THRIFT SAVINGS FUND

Washington, DC

FINANCIAL STATEMENTS

December 31, 2012 and 2011
TABLE OF CONTENTS

PAGE

INDEPENDENT AUDITORS’ REPORT ............................................................................................................. 1

FINANCIAL STATEMENTS.............................................................................................................................. 3

Statements of Net Assets Available for Benefits.................................................................................... 4

Statements of Changes in Net Assets Available for Benefits ................................................................. 5

Notes to Financial Statements ............................................................................................................... 6
1 

CliftonLarsonAllen LLP 

www.cliftonlarsonallen.com 

Independent Auditor's Report

Members of the Board and Executive Director

Federal Retirement Thrift Investment Board

Washington, DC

We have audited the accompanying financial statements of Thrift Savings Fund (the “Fund”),   which

comprise the statements of net assets available for benefits as of December 31, 2012 and 2011, and the

related statements of changes in net assets available for benefits for the years then ended, and the related

notes to the financial statements.

Management's Responsibility for the Financial Statements

Plan management is responsible for the preparation and fair presentation of these financial statements in

accordance with accounting principles generally accepted in the United States of America; this includes the

design, implementation, and maintenance of internal control relevant to the preparation and fair

presentation of financial statements that are free from material misstatement, whether due to fraud or

error.

Auditor's Responsibility

Our responsibility is to express an opinion on these financial statements based on our audits.  We conducted

our audits in accordance with auditing standards generally accepted in the United States of America. Those

standards require that we plan and perform the audit to obtain reasonable assurance about whether the

financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the

financial statements. The procedures selected depend on the auditor's judgment, including the assessment

of the risks of material misstatement of the financial statements, whether due to fraud or error. In making

those risk assessments, the auditor considers internal control relevant to the Fund's preparation and fair

presentation of the financial statements in order to design audit procedures that are appropriate in the

circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal

control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of

accounting policies used and the reasonableness of significant accounting estimates made by management,

as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our

audit opinion.
2 

Opinion   

In our opinion, the financial statements referred to above present fairly, in all material respects, the net

assets available for benefits of the Fund as of December 31, 2012 and 2011, and the changes in its net assets

available for benefits for the years then ended in accordance with accounting principles generally accepted

in

a 

the United States of America.

Calverton, Maryland  

April 15, 2013
3- 

FINANCIAL STATEMENTS
4- 

2012 2011

ASSETS:

 Investments, at fair value:

 U.S. Government Securities Investment Fund 158,520,886 $ 147,726,298 $ 

 BlackRock U.S. Debt Index Fund 28,647,407 22,993,195 

 TSP C Fund – Equity Index Account 84,397,548 71,539,971 

 BlackRock Extended Equity Market Index Fund 29,282,228 25,688,537 

 BlackRock EAFE Equity Index Fund 24,632,395 21,228,212 

 Sub-total investments 325,480,464 289,176,213 

 TSP C Fund pledged 4,474,000 5,524,000 

 Total investments 329,954,464 294,700,213 

 Receivables:

 Employer contributions 298,225 293,603 

 Participant contributions 764,536 759,851 

 Participant loans 8,392,822 7,953,037 

 Accrued interest - 7,181 

 Due for securities sold 314,619 158,735 

 Total receivables 9,770,202 9,172,407 

 Fixed assets: 

 Furniture, equipment, and leasehold improvements,

 net of accumulated depreciation and amortization

 of $22,250 in 2012 and $19,187 in 2011 5,753 4,662 

 Data processing software, net of accumulated

 amortization of $52,682 in 2012 and $47,374 in 2011 2,156 7,182

 Total fixed assets 7,909 11,844

 Other assets 2,960 18,468

 Total assets 339,735,535 303,902,932

LIABILITIES:

 Accounts payable 19,086 21,757 

 Accrued payroll and benefits 1,777 1,470 

 Benefits and participant loans payable 198,361 108,524 

 Deferred rent and lease credits 7,122 958 

 Due for securities purchased 78,378 129,082 

 Sub-total liabilities 304,724 261,791 

 C Fund cash collateral payable 4,474,000 5,524,000 

 Total liabilities 4,778,724 5,785,791 

FUNDS RESTRICTED FOR THE PURCHASE OF 

 FIDUCIARY INSURANCE (4,114) (4,231)

NET ASSETS AVAILABLE FOR BENEFITS 334,952,697 $ $ 298,112,910

See notes to financial statements and Independent Auditors’ Report.

