Federal Retirement Thrift weighs TSP China investment as pressure mounts

Federal Retirement Thrift Investment Board, Washington, is considering whether to move forward with plans to shift billions of dollars in retirement assets to an index fund that includes Chinese companies allegedly involved in human rights and espionage abuses,as pressure from Capitol Hill mounts.

A bipartisan group of senators has taken issue with a November 2017 decision — recommended by Aon Hewitt Investment Consulting — to shift the Thrift Savings Plan's I Fund benchmark to the MSCI ACWI ex-U.S. Investable Market index from the MSCI EAFE index.

As of Dec. 31, TSP's I Fund had $40.7 billion in assets.

On Oct. 22, Sens. Marco Rubio, R-Fla.; Jeanne Shaheen, D-N.H.; Mitt Romney, R-Utah; Kirsten Gillibrand, D-N.Y.; Josh Hawley, R-Mo.; and Rick Scott, R-Fla., sent a letter to Michael Kennedy, chairman of the FRTIB, which administers the $599.5 billion TSP — the retirement plan for 5.6 million federal employees and members of the uniformed services — urging the board to reconsider its 2017 decision.

The letter is similar to one sent by Mr. Rubio and Ms. Shaheen in August to which Mr. Kennedy responded in September and said the FRTIB was "taking this opportunity to consider all relevant information to ensure we reach a prudent decision."

At a FRTIB meeting Monday, Aon presented an updated study of the TSP's I Fund benchmark and recommended the board move forward with the change. "Moving from the MSCI EAFE Index, which represents 58% of the international equity market, to the MSCI ACWI ex USA IMI Index, which represents 99% of the international equity market, is a more representative benchmark and better fulfills the intent" of the board's mission, the study said.

The change in investment strategy is set for implementation next year. About 8% of the MSCI ACWI ex-U.S. IMI is made up of Chinese companies, as of Sept. 30, according to the Aon study.

The MSCI ACWI ex-U.S. IMI index includes "many firms involved in the Chinese government's military, espionage, human rights abuses and 'Made in China 2025' industrial policy, and therefore poses fundamental questions about the board's statutory and fiduciary responsibilities to the American public servants who invest in federal retirement plans," the August letter from Mr. Rubio and Ms. Shaheen said.

In a statement Tuesday, Mr. Rubio said it's unacceptable that the FRTIB did not "reverse their shortsighted decision to fund the Chinese Communist Party's efforts to undermine U.S. economic and national security with the retirement dollars of our service members and federal employees. It's clear the board will not act in the best interests of the United States, reverse this misguided decision and protect our national interest, as well as those who serve it."

Mr. Rubio said he will be introducing bipartisan legislation "to ensure that federal retirement savings can never be a source of wealth funding the Chinese Communist Party at the expense of our nation's future prosperity."

Kim Weaver, the board's director of external affairs, said in an email that the board is reviewing the senators' most recent letter and will respond. The board will make a decision on the I Fund benchmark at a "future meeting," Ms. Weaver said. The board's next meeting is Nov. 13.