Uncle Sam gives out money, and thousands still pass it up

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Federal workers in the Washington-Baltimore area received a 2.64 percent raise this month, but nearly 40,000 of them rejected another 4 percent, tax-deferred raise that is part of a standing offer from Uncle Sam.

Many companies offer 401(k) retirement plans to employees, but Uncle Sam's Thrift Savings Plan (TSP) is considered one of the best.

Workers under the Federal Employees Retirement System (FERS), which covers most civil servants, receive an automatic 1 percent contribution plus another 4 percent if the employee in effect will match the match. TSP also covers high government officials and members of the House and Senate.

Officials who monitor the giant TSP say that about eight out of 10 employees contribute to the plan, but 279,000 civil servants, all of them under the FERS pension plan, aren't participating in any savings and aren't getting the matching government contribution.

"It's beyond dumb," a Bethesda-based financial planner says. "It is beyond dumb and dumber. Virtually anybody, regardless of his or her salary or financial situation, can invest enough via payroll deduction to get at least part of the match. They are leaving money on the table every two weeks when they get a paycheck without making an investment at the same time."

The majority of feds clearly realize that the TSP -- with its three stock funds, a bond fund and an exclusive Treasury fund -- is a good deal, especially with the matching component. But, as the financial planner said, "You've got to pay, as in contribute something, to play."

Last year, the large- and small-cap TSP funds each gained more than 15 percent. The TSP's international stock index fund rose 26 percent in value. The bond fund, with a 4.4 percent increase, and the Treasury securities G Fund, which rose 4.9 percent, both beat inflation.

Postal workers did not receive the same 2.64 percent pay increase as white-collar feds. Their raises are set by contract negotiated by their unions. But postal workers under FERS -- which is a majority of them -- are eligible for matching TSP money if they open up and contribute to their accounts.

Military personnel can contribute to the TSP. Although they don't receive a match from the government, special rules permit them to put in large amounts of money from military-generated bonuses.

The TSP has been rated the top 401(k) plan in the nation by several national business-oriented magazines for three reasons: the matching contribution, the low administrative fees and the reliable G Fund, which is exclusive to the TSP.