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TSP fund to include China investments, despite criticism

Despite criticism from multiple U.S. Senators, the Federal Retirement Thrift Investment Board affirmed a move to invest in an index fund that includes Chinese state-owned companies.

The board, which controls allocations of about $600 billion in federal retiree funds, voted to confirm a decision from two years earlier to shift the International Funds under its Thrift Savings Plan to the MSCI All Country World Ex-US Investable Market Index.

The board revisited the decision in the wake of a letter from Sen. Marco Rubio (R-Fla.) and Jeanne Shaheen (D-N.H.) to FRTIB Chairman Michael Kennedy on Aug. 26 urged the board to reconsider, citing that the decision to do so posed a threat to U.S. national and economy security, as the index included China-based companies close to the Chinese government and ruling Communist Party.

"The FRTIB's decision to track this MSCI index constitutes a decision to invest in…many firms that are involved in the Chinese Government’s military, espionage, human rights abuses," the senators wrote. "[It] therefore poses fundamental questions about the Board's statutory and fiduciary responsibilities to American public servants who invest in federal retirement plans." The letter also questioned the propriety of investing in China Mobile when that firm was recently barred by the Federal Communications Commission from sell gear to U.S. carriers for use in telecom infrastructure.

Rubio and Shaheen followed up with a second letter Oct. 22 that added Sens. Mitt Romney (R-Ut.), Kristen Gilibrand (D-N.Y.), Rick Scott (R-Fla.) and Josh Hawley (R-Mo.).

Members of the Board said at the meeting that they did not want to let outside political pressures effect how government employee and retiree investment funds were handled on their behalf.

"This issue of political issues affecting investments is something that comes back time and time again, particularly for a lot of unions," said Employee Thrift Advisory Council Vice-Chairman James W. Sauber. "Early on, I remember there was a lot of talk about excluding anyone who did business with South Africa. The consensus is pretty strong, that we shouldn’t let political issues effect any investment opportunities."

But that consensus may be a thing of the past according to Prof. Joanne Bauer, who teaches business and human rights law at Columbia and is co-founder of the RightsCoLab.

"Increasingly, companies are now understanding they have responsibilities to respect human rights, and most have a human rights policy statement to go with it," Bauer told FCW in an interview. "However, across government, it's surprising that there's no consistency, even with things like the United Nations' Guiding Principles [on Business and Human Rights]. There are three pillars, and one of them is the state duty to protect, and horizontal policy integration across all functions of government, because too often government decisions tend to get siloed."

Board member Dana K. Bilyeu indicated that FRTIB exists to serve its investors and not make policy, and that decisions about barring investment for human rights and security concerns is the province of the Office of Foreign Asset Control at the Treasury Department.

Congress is looking to change that. Rubio, Shaheen and Romney introduced the Taxpayers and Savers Protection (TSP) Act in order to ban the Board from investing in Chinese firms.

"Deliberately choosing to invest the retirement savings of hardworking Americans in state-owned and state-directed firms in China effectively funds the Communist Party's efforts to undermine our economic and national security," Romney told FCW in an e-mailed statement. "Congress must act now to prevent the Federal Retirement Thrift Investment Board from steering the retirement savings of our federal employees and military members into the hands of China's Communist Party."

Reader comments

Wed, Jan 8, 2020 cameron

Chinese companies use (or can) different accounting standards than the rest of the world. Who believes their financial statements???? Same with India and Saudi Arabia. ignore the politics for a moment, what about fiduciary responsibilities?? Make all chinese (and foreign) companies have fully audited financial statements to GAAP standards. i’m wiling to bet they refuse!!

Sun, Dec 15, 2019 Miquel

IF the FRTIB does not reverse their decision to irresponsibly invest my TSP money in the MSCI, then it will be the catalyst I need to rollover my TSP in Vanguard funds. I'm not going to keep my hard earned TSP in a organization that is not looking out for my best interest. I'd quite happy in Vanguard's Index Funds, ETF or even their mutual funds. I'm watching this very closely.

Sat, Dec 7, 2019

Why would we want to fund Chinese military research? That is what our investment dollars will be doing.

Thu, Dec 5, 2019 roobah

I am dismayed that TSP does not disclose exactly which stocks make up the I and S funds. No other broker would be able to sell investments shrouded in secrecy. Full disclosure of the stocks included in each fund should be mandatory. Same with bonds (F fund). (IMO, C and G funds are the only investments that are not a guessing game regarding what you are investing your 401k into.)

Mon, Nov 18, 2019

I'm shocked TSP would do this, considering someone (or some organization) in China was responsible for the U.S. OPM security breach back in 2014 and 2015. The final estimate of the number of stolen records was approximately 21.5 million. This included records of people who had undergone background checks, but who were not necessarily current or former government employees.[2] It has been described by federal officials as among the largest breaches of government data in the history of the United States.[1] Information targeted in the breach included personally identifiable information such as Social Security numbers,[3] as well as names, dates and places of birth, and addresses.[4] Wikipedia. I say No to TSP's policy change.

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