imported post
As I suspected, the TSP was not really affected by the mutual fund problem. Check out the last paragraph.:?
THE WASHINGTON POST
March 2, 2004
Thrift Savings Plan Immune to Problems Afflicting Mutual Fund Industry, Panel Finds
By Stephen Barr
Page B02
The Thrift Savings Plan is a great bargain.
That was the consensus at a hearing yesterday chaired by Sen. Peter Fitzgerald (R-Ill.), who, as chairman of a Senate Governmental Affairs subcommittee, has been probing hidden and excessive fees in the mutual fund industry.
Last year, the TSP operated with an expense ratio of 11 basis points, or a charge of 11 cents per $100 invested by participants, Fitzgerald said.
Only TSP participants -- government workers, government retirees, members of Congress and congressional staff -- get such low-cost access to stocks, bonds and securities, Fitzgerald said.
That means they may reap higher returns for their retirement than comparable private-sector workers, he said. "I don't think that is fair," Fitzgerald said, suggesting that TSP could be used as a model to provide enhanced retirement savings opportunities for workers in the private sector. (TSP, a 401(k)-type program, offers four index funds -- three stock and one bond -- and a government securities fund that never loses.)
Fitzgerald said data collected by Lipper Services show that comparable index funds in the private sector have an average expense ratio of 63 basis points, or 63 cents per $100 invested. Most mutual funds do not include the cost of transactions in their expense ratios, but the TSP does, Fitzgerald added.
Expense ratios are used to measure a plan's overhead costs, management and advisory fees and transaction costs as a percentage of total assets. The charge to investors may seem small (a basis point is one 100th of a percentage point; 100 basis points equal 1 percentage point). But Fitzgerald said industry projections show that charging investors a single percentage point over 30 years can eat into a nest egg by as much as 35 percent.
Andrew M. Saul, chairman of the Federal Retirement Thrift Investment Board, which oversees the TSP, pegged the actual cost to participants at 10 basis points for 2003, saying that 1 basis point was offset by funds that were forfeited by some account holders.
He called the 2003 charges "unusually high" because TSP participants took a $36 million loss on a failed computer project, which cost them about 3 basis points. Saul predicted that the TSP would rebound in 2005, dropping the cost to participants as low as 6 basis points.
Yesterday's hearing was part of a series being held by Fitzgerald, who has been investigating abuses in the mutual fund industry, such as market timing, late trading and hidden fees charged to investors. Fitzgerald said TSP "does not suffer, nor is it vulnerable" to such abuses.
"Based on the information known to me," Fitzgerald said, "TSP participants do not need to worry about many of the problems plaguing the mutual fund industry. . . . Nor do participants need to worry about an incestuous board of directors that is beset with conflicts of interest. TSP board members are completely independent and required by law to act solely in the interests of plan participants and beneficiaries."
Among those called to testify were Blake R. Grossman, a top official at Barclays Global Investors, which holds the contract to manage TSP's stock and bond funds, and Alan D. Lebowitz, a senior official at the Labor Department, which audits TSP operations.
Grossman said Barclays has reviewed such issues as late trading and market timing and found no areas "of significant concern" in its operations. Lebowitz said a preliminary review suggests that TSP participants are insulated from such problems.
TSP last year shifted its record-keeping functions to a new computer system. It calculates the value of accounts on a daily, rather than monthly, basis, and allows participants to use the Internet to view account balances and transactions.
Gary A. Amelio, the TSP board's executive director, testified that his staff has looked at whether the conversion to a daily plan encouraged federal employees to become so-called day traders, but "discovered no issues of concern."
Only 146 participants (of the plan's 3.2 million members) have traded more frequently than twice a week, Amelio said. "Interestingly, some of these traders held fewer shares at the end of the trading period -- in other words, they lost money," he said.
TSPtalk comment:
I don't know how these traders "held fewer shares". When you lose money it's because the share price goes down. :shock:
As I suspected, the TSP was not really affected by the mutual fund problem. Check out the last paragraph.:?