THRIFT SAVINGS FUND

Statements of Net Assets Available for Benefits

(In thousands)

As of December 31, 2012 and 2011
5 

2012 2011

ADDITIONS: 

 Investment income:

 U.S. Government Securities Investment Fund 2,166,017 $ 3,245,204 $ 

 Net appreciation (depreciation) in fair value

 of BlackRock funds:

 BlackRock U.S. Debt Index Fund 1,092,282 1,544,878 

 TSP C Fund – Equity Index Account 12,428,989 1,674,008 

 BlackRock Extended Equity Market Index Fund (964,641) 4,664,970 

 BlackRock EAFE Equity Index Fund 3,911,384 (2,781,871) 

 Asset manager rebates/ securities lending income (net) 31,556 54,917 

 Less investment expenses (5,453) (15,995)

 Net investment income 24,289,745 2,756,500

 Contributions:

 Participant 18,017,246 17,867,481 

 Employer 7,585,266 7,375,456

 Total contributions 25,602,512 25,242,937

 Interest income on participant loans 203,023 237,176

 Total additions 50,095,280 28,236,613 

DEDUCTIONS:

 Benefits paid to participants 12,824,118 10,776,397 

 Administrative expenses 142,180 127,950 

 Participant loans declared taxable distributions 289,312 260,302

 Total deductions 13,255,610 11,164,649

CHANGE IN FUNDS RESTRICTED FOR THE

 PURCHASE OF FIDUCIARY INSURANCE 117 104

 Net increase 36,839,787 17,072,068 

NET ASSETS AVAILABLE FOR BENEFITS:

 Beginning of period 298,112,910 281,040,842

 End of period 334,952,697 $ $ 298,112,910

See notes to financial statements and Independent Auditors’ Report.

THRIFT SAVINGS FUND

Statements of Changes in Net Assets Available for Benefits

(In thousands)

Years Ended December 31, 2012 and 2011
6 

THRIFT SAVINGS FUND 

NOTES TO FINANCIAL STATEMENTS 

FOR THE YEARS ENDED DECEMBER 31, 2012 AND 

DECEMBER 31, 2011 

1. PLAN DESCRIPTION 

The following description is provided for general information purposes. Participants should refer to the 

Summary of the Thrift Savings Plan, www.tsp.gov, and applicable legislation and regulations for more 

complete information. 

General—The Thrift Savings Plan (the Plan or the TSP) is a retirement savings and investment plan for 

Federal employees and members of the uniformed services. It was authorized by the United States 

Congress in the Federal Employees’ Retirement System Act of 1986 (FERSA). The Plan provides 

Federal employees and members of the uniformed services with a savings and tax benefit similar to what 

many private sector employers offer their employees under 401(k) plans. The Plan was primarily 

designed to be a key part of the retirement package (along with a basic annuity benefit and Social 

Security) for employees who are covered by the Federal Employees’ Retirement System (FERS). 

The Plan is administered by an independent Government agency, the Federal Retirement Thrift 

Investment Board (the Agency), which is charged with operating the Plan prudently and solely in the 

interest of the participants and their beneficiaries. Assets of the Plan are maintained in the Thrift 

Savings Fund (the Fund). 

Federal employees, who are participants of FERS, the Civil Service Retirement System (CSRS), or 

equivalent retirement systems, as provided by statute, and members of the uniformed services, are 

eligible to join the Plan immediately upon being hired. Generally, FERS employees are those 

employees hired on or after January 1, 1984, while CSRS employees are employees hired before 

January 1, 1984, who have not elected to convert to FERS. Each group has different rules that govern 

contribution rates. As of December 31, 2012, there were approximately 4.6 million participants in the 

Plan, with approximately 2.9 million contributing their own money. As of December 31, 2011, there 

were approximately 4.5 million participants in the Plan, with approximately 2.9 million contributing 

their own money. 

Contributions—The Plan is a defined contribution plan and, as such, the law specifies how much an 

employee may contribute and how much the employing agency must contribute to each FERS 

employee’s account. No participant under age 50 could contribute more than the Internal Revenue 

Service (IRS) elective deferral limit of $17,000 for 2012 and $16,500 for 2011.1 Participants age 50 and 

older who are already contributing the maximum amount of contributions for which they are eligible 

may make supplemental tax-deferred catch-up contributions (up to $5,500 in 2012 and 2011) from their 

basic pay. FERS participants are entitled to receive agency matching contributions on the first 5 percent 

of basic pay that they contribute each pay period, according to a formula prescribed by FERSA (5 

United States Code (U.S.C.) § 8432(c)). For FERS employees, their employing agencies also contribute 

an agency automatic contribution equal to 1 percent of each employee’s basic pay each pay period, as 

prescribed by FERSA (5 U.S.C. § 8432 (c)). Uniformed services members may also contribute up to 

 

1 Members of the uniformed services who are serving in a combat zone earn tax-exempt pay. Contributions 

from tax-exempt pay do not count towards this elective deferral limit. 
7 

100% of designated special pay, incentive pay, and bonuses. The Federal Government or uniformed 

services does not match amounts contributed by CSRS employees or uniformed services members.2 

Under the 2009 Thrift Savings Plan Enhancement Act (P.L. 111-31) civilian Federal Agencies are 

required to automatically enroll newly hired (and rehired) eligible employees unless the employee makes 

an affirmative election not to participate in the Plan or to participate at other than the default rate of three 

percent. This provision was implemented in August 2010. 

