Nested Interest

Like many Americans, Bruce Krejmas knew something ugly was brewing in the economy in 2007. He decided it was time to put his retirement savings someplace safe.

So Krejmas, who works for the U.S. Geological Survey in Eastern Pennsylvania, shifted most of the money in his Thrift Savings Plan account to the G Fund, a pool of government securities that has long been a pillar of the TSP. While private mutual funds and riskier TSP stock funds plunged at the end of 2008, the G Fund held steady. Krejmas wasn't alone-during 2008, TSP enrollees transferred nearly $20 billion into the G Fund, and its share of total contributions rose by 10 percent.

"I got out about two years ago," he says. "The whole thing was going downhill. I've been sitting on the sidelines." That, Krejmas admits, means he also missed out on the rebound in the TSP's stock funds during the first half of 2009. "The timing was good on getting out. The timing wasn't good on getting back in. I guess I should be thankful," he adds.

A conservative philosophy got Krejmas through the recession, but he wouldn't mind seeing the TSP continue its trend of providing greater freedom for investors to profit during boom times. "I guess it depends on what the fees would be," he says. "I'd like to see something more than an index-aggressive growth."

With the passage in June of a tobacco regulation bill (H.R. 1256) that included several measures affecting federal employees, Krejmas' wish is a step closer to coming true. The House bill included sweeping changes to the Thrift Savings Plan, including a new Roth IRA feature, spousal accounts to ensure that survivors of TSP enrollees can maintain their funds, and an automatic enrollment provision that is expected to swell the ranks of plan participants. But the bill's most controversial reform was a measure allowing-but not requiring-the TSP's governing body to create a means for participants to put part of their investments in mutual funds.

For now, the members of that governing body, the Federal Retirement Thrift Investment Board, aren't in any hurry to act on their authority. Citing concerns from, among others, the Employee Thrift Advisory Council, which represents participants, administrators have said they will not take action on the option just yet.

In the meantime, the debate simmers over whether mutual funds and the TSP are a good match. Not everyone agrees with Krejmas. For many TSP holders, the current formula is a model of simplicity and ease. The philosophy of the plan-low overhead costs; simple options; and passive investments that seek to track, not beat, the market-makes it a relatively simple and safe way for people to put away money for retirement.

"It's a pretty smart investment," says Madalene Ransom, who works for the Agriculture Department in Greensboro, N.C. She remembers hearing a National Public Radio segment not long ago in which commentators noted that the TSP outperformed many private sector funds. "That's partly because the participants get most of the benefits, not the CEO and the administrator," Ransom says. "That meant a lot to me."

Ransom's TSP account took a hit last year, forcing her to put off retirement. But she doesn't regret keeping her money in the plan. Rather, she's grateful her account lost less than the market overall. She's an economist, but admits she's no expert on personal finance. The TSP's simplicity is, to her, one of its biggest selling points.

Surveys have shown plan participants are ambivalent about the idea of a mutual fund option. In a 2006 survey of enrollees conducted by the TSP Board, 46 percent of respondents said they agreed with the statement: "The TSP would be a better program if it offered a wider selection of investment options."

But in a similar survey conducted last year, only 39 percent of respondents said they thought a mutual fund option would make the TSP better. Just 24 percent said they would invest in mutual funds-and the figure dropped to 10 percent when a hypothetical $100 fee was added. Half the respondents said they would have to seek professional advice before taking advantage of such an option.

"I don't get the sense that there's a lot of organic demand for this," says Jim Sauber, chief of staff of the National Association of Letter Carriers and chairman of the Employee Thrift Advisory Council. He says he's received few inquiries from federal employees about the issue. Daniel Adcock, legislative director for the National Active and Retired Federal Employees Association, said the same, as did TSP External Affairs Director Tom Trabucco.

So how did the issue get on Congress' radar screen? The answer is rooted in the history of the TSP.

In the Oct. 1 issue of Government Executive, Alex Parker examines the debate over adding a mutual fund option to the TSP. Click here to read the full story.