What to watch as Congress revives familiar TSP investment policy debates

President Joe Biden wants the Labor Department to initiate a review of climate-related financial risks on federal employees and their retirement savings, while ...

Congress again is considering a variety of legislation that, if enacted, could change where and how federal employees invest their retirement savings in the Thrift Savings Plan.

A few of the bills have sparked concern from the Federal Retirement Thrift Investment Board, the agency that administers the TSP.

And while it’s unclear how the current administration feels about the details of some of these bills, it recently dipped its toe in the water on one of the policy debates, when President Joe Biden signed a new executive order on climate-related financial risk late last month.

The order calls on the Labor Department to take action under the Federal Employees’ Retirement System Act and Employee Retirement Income Security Act to “protect the life savings and pensions” of workers in the United States, including the federal workforce, from climate-related financial risks.

Labor must work with the White House’s national climate adviser and National Economic Council (NEC) to examine how the Federal Retirement Thrift Investment Board “has taken environmental, social and governance factors, including climate-related financial risk, into account,” the order reads.

A report on their findings is due to the president within the next six months.

“Obviously we will be providing whatever assistance the secretary of Labor, the NEC or national climate adviser needs as that moves forward,” Kim Weaver, the TSP’s executive director for external affairs, said last week at a joint meeting of the FRTIB and the Employee Thrift Advisory Council.

Perhaps those provisions in the president’s new order could have flown under the radar, if not for standalone legislation that calls for a similar review, and then takes it a step further.

The Restructuring Environmentally Sound Pensions In Order to Negate Disaster (RESPOND) Act would establish a federal advisory panel within the FRTIB, which will examine the financial risks of climate change on federal employees’ benefits.

The bill requires the FRTIB to divest from fossil fuel companies if it decides it would be both profitable and consistent with its fiduciary duties.

If the board decides it can’t completely divest from fossil fuel companies, the RESPOND Act then calls on the TSP to create a “climate choice” investment option.

The FRTIB opposes the RESPOND Act, Weaver reminded federal employee groups and board members last week. The agency isn’t necessarily opposed to the creation of a new advisory panel or the study itself, but it does worry about the impacts that divestment or a new climate choice fund could have on TSP participants.

“That is the part that we have the most significant concerns about,” Weaver said. “We either gut our four funds by divesting, or we create a new fund that overlaps with our other funds. That has been something that we have long defended as not a good strategy for our participants.”

Reps. Rashida Tlaib (D-Mich.) and Emanuel Cleaver (D-Mo.) introduced the RESPOND Act back in March. It has a Senate companion, which Jeff Merkley (D-Ore.) introduced as well.

“The American Federation of Government Employees has endorsed this RESPOND Act, which is partially reflected in the president’s executive order,” Jacque Simon, the union’s policy director, said at last week’s meeting.

The union’s FEMA and Environmental Protection Agency locals “feel very strongly” about the bill, Simon added, though she acknowledged AFGE was most supportive of the review of potential climate risks on federal employees’ savings.

Another attempt to divest the TSP from China

Senators are also reviving a familiar debate on where federal employees should invest their retirement savings.

A bipartisan group of senators led by Marco Rubio (R-Fla.) and Jeanne Shaheen (D-N.H.) reintroduced the Taxpayers and Savers Protection Act, which would ban the TSP from investing in any securities listed on certain foreign securities exchanges.

Notably, the bill would prohibit the TSP from investing in Chinese securities.

“It is absolutely unacceptable that the Chinese Communist Party and government continues to profit from the retirement accounts of U.S. government employees and members of the military,” Rubio said in a statement last month. “Congress can’t sit on the sidelines and allow the TSP board to fund Beijing’s rise at the expense of our nation’s future prosperity and national security interests.”

Sen. Tommy Tuberville (R-Ala.) introduced similar legislation last month, the Prohibiting the TSP Investment in China Act. His bill would do what the title suggests and would bar TSP funds from “being invested in any security of an entity based in the People’s Republic of China.”

These bills are clearly a response to a FRTIB plan to implement a new, China-inclusive index for the TSP’s international fund, which picked up controversy last year amid pushback from the White House and a bipartisan group in Congress.

The FRTIB ultimately dropped the plan last summer, leaving it up to former President Donald Trump’s new board nominees to take up the issue once they were confirmed. The Senate never did confirm the board’s nominees, and Biden so far hasn’t nominated new ones.

It’s unclear how quickly these bills could move in the Senate, if at all. Both Rubio and Tuberville introduced similar versions of their respective bills in the form of amendments to the Endless Frontier Act.

The Senate considered the bill last week, but not Tuberville or Rubio’s amendments.

Weaver said these amendments and similar legislation could impact the TSP and its participants in several ways.

“Both amendments discriminate against our participants in that neither prohibition would apply to any other 401(k) or IRA that 60 million participants use to save for their retirement,” Weaver said last week.

And because the plan’s existing I fund index includes Hong Kong, the legislation could impact international investments in the TSP.

“There is no widely recognized index for developed markets that excludes Hong Kong and any divestment from Hong Kong equities and/or creating a specially-designed index would increase costs to all TSP participants,” Weaver added. “They would also both, obviously, eliminate the TSP’s ability to move to a new stock index that includes emerging markets, because similarly there is no widely recognized index that includes emerging markets but excludes China.”

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