“Climate Choice” and Your TSP Investments

View this article online at https://www.fedsmith.com/2018/09/13/climate-choice-tsp-investments/ and visit FedSmith.com to sign up for free news updates
By on September 13, 2018 in Pay & Benefits with 0 Comments
Senator Jeff Merkley (D-OR)

Senator Jeff Merkley (D-OR)

The money in the federal government’s Thrift Savings Plan (TSP) is approaching $600 billion dollars. By any definition, that is a lot of money.

With a long track record of spending money from any available source, it is hard to imagine Congress ignoring the political possibilities of tapping into this money.

That TSP money is, after all, just sitting there in the TSP waiting for federal employees to use it when they retire and are most likely to need the money they have invested.

Congress and the TSP

Congress is aware of the billions in TSP money sitting there.

While it would be hard to argue that some political objectives for TSP investments are philosophically objectionable, some investors will be skeptical of ensuring Congress will safeguard their TSP investments.

Your TSP funds are currently invested in a way that is generally immune from the political pressure cooker inhabited by our elected representatives.

The TSP board has done a good job of keeping the TSP plan invested in low-cost index funds. The plan as structured and implemented has resulted in the TSP being cited by national publications as an excellent retirement plan. That success does not mean TSP funds will remain immune from politics in the future.

The latest bill to “improve” the TSP has been introduced by Jeff Merkley (D-OR). It is the latest in a series of proposals in Congress over a number of years to meet the social or political objectives of the legislation’s sponsor by using funds from the TSP.

The Merkley Bill

Climate change is a concern for Senator Merkley who calls his bill the Retirement Investments for a Sustainable Economy (RISE) Act. According to his press release:

As climate chaos ramps up, all Americans deserve the option to divest from the fossil fuel industry. For the first time, this bill will give millions of federal employees the power to ensure their retirement funds are invested in a more sustainable, socially responsible investment portfolio.

The purpose of the legislation is to give TSP investors a new investment option with a fund that does not invest in the fossil fuel industry.

The RISE Act would require the Government Accountability Office (GAO) to check out the risk for investors from their TSP investments in fossil fuel companies. The RISE Act also directs the GAO to provide a divestment mechanism for the TSP should the report show risk to investors from fossil fuel holdings.

In his press release, the Senator makes an argument that roughly translates as “everyone is divesting pension funds from fossil fuel companies”. Instead, they are putting their pension money “in a more sustainable, socially responsible investment portfolio.” As examples, he cites New York City taking such an action along with the country of Ireland and “almost 1,000 institutions….”

Previous Socially Responsible Efforts and the TSP

Going back to 2005, more than 100 Members of Congress thought it was a good idea to pass legislation for “a terror-free international investment option” in the TSP.

During the 1980s and 1990s, the TSP board was urged by some in Congress to invest in mortgages to support housing, avoiding investments in South Africa and Northern Ireland, and to back minority-owned businesses with TSP money.

In 2008, an Illinois Congressman thought having index funds was not the best approach to investing in the TSP. He wanted to give women and minorities a bigger piece of the TSP action by using actively managed TSP funds instead of index funds.  These actively managed funds would presumably be managed in part by companies run by women and minorities (some of whom would possibly be in the Congressman’s district) that would reap a financial gain using their expertise to invest in stocks, bonds, and other investments on behalf of TSP investors. Of course, expenses would also rise for TSP investors as the management expense for actively managed funds would go up. The extra cost would have ended up being paid by all TSP investors.

In 2010, a bill entitled the “Federal Employee Socially Responsible Investment Act” would have created a new investment option for TSP investors in which only “socially responsible companies” would receive money from the TSP in this new fund.

One frequent comment from readers at the time was concern about the political objectives that would drive fund investment—possibly to the detriment of TSP investors who were hoping for a good chunk of money they could use to fund their retirement expenses when leaving federal service.

In 2013, Congressmen Jim Langevin (D-RI) and Senator Sheldon Whitehouse (D-RI) also introduced legislation that would allow federal employees to make socially responsible investments (SRI) in their retirement plans.

In 2015, Congress Don Beyer (D-VA) wanted to create a TSP fund to ensure gender diversity and empowerment of women. The Gender Diversity Investment Act (H.R. 2432), would have created a Gender Equality-Focused Stock Index under the TSP. The fund would focus on gender diversity by allowing Federal employees to invest in companies with proven track records of empowering women.

Prognosis

There is not a great chance of this latest bill to change investment options in the TSP getting passed into law. The full text of the bill is not yet available as of this writing.

The management of the Thrift Savings Plan may offer an opinion on the bill after it is available and they have reviewed it.

While many of the objectives proposed in Congress to meet political or social goals through the TSP are not objectionable, opening the door to adding changes through new legislation has its own dangers. Keeping up with changes to the TSP introduced in Congress is a good idea for TSP investors who want their investments to remain secure and deliver the best possible rate of return with minimum risk.

© 2018 Ralph R. Smith. All rights reserved. This article may not be reproduced without express written consent from Ralph R. Smith.

Tags:

About the Author

Ralph Smith has several decades of experience working with federal human resources issues. He has written extensively on a full range of human resources topics in books and newsletters and is a co-founder of two companies and several newsletters on federal human resources. Follow Ralph on Twitter: @RalphSmith47

Top