Federal and postal investors are entitled to feel a little bit smug as they follow what could be a landmark pension management case involving one of the nation’s biggest firms. So can the people who set up and run the federal Thrift Savings Plan, Uncle Sam’s humongous in-house 401(k) plan.

At issue is whether Lockheed Martin acted in the best interests of 120,000 workers participating in the company’s $26.3 billion 401(k) plan. It’s one of the largest employers in the Washington area and the latest in a series of firms that have been or are being sued for, among other things, choosing firms that charge high fees for managing employee investments. The federal TSP has 4.6 million participants and was worth $439.8 billion as of Nov. 30.

A National Public Radio report on Monday said the St. Louis case “tests the limits of a company’s responsibilities to its employees at a time when 401(k) plans have become a central part of the nation’s retirement system.”

A growing number of firms are eliminating defined benefit pension plans. Instead, employees are supposed to finance their own retirement. That will be through a combination of whatever they get from Social Security, plus their investments in a company-backed 401(k) plan that may, or often may not, include some form of matching contributions from the employer.

As do-it-yourself retirements become the norm, the fees that management firms charge become critically important. Over a lifetime of investing, even a “small” administrative fee of as little as 2 percent can eat up hundreds of thousands of investment dollars.

The federal TSP was set up under the KISS model. Keep It Simple, Stupid! The idea was to have a handful of funds with very, very low administrative fees that cover the U.S. and foreign stock markets, along with a bond fund and the never-has-a-bad-day Treasury securities G-fund. Members of Congress belong to the TSP, as do people in the military and feds from all agencies, including some financial watchdog types at the Treasury, Labor and Justice departments, and folks at the SEC. Scrutinized? You better believe it!

Over the years, fund managers have fought off well-financed and sometimes down-and-dirty political efforts to add more funds and options to the TSP. That would have included a dot-com fund, minority business fund, green fund, precious metals fund and a real estate-based REIT fund.

Managers of the TSP rejected the new funds because they didn’t follow the model of passively managed index funds or would have duplicated other investment options already in the plan. In addition, some might have been too potentially risky or would have raised the management fees for other TSP investors in the stock, bond, treasury securities and lifecycle funds.

Several years ago John Bogle, the godfather of index-funds and one of the founders of Vanguard, said he wished he could get into the TSP because of its basic options and its low-administrative fees.

NEARLY USELESS FACTOID:

By Ginger Whitaker
The United States got its Uncle Sam nickname on Sept. 7, 1813. The name is connected to Samuel Wilson, a New York meat packer who provided the Army with barrels of beef during the War of 1812. The barrels were stamped with “U.S.,” and soldiers started referring to them as “Uncle Sam’s.”

Source: History.com

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