FEDERAL DIARY: Thrift Savings Plan hopes to slow down frequent traders
By STEPHEN BARR http://www.kansascity.com/business/story/425682.html
The Washington Post
Jim Pratt, who works for the
Federal Aviation Administration in Michigan, made 28 stock and bond trades in 2007 through his Thrift Savings Plan account. With the trades, Pratt hopes to build a big nest egg for retirement.
“I know my own experience, my own level of comfort with risk,” he said. “I should be able to place the money where it works for me. If I guess wrong, I have to live with the consequences.”
In November, the thrift plan board voted to crack down on government employees who try to beat the stock market by jumping in and out of savings plan funds every few days, saying “frequent traders” are driving up plan costs and eroding returns for other participants.
The proposal would limit participants to two trades a month, although employees who think they made an investment mistake would be allowed to move their money into the plan’s risk-free government securities fund.
Pratt objects to the proposal, saying: “The TSP is taking away the freedom to manage your own retirement fund.” He has launched an Internet-based campaign at
www.tspshareholder.org to stir opposition to trading limits.
The campaign, which has drawn about 2,200 signatures on a petition, urges federal employees to call and write the thrift program and the
Employee Thrift Advisory Council, a group of unions and management associations that represent employee interests.
The council met before Christmas, and some of the union and management association representatives said they had received several e-mails objecting to the TSP’s plan. The council meeting was called by James W. Sauber, council chairman and chief of staff to the
National Association of Letter Carriers, to learn about the proposed trading curbs.
TSP executive director Gregory T. Long, TSP chief investment officer Tracey A. Ray and external affairs director Tom Trabucco briefed the council and took questions.
Ray said about 3,000 thrift plan members with large accounts are moving in and out of the market quickly, trading large amounts of dollars that drive up the plan’s costs. The board’s research showed that participants stepped up transfers among the plan’s five funds about two years ago, she said.
For example, Ray said, on Oct. 19, federal employees transferred $371 million into the international stock fund, and on Oct. 24 took $391 million out of it. The transactions were made by 2,018 employees, and 323 traded $250,000 or more.
The thrift plan also found that these 323 employees made 18 trades in a 40-day period, with one person trading more than $1 million back and forth a number of times.
Such trading, with large dollar volumes, has led to higher broker fees and other transaction costs, especially in the international fund, Ray said.
Twenty years ago, Congress designed the program, a 401(k)-type plan, on the theory that employees would buy and hold stocks and bonds for the long term as a supplement to their pensions. But the Internet allows employees to more easily track stock markets, swap advice on Web sites, and file a buy or sell order from a TSP fund each morning of the workweek.
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Obviously this message is directed to Mr Vreeland, not gibovin.