TSP Board Delays International Fund Change Amid White House Pressure
Although board members stated the pause was because of the turmoil caused by the worldwide coronavirus pandemic, they pleaded with their newly nominated replacements not to allow politics to enter the decision-making process.
The Federal Retirement Thrift Investment Board, which governs the federal government’s 401(k)-style retirement savings program, on Wednesday voted unanimously to postpone implementation of the decision to shift the Thrift Savings Plan’s international (I) fund investments to a broader index of emerging markets under pressure from the White House.
Some lawmakers and China policy hawks had been lobbying the Trump administration for months to force the TSP to cancel its planned move from the MSCI Europe, Australasia and Far East Index to the more comprehensive MSCI All Country World Ex-US Investable Market Index, because the new index includes some Chinese companies. That effort culminated in President Trump naming nominees to replace three of the five sitting board members last week, and an order Monday from National Economic Council Director Larry Kudlow, National Security Adviser Robert O’Brien and Labor Secretary Eugene Scalia to halt the change.
At a specially called meeting Wednesday, Board Chairman Michael Kennedy said the decision to delay implementation was a result of Trump’s nominations—all current board members are serving under expired terms—and because of the turmoil in markets around the world caused by the coronavirus pandemic.
“Now that a new board is coming into play, our thought process is to maybe take a pause to have some discussions, because what we don’t want is to have a new board come into place in the middle of a period of transition or implementation,” Kennedy said. “[And] COVID-19 is having an impact on countries and markets all over the world, so there’s a lot of uncertainty now and we’re not sure now is the time to make a transition.”
Despite that reasoning, most board members, Kennedy included, stressed that the next board should be mindful that the law establishing the TSP requires them to act in a nonpartisan manner with a fiduciary responsibility to maximize the retirement savings of participants and beneficiaries.
“Now we’re being asked to make a decision based on other challenges—political challenges, national security, financial risk and things of that nature—but if you look at our background, we’re professionals in investment, finance, capital markets and pensions,” Kennedy said. “We’re a bipartisan group, but we operate in a nonpartisan manner. We don’t really look at the partisan aspect. When the TSP was founded in 1986, Congress was very intentional in putting guard rails in place to keep politics out of the decision-making process.”
Although board members David Jones and Ronald McCray supported the decision to delay implementation, they said they remain convinced the original vote to broaden the I Fund’s investments was the right one.
“I hope the new board will ignore political pressure, geopolitical pressure and national security pressure as we have done since it was established in 1986,” McCray said. “I am an investor, not a politician or policy maker. I do know there are many reasons to be concerned about China, but changes to the I Fund shouldn’t be in the top 20 issues in relation to China. Our statutory authority, the case law, and our fiduciary duty compelled the change that we made in 2017, and it is in the best interest of our participants and beneficiaries.”
Member Dana Bilyeu, for whom Trump has not nominated a successor, reiterated the board’s position that the Treasury Department’s Office of Foreign Assets Control should be the arbiter of where Americans invest their money, not the TSP.
“I really hope they will weigh in on this, because all U.S. citizens should be treated equally with regard to these foreign policy and national security concerns,” she said.
In a statement, Sen. Marco Rubio, R-Fla., who with Sen. Jeanne Shaheen, D-N.H., spearheaded the initial campaign to stop the I Fund index change, said he would continue to push to ban the inclusion of Chinese investments in federal workers’ retirement savings options permanently.
“While it should never have taken the FRTIB this long to reverse their misguided, deeply flawed decision to invest federal retirement savings in opaque Chinese firms engaged in human rights abuses and a wide range of military-related activities, I appreciate the board halting this action,” he said. “There remains strong bipartisan, bicameral opposition in Congress to this decision, and I will continue to work with my colleagues to pass legislation that would ban the board from moving forward with this type of action in the future.”
But Rep. Gerry Connolly, D-Va., blasted the Trump administration’s actions against the TSP board Wednesday, accusing the White House of a political campaign to divert blame from its slow response to the COVID-19 pandemic.
“This is an unwarranted and politicized attack on yet another independent federal agency to which he could and should appoint officials—and not seize their independence,” Connolly said. “The administration is trying to override the business decisions of Senate-confirmed appointees with only political vendettas and blame deflection in mind. The burden will be borne on the millions of federal employees who rely on these funds for their retirement. Meanwhile, all of Trump’s millionaire cronies can continue to make investments that line their own pockets without similar restrictions on them.”