Do You Trust Congress With Your TSP Investment?
by Ralph Smith |
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 Investment Philosophy)
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?)
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?)
The 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 policy.”
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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