TO: Joe Lkenberry, NARFE,
CC: ALL ETAC MEMBERS
January 14, 2008
Dear Joe:
I recently saw a copy of a message you sent out- and I think, after reading it, that you are not getting the full story.
My name is Jim XXXXX, and I am the organizer of TSPSHAREHOLDER.ORG. I also serve on the Finance Committee of my Union, XXXXXX (URL FOR UNION)
And I am experienced in dealing with TSP financial matters, financial planning, and have worked to help hundreds of federal employees and Army Soldiers plan their financial futures.
After reviewing the data the Thrift Board is putting out, I am greatly concerned. I sincerely believe the TSP Board is misleading you on several accounts. The data you are seeing regarding the TSP Costs are not the full picture, and it appears you all are not getting the full story.
I hope to be able to explain it more clearly for you- and I ask that I be allowed to meet with all of you to explain this in more detail.
Joe, in your recent email, you said: “The TSP information is that the daily transfers have now increased the administrative cost by 50% since they were instituted. The main use has been in transfers in the I Fund. “
First of all, this is simply not true. There are two types of costs in dealing with the TSP. The first is Administrative costs. The second is Trading costs.
First, let’s compare TSP Administrative costs to those in private Mutual funds. TSP’s current administrative costs are just 1 basis point per year. That’s .0001%.
In the Mutual Fund world, that is an unheard of low amount of cost. Mutual funds typically run 60 to 75 basis points. You said “Daily transfers have now increased the administrative costs by 50% since they were instituted.” In fact, in 2003, Administrative costs were 10 basis points. IN 2007, they were 1 basis point. Administrative costs have GONE DOWN BY A FACTOR OF TEN.
Next, let’s compare “trading costs”.
The Thrift Board told your ETAC member that trading costs were increasing. That is not true.
The briefings given to the Thrift Board in October cited:
2005 trading costs were 8 million.
2006 trading costs were 16 million.
2007 trading costs were 25 milion.
In actuality, trading costs in 2007, through the end of October, were actually just $11,276,176. True, the last two months have not yet been reported, but there is NO WAY that 2007 costs will be 25 million. Tracey Ray gave the ETAC incorrect numbers. Trading Volume went up, but COSTS went down.
As a percentage of the amount traded, trading costs have been cut almost in half between 2006 and 2007. In 2006 is was 8 basis points for the I fund. IN 2007, as of the end of October, it was 5.6 basis points. October is the last month that data is publicly available. As the amount of dollars being traded has increased, but the costs has actually gone DOWN.
I’ll give you two sources to learn more about that: The Thrift Board’s October 2007 report of data, located at:
http://tspshareholder.org/data/Nov_2007_2.pdf
And the TSPShareholder.org newsletter Vol. 1, number 4, at:
http://tspshareholder.org/newsletters/Vol1_No4.html
Next: You stated:
“One problem is that transfers are often entered in the evening. These transfers do not take place until the next day. Even if the price has decreased, the TSP is obligated to transfer in at least the amount of the previous close.”
That is not true either. The transfers are all placed before noon. The trade is then executed overnight. What you are referring to is called “Fair Valuation”, and will not be affected at all by the proposed limits. Fair Value is used by the TSP Board, but it doesn’t have to be. If they chose to price the fund value at 7 a.m. the next morning instead of 7 pm., the fair value issue would be eliminated. But Fair Valuation is not bad. It allows Barclays, the trader, to skim pennies off of those who trade their funds, and puts the money into the hands of those who buy-and-hold. In 2007, through October, this Fair Value skimmed 216 MILLION dollars off those who traded shares, and put it into the hands of those who are “buy-and-hold” I fund share holders.
TSPSHAREHOLDER.ORG wrote about this issue in
http://tspshareholder.org/newsletters/Vol2_No2.html
Finally, you wrote: “ If the price has actually decreased, the TSP takes the loss, and adds this to all enrollee’s administrative costs. To discourage this increase in administrative costs, the TSP plans to pass on this additional cost. “
Unless you know something we don’t know, this is not true either. It is our understanding that passing on additional costs are not on the table as an option. It is our understanding that the Thrift Board, and it’s ETAC members, are planning to limit interfund transfers, not pass on costs.
What really hurts those of us who actively manage our accounts is that WE KNOW the numbers being pushed by Tracey Ray at the Thrift Board are not the whole picture, and the ETAC NEEDS to ask the right questions in order to see the big picture. We can help- if we can just talk to you all, and show you the data.
To put it as simply as I can, let me say this:
Those who make regular interfund transfers HELP those who buy-and-hold. Trading HELPS them, it doesn’t hurt them.
If your ETAC member needs some more information to better understand this, we would be happy to meet with him, and give him a presentation to show him the facts in this case. We’ve got data, and can very clearly explain the information they are getting from the Thrift Board is not the complete picture, and that they need to understand ALL the information before they can properly represent employees, and give feedback to the Thrift Board.
I plan to travel to Washington D.C. the first week in March. I’d love to meet with Richard, and any other ETAC member who will meet with us, to sit down and discuss the real numbers, and a whole host of options that the ETAC COULD recommend that would improve the TSP. I will be arriving in D.C. March 1st, and will be in town for a few days. I am willing to sit down with ANY ETAC member or rep and explain all this.
Please let me know how we can meet and discuss this issue.
I am availabe at any time, 24/7, to talk to any ETAC member or their rep to discuss these issues and offer alternative suggestions.
My phone number is (XXX-XXX-XXXX_)
My e-mail is
XXXX@XXXXX.net
Sincerely,
Jim XXXXXX,
Federal Employee,
Retired Army National Guard Officer,
and
Member, TSPSHAREHOLDER.ORG
e-mail:
XXXXX@XXXXXX.net
