Are you trying to avoid investments that contain Chinese companies? The FRTIB is reminding TSP participants that the I Fund does not contain any such investments.
The Federal Retirement Thrift Investment Board (FRTIB), the agency that oversees the operation of the Thrift Savings Plan (TSP), published a fact sheet that says the I Fund “does not, nor has it ever, included investments in mainland China.”
Note that it says “mainland China.” Hong Kong is among the regions listed in the MSCI EAFE index tracked by the I Fund.
It also adds, “In addition, no funds within the TSP are invested in companies that the U.S. government has sanctioned through its Office of Foreign Assets Control (OFAC) in the Department of the Treasury for activities that pose threats to U.S. national security.”
What About the TSP Mutual Fund Window?
That’s a different story. The MFW contains thousands of mutual funds, some of which are likely to invest in Chinese companies.
The fact sheet stresses that the MFW is optional, so TSP participants do not have to put money into it. Even if they do, they can choose in which funds to invest and avoid any that invest in Chinese companies through their own research on the funds.
Why is This Being Discussed?
The fact sheet does not directly say this, but there has been a lot of pressure from Congress for the TSP to eliminate any investments in China from the available options. However, it does state, “The more than 6.8 million Federal employees, retirees, and service members should not be discriminated against by restricting their ability to direct their money and save for their retirement.”
Senator Marco Rubio (R-FL) has been one of the biggest proponents of this effort. The Taxpayers and Savers Protection (TSP) Act (S. 1650) is one of his most recent legislative proposals to fight Chinese investments in the TSP. It would ban the FRTIB from investing federal retirement savings in China and other countries considered adversaries of the U.S., such as Russia, Iran, and North Korea.
“…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,” Rubio said. “America’s investors should never be a source of wealth funding Beijing’s rise at the expense of our nation’s future prosperity, and the TSP Board should not force U.S. service members and federal employees to unwittingly undermine the American national security interests that they work hard every day to protect.”
A few years ago, the FRTIB made the decision to change the underlying index tracked by the I Fund to the MSCI All Country World ex-U.S. Investable Market (MSCI ACWI ex-US IMI) Index from the MSCI EAFE (Europe, Australasia, Far East) Index which it currently tracks.
The MSCI EAFE index measures the stock market performance of developed markets outside of the U.S. & Canada of more than 600 large and mid-sized companies. The MSCI ACWI ex-US IMI Index is considerably different as more than 6,000 companies are represented with 22 developed markets and 26 emerging markets.
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.
Critics quickly jumped on the decision, noting that this new index would have exposed federal employees’ retirement savings to investments in Chinese firms that are harmful to U.S. national security interests.
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.”
Richard Spencer, then-Secretary of the Navy, wrote in an editorial in the Wall Street Journal, “As secretary of the Navy, I have a duty to represent the dedicated members of America’s naval forces and ensure that, as investors, they are not unwittingly helping to underwrite the threats China and Russia pose to their lives. For the good of the country and those who serve it, the FRTIB must reverse its decision to adopt the All Countries World Index—and do it before a single dollar from its fund pays for a weapons system aimed in our direction.”
The FRTIB decided to delay implementing the planned change to the I Fund. A press release issued at that time read:
Due to a meaningfully different economic environment related in large part to the impact of the global COVID-19 pandemic, as well as the nomination of three new FRTIB Board Members, pending further study, the FRTIB Board is delaying the implementation of the I Fund Benchmark change to the MSCI ACWI ex-U.S. Investible Market index from the MSCI EAFE index.
The wording suggests, however, that the change could move forward again in the future.
