Index Switch For Federal Savings In The Line Of Opposition

The U.S.-China feud seems to be getting much more into the financial aspects of each country as of late. The latest issue has Washington taking vigilance on investments made in Wall Street.

Congress members, as well as the current administration caution that U.S. investors are underwriting Chinese-based companies within stock markets for uses contrary to the best interests of our nation. To mitigate as much money as possible going to the Chinese, Washington is trying to stop their retirement fund from being invested in companies based in China.

This retirement fund is the federal 401(k) style savings plan called the Thrift Savings Plan that federal workers, military personnel, and lawmakers contribute to. As of now, the TSP will still be moving forward in switching the current index that the fund follows into another, which would increase the likelihood of investing in Chinese companies along with other international markets.

Senators and a few members of the Trump administration have been and still are attempting to get this plan reversed. They state that this is because this will have the American people vulnerable to funding companies that support Communist China’s actions that threaten U.S. security and sanctions.

Late last month, two Democratic and four Republican senators sent a letter to the FRTIB (Federal Retirement Thrift Investment Board), the agency in charge of the Thrift Savings Plan, which advised against this switch and requested that the decision be reversed.

The President of RWR Advisory Group, a consulting company that provided research and information on the matter to members of Washington, stated that this move would be a significant advantage for China in gaining capital very quickly from millions of U.S. citizens.

This effort to prevent more money from flowing into China is just a portion of a more significant attempt by some that are in government to disconnect the economic ties between the U.S. and China. This may be a cue that the President’s disagreement with China will continue past a possible limited trade deal that may be agreed on shortly.

For some supporters that are against China are demanding that the President do more than just the additional taxes he has put into place, such as limiting China’s tech and investments within the U.S.

Lately, officials have been reanalyzing China within investment portfolios of Americans. Also, admin officials along with some member of the NSC (National Security Council) have been pressuring the SEC (Securities and Exchange Commission) to be more strict with their review of companies based in China, which have a known reputation for ducking audits and disclosure policies that are demanded within the U.S. stock market.

There are laws in Chinas that prevent some documentations from being sent out of the country by auditors, which do not provide the full disclosure for U.S. regulators to analyze.

Lawmakers are attempting to crack down on these issues. In the summer, some senators proposed legislation that would take foreign companies off the list of eligibility for three years if they do not fully meet the requirements regulated by U.S. regulators.

The TSP, a federal savings fund with about 600 billion dollars with millions of federal and military participants, provides the ability to invest their money in index funds. One of which allows them to invest internationally. At this moment, the fund mirrors the MSCI Europe, Australasia, Far East Index, which is an index with stocks from only countries that are developed.

However, the board has scheduled to move the investments with better opportunities for diversification and more substantial gains by switching over to the MSCI All Country World ex-USA Index next year. This index has shares of over 2,000 firms from emerging countries and developed ones as well, which includes China.

This move was made based on the advice and consultation of a third-party firm, Aon Hewitt. As a recent board meeting, the firm stayed in agreement with their initial advice to move over to the MSCI All Country World ex-USA Index. They stated that if China was removed from the investments, it showed that the returns would more than likely be lower.

The chairman of FRTIB, Michael Kennedy, questioned if there would be any cons to remaining the index that the TSP is currently in.

Russell Ivinjack, a consultant from Aon Hewitt, stated that not having access to emerging countries in the markets would have the TSP as an outlier.

Some of the President’s advisers have made it known that they are against this switch as well, saying that this move will put the savings of U.S. Citizens into companies that have a questionable financial history or assist with projects and activities that are not in that nation’s best interest.

Senators Jeanne Shaheen, D-NH, and Marco Rubio, R-FL, also sent a letter to the board to reverse the decision that will underwrite companies that help with Chinese military operations, spying, and the oppression of human rights along with other companies that do not provide the standard financial transparency. This letter was signed by four other senators.

The FRTIB responded that they were reviewing and considering the arguments in the letter.

In the letter, the senators stated that there was a Chinese company, called Hikvision, that builds a video surveillance tech. This company was put on the blacklist this year as the Trump administration state that Hikvision assisted China with targeting Muslims, which also involved building internment camps in Xinjiang.