The U.S legislative arm of the government is once again reviving some old discussion that could mean drastic changes in the mode of investment of TSP savings for all federal workers. Some of the bills that Congress has revived have been a cause of worry for the Federal Retirement Thrift Investment Board, the federal agency that oversees the TSP program.
The current administration has not clarified its stance about the bills, but President Biden recently approved an executive order on climate-related financial risks. The executive order, which the president signed in May 2021, urges the Labor Department to use the Federal Employees' Retirement System Act and Employee Retirement Income Security Act to ensure that the savings and annuities of workers in the country remain safe and secure from financial risks that are related to climate change.
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During a meeting with the Employee Thrift Advisory Council and the Federal Retirement Thrift Investment Board, Kim Weaver, the executive director for external affairs at the TSP, stated that the board would fully cooperate with the Labor Department Economic Council and the National Climate Advisor.
The executive order could have been perceived to be different from the lawmakers' debates, but one of the legislation in consideration is similar to the order. The legislation and the Restructuring Environmentally Sound Pensions To Negate Disaster (RESPOND) Act call for creating a federal advisory committee within the FRTIB. The committee will have the obligation of observing and reporting the financial risks of climate change on the savings and annuities of federal workers.
RESPOND Act mandates the FRTIB stop investments in fossil fuel companies in as much as doing so would be lucrative and would not go against the board's fiduciary duties. However, if the FRTIB feels it cannot entirely stop investments in fossil fuel, the Act mandates the board to create another investment option that would be more suitable for the climate.
The FRTIB is not in support of the RESPOND Act. As Weaver put it during a meeting with federal employee councils and board members earlier this month, FRTIB does not mind the new committee or the observation of financial risks of climate change on participants. However, it is concerned that the RESPOND Act's requirements will adversely affect TSP participants. Weaver said the board is unwilling to suddenly end four of its funds as the RESPOND Act demands, nor is it ready to create a new fund that overlaps existing funds.
"That has been something that we have long defended as not a good strategy for our participants," Weaver explained.
In contrast, the American Federation of Government Employees is in support of the RESPOND Act. During a meeting in the last week of May, Jacque Simon, the policy director for the AFGE, said Biden's executive order partly reflects the RESPOND Act and that the AFGE supports both. FEMA and Environmental Protection Agency officials under the AFGE appreciate the RESPOND Act, Simon stated, adding that the union especially appreciated the study of possible risks of climate change on the retirement savings of civil servants.
U.S Congress once again Attempts to Divest TSP from China
Apart from the method of investment, lawmakers also want to review where participants invest their money. A group of Republican and Democrat senators has reintroduced the Taxpayers and Savers Protection Act. The bill would prohibit TSP investment in securities listed on the securities exchanges of specific countries, such as China.
One of the sponsors of the bipartisan bill, Marco Rubio, the Republican representative of Florida, explained that it is pretty disturbing that the Chinese Communist Party and government keep reaping from the savings of civil servants in the United States. Rubio added that such a move is equivalent to the United States helping to fund Beijing's rise, which can be detrimental to the national security and future of the United States.
Senator Tommy Tuberville, the Republican representative of Alabama, proposed a similar bill in May. Tuberville's bill, the Prohibiting the TSP Investment in China Act, would stop any form of investment of TSP funds in all China-based security entities. The bipartisan bill and Tuberville's bill clearly negate a 2020 FRTIB proposal to create a new, China-inclusive index as part of the I Fund. The White House and a group of Republican and Democrat lawmakers immediately moved to stop the proposal.
The board did not go ahead with the proposal, putting it up to former President Donald Trump to nominate new board members who would handle the situation. Unfortunately, the former president did not appoint any board member, and President Joe Biden hasn't nominated anyone either.
The Senate has evaluated Rubio and Tuberville's bills but not their respective amendments.
Weaver said the senators' amendments and other bills with the same stipulations could affect the TSP and its participants in many ways. The executive director added that the bills do not affect the over-sixty million participants who use 401(k) or Individual Retirement Accounts; only TSP participants are affected. Weaver also stated that it would be almost impossible for the TSP to divest from Hong Kong.