Two Senators are asking the Federal Retirement Thrift Investment Board (FRTIB) to reconsider its decision to change the I Fund to mirror a new benchmark index, saying it creates too much exposure to Chinese companies for federal employees.
In a letter sent to Michael Kennedy, the chairman of the FRTIB, the agency that oversees the Thrift Savings Plan, Senators Marco Rubio (R-FL) and Jeanne Shaheen (D-NH) said that changing the I Fund to mirror a new benchmark index would “expose nearly $50 billion in retirement assets of federal government employees, including members of the U.S. Armed Forces, to severe and undisclosed material risks associated with many of the Chinese companies listed on this MSCI index.”
The switch to the new MSCI All Country World ex-U.S. Investable Market (MSCI ACWI ex-US IMI) Index is planned for next year as part of some changes proposed for the TSP.
The current benchmark for the I Fund is the MSCI EAFI Index. This index measures the stock market performance of developed markets outside of the U.S. & Canada of more than 600 large and mid-sized companies.
The new MSCI ACWI ex-US IMI Index will be considerably different as more than 6,000 companies are represented with 22 developed markets and 26 emerging markets.
FedSmith readers have commented before that they think the TSP should be expanded to include emerging markets in its international offerings, and this new index will certainly do that.
However, it has been met with skepticism from some lawmakers. If the concerns stated in Rubio and Shaheen’s letter sound familiar, it’s because similar worries were expressed not long ago by Congressman Jim Banks (R-IN). He introduced a bill that would prohibit investment in Chinese and Russian companies via the I Fund. Banks had the same concerns about the new stock index, saying that “the governments of Russia and China have a long history of malicious activity against the United States.”
Rubio and Shaheen made similar arguments in their letter, saying that “the Chinese Government uses state-owned and state-directed enterprises to control production, compete in global markets, and serve the Chinese Communist Party’s military, political, and economic goals.”
Further, they added, “Many of these Chinese companies may soon receive investments directly from the paychecks of members of the U.S. Armed Services and other federal government employees because of your [FRTIB’s] decision.”
The Senators went on to ask some questions about the decision making process of selecting the new index for the I Fund and asked for answers by September 6.
A copy of the letter is included below.