 TSPSHAREHOLDER.ORG
Vol 1. No. 6 SPECIAL ALERT ISSUE! December 27, 2007 |
ALERT!
FEDERAL REGISTER NOTICE!
TSP RESTRICTIONS AS OF JANUARY 7th 
Washington D.C. - Today, the Thrift Savings Board published a federal register notice, which will be effective January 7th, allowing the Executive Director to restrict any TSP shareholder from moving money except by mail.
We believe the federal register notice contains an error. It says that it will only affect federal employees. This is incorrect. It will also affect former federal employees, retirees, and U.S. Military service members. It will also affect a substantial number of small business entities who provide investment counseling to the 3.8 million TSP Shareholders worldwide.
We ask that you FAX your objections to the Federal Register Notice to the phone number provide in the notice. And we ask that you tell your co-workers to do the same. If you are a "small business" who is adversely affected, please also send in an objection, and describe what impact this will have for you.
As we outlined in our last newsletter, the restriction is just plain wrong and does not serve the interests of share holders.
Here is the federal register notice, including the fax number. The comment period is now open. Tell them what you think:
[Federal Register: December 27, 2007 (Volume 72, Number 247)]
[Rules and Regulations]
[Page 73251-73252]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr27de07-1]
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Rules and Regulations
Federal Register
________________________________________
This section of the FEDERAL REGISTER contains regulatory documents
having general applicability and legal effect, most of which are keyed
to and codified in the Code of Federal Regulations, which is published
under 50 titles pursuant to 44 U.S.C. 1510.
The Code of Federal Regulations is sold by the Superintendent of Documents.
Prices of new books are listed in the first FEDERAL REGISTER issue of each
week.
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[[Page 73251]]
FEDERAL RETIREMENT THRIFT INVESTMENT BOARD
5 CFR Part 1601
Participants' Choices of TSP Funds
AGENCY: Federal Retirement Thrift Investment Board.
ACTION: Interim rule, with request for comments.
-----------------------------------------------------------------------
SUMMARY: The Agency is amending its interfund transfer regulations to
provide that the Executive Director may adopt a policy of setting
limits on the number of interfund transfer requests. In the near term,
this amendment will allow the Executive Director to immediately address
and, if necessary, restrict the activity of frequent traders, who have
disrupted management of the Funds and whose activity has resulted in
increased costs to participants.
DATES: This interim rule is effective January 7, 2008.
ADDRESSES: Comments may be sent to Thomas K. Emswiler, General Counsel,
Federal Retirement Thrift Investment Board, 1250 H Street, NW.,
Washington, DC 20005. The Agency's Fax number is (202) 942-1676.
FOR FURTHER INFORMATION CONTACT: Tracey Ray on (202) 942-1665.
SUPPLEMENTARY INFORMATION: The Agency administers the TSP, which was established by the Federal Employees' Retirement System Act of 1986
(FERSA), Public Law 99-335, 100 Stat. 514. The TSP provisions of FERSA
are codified, as amended, largely at 5 U.S.C. 8351 and 8401-79.
The TSP is a tax-deferred retirement savings plan for Federal civilian
employees and members of the uniformed services. The TSP is similar to
cash or deferred arrangements established for private-sector employees
under section 401(k) of the Internal Revenue Code (26 U.S.C. 401(k)).
Interfund Transfer Requests
The Agency is amending its regulations pertaining to interfund
transfers. While most private-sector defined contribution plans, record
keepers and/or investment managers, e.g., Vanguard, Federated, ING,
Janus, and Royce, have adopted policies designed to limit frequent
trading, the Agency currently places no limit on its participants
regarding the number or frequency of interfund transfers.
Recently, however, this policy has been called into question as
excessive trading caused costs borne by TSP participants to more than
double from 2005 to 2006 (from $6.7 million in 2005 to $15 million in
2006), and this pattern of frequent trading has continued in 2007.
These costs, which have resulted largely from the activities of
approximately 3,000 of the TSP's 3.8 million participants, increase
expenses for all TSP participants. In 2006, the unrestricted trading in
the I Fund resulted in trades of $12 billion of securities with
associated trading costs of $13.8 million or 8 basis points ($.80 per
$1,000); nearly three times the TSP's net administrative expense of 3
basis points ($.30 per $1,000).
