Interfund Transfer Restrictions -- Did it work?

[wombatlover]

I am curious about whether and to what degree the 2 transfers a month restrictions that were placed on TSP account owners has had -- now that they've been in place for almost 2 years. At the time the restrictions were started, the TSP said that the primary reason was to control costs, and they gave a couple examples of what those costs were.

OK -- so has anyone seen any "after the fact" results? Did these restrictions actually result in significant and measurable savings to all TSP members in reduced transaction costs? Or have transaction costs been about the same with the restrictions in place as they were before they went into effect?

I'm very curious. Seems to me that if the savings were small or non-existant, then maybe a modification of the restrictions would be in order. Maybe not to eliminate them altogether, but perhaps allowing 3 or 4 or 5 a month vice 2 would be possible.

Thank You!

 

[Frixxxx]

I'm very curious. Seems to me that if the savings were small or non-existant, then maybe a modification of the restrictions would be in order. Maybe not to eliminate them altogether, but perhaps allowing 3 or 4 or 5 a month vice 2 would be possible.

Thank You!

Hard to even track when they don't even post the numbers for THREE FREAKIN MONTHS.

No meeting minutes in November, blizzard in December, no posts from January.....WTF!

Yes, I'm not HAPPY!

Now that it is after 9:00AM I can post this....(traffic issues)

We (TSPers) never got full representation during the decision making process. We got the short end of the stick.

Overall, I think James showed that costs either marginally went down or not at all. I even think that our "I" fund trading was actually making money.

EITHER WAY, No, we asked for other alternatives and we are waiting to see if a Roth IRA may be stood up....But I don't think that can offset the trading "rahm"ifications.

Whew.....I'm really still upset about this:suspicious:

 

[tsptalk]

Welcome wombatlover! I will make James aware of this thread. He may have some updated info.

 

[James48843]

Costs went UP significantly.

I'll have to go pull last year's data, but I know it was a lot.

I'll look at it this weekend and try to put together a posting on it.

 

[James48843]

First, here is a clip out of the November, 2009 meeting minutes, which are available in the Electronic Reading Room over at FTRIB:

Ms. Ray noted that the trading costs for the I Fund were relatively high in October; 13.4 basis points. However, the overall impact was low because only a small dollar amount was traded.

I would point out that while 13.4 basis points is a HUGE increase in expenses for the I fund, overall the expenes have shot up a great deal MORE than that since trading limits have been imposed:

The International Fund had a tracking error of negative 114 points, and year-to-date, negative 308 basis points. This is a result of fair value adjustments.
Ms. Ray noted that there was a big fair value adjustment on the last day of October
when the Dow Jones Industrial Average fell 250 points.

You see, before trading limits were imposed, the costs associated with trading and the administrative costs of the TSP were LIGHTYEARS below any other vehicle out there, and costs were falling every year.

Once they imposed limits, TSP's costs soared, and we're now about double the costs than we were before.

I need to digest all the data and put up some charts this weekend, so you can see what I am talking about. December's minutes are not yet posted, so I can't tell you the full year's numbers yet, but I 'll try and do a 12-month rolling average to give you an idea of just how much costs have jumped, and the actual fund prices have missed the targets of their indexes since trading limits have been imposed.

 

[James48843]

The last time I studied it was July's data. This is what I got then. I was going to hold off until the end of the year data was available before I said anything- remember, the more data, the more you can see exactly what is happening.

Anyway- here's the data I did in July:

Expenses through JULY 2009 (7 months into a 12 month cycle). The 2009 data reflects ONLY the first seven months, not a full end-of-year, as shown in the prior years. This pic is posted here just so I have a place to put it for now. I haven't forecasted where these kinds of expenses would track out for a how year (the numbers here for 09 are expenses that would be 7/12ths of a year).

0.030% for seven months (GROSS) worth of expenses, would work out to .051428% for the whole 12 months. That would be another huge increase in expenses.

NET expense for seven moths is 0.0156%, divided by 7 months, times 12 months, would work out to 0.0267% for a whole year, if they stayed on track. That also would be a huge increase for one year, the highest NET expenses since 2006.

Note- this is just Admin expense-

Now I have to go look at the tracking errors, and then also the costs of trades, and see what's up with that.

 

[James48843]

Some more- using data from July and before:

Tracking error (Through end of July 2009) . Notice that the I fund (EAFE) took two big "Fair Value Adjustments", on the 31 of July, and the 31 of December. They are now regularly clipping the I fund holders on the last trading days of the month with big corrections, instead of the old policy of trying to match as closely as possible a tiny bit each day. Now it's more common to see occasional "takings" of money at the end of the month. That is an actual change in philosophy and practice from the years before.

