The Federal Retirement Thrift Investment Board, Washington, is moving forward with plans to shift billions of dollars in retirement assets to an index fund that includes Chinese companies, despite calls from Capitol Hill to reverse course.
"We are fiduciaries to 5.6 million people and we have to make the decision that's in the best interest of the greatest number of those people," said Dana K. Bilyeu, a FRTIB member at board meeting Wednesday.
The board, which administers the $599.5 billion Thrift Savings Plan — the retirement plan for 5.6 million federal employees and members of the uniformed services — has been reconsidering a 2017 decision to shift TSP's I Fund benchmark to the MSCI ACWI ex-U.S. Investable Market index from the MSCI EAFE index.
The change in investment strategy is set for implementation next year. As of Dec. 31, TSP's I Fund had $40.7 billion in assets.
The new index is made up of about 8% Chinese companies, as of Sept. 30, according to an Aon Hewitt Investment Consulting study presented to the board last month. Aon recommended the board switch to the MSCI ACWI ex-U.S. IMI index in 2017 and reiterated that recommendation last month.
A bipartisan group of senators, led by Marco Rubio, R-Fla., and Jeanne Shaheen, D-N.H., have pressed the board to reverse course in recent months, including in an Oct. 22 letter to Michael Kennedy, chairman of the FRTIB.
At the meeting Wednesday, Clifford Dailing and James Sauber, chairman and vice chairman, respectively, of the Employee Thrift Advisory Council, which provides advice to the FRTIB, said their members believed the board should move forward with the I Fund benchmark shift.
Over the years, there have been a variety of complicated foreign policy issues, Mr. Sauber noted. "I think over time we've come to the position that we just did not want to let political issues interfere with the decision making of the board and what investments are available," he said.
William Jasien was the lone FRTIB member to oppose the decision. He made a motion to table the decision for 12 to 18 months so the board can go to Congress and ask it to expand the I Fund offerings to include access to international markets without exposure to emerging markets and China. His motion was denied.
A bipartisan bill — the Taxpayers and Savers Protection Act — was introduced Nov. 6 that would conditionally ban the investment of TSP funds in securities listed on mainland Chinese exchanges. In particular, it would prohibit investment in issuers listed on foreign securities exchanges where the U.S. Public Company Accounting and Oversight Board has not issued an audit inspection and where the PCAOB is prevented from conducting such inspections.
In a presentation Wednesday, Megan G. Grumbine, the board's general counsel and secretary, highlighted portions of the 1986 legislation that created the TSP that she said shows TSP accounts are private, not federal, property. "The employee owns it and it cannot be tampered with by any entity including Congress," Ms. Grumbine said, reading the legislation.
"It's unconscionable that the Federal Retirement Thrift Investment Board did not reverse their short-sighted — and foolish — decision to transfer the retirement savings of our service members and federal employees to the Chinese Communist Party," Mr. Rubio said in a statement Wednesday. "The board's refusal to act in the best interests of the United States will not go without consequence." He urged his colleagues to pass the Taxpayers and Savers Protection Act.