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New Investment Option for the Thrift Savings Plan?

investmentThere is almost $600 billion just sitting in the Thrift Savings plan waiting for federal employees to use it when they retire.

TSP and Congress

Congress has a track record of spending money from any available source, so it’s understandable to think of the possibility of them tapping into this money.

TSP funds are currently invested in a way that is typically immune from political interference. The TSP board has done a good job of keeping the TSP plan invested in low-cost index funds. As structured, the plan has resulted in the TSP being recognized and cited by national publications as an excellent retirement plan. However, this doesn’t mean TSP funds will remain immune from politics in the future.

The latest bill to “improve” TSP has been introduced by Jeff Merkley (D-OR). It’s the latest in a series of proposals to meet the social or political objectives of the legislation’s sponsor by using funds from the TSP.

The Merkley Bill

Sen. Merkley is concerned about climate change, so he named his bill The Retirement Investments for a Sustainable Economy (RISE) Act. According to his press release, “As climate chaos ramps up, all Americans deserve the option to divest from the fossil fuel industry. For the first time, this bill will give millions of federal employees the power to ensure their retirement funds are invested in a more sustainable, socially responsible investment portfolio.”

The purpose of this legislation is to give TSP investors a new investment option with a fund that doesn’t invest in the fossil fuel industry. The RISE Act would require the Government Accountability Office to check out the risk for investors from their TSP investments in fossil fuel companies. The RISE Act also directs GAO to provide a divestment tool for the TSP should the report show risk to investors from fossil fuel holdings.

In his press release, the Senator says that roughly translates as “everyone is divesting pension funds from fossil fuel companies.” Instead, they are putting their pension money “in a more sustainable, socially responsible investment portfolio.”

Previous Efforts and TSP

In the 1980’s and ‘90’s, the TSP board was urged by some in Congress to invest in mortgages to support housing avoiding investments in South Africa and Northern Ireland and to back minority-owned businesses with TSP money.

Back in 2005, over 100 members of Congress thought it was a good idea to pass legislation for “a terror-free international investment option” in TSP.

In 2008, a congressman thought index funds was not the best approach to investing in the TSP. He wanted to give women and minorities a bigger price of TSP action by using actively managed TSP funds instead of index funds. These actively managed funds would presumably be managed in part by companies run by women and minorities (some possibly in the congressman’s district) that would reap a financial gain using their expertise to invest in stocks, bonds, and other investments on behalf of TSP investors. Expenses would also rise for TSP investors as the management expense for actively managed funds would go up. The extra cost would’ve ended up being paid by all TSP investors.

In 2010, the Federal Employee Socially Responsible Investment Act would have created a new investment option for TSP investors in when only “socially responsible companies” would receive money from the TSP in the new fund.

Outlook

There isn’t a great chance of this bill getting passed into law. However, keeping up with changes to the TSP introduced in Congress is a good idea for TSP investors who want their investments to remain secure and deliver the best possible rate or return with minimum risk.