Because the Board and Executive Director have a fiduciary duty to
manage the TSP prudently, for the exclusive purpose of providing
benefits to participants and their beneficiaries and defraying
reasonable expenses of administering the Thrift Savings Fund, the
Agency must respond to this abusive and costly investment activity. 5
U.S.C. 8477(b).
As mentioned, the Agency studied the policies of other funds as
well as regulatory guidance from the Securities and Exchange Commission
(SEC). Vanguard, for example, limits its participants to one repurchase
every sixty days, and the SEC recommends that, under certain
circumstances, plans charge trading fees. Other investment vehicles
limit participants to a fixed number of trades per year or charge fees
on certain redemptions.
The Agency desires to stop this excessive trading immediately and
also, after continued analysis, to design an interfund transfer policy
that provides for administrative efficiency, investment flexibility,
retirement security, as well as reduced trading costs.
To that end, in the near term, the Agency is adopting a regulation
to grant the Executive Director the authority to notify the small
percentage of participants who are driving up costs through their
excessive trading and request that they cease their practices.
Otherwise, these participants will be required to request interfund
transfers by mail.
It is the Agency's hope that this swift and direct action will inform such participants of the unreasonable expenses associated with their trading and persuade them to voluntarily curb their trading, thereby curtailing the excessive trading costs borne by all participants who hold the C, F, S, I, and L Funds.
Further, upon continued inquiry, including an analysis of the
actions that can be taken on an automated basis, the Agency likely will
amend its regulations (via a separate publication in the Federal
Register) to permit two interfund transfers per calendar month with
subsequent unlimited interfund transfers only into the G Fund. The
Agency believes this policy, when compared to others adopted in the
private sector, provides the desired level of administrative
simplicity, investment flexibility and security, and control over
excessive trading.
Regulatory Flexibility Act
I certify that these regulations will not have a significant
economic impact on a substantial number of small entities. They will
affect only employees of the Federal Government.
Paperwork Reduction Act
I certify that these regulations do not require additional
reporting under the criteria of the Paperwork Reduction Act.
Unfunded Mandates Reform Act of 1995
Pursuant to the Unfunded Mandates Reform Act of 1995, 2 U.S.C. 602,
632, 653, 1501-1571, the effects of this regulation on State, local,
and tribal governments and the private sector have been assessed. This
regulation will not compel the expenditure in any one year of $100
million or more by State, local, and tribal governments, in the
aggregate, or by the private sector. Therefore, a statement under Sec.
1532 is not required.
Submission to Congress and the General Accounting Office
Pursuant to 5 U.S.C. 810(a)(1)(A), the Agency submitted a report
containing this rule and other required information
[[Page 73252]]
to the U.S. Senate, the U.S. House of Representatives, and the
Comptroller General of the United States before publication of this
rule in the Federal Register. This rule is not a major rule as defined
at 5 U.S.C. 814(2).
List of Subjects in 5 CFR Part 1601
Government employees, Pensions, Retirement.
Gregory T. Long,
Executive Director, Federal Retirement Thrift Investment Board.
For the reasons set forth in the preamble, the Agency amends 5 CFR
chapter VI as follows:
PART 1601--PARTICIPANTS' CHOICES OF TSP FUNDS
1. The authority citation for part 1601 continues to read as follows:
Authority: 5 U.S.C. 8351, 8438, 8474(b)(5) and (c)(1).
2. Amend Sec. 1601.32, by revising paragraph (b) to read as follows:
Sec. 1601.32 Timing and Posting Dates.
* * * * *
(b) Limit. There is no limit on the number of contribution
allocation or interfund transfer requests that may be made by a
participant. In order to mitigate excessive trading expenses, the
Executive Director may write to any participant who engages in
excessive trading and ask the participant to stop this practice. If the
participant continues to engage in excessive trading, the participant
may be required to request interfund transfers by mail.
[FR Doc. E7-25007 Filed 12-26-07; 8:45 am]
BILLING CODE 6760-01-P
END FEDERAL REGISTER NOTICE | |
SO EXACTLY HOW MUCH WILL THE PROPOSED TRADING RESTRICTIONS SAVE?
