For Federal Employees, 'Tis the Season to Invest
By Douglas J. Gillert
American Forces Press Service
WASHINGTON, April 14, 1999 Federal civilian employees can start or change their Thrift Savings Plan accounts during the semiannual open season, May 15-July 31.
During this period, civilian employees with at least six months of continuous federal service may enroll in the government's 401(k) investment fund. Current participants can change their future contributions or the way they are invested.
The plan offers three investment funds. The C fund diversifies investments in stock markets and is the riskiest but potentially the highest yielding fund. The F fund invests in notes, bonds and other obligations that return the amount invested and pay interest at a specified rate over a period of time. The G fund invests in short-term, nonmarketable U.S. Treasury securities specifically issued to the Thrift Savings Plan. Investments earn interest at a rate equal to average market securities with four or more years of maturity.
For the 12 months ending Feb. 28, the C fund returned 19.64 percent, the F fund returned 6.29 percent and the G fund returned 5.59 percent. Those averages went down overall from the preceding 12 months and reflect the lowest combined averages in six years. In 1995, for example, the C fund averaged 37.41 percent, the F fund 18.31 percent and the G fund 7.03 percent.
Despite these fluctations, some long-term investors in the C fund have built accounts now approaching $400,000. Although members can redistribute their money among the three funds at any time, the Federal Retirement Thrift Investment Board recommends taking the long view, riding the highs and lows of the stock market, to accrue the most money by retirement. The board also recommends that new employees, who automatically fall under FERS and will depend more heavily on the plan to bolster their retirement income, sign up as soon as possible.
"The sooner you start contributing, the sooner your money can go to work for you," wrote the board's executive director, Roger Mehle, in a March 1997 letter, revised and published on the Internet in June 1997. "Your account will grow from earnings on your contributions, and those earnings, in turn, accrue more earnings." This is known as compounding: The longer your money is in your account, the greater the potential for higher earnings.
Two more funds will be added next year. The board selected Barclays Global Investors to manage the new I fund, which will track international stocks. It's still looking for someone to manage the new S fund, which will invest in small companies.
More than 2 million federal employees participate in the Thrift Savings Plan. Since 1987, the plan has grown to more than $47 billion in accounts, according to Mehle. Eighty-three percent of employees under the Federal Employees Retirement System and 54 percent of Civil Service Retirement System employees currently invest in the plan, he said.
All contributions to the plan come through payroll deductions. The amount employees can invest depends on their employment status. Civil Service Retirement System employees may contribute up to 5 percent of their basic pay. Federal Employee Retirement System employees may contribute up to 10 percent of their basic pay. FERS employees also receive matching agency contributions for the first 5 percent they invest.
The plan also allows participants to apply for low-interest loans, based on the current G fund rate of return, including loans to purchase homes.
Program details are contained in Thrift Savings Plan brochures and forms available at civilian personnel offices and on the Internet at www.tsp.gov. The next open season runs Nov. 15-Jan. 31.