U.S. Treasury Bills For MASSMutual Employees

What Is It?

As a MASSMutual employee, it is important to understand what U.S. Treasury bills are, their benefits, and how you can include them in your financial planning. U.S. Treasury bills (T-bills) are short-term debt securities issued by the U.S. government to fund its operations. T-bills usually mature anywhere from one month to one year after they're issued. Like zero-coupon bonds, instead of making periodic interest payments, T-bills are sold at a discount and rise to their face value at maturity. The government issues T-bills in denominations starting at $100 and going up in $100 increments.

T-bills are usually traded by institutional investors such as banks, insurance companies, and mutual funds, although the market is open to individuals. Investors of more moderate means often find it more convenient to use mutual funds that invest in T-bills, including money market funds. For MASSMutual employees, you may want to consider this information when deciding where to allocate your funds for growth, and which of these options better suit your needs.

Strengths

Safety

T-bills are considered one of the safest of investments because they are short-term and are backed by the full faith and credit of the U.S. government. Because of their short-term nature, they are among the first debt instruments to reflect any changes in interest rates. As a result, T-bills have less exposure to inflation and interest-rate risk than longer-term investments. MASSMutual employees may want to consider T-bills when opting for an investment strategy that minimizes volatility and prioritizes asset safety.

Liquidity

For a fee, a bank or a brokerage house will sell your T-bill on the secondary market (in other words, they will find a buyer for it) if you need the cash. For MASSMutual employees, this ensures your right to retrieve your money and guarantees you wont be left short handed when in need of cash.

Income Is Free From State and Local Tax

T-bills are especially useful for people who face high state income taxes but who may not be in a high federal tax bracket. The after-tax return on a T-bill may be better than the return on similar taxable investments that pay an equal rate of interest because of their tax advantages.

Tradeoffs

Yield May Not Keep Pace with Inflation

As a MASSMutual employee it is important to consider how although T-bills have the potential to yield more than traditional passbook and money market accounts, the yield may not keep pace with inflation.

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Opportunity Cost

If you invest instead in long-term vehicles that are more risky than T-bills, you normally have the potential for higher returns.

How to Buy T-Bills

The U.S. Treasury auctions T-bills either weekly or monthly in the financial markets. Those employed in MASSMutual companies can buy T-bills at the average price of the winning competitive bids at auction. If you want to buy a T-bill as a MASSMutual employee, you can call a brokerage house. Alternatively, you could put your money in a money market fund that invests in Treasury securities, which would make your investment part of a pool of managed assets. However, a small portion of your earnings would go to pay the fund's management fees and other expenses.

Caution:  Even if a money market mutual fund invests only in Treasury bills, its share price is neither guaranteed or insured by the  U.S. government, as a T-bill itself is. Though a money market fund attempts to maintain a stable $1 per share value, it is possible to lose money investing in one.

The Treasury also allows direct investments over the Internet. A first-time investor must open an account online at www.treasurydirect.gov. Once the account is open, you can access the website to purchase securities and authorize any charges to your bank account. As a MASSMutual employee, when you purchase a T-bill directly, the government doesn't actually issue a piece of paper to indicate that you own the security. Instead, book entries keep your name on record as the owner.

Tax Considerations

T-Bill Held to Maturity

Interest on T-bills is taxable as ordinary income. A MASSMutual employee and taxpayer who holds a T-bill to maturity does not recognize a capital gain or loss. Instead, proceeds in excess of basis (i.e., the discounted amount) are taxed as ordinary income because they're viewed as a recovery of interest income. In other words, the difference between the discounted price you paid for the T-bills and the face value at maturity is regarded as interest income and should be reported when the T-bill matures. By purchasing T-bills with maturity dates in the following year, a cash-basis taxpayer can create an opportunity to postpone interest income from one year to the next.

T-Bill Sold Prior To Maturity

Again, the interest is taxable as ordinary income. When a T-bill is sold before maturity, the difference between the purchase price and the selling price may be part interest and part short-term capital gain or loss. As a MASSMutual employee, you may want to keep this in mind when deciding to sell your T-bill.

Example(s):  Assume John buys $10,000 in T-bills for $9,760 100 days before maturity. Thirty days later, he sells them for $9,850.  For tax purposes, he has earned a pro rata portion of the discount as interest income for the time he held the securities: 30/100 x  ($10,000 - $9,760) = $72. The other $18 he received over and above the purchase price is a short-term capital gain.