MILITARY UPDATE
Thrift Saving Plan drawing more mid-grade enlisted than expected
Military Update focuses on issues affecting pay, benefits and lifestyle of active and retired servicepeople. Its author, Tom Philpott, is a Virginia-based syndicated columnist and freelance writer. He has covered military issues for almost 25 years, including six years as editor of Navy Times. For 17 years he worked as a writer and senior editor for Army Times Publishing Co. Philpott, 49, enlisted in the U.S. Coast Guard in 1973 and served as an information officer from 1974-77.
By Tom Philpott
Military members who joined the federal Thrift Saving Plan are moving their money at a cautious pace from a government bond fund into riskier stock index funds.
Of 225,000 active duty and reserve members who had active TSP accounts in April, 164,000, or 73 percent, still had all of their TSP money in the safest account available, the Government Securities Investment Fund. The G Fund is paying an annualized interest rate of about 5 percent.
The other military TSP enrollees — 61,000 — accepted a little more risk but still stuck to a conservative investment strategy. On average, 34 percent of their money was still in the G Fund and 10 percent in F Fund, a bond market index option. The remainder was spread over the three stock funds: 35 percent in C Fund, an index of large U.S. companies; 15 percent in S Fund, small and medium-sized company stocks; and 6 percent in I Fund, an index of international stocks.
Statistics on early investment choices by military savers were released in May by the Federal Retirement Thrift Investment Board, which administers TSP worth $102 billion for federal civilian employees and now military people. The information surfaced as thousands more service personnel are deciding whether to enroll in TSP during a second open season now under way. It will run through July 31.
TSP savers, military and civilian, will be interested in the record-keeping system improvements that take effect in mid-September, said Tom Trabucco, of the thrift investment board.
Participants will be able to track their investments on a daily basis. They also will be able, daily, to transfer money between funds, a procedure that now takes two to six weeks. Also, loans will be processed quicker.
Under TSP, military savers, including reservists, can divert up to 7 percent of basic pay into a 401K-like plan. There is, however, no matching by employers. Deposits, made through payroll deductions, are invested in one or more of five bond and stock funds. Deposits and earnings are not taxed until the money is withdrawn.
Military users also can shelter from taxes their bonuses and special pay up to maximum ceilings set by law. For 2002, contributions cannot exceed $11,000. The ceiling will rise by $1,000 a year until it hits $15,000.
The 7 percent limit on basic pay deposits also will climb, by a percentage point a year.
In 2006, the year after it reaches 10 percent, the ceiling will be removed entirely. This should make TSP a more attractive savings vehicle particularly for drilling reservists whose basic pay contribution, capped at 7 percent, can be modest.
During the first open season, almost twice as many enlisted people enrolled in TSP as officers. But in proportion to numbers in the force, the officer sign-up rate was much higher. Officers in the grade of O-3, for example, are 3.3 percent of the force but 9.6 percent of TSP participants. O-5s represent 2 percent of the force but 5.7 percent of TSP participants.
But officials said they are delighted by the number of mid-grade enlisted participating in TSP. E-6s, for instance, are only 12.3 percent of the force but 15.6 percent of TSP enrollees. E-5s are 17.7 percent of the force and 17 percent of TSP participants.
"Some people thought this would be a senior officer program. (The statistics) show it's not," said Army Lt. Col. Tom Emswiler, executive director of the Armed Forces Tax Council. "We have excellent participation rates by mid-grade NCOs as well as by officers and senior NCOs." Within the Defense Department, the council has oversight responsibility for TSP.
Junior enlisted personnel, having fewer dollars to save, are under-represented in TSP. E-3s are 14.4 percent of the force but only 5.5 percent of TSP enrollees. This imbalance should ease after the services improve TSP educational efforts, Emswiler said. Detailed brochures have been distributed and more information has been added to the TSP Web site.
"I would like to see youngsters developing a lifelong habit of saving, (say) $100 away each month," Emswiler said. "If they did that for their careers, they would have an awful lot of money when time to retire."
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