plan, is a retirement plan made available under the Federal Employees' Retirement System Act of 1986. TSPs are only available to federal employees and members of uniformed services. Thrift savings plans are similar to a private company's 401k plans in that they offer eligible candidates the same sort of savings and tax benefits. Like 401k plans, TSPs function as contribution plans, which means that the amount of your TSP retirement income hinges on how much you contribute to it during your career.
Pensions
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Like TSPs, pensions are retirement accounts that allot you a certain amount of money once you retire, but pensions are not limited to federal employees. Pensions are "defined benefit" plans with fixed amounts that can vary by employers. Once you retire, a pension's payout will depend on the length of your employment with your employer and what your salary was. For example, if you were with your employer for a short period, you will likely receive a smaller pension payout. Regardless of the amount in your pension, you can elect to receive either a lump-sum pension payout or a monthly payment until the account is depleted.
Advantages of TSPs
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TSPs have several advantages as retirement accounts. These advantages include very low administrative and investment expenses, multiple fund investment options and loan opportunities in case you run into circumstances that require you to borrow from your TSP account. As an added benefit, TSPs allow you to transfer your past retirement account, such as your IRA, into your current TSP account. Also, depending on your circumstances, as a TSP holder you may be permitted to withdraw a portion of your TSP savings while you are still employed.
Advantages of Pensions
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There are tax advantages for individual pension contributors as well as for employers who use pension plans to finance operations, according to the Library of Economics and Liberty website. Pensions can provide a valuable source of financing for employers who offer these type of plans, because pensions do not make cash payments to existing employees. This means current contributions can be used to build the business.
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