The Federal Retirement Thrift Savings Plan, the retirement vehicle for federal employees, now has assets totaling more than $500 billion, and of that, almost $300 billion is in common stock.
That is, federal employees own a large chunk of the stocks of companies in the private sector. If those assets were in a defined benefit plan managed by a government agency rather than a defined contribution plan, it might dismay some in the private sector, judging by the past.
One of the reasons the Social Security System does not invest its trust funds in common stock and only in a special issue of Treasury securities was the fear in 1935 that the system would come to own a large slice of U.S. industry.
For example, the late Sen. Arthur Vandenberg, a conservative Michigan Republican who supported the creation of Social Security but opposed much of the remainder of the New Deal, was concerned that the large trust fund Social Security was expected to build up would result in a kind of socialism.
Even during the 1988 debates on the possible privatization of Social Security, conservatives argued that could give the government effective control over companies because individuals have no control over their individual Social Security accounts. All control rests with the Social Security Administration, a department of the government.
The development of the defined contribution structure, through which those federal employees have control over their own investment portfolios that are managed by outside investment managers, has eased concerns about large amounts of corporate stock being so close to the government.
In part, that's because four of the plan's five individual funds are managed by BlackRock (BLK) Inc. (BLK), and only a government securities fund is managed by the Thrift Savings Plan. The target-date funds also are partly managed by BlackRock.
Thus, the defined contribution structure, and its underpinnings in the private sector, have been adopted by the federal government for the benefit of federal employees, and eased concerns about "creeping socialism" that a federal government retirement program invested in the equity markets would have aroused.