NYT: Retirement, the Federal Way (Bush's Soc. Sec. model)

Retirement, the Federal Way
By LOUIS UCHITELLE and RIVA D. ATLAS
Published: March 18, 2005


....President Bush holds up the federal savings program as a model for the retirement accounts he wants to add to Social Security. He is counting on those accounts to earn enough to offset the cuts that his plan calls for in the current fixed Social Security pensions.

The federal thrift plan, however, differs in an essential way from the retirement accounts that the president wants to carve out of Social Security. The thrift accounts are on top of a generous fixed pension for federal employees, while President Bush's proposal envisions the accounts replacing a substantial part of Social Security's fixed pension.

The thrift system functions like a 401(k)-type plan. Each of the five funds in the plan has done well enough to meet President Bush's minimum goal of an average annual return of 3 percent, adjusted for inflation.

Over the 18-year life of the plan, even the most conservative fund, invested in Treasury bonds, has returned, on average, 6.6 percent annually before inflation, partly because the fees are kept below what Wall Street charges. (That compares with an annual inflation rate in that period of nearly 3 percent.) Near the high end, a fund that tracks the Standard & Poor's 500-stock index had an average return of 12 percent a year.

The last 18 years, however, are not a template for the future. Nor do the performances of the five funds mirror the actual experiences of individual investors. Whether a federal employee can earn more than Mr. Bush's inflation-adjusted 3 percent a year over a 30-year to 40-year career depends on the mix of investments that the employee chooses and, above all, on a factor beyond anyone's control: the behavior of stocks and bonds....


http://www.nytimes.com/2005/03/18/business/18thrift.html?oref=login