Avoid China, investing plan told

Officials’ letter on retirement program cites virus deception

President Donald Trump’s administration has asked the board that runs the retirement savings program for federal employees and military personnel to not invest in Chinese businesses.

Labor Secretary Eugene Scalia on Monday sent a letter to the Thrift Savings Plan’s governing board saying, “At the direction of President Trump, the Board is to immediately halt all steps” toward switching to a broader international stock market index, one that includes China, in one of its investment funds.

Scalia’s letter followed one to him earlier in the day from Director of National Economic Policy Larry Kudlow and national security adviser Robert O’Brien in which they said, “we believe the Board should cease implementation immediately.”

The letters, which were first reported by Fox Business, state in the most explicit terms to date that the Trump administration’s opposition to the planned change is at least in part motivated by China’s role in the coronavirus pandemic.

In addition to previously stated national security-related concerns about Thrift Savings Plan money being invested in some Chinese companies, the letter from Kudlow and O’Brien says the Chinese government concealed critical information from the United States and the rest of the world regarding the coronavirus.

“These events dramatically increase the risk that Chinese companies could be subject to sanctions or boycotts that jeopardize their business and profitability and strongly militate against the Board making a significant investment of federal workers’ retirement funds in Chinese companies at this time,” they wrote.

The board’s response could come as soon as today at a regular monthly meeting that had been scheduled in advance of the letters.

The board previously has resisted calls to stop the planned change, and Thrift Savings Plan spokeswoman Kim Weaver said in a phone interview Tuesday that “Under the law, the board is responsible for investment policy.”

Underlying Scalia’s letter is an assertion that the Thrift Savings Plan board is subject to outside authority, an assertion that never has been tested in the program’s 30-year existence.

The Thrift Savings Plan is structured like a corporation, directed by a five-member board of financial and investment experts who serve part-time, and organizationally is not under the Labor Department or any other agency. It further does not draw appropriated money from Congress, operating instead on fees it charges to account holders.

At issue is an investment fund called the I Fund, which tracks international stock markets and is one of the five basic funds the Thrift Savings Plan offers to its 5.9 million account holders. The fund holds about $41 billion in investor assets out of a total of some $557 billion in the plan as of the end of March.

Currently, the fund reflects stock markets of 21 developed countries, mostly in Europe. The board first decided in 2017 to switch to a broader index that includes two dozen emerging market countries, one of which is China, on the recommendation of a consultant.

The consultant found that the broader index is commonly available in other large 401[k]-type programs and has higher potential for returns. In addition, its report said the broader index better meets a mandate in law that the I Fund be a “reasonably complete” representation of non-U.S. stock markets, reflecting 99% of those markets compared with the current index’s 58%. Stocks of China account for about a tenth of the broader index.

After bills were introduced in Congress to stop the change, the board had the consultant perform a second study last year, which reached the same conclusions.

The second report found that the 401[k]s of all 10 of the largest publicly traded U.S. companies, all 10 of the top federal contractors, all 20 of the largest state pension plans and all six of the largest target-date mutual fund providers invest in emerging markets including China.

The board then voted to reaffirm its decision and defended it in a letter to members of Congress who opposed the change.

The board cited the two studies, noted that investments in the I Fund are voluntary for account holders, and said that walling off investments in companies of China or any other country is a decision for the Treasury Department to make. An advisory council of a dozen federal employee organizations has taken the same positions.