 

[James48843]

Trading costs. I'm going to clip the pictures, and then post them side by side for three years, and then analyze the data later. here is the July 2009 trading cost report:

2008

2007

That was July data also.

Remember, when you say "TSP Costs" , you are actually talking three things-

1. The costs that is takes to actually trade the stocks in other markets. That's call trading costs.

2. The errors made when YOUR fund price doesn't exactly match the prices paid when you trade on foreign overnight markets. We talked about that as being because the TSP sets the fund price at 7 o'clock at night, while the actual trades of those stocks don't take place until the markets are functioning overnight. In Japan, that is after 7pm eastern time. For Europe, that's about five a.m. the next morning eastern time. That's called the "tracking error". That's how much YOUR account is off of the target price if you had been in the actual foreign stocks themselves, and it caused by the fund manager timing in London.

3. Administrative expense, which is the expenses of TSP administering your account, sending out mailings, a new website, the staff costs of Mr. Long and Ms. Ray, and all the employees on the payroll, and the contractors who run the website and the thrift line. Before trading limits were imposed, much of that administrative cost was off-set, in part, by "slush fund" money generated by being able to reduce tracking error and trading costs. Part of that is also paid by those who leave the government, and forfeit the government contribution portion of their non-vested TSP account.

So to get a fair picture of the question "So what happened to costs after they imposed limits", you really have to take into account all three of those questions.

And, at the same time, understand that it's not a pure "apples to apples" equation, because other things also changed around the same time.

For example-- before, employees didn't get matching funds until six months after they started work. If they left their agency before a year was up, they lost the matching funds, which then went to the TSP kitty for paying "administrative funds".

Today, people get "matching funds" immediately. So, one would presume, there would be more people counted in "leaving their agency before being vested", as some (a few) employees get fired in the first six months of their employment (or don't pass background checks, or whatever.)

So, theoretically, there should be MORE funding available to TSP to lower "administrative costs".

Yet, as we're about to see, administrative costs have gone UP, not down, since limits were imposed.

 

[James48843]

Here is the data through October of 2009. As you can see, the actual costs for trading, both as a real dollar value, and as a percentage basis point, has soared over 2007 "Free Trading" times, especially costs for the S and C funds:

View attachment 8455
​

 

[James48843]

Costs for the I fund trading have doubled, from 2.6 basis points in the freewheeling 2007 year, to 4.7 basis points this year.

C fund has gone from actually making a trading "profit" of -0.3 (NEGATIVE) basis points of expense in 2007, to a cost of over $2 million dollars, and 2.3 basis points in 2009.


See how much fun this is?

So how do you get the Thrift Board to realize they made a mistake, and change course?

(answer: You don't. They are part of that "big money" crowd, and they are sucking in all that loot.)

 

[James48843]

Now, when you add in "tracking error", you see how much "they" are skimming off the top. Despite the best efforts of the fund traders now at Barclays, the reduced slush fund amount from imposed trade limits means they have less to work with, and it ends up costing YOU as a TSP fund holder, a percent here or there.

Here is the actual returns for the year through the end of October 2009. On the far right is the change in the actual index value.

On the far left, is what the TSP actually paid out.

This is the tracking error we talked about. It USED to be very, very little. Now the spread is pretty wide.

Note: Compared to private industry, TSP funds are still much lower costs, and pretty accurate reflections of fund indexes. However, it USED to be much better -- much more accurate--before trade limits were imposed.

View attachment 8456

​

 

[tsptalk]

Great work James! I'm going to PM you about getting this info published.

 

[350zCommTech]

Great work James!

I second that!

 

[coolhand]

Very nice James. Appreciate it.

 

[XL-entLady]

Adding my thanks to the group! Hard to read but important to know.

Lady

 

[grandma]

Yes! My appreciation & thanx too!
I imagine we will all be looking forward to recommendations on how to effectively attack this assault -

 

[WorkFE]

Thanks James, very eye opening. I suggest a must read (Voluntarily of course) for everyone on the MB

 

[LAT]

Say, I am kinda new to this posting and want to make sure I am in the right place and time to ask a question regarding the interfund transfer rules.

Thanks,
LAT

 

[Frixxxx]

Say, I am kinda new to this posting and want to make sure I am in the right place and time to ask a question regarding the interfund transfer rules.

Thanks,
LAT

Good place to start...Ask away!

 

[tsptalk]

Say, I am kinda new to this posting and want to make sure I am in the right place and time to ask a question regarding the interfund transfer rules.

Thanks,
LAT

Here is OK, but it may be easier for others to find your question in the TSP News forum / TSP Transfer Limits subforum...

http://www.tsptalk.com/mb/forumdisplay.php?f=10

Once in that forum, click on the TSP Transfer Limits link, and create a "New Thread".