Who backs government retirement plans? Taxpayers.

Personal finance Q&A with Steve Dinnen.

Q: When civil servants retire and they have been promised a retirement by the federal or state government, where will the funds come funds come from? Are they separate from Social Security, and were those funds also invested in the stock market? If so, is an additional bailout in order to keep our retirement promises?

S.J.W., via e-mail

A: Evan Welch, a certified financial planner in Concord, Mass., has analyzed retirement programs for a number of civil servants and has come away with these observations:

Most federal employees participate in the Thrift Savings Plan (TSP), a retirement program that includes employee deferrals – they're subject to the same limits as 401(k)s – and often federal government contributions as well. The TSP has various investment options ranging from US government bonds to aggressive stocks.

These portfolios are managed by the Federal Retirement Thrift Investment Board, an independent government agency. They're at risk of rising or falling in value, the same as with a private 401(k) plan. That's because only the contribution is guaranteed.

On the other hand, most government workers also participate in a defined-benefit plan. The sponsor, in this case the federal government or a state entity, pledges to pay a retiree a set amount

In the case of civil service federal employees, they have access to a traditional pension under the Federal Employees Retirement Plan (FERS), provided they have at least 20 or 25 years of service, depending on the agency. FERS is run by the US Office of Personnel Management.

FERS and various state defined-benefit plan payments are guaranteed by the sponsoring governments. So if they lose money on one investment, they'll have to make up for it elsewhere. That responsibility could fall to taxpayers.

Submit your questions to Steve at money@csmonitor.com.

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