- The Washington Times - Monday, January 31, 2005

Many federal and postal workers have multiple Individual Retirement Accounts (IRAs) or money in other qualified tax-deferred retirement plans they belonged to before joining the ranks of Uncle Sam.

What’s interesting is that a growing number of these feds are moving that money from those accounts and IRAs — a total of $789,293,024.19, as of last Wednesday — into their government Thrift Savings Plan (TSP.). Military personnel also are eligible to participate in the TSP. and to take advantage of the rollover feature.

Between July 2001, when the transfer option became available, and now, more than 28,000 feds have moved outside money into the TSP.. That includes a $1 million transfer first reported by The Washington Times.

So why would anybody take the time and trouble to move tax-deferred money into the TSP.? Let me count the ways.

The five TSP. options are the C fund, which is an index of the 500 largest U.S. firms; the F fund (a bond index); the S fund, which is indexed to the nation’s mid-sized and small firms listed on the stock exchange; the international stock-indexed I fund; and the unique G fund, which is exclusive to feds. The G fund is made up of special U.S. Treasury securities. Money invested in the G fund and all earnings are guaranteed by the U.S. government.

(Last year the C fund returned 10.8 percent, the F fund and the G fund each returned 4.3 percent, the S fund returned 18 percent, and the I fund returned 20 percent. Index funds rise and fall with the markets, and the I fund also has to take into account currency changes, as well as the state of markets in Europe, Asia and Australia. The G fund doesn’t.)

And did I mention cheap, as in low administrative fees?

Mutual funds charge a fee for handling and investing. Over a lifetime of investing, someone with a large portfolio — or even a large one that has shrunk — can pay $20,000 to $30,000 in administrative fees, called basis points. Many funds charge fees of 50 to 100 basis points to investors. The G fund charges investors six basis points, which is about 50 percent lower than the lowest mutual fund offered to the general public. That translates into more money in the account, much more, in fact, over a lifetime of investing in the TSP..

The TSP., unlike many private-sector 401(k) plans, provides for a generous employer (that would be Uncle Sam) match. The vast majority of people currently working for the federal government are under the Federal Employees Retirement System, or FERS. FERS employees this year can invest 15 percent of their salaries, up to the Internal Revenue Service (IRS) limit of $14,000. Those who put in at least 5 percent get a 5 percent match from the government. It’s the same as a tax-deferred pay raise.

In contrast, many private 401(k) plans don’t offer an employer match. Some that do, like one of the nation’s giant brokerage firms, have stopped making any contribution to their workers’ accounts.

Feds under the older Civil Service Retirement System, the CARS offset system, and military personnel can contribute up to 10 percent of salary, subject to the IRS cap for all individual contributions to 401(k) type plans. They do not get a match from the government.

People who retire from the government who have TSP. accounts can keep them active, but they cannot add new money via payroll contributions. But retirees who don’t have accounts when they retire cannot join the TSP. after they have left the government.

So, is the TSP. for everyone? Probably not, although more than 28,000 people who put their old money into the new TSP. accounts think it’s a good deal. The bottom line: If you can find a better, safer, lower-cost investment, by all means do it. Just be sure to let us in on the secret.

Buyouts

Chances are that some agencies facing budget cuts might decide to reduce their work force. Because of the cost and turmoil caused by layoffs (reduction in force, in government lingo), many are likely to take advantage of new, liberalized buyout rules. They permit agencies to pay employees as much as $25,000 ( about $16,000 to $18,000 after deductions) if they will volunteer to take early or regular retirement. New rules issued last week allow agencies to give buyouts to employees who have been with them less than three years, if they have three years of prior government service. The regulations were published Jan. 27 in the Federal Register, starting on page 3858.

Mike Causey, senior editor at FederalNewsRadio.com, can be reached at 202/895-5132 or at mcausey@federalnewsradio.com.

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