Despite the ups and downs of the stock market and limits on where and how much they were allowed to invest, about 21 federal workers now have Thrift Savings Plan accounts that are worth $1 million. Or more.
One of them is unique to the federal establishment because he got there the hard way.
The multibillion-dollar, 22-year-old TSP is Uncle Sam’s version of a 401(k) plan. It has 4.1 million investors. They include active postal and federal workers, members of the uniformed military and retirees who kept their money in the TSP when they left government. Retirees cannot add new money to the TSP, but they can move it around between funds just like current workers do.
Most of the TSP millionaires did it the easy way. That is, they transferred large sums of money — sometimes a million dollars or more — into the federal in-house 401(k) plan when they joined government. Most are believed to have been highly paid private-sector lawyers who became federal judges. They joined Uncle Sam not only to serve, but also because of the good benefits (like the TSP), lifetime health insurance and job security.
They picked the TSP as the new safe-deposit box for their outside retirement accounts because it offers the supersafe G-fund composed of special, guaranteed Treasury securities and because the TSP’s administrative fees are much lower than even the most economical outside mutual fund family. Higher fees can erode an investment portfolio’s returns over time.
But at least one fed — call him the Unknown Millionaire — grew his six-figure account the old-fashioned way: by investing the maximum amount, on a steady basis, and taking advantage of the 5 percent TSP match that the government makes available to most working feds.
Like all 401(k) plan options, the federal TSP’s track record has its ups and downs. It offers three index funds that invest in the total U.S. stock market, an international fund that invests in the markets of 21 nations, a bond-index fund and the Treasury G-fund.
During the past 12 months the C, S and I funds (which invest in the S&P 500 stock index, the U.S. small cap market and the international market) were down 19.89 percent, 21.08 percent and 21.59 percent, respectively.
But since the market bottomed in early March, the stock funds have roared back. As of July 31, the C-fund has returned 7.58 percent year to date, the S-fund is up 8.66 percent and the International I-fund is up 9.74 percent.
The five life-cycle funds — which range from a conservative mix of stocks, bonds and Treasury securities to a more aggressive portfolio for the 2040 target date fund — have done well this year, ranging from a 1.94 percent return for the least aggressive L-income fund to 7.01 percent for the most aggressive L-2040 fund.
In their last year of federal service, a substantial number of workers under the newer Federal Employees Retirement System take an unusual amount of sick leave. Some take 30 to 40 days within the year.
While we’ve dubbed it the FERS flu, government insiders say it is more likely that the FERS employees — who are under a use-it-or-lose-it sick-leave system — are simply burning up what they can’t take with them. The older, longer-service employees under the old Civil Service Retirement System do get credit for unused sick leave. When they are eligible to retire, they can add that time on to their service, boosting their lifetime annuities by 2 percent to 4 percent.
Congress, as part of its defense authorization bill, is considering legislation to give FERS employees the same incentive to save their sick leave. A similar provision was included in the House-passed tobacco bill but stripped from the Senate version.
Now it is back in the House version of the defense spending bill, but insiders say it will have a tough time in conference — when the House and Senate iron out differences — because the Obama administration opposes it.
The Obama administration “may be holding it over our heads to guarantee that we will go along with a modified pay-for-performance system,” said a lobbyist familiar with the give-and-take on Capitol Hill. That system, known as the National Security Personnel System (NSPS), covers more than 200,000 civilian defense workers.
Federal unions that endorsed President Obama during the election campaign expected that NSPS and similar systems would be frozen or abolished altogether. They said it was a Bush administration tool that isn’t working and encourages discrimination in the distribution of pay raises.
But the White House has said it wants a modified pay-for-performance system that guarantees that raises will be distributed fairly. It is working on its own version and hopes to persuade rank-and-file feds, managers and federal unions that a workable system is possible.
• Mike Causey’s Federal Report runs Mondays. Contact him at email@example.com or 202/895-5132.