Taking away freedom always has a price.
And, according to the Thrift Board, stopping people from controlling their own money is their idea of providing for the greater good of the 3.8 million TSP participants.
But we question that. We only have to look at November 2007, to see that the impact of restricting people from controlling their own money would have devastating impacts.
NOVEMBER RATES OF RETURN:
C Fund S Fund I Fund
(- 4.20%) (-5.65%) (-3.72%)
For the month, those who were actively monitoring their own investments were able to move quickly to the sidelines, and escape the downward plunge of the markets. The Board recommends holding on and losing money. We advocate that an educated TSP Shareholder is in the best position to monitor and move his or her own assets.
To put things into perspective, TSP Chief Investment Officer Tracey Ray has advised the TSP Thrift Board that moving money means there is some kind of a financial emergency, because some employees desire to move their money more frequently than she believes is necessary.
We believe that is just her opinion, and we disagree.
Her predecessors spent millions of dollars to enable TSP Shareholders to have a daily access to their accounts. But that was before Ms. Ray came along. Her background is in the "buy and hold" tradition. There's nothing wrong with that, but she doesn't seem to understand the importance of allowing individual freedom in one's own risk management style. "Buy and Hold" is ONE theroy of how to invest one's money. There are other theories and investment styles as well. Dollar cost averaging, or swing trading, are both investment styles that the millions spent by TSP Shareholders a few years ago bought the capability to exercise. We bought it. We paid for it. And now Ms. Ray says we have to give up our investment. She wants to limit the freedom to pursue individual investments options, to go back to a limited number per month restriction. She says that will save shareholders money.
But she hasn't said how much such a restriction would save the TSP shareholders. That is an important question that hasn't been answered. How much will the vast majority of TSP's 3.8 Million shareholders "save" by invoking draconian trade limits?
And who exactly does the Thrift Board think are being harmed by continuing to have the ability to control one's own money?
First, it's NOT those who sit in the "G" fund with all their retirement cash. The "G" fund now represents some 33% of the total assets in the TSP, at $76,758,000 dollars as of the end of September, 2007. If someone is a pure "G" funder, they gain nothing at all from the proposed imposition of trading limits.
And it isn't holders or traders of the "C" fund, as C fund holders now represent 34% of all TSP assets, and trading costs in the C fund are less than 1 basis point, or 10 cents for every $1,000 invested. Those who hold the C fund aren't making any gain by limiting trades. Maybe a dollar a year, if that.
Could it be the L funders who are "harmed"? Some 500,000 employees now place their funds in the L funds. That's a very wise choice for many people. Those who cannot or will not learn how to make a better return on their own invest in the L funds. We support that. But if a typical L funder (L2020 is the largest holdings at 39% of FERS employees holding shares of the L2020) only has a small percentage of his/her account invested in the I fund, which is the fund being cited by Ms. Ray for high costs.
By the way, the L2020 only has 18.1% of it's assets in shares of the I fund as of September 2007. Which means, on an average $70,000 L2020 account balance, means only $12670 is exposed to the I fund. It also means, that if you left the money alone, as Ray and the Thrift Board suggest, you would have lost -2.33% of you money in November alone. That is a loss of $1633 dollars in November if you simply "bought and held".
Would limiting trades save money? We don't know for sure. Tracey Ray has not made a public estimate of how much of that 6 basis points she thinks will be saved by limiting trades. How much? She won't say. She thinks it will save money.
We're not so sure.
Since she won't put a figure on any estimated "savings" by limiting trades, We'll have to make up a figure, just for demonstration purposes. Let's say it's 3 basis points for the year, rather than the 6 basis points that the I fund now costs. We believe the savings won't exist, but just for the sake of argument, let's say it saves 3 basis points in a year on the I fund. That works out to just 1/4th of one basis point per month.
That's .000025 percent.
On $12,670 exposure to the I fund, that means "trade limits" COULD save a whopping .31 cents for the month.
That same "L funder" person, by not being able to trade, would have "saved" about 31 cents. And lost a fixed amount of $1632.70 in November, by not moving to safety.
