Federal and military investors have $226 billion in the TSP. The in-house government 401(k) plan offers investors the choice of four stock index funds, a bond index fund, a special U.S. Treasury securities fund and four self-adjusting Lifecycle or target date funds.
The L-funds are based on the year in which the investor expects to start spending down the TSP account. The target funds are in 10-year increments, going out as far as the year 2040. The further the target date the more aggressive (as in having more stocks) the funds are.
As of last month, the latest data available, the average federal postal worker under the newer Federal Employees Retirement System (FERS) had an average account balance of $69,490.
The average account balance for longtime feds, most of whom are under the old Civil Service Retirement System (CSRS) was $64,490.
Members of the uniformed services (which includes Army, Navy, Air Force, Coast Guard and uniformed members of various federal agencies) had an average account balance of $9,415. Most members of the services are in their teens to mid-30s.
FERS employees are people hired since the mid-1980s. Unlike CSRS workers, who have a more generous civil service retirement benefit, FERS investors can get a match of up to 5 percent to the TSP from their respective federal agencies.
Now about that cloud.
Last month, for the first time in a while, all but one of the TSP’s funds posted a positive return. The Treasury securities G-fund return was 0.33 percent, the bond-index F-fund was up 0.92 percent, the S&P 500 index C-fund was up 1.46 percent and the small-cap index S-fund was up a very respectable 2.17 percent. The L-funds were also up anywhere from 0.11 percent to 0.35 percent. That’s the sliver lining part.
The one loser for the month of August - the cloud on the investment horizon of federal-military investors - was the higher-risk/higher-reward I fund. It tracks the international stock market and posted a negative return of 4.16 percent last month. TSP insiders say most of the reason for that was the strong performance of the U.S. dollar against both the British pound and the euro. Whenever the dollar goes up, it tends to have a negative effect on the I-fund.
For the year to date, the G-fund is up 2.54 percent, the F-fund is up 2.18 percent, the C-fund was down 11.33 percent, the S-fund was down 6.42 percent, and the I-fund return was 17.68 percent in negative territory.
Despite the counsel of most financial advisers - that long-term investors ignore the ups and downs of the market - large numbers of feds have shifted money from the various stock funds into the G-fund. While it never has a bad day, its guaranteed returns are much more modest, often barely keeping up with inflation.
Cigarettes and sick leave
The two primary federal retirement systems CSRS and FERS are very different in a couple of key ways. People covered by the former get larger guaranteed federal annuities when they retire. Those hired after the mid-1980s under the FERS plan have a more generous 401(k) plan.
But nowhere is the difference more noticeable than in the way employees are rewarded (or not) for staying healthy. Once eligible to retire, CSRS employees can count their unused sick leave toward retirement. That gives them a larger annuity because the system is based on their highest three-year average salary and length of service. Tacking a large amount of unused sick leave onto the service time can be a major pension booster.
FERS employees, however, don’t get credit for not taking sick leave. It is a use-it-or-lose-it system. As a result, feds toward the end of their careers are often struck down with what I call FERS flu. That is they use leave as the day of their retirement luncheon approaches.
But that could change. When Congress returns, the Senate will consider a House-passed bill that would give the same sick leave credit to FERS employees now enjoyed by CSRS workers. It is part of a tobacco regulation bill., H.R. 1108.
Magic retirement date
For those planning to retire from federal or postal jobs in the December-January time frame, there are two dates to consider: Dec. 31 for those under the newer FERS retirement plan and Jan. 2 for those under the older CSRS plan.
Retiring on those dates has a couple of advantages. Among them: A worker can carry over the maximum amount of unused sick leave and be paid for (most of) it at the new, higher 2009 pay scale. There is also a tax break. Retiring on those dates means the lump sum payments, which can be worth several thousand dollars to longtime, upper-grade feds, into the 2009 tax year.
• Mike Causey, senior editor at Federal News Radio AM 1050, can be reached at 202/895-5132 or mcausey@federalnews radio.com.