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Who's the $4 million fed?
Wednesday - 2/1/2012, 2:00am EST
Thanks largely to outside financial transfusions , there are now 208 federal workers who belong to the Thrift Savings Plan's millionaire's club. That's up from 170 feds who had $1 million-plus TSP balances just before Christmas.
The average account balance for the millionaires is $1.2 million. That compares to the average account balance for the total 4.5 million account holders — just over $81,000 for both FERS and CSRS investors.
Oh, and there is one person whose TSP balance exceeds $4 million.
But before you organize a march on Washington or vote to freeze federal pay for yet another year, be advised that the people with these extraordinary accounts aren't your ordinary civil servants. The TSP millionaires don't include any letter carriers, IRS auditors, Social Security claims processors nor any feds who guard the border, regulate drugs, build space ships or direct air traffic. In fact they don't include many career civil servants.
While most of the big-bucks TSP accounts were swollen by rollovers from the individuals private sector 401(k) or retirement account, a handful of feds at the higher paying Senior Executive Service levels did it the hard way: By steady investing and having, at times, nerves of steel.
Back in April 2010 we heard from one self-made TSP millionaire who did it his way. Here's what he had to say:
"I retired in the middle of 2009. I began investing in the TSP in 1987. At the end of that year, I had a balance of $2,009, all in the G fund. Back in those days, you were REQUIRED to put most of your money in the G or F fund. You could put only a small percentage of your TSP money in the C fund (I think it was 10 percent at first; the cap grew every year and finally was removed altogether.) I invested the maximum percentage in the C fund, when the percentage cap was lifted, put 100 pecent in the C fund, or later, also in the S and I funds. I put no money in the G or F funds, except in the early years when you were required to put money there.
"I would be curious about how many of the 75 people with balances over $1 million got their balances that high without the benefit of rollovers. Without any rollover, my TSP balance reached $1.23 million by the end of 2006, $1.37 million at the end of 2007. It fell to $660,000 at the end of 2008, but grew to $887,000 by the end of 2009, and is currently just a shade short of $1 million.
"Granted, I was able to invest more than many employees because of my SES salary. But I did not roll over any money into the TSP plan. I attribute the size of my TSP balance to A) putting the maximum contribution into my account throughout my career, and B) except for the early years when I was required to put money in the G or F fund, putting all my contributions in the C, S, and I funds, whereas it appears from your article that federal employees invest most of their money in the safe-but-low-return G fund.
"I think that the majority of federal employees are missing out on a great opportunity by failing to put more money in the funds (C, S, I) that over time pay the highest returns. Sure, there is more risk. I lost almost half in 2008, and high percentages in some other years. But overall, growth was very good, and I am glad that I pursued the strategy of putting my money in the 'risky' C, S, and I funds.
"I also think that federal employees usually fail to see what a great deal FERS is." The Millionaire
Virtually all of the TSP millionaires — many of them federal judges or political appointees — made their big bucks in the private sector and moved money from outside accounts into the TSP which offers the lowest administrative fees in the business and the safety of the G-fund made up of special U.S. Treasury securities.
The millionaires' club could also include members of Congress, some of whom made their money before going into politics, some who married well and others we now learn who prospered in the investing world thanks to what many consider insider-information.
Your Turn — follow your money
Today at 10 a.m. EST on our Your Turn radio show, Tom Trabucco, director of external affairs for the TSP board talks about how the world's largest 401(k)-style plan is doing. At 10:30 a.m. Federal Times senior writer Stephen Losey will talk about today's pay freeze vote and that well-timed CBO report federal salaries. If you have questions or comments, please email me at email@example.com