TSP Investments in China and the Mutual Fund Window
One has to wonder if there are second thoughts at the Federal Retirement Thrift Investment Board (FRTIB) about the new TSP mutual fund window (MFW) now up and running on the TSP’s website. Without a doubt, the issue is creating more work for the staff at the FRTIB and there is no sign some of these issues will quickly disappear.
The TSP estimates that 2% – 3% of TSP participants would use the new feature that became available in June. That is not a surprise and the estimate may prove to be too high.
The MFW is expensive. These new mutual fund options will come with additional fees. These fees and expenses fall into four general categories:
- An annual maintenance fee of $95
- A per trade fee of $28.75
- $55 annual fee
- Fees and expenses imposed by the specific mutual fund(s) in which the participant chooses to invest
Investments in the mutual fund window may not exceed 25% of the TSP participants’ total balance, and the initial transfer into the mutual fund window must be at least $10,000. These two restrictions, taken together, would require a minimum TSP balance of $40,000.
If I were a TSP participant and had at least $40,000 to start making new investments, it would be quicker and easier to do it through one of the many mutual fund companies that would make it less problematic.
Making Headlines: Response to TSP China Investments Through MFW
A recent article in the Wall Street Journal reads: “U.S. Generals, Diplomats Want Chinese Companies Out of Their Retirement Plan”. Some of those who are upset about having some of their retirement funds investing in Chinese companies have formed a coalition called No TSP For The CCP. The Uyghur Human Rights Project and others accusing China of human-rights abuses and threatening American security are also involved in the effort.
The name stands for “No Thrift Savings Plan For The Chinese Communist Party”.
Roger Robinson Jr., chairman of the U.S.-China Economic and Security Review Commission in the early 2000s, stated for the Journal article: “You have the prospect of hundreds of the wrong sorts of Chinese companies entering the investment portfolios of unwitting federal employees and military personnel in the United States.”
The Coalition for a Prosperous America recently concluded that international mutual funds from Fidelity, State Street, BlackRock, Vanguard Group, and Dimensional Fund Advisors were weighted 14% to 33% toward Chinese securities. The list includes companies allegedly engaging in forced labor of the Uyghurs. A number of companies in the funds that appear on two government lists—the Defense Department list of companies linked to the Chinese military or the Commerce Department’s “entity list” of companies subject to trade sanctions.”
In responding to the Journal, FRTIB spokeswoman Kim Weaver said, “Our basic premise is that if it is legal for any other Americans to invest, it should be legal for TSP participants.” This is similar to an earlier quote from former FRTIB Chairman Michael Kennedy on the issue of the TSP investing in Chinese companies.
Senator Rubio (R-FL) Demands Answers from FRTIB
Florida Senator has previously been a strong advocate for eliminating TSP investments in countries that pose a threat to the United States, specifically investments in China or Russia.
Shortly after the Journal article appeared, Senator Rubio issued a new press release on the matter. In a letter to the new FRTIB Chairman Michael Gerber, he posed four questions:
- What actions is the FRTIB taking to remove funds that include Chinese companies blacklisted by the federal government or that are alleged to engage in Uyghur forced labor?
- Given the confirmation of these companies’ inclusion, what actions is the FRTIB taking to search for blacklisted companies listed among other funds and expeditiously remove them?
- Will the FRTIB commit to building out more options for TSP account-holders looking to invest in emerging markets funds that exclude China- and Hong Kong-based companies?
- Will the FRTIB reconsider, reverse, or amend its Mutual Fund Window initiative in response to the clear risks associated with it?
The press release also alleged that “The lack of transparency and compliance with U.S. law significantly increases risks for American investors. It is not an exaggeration to say that the FRTIB appears to be failing in its fiduciary duty to our servicemembers and federal employees.”
The FRTIB is an agency that runs a popular, successful investment program important to the retirement income of federal employees. The TSP has a 401(k) retirement program that is widely admired for its simplicity and success.
The most common political issues usually involve a Congressman introducing a bill with the goal of guiding TSP investments to meet political objectives. The TSP has done an excellent job in dealing with these issues. Investment returns have been excellent in a program that invests money from investors in mutual funds with a minimum of risk.
Answering questions or headlines appearing in national publications involving national security, foreign relations, and policy issues of a hostile government are normally way outside the purview of the FRTIB. At least in part due to the recent introduction of the MFW, the FRTIB is now facing more scrutiny, including a review by the GAO, responding to a national publication about national security concerns created by the FRTIB from generals and diplomats, and more demands for answers from a prominent Senator or two.
It appears the FRTIB is entering a new era. The MFW is not the only issue or reason. President Biden’s Executive Order on climate change may have influenced the structure and introduction of the MFW to push for more investment options, the increasing political and military risks now facing the United States from foreign countries, and a rapidly disintegrating political consensus are all factors that are changing the role of the FRTIB.