- The Washington Times - Tuesday, January 8, 2008

Federal investors in the sometimes rock ‘n’ roll international stock fund of their 401(k) plan left their more-cautious office mates in the dust last year.

By the same token, nervous investors seeking refuge in the Thrift Savings Plan’s bond fund outdistanced those who stayed with the U.S. stock market or the TSP’s special, supersafe Treasury fund.

For 2007, the I-fund (an international stock index) returned 11.43 percent. That doesn’t match its 2006 return of 26.32 percent, but it beat all the other options in the TSP, which is the world’s biggest and fastest growing 401(k) plan. The TSP is open to federal workers — from senators to letter carriers — as well as members of the uniformed services and retirees who had accounts when they left federal service.

Last year, the popular C-fund (which tracks the S&P; 500) returned 5.54 percent. The S-fund, which tracks the rest of the U.S. stock market, returned 5.49 percent. By contrast, the usually unimpressive F-fund (bond index) returned 7.09 percent, while the G-fund (Treasury securities) returned 4.87 percent.

Self-styled lazy investors also fared well in the various Lifecycle funds. The L-funds offer a mix of stocks, bonds and Treasury securities in a self-adjusting portfolio that is targeted for the date you expect to start withdrawing money from your TSP. That target date is usually later (sometimes 20 years later) than when you will actually retire.

The L-funds with the most far-out target date have the biggest mix of stocks. As you draw nearer to your target date (2010, 2020, 2030 or 2040) the percentage of your portfolio in stocks will shrink slightly as more money is reallocated to the F and G funds. But even the so-called current income L fund, the most conservative of the target funds, has a big chunk of stocks. The idea is to make sure that the portfolio earns enough to outpace inflation.

Last year the L-2040 fund (for people who plan to begin spending down their TSP accounts around that time) returned 7.36 percent. That’s down from the 16.53 percent it returned in 2006, the first full year of the target funds. The L-2030 fund returned 7.14 percent (down from 15 percent in 2006) and the L-2020 fund returned 6.87 percent, compared with 13.72 in the previous year. The return for the L-2010 fund dropped from 11.09 percent in 2006 to 6.40 percent last year.

The L income fund, the most conservative because it is more heavily invested in bonds and Treasury securities, returned 5.56 percent in 2007, down from its return of 7.59 percent in 2006.

A growing number of federal workers are switching to the L funds, which rebalance their portfolios on a daily basis.

This year, as in 2006, federal-military investors can put up to $15,500 of their own money into the tax-deferred TSP. Contributions are made via payroll deductions. It’s important for investors under the FERS retirement system to be sure that their contributions are allocated so they get the full match available from the government and don’t hit the $15,500 limit too early in the year. For FERS employees the government will match up to 5 percent of their contributions on a tax-deferred basis.

TSP (and other 401(k) plan) investors who are 50 or older can also put in an additional $5,000 in tax-deferred contributions. That’s a catch-up feature Congress authorized to make up for the fact that 401(k) plans weren’t around earlier in the careers of many long-time workers.

Pay Raise

Washington-Baltimore area federal workers are expected to get a 4.49 percent raise, retroactive to the pay period beginning on or after Jan. 1. The higher amount was authorized by Congress at the last minute. Previously, the government had put out pay charts showing the D.C. pay-locality adjustment would be one percentage point less. Once the president signs the executive order authorizing the higher amount, those charts on the Office of Personnel Management Web site, will be changed to reflect the higher amounts on a city-by-city basis.

Many Defense Department workers, who are under the new National Security Personnel System, will not get the same pay raise as non-DOD employees in their area. NSPS employee pay is in part based on performance as judged by superiors.

Once those NSPS raises are allocated and made known to civilians you can expect to hear groaning sounds from Fort Belvoir and the Pentagon to Fort Meade.

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

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