Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.
if the GOP gains control of the WH, Senate and House, one of their priorities will be turning the TSP over to some fund management behemoth
Like George W Bush privatized Social Security in 2005 ...
Toward the end of a first term dominated by international terrorism, President Bush renewed this call in his 2004 State of the Union address: “Younger workers should have the opportunity to build a nest egg by saving part of their Social Security taxes in a personal retirement account. We should make the Social Security system a source of ownership for the American people.”
... and Donald J Trump built the wall in 2017 with Mexican pesos?
IMHO, the 2025 GOP legislative priorities will be tax cuts, repealing the ACA, raising Medicare Eligibility age and eventually reforming the TSP. The TSP only affects Federal workers who the GOP hates(unless it's the military) whereas SS privatization affected many millions more. My pessimism is derived from my time spent on the largest Democratic online blog, where thousands of bloggers complain Joe Biden hasn't done enough for them and they're not enthusiastic about voting.(Latest issue is that Biden should forgive at least 50k in student debt for every debtor!) So I hope I'm wrong about 2025, but we'll see!
If they wanted to actually do something, they could repeal the statute that Congress passed in 2009 permitting the mutual fund window. Or they could have followed protocol and made comments on the fund window proposal, which the FRTIB would have had to respond to.
It's even worse than grandstanding, it's dishonest. From the letter:
it is unlikely that your Board would be able to ensure that the approximately 5,000 mutual funds are all free of Chinese firms that pose a direct threat to American national security, enterprises implicated in Chinese Communist Party (CCP) human rights abuses, or companies that otherwise lack the requisite financial transparency and fiduciary responsibility to qualify as prudent investment opportunities. In fact, the FRTIB has explicitly acknowledged as much ...
This is deliberately conflating risk to a portfolio with threats, real or not, posed by some companies within said portfolio. In fact, the FRTIB emphasized the prudent nature of moving the I fund benchmark from the EAFE to the ACWI ex-US index.
In coming to this decision [to switch to ACWI ex-US], the Board noted that moving to the broader I Fund benchmark is in the best interest of participants and beneficiaries, a current best practice in the investment industry, and is widely recognized as a smart strategy in today’s market. The ten largest U.S. companies’ 401(k) plans all invest in emerging markets, as do the ten largest federal contractor plans and the six largest target date fund providers. In addition, the 20 largest defined benefit plans—all of which are for state government workers—invest in emerging markets. TSP participants can decide which TSP funds they want to invest in.
After widespread and bipartisan outrage in 2020, the FRTIB voted unanimously to abandon the ACWI ex-US IMI transition.
Granting, for the sake of argument, such widespread outrage (which seems dubious as few track such details}, the delaying (not abandoning) of the transition was due to other reasons, notably covid:
Board defers action on I Fund transition — 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 Federal Retirement Thrift Investment Board Members, pending further study, the 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.
U.S. service-members and other federal employees would likely be shocked to learn that the FRTIB is unaware of which companies make up these approved funds or what risk those companies pose. ... When they invest through TSP, they rightly expect the FRTIB will protect them and their investments from these types of dangerous investments.
That seems to be belied by the very minutes cited in the letter. The FRTIB not only acknowledged the presence of Chinese companies in some the 5000+ funds available in the US (though identifying specific investments at every moment in time would be problematic). It also acknowledged that the developed nations benchmark used by the I fund already includes Chinese companies via Hong Kong.
She also noted that the TSP’s current I Fund index includes Hong Kong, which is part of China, and that there is no widely recognized index for developed markets that excludes Hong Kong. As such, to both divest from Hong Kong equities and create a new, specially designed index without Chinese investments would increase costs to all TSP participants. It would also preclude the implementation of the TSP mutual fund window, as monitoring approximately 5,000 mutual funds for any investments in Chinese entities would prove too costly for the plan.
It doesn't help that the rollout of the new TSP website and the Mutual Fund Window are horrible. Historical data and statements are gone. Auto-generated pie charts; gone. Daily price up dates are delayed. I called BNY/Mellon the MFW provider...no one knows nothin.
