A story was posted on the website of the Federal Soup on November 13, 2019. The FRTIB board responsible for allocations of about $600 billion in federal retiree funds did voting to get a confirmation for a decision made two years back to move the International Funds under its Thrift Savings Plan (TSP) to the Morgan Stanley Capital International All Country World Ex-U.S. Investable Market Index.
Joseph M. Giglio, a professor of strategic management at Northeastern University’s D’Amore-McKim School of Business, read the story and gave his opinion in the Quincy, Mass., Patriot Ledger that this decision to invest in Chinese companies is another unfortunate example of an organization that needs to face no consequences for withholding the decision to act in the interests of the United States and never say you are sorry. This plan is terrible for the United States and good for the strategic foreign adversary.
Giglio talked about index funds also and including companies involved in the military activities of the Chinese government and the companies approved by the U.S. government. To clear his point, he gave an example and said that the index includes Aviation Industry Corporation, which is owned by the Chinese state. This organization is the only supplier of military aircraft to the Chinese People’s Liberation Army. The hard-earned money of the federal employee is being wasted to support an adversary at the stake of national security and support the Chinese market’s economic growth.
More than 5.6 million participants in the Thrift Savings Plan (TSP) have come up with a plan to invest in their funds, and these employees include U.S. military forces as well. The TSP is a defined contribution retirement savings and investment plan initiated by Congress under the Federal Employees’ Retirement System Act of 1986. It provides savings and tax benefits to federal employees that are otherwise available for private corporations’ employees under 401(k) plans.
The TSP funds offer different individual fund options. An individual can invest in each one in either short-term U.S. Treasury securities or U.S., international, or bond index funds:
- International Stock Index Investment (I) Fund
- The Common Stock Index Investment (C) Fund
- The Fixed Income Index Investment (F) Fund
- The Government Securities Investment (G) Fund
- The Small Capitalization Stock Index (S) Fund
The FRTIB is responsible for administering the TSP funds, and all assets are collected in the Thrift Savings Fund trust.
Senators do not agree with this decision.
U.S. senators Marco Rubio and Jeanne Shaheen wrote a letter to Michael Kennedy, FRTIB Chairman, on August 26 requesting the board to reanalyze its decision of 2017 wherein the board was planning to move the I fund under TSP to the MSCI All Country World Ex-US Investable Market Index and said that this decision posed a threat to U.S. national and economic security.
The senators wrote that this decision of FRTIB to keep track of the MSCI index is a decision to invest in. Many firms are involved in the military of the Chinese government, espionage, and human rights abuses. This generates worries and raises fundamental questions about the board’s statutory and fiduciary responsibilities to federal employees investing in national retirement plans.
From the details included in the Federal Soup article, the letter also raised questions on the propriety of investing in China Mobile when the Federal Communications Commission barred the Chinese firm from selling gear to U.S. carriers for the telecom industry. Rubio and Shaheen sent another letter on October 22 addressing Senators Mitt Romney, Kristen Gilibrand, Rick Scott, and Josh Hawley.
Board members countered to the questions and said they don’t want any outside political pressures to handle the government employee and retiree investment funds on their behalf. The FRTIB’s general counsel also stated that the 1986 legislation responsible for creating the plan clearly said that their accounts are private and don’t belong to the federal government.
The Senate is working on this and planning to change it. Last November, Rubio, Shaheen, and Romney came up with the Taxpayers and Savers Protection (TSP) Act to ban the FRTIB from investing in the Chinese market.
Romney sent an email and told FCW that intentionally investing retirement savings of federal employees in a state-owned firm in China’s Communist Party is an effort to undermine U.S economic and national security. In the email, he further added that Congress should make a firm decision and stop the Federal Retirement Thrift Investment Board from initiating this plan of investing the retirement savings of our federal employees and military members in Chinese state-owned firms.
Senators also urged top officials on the Homeland Security and Governmental Affairs Committee to quickly update their bill. No changes have been introduced lately.
Some senators do not want to back off.
Not all senators think that FRTIB’s decision to move I fund is a bad idea. Some, mostly stakeholders, believe that the federal government needs to back off and stay away from this decision because the federal employees are the owner of the fund, and no one can tamper their funds with any entity, including Congress. The main argument is that stopping this FRTIB’s move will put TSP participants at a competitive disadvantage as compared to other retirement plans.
A group of federal employee unions and many other associations has requested politicians to back off the TSP Act.
Clifford Dailing, chairman of the Employee Thrift Advisory Council, sent a letter to senators on November 20 and said that this bill (if it comes into effect) would impact millions of hardworking federal employees futures (this news reported by Federal News Network).
The federal council said backing off from investment in these emerging Chinese-state owned markets puts federal employees at a competitive disadvantage. The board mentioned a review from an individual who recommended the TSP expansion to the emerging markets would set as a benchmark as an independent consultant.
Aon said that the TSP would look different from other plans like 401(k)-style plans as both of them topped ten publicly traded U.S. companies. The top 10 federal contractors offer their defined contribution participants access to all emerging market equities.
Dailing wrote it would be unwise to move a reliable fund that has consistently survived developed markets over the past 15 years. Investing in a Chinese-state owned firm will put employees at an unnecessary disadvantage wherein all, including employees and veterans of the armed services, will suffer.
With the outbreak of the COVID-19 pandemic, the entire nation and the world economy have come to a halt, and there has been no recent letter or mails from the senators regarding the TSP Act.
COVID-19 clobbered TSP millionaire ranks
FedSmith recently updated an article wherein we could read the number of millionaires in the Thrift Savings Plan, dropping from 49,620 in December 2019 to 27,212 as of March 31. This is a drop of more than 45%.
An individual with the highest TSP balance had $7,395,476.29 on December 31. His highest account balance on March 31 was $6,375,795—a noticeable decrease of 14%. The ongoing losses in the TSP accounts’ value are much easier to understand. In March, the C fund declined by 12.4% and was 19.65% less than the first quarter. The S fund saw a dramatic drop and was 21.40% in March and 28.14% year-to-date.
According to FedSmith, the only TSP funds we can say do not decline as of 2020 is the G fund increased by 0.4%, and the F fund increased by 3.10%.
