Beginning Oct. 1, federal and postal workers will have two new investment options within the government's in-house 401(k) plan, which is now worth more than $95 billion.

The two new funds, the I-fund (international stock index) and the S-fund (small-capitalization), will join the existing C-fund (Standard & Poor's 500 index), F-fund (bond index) and G-fund (Treasury securities).

The question is: Should feds invest in either or both of the new funds?

The answer is clear-cut: Maybe or maybe not.

The two new funds originally were scheduled to debut May 1. But that's been delayed because the new daily valuation system planned for the thrift savings plan needs more testing. When it is fully operational in the fall, feds will be able to invest in the two new funds and to have transactions--such as interfund transfers, hardship withdrawals, loans and the like--processed daily, instead of on a monthly basis. Currently, it can take two to six weeks (depending on when a transaction is requested) for an interfund transfer to take place.

Since the savings plan began more than a dozen years ago, the most dramatic growth has been in the C-fund. The C-fund has had a few bad years and lots of very good years. Some high-income, exclusive C-fund investors have accounts worth $500,000 or more.

Last year, the C-fund returned 20.95 percent. The F-fund lost 0.85 percent. The G-fund return was about 6 percent.

For 1999, the EAFE index, which will be tracked by the new I-fund, returned 26.72 percent. The Wilshire 4500 index, which the S-fund will track, returned an amazing 35.49 percent.

But long-term performance is a different story. From 1988 through 1999, the index that the C-fund tracks had an average annual return of 19.14 percent. The F-fund's index returned 8.26 percent, and the G-fund return was 7.39 percent. For the same period, the index that the I-fund will track returned 8.89 percent, and the S-fund's index returned 17.16 percent.

Actual returns will vary after administrative costs are deducted.

The past performance of indexes and funds is interesting but not necessarily a guide to the future. Most financial planners say people should spread their risk. But how depends on how long you will be investing before you start spending the money (which is not necessarily as soon as you retire), your goals and your personal risk tolerance. If you can't sleep because of your investment decisions, you probably made the wrong decisions.

Millionaire Feds

Because of the federal pay scale, few civil servant have a million dollars by mid-career. But there is hope, though it has nothing to do with pay equity, locality adjustments or any plan to better compensate civil servants.

The feds' new role model is John Carpenter, an Internal Revenue Service employee from Connecticut. He's one of the country's newest and best-known millionaires. He won $1 million on the ABC television show "Who Wants to Be a Millionaire."

As soon as Carpenter hit the big time, quick-thinking folks at the National Treasury Employees Union did a fast check to see whether he was a dues-paying member. Success! He is, and he has been since 1997. The NTEU is the largest independent (non-AFL-CIO) federal union, and it represents many IRS employees.

The NTEU's newspaper did an interview with Carpenter about why he joined the union and why he plans to keep his job. Money is one reason. After, uh, taxes, that $1 million will shrink dramatically. Carpenter told the union newspaper he has to keep his job. "I would be a fool not to," he said. "You can't live on $650,000 anymore." Taxes, you understand.

SEC Rally

Some NTEU members who haven't won $1 million plan to rally in front of the Securities and Exchange Commission at 12:30 p.m. Thursday. They are hoping to prod the agency into allowing a vote on union representation. The NTEU wants a single nationwide bargaining unit. SEC has proposed several bargaining units, contending that field employees may have different interests from headquarters staffers.

Mike Causey's e-mail address is causeym@washpost.com

Sunday, Jan. 16, 2000