- The Washington Times - Tuesday, March 26, 2002

When it comes to long-term investment smarts, federal and postal workers could give their private-sector counterparts a few pointers.

Nearly 90 percent of government employees who qualify for matching contributions to their Thrift Savings Plan are investing in the federal 401(k) program, a significantly higher percentage than in the private sector, where 401(k) enrollment hovers around 60 percent.

The TSP is worth more than $100 billion, and among its five investments is a unique fund that is the equivalent of "company" stock. But it isn't stock like Enron's, which can go flat. It's the G Fund, which is made up of government-backed, special U.S. Treasury securities. About 40 percent of the TSP investments are in the G Fund.

Some longtime TSP investors have accounts worth more than a half a million dollars. At least one person probably a Bush appointee knows a good thing when he or she sees it. That person moved just more than $1 million into the TSP from a previous employer's 401(k) plan, after joining the government.

The TSP is a nice benefit for workers hired before 1984. They are under the old retirement plan that pegs benefits to length of service and the highest three-year salary average. And those benefits are indexed to inflation. By contrast, most private companies don't have pension plans and of those that do, none guarantees them against inflation.

For the majority of feds, people hired since 1983, the TSP is a must. Their civil service benefits will be lower and their inflation protection is not so generous. When the federal 401(k) plan started, it was estimated it would provide about one-third of their retirement income. Now many analysts believe it will provide 50 percent, or more, of the money they have to spend in retirement.

So what are feds doing with their 401(k) plans? Well, nearly 90 percent of those who get matching contributions (5 percent from the government) are participating. Their average biweekly contribution is 7 percent of salary, meaning they get the full match.

About 37 percent (almost half) of the new hires joined the TSP even before they became eligible for matching contributions. "They came into government knowing how 401(k) plans operate … and a good thing when they see it," observed one federal official.

He said the TSP has three strong points: the G Fund for people who want total safety and preservation of principle; low administrative expenses (lower than any other available mutual fund) which over time can add thousands of dollars to an account balance; and the ability to withdraw funds at age 55 without incuring the early withdrawal penalty (before age 59½) that goes with an individual retirement account.

When they retire or leave government, most workers (416,000 as of last year) leave their money in the TSP.

Civilian vs. military pay

Pro-fed members of Congress are following the same path they took last year to ensure that civil servants get the same January pay raise 4.1 percent as military personnel. The House Budget Committee has voted in favor of pay-raise parity.

The Senate will take similar action. The 4.1 percent raise (instead of the 2.6 percent proposed by the president) likely will be made official when Congress completes work on the Treasury-Postal Service Appropriations package this fall.

Your TSP money is safe

Some feds are worried that the flap over raising the public debt limit will hurt their retirement funds and/or cause them to lose money in G Fund investments in the TSP.

Unions have blasted the Bush administration for proposing to "borrow" from the retirement fund or suspend interest on G Fund investments to bolster the government's borrowing needs and provide investment securities to federal trust funds and other government accounts.

But this has happened before five times during the Clinton administration without any damage to either fund.

In fact, the Congressional Research Service has issued a special report, "Federal Employee Retirement Funds and the Public Debt Limit," on the subject. The March 20 report, in a nutshell, says that during other such moves, "neither the [retirement fund] nor individual investors in the G-fund of the TSP suffered any financial losses, delays in payments of monies owed them, or restrictions on account activity during the debt-issuance suspension period."

Long Term Care insurance

The early enrollment period for the new federal Long Term Care program began yesterday. Check the Office of Personnel Management Web site for premiums and benefit levels.


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