Young and old feds alike struggle with financial choices

When it comes to retirement savings and other benefits, federal employees have better options than many in the private sector. But feds may not know how to take advantage of them.

Younger employees are less likely to take an active role in saving for retirement, for example. On the other end, feds close to retirement may be too hasty in pulling their savings out of the Thrift Savings Plan as soon as they box up their things and turn in their office keys.

Those were some of the concerns raised by Greg Long, executive director of the Federal Retirement Thrift Investment Board, which operates the TSP. He spoke at a meeting Wednesday of the Financial Literacy and Education Commission at the Treasury Department.

Federal employees in their twenties are more likely to invest in the Thrift Savings Plan than their older colleagues, a surprising fact that would have seemed impossible just five years ago. Long credits the bump to a recent law that automatically enrolls new federal employees in the TSP.

But, he said, there’s a down side to that automatic enrollment. Younger federal employees invest in the TSP at a low rate. About 25 percent of participants put in less than 5 percent of their paychecks, meaning they are not getting the full employer match. In addition, six out of 10 young federal employees keep their money in the G Fund, which Long described as a “supersafe” option that is not a good choice for people with 40 years to go until retirement.

Congress could offer some help when lawmakers return to Washington. The House and Senate have passed separate versions of a bill that would let the board make age-appropriate asset allocations the default option, rather than the G Fund, Long said.

Agencies trying to boost financial literacy

The 21 agencies that form the commission have developed strategic plans to help employees learn about managing their finances throughout their careers. Representatives of three agencies — the Social Security Administration, the Consumer Financial Protection Bureau and the Agriculture Department — said they had tackled the issue by adding online training programs, bolstering orientation programs, and bringing in outside experts to hold seminars.

But those group efforts may not be as effective as one-on-one financial coaching, said Richard Cordray, director of the Consumer Financial Protection Bureau. Federal benefits officers cannot offer financial advice. But there should be some sort of personalized option, he said.

“We don’t want to be inappropriate, but we also don’t want to be ineffective,” he said.

“If people don’t get [the financial education] from neutral folks, they will get it from people who are trying to sell them things,” he said.

But reaching those early in their careers remains a challenge for a good reason, said Caroline Crocoll, director of the division of family and consumer sciences at the Agriculture Department’s National Institute of Food and Agriculture, one of the federal offices held up as a model for financial literacy.

“It is not on folks’ radars when they’re younger,” she said, adding that she tries to talk with her son about retirement.

“He says, ‘Mom, we live in the D.C. metro area. I’m just trying to survive.'”

Worries about older feds too

The Federal Retirement Thrift Investment Board is also focused on problems with federal employees at the other end of the age spectrum, Long said. It recently tracked everyone who retired from the government in 2012. About 45 percent of them had withdrawn all of their savings by the end of 2013.

“People are taking the money out primarily because they need it,” Long said. “But we’re also concerned that they’re moving their money to different financial vehicles, such as IRAs. We want to make sure they do that with their eyes wide open because IRAs are almost always dramatically more expensive than the TSP.”

Companies selling those IRAs and other financial vehicles are approaching TSP participants, he said. The data shows, their sales pitches are working.

To keep retirees’ business, the board is trying to strengthen its relationships with federal employees. It is “looking at revamping” its network of 700 customer service representatives. In the future, Long said, they could be more proactive, offering guidance and counseling rather than simply helping participants make transactions.

“The private sector is ahead of us in this regard. They are using their phone teams as relationship drivers,” he said. “We’re not there yet.” The change will require some internal decisions and more resources, he said. The board will release more findings from its research at its November meeting.

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THRIFT SAVINGS PLAN TICKER

Jan 19, 2022 Close Change YTD*
L Income 23.2370 -0.0418 5.42%
L 2025 12.0123 -0.0416 9.75%
L 2030 42.4100 -0.2089 12.37%
L 2035 12.7366 -0.069 13.43%
L 2040 48.2006 -0.2854 14.51%
L 2045 13.2007 -0.0839 15.40%
L 2050 28.9215 -0.1967 16.34%
L 2055 14.2471 -0.1212 19.90%
L 2060 14.2468 -0.1212 19.90%
L 2065 14.2466 -0.1211 19.90%
G Fund 16.7502 0.0007 1.38%
F Fund 20.4474 0.0506 -1.46%
C Fund 68.4639 -0.6691 28.68%
S Fund 75.8418 -0.9523 12.45%
I Fund 38.8694 -0.2076 11.45%
Closing price updated at approx 6pm ET each business day. More at tsp.gov
* YTD data is updated on the last day of the month.