Trusting The Government With PP Assets? (TDirect / TSP / State Plans)
Posted: Mon Sep 24, 2012 3:00 pm
I worked for the government for a period of time and I had a portion of my salary contributed directly into a segregated retirement plan similar to a traditional IRA. When I left my position, I was eligible to roll this money out into a 3rd party IRA custodian of my choice and the decision was not taken lightly because this specific state plan was pretty awesome. It allowed for out-of-service roll-ins, so I could perpeturally roll new money into the plan forever, and offered very low ER funds, significantly lower than even institutional grade VG funds, presumably subsidized by state dollars and due to having a huge asset base.
However in my final year of employment, they start changing the rules to make it really unfavorable to transfer money out. Specifically, if you roll money out, it's all or nothing, and if you do, you are never eligible for this retirement account again, even if you get a new job in the state /municipal government. The theory being that they didn't have enough money to pay out the defined benefit pensions so they were probably stealing from the defined contribution money, or at least setting themselves up to in the future if the need arose.
I can easily see both state and federal governments, in the future when they hit a crisis worse than 2009, put some kind of "temporary" freeze into effect on otherwise segregated account assets, and replace them with IOUs from the state, so they can pay out immediate pensions. I can't see that happening if the money is in a private 401k, but I can see it happening in a plan like the US Federal TSP.
On a similar vein, I can envision if the US government gets in deep trouble, while they won't default on debt owed to other countries, I can see them limiting redemption to US citizens/entities. For example, China owned t-bonds get paid out but American citizen owned savings bonds might have a temporary restriction on redemption due to "emergency" or "war times."
Or the government might impose a "short term" penalty of a 90% tax rate on all redeemed savings bonds like they did to executive compensation during the banking bailout recently, temporarily, so they can argue they are not defaulting on their debt and will remove the penalty when the budget allows.
I'm cautious to put money into Treasury Direct or any government controlled plan for these reasons. Am I too paranoid?
However in my final year of employment, they start changing the rules to make it really unfavorable to transfer money out. Specifically, if you roll money out, it's all or nothing, and if you do, you are never eligible for this retirement account again, even if you get a new job in the state /municipal government. The theory being that they didn't have enough money to pay out the defined benefit pensions so they were probably stealing from the defined contribution money, or at least setting themselves up to in the future if the need arose.
I can easily see both state and federal governments, in the future when they hit a crisis worse than 2009, put some kind of "temporary" freeze into effect on otherwise segregated account assets, and replace them with IOUs from the state, so they can pay out immediate pensions. I can't see that happening if the money is in a private 401k, but I can see it happening in a plan like the US Federal TSP.
On a similar vein, I can envision if the US government gets in deep trouble, while they won't default on debt owed to other countries, I can see them limiting redemption to US citizens/entities. For example, China owned t-bonds get paid out but American citizen owned savings bonds might have a temporary restriction on redemption due to "emergency" or "war times."
Or the government might impose a "short term" penalty of a 90% tax rate on all redeemed savings bonds like they did to executive compensation during the banking bailout recently, temporarily, so they can argue they are not defaulting on their debt and will remove the penalty when the budget allows.
I'm cautious to put money into Treasury Direct or any government controlled plan for these reasons. Am I too paranoid?