The board overseeing the Thrift Savings Plan is taking aim at day traders by restricting the ability of plan participants to shift money between funds to only twice a month.
A board study released at its monthly meeting showed that about 3,000 of the 3.8 million TSP enrollees are frequently shifting billions of dollars from plan to plan, sometimes on a daily basis.
Board chairman Andrew Saul said the practice amounts to day trading. The board said the excessive transfers are hurting TSP by driving up transaction expenses from $2.2 million in 2004 to more than $15 million in 2006.
The board also will send letters to the 3,000 frequent traders in December telling them to cut back on their transfers. If they don’t, the board will take away their abilities to trade online, and they will have to physically mail in their transfers.
“Those 3,000 people will not be happy, and they will complain, some of them very loudly,” Executive Director Gregory Long said. “But the board’s job is to take care of all participants, and this is clearly in their best interests.”
The TSP will install the twice-monthly restrictions into its software by March or April. Frequent traders who ignore warnings and lose their online trading privileges will regain them when the restrictions are up and running.
All TSP investors will be notified about the restrictions in a letter that will be included in the annual statement, expected to be mailed in early February.
Chief Investment Officer Tracey Ray said the problem has grown in recent years and is getting worse. Investors traded nearly twice as much money during the first 10 months of 2007 as was traded in all of 2006, she said.
For example, Ray said on Oct. 19, about 2,000 participants moved $295 million into the I Fund’s international stocks. Those 2,000 participants then shifted their money out of the I Fund five days later. Most of the daily trading involves the I Fund, Ray said.
Ray said limiting transfers to twice a month should be more than enough, and is more flexible than most mutual fund groups allow. The board decided not to charge transfer fees, as some fund companies do, because some people may accidentally click the wrong button on the Web site and unintentionally shift money.
The board included one exception into the trading restrictions: Investors will be able to shift money into the lower-risk, lower-reward G Fund at any time. This is intended to give investors an option if they have already used their two monthly transfers and become frightened about market activity.
