Originally Posted by Nords
Yeah, I bet that TSP is a heckuva recruiting incentive to get people to forsake private enterprise for public service.
I think Clif's question is well put. If the federal govt is capable of finding contractors to administer a tax-deferred fund with rock-bottom expenses and index choices, how hard would it be to make a similar program available for a portion of Social Security payroll taxes... or indeed, for any employee's tax-deferred contributions?
I think we've all seen how capitalism has served the "civilian" 401(k) system. Just about every day we see a post on this board asking whether an employee should hold their nose and invest in their 401(k) for the tax deferral, or just go with a taxable Vanguard index fund.
Nords has it exactly right.
If you asked my to design the perfect saving plan for the 99% of my fellow American who are less financially sophisticated than the board members, I'd be hard press to come up with something better than the current TSP.. I felt this way before they lowered the expense ratio even further.
TSP provides exactly the right choices and the right number of choices not too few not too many. The choices are obvious (e.g I fund international stock S fund Small companies), and have virtually no overlap. If you don't want to do your own AA, target retirement is also available at very low cots. It is easy to transfer money but not so easy to encourage day trading your retirement.
AFAIK, other than various federal government departments providing matching funds I believe the TSP is self-supporting, Federal employees pay all the fees associated with the administration.
The Republican wet dream of transforming social security into private saving accounts, was pretty much doomed once you had the Democrats special interest + AARP pitted against Wall St brokerages. As the plan was sinking to the bottom of the Potomac, President Bush floated one excellent idea, unfortunately the trail balloon never made it to the surface.
In response to the demigogually "no we can not have people bet their retirement on stocks, look at what happens to the stock market a few years ago". He suggested that the folks have the option to invest 2% of their SS funds into a program just like TSP. I suspect that it is virtually impossible for somebody who has regularly contributed to the TSP for 20 year to have not made a lot of money.
Forget the linkage to social security. Why not allow all working American the option to contribute a portion of their salary to TSP? It is not like expanding the $225 billion in the TSP is going to cost existing federal employees any money. Presumably a large asset base would result in even smaller fees. There are already a lot of funds in the (50-100 billion range.)
Now it might upset Wall St firms, but that is part of the idea.
Imagine if 30 something worker looks at his SS statement and see his $20K invest in the TSP L fund get charged $3 in expense, while his 20K in the Merril Lynch Large Cap Growth fund gets charge $300 in expense (i.e. typical 1.5% mutual fee). If TSP L also outperforms the Merril Lynch a bit of pressure might be put on the employeers to make better 401K options.