But if they had "managed their own money", and bought L2020 on November 1, sold on November 6, bought on November 19th, and held till the end of the month, they would have made $2,009.59 in profit. On just three trades in a month. Three is above the limit that the TSP Board is proposing.
Is it worth saving 31 cents, to give up the ability to make $2,009.59?
It is, under Tracey Ray's math.
She says restricting the ability of a person to control their own money and saving 31 cents is more important than allowing a person the right to control their own destiny.
While it is true that not everyone can pick the highs and the lows of the market, anyone who manages their own money can make an educated guess of the direction of the market's travel. And can judge their own level of risk and reward, to determine if they want to be in the markets, or out. We're adults, not children. Our actions are not "harming" anyone. The cost of doing business is minimal. And it's important to a lot of people to maintain freedom in our democracy.
We believe it's better to teach a person about finance, than to let them suffer in the dark.
And we believe Tracey Ray, and the Thrift Board, are missing the big picture. It's not THEIR money at risk. They need to stop frightening TSP shareholders by claiming that the costs to their accounts are being damaged. It's simply not true. It's not hurt any of the "G" funders at all. And it's cost less than $4 per year per person overall to maintain freedom, less than the costs of compiling, printing, and sending out yearly statements to members.
Remember, for a $70,000 L-2020 account holder in November, limits MAY have saved him perhaps .31 cents.
And cost them the freedom and opportunity to gain $2,009.
Freedom in America is important.
Especially to the 3.8 million Federal Employees and U.S. Military service members who invest in the TSP, and are the share holders.
TSP Thrift Board needs to understand that.
Are imposed trading limits Penny wise? Or Dollar foolish?
You decide. |
 |
WHAT PEOPLE ARE SAYING!
Here are some extracts from some of the 2,600 people who have already signed the petition to STOP TSP TRADE LIMITS found at http://tspshareholder.org
Dec 27, 2007,Kendall Coupland , Alabama
Trading limits are unneeded, unfair, unwanted!
Dec 27, 2007,Larry Gridley , Georgia
Let me decide how often I want to move my money. I dont need any limits on that.
Dec 27, 2007,Link Crawford , Ohio
Reverse the interfund transfer limits!
Dec 27, 2007,JOHNNY CASTILLO , Texas
Charge me for my trades, I don't need governmental control. You idiots can't run your money matters. Don't tell me how to run mine. I do way better than you guys. Charge Me for my trades.
Dec 27, 2007,Kerry McDivitt , Nevada
I don't understand how $5.00 per person a year is wrong to pay for the maintaining of the TSP? This also allows me to try and get the most from my account. Let it continue as is. Thanks
Dec 27, 2007,Anonymous , Hawaii
The TSP board's goal should be to help investors wring out the maximum from their retirement plans prior to leaving their jobs-the third leg in the retirement support stool. How is placing restrictions on our ability to control our own financial destiny moving in that direction?!?! If people want to move funds based on the market I say let them. My wife was told to only have her money going into the G fund when she got hired back in 1992. For almost ten years she had all of her monthly contributions in the G fund and she was not able to take advantage of the windfall in stocks during the 90's. She received this advice from a "seasoned" government employee who "knows how the market works." Now that I have a federal job and invest in TSP myself, I have been taking classes and studying the markets. I now know that some of the so called a "seasoned" government employees don't really know their elbows from their asses. It is up to us to determine our own futures and we have a vehicle that will allow us to do that. Don't screw that up !!!!
Dec 26, 2007,Peter Avalos , Florida
We spent hundreds of millions of dollars on a system to provide us financial freedom, and now we're expected spend more money so that we can give up our freedom in order to save pennies per month?
Dec 26, 2007,John M. Boyle , Massachusetts
And don't any proposed changes have to be approved by congress. These changes that are being proposed seem to be of a antiquated idea that trading is bad. And so the one's who make such trades are bad individuals. No; we are just actively concerned about our personal retirement funds. And we are mature enough to take responsibility of our actions.
Dec 26, 2007,Marc Whit , Virginia
Stay out of my retirement fund.
