What YOU can do to fight back - IFT limit

[JonesH2O]

The one interesting statistic I caught was T. Trebucco's comment that there are currently 923,000 retired feds in TSP and as more retire they are not withdrawing/rolling over their accounts, they are staying in. We need to get AARP involved in our fight, if possible.

With this number of retired Feds in TSP, NARFE (National Active and Retired Federal Employees Association) should also be involved in the fight. http://www.narfe.org/

 

[GreenMachine]

Got a response from Senator Benjamin Cardin of Maryland from the fax I sent. First they called me then followed up with a letter. In my fax I stated that there needs to be some oversight with regards to how TSP is implementing the changes and how they tried to do it over the holidays.

They said my concerns have been referred to the Thrift Investment Board and would be in touch as soon as they have pertinent information to report.

 

[RAE]

I've been meaning to check-up on whether the January 7th change was actually made. If you go to the following link on the Electronic Code of Federal Regulations for Title 5, Part 1601, Sec. 1601.32 (b), you will see that the change was officially made. Looks like more letter writing to Congress is what's needed to call for an investigation (as stated by anidoc) and ask for the the interim rule to be withdrawn.

http://ecfr.gpoaccess.gov/cgi/t/tex...div8&view=text&node=5:3.0.4.5.2.4.48.2&idno=5

I don't really see from this that that the rule has actually been implemented. The Dec. 27th posting date is still at the bottom of the document.
If it has been, then FRTIB really screwed up, because they're supposed to
publish a Final Rule in the Fed. Register before implementing anything that
is proposed in an Interim Rule. In that Final Rule posting, they are
supposed to address comments received on the proposed Interim Rule. None
of that has happened, as far as I know. If they actually are trying to
implement this change without following that process, it will work in our
favor in the long-run - because any changes made to IFT restrictions that
are based upon a flawed process (which this clearly is) will have to be
overturned in the end, when it is challenged. Anidoc and Paladin, what do
you guys think about this? Am I wrong?

 

[RAE]

From what I know of the rule-making process, at least the way "my" agency does it, you are correct, Rae. The only thing you may be a bit off about is that this was an interim rule, so the date 12/27/07 FR publish date in the CFR is correct. I expect that the "Final Rule" they will publish will be the actual limits, with all the comments from this one as well as any new ones we submit when the proposed Final Rule is published in the FR. This may explain why they did not specify a comment period for this interim rule. However, they have still bypassed the rule-making procedure. I also find it very fishy that it bypassed the rule-making process and still got into the 1/8/08 CFR - just like FRTIB said they wanted - implemented 1/7/08. Push Congress! And we need to put more pressure on ETAC, I find it strange that they are so reluctant to get involved in this fight. I wrote AARP and NARFE today. I am an AARP member.

Well, I don't think you can just "bypass" doing a Final Rule when you have an Interim Rule posted for comment. They can't just skip doing that in hopes of combining both of these things into one Final Rule.......the process doesn't work that way. I think they messed up, and this is going to backfire on them in the end. If they issue an Interim Rule eventually with the proposal for actual IFT restrictions, we need to comment (in force) that they violated the process, by not responding to comments on the first Interim Rule, and not posting a Final Rule on that one. If this ever gets challenged legally (and it will), this is all going to work in our favor in the long run.

 

[James48843]

Major rule (as designated by Office of Management and Budget) Any rule that is likely to result in: (1) An annual effect on the economy of $100 million or more;

Absolutely no question that this will have an effect of $100 million or more per year. If just the 3,000 they are trying to "weed out" are effected, it would only require a $33,000 difference per person to make it to the "major rule" category. That is easily reached as the amount lost by the 3,000.

And then factor in the money that will NOT BE GAINED by the buy-and-hold crowd. It was $216 million gained by the buy-and-hold'ers, from the pennies lost by those to reallocate money more frequently, just in the January to October time frame this year.

Yes- this IS a "major rule" as defined by OMB.

