The federal government’s TSP (Thrift Savings Plan) is a very popular federal employee benefit. It was created as part of the Federal Employees Retirement System (FERS) that became effective in 1987 replacing the older Civil Service Retirement System (CSRS). The TSP program now has almost $795 billion in assets.
The TSP and Politics
Since its creation, the TSP has been remarkably free from political interference. Federal employees have benefited and there are now a number of “TSP millionaires” as a result of the success of the TSP in helping these investors have a more secure financial picture during retirement.
$795 billion is a lot of money, even in the federal government which now spends trillions every year (on target for $8.6 trillion in 2021). With a pot of money this large, it seems inevitable the TSP will become a target for politicians wanting access to the money for their political objectives.
Previously, political targeting of the TSP often came from individual lawmakers. These efforts have largely been unsuccessful. As the TSP target has become bigger, the efforts involve bigger tools and greater coordination. Executive Orders, the GAO, public interest groups, as well as Congress are now being used to modify the investing of TSP assets.
Political Wrangling Over the TSP
When making major changes to a government program, many players are involved and the actual goals are often clouded behind rhetoric and lengthy documents. Here is a quick summary of some of the latest efforts to modify the TSP.
A recent GAO report on climate change was issued within several days of an Executive Order on climate change. Senators Pat Toomey (R-PA) and Ron Johnson (R-WI) have recently sent a letter questioning the process used by the GAO and, by implication, questioning the reliability of the GAO report.
The Senators’ letter contends the GAO report was improperly issued and should be revoked. According to their letter to the GAO:
In support of the proposition that global warming-related risks may be inadequately reflected in current market prices, the GAO report relies significantly on a September 2020 report from the climate-related market risk subcommittee of the Market Risk Advisory Committee (MRAC) of the Commodity Futures Trading Commission (CFTC).
Because the subcommittee report was issued in an apparent violation of these provisions, we ask that GAO immediately withdraw its report on retirement savings and ask that you respond to us regarding this matter no later than October 29, 2021.
The letter cites numerous legal requirements ignored to issue the report relied upon by the GAO. In other words, the GAO report regarding climate change and the TSP was relying on a report that was not thoroughly processed and vetted before the GAO made recommendations to the Thrift Savings Plan supporting the president’s Executive Order.
New Level of Political Interference and Influence
The fiduciaries for the TSP are legally obligated to act “solely in the interest of the [TSP] participants and beneficiaries” and for the “exclusive purpose of providing benefits to participants and their beneficiaries.”
The law also requires the FRTIB to develop investment policies that provide for “prudent investments suitable for accumulating funds for payment of retirement income,” and specifically allocates the responsibility for benchmark selection to the Federal Retirement Thrift Investment Board and investment selection to the participants.
Melding Presidential Politics with Interest Groups and Bureaucratic Levers
Getting around the legal requirements that have guided the TSP investment philosophy will take creativity and political power. That creativity and power is now being brought to bear on the TSP.
The New Yorker magazine summarized a conversation with Clara Vondrich who “has been at the forefront of the fossil-fuel divestment fight for many years, focusing on foundation endowments and pension funds.”
Her latest effort is seeking “to coordinate an effort to go after one of the biggest pots of money in the country: the federal Thrift Savings Plan, or T.S.P., which is where millions of federal employees sock away their retirement accounts.” As the article urges President Biden “to use the executive powers he has to divest the T.S.P.” of fossil fuels, the efforts of interest groups were successful as the president issued his Executive Order shortly after the article appeared.
President Biden’s Executive Order on climate change assumes climate change will harm TSP investments. The Executive Order concerns “the global shift away from carbon-intensive energy sources and industrial processes present(ing) transition risk…. ” (Also see Saving the Planet with the TSP)
In addition to the Executive Order, the Government Accountability Office (GAO) was brought in to seek changes at the TSP. The GAO recommended:
The Executive Director of the Federal Retirement Thrift Investment Board, to better inform the Board’s ongoing oversight activities, should evaluate TSP’s investment offerings in light of risks related to climate change.
The GAO essentially concluded the TSP Board is not paying sufficient interest in climate and is out of step with what needs to be done. According to GAO, “Given the systemic and unprecedented risk that climate change is expected to have on global financial markets, GAO continues to believe that it is important for FRTIB to evaluate TSP’s investment offerings for these risks.”
In a coincidence that would not surprise anyone familiar with national politics, the GAO report came out shortly after the Executive Order on climate change.
In short, the TSP is coming under heavy political pressure from the White House, the GAO, interest groups supporting the administration, as well as from some in Congress.
President Biden has also nominated new members to serve on the FRTIB. Whether these nominees would accede to the changes being sought by the administration in TSP investments is unknown. A brief summary of the background of these nominees is in this article.