Dec 26, 2007,Dan Granstrom , Arizona
I can' imagine a more backward move from the TSP management. There was an investigation on the management or mis-management back in 2003 perhaps it is time for an outside investigation again. There is much talk of the high cost of the transfers in and out of the I fund yet in the establishment each fund was to carry it's own cost, and they use a higher basis point figure for the I fund. Check the published congressional record. We were encouraged to fund our own retirements and now they are trying to stop us from having the ability to manage our own money. Do not block trading.
Dec 26, 2007,GEORGE ROOT , Maryland
I just learned about this tonight!!! Am steaming mad!!! I don't move funds on a daily basis - however - I do sometimes make 3 to 4 moves in a month - then maybe zero move over the next 2 to 3 months. Why does someone always have to screw something up when after I worked for 17 years we finally get a good system going - now they want to mess it up again. If I could have managed my Social Security contributions over the last 30 years I would be much better off!!! DON'T CHANGE ANYTHING!
Dec 26, 2007,Anonymous , Texas
It is our money and we have the right to invest it how we see fit. We do not need or want the Thrift Savings Board or any Gov beaurocrats "helping" us because we don't know what is best. And enough with the cost of moving between funds. It is done by computers. If this is enacted, I suggest we all only put the bare minimum into the TSP to get the gov match and invest the remainder into your own retirement account. It is our money, our retirement, and our decision to do with it what we please. What's next TSP Board, change the limits on when and how much we can draw in retirement? If we all band together we can hurt the TSP where it counts.stop putting in the max and invest it yourself.
Dec 26, 2007,Anonymous , Virginia
As if it wasn't enough, giving us some hard-to-remember "Secure" ID to acess our TSP accounts (in lieu of a SSN) now the powers that be want to do as they please by limiting trades? Let Vanguard try that and see how long they stay in business!
Dec 26, 2007,Daniel Casparius , Maine
Pleas stop hampering those of us TSP'ers who are working hard to make money for our future.
Dec 26, 2007,Kathryn Skahan , Pennsylvania
It is a personal decision that I move my money around. It is not the governments right. Do not take that away.
Dec 26, 2007,Madeline Rickman , Mississippi
I do not agree with the position to limit the trading capabilities of TSP participants. It is the single biggest benefit to the federal employees who do care to maximize their contributions. Most especially those many military members and CSRS civilian employees who DO NOT receive government matching funds.
Dec 26, 2007,Denny Barleen , Alaska
If I was in the old retirement system, (CSRS) I could care less but I'm not so I have to live under the FERS program. That means I have to make money to enjoy my retirement and by limiting me to make transfers takes money away from me. The only person I trust on the board is Mr. Fink everybody else never questions any of the boards actions. Why can't the board tell us about these changes? I bet over 3 million of the shareholders don't even know about this!
Dec 26, 2007,Raymond Matwijko , New York
Let the 3.8 million TSP participants vote on all issues and changes that affect their retirement money and investment options.
Dec 26, 2007,John Cavanaugh , Washington
The dictatorial decision by the Thrift Savings Board to limit TSP trades to 2 per month, without obtaining input from the TSP share holders, is wrong, and perhaps illegal. The proposed actions of the Board to address TSP share holders' rights needs to be presented to the TSP participants so they can provide input, such as a vote, to determine how their retirement money is controlled. Previous incompetent and irresponsible actions by the TSP Board in relation to Management Contracts of the TSP Funds has resulted in significant costs to the TSP Shareholders. The TSP Board's irresponsible behavior deserves a Congressional hearing.
Dec 26, 2007,Anonymous , Virginia
I am against this decision to arbitrarily limit of 2 trades a month to protect my investment for retirement. I feel people should have the flexibility to protect there funds as they see fit. I also have an MBA in finance and know I trust myself, BECAUSE IT IS MY MONEY! if you want to cap from the current limitless, I feel that the minimum should be 5 trades per month or 50 in a year.
Dec 26, 2007,Anonymous , Colorado
I resent having "Big Brother" controlling my retirement fund moves. I paid into this with my own tax dollars, and as an American, believe I have the right to make my own financial choices. If necessary, I will take all my funds and move to an account that allows choices that enable my financial freedom.