 

[JonesH2O]

I don't really see from this that that the rule has actually been implemented. The Dec. 27th posting date is still at the bottom of the document.

The December 27th date is the date the action was posted in the Federal Register. The effective date was January 7, 2008, which was the official date the regulations where revised and posted on the Electronic Code of Federal Regulations.

Here's a bit of info on rulemaking from the APHIS rulemaking glossary. It applies to all agencies. You'll note FRTIB has violated a number of the provisions. Note 3) under Major Rule.

http://www.aphis.usda.gov/ppd/rad/glossary.html#irm

Interim rule This type of rule may be used instead of a proposed rule when there is good cause for making a rule effective before the public has an opportunity to comment on it. (See "Good Cause Exception.")

The "Good Cause Exception" only applies if the Interim rule incorporates the finding and a brief statement of reasons that notice and public procedure are impracticable, unnecessary, or contrary to the public interest. The reasons listed in the preamble of the December 27th action did not show good cause for an Interim rule or emergency action. Therefore, the FRTIB action was not exempt from the requirements of the Administrative Procedure Act.

 

[Art2007]

The December 27th date is the date the action was posted in the Federal Register. The effective date was January 7, 2008, which was the official date the regulations where revised and posted on the Electronic Code of Federal Regulations.



The "Good Cause Exception" only applies if the Interim rule incorporates the finding and a brief statement of reasons that notice and public procedure are impracticable, unnecessary, or contrary to the public interest. The reasons listed in the preamble of the December 27th action did not show good cause for an Interim rule or emergency action. Therefore, the FRTIB action was not exempt from the requirements of the Administrative Procedure Act.

The problem is that they don't care and will continue to do whatever they want until we all decide to pool our money and take them to federal court.

 

[brucemh]

Very good discussion by all on rulemaking. I doubt that the FRTIB received a single comment in support of their interim rule. And I'm also sure they have hundreds, if not thousands, of negative comments they will need to go through and eventually respond to.

So they must be getting an indication that this will not be an easy change to ram through. It will be interesting to see if Mr. Long follows through on letters to TSP shareholders that he determines to be making "excessive" Interfund Transfers.

Congressional pressure is the next step in stopping this. I encourage everyone to contact (and keep contacting) their representatives.

 

[JonesH2O]

Thanks for the update. At least you go a acknowledgment. I have not hear anything from my numerous letters.

The following might explain some of the reluctance in acknowledging our letters to the Congress and Senate about this issue. It was summarized in a January 2008 newsletter I receive on Government Relations:

"It’s a big election year, and stormy times are forecast for Congress. Both houses of
the closely divided institution have become almost dysfunctional in their ability to get
anything done. In addition, this is the first time since 1928 that no incumbent president
or vice president is seeking a spot on the November ballot, and both parties seem to be in
a waiting game for policy direction from new leaders. Expect no action this year on
major issues such as immigration or any reform of Social Security or Medicare funding."

 

[DrFaustus]

Also #3 under Major Rule is important as it adversely affects the small businesses that have sprung up arount TSP (EBBCHART, TRADER FRED, ETC.); it adversely affects competition as EBB and the other premium services are indirectly competing with Barclays by giving investors a means to manage their own funds.

But wouldn't that also apply if the TSP were to give us MORE flexibility? More flexibility in the terms of instant trades, etc would hurt Ebb and Fred as well.

Dan

 

[07Harley]

There was an independent audit of the FRTIB conducted by Deloitte dated March 26, 2007.

The first thing that stands out to me is this statement below, Which is also found on the TSP web sites description of the Plan.

"The Plan is administered by an independent Government agency,
the Federal Retirement Thrift Investment Board (the Agency), which
is charged with operating the Plan prudently and solely in the interest
of the participants and their beneficiaries."​

The second thing that stands out is an entry called Asset Manager rebates that went from $2.28 million in 2005 to $10.37 million in 2006. I sure would like to know what the rebate was for and who got the $.

