- The Washington Times - Tuesday, April 15, 2008

Rollovers, some of them worth $1 million or more, into the federal 401(k) plan are becoming increasingly popular.

Tens of thousands of investors, many of whom acquired government jobs after successful careers in the private sector, are shifting money from individual retirement accounts and 401(k) plans into the Thrift Savings Plan (TSP).

A Washington-based financial planner whose customer base consists largely of current and former federal executives and Foreign Service officers says many of his clients see the TSP “as the ultimate safe harbor.”

He suspects the TSP’s incoming traffic has increased because of the wobbly markets, and he is correct.

For example, 20,889 federal/postal/military investors moved $469 million from outside tax-deferred investments into the TSP last year.

The lure: low fees and safety.

The TSP offers by far the lowest fees of any mutual fund or 401(k) plan in the country, often 50 times lower than similar plans. Over a career of investing, that can add tens of thousands of dollars to an investor’s account balance. That’s money that otherwise would have been eaten up in fees that are charged whether the investment makes or loses money.

For safety, the special G Fund is one of a dozen investment options available to TPS account holders.

The G Fund is made up of Treasury securities that are as solid as Fort Knox and not available to nonfederal investors. While the G Fund rate won’t make you rich, it can guarantee that you won’t lose your money.

Many financial planners say the danger in having all your financial eggs in the G Fund basket is that inflation will eat into the account balance over time.

“But for people under the old Civil Service Retirement System, who have generous pensions that are linked to inflation, being exclusively in the G Fund isn’t a problem,” said one planner.

Fund returns sagging

For the 12-month period ending in March, the C Fund that tracks theS&P; 500 Index was down 5.07 percent, the small- and mid-cap S Fund was down 8.2 percent, and the international stock index I Fund was down 2.55 percent.

Meantime, the super-safe G Fund of Treasury securities returned 4.56 percent, and the often-ignored F Fund that tracks the overall bond index was the leader of the pack with a 7.87 percent return.

January retiree COLA

The final figure for next year’s cost-of-living adjustment (COLA) for federal and military retirees and Social Security recipients won’t be known until mid-October.

But a picture is starting to develop. Right now in the COLA countdown, the 2009 raise stands at 1.8 percent. That amount will increase if living costs for March increase. The data will be released tomorrow.

Meanwhile, the Congressional Budget Office is forecasting that when the final inflation figures are compiled, the January COLA increase will be 2.8 percent.

Remember that’s a “guess-estimate,” not a final figure. But the CBO is typically accurate in its forecasts.

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

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