Private Accounts – Only Good For The Feds?

americandaily.com
By Charles Cole
(03/17/05)
 

Excerpt:

The battle lines have been drawn on Social Security reform. The President is fighting for the establishment of a personal ownership component to the Social Security system. The Democrats are adamant in their opposition to the “privatization of Social Security” in the form of the creation of “private accounts” as part of the retirement system.

Democrat leaders in Congress now say that they will be glad to sit down with the Republicans and work out meaningful Social Security reforms, but only after the matter of private accounts is taken off the table. A press release by the Minority Leader in the House, Rep. Pelosi (D-CA) stated emphatically that “… private accounts will never provide retirement benefits that are equal to what Social Security provides workers today”, calling such private accounts a “false promise” by the Bush Administration.

How interesting! As a retired federal employee, I happen to know a little about the fed retirement system. Everyone who joined the federal workforce after 1986, including most current members of the House of Representatives and many in the Senate, is covered under a system known as the Federal Employee Retirement System (FERS). This retirement system is comprised of three components: (1) a “basic benefit” plan; (2) a Social Security component; and (3) the Thrift Savings Plan (TSP). The first two are traditional annuity programs which involve employee contributions and, in the case of Social Security, contributions made by the employer – in this case the government (with taxpayer funds).

The key component which Ms. Pelosi, Sen. Reid and their minions are desperate to avoid discussing is the TSP. Here’s why. When a person is hired by the government, a TSP account is set up in that employee’s name. On each federal pay day, the government automatically contributes 1% of the employee’s basic pay into his/her TSP. Employees may, voluntarily, opt to have an amount deducted from their pre-tax gross pay each pay period of up to 15%. Moreover, the government matches the first 3% dollar for dollar, and the next 2% at 50% of the employee contribution.

Now, here’s the dirty little secret. These accounts belong to the employee! Yes, they are private accounts! Employees manage virtually all the features of their accounts, including choosing among five investment funds: (1) a government securities investment (G) fund; (2) a fixed income investment (F) fund; (3) a common stock index investment © fund; (4) a small capitalization stock index investment (S) fund; and (5) an international stock index investment (I) fund. The employee chooses which of the above funds s/he wishes to include in his/her TSP, including the relative amounts of each. For example, one might opt to have 100% of all contributions (employee and government matching) in one fund, or any combination among any or all of the five funds to total 100% of the contributions.