3rd party platforms are NOT cheap. Fido, Schwab, etc charge 0.25-50% just to list things on their platforms - that also applies to brokered CDs (so it is easier to find those from unknown entities). Uncle Sam does get a favorable treatment for free Treasury trading (T-Bills/Note/Bonds/Zeros, FRNs, TIPS) that major brokers offer. But it seems that TSP didn't want to negotiate any pay-for-play deals, nor wanted to subsidize TSP brokerage window fees (as many companies do). So, TSP holders are stuck with expensive brokerage window option.
As I said before, it may be wise just to tap TSP's VERY low-cost index offering (managed formerly exclusively by BlackRock but now also by State Street) and access other stuff in taxable and IRA accounts elsewhere.
Word. I had previously wanted to deploy a full 25% of my TSP account one time to minimize transaction fees etc. The deployment of the mutual fund window and the new back office is so bad I may just do the same thing with an equal amount in my current brokerage.
But it seems that TSP didn't want to negotiate any pay-for-play deals, nor wanted to subsidize TSP brokerage window fees (as many companies do).
There is
an explicit Congressional directive to ‘‘ensure that any expenses charged for use of the mutual fund window are borne solely by participants that use such window.’’ 5 U.S.C. 8438 (b)(5)(B).
Any pay-for-play deal would have to be paid for solely by participants using the window; likewise TSP is barred from subsidizing (paying for part of) the window fees.
We will never know what FRTIB might have wanted to do, because Congress effectively prohibited it from even thinking about it.
Comments
Like George W Bush privatized Social Security in 2005 ... ... and Donald J Trump built the wall in 2017 with Mexican pesos?
https://www.brookings.edu/research/why-the-2005-social-security-initiative-failed-and-what-it-means-for-the-future/
https://www.washingtonpost.com/outlook/2019/01/25/why-trump-didnt-build-wall-when-republicans-controlled-congress/
In 2025, the GOP will have its hands full dealing with all the tax breaks it instituted that will expire at the end of that year.
https://www.myfederalretirement.com/stop-tsp-mutual-fund-window/
If they wanted to actually do something, they could repeal the statute that Congress passed in 2009 permitting the mutual fund window. Or they could have followed protocol and made comments on the fund window proposal, which the FRTIB would have had to respond to.
It's even worse than grandstanding, it's dishonest. From the letter: This is deliberately conflating risk to a portfolio with threats, real or not, posed by some companies within said portfolio. In fact, the FRTIB emphasized the prudent nature of moving the I fund benchmark from the EAFE to the ACWI ex-US index. https://www.tsp.gov/plan-news/investment-benchmark-update/
The letter continues: Granting, for the sake of argument, such widespread outrage (which seems dubious as few track such details}, the delaying (not abandoning) of the transition was due to other reasons, notably covid: https://www.tsp.gov/plan-news/i-fund-transition-defer-2020-05-13/
Further down in the letter: That seems to be belied by the very minutes cited in the letter. The FRTIB not only acknowledged the presence of Chinese companies in some the 5000+ funds available in the US (though identifying specific investments at every moment in time would be problematic). It also acknowledged that the developed nations benchmark used by the I fund already includes Chinese companies via Hong Kong. https://www.frtib.gov/meeting_minutes/2021/2021May.pdf
https://www.alightfinancialsolutions.com/pdf/Final_Fund_Listing_Jan-2020.pdf?ts=274
https://www.alightfinancialsolutions.com/home.htm
As I said before, it may be wise just to tap TSP's VERY low-cost index offering (managed formerly exclusively by BlackRock but now also by State Street) and access other stuff in taxable and IRA accounts elsewhere.
There is https://www.govinfo.gov/content/pkg/FR-2022-05-10/pdf/2022-09972.pdf
Any pay-for-play deal would have to be paid for solely by participants using the window; likewise TSP is barred from subsidizing (paying for part of) the window fees.
We will never know what FRTIB might have wanted to do, because Congress effectively prohibited it from even thinking about it.