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Monday February 07, 07:06
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Barclays Wins Advantage over its Rivals through Social Security Plan
(by Mark Riley)
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British bank Barclays allowed workers to put money in private Social Security accounts under a proposal by President Bush.
Now Barclays manages four of the five funds in the $130 billion Thrift Savings Plan, part of the federal government’s retirement program for three million employees. Because of private Social Security accounts President Bush modeled after the federal worker program Barclays Global Investors has an advantage over its rivals in winning a US government contract to manage the invested Social Security funds.
The personal retirement accounts would be administered by a federal board and managed by private companies, an administration official said. According to the Social Security plan, workers would have a limited number of investment choices, and contributions would be limited to 4% of a worker’s annual wages a year, up to $1,000 with an increase of $100 each year in addition to wage growth.
Barclays Global Investors has invested money for the government plan since it acquired a unit of Wells Fargo and Co. in 1995. Kathy Taylor, managing director of Barclays’ Thrift Savings Plan investments, said that the group with $1.2 trillion under management is one of the few companies big enough to avoid its fund portfolio being dominated by the US government accounts.
Four Thrift Savings Plan funds charge 10 basis points, or one-tenth of a percentage point, for fees that are shared with the government agency that supervises the program and handles the bookkeeping, Taylor said.
The fund companies managing the Social Security investments may gain economies of scale because of the size of the potential US Social security private accounts. With 1 percentage point of the 12.4% Social Security payroll tax invested in private accounts starting in 2006, returning an average 6% per year, such companies would manage $493 billion by 2013, according to the figures for expected income on the Social Security Administration’s Web site.
Three of the four funds managed by Barclays outperformed the 5.7% return the Social Security Administration received in 2003 from its investments in US Treasuries.
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