The Federal Retirement Thrift Investment Board will defer the implementation of a new, China-inclusive index for the international fund, amid strong pushback from members of Congress and a new directive from President Donald Trump himself.

The Thrift Savings Plan had been tentatively planning to begin moving the I fund to a new, emerging markets index as early as June 1.

Now, those plans are on hold, after the FRTIB members on Wednesday voted unanimously to pause the I fund transition.

“The coronavirus has had an impact on countries and markets all over the world,” Michael Kennedy, the FRTIB chairman, said Wednesday morning at a special board meeting to review the I fund strategy. “It’s created a lot of uncertainty, and we’re not sure that now would be the time to be making a transition to the international fund with investments in emerging markets. Those markets are going to be challenged, and we’re not sure what they’re going to look like over the next two or three years.”

The new index, known as the Morgan Stanley Capital International All Country World Ex-U.S. Investable Market Index (MSCI ACWI ex-USA IMI), would have given TSP participants access to 22 developed and 26 emerging markets. It consists of large, mid and small-cap stocks from more than 6,000 companies, including Chinese securities.

But Larry Kudlow, director of the National Economic Council, and Robert O’Brien, assistant to the president for national security affairs, said the prospect of exposing the retirement funds of federal employees and military members to Chinese companies posed “significant and unnecessary economic risks.”

They, along with Labor Secretary Eugene Scalia, expressed their concerns about the upcoming I fund changes to the board on Monday.

Monday’s letter from Scalia was the first correspondence the board had received from the Trump administration about the I fund, Kennedy said.

Read more: TSP News

“Despite a lot of the press and a lot of articles written about this, unfortunately no one from the administration had reached out to me to engage,” he said.

The FRTIB first chose to move the I fund to the new, China-inclusive benchmark three years ago, based on the advice it had received from an independent consulting firm. The firm determined that failing to move the I fund to this new benchmark would make the TSP an outlier among other comparable 401(k) style plans.

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, including China.

The FRTIB reiterated these arguments back in November, when it reconsidered the I fund changes following bipartisan concern from Congress. The board chose to press ahead with the I fund transition last fall, but the criticism persisted.

Some of the board members on Wednesday said they believed the decision they had made back in 2017 was the right one.

But they acknowledged deferring the I fund transition will also give the president’s three new FRTIB nominees, who were named last week, the opportunity to review the international fund and come to their own conclusions about the best path forward.

“We are trying our best to ensure that the federal workforce has the same opportunities all Americans have to invest their retirement dollars in a way that will maximize their potential security in retirement,” said board member Dana Bilyeu. “We currently [are] using an index that only represents 58% of the investable markets. But I have listened to my fellow board members, and I do want to extend the courtesy that we are going to potentially extend today to those new board members to conduct their own due diligence and to make their decision based upon the best interests of the members and beneficiaries of this fund.”

Bill Jasien, the lone board member who didn’t support the I fund transition back in November, said he stood more firmly against the fund changes today.

“I have three sons that serve, one in fact who is deployed right now and one who will soon be deployed,” he said. “I want them, and I want all of the military and all federal workers, to be able to invest without exposure to China and/or any other adversary.”

New FRTIB members ahead

Trump has nominated John Barger, Christopher Burnham and Frank Dunlevy to replace Kennedy and two other board members, all of whom have been serving well past their nominated terms. Unlike other independent agencies, the FRTIB members can serve beyond their original terms.

Kennedy himself has been on the board for 10 years. He has expertise in investments, financial markets and pensions, not political strategies or national security implications, he said.

“We are in the middle of a retirement crisis in the United States, and numerous studies have shown that,” Kennedy said. “People are not saving enough. They’re getting retirement age and they’re not having enough savings, and you can see there’s going to be an enormous impact on the economy going forward due to this retirement crisis. As a result, our board is really focused on getting our federal employees ready for retirement and making sure they have the appropriate funds for savings in their account, so they can retire with dignity at the appropriate time. The international fund was a component of that strategy.”

The board members said they planned to work with the president’s new nominees to make their transition to the FRTIB a smooth one. But they urged the nominees to keep politics out of the TSP.

“It it my fervent hope that new board members, when confirmed, will take the time to study and make their decision regarding the I fund — and every other issue which they will face in the future — within the context of how this agency has always been run: independently, and in the best interest of the participants and beneficiaries,” said David Jones, who has been on the board for more than eight years.

Trump nominated Barger, a current member of the Postal Service Board of Governors, to replace Jones.

Other board members, including Ron McCray, another outgoing member, reminded the president’s nominees of TSP’s statutory mission.

“We have served in holdover status not because had nothing else to do but because of the commitment we made to serve — and because our successors had not been named,” McCray said. “Importantly, I wish the new board members well and only hope they will continue to exercise the independence and confidence … and ignore political, geopolitical and national security pressures as the board consistency has since 1986.”

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