TSP: No practical, cost-efficient way to monitor individual mutual funds’ holdings. Image: g0d4ather/Shutterstock.com
By: FEDweek StaffThe TSP has said it would have to close its mutual fund window under language in a spending bill that has started to move in the House.
“None of the funds made available by this Act, or any other Act, may be used to make investments under the Thrift Savings Plan in certain mutual funds that make investment decisions based primarily on environmental, social, or governance criteria,” says a provision of the general government appropriations bill, which has cleared a subcommittee and could advance to full committee voting and House voting in the coming weeks.
That essentially incorporates language of a previously introduced separate bill (HR-3612) that is part of a general move by Capitol Hill Republicans against investments that take those factors into consideration.
In a position paper opposing that bill, the TSP said that the language would require it to “interpret intent and parse marketing materials to determine if a mutual fund manager is making decisions based on ESG criteria . . . The TSP could not make such a determination without tremendous cost and potential legal exposure given the inherent subjectivity in such an analysis.”
“There is no practical, cost-efficient way to monitor each of the roughly 5,000 individual mutual funds’ holdings; therefore, the TSP could not offer a MFW,” it says.
It adds: “If the TSP has to discontinue the MFW, the TSP will have to pay additional money to unwind the MFW. In addition, the 3,400 TSP participants who have invested in the MFW could lose money in returning their funds back to the core TSP funds.”
The investment fund window was one of the major new features added to the TSP last summer as part of a change to a new operating system—one which meanwhile triggered widespread customer service complaints.
The available funds reflect a wide variety of investment options, but using the window comes at the cost of annual and per-trade fees, it is available only to those with at least $40,000 in their TSP accounts, and no more than 25 percent of an account’s total may be moved into those funds.
A vocal minority of investors had pushed the TSP for years to exercise its authority to offer that opportunity for investing beyond the limited choices of the TSP’s own funds. It has been relatively little used, with those 3,400 account holders having moved some $200 million into outside funds, out of 6.8 million account holders with $767 billion on investment. However, the TSP had projected all along that long-run, only about 2 to 3 percent of participants would use that option.
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