- FRTIB approves new index for the I-fund in the Thrift Savings Plan (TSP).
- The index will include more countries, but China and Hong Kong are not included.
- Previous index switch for I-fund was blocked by Senator Rubio and the Trump administration.
The Federal Retirement Thrift Investment Board (FRTIB) recently announced that it will be switching the I-fund’s underlying market index in 2024. The new index will include more companies from more countries when compared to the current index. The goal of the I-fund is to offer international investment options to TSP participants, but one of the criticisms of the index that the fund currently tracks is that not only is not diversified enough, but also doesn’t contain any emerging markets. Although these countries’ companies are more prone to risk, they also have a lot more potential for growth.
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The index that is used now, MSCI EAFE, includes 798 large and mid-cap companies from 21 countries, all of which are developed. The new index, MSCI CWI IMI ex US ex China ex Hong Kong, includes 5621 companies from 21 developed countries and 23 emerging markets. TSP investors are still able to invest in Chinese and Hong Kong companies via options offered through the mutual fund window.
The Politicization of the TSP
An upgraded index switch was set to take place back in 2019 but was subsequently blocked by a group of GOP senators led by Marco Rubio (R-FL) and the Trump administration. The reason for their opposition was that the I-funds new index would include the entire world minus the United States (A true international index). This would include investments in China to which the Senator objected. However, as the FRTIB will argue, TSP accounts should be able to invest in the same type of investments that are allowed in private sector 401(k)s and those retirement plans are allowed to offer international options that includes investments from China. Marco Rubio has introduced a bill that would bar the TSP from investing in China and also tried to close the TSP mutual fund window upon learning that some of those mutual funds included such international investment choices. The new index was most likely chosen as a concession to Rubio’s concerns.
The other side of the political spectrum has also attempted to politicize the TSP in recent years. Democrats have proposed both removing all fossil fuel companies from the C fund and creating a new ESG (Environmental Social Governance) fund that supposedly could’ve been called the E fund.
To be clear the upcoming index switch is an improvement overall for the I fund. It is not the original upgrade that was proposed and approved in 2019 and may well represent the first successful step upon a slippery slope of congressional interloping into TSP management for political statement purposes. This is something that we will continue to watch closely and continue to report issues as we see them.
Until Next Time,
**Written by Benjamin Derge, Financial Planner, ChFEBC℠ The information has been obtained from sources considered reliable but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Benjamin Derge and not necessarily those of RJFS or Raymond James. Links are being provided for information purposes only. Expressions of opinion are as of this date and are subject to change without notice. Raymond James is not affiliated with and does not endorse, authorize, or sponsor any of the listed websites or their respective sponsors.