Thrift Savings Plan Guidance for Federal Furlough

Thrift Savings Plan Guidance for Federal Furlough

 

Recently the WSJ posted an article about all the bookkeeping, tax filing, legal, and administrative fees necessary to operate a company’s 401(k) program on behalf of its employees.  This, by the way, is on TOP of the expense ratios charged within the mutual fund investments available inside the Plan.
If you work for a small company, these administrivia fees add up (and NOT in your favor).  Vanguard – the low cost provider of all things investing- estimates these charges as totaling 0.25% in a very large company plan, and 0.58% for a smaller company plan.

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It’s been a busy last  few weeks.

Posts have been a bit light as I’ve spent my efforts on fighting a malware attack on the blog (more about this later).   This focused my time on the administrivia of running the Gubmints blog instead of providing good content.  But don’t worry- There’s plenty more to come.

I’ve been receiving lots of inquiries about how to calculate a Military Service Credit Deposit to ensure proper calculation of the FOUR Service Computation Dates for federal employees.    I decided to model the Gubmints SCD Audit service and pricing similar to the Service Record Audit that Association of the United States Navy (AUSN) provides to its members who are up for a promotion board (I had my service record audited prior to my O-5 board and was very happy with the Navy Service Record Audit provided by AUSN).

For those of you Feds who are Veterans, I’m offering a new service to calculate and/or Audit your Military Service Credit Deposit.  I’ll do this both for veterans with Full Retirement (20+ years Active Duty) or discharged Veterans with a DD-214.

You can find out more about the Military Service Credit Deposit audit service by clicking ‘SCD Audit‘ above in the Navigation Bar.  Feedback is always welcome!



Don't go work for this guy.Mmm- Yeah, I’m gonna have to ask you to save much more for retirement, okay?

Defined-Benefit Pension Programs (like your FERS Annuity and/or Military Retirement Pension) are headed the way of the Dodo Bird.  Here’s a recent example.

The State of California recently illustrated the difficulty of running a Defined-Benefit Pension program.   CALSTRS (the California State Retirement System) is a juggernaut of a pension fund that is designed to support almost 500,000 teachers, state employees, and municipal employees in retirement. Continue reading


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During this past week the Federal Retirement Thrift Savings Board (the people who run the Thrift Savings Plan) made moves to tilt L Funds’  asset allocation away from F Fund and into the G Fund.

Why would they do this?  The TSP is one of the few Qualified Retirement Plans in the nation who actually takes their customers’ needs to heart and acts on their behalf  as a Fiduciary.

According to TSP’s Kim Weaver, “What we’ve determined is given the way interest rates have been remarkably low, we’re going to change some allocations, move it a little bit more to the G fund, a little less on the F fund, a little less on the S fund and a little higher on the I fund.”

The rest of the press releases and interviews with TSP don’t paint the whole picture on the Why’s of dialing-down the F-Fund allocation in all the  TSP L Funds.  Fortunately for all of you, Mr. Allan Roth, CFP has already illustrated this over at ETF.com/AARP with a recent article.

Mr. Roth points out that the Barclay’s Aggregate Bond Fund (the index fund that represents the entire bond market, which is essentially identical to the TSP’s F Fund) is a terrible investment right now.

As of today, the F Fund/AGG index yields 2.01 percent, with a duration of 5.3 years.  Mr Roth’s opinion (which I violently agree with) is that the F Fund/AGG is a ticking time bomb with interest rates at near zero percent.  Look at the Duration of the F Fund – 5.3 years.  This means that if the Fed hikes rates by 1 percent, the F Fund/AGG drop in value by 5.3 percent.  FYI-  This is what Bonds and Bond Index Funds are supposed to prevent- They are supposed to provide Buoyancy to your investment portfolio and prevent you from taking a catastrophic loss.

Here’s what happens to today’s F Fund investment if the Fed hikes interest rates:

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As an alternative to F Fund/AGG, Mr Roth proposes purchasing a 5-year CD and a 10-Year CD, for a blended rate of 2.62 percent and duration of 4.6 years.  The money is government guaranteed (assuming you follow the FDIC single-bank CD investment limit of $250,000 or less)  and you have taken on less ‘interest rate risk’ – the loss you would take if prevailing interest rates rise.  Mr Roth’s strategy is for you to ‘Break’ the 5-year CD if interest rates rise and take the ‘early withdrawal’ penalty.

If this sounds like an elaborate, active-management strategy to hedge your supposedly safe investments from rising interest rates, it is.  As a Fed (or Veteran) participating in TSP, you already have a ready-made investment that does this for you inside the TSP- It’s called the G Fund.

Today’s G Fund rate is 2.00 percent, and the duration is 1 business day (or the time it takes you to make a transfer within the TSP).    The G Fund is a unique animal in that it provides TSP participants the liquidity of a Money Market Fund with the returns of government securities with maturities of 4+ years.  If you can find a product like the G Fund, please point it out to me.  I’ve mentioned here before that the G Fund is the Unicorn of Investing, and I’ve yet to be proven wrong.

Bottom Line:  If you’re invested in the TSP F Fund, or ANY of the TSP L funds (all of which contain some percentage of F Fund, depending on your birthday), I’d recommend ‘rolling your own’ allocation and substituting any current allocation in F Fund to G FundWe can’t have near-zero interest rates forever.

Disclosure: At the time of this article posting I do not own ANY AGG/F Fund and I hold a short position against Long-term Treasury Bonds.

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