Despite pressure from some in Congress, the Federal Retirement Thrift Investment Board announced that it will be moving forward with a planned change for the benchmark index tracked by the TSP’s I Fund.
The FRTIB plans to change the underlying index of the I Fund in the Thrift Savings Plan to the MSCI All Country World ex-U.S. Investable Market (MSCI ACWI ex-US IMI) Index from its current index, the MSCI EAFI Index.
Some Congressmen have said that the change will leave federal employees vulnerable by allowing their retirement funds to be invested in Chinese companies since the new index includes more companies in China.
Senator Marco Rubio (R-FL) has been leading the charge, having sent two letters to FRTIB chairman Michael Kennedy pressuring the agency to drop the planned change. Rubio then introduced a bill that would block the TSP from investing in Chinese companies. A similar bill has been introduced in the House.
“…a bipartisan, bicameral coalition in Congress will not sit on the sidelines and allow the TSP Board to funnel the federal retirement savings of U.S. service members and federal employees to the Chinese Communist Party,” said Rubio.
The FRTIB said that its decision to move forward with the new index for the I Fund came after it hired a consulting firm to reexamine the decision. The firm concluded that the change was in line with what other large defined benefit plans currently offer and also has the potential to produce higher returns for TSP participants. For details, see Despite Recent Controversy, Consulting Firm Recommends TSP Stay the Course on I Fund Change.
Rubio called the FRTIB’s decision “unconscionable” and “foolish” and added, “The Board’s refusal to act in the best interests of the United States will not go without consequence. I urge my colleagues to quickly pass our bipartisan and bicameral TSP Act.”
The FRTIB wrote in a letter to Rubio and several other Senators backing his bill that it was fulfilling its fiduciary duty to TSP participants with the change. FRTIB chairman Michael Kennedy wrote, “Investing in emerging markets is not only legal but is the overwhelming choice of fiduciaries across industries and the choice of individual Americans.”
He added, “It is imperative that the Board provide TSP participants with the same opportunities to save for their retirement as are afforded to every other American.”
What Do FedSmith Readers Think?
We asked our readers in a recent survey what they think of the proposed change to the I Fund. Here is what you told us.
60% of respondents said that the TSP should be prohibited from investing in Chinese companies, and 45% said that the change would harm investment returns. However, 26% of respondents said that the change would not have any impact on investment returns.
Also, 63% of respondents said that they believed that allowing the I Fund to invest in Chinese companies would be harmful to the national security interests of the United States.
96% of the survey respondents are current TSP investors.
Will the move to the new index ultimately be beneficial for the I Fund and TSP plan participants? Feel free to discuss the pros and cons further in the comments below.