Here is the link to the audit http://www.tsp.gov/forms/financial-stmt.pdf

 

[pogo]

just receive this didn't even get to go over this yet ,figure let the minds check it out. FEDERAL RETIREMENT THRIFT INVESTMENT BOARD
1250 H Street, NW Washington, DC 20005






December 27, 2007


Memorandum for the Executive Director

From: Tracey Ray

Subject: Frequent Trading Curbs

As a result of my research for the Board on this subject matter, I reported that “most large mutual fund families adopted some type of trading restrictions, particularly on international funds.” My November 6, 2007, memorandum described trading restrictions at 13 specific large mutual funds. Those limits flow through to the 401(k) and other participant directed defined contribution retirement plans which invest in those funds.

I further reported that “some fund companies have elected to curb frequent trading by creating...redemption fees” and described funds which charge up to 2 percent on shares redeemed within 30, 60, or 90 days of purchase. I specifically cited the International Index Fund offered by T. Rowe Price which charges a 2 percent redemption fee on shares held less than 90 days.

At our December 19, 2007, meeting with the Employee Thrift Advisory Council (ETAC), I presented the same report to Council members. We also provided descriptions of the interfund transfer limits implemented by 40 retirement plans which use the same record keeping system as the TSP.

During the meeting, ETAC Chairman Jim Sauber and others asked about the possibility of allowing 3 interfund transfers (IFTs) per month instead of 2. Our goal in proposing 2 IFTs per month is to reduce the dollar amount of the trade to as low a number as possible while still allowing participants the flexibility to rebalance their accounts. Our analysis shows that 3 IFTs would reduce trade volume by approximately 25%, while 2 IFTs would reduce it by approximately 50%.

Also during the meeting, the NTEU representative, Cathy Ball, advised the group that TIAA-CREF has established a policy whereby participants are allowed some number of “free” interfund transfers per month and are charged a fee for additional transfers thereafter. Ms. Ball’s point was that such a system would give TSP participants more flexibility than the FRTIB proposal.

After the meeting, Ms. Ball arranged for me to talk to her contact at TIAA-CREF (Brett Hammond, Head of Investment Strategy) regarding its methodology for curbing frequent trading. I also reviewed information on other offerings at the TIAA-CREF website.

In my discussion with Mr. Hammond, and from a review of the most recent prospectus for TIAA-CREF’s Institutional Mutual Funds, I learned that current policy at TIAA-CREF is to charge a redemption fee of 2 percent if a participant redeems International Equity, International Equity Index, High Yield II, Small-Cap Equity, Small-Cap Growth Index, Small-Cap Value Index or Small-Cap Blend Index Fund shares within 60 days of purchasing them. This is no different from the fee-based examples cited in my memorandum. I also learned that TIAA-CREF went to the fee structure only after trading restrictions it initially established did not work as desired.

TIAA-CREF had established a policy of allowing 12 exchanges in 12 months, except for the international and high yield funds where the limit was 6 exchanges in a 12 month period. Those initial restrictions on the international funds did not achieve the desired result. The trading restrictions resulted in fund transfer requests “bunching up” at times of extreme market volatility. TIAA-CREF sought to end that behavior and instituted the redemption fees in addition to trading restrictions. TIAA-CREF’s experience illustrates why we proposed allowing 2 IFTs per month rather than 24 per year.

I note that TIAA-CREF preferred trading restrictions over fees until it found that its restrictions did not work because of the arbitrage opportunity presented by its international fund policy. We also prefer trading restrictions, with subsequent free movement into the G Fund, over fees.

The TIAA-CREF website does not describe any TIAA-CREF offerings which first establish a limit on interfund transfers and then allow further fee-based transfers. My industry research has also not identified any retirement plans or funds which allow limited free interfund transfers which may then be augmented by fee-based transfers.

