TSP Officials Air Concerns About Congressional Proposals

Officials at the agency that administers the federal government’s 401(k)-style retirement savings program said Wednesday that they take issue with a number of legislative proposals currently under consideration in Congress in some form.

Last week, Sen. Tommy Tuberville, R-Ala., introduced legislation that would bar the Thrift Savings Plan from allowing participants to invest in any index that includes investment in Chinese corporations.

This week, Tuberville introduced similar language, which would ban the TSP from investing in “entities based in the People’s Republic of China, as an amendment to the Endless Frontier Act, which is currently up for debate on the Senate floor. And Sen. Marco Rubio, R-Fla., has his own amendment, which would bar the TSP from investing in securities that cannot be inspected by the Public Company Accounting Oversight Board. The only region where the PCAOB cannot conduct such inspections is mainland China.

At a meeting of the Federal Retirement Thrift Investment Board, which administers the TSP, and the Employee Thrift Advisory Council, a group of federal employee organizations, TSP spokeswoman Kim Weaver said the agency objects to both proposals, and noted that Tuberville’s proposal would actually prevent the TSP from having any international investments at all, since the language technically prohibits investments in companies based in Hong Kong as well.

“Both proposals discriminate against our participants in that they wouldn’t apply to other 401(k) or IRA programs [offered in the private sector],” she said. “Our current I Fund index includes investments in Hong Kong, so it has an impact on our existing funds, and would lead to increased costs to all participants.”

Weaver said Tuberville’s proposal would also preclude the agency from offering federal employees access to mutual funds, which is particularly problematic given the TSP’s plan to do so in the coming years.

“There’s no practical way to monitor individual holdings to ensure that none of the mutual funds hold any Chinese securities,” she said. “It would be almost impossible to do it, so we wouldn’t be able to offer the mutual fund window.”

Thus far, votes have not been scheduled for either amendment, and on Tuesday, Senate Majority Leader Chuck Schumer filed cloture on the bill, with an aim to pass it by Friday.

“There have been a zillion amendments filed to this bill, and the managers have been going through them to either schedule them for a vote or put them in packages that could be agreed to by voice vote,” Weaver said. “Ours have not been in either bucket so far, so I’m optimistic, but until the bill is done and the Senate is gone [into recess] this Friday, we won’t rest easy.”

Weaver provided little news on the matter of President Biden’s executive order last week that, in part, requires an assessment of how the TSP takes into account “environmental, social and governance factors, including climate-related financial risk,” but said that the agency will “provide whatever assistance they need.”

Jacque Simon, policy director for the American Federation of Government Employees, sought to clarify her union’s recent announcement that it endorses not only Biden’s executive order, but the RESPOND Act, a bill that would require a study of whether divesting from fossil fuels would negatively impact TSP performance and potentially require the creation of new fund options that omit carbon emitters. The TSP officially opposes the legislation.

“We endorsed it because we can formally study the impact of investments in fossil fuels on rates of return for the various TSP funds,” Simon said. “Our [Environmental Protection Agency] and [Federal Emergency Management Agency] locals feel very strongly about it.”

“As you know, the FRTIB does oppose the RESPOND Act,” Weaver said. “It’s less the analysis of the advisory panel, which is sort of what’s in the executive order, but it is more the fact that should the board do the work and decide there would not need to be divestment, that it would automatically require the establishment of a climate choice stock index fund, and that is the part I think we have the most significant concerns about . . . It is something we have long defended as not a good strategy for our participants, and it’s also why we’re moving to offer the mutual fund window next summer, to allow participants to take a portion of their account and invest in whatever issue is motivating them.”

Simon stressed that the reason for AFGE’s endorsement was the study required in the bill, not necessarily the creation of a separate set of “climate choice” indexes for participants.

“Our impetus is really the provision requiring a formal study; as far as the creation of other investment options, that I agree is a deviation,” she said.