The Federal Retirement Thrift Investment Board opposes a bipartisan Senate bill that would prevent it directing billions of dollars in retirement assets to an index fund that includes Chinese companies.
The bill "discriminates against 5.8 million employees, retirees and service members by restricting their ability to direct their money and save for their retirement. This prohibition does not apply to any other 401(k) or IRA that the more than 60 million Americans use to save for their retirement," an FRTIB memo sent to Senate staff last week said.
The board administers the $599.5 billion Thrift Savings Plan — the retirement plan for federal employees and members of the uniformed services.
A bipartisan group of senators introduced the Taxpayers and Savers Protection Act on Nov. 6. The bill would conditionally ban the investment of Thrift Savings Plan funds in securities listed on mainland Chinese exchanges. In particular, it would prohibit investment in issuers listed on foreign securities exchanges for which the U.S. Public Company Accounting and Oversight Board has not issued an audit inspection and for which the PCAOB is prevented from conducting such inspections.
The senators have taken issue with a 2017 FRTIB decision to shift TSP's I Fund benchmark to the MSCI ACWI ex-U.S. Investable Market index from the MSCI EAFE index.
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.
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 bill would eliminate the TSP's ability to offer an international stock index fund and would require the FRTIB to terminate the I Fund's investment in its current index as no index meets the requirements of the bill, according to the board memo.
"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 statutory requirement of a complete representation of the international equity markets," the memo said.
The TSP would be "an outlier amongst retirement savings plans if it does not offer the ability to invest in Canada and emerging markets," according to the memo.
Sens. Marco Rubio, R-Fla., and Jeanne Shaheen,D-N.H, sent a letter Wednesday to the leaders of the Senate Homeland Security and Governmental Affairs Committee, requesting that their bill, referred to as the TSP ACT, be "expediently" considered.
FRTIB staff members will meet with Mr. Rubio's and Ms. Shaheen's teams, as well as the committee staff, "in the upcoming days and look forward to having a discussion about the bill," Kim Weaver, the board's director of external affairs, said Friday in an email.