US - If plans to privatise part of Social Security are successful, the Thrift Savings Plan (TSP) is a likely model for the type of savings accounts that could result, according to the chairman of Standard and Poor's index committee.
“The Social Security Administration did a study of the Thrift Savings Plan,” said David Blitzer (pictured), who is also an S&P managing director.
The TSP is a defined contribution plan for civilians employed by the federal government and the armed services. It has five options - three equity options, based on the S&P500, the Wilshire 4500 and the Morgan Stanley EAFE, and two bond options, one an index fund using the Lehman Brothers Aggregate and the other a government securities fund. It is well known for its fund manager “beauty parades” and ability to drive down management fee costs.
“The Thrift Savings Plan is very simple, it’s efficient and it’s easy to gather information on the fund options,” Blitzer explained. “The typical corporate 401(k) has 14 to 15 options which overlap, have too high fees and include company stock.”
Blitzer predicted that if the Bush Administration succeeds in privatising Social Security, there would be renewed interest in indexed products and that financial stocks would “probably not” become a larger part of the index nor would they necessarily skyrocket in price.
“If private savings accounts were approved, the management costs would most likely be controlled,” he said.
While the S&P index committee has not yet made forecasted the effects of private retirement savings accounts nor the effect of the baby boom generation retiring and liquidating retirement assets, neither scenario would be as dramatic as some analysts have predicted, Blitzer said.
“The stock markets won’t collapse as baby boomers retire, and there won’t be a stock market boom if private retirement savings account come into being,” he said.
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