The federal Thrift Savings Plan is to individual Social Security accounts what fashion runway attire is to personal wardrobe: an attractive model, but in the wider world things just don't fit quite the same way.
In his drive to restructure Social Security, President Bush has trotted out the 401(k)-like retirement perk for federal employees as a model for his idea of allowing younger workers to invest some of their Social Security tax contributions in the stock or bond markets.
Francis X. Cavanaugh, a Thrift Savings Plan designer, says of President Bush's proposal: "This has to do with workability . . . and it's not workable."
(Bill O'leary -- The Washington Post)
"Personal retirement accounts should be familiar to federal employees because you already have something similar called the Thrift Savings Plan, which lets workers deposit a portion of their paychecks into any of five different broadly based investment funds," Bush said in his State of the Union address. "It's time to extend the same security and choice and ownership to young Americans."
But Bush's proposed accounts differ substantially from the 19-year-old TSP. Moreover, they would be much more difficult to run than the TSP and have far higher administrative costs than the president and his supporters let on, some experts say.
"It's a non-starter," said Francis X. Cavanaugh, a designer of the TSP who from 1986 to 1994 was the first executive director of the Federal Retirement Thrift Investment Board, which administers the plan. "There's no way they can do this without an enormous federal subsidy. . . . This has to do with workability, no matter how one feels about it philosophically, and it's not workable."
Congress created the TSP in 1986, providing federal employees a new opportunity to build retirement income by letting them salt away part of each paycheck in an array of investment funds on a favorable tax basis.
Participants seem to like it. As of January, more than 3.4 million of them had invested more than $151 billion in the five available funds. Choices range from relatively safe U.S. Treasury securities to more risky, but potentially more lucrative, investments such as the stocks of small companies. Returns last year ranged from just over 4 percent to 20 percent.
Last year, participants paid about 57 cents in administrative fees for every $1,000 invested, far less than the $5 to $15 per $1,000 invested typically charged by many private 401(k) plans, said Gary A. Amelio, the thrift board's executive director.
"The TSP is an incredibly valuable and attractive benefit to any federal employee or prospective employee," he said. "It offers world-class investment vehicles . . . to these employees at the lowest cost known in the investment world."
Tom Ressler, an Air Force veteran who took a job last year as an accountant with U.S. Customs and Border Protection in Indianapolis, said, "I don't think it influenced my decision to join the government, but it's certainly a benefit that I consider important for keeping me in."
Under Bush's proposal, as many as 118 million workers younger than 55 would be able to divert a share of their Social Security taxes into a few relatively safe, government-supervised investment funds. But most similarities with the TSP end there, experts say.
For most federal employees, the TSP serves as one leg of a "three-legged stool" of retirement income; the other two are the traditional Social Security benefit and a government pension. But because many businesses no longer offer defined-benefit pensions, many employees in the private sector have only a two-legged stool -- their 401(k) plan plus Social Security.
The money that workers divert to Bush's personal accounts, plus 3 percent interest, would come out of their guaranteed Social Security benefit. So, in effect, the president would be shaving down one of the legs and hoping that a new one -- the individual account -- would grow at least enough to compensate for the loss.
"It's not really like TSP at all," said James Sauber, chairman of the Employee Thrift Advisory Council, a 15-member panel of representatives from federal labor and managerial organizations. "He's proposing to weaken one leg of the stool to fund another leg of the stool."