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Critics call TSP mutual fund option risky
By Alex M. Parker
aparker@govexec.com
November 3, 2009
Lawmakers and union representatives on Tuesday questioned the proposed mutual fund window for the Thrift Savings Plan, claiming it could subject participants to unnecessary risk.
"I find it hard to understand why such a change would be advantageous for federal employees," said Rep. Gerry Connolly, D-Va., during a congressional hearing.
The 2009 Family Smoking Prevention and Tobacco Control Act includes a provision that enables federal employees to invest their retirement money into mutual funds of their choice, in addition to the broad offerings currently available through the plan. Congress allowed, but did not mandate, that the TSP board create such an option; TSP administrators have said they haven't decided yet whether to implement it, and likely will wait until other upgrades are completed.
If the TSP board decides to implement it, they likely will face more questions on the issue, if Tuesday's hearing is any indication.
The Employee Thrift Advisory Council, which includes several employee groups, is divided on the issue, as is the Federal Retirement Thrift Investment Board, the TSP's governing body. The American Federation of Government Employees opposes the idea.
"We believe that in almost every case, federal employees who would choose to utilize this mutual fund window would lower their overall rate of return on their savings, not only by exposing themselves to unnecessary risk, but also by paying the large fees and load charges that mutual funds impose on investors," said J. David Cox, an AFGE representative, at Tuesday's hearing.
The National Treasury Employee Union expressed ambivalence.
"In the abstract, the NTEU thinks it's a good idea," said union President Colleen Kelley, who also noted the risk to TSP enrollees. "NTEU's bottom line is what is in the best interest of our members."
TSP Executive Director Greg Long defended the mutual fund window option as a way to meet the demands of a small group of participants without changing the overall nature of the TSP. He noted that he had no plans to implement it until the ETAC and FRTIB agreed to the plan.
"There are a small number of participants who will always say, 'We should have a gold fund, a real estate fund, a socially conscious fund.' There's an unending list of 'whatever' funds, fill in the blank," Long said.
He noted the law requires anyone who uses the mutual fund option to pay for its implementation so no one else is subject to the fee.
While skeptical, Rep. Stephen Lynch, D-Mass., chairman of the House Oversight and Government Reform subcommittee on the federal workforce, said he hopes a compromise is possible -- for instance, limiting the type of mutual funds available to TSP enrollees.
"I know some of this sounds paternalistic," Lynch said. "But it's not just participants moving out through the window, it's retirees being bombarded with marketing information that's more driven by profit."
Lynch said he would move forward on another issue affecting the TSP: allowing participants to invest unused annual leave toward their account. President Barack Obama supported the move during a recent radio address; TSP attorneys have determined that a change in the law would be necessary to accomplish this.
From govexec.com
http://www.govexec.com/story_page.cfm?articleid=43965&dcn=todaysnews
By Alex M. Parker
aparker@govexec.com
November 3, 2009
Lawmakers and union representatives on Tuesday questioned the proposed mutual fund window for the Thrift Savings Plan, claiming it could subject participants to unnecessary risk.
"I find it hard to understand why such a change would be advantageous for federal employees," said Rep. Gerry Connolly, D-Va., during a congressional hearing.
The 2009 Family Smoking Prevention and Tobacco Control Act includes a provision that enables federal employees to invest their retirement money into mutual funds of their choice, in addition to the broad offerings currently available through the plan. Congress allowed, but did not mandate, that the TSP board create such an option; TSP administrators have said they haven't decided yet whether to implement it, and likely will wait until other upgrades are completed.
If the TSP board decides to implement it, they likely will face more questions on the issue, if Tuesday's hearing is any indication.
The Employee Thrift Advisory Council, which includes several employee groups, is divided on the issue, as is the Federal Retirement Thrift Investment Board, the TSP's governing body. The American Federation of Government Employees opposes the idea.
"We believe that in almost every case, federal employees who would choose to utilize this mutual fund window would lower their overall rate of return on their savings, not only by exposing themselves to unnecessary risk, but also by paying the large fees and load charges that mutual funds impose on investors," said J. David Cox, an AFGE representative, at Tuesday's hearing.
The National Treasury Employee Union expressed ambivalence.
"In the abstract, the NTEU thinks it's a good idea," said union President Colleen Kelley, who also noted the risk to TSP enrollees. "NTEU's bottom line is what is in the best interest of our members."
TSP Executive Director Greg Long defended the mutual fund window option as a way to meet the demands of a small group of participants without changing the overall nature of the TSP. He noted that he had no plans to implement it until the ETAC and FRTIB agreed to the plan.
"There are a small number of participants who will always say, 'We should have a gold fund, a real estate fund, a socially conscious fund.' There's an unending list of 'whatever' funds, fill in the blank," Long said.
He noted the law requires anyone who uses the mutual fund option to pay for its implementation so no one else is subject to the fee.
While skeptical, Rep. Stephen Lynch, D-Mass., chairman of the House Oversight and Government Reform subcommittee on the federal workforce, said he hopes a compromise is possible -- for instance, limiting the type of mutual funds available to TSP enrollees.
"I know some of this sounds paternalistic," Lynch said. "But it's not just participants moving out through the window, it's retirees being bombarded with marketing information that's more driven by profit."
Lynch said he would move forward on another issue affecting the TSP: allowing participants to invest unused annual leave toward their account. President Barack Obama supported the move during a recent radio address; TSP attorneys have determined that a change in the law would be necessary to accomplish this.
From govexec.com
http://www.govexec.com/story_page.cfm?articleid=43965&dcn=todaysnews
