Real estate option proposed for employees' 401(k) plans


April 15, 2005|By Melissa Harris | Melissa Harris,SUN STAFF

MOST RESIDENTS of Baltimore's southern suburbs have heard some version of this story: "I bought a condo in Columbia for $150,000 in 1999, and a few months ago my appraiser told me it's worth double."

Depending on how you look at it, this scenario is either a real estate boom or a real estate bubble. Three members of Congress are betting on the former.

Reps. Tom Davis, R-Va., Chris Van Hollen, D-Md., and Jon Porter, R-Nev., proposed a bill this week that would add a real estate fund to federal workers' 401(k) plans, called the thrift savings plan.

The funds are called REITs - for Real Estate Investment Trusts. Congress created them in 1960 to make large-scale real estate investments accessible to everyone.

In most cases, REITs own and operate real estate. Home builders, for example, don't want to be REITs because they're in the business of building and selling.

Here's how REITs work.

Despite a hot real estate market, unloading your savings account on one single property brings a lot of risk. Let's say, for instance, you own a strip mall anchored with a Kmart. The chain goes bankrupt. The store closes. Rent income tumbles. Other retailers, whose leases are often tied to the big guy remaining on the block, back out or pay less rent. You can't make your mortgage.

But what if you owned 100 strip malls? Theoretically, all your anchor stores aren't going to go belly up. That likelihood greatly reduces your risk because your high-performing properties can compensate for poor-performing ones.

REITs operate in much the same fashion. Most REITs are companies that grab up hundreds of properties and then sell stocks in them.

Profits from those shares become a source of retirement income that isn't solely tied to the whims of the stock market, and REIT investors don't need wads of cash to cover down payments on 100 strip malls.

But that doesn't mean they're bubble-safe, either.

Despite more than 20 percent annual gains in REITs during the stock market slump - from the end of 1999 through the end of 2004 - rising interest rates pushed them close to the bottom of all mutual fund categories during the first quarter of this year.

Cost of promoting change

A lot of folks are trying to track the cost of President Bush's gigantic road trip for Social Security reform.

However, the "60 Stops in 60 Days" blitz - we're on day 44 - isn't limited to prominent people aboard Air Force One.

During days 21 to 40 alone, Jim Lockhart, deputy administrator of the Social Security Administration, spoke 13 times in Montana, Kansas, California, Connecticut and Pennsylvania. And Mike Korbey, a senior Social Security adviser and former policy director of the conservative United Seniors Association, stopped in South Carolina, Georgia and Louisiana for eight appearances.

To ensure that the Social Security trust fund isn't being tapped for these junkets, the American Federation of Government Employees filed a Freedom of Information Act request for all notes and minutes from all meetings and appointments surrounding the blitz since May 2004.

As first reported in The Washington Post, Social Security told the union that it would compile the information - at a cost of about $814,000.

Union spokeswoman Enid Doggett said the union isn't going to pay the bill, but she expects that Rep. Henry Waxman, D-Calif., will get the information via the Government Accountability Office, Congress' investigative arm.

Last week, Waxman sent a letter to the GAO asking for a list of events on the 60-day tour and their cost. He also asked for a list of other initiatives related to the president's Social Security agenda and their cost, including the campaign's "war room" at the Treasury Department.

The Social Security Information Center, a team of four public relations professionals coordinating the blitz, reports to Treasury Secretary John Snow, another speaker on the campaign and also, not coincidentally, the chief of Social Security's board of trustees.

The total bill for the PR effort will no doubt be in the millions - commandeering Air Force One alone has shot the tab into the seven-figure range.

To get the campaign's schedule, go to www.strengthening

Clearance compensation

Since The Sun started this feature in March, readers have sent us many suggestions for government reforms.

We asked experts about some of these ideas, and we'll publish their responses.

Reader: "In the private sector, having a security clearance can give you a 20 percent or more bump in salary. However, government employees with clearances are paid the same as those without. After getting their clearances, many new government hires leave for the private sector because it pays better. One way to rectify this would be to pay those with clearances a premium."

Don Winstead of the Office of Personnel Management responds that in most cases federal pay is based on the job description, not an employee's qualifications, such as security clearances.

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