A group of Senate Democrats is urging the Thrift Savings Plan to give participants more opportunities to invest in funds managed by diverse asset managers.
The Federal Retirement Thrift Investment Board said it plans to offer participants a mutual fund window next summer. That window will give participants an opportunity to take a portion of their TSP accounts and invest in an array of mutual funds outside of the plan’s core five.
“As part of this initiative, I urge you to create opportunities for federal workers to invest in funds run by racially, ethnically and gender diverse asset managers,” Sen. Bob Menendez (D-N.J.) said in a letter to David Jones, the acting chairman of the Federal Retirement Thrift Investment Board. “When it comes to their retirement investments, federal workers deserve the chance to make the strategic and values-driven choice to prioritize diversity.”
Menendez, along with six of his Democratic colleagues, want more information about the TSP’s plans for this mutual fund window — and offered a suggestion about the kinds of funds that should be a part of it.
“The mutual fund window should offer funds managed by diverse asset managers because executive diversity is a good business practice that has been shown to improve returns,” Menendez, along with Sens. Cory Booker (N.J.), Sherrod Brown (Ohio), Ben Ray Luján (N.M.), Tim Kaine (Va.), Alex Padilla (Calif.) and Jeff Merkley (Ore.), said.
They pointed to a 2020 study from McKinsey, which found companies in the top quartile for diversity performed better financially than their counterparts in the bottom quartile for gender and ethnic diversity.
“The mutual fund window is an especially critical opportunity given that the TSP’s current investment managers are failing at diversity, particularly at the executive level,” the senators said. “While the board internally manages a portion of the TSP’s funds, the board contracts with BlackRock as its primary investment manager and State Street Global Advisors as a secondary investment manager. In 2020, BlackRock’s executive management was approximately 20% female, 5% African American, and just 3% Hispanic. State Street’s executive management was 32% female, 2% African American, and 3% Hispanic.”
The senators also pointed to a 2017 Government Accountability Office report, which highlighted ways federal retirement plans and other programs could provide better opportunities for minority and women-owned asset managers.
In responding to GAO’s recommendations five years ago, the FRTIB said it didn’t foresee offering a mutual fund window before 2020, and while it didn’t rule out the possibility of offering funds managed by minority and women-owned firms, it couldn’t guarantee what funds would be part of a future MFW because the market is in constant flux.
Senators said the board worked with Accenture Federal Services last fall to develop tools that would allow their participants to screen for funds managed by women and minority-owned firms. But they want to see the board do more to proactively communicate with and broaden the pool of diverse asset managers.
Kim Weaver, the FRTIB’s director of external affairs, said the board looked forward to providing the senators with more details about its plans for the mutual fund window.
“A diverse team of asset managers is more likely to hold varied perspectives and may be better equipped to identify novel investment opportunities,” the senators wrote. “Diversity can also help firms avoid the dangerous pitfalls of ‘groupthink.'”
TSP participants also may want the opportunity to take a stance against discrimination, Menendez said.
“If the board offers TSP funds specifically managed by diverse asset managers, more federal workers may elect to participate in the TSP or to increase their contributions,” senators said. “By being responsive to consumer interest in diversity, the board could improve TSP participation and retirement security among values-driven federal workers.”
Members of Congress have pushed the TSP in recent years to respond to environmental and political concerns and have urged the board to give participants more specialized investment options.
Their requests are difficult for the TSP to respond to, because of the plan offers five broad funds based on a passive investment strategy. A mutual fund window, however, would give participants a chance to investment more specialized options.
A handful of Democrats, for example, want the TSP to give their participants a way to divest from fossil fuel companies, and they’ve introduced legislation that would all but force the plan to explore those options. The TSP opposes the legislation, arguing it would fundamentally gut the plan’s existing funds.
And a bipartisan group of senators has been particularly skeptical of plans to move the international fund to a new, China-inclusive benchmark. The move would have given TSP participants access to large, mid and small-cap stocks from more than 6,000 companies in 22 developed and 26 emerging markets. An independent consultant said it would have improved the anticipated returns for TSP participants.