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Thrifty at the Thrift Plan
Thrift Savings Plan officials may lower the average cost assessed to investors, thanks to budget savings in fiscal 2004.
During a Monday meeting of the Federal Retirement Thrift Investment Board, Gary Amelio, TSP executive director, announced that the plan is on track to finish fiscal 2004 almost $4 million under budget. The Thrift board approved a $106.9 million for fiscal 2004, and the plan is projected to spend $103.2 million.
Amelio said the "incredible" savings were a result of "good management" and a reduction in the number of paper statements that are mailed to participants. Of the 3.2 million federal employees and retirees who participate in the plan, only 400,000 still receive paper statements. The rest receive their account information over the Internet.
With lower expenditures on the horizon, TSP officials said Monday that they are hoping to lower the "basis points" that the plan charges its participants. Basis points represent the average cost for investors. This year, the TSP is charging participants 11 basis points, or 11 cents for every $100 invested. That is high for the TSP, primarily because of the cost of a bungled computer modernization contract. The plan usually charges about 7 basis points. In a hearing last month, Sen. Peter Fitzgerald, R-Ill., said a comparable index fund in the private sector has an expense ratio of 63 basis points.
As the overall value of the TSP rises and the costs go down, the basis points for the TSP participants are expected to drop even further.
"I would love to get that number down to 6 basis points in the next two years," Amelio said.
Andrew Saul, the chairman of the Thrift board, applauded the savings, but said it was important to focus on quality.
"The priority still has got to be running a first-notch plan," he said.
TSP officials also are excited about saving more money in the fiscal 2005 budget, which is currently expected to be a little more than $91 million. Staff members said they might have to adjust that number slightly as they learn more about technology upgrades and the launch of the "life cycle" investment option.
"I'm hopeful not to take that number too much higher," Amelio said.
COMMENTS
- Mr A is amazing. He attributes the spending of less than budget as a good thing that reflects good management. I think it reflect poor management! The fact that the budget could not correctly account for lower exenses because participants took electronic statements is poor management. The cost should not be based on the size of the investment, it should be a fixed dollar amount! The costs to the fund do not vary with investment size. Statements cost the same to produce for accounts of $100 as for accounts of $1,000,000. Likewise, the costs to invest the funds depend upon the number of transactions and very little on the size of the transactions. Finally, setting up and adminbistering a loan is much more costly than an investment. Mr A youy need to manage, particularly for the 11 basis points you charge for my money! 1. Get rid of the 11 basis point charge and charge only 2 basis points for the investment dollars. 2. Charge $300 for a loan application and 50 basis points on the outstanding balance of the loan during its life. We should not be subsidizing borrowers in the thrift plan - borrowing is not thrift! 3. Charge every account $35 per paper statement. Charge each account an annual fee of $100 and $5 per transaction. A transaction would be defined as each contribution, each transfer between accounts, withdrawal from the account for any reason, and any other change to the account (beneficiaries, etc). Charge the government for their contributions as transactions. 4. Provide statements every six months by paper. There is a far far better way to charge for the services of the thrift savings plan. What private industry does is not the example for the government program to follow because the private sector is out to maximize its return on investment. plan participant Posted April 29, 2004 6:48 AM
- I would just as soon have the Teamsters managing the Thrift Savings Plan. Does anybody have their toll free line? Me at Home on My Computer A TSP Participant GovExec.com reader Posted April 22, 2004 8:24 PM
