TSP

Senators bring concerns with TSP’s planned I fund expansion directly to Trump

The debate over the Thrift Savings Plan and its international fund isn't over, as two senators have urged President Donald Trump to replace members of the Feder...

Nicole Ogrysko@nogryskoWFED

December 2, 2019 4:41 pm

4 min read

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The battle over the Thrift Savings Plan’s upcoming international fund expansion is heating up.

Two senators have brought their concerns about federal employees’ retirement assets and their potential exposure to Chinese interests right to the White House, while a coalition of federal employee groups has urged lawmakers back off and redirect their critiques.

Florida Republican Sens. Marco Rubio and Rick Scott have written directly to President Donald Trump, this time urging him to replace presidentially appointed members on the Federal Retirement Thrift Investment Board.

At issue is the board’s Nov. 13 decision to press ahead with plans to move the I fund to the Morgan Stanley Capital International All Country World Ex-U.S. Investable Market Index (MSCI ACWI Ex-US IMI). This index covers 22 developed and 26 emerging markets and consists of large, mid and small-cap stocks from more than 6,000 companies, including Chinese securities.

Rubio, Scott and four other senators, including Sens. Kirsten Gillibrand (D-N.Y.) and Jeanne Shaheen (D-N.H.), have been vocal critics of the board’s plans for the I fund. They fear the decision to move the I fund to a new benchmark will expose federal retirement assets to potentially unethical and harmful Chinese companies.

“This decision by the Federal Retirement Thrift Investment Board to invest the Thrift Savings Plans’ international fund in an index, which includes newly-registered Chinese companies, ignores a previous request from Congress to act more prudently with civil servants’ savings,” Rubio and Scott wrote in a Nov. 22 letter to the president.

The FRTIB first decided to expand the I fund to an emerging markets benchmark back in 2017. It reconsidered its decision in October after senators expressed their concerns with the plans.

When the FRTIB announced it would carry on with its initial I fund expansion, a bipartisan, bicameral group of lawmakers introduced legislation, called the Taxpayers and Savers Protection Act, that’s designed to reverse the move. Senators have also asked leadership on the Homeland Security and Governmental Affairs Committee to quickly advance their bill.

But senators last week took their criticisms of the planned I fund expansion one step further.

“We write to you today to request you utilize your executive authority to immediately seek new qualified applicants to serve on the FRTIB and replace the current members whose terms have expired,” Rubio and Scott wrote. “These individuals have the responsibility to wisely invest taxpayer dollars, and their decision to support Communist China raises grave concerns regarding those investments. We need leaders who will stand up for human rights and protect the retirement interests of our great federal employees.”

The FRTIB manages federal employees’ retirement assets, which are not, as the board has stated, property of the U.S. government. TSP participants themselves choose where to invest their savings, not the board or Congress.

The five presidentially appointed members, together with an executive director, all administer the TSP on behalf of the plan’s participants. FRTIB members can serve past their nominated terms. Unlike other agencies, there’s no provision in the board’s governing statute that sets one-year holdover terms for members like, for example, the Merit Systems Protection Board.

Meanwhile, a coalition of federal employee unions and other associations are urging senators to back off on their critiques of the FRTIB’s I fund expansion plans — and the recently introduced TSP Act.

The bill “will needlessly harm millions of hardworking Americans now and far into the future,” Clifford Dailing, chairman of the Employee Thrift Advisory Council, wrote in a Nov. 20 letter to senators.

Eliminating the option of investing in these emerging markets would disadvantage federal employees, the council said. It cited a review from Aon, an independent consultant who first recommended the TSP expand to the emerging markets benchmark.

The TSP would be an outlier among other comparable 401(k) style plans, Aon said, as both the top 10 publicly traded U.S. companies and the top 10 federal contractors all offer their defined contribution participants access to an emerging market equity.

“It would be fiscally irresponsible to divest from a fund that has consistently outpaced developed markets over the past 15 years,” Dailing wrote. “Instituting an investment mandate at odds with the private sector would wrongfully and unnecessarily disadvantage federal employees and veterans of the armed services.”

The council also repeated an argument made by one of the FRTIB members last month. The board suggested the Office of Foreign Assets Control at the Treasury Department, which administers and enforces economic and trade sanctions based on foreign policy, should consider whether federal retirement assets could be exposed to harmful Chinese interests, not the FRTIB.

“If you believe U.S. government policy should limit U.S. investments in China, we encourage you to utilize this existing channel,” said Dailing, the council’s chairman. “In so doing, you would avoid singling out the retirement savings of public servants and veterans and putting the TSP at a competitive disadvantage.”

The Employee Thrift Advisory Council (ETAC) includes the American Federation of Government Employees, National Federation of Federal Employees, National Treasury Employees Union, National Association of Letter Carriers, National Active and Retired Federal Employees Association and the Senior Executives Association, among others.