By Mike Causey

Suppose Uncle Sam said you could only do it twice a month? For some people that would be horrible. For others it might be an improvement over their current situation.

Like it or not, it’s just around the corner.

Thanks to investor fear/fascination with the I-fund, participants in the Thrift Savings Plan are likely to be limited to a maximum of two trades per month between the stock and bond funds of their federal 401 k plan.

The restrictions—similar to those in many private sector 401 k plans—are planned for March or April of next year. But in the meantime investors who continue to make frequent trades will be warned that if they don’t slow the pace they will be required to make fund transfers by snail mail rather than by computer. (After a market-timing scandal in 2002 most mutual fund families adopted some kind of frequent-trading curbs, especially with international funds like the I fund. Some of them have a 4-trades-per-year limit.)

The proposed twice-a-month rule probably isn’t a big deal either way for the vast majority of TSP investors. But their are a small but vocal groups—on both sides of the issue—who keep things lively.

Those who favor the twice-a-month rule believe it will keep their overall administrative costs down. The TSP now has the lowest maintenance fees of any 401k plan in the nation. Over time this can add tens of thousands of dollars to the account of a long-time investor.

Opponents of the twice-a-month plan say that at best it is the Nanny State run amuck and at worst a government plot to keep feds as”wage slaves” by preventing them from making money as active investors.

Different strokes!

The vast majority of the TSP’s 3.8 million account holders do not make frequent trades. But there are about 3,000 individuals who do, some of them moving $250,000 or more at a time, sometimes back and forth between two funds within a couple of days.

But there are about 3,000 individuals who believe they can make more money by actively managing their accounts. Officials who manage the TSP say the frequent-traders have boosted administrative costs for all participants. Here are some numbers from the Federal Retirement Thrift Investment Board:

• On October 19 investors transferred $371 million INTO the I fund.
• On October 24, three business days later, $391 million was transferred OUT of the I-fund.
• The 2,018 investors who had bought shares in the I fund on October 19 got out of it on the 24th. The dollar amount attributed to those traders was $295 million.
• 323 of these participants traded $250,000 or more.
• In the previous 60 days those 323 traders had completed 5,804 exchanges of the I fund for a total trade amount of $1.9 billion (with a B).

Backers of having the freedom to trade as often as they like point to costs of the L (for lifecycle) funds that rebalance (trade) on a daily basis. The Board says that in 2006 TSP transaction expenses were $15 million, up from $6.7 million the year before. The largest transaction expenses”were in 2006, the Board said, were in the I-fund, where $13.8 million was incurred from trading $12 billion (with a B) of securities.”

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