Fedweek

Several recent news reports referencing the TSP’s upcoming investment “window” apparently have left some program participants confused about the origins and intentions of that planned feature – with complaints from some corners that investors should not be forced to invest “responsibly” or to divest from fossil fuels.

An initial story that was then essentially repeated by several other outlets seems to have created the impression that the window has been only newly authorized and that a main, if the main, reason for it is so that the TSP can offer environmental/social “responsibility” funds.

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Those are funds that do not invest in companies in certain lines of business and/or making a special effort to invest in companies in certain other lines of business—in both cases, based on a set of operating principles.

The TSP in contrast offers only broad index-based funds that reflect broad market sectors—the S&P 500 index in the case of the common stock C fund, for example; none of the TSP funds pick and choose companies to invest in according to any criteria other than their inclusion or exclusion in the underlying index. The TSP has resisted calls from both political parties to exclude certain companies, or countries, from its indexes or to create separate, tailored funds.

The TSP however has had authority for more than a decade to create an investment window, similar to that available through some other 401(k) retirement programs, to allow investors to put at least some of their money in funds other than those the TSP directly offers.

That was a response to the desire of some investors for options beyond the five core funds and the lifecycle L funds that consist of mixes of those funds that differ according to the expected date to begin withdrawals. And it remains a key reason many investors choose to roll their money out of the TSP at retirement into retirement accounts with more options.

The TSP has said that it expects to begin offering that option in the middle of 2022 once it brings online a new record-keeping system that will allow for it; the current one doesn’t.

That will offer access to potentially thousands of outside funds from mutual fund companies and other financial companies. Environmental/social responsibility funds will be among those, but only as one new option out of many.

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