If we followed TIAA-CREF’s policy of charging a redemption fee of 2 percent for shares held less than 60 days, we would:

(1) deny our participants the ability to go to the G Fund at any time for no charge. The Board considers that capability to be of paramount importance.
(2) limit our participants to rebalancing every 2 months (to avoid the fee) versus every 2 weeks.
(3) punish an infrequent trader who may wish to redeem within 60 days because the market is declining. In this situation, the participant would lose 2 percent in addition to the market decline, a worst case scenario.





When TIAA-CREF instituted the fees, it also modified its trading restriction policy to the following:

 A participant who transfers from any fund, transfers back, and then sells it within 60 days may not repurchase that fund for 90 days. AND, if the transaction involved the international, high yield, or small-cap funds, a 2% fee would be assessed.

Under our approach:

 In one month a participant can transfer out of the C Fund, transfer back, and then switch into the G Fund. Our participant could also transfer back to the C Fund on the first business day of the next calendar month (less than 30 days later).

I asked Mr. Hammond about our proposal to allow 2 interfund transfers each month followed by unlimited transfers into the G Fund. He said, in his opinion, our proposal was more liberal than the TIAA-CREF policies.

I have learned that on certain mutual funds, including all of its international index funds, Vanguard follows a policy similar to TIAA-CREF’s by charging redemption fees and restricting trading. For example, the Vanguard Developed Markets Index Fund (similar to the TSP I Fund) charges a 2 percent redemption fee on shares held less than 2 months in addition to its trade restriction policy. Thus a fund holder pays a fee and still cannot repurchase shares in a fund for 60 days after a redemption in that fund. This is obviously designed as a double-barrelled deterrent to frequent trading, and is not comparable to a policy which deters frequent trading via limits but then allows augmentation for a fee.

Conclusion

In my further research since completing my November 2007 memorandum, I have neither seen nor learned of any new information that would change my recommendation. Indeed, the most recent survey finding by Hewitt (Trends and Experience in 401(k) Plans 2007) found that “nearly three quarters of plan sponsors have transfer restrictions in place.” The use of redemption fees appears to be minimal with only two percent of survey respondents indicating any charge whatsoever for fund transfers. There is no mention at all in the survey of plans which allow a certain number of fund transfers and then permit augmentation for those willing to pay a fee.

I look forward to receiving more input from interested parties as we work through the regulatory process.

 

[poolman]

December 27, 2007


Memorandum for the Executive Director

From: Tracey Ray

Subject: Frequent Trading Curbs

As a result of my research for the Board on this subject matter, I reported that “most large mutual fund families adopted some type of trading restrictions, particularly on international funds.” My November 6, 2007, memorandum described trading restrictions at 13 specific large mutual funds. Those limits flow through to the 401(k) and other participant directed defined contribution retirement plans which invest in those funds.

I further reported that “some fund companies have elected to curb frequent trading by creating...redemption fees” and described funds which charge up to 2 percent on shares redeemed within 30, 60, or 90 days of purchase. I specifically cited the International Index Fund offered by T. Rowe Price which charges a 2 percent redemption fee on shares held less than 90 days.

At our December 19, 2007, meeting with the Employee Thrift Advisory Council (ETAC), I presented the same report to Council members. We also provided descriptions of the interfund transfer limits implemented by 40 retirement plans which use the same record keeping system as the TSP.

During the meeting, ETAC Chairman Jim Sauber and others asked about the possibility of allowing 3 interfund transfers (IFTs) per month instead of 2. Our goal in proposing 2 IFTs per month is to reduce the dollar amount of the trade to as low a number as possible while still allowing participants the flexibility to rebalance their accounts. Our analysis shows that 3 IFTs would reduce trade volume by approximately 25%, while 2 IFTs would reduce it by approximately 50%.

Also during the meeting, the NTEU representative, Cathy Ball, advised the group that TIAA-CREF has established a policy whereby participants are allowed some number of “free” interfund transfers per month and are charged a fee for additional transfers thereafter. Ms. Ball’s point was that such a system would give TSP participants more flexibility than the FRTIB proposal.