The Act also gives the Federal Retirement Thrift Investment Board the authority to establish a qualified 

Roth contribution program (implemented in May 2012) and the authority to establish a mutual fund 

window. 

Participants may also transfer funds from traditional individual retirement accounts (IRAs) or other 

eligible employer plans into the Plan. 

Investments—Pursuant to FERSA (5 U.S.C. § 8438), Plan participants are offered five investment 

funds: the Government Securities Investment Fund (G Fund), the Fixed Income Index Investment Fund 

(F Fund), the Common Stock Index Investment Fund (C Fund), the Small Capitalization Stock Index 

Investment Fund (S Fund), and the International Stock Index Investment Fund (I Fund). 

The Agency contracts with BlackRock Institutional Trust Company, N.A. (BlackRock) for investment in 

the collective investment trusts in which the F, S, and I Fund assets are invested and in which the C 

Fund was invested until June 2011. In June 2011, the Executive Director approved the use of the G 

Fund as an investment vehicle for the C Fund securities lending collateral. To facilitate this, in August 

2011, the C Fund securities were moved from a commingled fund to a separate account. BlackRock is 

acting as investment manager and securities lending agent for this account. 

The TSP L (Lifecycle) Funds are asset allocation portfolios designed for the TSP by Mercer Investment 

Consulting, Inc. (Mercer) with investment mixes, based on the Plan’s existing investment funds, tailored 

to a target time horizon when the participant intends to withdraw the funds. As described in the TSP L 

Funds Information Sheet on the TSP website (www.tsp.gov), the L2020 Fund, the L2030 Fund and the 

L2040 Fund are designed for participants who will withdraw their accounts five years before or after the 

year in the title of the account. L Income Fund was designed to produce current income for the 

participants who are already receiving money from their accounts through monthly payments. The 

L 2050 Fund, designed for participants who will withdraw their accounts in 2045 or later, was 

established on January 31, 2011. The asset allocations are based on Mercer’s economic assumptions 

regarding future investment returns, inflation, economic growth, and interest rates. These asset 

allocations are adjusted quarterly, moving to a more conservative mix over time. Between quarterly 

adjustments, the asset allocations of each fund are maintained through daily rebalancing to that fund’s 

target allocation. The Agency, with the help of Mercer, reviews the assumptions underlying the asset 

allocations at least annually. 

Participants may allocate any portion of their contributions among the five investment funds and the 

TSP Lifecycle Funds. Also, participants may reallocate their account balance among the five investment 

 

2 The Army ran a small test matching program for soldiers who agreed to enlist for five years or more. This 

program is no longer open to new soldiers. However, soldiers who took part in the test program and who are 

still serving their initial term of enlistment continue to receive matching contributions. 
8 

funds and the TSP Lifecycle Funds through the interfund transfer process. The Agency restricts the 

number of interfund transfers a participant can make per month in order to curb frequent trading and its 

associated costs to all TSP participants. The first two (2) interfund transfers per calendar month are 

unrestricted. After that, participants may move money only from the F, C, S, and I Funds and the TSP 

Lifecycle Funds to the G Fund.

Vesting—Plan participants are immediately vested in all of their own contributions and attributable 

earnings. Participants are also immediately vested in any agency matching contributions and 

attributable earnings. In order to be vested in the agency automatic (1%) contributions, a FERS 

employee must have either 2 or 3 years of service as described in section 8432(g) of FERSA. FERS 

employees who are not vested and who separate from the Federal Government forfeit all agency 

automatic contributions and attributable earnings. 

Forfeitures—Forfeited funds, consisting primarily of statutory forfeitures (pursuant to 5 U.S.C. 

§8432(g)) and agency contributions forfeited due to retirement coverage corrections made under the 

Federal Erroneous Retirement Coverage Correction Act (FERCCA), totaled $39,722,617 in 2012, and 

$47,711,072 in 2011. Under FERCCA, when a participant’s retirement coverage is corrected from 

FERS to CSRS, any excess agency contributions are forfeited to the Plan. All forfeitures are used by 

the Plan daily to offset accrued administrative expenses. If the forfeited funds (along with participant 

loan fees) are not sufficient to meet all administrative expenses, earnings on investments are then 

charged. 

