- The Washington Times - Monday, November 10, 2003

With some mutual funds playing not-so-funny games, a lot of federal and military investors are delighted that their retirement nest egg — now worth more than $120 billion — is in the Thrift Savings Plan, Uncle Sam’s belt-and-suspenders version of a company-backed 401(k) plan.

The TSP was designed by the Congressional Research Service and put into place by Sen. Ted Stevens, Alaska Republican. It’s important to note that most members of Congress — like Mr. Stevens, chairman of the all-powerful Appropriations Committee — and most staffers at the CRS use the TSP.

“It’s like packing your own parachute,” a former CRS staffer said. “We wanted to make sure it was a good plan and safety was a top priority.”

The TSP now has 3.2 million accounts. Those include the majority of accounts of active-duty federal workers, thousands of retirees and a growing number of military personnel.

When news of mutual fund shenanigans emerged, the TSP — which is audited regularly by the Labor Department — went to the Barclays Global Investors. Barclays handles most of the funds offered by the TSP, which is run by the Federal Retirement Thrift Investment Board.

Many of the charges against private funds involved after-hours trading and market-timing trading by fund managers for themselves.

Barclays, which is based in San Francisco, said all orders to buy or sell must be received by the time the value is calculated. That means no trading after 4 p.m. Eastern time.

It also said its code of ethics requires employees to disclose all personal trading accounts to a compliance group, and employees are restricted from trading in selected indexes during the blackout period when the index is undergoing a planned reconfiguration. Those sorts of trades, including after-hours trades, made some private fund managers very rich and now have them in very hot water.

The ace in the hole of the TSP is its unique G Fund. The G Fund is invested in special issues of U.S. Treasury securities that are not available to investors outside the federal program. The G Fund rate is set monthly, and it is guaranteed by the government, which holds the monopoly on printing money.

It has been called the “best legal investment in the world” because of its guarantee and the fact that it has never had a losing month. Unlike bonds, which drop in value when interest rates go up, the G Fund simply rises when that happens. Last year, a period of low inflation and low interest rates, the TSP returned 5 percent while the rate of inflation was about 2 percent.

The safety and oversight features are reasons why more workers are leaving their money in the TSP, as opposed to rolling it over into an individual retirement account or another 401(k) plan, when they leave or retire from government.

High hopes

With most members eager to get home, Congress is going to disappoint a lot of federal workers and retirees.

A record number of House and Senate members pledged to vote for bills that would give feds a tax break on health premiums after they retired, and to abolish two laws that either eat into or eat up the Social Security benefits expected by feds under the old Civil Service Retirement System (CSRS).

The problem is that none of the bills, despite their support, made it through the congressional process to the point where members could vote yes or no.

Gone for this year is the proposal to let retirees pay their health care premiums with pretax dollars, known as the premium conversion plan.

The other two casualties involve the windfall and offset formulas. Both have an effect on people with CSRS annuities, or who receive pensions from work not covered by Social Security.

Lobbyists hope next year will be the magic time for the premium-conversion plan, but the windfall and offset formulas — while unpopular with retired and retirement-age feds — remain a potential revenue loss that congressional tax watchdogs aren’t ready to approve.

cMike Causey, senior editor at FederalNewsRadio.com, can be reached at 202/895-5132 or mcausey@federalnewsradio.com.

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