After the meeting, Ms. Ball arranged for me to talk to her contact at TIAA-CREF (Brett Hammond, Head of Investment Strategy) regarding its methodology for curbing frequent trading. I also reviewed information on other offerings at the TIAA-CREF website.

In my discussion with Mr. Hammond, and from a review of the most recent prospectus for TIAA-CREF’s Institutional Mutual Funds, I learned that current policy at TIAA-CREF is to charge a redemption fee of 2 percent if a participant redeems International Equity, International Equity Index, High Yield II, Small-Cap Equity, Small-Cap Growth Index, Small-Cap Value Index or Small-Cap Blend Index Fund shares within 60 days of purchasing them. This is no different from the fee-based examples cited in my memorandum. I also learned that TIAA-CREF went to the fee structure only after trading restrictions it initially established did not work as desired.

TIAA-CREF had established a policy of allowing 12 exchanges in 12 months, except for the international and high yield funds where the limit was 6 exchanges in a 12 month period. Those initial restrictions on the international funds did not achieve the desired result. The trading restrictions resulted in fund transfer requests “bunching up” at times of extreme market volatility. TIAA-CREF sought to end that behavior and instituted the redemption fees in addition to trading restrictions. TIAA-CREF’s experience illustrates why we proposed allowing 2 IFTs per month rather than 24 per year.

I note that TIAA-CREF preferred trading restrictions over fees until it found that its restrictions did not work because of the arbitrage opportunity presented by its international fund policy. We also prefer trading restrictions, with subsequent free movement into the G Fund, over fees.

The TIAA-CREF website does not describe any TIAA-CREF offerings which first establish a limit on interfund transfers and then allow further fee-based transfers. My industry research has also not identified any retirement plans or funds which allow limited free interfund transfers which may then be augmented by fee-based transfers.

If we followed TIAA-CREF’s policy of charging a redemption fee of 2 percent for shares held less than 60 days, we would:

(1) deny our participants the ability to go to the G Fund at any time for no charge. The Board considers that capability to be of paramount importance.
(2) limit our participants to rebalancing every 2 months (to avoid the fee) versus every 2 weeks.
(3) punish an infrequent trader who may wish to redeem within 60 days because the market is declining. In this situation, the participant would lose 2 percent in addition to the market decline, a worst case scenario.





When TIAA-CREF instituted the fees, it also modified its trading restriction policy to the following:

 A participant who transfers from any fund, transfers back, and then sells it within 60 days may not repurchase that fund for 90 days. AND, if the transaction involved the international, high yield, or small-cap funds, a 2% fee would be assessed.

Under our approach:

 In one month a participant can transfer out of the C Fund, transfer back, and then switch into the G Fund. Our participant could also transfer back to the C Fund on the first business day of the next calendar month (less than 30 days later).

I asked Mr. Hammond about our proposal to allow 2 interfund transfers each month followed by unlimited transfers into the G Fund. He said, in his opinion, our proposal was more liberal than the TIAA-CREF policies.

I have learned that on certain mutual funds, including all of its international index funds, Vanguard follows a policy similar to TIAA-CREF’s by charging redemption fees and restricting trading. For example, the Vanguard Developed Markets Index Fund (similar to the TSP I Fund) charges a 2 percent redemption fee on shares held less than 2 months in addition to its trade restriction policy. Thus a fund holder pays a fee and still cannot repurchase shares in a fund for 60 days after a redemption in that fund. This is obviously designed as a double-barrelled deterrent to frequent trading, and is not comparable to a policy which deters frequent trading via limits but then allows augmentation for a fee.

Conclusion

In my further research since completing my November 2007 memorandum, I have neither seen nor learned of any new information that would change my recommendation. Indeed, the most recent survey finding by Hewitt (Trends and Experience in 401(k) Plans 2007) found that “nearly three quarters of plan sponsors have transfer restrictions in place.” The use of redemption fees appears to be minimal with only two percent of survey respondents indicating any charge whatsoever for fund transfers. There is no mention at all in the survey of plans which allow a certain number of fund transfers and then permit augmentation for those willing to pay a fee.