Individual Accounts—Individual accounts are maintained for each Plan participant. Each participant’s 

account is credited with the participant’s contributions, agency automatic and matching contributions, 

and loan repayments and charged with loans and withdrawals. The value of the participant’s account 

reflects the number of shares and the daily share prices of the funds in which the participant is invested. 

Administrative expenses are a component of the share price calculation. The benefit to which a 

participant is entitled is the amount of the participant’s vested account. 

Notes Receivable From Participants (Loans)—Participants may apply for loans from their accounts. 

There are two types of Plan loans: general purpose and residential. General purpose loans can be 

obtained for any purpose, with a repayment period from 1 to 5 years. Residential loans can be obtained 

for the purpose of purchasing a primary residence, with a repayment period from 1 to 15 years. 

Participant loans may only be taken from participant contributions and attributable earnings. The 

minimum loan amount is $1,000 and the maximum loan amount is $50,000. A $50 fee is deducted from 

the proceeds of the loan. In 2012, loan fees of $14,395,950 were used to offset administrative expenses. 

In 2011, loan fees of $13,752,600 were used to offset administrative expenses. 

The interest rate for loans is the G Fund rate at the time the loan agreement is issued. The rate is fixed at 

this level for the life of each loan. Participant loans are valued at their unpaid balances. Interest earned 

on loans is allocated to the participant account as loan payments are made to the account. 

By IRS regulation, the Agency must identify each calendar quarter any participant loan that is in default. 

The participant then has until the end of the following calendar quarter to pay the overdue amount. If 

not paid, a taxable distribution of the unpaid loan balance, plus accrued interest, will be declared. 

Participants should refer to the booklet, TSP Loans, for more information. 

Payment of Benefits—After leaving service, participants may elect benefit withdrawals in the form of a 

partial withdrawal or they may choose a full withdrawal as a single payment, a series of monthly 

payments, or a life annuity. Participants may choose to combine any two or all three, of the available 
9 

full withdrawal options. Participants should refer to the booklet, Withdrawing Your TSP Account After 

Leaving Federal Service, for more complete information. 

Participants should refer to the booklet, TSP In-Service Withdrawals, for information on withdrawal 

options while employed in Federal service. 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 

Basis of Accounting—The accompanying financial statements have been prepared in accordance with 

accounting principles generally accepted in the United States of America. Revenue is recognized when 

earned and expenses are recognized when incurred. Benefits and participant loans payable for the last 

three trade dates of each month are recorded when withdrawn from participants’ accounts. 

Investments—All investments are stated at fair value, based upon the quoted market values of the 

underlying securities at the end of each period. The Agency invests in (or redeems from) the Thrift 

Savings Fund investment funds each business day. Purchases and sales of securities are recorded on a 

trade-date basis. 

The Plan offers its participants various investment funds that are exposed to different types and amounts 

of risk, including interest rate, credit, and market risk. The funds (except for the G Fund, which is 

invested in a way to avoid losses) can be expected to experience greater or lesser volatility over time, 

depending upon each fund’s individual risk profile, thus affecting the fund balances from one period to 

the next. 

During the years ended December 31, 2012, and December 31, 2011, the Plan’s investment funds 

consisted of the following (objectives of the investment funds are described in the various TSP Fund 

Information Sheets, available on www.tsp.gov): 

The G Fund was invested in short-term nonmarketable U.S. Treasury securities specially issued to the 

Thrift Savings Plan. All investments in the G Fund earned interest at a rate that is equal, by law, to the 

average of market rates of return on outstanding U.S. Treasury marketable securities with 4 or more 

years to maturity. 

The F Fund was invested primarily in the BlackRock U.S. Debt Index Fund “E”. The BlackRock U.S. 

Debt Index Fund “E” is a passively managed commingled fund that tracks the Barclays Capital U.S. 

Aggregate Bond Index. 

As of December 31, 2012, the BlackRock U.S. Debt Index Fund "E” contained approximately 

30 percent mortgage-backed securities (29 percent securities issued by the Government National 

Mortgage Association, Fannie Mae, and Freddie Mac, less than 1 percent commercial mortgage-backed 

securities and 1 percent hybrid ARMs); 28 percent investment-grade corporate securities (U.S. and 

sovereign); 37 percent Treasury securities; 4 percent Agency securities; and 1 percent asset-backed 

securities and taxable municipals. 

