- The Washington Times - Tuesday, September 11, 2007

When it comes to picking or rejecting investment options — especially those with tax breaks and matching contributions from your employer — remove your partisan political filter before making a decision.

Case in point: Some federal workers were slow to take advantage of the tax-saving, wealth-building Thrift Savings Plan 20 years ago when the 401(k) option was introduced during the Reagan administration.

Others said that regardless of politics, if the government was offering it, it must be some kind of money-saving joke at the expense of workers.

At the time the TSP was introduced, most longtime feds were not aware of 401(k) plans and some federal unions were slow to encourage members to take advantage of investing with pre-tax dollars.

But the TSP — now the biggest 401(k) plan in the world — has put a lot more gold in the golden years of the vast majority of investors.

So who wouldn’t join a program that is established in the private sector and permits people to cut their taxes while getting a 5 percent tax-deferred pay raise in the form of matching contributions from their agency?

Here is what one retired fed, with 37 years of service, said happened in his office. Consider that he was with the inspector general’s office inside a major federal department, has a bachelor’s degree in accounting and a master’s degree in business administration, and is a certified public accountant. Most of his colleagues were equally well-educated. When the TSP was offered, many let their political suspicions override common sense. How come?

“While at work, I used to encourage all the new employees and everyone who would listen to me to invest the maximum in the TSP and to invest it all in stock funds. As a CPA, I can see that the federal and most state governments help contribute to your investment success immediately by reducing your taxes about 30 percent. If you are 50 and invest $20,000 a year, the government gives you $6,000 in tax relief. No normal investor can beat 30 percent.

“Despite this, my financially conservative colleagues would save their money in the credit union or savings bonds, not save 30 percent in taxes, and get good, but not great, results.”

I ran the above item past a friend who is a retired federal benefits analyst. He was much in demand, like an MVP baseball player, who was courted by a variety of federal agencies, including the Office of Personnel Management and the Drug Enforcement Administration.

He said he saw the same thing happen with some of his colleagues, and some of the people he counseled involving both the TSP and also the open season when workers under the old Civil Service Retirement System had the option to switch to the newer Federal Employees Retirement System.

FERS replaced CSRS, but pre-FERS employees were grandfathered into the old system unless they elected to switch. While government data showed that as much as 60 percent of the work force would be better off under FERS, only about 30,000 people — out of a federal/postal work force of about 2.6 million — made the change.

“They were suspicious of FERS just as they were suspicious of the TSP,” he said, either because it came out of the Reagan administration or because Congress said it was a good idea. He said many people figured it was a way to take away benefits from government employees so they rejected both options.

FERS offers a lower civil service annuity than the CSRS plan. But it gives employees coverage under Social Security and permitted those who contributed at least 5 percent of pay — in those days the maximum was 10 percent — to get a 5 percent match from the government.

“Many of them, especially people who maxed out their investments or who knew they weren’t going to retire from the government” missed the boat. The money they could have earned from the TSP could have offset any loss in federal retirement benefits,” he said.

Lesson: There are times when it is important to pay more attention to the message than to the messenger.

c Mike Causey, senior editor at Federal News Radio AM 1050, can be reached at 202/895-5132 or mcausey @federalnewsradio.com.

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