CAUSEY: Thrift Savings Plan starts to grow again

Driven by steadily growing investor contributions and the uptick in the stock market, the amount of money in the federal Thrift Savings Plan has increased from $191.5 billion in February to $206.9 billion in April.

The value of the TSP is expected to rise even more when data for May is available.

The high point in value for the TSP was $230 billion. That was last October, before the market started its downward spiral.

February, March, April (and probably May) were good months for the TSP, which is Uncle Sam’s in-house 401(k) plan for active and retired federal and postal workers, members of the military and thousands of people who have left government but kept their accounts open.

At the end of April the average TSP account balance was $61,154 for the majority of federal and postal workers who are under the Federal Employees Retirement System. The average for those under the older Civil Service Retirement System was $59,344. For investors in the uniformed military services, the average account balance was $8,559.

Virtually all workers under the CSRS program are older and have longer service than their TSP counterparts. Because the CSRS program provides a more generous annuity - immediately indexed to inflation - TSP contributions aren’t as high (or as vital) as they are for FERS employees.

Because it provides a smaller federal retirement benefit, contributing to the TSP is a must for workers under the FERS system. In retirement, they will have benefits from at least three sources - a federal annuity, Social Security and investments and earnings from their TSP accounts. When Congress set up the 401(k) plan, it anticipated that the plan would provide from one-third to one-half of the post-retirement income of FERS workers.

Last year, the average monthly contribution to the TSP from all sources was $1.814 billion. So far this year that contribution rate is slightly higher than it was for the same period last year. Workers now are contributing an average of $1.825 billion per month, all of it tax-deferred.

TSP watchers say that’s an indication that most investors continue to pump money into the optional retirement program via payroll contributions and that many who are buying into the three stock index funds believe they are on sale.

As with any 401(k) plan, only people who are working can contribute and must do so via payroll deductions. Hundreds of thousands of retired feds and tens of thousands of ex-government workers still have accounts even though they cannot add to them. They can, however, move funds from one account to another.

Financial planners say that the extremely low administrative expenses in the TSP are one reason many federal workers transfer funds in accounts they had with a former employer into the federal program. A number of them have moved more than $1 million from their previous employers’ 401(k) plan into the TSP.

John Bogle, the godfather of index funds and a founder of the Vanguard mutual fund group, has said that for low fees, the TSP can’t be beaten.

Personal finance columnist Scott Burns recently wrote that balanced funds lost 28 percent of their value last year, one of the worst declines in history. But he noted that “if you calculate the cost of additional expenses, however, you’ll find that a 30-year-old worker in a 401(k) plan with average expenses of 1.25 percent will lose 22.4 percent of what he might have accumulated in the low-cost index fund-based federal Thrift Savings Plan.”

In addition to their own contributions, most workers (who are under FERS) are eligible for matching contributions. All employees under the FERS system get an automatic 1 percent government match to their accounts, even if they contribute nothing. Those who contribute 5 percent or more get a 5 percent match.

Matching contributions in private-sector 401(k) plans are becoming harder to find because a growing number of companies have dropped them to cut their payroll costs.

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