The new mutual fund window is available in the TSP and some of the investment choices invest in Chinese securities – should the FRTIB cave to political pressure and remove those funds?
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The costs for maintaining and operating the new Mutual Fund Window (MFW) in the Thrift Savings Plan (TSP) is paid for by three separate fees that TSP participants have to pay to access the MFW. While one of the fees is only paid once, the other two ($95 and $55) are annual and subject to change if more money is needed for the window’s upkeep. Similar to what happened with the Federal Long-Term Care Insurance Program (FLTCIP), if not enough feds utilize the service, then the ones who do will see their expenses rise – look at the 83% premium spike FLTCIP experienced in 2016.
Only 2-3% of TSP participants plan on using the window, which might end up being a problem, and therefore brings up the question – was opening the MFW worth it? The expenses and risks associated with the mutual funds in the MFW vary, but some presumably entail more risk (and potential reward) for investors than the TSP’s core funds. Younger TSP participants might be willing to accept these levels of risk and cost because they have longer time-horizons, but the minimum starting transfer of $10,000 and the minimum $40,000 total TSP balance required to access the window effectively excludes the investors who may be more willing to utilize the window.
The TSP Window and China
On top of all that, the TSP’s new MFW has opened up the Federal Retirement Thrift Investment Board (FRTIB) to more intense scrutiny from government watchdogs like the GAO (Government Accountability Office). And as soon as the TSP window became available to investors, Senator Marco Rubio sent a letter to the FRTIB to shut it down for a month because some of the available mutual funds contain Chinese securities – both equity and fixed income. The TSP’s governing body denied the request, arguing that all the investments are approved by OFAC and investing in the TSP window is on the given investor’s own volition.
Then, a group of US generals and diplomats released a statement, expressing their desire to see the removal of investments in the Chinese Communist Party (CCP) from the TSP. This prompted Rubio to send the FRTIB a second letter, imploring the board to reconsider the inclusion of Chinese securities. The TSP’s board responded by extenuating the fact that these mutual funds are available, and legal, for the American public to invest in, and arguing that it should be legal for TSP participants to have the same choice. A recent study on the most well known fund sponsors shows that 14%-33% of their investments in international mutual funds were weighted in Chinese securities.
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.
The Thrift Savings Plan (TSP) is a retirement savings and investment plan for Federal employees and members of the uniformed services, including the Ready Reserve. The TSP is a defined contribution plan, meaning that the retirement income you receive from your TSP account will depend on how much you (and your agency or service, if you're eligible to receive agency or service contributions) put into your account during your working years and the earnings accumulated over that time. The Federal Retirement Thrift Investment Board (FRTIB) administers the TSP.
****Investors should carefully consider the investment objectives, risks, charges and expenses of mutual funds before investing. The prospectus and summary prospectus contains this and other information about mutual funds. The prospectus and summary prospectus is available from your financial advisor and should be read carefully before investing. ****