I look forward to receiving more input from interested parties as we work through the regulatory process..

Sounds like it is in the regulatory process. They are pushing this thing through and siting how other institutions trade and their limits.

Absolutely disgusting how we will be so limited in managing our money.

 

[Viva_La_Migra]

Here is my nominee for petition signor of the week:

Jan 10, 2008, William Miller , Massachusetts
I am a few years away from retirement and have chosen to be among that group of Americans that does have enough put aside for me to live free of government handouts.I do not wish for a group of bureaucratic pencilnecks with questionable motives and dubious math skills to restrict my investment decisions.Even as a member of the minority of shareholders that moves thier money to keep pace with market dynamics,my investment decisions are my own and should remain so.If it can be shown using "sound math" that my trading frequency incurs disproportionate costs than I should be willing to pay them.If there is a problem then we need to deal with it directly and not use some backdoor control oriented solution. Bill Miller USPS Boston MA


"...bureaucratic pencilnecks with questionable motives and dubious math skills..." :laugh::laugh::nuts:

 

[brucemh]

Sounds like it is in the regulatory process. They are pushing this thing through and siting how other institutions trade and their limits.

Absolutely disgusting how we will be so limited in managing our money.

I have to agree with poolman. They are going to force this change through the regulatory process. It will take class action litigation or legislation, and the ability to factually and legally dispute (clipped) memos and analysis to reverse these restrictions.

(clipped) is not looking at alterntives, (cliped) is preparing her ammunition for the fight.

We will not have a real victory until she has a different job!

 

[James48843]

But wouldn't that also apply if the TSP were to give us MORE flexibility? More flexibility in the terms of instant trades, etc would hurt Ebb and Fred as well.

Dan

More flexibilty would not be an ADVERSE impact. Limiting interfund transfers IS an ADVERSE impact.

That's the difference.

 

[brucemh]

For those of you that follow the fair value adjustments to the I fund.

First, straight from the TSP web site: "Fair value pricing in the TSP's I Fund occurs less than 20% of the time."

Second, Fair value pricing occured in all but 2 days in November 2007, 11 out of 20 days in December 2007, and all 8 days so far in January 2008.

The Investment Managers at the FRTIB are worried about the transaction expenses if we are able to make more than 2 Interfund Transfers per month. Yet recently they are gambling on the I fund share pricing almost every day!

 

[DrFaustus]

We aren't asking for more flexibility. We're demanding that they allow the flexibility that currently exists and for which we paid a ridiculous amount of money, not to mention the $35M to settle a lawsuit that FRTIB should have been held solely responsible for.

I know that anidoc ... that wasn't my question.

 

[JonesH2O]

Make the fact that it's an election year work FOR us instead of AGAINST us! REMIND them of it when you WRITE, CALL, FAX! Remind them that we are not just federal employees, we are also federal retirees, and a GROWING, not decreasing, voting block.

I like your comment (to my posting) about making the fact that it's an election year work FOR us instead of AGAINST us! I've written my Congressman and two Senators twice.

Just received the following email from Congressmen John F. Tierney. He represents the 6th District of Massachusetts . . .

At least the Congressman read my letters (or someone on his staff) and commented back on what I actually wrote. As for my two Senators, John F. Kerry has never bothered to reply back. Edward M. Kennedy (or his staff) replied back, but both were generic blather, with no mention at all about what I was writing him about.

 

[DrFaustus]

More flexibilty would not be an ADVERSE impact. Limiting interfund transfers IS an ADVERSE impact.

That's the difference.

Well, my thought was that if we could make trades in near real time, then Ebb, Fred and others would be out of business - thus it would be an adverse impact to them.

I was just wondering if more flexibility could be treated as an adverse impact as well - I wasn't advocating that. Trying to push for more flexibility in light of the current situation would be just plain lunacy. When last I checked, I wasn't a lunatic.