The good ol' G Fund

The C Fund's five-year reign as king of the 401k-style Thrift Savings Plan ended last month. The G Fund regained the TSP throne.

The darling of federal employees' retirement nest eggs in the late 1990s, the C Fund is the TSP fund that invests in common stocks of major corporations. In 1997, it surpassed the G Fund (and the F Fund) as the largest of the three funds in the TSP. The G Fund invests in government securities and the F Fund invests in bonds.

At the end of 1997, the C Fund carried $29.9 billion of federal employees' retirement money, compared to $25.2 billion in the G Fund and $3.0 billion in the F Fund. Up until then, the G Fund had dominated the TSP for a decade. The C Fund soared through the next four years, its value rising to $59.5 billion by the end of 2000, compared to $33.7 billion in the G Fund and $4.4 billion in the F Fund.

The G Fund never loses money, but it also never posts major gains like the C Fund had during the late 1990s. But with the stock market's decline over the past two years, federal employees have turned cold on the C Fund. Over the last 12 months, the C Fund has fallen 23.6 percent. The G Fund, in comparison, has gained 5.3 percent in the past year.

For the 80 percent of employees in the Federal Employees Retirement System who invest outside the G Fund, 48 percent of their account balances for July were in the C Fund, down from 56 percent in January. More of their account balances now reside in the G Fund (up to 37 percent from 33 percent) and the F Fund (up to 12 percent from 10 percent). They also have a bit more money invested in the two funds that debuted in May 2001: the I Fund (international stocks), which holds 2 percent of account balances; and the S Fund (small- and medium-sized stocks), which has 1 percent.

Employees are also transferring previously invested money out of the C Fund and into the G Fund and F Fund. In July, federal employees yanked $1.3 billion out of the C Fund and moved $879 million into the G Fund and $502 million into the F Fund.

So in July, the G Fund's value surpassed the C Fund's value. The G Fund now carries $45.5 billion of federal employees' money, compared to $40.4 billion in the C Fund.

Long-Term Hope

Despite the C Fund's downturn, it's worth noting that employees are still investing more of their monthly contributions in the C Fund than in either the F Fund or G Fund.

Financial experts often instruct investors to avoid timing the market, since money pulled out of the stock market during down times won't realize increases when the market starts rising again. At the same time, experts urge investors who are nearing retirement to protect their investments, and moving money from the C Fund to the G Fund is one way to do that.

New Computer System

TSP officials say a new computer system for the program is still on track for a Sept. 16 roll-out. Under the new system, TSP investments will be made daily, as are most private sector 401k investments. Currently, TSP investments are made monthly. TSP participants will also be able to shift their investments among the five funds more frequently.

Because the new system is about to be installed, participants who want to move their investments among the five funds should do so online or by phone by midnight Central Time on Thursday. No electronic transactions will be processed from Aug. 16 to Sept. 15. Paper requests submitted over the next month will be held until Sept. 16. The deadline for loan agreements and withdrawal requests is Aug. 23. Any such requests made after Aug. 23 will be held until Sept. 16 as well.

If the new system is actually launched on Sept. 16, it will be the culmination of a long modernization saga. The TSP board originally hired Fairfax, Va.-based American Management Systems to modernize the system, but after four years and $50 million, the TSP board cancelled its contract with AMS and hired Materials, Communication & Computers Inc. (MATCOM), of Alexandria, Va., to complete the system by this September for $22 million. AMS and the TSP board are locked in a long court battle over the canceled contract.

A TSP spokesman said the new contract is still within budget.

Catch-Up Contributions

Federal employees over age 50 will have to wait until at least next year before they can start making larger contributions to their TSP accounts.

Rep. Connie Morella, R-Md., and her staff are trying to get a bill passed that would allow feds over the age of 50 to put an extra $1,000 in their retirement nest eggs this year. Next year, they would be able to put in an extra $2,000.

It's looking more and more likely that the bill (H.R. 3340 in the House and S. 1822 in the Senate) will pass, but, at this point in the year, that won't be in time for the TSP board to publish regulations implementing the so-called catch-up contribution rule.

For more on the proposal, see the June 13 Pay and Benefits Watch.