Saving the Planet with the TSP

Will changing TSP options help save the planet? A new bill seeks to “protect federal pensions from the economic consequences of climate change”.

At the end of January 2021, the Thrift Savings Plan (TSP) had a plan balance of more than $709 billion dollars. At the end of the year in 2019, the TSP had a balance of more than $632 billion dollars.

In effect, the TSP is growing and growing fast. It is one of the most popular benefits for the federal workforce, and while there is an annuity for federal employees who retire under FERS, along with Social Security, the TSP is an essential part of future retirement income for career federal employees.

TSP Investing: An Individual’s Choice

It is safe to say individual federal employees who invest in the TSP want to keep their investments in the TSP growing and safe. Each individual can decide to try and grow their investments faster by investing in the TSP stock funds (the C, S, and I Funds). Some federal employees, whether out of fear, lack of knowledge, a lack of confidence in the future of the country, or for some other reason, choose to put all or most of their investment funds in the G Fund.

How to invest their money is up to each individual. Whether a person becomes one of the TSP millionaires or not over a career in the federal government is largely up to each individual and the investment decisions a person makes of decades of working for Uncle Sam. Congress does not tell a person how to invest for their future retirement. From the perspective of an outside observer, the Federal Retirement Thrift Investment Board (FRTIB) has made investment options and decisions largely free from political pressure and influence.

Eyeing That $709 Billion Nest Egg

There never seems to be an incentive for Congress to restrain spending. Trillion dollar deficits are now commonplace. Congress needs (or at least Congress “wants”) more money to spend. $700 billion+ would be a big source of money to spend.

The billions of dollars sitting in the Department of the Treasury with money from TSP investors is a big, tempting target. Much of that money is not being used by current retirees. No doubt, many Congressional representatives could think of how this money should be spent to “make the world a better place” or “for the greater good” or however else they choose to describe their political or budgetary objectives.

New ideas on how to control the TSP investments are common. The Federal Retirement Thrift Investment Board (FRTIB) has done a good job of keeping its independence in making investment choices and keeps TSP money invested in low-cost index funds. The TSP as structured and implemented has resulted in the TSP being cited by national publications as an excellent retirement plan.

Latest Bill to Modify the TSP

We are in the beginning of a new year and a new Congress is now in session. TSP investors can anticipate a new bill in Congress on how money in the TSP should be invested.

The latest bill is a rehash of one introduced previously. According to a new press release, the bill is called the Restructuring Environmentally Sound Pensions In Order to Negate Disaster (RESPOND) Act

While the press release has a new date, the authors did not see fit to update the TSP data cited in the release in support of the bill. There is now more than $7 billion under TSP management (not $565 billion) and there were 6.2 million TSP participants in the plan (not 5.5 million as cited in the press release). The press release figures must have been from 2019 and are just being recycled.

So, perhaps, not much time and attention was put into introducing the bill again in 2021.

This is what the new bill hopes to accomplish:

  • Commissioning the FRTIB to establish a “Federal Advisory Panel on Climate Change” to conduct a thorough examination of the financial risks posed by climate change to federal employee retirement benefits and report those findings to Congress.
  • Instructing the FRTIB to immediately plan in place to divest from corporate polluters if the FRTIB determines that pension yields would be both financially profitable and consistent with fiduciary duties if divestment strategies were implemented.
  • Implementing a “Climate-Choice” investment option to allow federal pension holders to invest in a fund completely divested from fossil fuels if the FRTIB is unable to make a conclusive determination on whether divestment strategies align with their fiduciary responsibilities to pensioners.
  • Requiring the Federal Reserve and SEC to jointly issue annual reports on the financial risks of climate change to ensure the federal government is doing its due diligence to fully understand and account for these risks and costs in future projections.

Using the TSP for Social Change and Political Objectives

Prior attempts to use the TSP to advance social change or political objectives have included:

Prior attempts to modify TSP options and investments have not been passed into law. There is a new Congress, a new president and, generally, a new political philosophy in governing. Perhaps this bill will achieve a more favorable reception and lead to a new day for TSP investors. Based on comments from readers in previous years, many investors may agree with some of the objectives but are very leery of opening the door to Congress creating investment options instead of the investment professionals at the FRTIB.

Readers are free to voice their opinions in the comments below.

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