A cost-benefit analysis of a Military Thrift Savings plan.

136 Pages·2.2 MB·en_US

by  De Guzman, Richard G.

NAVAL POSTGRADUATE SCHOOL
Monterey, California
THESIS
A COST-BENEFIT ANALYSIS OF A MILITARY THRIFT
SAVINGS PLAN
by
Richard G. De Guzman
December 2000
Principal Advisor: John E Mutty
.
Associate Advisor: ShuS. Liao
Approved for public release; distribution is unlimited.

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1. AGENCYUSEONLY(Leaveblank) 2. REPORTDATE 3. REPORTTYPEANDDATESCOVERED
December2000 Master's Thesis
4. TITLEANDSUBTITLE : A Cost-BenefitAnalysis ofa Military Thrift Savings 5. FUNDINGNUMBERS
Plan
6. AUTHOR(S) De Guzman, Richard G.
PERFORMING
7. PERFORMINGORGANIZATIONNAME(S)ANDADDRESS(ES) 8O.RGANIZATION REPORT
Naval Postgraduate School NUMBER
Monterey, CA 93943-5000
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The views expressed inthisthesis are those ofthe authorand donotreflectthe officialpolicy orposition ofthe
DepartmentofDefense ortheU.S. Government.
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13. ABSTRACT (maximum 200 words) The transition from defined benefit to defined contribution retirement plans
represents the most significant change in both the private sector and civil service employee retirement systems in
the last twenty years. The Thrift Savings Plan (TSP), a tax-deferred, defined contribution plan for federal civilian
employees, was established in 1986 as part ofthe Federal Employee Retirement System. This thesis discusses the
costs and benefits ofa TSP plan forthe uniformed services. The objective ofthe research addresses the costs ofa
military TSP. Government studies, periodicals, and the Internet were examined to identify the strengths and
weaknesses of the federal TSP. Next, a probabilistic spreadsheet model using Monte Carlo simulation was
developed to forecast deferred tax revenue, which represents the most significant cost associated with a military
TSP. An analysis ofthe results indicates that the simulations come within 2.6 percent ofthe initial Department of
Defense's forecast. On October 30, 2000, the National Defense Authorization Act for fiscal year 2001 was
enacted. This act included a military TSP calledthe Uniformed Services Payroll Savings Plan. It is recommended
that future cost estimates use probabilistic spreadsheet modeling to provide more relevant information to the
decision makingprocess.
SUBJECTTERMS
14. NUMBER
15.
Military, Retirement, Compensation, Thrift Savings Plan, DefinedContributionPlan, Uniformed OFPAGES
Services Payroll Savings Plan, Monte Carlo Simulation
128
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CODE
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Approved for public release; distribution is unlimited
A COST-BENEFIT ANALYSIS OF A MILITARY THRIFT SAVINGS PLAN
Richard G. De Guzman
Major, United States Marine Corps
B.S., United States Naval Academy, 1989
Submitted in partial fulfillment ofthe
requirements for the degree of
MASTER OF SCIENCE IN MANAGEMENT
from the
NAVAL POSTGRADUATE SCHOOL
December 2000