Long-term relationship

Federal employees have something in common with their counterparts at Enron, the bankrupt energy trading colossus: they both banked retirement savings on their faith in the long-term stability of their employers. Enron employees invested heavily in their company's stock, while federal employees invest heavily in the G Fund, the 401k-style Thrift Savings Plan fund that invests in government securities. But for having faith in their employers, Enron workers met a far different fate than federal workers. After their company filed for bankruptcy in December and the company's stock tumbled, Enron employees lost major portions of their nest eggs. Those who had invested most of their retirement savings in Enron stock lost most of their nest eggs. Federal employees, on the other hand, don't have to worry about the government's collapse (if that happens, they'll have bigger things to worry about than their retirement savings), so those who invest heavily in the G Fund can rest assured that their nest eggs will be there when they retire. Federal employees won't get ridiculously rich investing in the G Fund-it puts up a steady annual return rate of about 6 percent. (In 2001, the annual rate of return was 5.4 percent.) But they also won't wind up ridiculously poor like the heavy Enron investors. That said, all the news in the federal Thrift Savings Plan isn't wine and roses. Statistics for the past year show a mixed bag for TSP participants. TSP investors may face less risk than their counterparts in the private sector, but they still face risk. And while the market's performance over the past two years has hurt TSP investors, they are still showing a lot of interest in putting their money in the investment program. Fund Performance The C Fund, which invests in common stocks and tracks the S&P 500 index, had its worst year ever in 2001, dropping 11.9 percent in value. The TSP's two new investment options also had bad years. The S Fund, which invests in small company stocks, dropped 9 percent and the I Fund, which invests in international stocks, dropped 21.9 percent. The fifth TSP investment option, the F Fund, posted an 8.6 percent annual rate of return for 2001, making it the government's best-performing fund for the second year in a row. The F Fund invests in bonds. The silver lining in the performance of the three stock funds is that they all posted positive returns during the last three months of 2001. Plan Assets At the end of 2000, the TSP held about $100 billion in federal employees' assets, with about $60 billion in the C Fund, $34 billion in the G Fund and $4 billion in the F Fund. A year later, the total assets in the plan still total about $100 billion, with $50 billion in the C Fund, $40 billion in the G Fund, $9 billion in the F Fund, $1 billion in the new S Fund and $300 million in the new I Fund. The changes reflect both declines in the value of the stock market funds and reallocations by participants into the G and F Funds. Participation Rates Federal employees' participation rates in the TSP were steady in 2001, with 86 percent of Federal Employees Retirement System employees contributing money to their TSP accounts. Beginning last summer, new federal employees were allowed to start contributing to the TSP immediately, instead of waiting up to a year to start under a previous rule. Officials weren't sure whether people would actually start contributing immediately, since matching contributions from their agencies still don't start for up to a year. Despite that drawback, 46,000 new TSP participants had opened accounts by December. Those new participants will start receiving agency matching contributions beginning in the last month of the second open season after they were hired. Open seasons run from Nov. 15 to Jan. 31 and from May 15 to July 31. Transfers From Other Plans Another new feature of the TSP in 2001 was the ability to roll over money from previous employers' 401k plans and conduit individual retirement accounts into the Thrift Savings Plan. Federal employees made 3,226 transfers worth a total of $57.9 million as of Wednesday. One reason to transfer money is to consolidate accounts, making it easier for a participant to remember where all his or her money is. Another reason is to take advantage of the TSP's low administrative expenses. Expense ratios for the C, F and G Funds were 6 basis points in 2001. The S and I Funds had expense ratios of 5 basis points for the seven months they existed (they were started up in May). That means that for every $1,000 invested, participants were charged 60 cents for the C, F and G Funds and 50 cents for the S and I Funds. Those expense ratios are well below typical expense ratios in the private sector, according to investment advisors. Interfund Transfers TSP participants can transfer money among the five investment options throughout the year. In December, they continued a more than year-long trend of pulling money out of the C Fund and investing it in other funds. They pulled about $119.4 million out of the C Fund and $112.9 million out of the F Fund in December, putting $86.3 million in the G Fund, $122.4 million in the S Fund and $23.6 million in the I Fund. At the same time, TSP participants continue to put new money into the C Fund. Federal Employees Retirement System employees put 56 percent of their monthly contributions to the TSP in the C Fund, compared to 33 percent in the G Fund, 10 percent in the F Fund and 1 percent or less in the S and I Funds. In May, when the two new funds debuted, the ratio was 62 percent C Fund, 31 percent G Fund, 7 percent F Fund and less than 1 percent in the S and I Funds.