- The Washington Times - Tuesday, May 31, 2005

Congress is out of town, so there is no action on a half-dozen bills to improve the pay or pensions of federal workers and retirees. And it will be late summer before we know the size of the white collar federal pay raise due in January.

Backers of bills that would boost the Social Security benefits of thousands of current (and future) federal retirees continue to plug away, but they face an uphill struggle. The same is true for a bipartisan plan that would let current and future retired feds pay health premiums with pre-tax dollars. That also is a long shot.

But there are some important things that federal and military personnel can do, right this minute, to ensure that they have the maximum amount of money for their retirement or to purchase a home or finance a college education. That is: invest, and invest smart.

Federal workers — in search of financial safety and low fees — have moved almost $1 billion into the Thrift Savings Plan. The TSP is Uncle Sam’s in-house 401(k) plan that contains the optional retirement nest egg of the vast majority of civil servants, members of Congress and the uniformed military services.

Although most feds are very familiar with the TSP — eight out of 10 have accounts — many don’t realize that they can transfer other money into the TSP, or why they should consider doing it. Here’s the deal:

If you have a TSP account (or if you open one) you can transfer pre-tax money from another source into the federal plan. That money can be an outside investment retirement account that you have set up or from the 401(k) plan of a company that you once worked for. Having taken in nearly $1 billion in such pre-tax cash from other sources, the TSP knows how to get it done.

You can get information on it from your agency’s human resources office (maybe), or better yet by visiting the TSP Web site at www.tsp.gov.

The transfer must be done properly, but it can and is done all the time.

Now, the obvious question. Why move money from an outside IRA or 401(k) plan into the TSP?

Two reasons: Safety and savings

Safety: The TSP offers four index funds that are similar to mutual funds offered in private sector 401(k) plans. They include a large stock fund (the C-fund), a small-to-mid-cap fund (the S-fund), an international stock fund (the I-fund) and a bond index fund, the F-fund.

The ace in the hole, if you are looking for total security, is the fifth option, the G-fund. The G-fund is made up of special U.S. Treasury securities that are guaranteed by Uncle Sam and that pay a guaranteed rate. Unlike money market funds, which can go bust, the G-fund is as solid as it gets.

Savings: Most people don’t pay much attention to the administrative fees charged by a mutual fund, whether it is in their company 401(k) plan or an investment they have elsewhere. But those fees eat up some of the money you invest and earn. The TSP’s administrative fees are the lowest in the mutual fund business. They are about half the amount charged by the other mutual funds that offer low fees.

So what does a lower fee mean? Well, it depends on how much you invest, how long you invest and your rate of return. But many financial planners say that for feds who max out their investments and who do well, it can over a full career mean $10,000, $20,000 or even $30,000 more in their TSP accounts than someone who did the same thing but with a different 401(k) plan.

Retiree investors

Retired federal workers can remain in the TSP once they leave government. But like private-sector retirees, they can’t add money (via payroll deduction) to their TSP account. They, however, can remain in the TSP and can, like active-duty federal and military personnel, move from fund to fund.

Health insurance

Many active and retired feds complain about their health plan coverage, choices and, of course, premiums. So here’s a test. Compare your plan (which is cradle-to-grave), in which the employer pays 72 percent of the total premium, against your nonfederal neighbor’s plan.

Chances are that if your neighbor’s employer offers health insurance, it terminates when he or she leaves the company, or retires or hits 65, whichever comes first. Few companies cover retirees, and that is one of the great strengths of the federal health plan. It may be terrible, but it is better than all the others.

On second thought, if you want to stay on good terms with your nonfederal neighbor, it might be smart not to compare plans.

Mike Causey, senior editor at FederalNewsRadio.com, can be reached at 202/895-5132 or [email protected]m.

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