Double the Money

The Thrift Savings Plan's recent rapid growth is mostly due to new participants.

Andrew Saul, chairman of the board that oversees the federal Thrift Savings Plan, called it a milestone when the 401(k)-style retirement savings program for 3.7 million federal employees and retirees reached $200 billion at the end of 2006. TSP had doubled its worth since 2000, and Saul predicts that it will reach $300 billion by 2010.

Great news for investors, right?

Not necessarily.

The TSP's rapid overall growth doesn't mean individual accounts are gaining at the same rate. In 2000, just about the time the plan hit the $100 billion mark, Congress extended the TSP to include members of the armed services.

Two and a half million members of the military are eligible to participate in the TSP, and a little more than 550,000 have signed up. (Incentive is lower for service members, who receive a separate pension, and therefore the government does not match their contributions to the TSP.)

New contributions account for more than double the TSP's growth from investment earnings. And while there is $100 billion more in the plan, there also are 1.2 million more people with money in it. By contrast, the California Public Employees' Retirement System (CalPERS), which has 1.5 million members and is the richest pension fund in the United States, weighs in at about $235 billion. CalPERS gained twice as much from investment earnings than from new contributions last year, with an overall 2006 rate of return of 15 percent. TIAA-CREF, a private company that runs 401(k)-style programs for academics and nonprofit professionals, also is making double-digit market returns, 11 percent in 2006.

Unlike TSP, CalPERS' participants don't pick their investments, and their payout isn't based on how the market performs. TSP participants pick their investments, putting about a third of their money into the G Fund, a reliable but low-performing government securities fund. It doesn't earn huge returns. "[The G Fund] is such a great investment, let's be honest," Saul said at a December 2005 Board meeting. "It gives you such a great rate at no risk at all. So you'll always have more investors in the money market than you would in other plans."

Lower returns

In 2006, a third of the Thrift Savings Plan money was in the G Fund, with a reliable but low return, dragging down the overall growth from investments. The TSP doesn't calculate an overall rate of return.