- The Washington Times - Monday, August 8, 2005

Ask the average civil servant what he or she dislikes about the Thrift Savings Plan and you’ll hear that it has too few choices, with only five funds, and makes it too difficult to trade quickly.

Ask the average non-fed what’s wrong with the Thrift Savings Plan and he or she will ask how to join it.

The vast majority of federal, postal and military personnel are contributing actively to the TSP, which is sort of a government version of a 401(k) plan on steroids.

The vast majority of American workers whose companies offer a 401(k) plan, however, are not contributing, either because they think they can’t afford it, because their employers do not offer any matching contributions, like Uncle Sam does, or because they lack information from companies that are afraid to encourage workers for liability reasons.

By contrast, feds receive a steady stream of information on TSP changes and options, some from the government and from the dozens of outlets that target the federal family.

Many private firms do not offer any kind of matching contribution, while the government will kick in up to 5 percent. No private companies contribute to the accounts of nonparticipating employees, but the government kicks in the equivalent of 1 percent of pay for workers under the new Federal Employees Retirement System plan, even if they contribute nothing.

Unlike private-sector 401(k) plans that are subject to Internal Revenue Service rules aimed at limiting the contributions of higher-income employees, the TSP is exempt from the so-called “nondiscrimination rule.” The result is that most government workers can contribute up to $14,000 this year on a tax-deferred basis and another $4,000 if they are 50 or older. That is on top of any matching government contribution.

Many financial planners consider the lack of “choices” a strong point. Some private plans offer workers a dozen or more choices.

“But the result of that,” says financial planner Paul Yurachek, “is that people get confused. They either stick with a money market or pick the investments the guy next to them in the office picks.”

Retirees and the TSP

More than a half-million people — most of them retired federal or postal workers, or military retirees — who no longer work for Uncle Sam do not have TSP accounts. They left them when they retired or took other jobs. Retirees cannot make payroll contributions to the TSP, but, like active investors, they can roll over money from tax-deferred individual retirement accounts and 401(k) plans, provided they have not started withdrawing money from the plans.

L Fund DVD

TSP investors will be getting a digital video disc by mail this month. It explains how the new L Fund works. The L fund, which already has 30,000 new members, allocates and then readjusts your portfolio as you get older and closer to your spending target date.

Earlier, I said that the DVD was being mailed out in early August. Some readers complained that they had not received it. That’s because the mailings started this month, but the process will take some time. The good news is that the DVD, honest, is or soon will be in the mail.

cMike Causey, senior editor at Federal News Radio AM 1050, can be reached at 202/895-5132 or mcausey@federalnewsradio.com.

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