As of December 31, 2012, the BlackRock U.S. Debt Index Fund ”E” held 6,788 securities totaling 

$44.8 billion, with a weighted-average life of 6.4 years. The F Fund holdings constituted $28.6 billion 

of the December 31, 2012 value of the BlackRock U.S. Debt Index Fund “E”. As of December 31, 2011, 

the F Fund holdings constituted $23.0 billion of the value of the BlackRock U.S. Debt Index Fund “E”. 

The C Fund was invested primarily in a separate account that is passively managed and tracks the S&P 

500 Index. Before August 2011, the C Fund was invested primarily in the BlackRock Equity Index 
10 

Fund “E” and BlackRock Equity Index Fund “EX”, which in turn held shares of the Equity Index Master 

funds. 

The C Fund separate account holds stocks of all the companies represented in the S&P 500 Index in 

virtually the same weights as they are represented in the S&P 500 Index. As of December 31, 2012, the 

separate account held $88.9 billion of securities. As of December 31, 2011, the separate account held 

$77.1 billion of securities. 

The S Fund was invested primarily in the BlackRock Extended Equity Market Index Fund “E,” which in 

turn holds shares of the Extended Equity Market Master Fund. Both the BlackRock Extended Market 

Index Fund “E” and the Master Fund are passively managed commingled funds that track the Dow Jones 

U.S. Completion Total Stock Market Index by holding most of the stocks with larger capitalizations in 

virtually the same weights as they are represented in the index and by holding a representative sample of 

the remaining stocks in the index. 

As of December 31, 2012, the Extended Equity Market Index Master Fund held $36.6 billion of 

securities. The value of the BlackRock Extended Equity Market Index Fund “E” as of December 31, 

2012, was $35.0 billion, which consisted primarily of the Master Fund shares totaling $35.0 billion. The 

S Fund holdings constituted $29.3 billion of the December 31, 2012 value of the BlackRock Extended 

Equity Market Index Fund “E”. As of December 31, 2011, the S Fund holdings constituted $25.7 billion 

of the value of the BlackRock Extended Equity Market Index Fund “E”. 

The I Fund was invested primarily in the BlackRock EAFE Equity Index Fund “E”, which in turn holds 

shares of the EAFE Index Master Fund, plus a liquidity reserve that is invested in futures contracts. 

Both the BlackRock EAFE Equity Index Fund “E” and the Master Fund are passively managed 

commingled funds that track the Morgan Stanley Capital International EAFE (Europe, Australasia, Far 

East) Index. The EAFE Equity Index Master Fund holds stocks of all the companies represented in the 

EAFE Index in virtually the same weights as they are represented in the index. 

As of December 31, 2012, the EAFE Equity Index Master Fund held $58.7 billion of securities. The 

value of the BlackRock EAFE Equity Index Fund “E” as of December 31, 2012, was $25.3 billion, 

which included shares of the Master Fund totaling $24.5 billion, plus liquidity reserves. The I Fund 

holdings constituted $24.6 billion of the December 31, 2012 value of the BlackRock EAFE Equity Index 

Fund“E”. As of December 31, 2011, the I Fund holdings constituted $21.2 billion of the value of the 

EAFE Index “E” Fund. 

Fair Market Valuations— The Plan follows the FASB’s ASC 820-10, which provides a comprehensive 

framework for measuring fair value and expands disclosures which are required about fair value 

measurements. Specifically, FASB ASC 820-10 sets forth a definition of fair value and establishes a 

hierarchy prioritizing the inputs to valuation techniques, giving the highest priority to quoted prices in 

active markets for identical assets and liabilities and the lowest priority to unobservable value inputs. 

 

Under FASB ASC 820-10, the fair value hierarchy prioritizes inputs to valuation techniques used to 

measure fair value into three broad levels: Level I, Level II, and Level III. Inputs may be based on 

independent market data (“observable inputs”) or they may be internally developed (“unobservable 

inputs”). The hierarchy gives the highest priority to quoted prices in active markets for identical assets 

(Level I) and the lowest priority to unobservable inputs (Level III). BlackRock has worked with pricing 

vendors to confirm its understanding of their pricing methodologies and has consulted with BlackRock’s 

independent auditors, PricewaterhouseCoopers LLP, to perform necessary analysis to support 

BlackRock’s approach to comply with FASB ASC 820-10. 
11 

Pursuant to BlackRock’s global pricing policy, to the extent possible, securities and other assets held by 

Funds are valued using independent market quotations. An “independent market quotation” for a 

security or other asset is defined as a quoted price in an active market for an identical security or asset (a 

“Level I Price”). 

