Congress has the best plan!

L1: Congress has the best plan!Why is the Federal Thrift Savings plan operated internally at extremely low cost when the vast majority of these Defined Contribution plans are farmed out to the Broker/Dealer community at astonishingly much higher cost? The TSP charges 4 basis points or $40 to manage $100,000. What does the average broker/dealer mutual fund charge? Maybe some one would like to post the answer. In any event here is a link to an article that ranks the FTSP as the best 401(k) type plan on the block: http://washingtontimes.com/national/20070129-111403-2668r.htm2007-02-01 18:08, By: Joel L. Frank, IP: [24.187.32.203]
L2: Congress has the best plan!The cost to employees is very low, but that does not mean that the entire plan is operated at peak efficiency. The answer is that you and I, the taxpayers pick up the rest of the cost, just as we do for all public employee retirement plans at every level of government. Obviously, private sector plans do not have the taxpayers to fall back on. 2007-02-01 18:45, By: Alan S., IP: [24.116.66.98]

L2: Congress has the best plan!Allen: Your understanding of who pays the costs is wrong. The following comes from the FTSP website:
Do I pay administrative expenses to cover TSP operating costs?
Yes. Major administrative expenses of the TSP include the operating and development costs of the record keeper”s computer system, the operations of the TSP Service Office, and the printing and mailing of publications and participant statements.
Two sources of funds are used to cover the expenses of the TSP. The first source is forfeitures of any nonvested Agency Automatic (1%) Contributions. FERS employees who leave Federal service before they are vested in the TSP forfeit the Agency Automatic (1%) Contributions and attributable earnings on those contributions. (See “What does “vesting” mean?”.)
The second source of funds is earnings on participants” accounts. Because forfeitures are not sufficient to pay all expenses, a portion of earnings is used to pay the balance of administrative expenses. Administrative expenses, after forfeitures, are deducted from the earnings of the G, F, C, S, and I Funds in proportion to the size of those funds. Investment management fees of the F, C, S, and I Funds are borne exclusively by the participants investing in those funds. (See “How are earnings allocated to my account?”.) Information on TSP expenses is provided in the annual audited financial statements of the TSP, which are posted on this Web site each May.
The administrative expenses associated with the L Funds are those associated with the underlying G, F, C, S, and I Funds, calculated in proportion to their allocations in each L Fund. The L Funds do not have any additional charges.
Your share of TSP net administrative expenses is based on the size of your account balance. For example, the G Fund expense ratio was .06 percent in 2004. This means that in 2004, earnings in the G Fund were reduced approximately $.60 for every $1,000 of G Fund account balance. Click for additional information about the expense ratios for the TSP funds.

2007-02-02 06:18, By: Joel L. Frank, IP: [24.148.85.129]

L2: Congress has the best plan!Joel:
I don”t understand the motivation behind asking your question and then posting your own answer while slamming Alan. However, I agree with Alan’s comments and that he has the most complete and accurate answer to your question.While your cut-n-paste۝ does contain information from the TSP site, and your Washington Times article is informative, you have not presented the whole story. Let me elaborate.
1. Administrative fees charged by a 401(k) plan are determined in part by the number of participants. The more participants you have the cheaper the fees, and the smaller the plan the higher the fees. Costs have to be covered.
2. Here”s a cut-n-paste from the Washington Times article you used. Senators, political appointees, CIA agents, astronauts, postal workers, generals, admirals and privates are part of the TSP. Active-duty personnel and federal and military retirees hold more than 3.7 million accounts. How many private sector employers can boast having a plan with 3.7 million accounts? Like I said in #1, the more the participants the cheaper it is to operate.
3. Now for the “hidden costs” that you and I pay for, which is what Alan was addressing. Each agency, such as DOD, CIA, USPS, CDC, etc, haspersonnel offices which handle personnel matters, including TSP issues. In fact, most agencies have established dedicated TSP units that only work with their employees on TSP issues, which can amount to thousands of individuals at one location. I”m not going to try listing the positions of people who deal with TSP matters because the list would be huge. But the point is … and this is really where Alan got it right and you got it dead wrong … taxpayers pay the salaries for these Civil Servants who provide a necessary administrative function. While the stated fees for administrating TSP are small, as listed on the web site, this is not a complete disclosure because it doesn”t take into account the thousands of Civil Service employees who are paid from agency budgets (translate “taxpayers foot the bill”) and not from TSP operations.
4. As to the issue of Brokers / Advisors earning commissions or fees from company 401(k) plans, what”s wrong with this arrangement? Large corporations with thousands (not millions) of employee accounts typically use an advisor firm toput together Requests for Proposals (RFPs) for custodians to “bid” on providing their K-plan. The winning custodian doesn”t only provide index investments, like TSP has, but usually company stock. They also provide Government mandated educational information for the employees to (hopefully) understand what their investment choices are and supposedly how to put together a workable investment portfolio. Typically the introducing Broker / Advisor will earn a very small percentage of the total funds in these large plans. Smaller companies rely on local Brokers / Advisors to help select the right plan and work with their employees on an individual basis (not just sending them to a web site and leaving them to their own devices) to develop good investment choices. Done right _ and I’m not saying all are done right _ the Broker / Advisor will spend many hours working with the employees, who have no clue about investing, over the years so they have a good plan. In this arrangement the costs are higher because more time is necessary for a well run plan. If you were providing a necessary advisory service wouldn’t you expect to be fairly compensated for your efforts? Finally, most small companies wouldn’t even think about or know how to provide a good retirement plan for their employees unless a Broker / Advisor approached them about the subject. Isn’t it better to have a plan than not have a plan?
In closing, TSP has cheap fees but the whole plan is in fact subsidized by taxpayers. Commercial plans, regardless of size, have costs that must be borne by the participants / employees, and these costs are higher than TSP.
Hang in there, Alan.
Jim2007-02-05 08:53, By: Jim, IP: [70.184.2.72]

L2: Congress has the best plan!Jim,
I never expected my short post to provoke such a long and emotional reply. In the interest of full disclosure I am not a licensed securities salesperson. Are you?
The Times, a B/D friendly newspaper published the story not I. Could it be that The Times recognizes that the plan participant is much better served when the extra fees associated with a Broker/Dealerinvestment menu is redirected to grow the employee”s investment account rather than used as a profit center for the B/D? I believe The Times knows it is as simple as that!
In your desire to post up your reply you inadvertently forgoet to tell us the average expense ratio of a B/D mutual fund. Please do so. Moreover, you assert that there are three sources of funds used to pay the operating costs of the FTSP when their own website describes just two. You assert the third source comes from the taxpayer. Please provide documentation.
Peace and hope,
Joel L. Frank2007-02-06 10:00, By: Joel L. Frank, IP: [24.187.32.203]