Federal Employees News Digest

Are you high risk or low?

Question:  Would you invest/bet your retirement nest egg on a climate-friendly startup company who’s CEO is convinced that in a short-time most of us will be wearing shoes made out of recycled Mississippi River mud?

Or how about putting all your Thrift Savings Plan investments into a small but fast-growing outfit that hopes to become the world’s largest producer of Emuis? You know, the other gray meat!

Most of us would probably take a pass on those as investment options.  But some interesting proposals are coming down the way.  For good reason. More on that in a minute.

Currently valued at $600 billion, the TSP is bigger than any 401k plan in the country.  Heck it is bigger than lots of countries whether you measure the value in gross domestic product, or any other thing of value within their borders.  If they were for sale the TSP could buy Denmark.  Or start a new one.

Which brings us to this point.  Lots of people in the country want a 401k plan like you have.  Only about 13 percent of all private companies still have employer-backed pension plans.  Some have turned them over to unions.  Others eliminated them entirely—the Washington Post case in point—leaving workers to build their own retirement funds using 401k plans and/or social security. Or private investments.  Many private 401k plans do not have a company-match like the TSP’s 5 percent match for workers under the FERS program.  Of those that do the average match is 3 percent.

 Although we’ve all suffered from the “grass-is-always-greener” syndrome from time to time, most feds realize the TSP is probably the best plan of its kind in the world.

 What makes it great, many experts say, is its super-low administrative fees, its over-sight (from half a dozen federal agencies) and the simplicity of its fund options which help keep those administration fees low.  Over time fees charged by many TSP-type plans can eat thousands of dollars from your total account balance.  When it setup the TSP decades ago said keep it clean, and keep its simple.  So far, so good.  And the TSP is making changes in September that will make it more user-friendly.  Make it easier for people to withdraw money on a regular basis. And to draw money from only one fund if they choose.

And people who leave the TSP and take out all of their money can never come back, although many have tried.  But if they leave a balance of at least $200 they can, if they become fed up with their ‘new’ 401 or IRA move back to the TSP.  Leave you must, but leave least $200 in the likely event you decide to return. 

Now back to those people—and politicians—who want of the TSP action: Despite the normal ups and downs of the stock market (May was a bad month for the TSP’s C, S and I stock index funds) the long-overdue correction of 20/30 percent hasn’t hit.  And while the market is good look for efforts from Congress to expand the choices that TSP investors have.  As in getting their stock, company or concept a piece of the TSP action.

 For several years before the Great Recession (2008/2009) various members of Congress tried to force the TSP to take on new options. Fortunately the TSP resisted efforts to setup an all dot.com fund up and including when the dot.com bubble burst in early 2000. It would have been, in hindsight, a great way to lose money—retirement money. 

 The TSP also resisted major efforts from pro-fed Democratic and Republican members of the House to include funds run by their constituents.  Or friends.  Or for causes near to their hearts that aren’t likely to earn anybody any money. There were also proposals in Congress to force the TSPs international funds to divest any investments in South Africa, Northern Ireland. And not to invest in tobacco. Others wanted climate-friendly funds which, while noble in cause, don’t earn shareholders very much. 

For more than a decade politicians pushed—and almost succeeded—in forcing the TSP to setup a REIT fund (real estate investment trusts) which, experts said, had nowhere to go but up. The TSP fought the effort even as REITS prospered. Until they didn’t. Bang comes the Recession and down go REITS.  Had people been allowed to invest exclusively in real estate trusts that never-have-a-bad-day they could have, would have, lost a major chunk of their nest egg.

The KIS (keep it simple) rule is still out there. And many savvy TSP investors hope the world’s biggest 401k will keep it that way.

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