As a general principle, the current “fair market value” of a security or other asset is the amount that a 

Fund might reasonably expect to: (i) receive upon the sale of the security or asset; or (ii) pay to transfer 

the liability associated with the security or asset in an orderly transaction between market participants on 

the date on which the security or asset is being valued. In the event that a Level I Price is not readily 

available for a given type of security or asset, the fair value of the security or other asset is determined 

by using pricing inputs that are either directly or indirectly observable on the valuation date for the 

security or asset, which may include the use of models or other valuation methodologies (a “Level II 

Price”). 

Level I Prices and Level II Prices are provided by broker dealers or by pricing providers, services, and 

vendors (together, “pricing sources”) approved by the BlackRock Global Pricing Committee or its 

delegates. The pricing sources approved by the BlackRock Global Pricing Committee vary according to 

security or asset type and include, but are not limited to, Reuters, Bloomberg, IDC, and Mark-it Partners. 

The net asset value of a Fund is calculated based on the compilation of primarily observable market 

information. The number of units of the Fund that are outstanding on the calculation date is derived 

from observable purchase and redemption activity in the Fund. Accordingly, pursuant to FASB ASC 

820-10, the unit values for all BlackRock Funds are classified as Level II Prices. 

The table at Appendix 1 sets forth by level, within the fair value hierarchy, the Plan’s assets at fair value 

for the years ended December 31, 2012 and December 31, 2011. 

The F Fund, C Fund, S Fund, and I Fund include temporary investments in the same securities held by 

the G Fund pending purchase of shares in their respective index funds and to cover liquidity needs, such 

as loans and withdrawals from the Thrift Savings Fund. 

Certain BlackRock funds in which the S and I Funds are invested, and the separate account in which the 

C Fund is invested, may invest in futures contracts and other derivatives to the extent contemplated by 

the fund guidelines. As part of the investment strategies, derivative instruments may be used to provide 

liquidity for daily investments or to manage currency, interest, and other exposures. 

The F, C, S, and I Funds also participate in securities lending activities, under agreements between 

BlackRock and third parties to lend debt and equity securities in exchange for collateral. The collateral 

received, which is required to equal 102% of the value of the securities lent (for domestic equities) and 

105% of the value of securities lent (for international equities), as marked to market each day, may be 

invested in cash collateral funds managed by BlackRock, which in turn invest in money market 

securities and instruments. (As stated in Note 1, a portion of the cash collateral for securities lending by 

the C Fund ($4,474,000 and $5,524,000 as of December 31, 2012 and 2011, respectively) is invested in 

G Fund and is shown as on the Statement of Net Assets as “TSP C Fund Pledge” and the corresponding 

cash collateral payable). The cash collateral funds may also invest in certain derivative financial 

instruments, including swaps and futures. The major source of risk in any securities lending program is 

that the securities and instruments in which the cash collateral received (against security loans) is 

invested may decline in value. BlackRock’s responsibilities include performing appropriate borrower 

and collateral investment credit analysis, demanding adequate types and levels of collateral and 

complying with applicable Department of Labor and Federal Financial Institutions Examiner Council 

regulations regarding securities lending. 
12 

The tables at Appendix 2 show how the participants’ account balances in the various investment options 

are allocated among the core TSP funds as of and for the years ended December 31, 2012, and 

December 31, 2011, respectively. 

Fixed Assets—All fixed assets were recorded at cost and are depreciated on a straight-line basis over 

their estimated useful lives, which range as follows: 

Furniture and Equipment 3 to 10 years

Leasehold Improvements 10 years

Data Processing Software 3 to 10 years

Depreciation expense was approximately $8 million and $11 million for the years ended December 31, 

2012, and December 31, 2011, respectively. 

Earnings Allocation—Net earnings are used to calculate the daily share price of each investment fund 

as defined in regulations issued by the Agency (5 Code of Federal Regulations (CFR) Part 1645). 

Contributions Receivable—Contributions receivable are estimated as the amount of contributions 

recorded through the first 2 weeks of the month following the date of the financial statements and 

represent both participant and employer portions of contributions. 

Estimates—The preparation of financial statements in conformity with accounting principles generally 

accepted in the United States of America requires management to make estimates and assumptions that 

affect the reported amounts of net assets available for benefits and changes therein. Actual results could 

differ from those estimates. 

Thrift Savings Plan Enhancement Act of 2009—On June 22, 2009, the Thrift Savings Plan 

Enhancement Act (the Act or P.L. 111-31) was signed into law by President Obama. The Act provides 

for immediate agency automatic (1%) and matching contributions for FERS employees (implemented in 

August 2009). The Act also requires civilian Federal agencies to automatically enroll newly hired (and 

rehired) eligible employees unless the employee makes an affirmative election not to participate in the 

Fund (implemented in August 2010) or elect a deferral rate other than the deferral rate of 3 percent. The 

Act also allows the Agency to establish accounts for the surviving spouses of TSP participants 

(implemented December 2010). 

