Fedweek

The TSP has said that it is still working to carry out two provisions of a Coronavirus relief bill, the CARES Act, affecting loan and withdrawal policies there as well as in other similar retirement savings program.

The measure allows financial hardship-type withdrawals from the TSP and similar programs of up to $100,000 for reasons related to the virus, without the standard 10 percent tax penalty on in-service withdrawals taken before age 59 1/2. Ordinary taxes still would be due but could be spread over three years and those taking withdrawals could repay them over three years over and above the standard investment limits. It also raised from $50,000 to $100,000 the amount that could be taken as a general purpose loan from plans such as the TSP.

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“We are working as quickly as possible to add these options to our system so you can count on efficient processing of these requests,” said the TSP.

It earlier had issued guidance on a separate provision suspending for 2020 the general requirement that account holders who are retired and age 72 or older must take certain minimum annual distributions.

Meanwhile, President Trump has nominated three new members for the five-member TSP governing board, to replace members whose terms have expired, and in the face of a reenergized controversy concerning I Fund investments in Chinese companies.

The move is widely seen as setting the stage for reversing the TSP’s decision—first made in 2017 and then reaffirmed last year—to begin using a broader index for the international stock I fund that would include China, among some two dozen countries to be added.

The TSP has said it expects to make the change later this year but assuming the nominees are confirmed by the Senate, the board could then vote to cancel it.

I Fund Changes Back in Spotlight Amid China Tensions:
Although the TSP is very large, the I Fund is one of the smallest funds with $54 billion in assets as of year-end 2019. This switch would put approximately 10% of it, or about $5-6 billion, into Chinese stocks. The 2040 lifecycle fund, representing a diversified TSP allocation, has about 25% invested in the I Fund, and if 10% of that fund is invested in China, it would mean about 2.5% of the total account is invested in China.

Some members of Congress and the Trump administration do not want the TSP to invest in Chinese companies. For example, some point out the irony of U.S. soldier retirement plans putting funds into Chinese firms, which represent a potential adversary to them. On the other hand, China is heavily invested in the United States; they own over $1 trillion in U.S. Treasury securities as well as a significant amount of U.S. real estate and stocks, so they ironically do help fund the U.S. military in an orders-of-magnitude larger way than Americans fund China’s military.

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