TSP to open retirement fund management to competitive bids

In a move that could save tens of millions of dollars, Thrift Savings Plan officials announced Friday that they will put the management of four existing investment funds up for competition early next year.

The TSP, the government's 401(k)-style employee retirement plan, manages more than $167 billion in assets for approximately 3.5 million participants. Four of the plan's funds-the C Fund (common stocks), S Fund (stocks in small and mid-size companies), I Fund (international stocks), and F Fund (fixed-income securities)-are managed by an investment firm. A fifth fund-the government securities G Fund -is a risk-free, low earnings fund administered through the Treasury Department.

The TSP also now includes an L (for "life cycle") Fund, which allocates a portion of TSP savings into each of the five funds based on participants' age, automatically putting more money into lower-risk funds as participants get closer to retirement.

Since its inception in 1986, the TSP has contracted with Barclays Global Investors to manage the C and F funds and, later, the S and I funds. The funds' management has been open to competition in the past, and it is just by "coincidence" that Barclays won all the contracts, according to TSP Executive Director Gary Amelio.

This year will represent the first time, however, that all four funds will be competitively bid at the same time, which TSP administrators think will get the plan a better deal. "Barclays does a fine job," Amelio said. "We want to make sure next year's bidding is very robust."

Amelio discussed the bidding process Friday in a meeting of the Employee Thrift Advisory Council, a group of representatives of labor unions and employee associations who advise the TSP board on investment policies and administrative matters.

To assist in the bidding process, the TSP has hired an outside contractor for the first time. Amelio said the firm, Ennis Knupp & Associates of Chicago, will receive between $175,000 and $360,000 a year for its services.

Amelio said the TSP board could contract the four funds out to a single bidder, four different companies, or even divide it smaller, giving various duties within each fund to different companies.

In addition to the competitive bidding process, Ennis Knupp will consult with the TSP on a possible index switch for some of the funds. All the funds in the TSP are passively managed, meaning they track a major existing investment index and don't require an investor to pick and choose stocks. Right now, for example, the C Fund tracks the S&P 500, a broad market index made up of stocks of 500 medium-to-large size U.S. companies.

The consultants also will advise the TSP on possible fund additions, including a Real Estate Investment Trust fund. Sixty-eight members of Congress have co-sponsored a bill (H.R.1578) to add such a fund to the TSP. The TSP board has come out against the idea.