3. INCOME TAX STATUS 

FERSA (5 U.S.C. § 8440(a)(1)) states that the Thrift Savings Fund shall be treated as a trust described in 

section 401(a) of the Internal Revenue Code (I.R.C. or Code), which is exempt from taxation under 

section 501(a) of the Code. This status was reaffirmed in the Tax Reform Act of 1986, Section 1147 

(codified at I.R.C. § 7701(j)). It is not necessary for the Plan to apply for a tax status determination 

letter as it is qualified by statute. 
13 

4. COMMITMENTS AND CONTINGENCIES 

The Agency has entered into a contract with Serco Systems, Inc. (Serco) to perform TSP software 

maintenance and development, systems operations and recordkeeping support. The annual cost of this 

service is approximately $45 million for CY 2012. The Agency contracts with Serco to provide a call 

center in Virginia and with The Active Network, Inc. to provide a call center in Maryland. The term of 

the Serco call center contracts is one year. The term of The Active Network contract is three years with 

three one-year options renewable at the Agency’s discretion. The Serco call center contract value for 

CY 2012 is approximately $5.3 million. The Active Network contract value for CY 2012 is 

approximately $6.3 million. 

The Agency leases the office space it occupies in Washington, DC, the call center space in Virginia, and 

the Agency’s business continuity space in northern Virginia, under operating leases. The current 

Washington, DC operating lease ended in 2012. However, the Agency has entered a new lease for new 

office space in Washington, DC. Monthly base rental payments under the current lease ranged from 

approximately $105,000 to $127,000. Monthly base rental payments under the new lease range from 

approximately $226,000 to $331,000. The lease commencement date for the new lease was October 1, 

2011, with an end-date of September 30, 2026. The terms of the lease provide for a fifteen month freerent allowance that is not reflected in the future minimum lease commitments shown below. The call 

center operating lease ends in August 2015, with an option to extend for a five-year period. Monthly 

base rental payments are $12,548. The business continuity space is an annual obligation and monthly 

rental payments are $6,667. 

Future minimum lease commitments (through CY 2026) under the operating leases are: 

CY 2013 3,165,574 $ 

CY 2014 3,003,377 

CY 2015 3,024,491 

CY 2016 2,997,059 

Thereafter 35,378,895 

Total 47,569,396 $ 

Rent expense is recorded on a straight-line basis over the lease terms. Rent expense under the leases 

was approximately $5.0 million and $2.9 million for the years ended December 31, 2012 and December 

31, 2011, respectively.

5. FIDUCIARY INSURANCE 

FERSA (5 U.S.C. § 8479(b)(1)) provides that the Executive Director may assess Federal agencies for 

the purpose of buying fiduciary insurance. The Agency’s Executive Director exercised this authority in 

1987 and required agencies to submit an amount equal to 1 percent of their agency automatic 

contributions. Such sums were collected during 1987 and 1988 and are invested to the extent not 

currently required to purchase fiduciary insurance. In February 1988, the Executive Director instructed 

agencies to discontinue the 1 percent fiduciary insurance contributions. The balance of funds available 

for the purchase of fiduciary insurance for the years ended December 31, 2012 and December 31, 2011, 

was $4,114,000 and $4,231,000, respectively. These funds are invested in the same securities held by 

the G Fund and are included in total investments on the accompanying statements of net assets available 

for benefits, with a corresponding reduction in the net assets available for benefits. Such amounts 
14 

cannot be, by statute, allocated to participants’ accounts. The Agency has determined that the current 

insurance reserve is adequate to fund coverage needs for the foreseeable future. 

6. SUBSEQUENT EVENTS 

Agency management evaluated subsequent events through April 15, 2013, the date the financial 

statements were available to be issued. Events or transactions occurring after December 31, 2012, but 

prior to April 15, 2013, that provided additional evidence about conditions that existed at December 31, 

2012, have been recognized in the financial statements for the year ending December 31, 2012. Events 

or transactions that provided evidence about conditions that did not exist at December 31, 2012, but 

arose before the financial statements were available to be issued, have not been recognized in the 

financial statements for the year ended December 31, 2012. 

The Agency will be subleasing office space in the same building it occupies in Washington, D.C., 

beginning with the full month of February 2013 for a period up to three years. Monthly base rental 

payments under current sublease range from $34,849 to $37,690. 

