- The Washington Times - Monday, August 6, 2001

This will come as a surprise to most Americans, but one of the largest and most popular pension funds in the government is the "C Fund," which lets federal employees invest in the stock market. Over the last 10 years this fund, which invests in the best S&P; 500 stocks, enjoyed an average annual rate of return of 17.43 percent.
Notably, most members of Congress and their congressional staffers were among this fund's investors. Even lawmakers who fiercely oppose President Bush's proposal to let nongovernment workers also invest a small part of their Social Security payroll taxes in the stock market realize similarly high rates of return. In other words, "It's OK for us, but it would be much too risky for you ordinary Americans."
Happily, the bipartisan Social Security reform commission that Mr. Bush appointed is quietly studying the government's Thrift Savings Plan, which, since 1986, has been letting federal employees invest in high-yield stocks and bonds. Commission officials tell me that at the urging of Co-Chairman Daniel Patrick Moynihan, TSP managers will testify later this month about how their investment plan works. Commission insiders say the stock plan could be used as the model for the individual investment plan that they will design and that the president will propose to Congress this fall.
The commission will want to know — among other things — how the funds are managed and administered, how safe are its investments, and what are the funds' administrative costs.
But a bigger question looms over these details: Why can't nongovernment workers get the same high yield, double-digit returns from Social Security that federal workers are getting from their lucrative pension plans?
Why should federal workers be allowed to invest in stocks and see the value of their funds grow substantially over their working career, while ordinary workers — especially those on the bottom-to-lower income brackets — must be satisfied with a paltry 1 percent to 2 percent return over their working lives under Social Security? In many cases, they will get back less than they put in.
"If it's good enough for federal workers, why isn't it good enough for the rest of us?" said Michael Tanner, the Cato Institute's chief domestic policy analyst.
The commission is focusing its attention on the Thrift Savings Plan's large corporate stock fund. But they are looking at the other stock funds that government employees are investing in, including the Small Capitalization Stock Index Investment Fund whose stocks are drawn from the Wilshire 4500 stock index, and an international stock fund that invests in Europe and the Far East.
While Democratic leaders have relentlessly bashed Mr. Bush's reform plan, they have not uttered a peep of protest about the hugely popular federal employee stock plan. Nearly 90 percent of all participants in the government Thrift Savings Plan are invested in these and other federally approved funds, according to officials at the Federal Retirement Thrift Investment Board.
"The government's investment funds show that it is possible to run large numbers of individual accounts at a relatively low cost. The administrative costs of TSP are around two-tenths of 1 percent of assets managed," Mr. Tanner told me.
"The second thing it shows is that average Americans are capable of making investment decisions for their retirement. Every postman and GS-2 secretary working for the government has the option of investing for their retirement," he says.
"So when the Democrats say that the average person is somehow too dense to decide these things, well, gee, everyone in their office is doing it. Most members of Congress are in this."
What is especially striking, and politically potent, about the federal government's stock investment plan is its sizable growth rate during the stock market boom of the 1990s. Over the last 10 years the TSP's "C Fund" has had annual returns ranging from a high of 37.41 percent in 1995 to a minus 9.14 percent last year when the economy began falling into a slump and stocks fell.
Of course, Democratic critics of Mr. Bush's personal investment account plan will say that you cannot judge the value of an investment plan over 10 years. Sure, it did well in a bullish economy, but what happens when the markets fall and wipe out a worker's hard-earned gains?
Senate Democratic Leader Tom Daschle used this flimsy argument earlier this year, suggesting that one bad year raised deep doubts about Mr. Bush's plan. But the history of the stock market shows that, without exception, long-term investors have always made gains in every 20-year period of the market.
You want to talk long-term? Well, the S&P; 500 stock index itself has delivered an average annual rate of return of 13.5 percent since 1950. Not a bad yield on one's retirement investments over a working life. Certainly far better than what Social Security has to offer.
Of course, the government offers its employees other investment options. One fund invests in rock-solid U.S. Treasury securities, yielding a 7 percent average annual return since 1990. A corporate bond fund yielded an 8 percent return over this period.
So the Daschle Democrats have some explaining to do in the coming debate over reforming Social Security. Why is that they and other government workers can invest their retirement contributions in higher-yield stocks and bonds but the rest of us can't?

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