More than 9,000 federal employees stopped making contributions to their Thrift Savings Plan accounts in November, continuing a slide that has accelerated as the economy worsens.

The total fund balance for TSP has dropped 14 percent since November 2007, and federal employees are growing increasingly rattled.

The 84.4 percent of employees covered by the Federal Employees Retirement System who contributed money to their TSP accounts in November marks the lowest participation rate since September 1997.

All FERS employees who enroll in TSP automatically get a contribution from their agencies equal to 1 percent of their basic pay, whether they contribute to their own accounts or not.

The collapse of the stock market has pummeled TSP's stock-based C, S and I funds. The C Fund, which tracks the Standard & Poors index, was down 37.6 percent for the year, as of the end of November. The S Fund, pegged to the stocks of small- and medium-sized companies, had dropped 41 percent. And the I Fund's international stocks were down 46.5 percent.

TSP participants in November also continued to move money into the government securities-backed G Fund and out of all other funds. The G Fund, which yields small returns but does not decline in value, is seen by many as a good place to shelter money during economic turmoil.

For the first time since at least 2004, more than half of the money FERS employees invest in TSP was in the G Fund.

Gregory Long, executive director of the Federal Retirement Thrift Investment Board, urged participants who are not retiring soon to invest with long-term results in mind.

"Most experts agree that a long-term plan will have a portion of assets in equities and equitylike investments," Long said.

The number of employees under the Civil Service Retirement System contributing to TSP has also declined, from 339,000 in November 2007 to 296,000 last month, though it is unclear how many of those are due to retirements and how many are people who decided to stop contributing.

Interestingly, the number of military members contributing to TSP accounts has increased in the last year — from 572,000 in November 2007 to 616,000 last month — likely because of spreading awareness of the program. Participation in TSP was opened to the military in 2002, and active-duty membership has steadily increased over the past six years.

Bad idea, adviser says

Frank Boucher, a Reston, Va., financial adviser who works with federal employees, said halting TSP contributions is a bad idea. TSP participants make their investments tax-free, and FERS employees get matching funds from their agencies. Those benefits are too significant to give up, Boucher said.

"If you absolutely must get out of stocks, rather than discontinuing contributions, go into the G Fund," Boucher said.

And investors who are taking cover in the G Fund should consider getting back into the stock-based funds sooner rather than later, Boucher said.

"If you expect to go back to C when it's over, that's market timing," Boucher said. "By the time you think it's going back up, it's too late."

Investing elsewhere

But some who have stopped contributing have given up on TSP and are going elsewhere to save for their retirements.

Navy Cmdr. Stephen Hartung, who serves as a liaison to the Federal Aviation Administration in Atlanta, said he stopped putting more money in the TSP last December.

"I saw the market was coming down, and I thought there were better financial vehicles to put money in that gave me more choices," Hartung said.

Hartung stopped contributing last year because he was unhappy with TSP's deadlines for interfund transfers, which must be made by noon Eastern time. But because the transfers are not made until after the markets close at 4 p.m. weekdays, Hartung sometimes wound up trading his funds at a different price than he had intended.

And with the stock market this turbulent, Hartung said he needs the ability to make rapid changes to his investments. He said he lost roughly $4,300 Nov. 13, when he tried to move one-third of the money he still has in TSP from the G Fund to the C Fund. When he decided to transfer his money shortly before noon that day, the Dow Jones Industrial Average was at about 8,100. But the Dow closed at 8,835 — far more than he intended to buy at.

Hartung invests his new savings in individual stocks with the help of a broker.

"I'm not a day trader, but I've now got the flexibility to get in and out of a stock very quickly, in less than a minute," Hartung said. "The way the TSP is set up, your hands are tied behind your back. The volatility of the stock market prevents you from making sound financial decisions."

Boucher said that TSP strategies like Hartung's amount to timing the market, which he said is a bad idea.

"If you're trying to make a change because the C Fund is down this day and it may be up tomorrow, that's not a good reason to make changes," Boucher said. "It's impossible to predict. Professionals can't do that."

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