****** 
15 

Appendix 1 

Fair Value Measurements as of December 31, 2011 

(in thousands) 

 

 

Quoted Prices 

in Active 

Markets for 

Identical 

Assets 

Significant 

Other 

Observable 

Inputs 

Significant 

Unobservable 

Inputs 

Description (Level 1) (Level 2) (Level 3) Total 

U.S. Government 

Securities Investment 

Fund $147,726,298 $ - $ - $147,726,298 

BlackRock U.S. Debt 

Index Fund - 22,993,195 - 22,993,195 

TSP C Fund - Equity 

Index Account - 71,539,971 - 71,539,971 

BlackRock Extended 

Equity Market Index 

Fund - 25,688,537 - 25,688,537 

TSP C Fund Pledged - 5,524,000 - 5,524,000 

BlackRock EAFE Equity 

Index Fund - 21,228,212 - 21,228,212 

Total assets at fair value $147,726,298 $146,973,915 $ - $294,700,213 

Fair Value Measurements as of December 31, 2012 

(in thousands) 

 

 

Quoted Prices 

in Active 

Markets for 

Identical 

Assets 

Significant 

Other 

Observable 

Inputs 

Significant 

Unobservable 

Inputs 

Description (Level 1) (Level 2) (Level 3) Total 

U.S. Government 

Securities Investment 

Fund $158,520,886 $ - $ - $158,520,886 

BlackRock U.S. Debt 

Index Fund - 28,647,407 - 28,647,407 

TSP C Fund - Equity 

Index Account - 84,397,548 - 84,397,548 

BlackRock Extended 

Equity Market Index 

Fund - 29,282,228 - 29,282,228 

TSP C Fund Pledged - 4,474,000 - 4,474,000 

BlackRock EAFE Equity 

Index Fund - 24,632,395 - 24,632,395 

Total assets at fair value $158,520,886 $171,433,578 $ - $329,954,464 
16 

Appendix 2 

Investment 

Options

G Fund 

Investment

F Fund 

Investment

C Fund 

Investment

S Fund 

Investment

I Fund 

Investment Total 

G Fund 139,990,317 $ - - - - 139,990,317 $ 

F Fund - 25,218,371 $ - - - 25,218,371

C Fund - - 75,142,383 $ - - 75,142,383

S Fund - - 24,276,344 $ - 24,276,344

I Fund - - 17,086,986 $ 17,086,986

L Income 3,918,215 317,329 646,028 161,765 266,456 5,309,793

L 2020 5,920,984 1,115,419 4,510,717 1,421,625 2,485,662 15,454,407

L 2030 2,955,658 1,019,803 4,400,873 1,645,127 2,426,299 12,447,760

L 2040 1,180,767 843,863 3,619,505 1,534,502 2,025,019 9,203,656

L 2050 51,081 102,169 548,696 236,536 328,893 1,267,375

Differences (*) 4,503,864 30,453 (4,470,654) 6,329 13,080 83,072

Statement of Net 

Assets $ 28,647,407 158,520,886 $ 84,397,548 $ 29,282,228 $ 24,632,395 $ 325,480,464 $ 

Investment Summary by Fund as of December 31, 2012

(in thousands)

(*) Differences are a result of timing differences, including investment transactions not settled as of December 31, 2012. These 

differences may not be allocated down to the L Funds until the following business day. The differences in the G and C Fund are largely 

due to the security lending program for the C Fund.

Investment 

Options

G Fund 

Investment

F Fund 

Investment

C Fund 

Investment

S Fund 

Investment

I Fund 

Investment Total 

G Fund 130,273,039 $ - - - - 130,273,039 $ 

F Fund - 20,097,850 $ - - - 20,097,850

C Fund - - 65,744,117 $ - - 65,744,117

S Fund - - - 21,511,048 $ - 21,511,048

I Fund - - - - 14,873,523 $ 14,873,523

L Income 3,705,387 300,741 598,254 149,620 252,176 5,006,178

L 2020 5,023,531 1,003,002 4,004,076 1,284,705 2,256,371 13,571,685

L 2030 2,281,653 836,883 3,526,349 1,341,507 1,984,558 9,970,950

L 2040 855,790 676,949 2,835,494 1,202,841 1,633,840 7,204,914

L 2050 28,658 57,374 330,988 142,720 203,977 763,717

Differences (*) 5,558,240 20,396 (5,499,307) 56,096 23,767 159,192

Statement of Net 

Assets $ 22,993,195 147,726,298 $ 71,539,971 $ 25,688,537 $ 21,228,212 $ 289,176,213 $ 

Investment Summary by Fund as of December 31, 2011

(in thousands)

(*) Differences are a result of timing differences, including investment transactions not settled as of December 31, 2011. These 

differences may not be allocated down to the L Funds until the following business day. The differences in the G and C Fund are largely 

due to the security lending program for the C Fund.