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Commission Focuses on Viability of Individual Accounts
August 27, 2001
The August 22 meeting of the President's
Commission to Strengthen Social Security focused on the experience of two
pension systems that show it is possible to set up and administer privately
invested personal retirement accounts for millions of people. Roger Mehle, executive
director of the Federal Retirement Thrift Investment Board, which manages the
Thrift Savings Program (TSP) for federal workers, and James Wolf, executive
vice president of TIAA-CREF, the world's largest private retirement program,
told the commission that their plans: 1) have low administrative costs, 2) have
low risk for investors, and 3) have provided good rate returns. The two men
also testified that experience with their programs shows that millions of workers
with limited investment experience can make responsible choices about their
retirement.
Among the highlights of the testimony:
- The TSP currently administers more than 2.5 million individual
accounts. This fall an additional 2.7 million members of the armed services
will become eligible to participate. TSP fund balances top $100 billion.
- Federal workers participating in the TSP, including Members of
Congress, are able to choose from three investment options: a stock fund, a
bond fund, and a fixed-income fund. (Two additional funds, a small-cap
stock fund and an international stock fund have just been added as
options). Over the past 10 years, the stock fund has earned a 17.4 percent
rate of return, the bond fund has earned 6.7 percent, and the fixed income
fund has earned 7.9 percent.
- Expenses for managing the TSP range from 5 basis points (five one-hundredth
of a percent of assets managed) for the bond fund to 7 basis
points for the stock fund.
- TIAA-CREF manages pensions for 2.5 million workers employed in
education and research, with assets totaling more than $280 billion.
- Participants in TIAA-CREF's pension plan have a choice of 10
investment funds, including stocks and bonds and money market accounts.
Over the past 10 years, its largest stock fund has returned 13.1 percent; its
bond fund has returned 7.8 percent; and its money market account has
returned 5.0 percent.
- TIAA-CREF costs very little to administer. The CREF Equity Index,
for example, has administrative costs below 36 basis points.
To view the commission's public session, click
here.
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