TSP News: Interfund Transfers, Restrictions Lifted, & I-Fund Changes

While markets continue to experience volatility which has not been seen in over a decade, the governments defined contribution plan for federal employees, the TSP, has been seeing a flurry of activity both connected to the markets as well as to the dilemmas associated with the current COVID-19 crisis. Here are a few items making headlines in your TSP.

Participants' reaction to recent volatility-

Sean McCaffrey, the CFO of TSP reported that although March 2020 marked an “all-time high” for inter-fund transfers, the data shows that 93% of participants did not make any moves during the month. This shows that an overwhelming majority of participants seem to be heeding the advice to “stick to the plan” and not making changes in reaction to the overall market volatility. History shows that sticking to an investment strategy over the long term generally provides investors with the best long term outcomes.

Restrictions on some TSP requirements lifted-

1. As a result of the CARES act legislation passed in April 2020 TSP participants who would otherwise be required to take a required minimum distribution this year will not be forced to do so.
2. Notary requirements waived for TSP withdrawals- Usually, when a withdrawal is made from TSP there is a notary required for the participants as well as the spouse’s signature, (when required). Due to social distancing and stay at home orders, the TSP has waived this requirement and will process requests without a notary signature.

Controversy over possible investments in China

The White House has indicated they will take action to block the planned changes that are expected later this year to the I fund. Currently, the I fund invests largely in European countries, with some exposure to Australia and the Far East. In 2017 the Board that oversees the investments offered in TSP voted to expand the I fund to include an additional 48 countries around the world, one of which would potentially include China. There has been Congressional backlash to this decision arguing that by including China we could be supporting their militia and human rights abuses. The opposition has been lobbying the President to take action for several months and he is reportedly ready to move forward. Those in favor of the move argue that in the private sector, participants are provided with the opportunity to invest in such countries, often referred to as emerging markets. The argument at its core is that federal employees should be given similar investment options as their private-sector counterparts. Notably, the largest publicly traded companies in the U.S., as well as the largest federal contractors, and largest state pension systems all offer the emerging markets asset class to their retirement plan participants.

As always, at Serving Those Who Serve- we are here to support and answer your questions. Please reach out to us with your questions and concerns during these unprecedented times.