After months of lobbying, President Trump has intervened in the independent agency’s decision to shift foreign investments to a more expansive index of international firms.
The Trump administration on Monday ordered the board that governs the federal government’s 401(k)-style retirement savings program to halt its efforts to change the index upon which the Thrift Savings Plan’s international (I) fund is based over concerns federal workers could have their money invested in Chinese corporations.
The Federal Retirement Thrift Investment Board has been in the crosshairs of some lawmakers and China policy hawks since last summer over its 2017 decision to change the I Fund index from the MSCI Europe, Australasia and Far East Index to the more comprehensive MSCI All Country World Ex-US Investable Market Index, which includes investments in more than 48 markets around the world, most notably Canada and China.
In a letter Monday to Labor Secretary Eugene Scalia, National Economic Council Director Larry Kudlow and National Security Adviser Robert O’Brien said the I Fund change would “expose the retirement funds to significant and unnecessary economic risk,” citing Chinese human rights abuses and the coronavirus pandemic.
“The Federal Retirement Thrift Investment Board is set to implement these plans during a time of mounting uncertainty concerning China’s relations with the rest of the world, including the possibility that future sanctions will result from the culpable actions of the Chinese government with respect to the global spread of the COVID-19 pandemic,” they wrote.
The White House officials also cited concerns from the Securities and Exchange Commission and the Public Company Accounting Oversight Board over difficulties in conducting objective audits of Chinese companies, and suggested instead shifting the I Fund to an index that excludes Chinese investments.
Members of the TSP board reaffirmed their decision last fall following congressional inquiries into the matter, noting that the law establishing the Thrift Savings Plan establishes a fiduciary responsibility to participants and requires that the I Fund be based on a “reasonably complete representation” of the international investment market. The decision also would bring the TSP in line with the vast majority of private sector 401(k) and public sector retirement programs, nearly all of which include Chinese investments.
In a letter to the TSP board, Scalia said the president has ordered board members to cease implementation of the I Fund index change by Wednesday.
“At the direction of President Trump, the board is to immediately halt all steps associated with investing the I Fund according to the [new index], and to reverse its decision to invest plan assets on the basis of that international equities index,” Scalia wrote. “This now is the only acceptable course, given the concerns expressed by the president’s advisers and the chairs of the SEC and [accounting oversight board], as well, of course, as the president’s own directive to the board. I also note, with all respect to the many years of service by you and your fellow board members, that you and the other members serve on expiring terms, and the president last week nominated three replacements.”
Board members and other stakeholders have noted that if there are national security concerns regarding a given international investment, it is the duty of the Treasury Department’s Office of Foreign Assets Control to bar all organizations and index funds from investing in those companies. But The Washington Post last week reported that Treasury Secretary Steven Mnuchin has resisted “sweeping action,” fearing it could threaten a trade deal with China.
Last week, Trump nominated new officials to replace three of the five members on the TSP board. All five members serve on expired terms, but to replace the remaining two board members, Trump would need to first consult with the speaker of the House and the Senate majority leader on his appointments. The move to replace three board members set off fears among stakeholders that the administration could politicize the agency.
The TSP’s governing board will hold a meeting Wednesday morning to conduct an “investment policy review.” TSP spokeswoman Kim Weaver declined to comment on the letters.