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[Federal Register: December 27, 2007 (Volume 72, Number 247)]
[Rules and Regulations]
[Page 73251-73252]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr27de07-1]
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Rules and Regulations
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains regulatory documents
having general applicability and legal effect, most of which are keyed
to and codified in the Code of Federal Regulations, which is published
under 50 titles pursuant to 44 U.S.C. 1510.
The Code of Federal Regulations is sold by the Superintendent of Documents.
Prices of new books are listed in the first FEDERAL REGISTER issue of each
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[[Page 73251]]
FEDERAL RETIREMENT THRIFT INVESTMENT BOARD
5 CFR Part 1601
Participants' Choices of TSP Funds
AGENCY: Federal Retirement Thrift Investment Board.
ACTION: Interim rule, with request for comments.
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SUMMARY: The Agency is amending its interfund transfer regulations to
provide that the Executive Director may adopt a policy of setting
limits on the number of interfund transfer requests. In the near term,
this amendment will allow the Executive Director to immediately address
and, if necessary, restrict the activity of frequent traders, who have
disrupted management of the Funds and whose activity has resulted in
increased costs to participants.
DATES: This interim rule is effective January 7, 2008.
ADDRESSES: Comments may be sent to Thomas K. Emswiler, General Counsel,
Federal Retirement Thrift Investment Board, 1250 H Street, NW.,
Washington, DC 20005. The Agency's Fax number is (202) 942-1676.
FOR FURTHER INFORMATION CONTACT: Tracey Ray on (202) 942-1665.
SUPPLEMENTARY INFORMATION: The Agency administers the TSP, which was
established by the Federal Employees' Retirement System Act of 1986
(FERSA), Public Law 99-335, 100 Stat. 514. The TSP provisions of FERSA
are codified, as amended, largely at 5 U.S.C. 8351 and 8401-79. The TSP
is a tax-deferred retirement savings plan for Federal civilian
employees and members of the uniformed services. The TSP is similar to
cash or deferred arrangements established for private-sector employees
under section 401(k) of the Internal Revenue Code (26 U.S.C. 401(k)).
Interfund Transfer Requests
The Agency is amending its regulations pertaining to interfund
transfers. While most private-sector defined contribution plans, record
keepers and/or investment managers, e.g., Vanguard, Federated, ING,
Janus, and Royce, have adopted policies designed to limit frequent
trading, the Agency currently places no limit on its participants
regarding the number or frequency of interfund transfers.
Recently, however, this policy has been called into question as
excessive trading caused costs borne by TSP participants to more than
double from 2005 to 2006 (from $6.7 million in 2005 to $15 million in
2006), and this pattern of frequent trading has continued in 2007.
These costs, which have resulted largely from the activities of
approximately 3,000 of the TSP's 3.8 million participants, increase
expenses for all TSP participants. In 2006, the unrestricted trading in
the I Fund resulted in trades of $12 billion of securities with
associated trading costs of $13.8 million or 8 basis points ($.80 per
$1,000); nearly three times the TSP's net administrative expense of 3
basis points ($.30 per $1,000).
Because the Board and Executive Director have a fiduciary duty to
manage the TSP prudently, for the exclusive purpose of providing
benefits to participants and their beneficiaries and defraying
reasonable expenses of administering the Thrift Savings Fund, the
Agency must respond to this abusive and costly investment activity. 5
U.S.C. 8477(b).
As mentioned, the Agency studied the policies of other funds as
well as regulatory guidance from the Securities and Exchange Commission
(SEC). Vanguard, for example, limits its participants to one repurchase
every sixty days, and the SEC recommends that, under certain
circumstances, plans charge trading fees. Other investment vehicles
limit participants to a fixed number of trades per year or charge fees
on certain redemptions.
The Agency desires to stop this excessive trading immediately and
also, after continued analysis, to design an interfund transfer policy
that provides for administrative efficiency, investment flexibility,
retirement security, as well as reduced trading costs.
To that end, in the near term, the Agency is adopting a regulation
to grant the Executive Director the authority to notify the small
percentage of participants who are driving up costs through their
excessive trading and request that they cease their practices.
Otherwise, these participants will be required to request interfund
transfers by mail. It is the Agency's hope that this swift and direct
action will inform such participants of the unreasonable expenses
associated with their trading and persuade them to voluntarily curb
their trading, thereby curtailing the excessive trading costs borne by
all participants who hold the C, F, S, I, and L Funds.
Further, upon continued inquiry, including an analysis of the
actions that can be taken on an automated basis, the Agency likely will
amend its regulations (via a separate publication in the Federal
Register) to permit two interfund transfers per calendar month with
subsequent unlimited interfund transfers only into the G Fund. The
Agency believes this policy, when compared to others adopted in the
private sector, provides the desired level of administrative
simplicity, investment flexibility and security, and control over
excessive trading.
Regulatory Flexibility Act
I certify that these regulations will not have a significant
economic impact on a substantial number of small entities. They will
affect only employees of the Federal Government.
Paperwork Reduction Act
I certify that these regulations do not require additional
reporting under the criteria of the Paperwork Reduction Act.
Unfunded Mandates Reform Act of 1995
Pursuant to the Unfunded Mandates Reform Act of 1995, 2 U.S.C. 602,
632, 653, 1501-1571, the effects of this regulation on State, local,
and tribal governments and the private sector have been assessed. This
regulation will not compel the expenditure in any one year of $100
million or more by State, local, and tribal governments, in the
aggregate, or by the private sector. Therefore, a statement under Sec.
1532 is not required.
Submission to Congress and the General Accounting Office
Pursuant to 5 U.S.C. 810(a)(1)(A), the Agency submitted a report
containing this rule and other required information
[[Page 73252]]
to the U.S. Senate, the U.S. House of Representatives, and the
Comptroller General of the United States before publication of this
rule in the Federal Register. This rule is not a major rule as defined
at 5 U.S.C. 814(2).
List of Subjects in 5 CFR Part 1601
Government employees, Pensions, Retirement.
Gregory T. Long,
Executive Director, Federal Retirement Thrift Investment Board.
0
For the reasons set forth in the preamble, the Agency amends 5 CFR
chapter VI as follows:
PART 1601--PARTICIPANTS' CHOICES OF TSP FUNDS
0
1. The authority citation for part 1601 continues to read as follows:
Authority: 5 U.S.C. 8351, 8438, 8474(b)(5) and (c)(1).
0
2. Amend Sec. 1601.32, by revising paragraph (b) to read as follows:
Sec. 1601.32 Timing and Posting Dates.
* * * * *
(b) Limit. There is no limit on the number of contribution
allocation or interfund transfer requests that may be made by a
participant. In order to mitigate excessive trading expenses, the
Executive Director may write to any participant who engages in
excessive trading and ask the participant to stop this practice. If the
participant continues to engage in excessive trading, the participant
may be required to request interfund transfers by mail.
[FR Doc. E7-25007 Filed 12-26-07; 8:45 am]
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