- The Washington Times - Tuesday, March 18, 2003

Many federal employees have previously worked in the private sector, where they began investing for their retirement in various 401(k) plans and bank individual retirement accounts. But this may be a situation where diversity is not a good thing.

It's estimated that optional savings/investments will provide 30 to 50 cents of every dollar current feds have to spend when they retire. So, from a safety standpoint, where should your money be? How about:

A) In a weather/bomb-proof vault underneath a concrete bunker staffed by five very angry pit bulls.

B) Leave it in the various 401(k) plan accounts and IRAs you've picked up over the years.

C) Roll them over into the G-fund of the federal Thrift Savings Plan.

There are no statistics on how many accounts are being guarded by guard dogs, or left dormant with your old company or bank. But we do know how much can you believe $260 million feds have rolled over into the TSP in the last couple of years.

The lure of the TSP is threefold.

One: It's run by the government, and it's where senators and House members have their 401(k) plan cash. One member of the Bush administration was so impressed by the safety of the TSP he rolled over more than a million dollars (that's $1 million) from his former retirement plan. That's what I call a vote of confidence.

Two: Its administrative expenses are the lowest in the mutual fund business. Low fees can translate into thousands of extra dollars in your account over time.

Three: The TSP has the G-fund, which is made up of can't-lose special U.S. Treasury securities that no other plan can offer. Over the past 12 months while indexed stock funds were losing 17 to 22 percent the G-fund chugged ahead, returning 5 percent. That beats inflation and losing money.

Federal and military personnel are allowed to transfer tax-deferred money from other accounts into the TSP. Some banks (who want to hold on to your IRA money) pretend they don't know how to make the transfers. But they really do, or they can learn real fast.

It's your call what you do with your outside retirement nest egg. The TSP may not be for you, but if you want to learn more about it, and about how to make transfers, go to the Internet and check out: www.tsp.gov.

Health premiums

Congress is looking at two important changes that would affect how much you can afford to spend for ever-rising health insurance coverage.

Republican Virginia legislators Reps. Thomas M. Davis III, Jo Ann Davis and Sen. John W. Warner, have introduced legislation that would extend the so-called "premium conversion" to retired federal and postal workers.

Premium conversion already available to working federal personnel allows an individual to pay his or her health premiums with pretax dollars. That gives the individual a tax break, averaging about $400 each year, because it lowers taxable income.

Although active duty feds have premium conversion, the law will have to be changed to extend it to retirees.

It's an uphill fight (because it would be a drain on tax revenues), but its got three powerhouses behind it. Mr. Davis chairs the House Government Reform Committee, Mrs. Davis heads the committee's civil service subcommittee and Mr. Warner runs the Senate Armed Services Committee.

Voucher plan: House budget writers like the idea of eliminating the federally subsidized health premium formula in favor of a voucher system.

Under current law, the government pays a total of 73 cents of every premium dollar for federal workers and retirees. That ratio doesn't change when premiums go up, meaning the taxpayers are hit hardest with premium increases.

Cost cutters say that giving feds and retirees vouchers (a check for a fixed amount) to buy single or family-plan coverage would be a win-win situation. They believe it would force insurance companies to come up with plans that could be paid for entirely by the vouchers. And they also feel it would force feds to shop more carefully to get the most coverage for their bucks.

Opponents say vouchers would tempt companies to come up with stripped down plans whose premiums would be covered by the vouchers.

At the same time, they feel, lower-income workers and especially retirees would be tempted to "shop down" and get bargain-basement plans that fit within the voucher but didn't fit their health needs.

Both the premium-conversion proponents, and the backers of a voucher system, have an uphill fight. Feds and retirees should avoid panic, but keep an eye on both bills as they work their way through Congress.

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