WASHINGTON POST
January 29, 2007
Careful Retirement Investing
By Stephen Barr
Page D01
Ah, you federal employees are a cautious bunch -- when it comes to money.
That's a generalization that can be drawn from a recent survey of government employees, retirees and others who participate in the Thrift Savings Plan, a 401(k)-type program where retirement accounts have been established by more than 3.7 million people.
And maybe that cautious streak isn't surprising, given that the government seems to draw a sizable share of workers attracted by promises of job security and a decent pension. Still, the TSP survey reinforces the perception that the government's workforce is a careful crowd.
In the survey, about 29 percent of respondents said they take a "no risk" or "low risk" approach to investing. About 59 percent identified themselves as "moderate risk" and "balanced" investors.
That left 11.6 percent following a "high risk" investment strategy, allocating almost three-quarters of their savings to U.S. and international stock funds.
Comparing government employees against the private sector is difficult, given the array of occupations and compensation practices. Still, the analysis of the survey concluded that federal employees are "more conservative investors than private-sector employees."
Using data collected by the Employee Benefit Research Institute and the Investment Company Institute, the TSP report said, on average, 48 percent of private-sector 401(k) accounts are invested in equity funds and an additional 13 percent in company stocks.
Young workers (under 30) in the private sector, on average, keep about 62 percent of their 401(k) assets in equities and company stock. Young government employees appear more cautious, with only 16 percent saying they take a high-risk approach weighted toward stocks.
Overall, the government survey found, the average TSP account has almost half of its assets invested in a short-term government securities fund, called the G Fund, or in a fixed income bond fund, known as the F Fund.
One explanation for why TSP participants seem to be more conservative investors than private-sector employees may be historical. The G Fund -- Treasury securities with no risk of loss of principal -- was the first TSP fund, started in 1987. It was followed by the bond fund and a large common-stock index fund, called the C Fund, the following year.
The TSP added investment options in 2001 and 2005, but many federal employees have stayed with the original funds. At the end of 2006, 33 percent of TSP assets were in the G Fund and 36 percent in the C Fund.
The survey analysis prepared by the TSP noted that federal employees take great pride in their jobs and may "view the G Fund like private-sector investors view their company's stock."
An alternative explanation, the report said, "may be the high level of participant inertia with a disproportionate share of members not making active investment decisions and instead settling for the default portfolio -- 100 percent G Fund."
The data also suggested that the TSP has a large number of smaller-than-average account balances with a greater concentration of the assets invested in government securities and bonds, the TSP said.
Education about investing, the survey found, is a key to ensuring that federal employees make appropriate choices based on their age and the time they have available to save for retirement.
Employees who had received financial planning advice or reviewed information on the TSP Web site tended to put a greater share of their money into stocks and create more risky asset portfolios, according to the survey.
The survey turned up some troublesome indicators, such as employees who may be underestimating how much income they will need in retirement. More than a quarter either believed they need less than what financial planners generally recommend or could not estimate their retirement needs.
Of the 3,467 TSP members who completed the survey by the Federal Retirement Thrift Investment Board and Watson Wyatt Worldwide, 418 said they were not making contributions from their paychecks. Of the non-contributors, 21 percent said they don't have enough money and 20 percent said they were saving for retirement but not through the TSP.
TSP officials plan a follow-up this year with a larger sample size and said some results, such as those based on age group, should be taken as preliminary.
While government employees are cautious -- in some cases maybe too cautious -- in their investing, the survey shows they are good savers compared to the private sector. Respondents said they save on average 10.5 percent of their income, a contribution rate more than 3 percentage points higher than those seen in typical private-sector plans.
Nearly 11 percent of military personnel and other members of the uniformed services said they contributed 20 percent of their pay or more to the TSP, compared with 3.3 percent of workers in the Federal Employee Retirement System and 1.8 percent of workers covered by the old Civil Service Retirement
