No TSP Investments in Russian Stocks: These Securities Do Not Exist Anymore
With significant sanctions now imposed against Russia as a result of its invasion of Ukraine, that are the implications for anyone invested in the Thrift Savings Plan (TSP), especially for those who are invested in the International Fund (I Fund)?
As reported in Government Executive, Kim Weaver, the Director of External Affairs for the Federal Retirement Thrift Investment Board (FRTIB), has confirmed that there are not any Russian stocks in the TSP.
That is good news for TSP investors. As noted by an analyst quoted in the Wall Street Journal, with regard to Russian stocks, “You can’t sell, because you can’t trade….For all practical purposes, these securities do not exist anymore.”
Move to Invest More TSP Funds in Different International Stocks
It was not that long ago that there was strong concern expressed by the president and some in Congress that the TSP was being used to support the economy of Russia and China. Congressman Jim Banks (R-IN) introduced a bill to prohibit the I Fund within the Thrift Savings Plan from investing in Chinese and Russian companies. He wrote at the time:
If we are to confront the growing threats from these hostile countries, we should not be supporting their economies financially. This common-sense legislation would prevent federal money from entering countries that are actively attempting to undermine our global leadership.
Despite Political Pressure, TSP Intended to Use New Index for I Fund
The initial reaction of the FRTIB was to move forward with the proposed changes to the benchmark index tracked by the TSP’s I Fund.
The FRTIB chairman at the time, Michael Kennedy, and chairman of the Employee Thrift Advisory Council Clifford Dailing wrote an op-ed published in Government Executive in which they responded to criticism emerging in Congress over the change to the I Fund by arguing the decision is in the fiduciary interests of TSP participants.
TSP funds are solely the property of plan participants—it is not federal money and it is not taxpayer money. Choices on how to invest in the TSP funds belong solely to the participants. The FRTIB is required by Congress to make decisions that are in the best interest of all TSP participants, and not consider issues better left to other federal entities.
The editorial published at that time also stated, “Moving to the new benchmark could improve the expected return and diminish the expected risk for participants.”
Consultant to FRTIB Encouraged Change to Different Index Fund
The FRTIB had retained Aon Hewitt Investment Consulting (AHIC) to conduct a review of the company’s previous recommendation in November 2017 to shift the I Fund from its current benchmark index, the MSCI EAFE Index, to the MSCI ACWI ex USA IMI Index.
The consulting firm recommended that the Thrift Savings Plan stay the course on its plans to change the underlying stock index for the I Fund despite recent controversy over greater exposure to companies in China and Russia.
Under the planned change, the I Fund’s benchmark index would have started tracking the MSCI All Country World ex-U.S. Investable Market (MSCI ACWI ex-US IMI) Index instead of its current index, the MSCI EAFI Index.
The FRTIB wrote in a letter to Senator Marco Rubio (R-FL) and several other Senators backing a bill introduced by Rubio that the FRTIB 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.”
One report stated President Trump was described by a source as “incredulous” over the prospect of the TSP going forward with a planned change to its international stock fund (I Fund).
Trump Appoints New FRTIB Members
It did not take long for the Trump White House to pursue one of its options by making new nominations to the FRTIB which would have removed several of the FRTIB members. Several members on the FRTIB had expired terms and had been appointed by President Obama.
On May 13, 2020, the Board members voted to delay implementing a new index for the I Fund in the TSP.
A short time later, Chairman Kennedy submitted his resignation to President Trump.
And, as a footnote, the Trump nominees were not confirmed by the Senate.
Frank Dunlevy, John M. Barger, and Christopher Bancroft Burnham were originally nominated by President Trump in May 2020 to serve on the Federal Retirement Thrift Investment Board (FRTIB). He reintroduced the nominations of three Federal Retirement Thrift Investment Board members in January 2021.
In February 2021, President Biden pulled the nominations. He nominated a different slate for the FRTIB about six months later. Here is the current membership of the FRTIB.
Impact on the I Fund
If the political controversy had been resolved in a different way, and the TSP had modified the index fund used by the I Fund as proposed and as the FRTIB intended, billions of dollars would have been transferred into a newer index fund investing in emerging markets.
As noted in 401(k) Specialist:
[T]he reason no TSP funds have any Russian holdings can be traced back to former President Donald Trump, urged by Sens. Marco Rubio (R-FL) and Rick Scott (R-FL), squashing the Federal Retirement Thrift Investment Board’s plan back in 2020 to shift the I Fund to a market index that included Chinese investments—as well as Russian investments.
Even if the TSP had made the change to a different index fund, the investments in Russian investments would have been cut short quickly. The US Treasury quickly sanctioned Americans from engaging in transactions in various sectors of the Russian economy.