THE WASHINGTON POST
March 2, 2004
Thrift Savings Plan Immune to Problems Afflicting Mutual Fund Industry, Panel Finds
By Stephen Barr
Page B02
The Thrift Savings Plan is a great bargain.
That was the consensus at a hearing yesterday chaired by Sen. Peter Fitzgerald (R-Ill.), who, as chairman of a Senate Governmental Affairs subcommittee, has been probing hidden and excessive fees in the mutual fund industry.
Last year, the TSP operated with an expense ratio of 11 basis points, or a charge of 11 cents per $100 invested by participants, Fitzgerald said.
Only TSP participants -- government workers, government retirees, members of Congress and congressional staff -- get such low-cost access to stocks, bonds and securities, Fitzgerald said.
That means they may reap higher returns for their retirement than comparable private-sector workers, he said. "I don't think that is fair," Fitzgerald said, suggesting that TSP could be used as a model to provide enhanced retirement savings opportunities for workers in the private sector. (TSP, a 401(k)-type program, offers four index funds -- three stock and one bond -- and a government securities fund that never loses.)
Fitzgerald said data collected by Lipper Services show that comparable index funds in the private sector have an average expense ratio of 63 basis points, or 63 cents per $100 invested. Most mutual funds do not include the cost of transactions in their expense ratios, but the TSP does, Fitzgerald added.
Expense ratios are used to measure a plan's overhead costs, management and advisory fees and transaction costs as a percentage of total assets. The charge to investors may seem small (a basis point is one 100th of a percentage point; 100 basis points equal 1 percentage point). But Fitzgerald said industry projections show that charging investors a single percentage point over 30 years can eat into a nest egg by as much as 35 percent.
Andrew M. Saul, chairman of the Federal Retirement Thrift Investment Board, which oversees the TSP, pegged the actual cost to participants at 10 basis points for 2003, saying that 1 basis point was offset by funds that were forfeited by some account holders.
He called the 2003 charges "unusually high" because TSP participants took a $36 million loss on a failed computer project, which cost them about 3 basis points. Saul predicted that the TSP would rebound in 2005, dropping the cost to participants as low as 6 basis points.
Yesterday's hearing was part of a series being held by Fitzgerald, who has been investigating abuses in the mutual fund industry, such as market timing, late trading and hidden fees charged to investors. Fitzgerald said TSP "does not suffer, nor is it vulnerable" to such abuses.
"Based on the information known to me," Fitzgerald said, "TSP participants do not need to worry about many of the problems plaguing the mutual fund industry. . . . Nor do participants need to worry about an incestuous board of directors that is beset with conflicts of interest. TSP board members are completely independent and required by law to act solely in the interests of plan participants and beneficiaries."
Among those called to testify were Blake R. Grossman, a top official at Barclays Global Investors, which holds the contract to manage TSP's stock and bond funds, and Alan D. Lebowitz, a senior official at the Labor Department, which audits TSP operations.
Grossman said Barclays has reviewed such issues as late trading and market timing and found no areas "of significant concern" in its operations. Lebowitz said a preliminary review suggests that TSP participants are insulated from such problems.
TSP last year shifted its record-keeping functions to a new computer system. It calculates the value of accounts on a daily, rather than monthly, basis, and allows participants to use the Internet to view account balances and transactions.
Gary A. Amelio, the TSP board's executive director, testified that his staff has looked at whether the conversion to a daily plan encouraged federal employees to become so-called day traders, but "discovered no issues of concern."
Only 146 participants (of the plan's 3.2 million members) have traded more frequently than twice a week, Amelio said. "Interestingly, some of these traders held fewer shares at the end of the trading period -- in other words, they lost money," he said.
TSPtalk comment:
I don't know how these traders "held fewer shares". When you lose money it's because the share price goes down. :shock:
