Federal Retirement Thrift Investment Board, Washington, voted unanimously Wednesday to pause its implementation of plans to shift billions of dollars in retirement assets to an index fund that includes Chinese companies, citing the COVID-19 pandemic and newly nominated board members.
In 2017, the board decided to shift the $593.7 billion Thrift Savings Plan's I Fund benchmark to the MSCI ACWI ex-U.S. Investible Market index from the MSCI EAFE index. The new index was made up of about 8% Chinese companies, as of Sept. 30, according to an Aon Hewitt Investment Consulting study presented to the board in October. Aon recommended the board switch to the MSCI ACWI ex-U.S. IMI index in 2017 and reiterated that recommendation last fall.
As of Dec. 31, TSP’s I Fund had $54.3 billion in assets.
Facing calls from Capitol Hill to reverse its decision, the board in November decided to move forward.
But on May 4, President Donald Trump nominated three people to the five-member board that, upon Senate confirmation, could lead to a new majority.
Then on Monday, two letters were sent from administration officials regarding the I Fund shift — one from Larry Kudlow, director of the National Economic Council, and Robert O'Brien, national security adviser, to Labor Secretary Eugene Scalia. Another letter was sent from Mr. Scalia to Michael D. Kennedy, chairman of the FRTIB.
The letters sent Monday also referenced “national security and humanitarian concerns for the United States.”
"At the direction of President Trump, the board is to immediately halt all steps associated with" the I Fund shift, and "to reverse its decision to invest plan assets on the basis" of the MSCI ACWI ex-U.S. IMI index, Mr. Scalia said.
With that backdrop, the board held a special meeting Wednesday and decided to stop the planned implementation, which was going to start around June 1 and take about 90 days, Mr. Kennedy said.
In his recommendation to the board, Mr. Kennedy outlined why he felt it was prudent to pause implementation. "The coronavirus has had an impact on countries and markets all over the world," he said. "It's created a lot of uncertainty and we're not sure that now would be the time to be making a transition to the international fund with investments in emerging markets because those markets are going to be challenged and we're not sure what they're going to look like over the next two or three years."
Mr. Kennedy added: "Secondly, this will allow the new board members to be fully confirmed and be transitioned onto our board and allow them time to do their own due diligence and assessment on the (I Fund) and make the determination on which direction they would like to go."