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The federal government's Thrift Savings Plan contains a lot of
money--about $252 billion or so according to recent statistics. And,
unlike other federal retirement plans such as the Social Security system
or the Civil Service Retirement System, that money actually exists
within the TSP funds and, more often than not, it continues to grow as
investors put more money into the program and the value of each share
goes up over time.
In fact, the Thrift Savings Plan has been referred to as a model retirement
system, the least expensive retirement system available, and the platinum
retirement plan by various financial planners and investment advisers. While
some readers would like to make changes to the system (such as allowing more
trades, etc,), the TSP is popular and it works. For our readers, that is a good
thing because the Thrift Savings Plan is going to be a major part of providing
financial security in your future retirement.
Most FedSmith readers are active or retired federal employees. Based on your
knowledge of how the government works, can you imagine Congress watching a pot
of $252 billion dollars (and growing) sitting within the federal system and not
touching that money?
All Congress has to do is to put together a rationale as to how and why
Congress can improve the system, convince the other Congressional
representatives as to why a new plan for the TSP would be better than letting
this money continue to grow in its present form, and pass a law to put these
hundreds of billion dollars to a better use.
In fact, some Congressmen are already thinking about how to do that. Perhaps
more to the point, Congress has already started meddling with the TSP and, as
the money pot grows, that meddling is likely to increase.
For example, changing the TSP was used as a rationale for funding a new law
on tobacco regulation. Congress needed to find an extra $300 million or so to
pay for new legislation. That amount, in theory at least, came from a more
efficient federal Thrift Savings Plan. According to one
report: "Provisions in the bill dealing with retirement accounts had a
sufficient amount of savings left over to offset costs associated with the
tobacco bill provisions."
Perhaps you should think of this as your contribution to creating a better,
bigger, more active federal government.
Last year, a Congressman from Illinois saw this money sitting there and,
perhaps, thought he could see a way to help out a few constituents. (See
Money, Congress and Your TSP:
Watch Out for Your Retirement Money) This Congressman was bothered
that the indexing approach used by the TSP may exclude financial firms run by
women and minorities from getting a bigger piece of the billions of dollars in
the TSP pool and wanted to use actively managed funds instead of index fund for
investing the retirement money for those investing in the TSP. And, while it may
have slipped by some readers, Congress did make a change last year when, as part
of a new law to regulate tobacco, a change was made to allow the TSP to start
allowing readers to invest in outside mutual funds (See
President Signs Tobacco Bill
Implementing TSP Changes). (Also see:
Quietly Changing the TSP's
And this is not the first (or last) time that some in Congress will see an
opportunity to change the TSP. Remember the hot real estate market? If it
slipped your mind, that may be because real estate prices have been rapidly
falling in the past several years. But, way back in 2005 or so, real estate was
hot. There was pressure on Congress to include real estate investment trusts in
the TSP. No doubt, various companies saw a way to pressure Congress to offer
this exciting opportunity to TSP investors, some of whom would have put a great
deal of their future retirement money into real estate funds--a short time
before that market crashed. In fact, in a survey we took at that time, 59% of
readers wanted to put their money into a real estate fund at that time. (See
Should TSP Investment Options
Be Expanded?; Also see:
Rancor Erupts Over Adding REIT Fund to TSP)
And, for good measure, who could resist using a few hundred billion dollars
to help alleviate pain and suffering in the world? Congresswoman Barbara Lee
(D-CA) thinks that is a good idea and proposed that Congress use your TSP money
to help the suffering people in Darfur by requiring an audit of companies in
which the TSP invested through its index funds and, eventually, bar the TSP from
investing in companies that did not pass the audit. (See
Keep Your Hands Off My TSP! and
Congress Weighs Using Nest
Eggs as Agents of Change)
That did not happen. But, as often happens, the idea has not died. In fact,
it has just been resurrected in a new form.
James Langevin (D-RI) writes
on his internet site: "We must create an environment in which businesses
take care of - and are held accountable to - their shareholders, employees and
customers. Making an investment in companies that are committed to corporate
responsibility will have a positive impact on our financial system, while
empowering federal employees to reward companies that share their values."
Toward that end, he has introduced a new bill called the 'Federal Employees
Responsible Investment Act." It would require establishing a "Corporate
Responsibility Stock Index Fund" for the TSP. You can
read the bill here.
As often happens with new legislation, there are some good ideas in the bill.
The rationale used for the bill will make it difficult for some in Congress to
vote against the bill. And, in fact, it may pass in Congress.
If you are a TSP investor, watch this bill closely. Congress has demonstrated
time and again that once it starts to get involved in spending a large pool of
money, that money may quietly disappear as a result of a small portion of a bill
that does not appear to have anything to do with the change that has been
inserted. For example, will Social Security provide future retirement benefits
or will the benefits be cut? Plenty of money was put into the program but the
money has been spent. A number of Americans take their money out as early as
possible because they assume the money may not be there for them when they are
older as a result of new, and previous, Congressional actions. (See
What Will Happen to Social Security?)
bill is opposed by the Federal Retirement Thrift Investment Board. "The 4.4
million individuals with TSP accounts have invested their retirement savings
with an explicit 'no politics’ commitment from the Congress," Mr. Trabucco wrote
in an e-mail response to questions. "The board opposes all efforts to alter this
commitment and introduce political or social considerations into TSP investment
Federal employees have worked for the money they have invested and Congress
created an excellent retirement vehicle for that purpose. Based on numerous
examples, once their foot is in the door, Congress will not back away. Other
"improvements" or "socially responsible investments" will be introduced in the
future. Or, as happened with the Social Security fund, the money will be gone
and replaced with an IOU, complete with promises for a better, brighter future
in your retirement years.
As the pot of money in the TSP grows, Congress may not be able to resist the
temptation to use it as it sees fit. Readers would do well to follow the
progress of this bill in Congress.
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