Dec 26, 2007,Michael Bowman , Arkansas
Outside of the board's argument that increased trades in and out of the I fund increases expenses, the other arguments do not hold water. I want to retain the ability to maximize my earning potential on my investment savings by having the ability to trade between funds. This will have a negative impact on my TSP retirement investments and I want to protest this limitation most strongly. I would prefer a small per trade fee over the unrealistically low number trade restrictions the board prefers. I am not a "sit and wait" trader and I use tools and advice that allow my account to outperform those of any of the other funds. Please listen to those of us who are exercising the freedom Congress gave us to manage our own accounts actively and do not place this constrictive limitation on us.
AS A UNIFORMED SERVICE MEMBER, MY CONTRIBUTUIONS ARE NOT MATCHED AND I HAVE NO GREAT INCENTIVE TO INVEST IN TSP VERSUS OTHER AVENUES OTHER THAN CONVENIENCE. WITH RESTRICTIONS SUCH AS THESE, WHAT IS MY INCENTIVE TO CONTRIBUTE TO A FUND THAT DOES NOT ALLOW ME TO MANAGE MY MONEY EFFECTIVELY?? I DO HAVE OTHER OPTIONS.
Dec 26, 2007,David Koegel , Virginia
I am appalled that the officials that run the TSP would decide on their own to restrict the number of interfund trades that I can make. The TSP consists of my funds and that of other former or current federal employees. The "evidence" for this need appears to have been culled from an examination of one anomalous two-month period where the I fund had a lot of activity. So what? One of the given excuses is that I fund transfers can have a lot of extra costs involved due to the timing of the trades. (Overseas markets are obviously in a different time zone.) Were there not months where the TSP gained money because of a reverse situation? This sounds like one big red herring. Without a complete analysis over, say, a year, I am not willing to believe the excuses given for restricting the number of interfund transfers. Just because a few individuals exercise their options frequently does not mean that restrictions are needed. If others want to just let their funds stay in one account, fine. That's their choice. Just stop making choices that affect my abilities to move funds around. And, no, I'm not one of those day-traders that the TSP has been deriding.
Dec 26, 2007,Roger Brown , Arizona
Retirement is an important issue with me. Please consider not imposing limits on the movement of my money.
Dec 26, 2007,Patricia Horan , Washington
These are our retirement funds, and we should not be penalized because we use the system for which it was created. to maximize our funds and have control over our retirement. With these restrictions I may as well place my money elsewhere.
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| To read more comments from TSP SHAREHOLDERS, please visit the on-line petition at http://tspshareholder.org and see for yourself what other TSP Shareholders are saying. |
It took seven years, and $350 million dollars to allow TSP Partcipants to be able to control their own future with daily access to their money.
Employees finally could control our own money when the new system started in June, 2003.
It worked.
Exactly AS DESIGNED.
The NOW, the Thrift Board is proposing to wipe it all away in a single stroke of the pen.
TSP Goes retro.....
Remember when?
Flashback.....June 16, 2003, the TSP goes LIVE with their daily trading plan.....as reported in Govexec.com
+++++++++++++++++++++++++++++++++++
House committee to investigate TSP system
By Tanya N. Ballard tballard@govexec.com
July 17, 2003
The House Government Reform Committee will review customer service problems associated with the Thrift Savings Plan's new automated record keeping system at a July 24 hearing, a committee spokesman said Thursday.
Six years in the making, the new automated record keeping system was finally launched on June 16 only to encounter Web site problems. While TSP officials tried to fix the problems, they advised participants to access the system by telephone, but the subsequent barrage of calls to the system prevented some participants from getting through. The delays increased the frustration many participants had harbored over the years of delays and the millions of dollars spent building, then launching the system.
"People are very upset and we understand why," TSP spokesman Tom Trabucco said Thursday. "We know we have a problem with the phones and we are working on that."
Under the new system, federal workers should be able to make daily changes to their Thrift Savings Plan investments, a significant change from the monthly upgrades provided under the old system. The 3 million TSP account holders should also be able to access their account balance updates each day, transfer money from one fund to another, change the amount of their monthly payouts after they retire and make a partial withdrawal of money, rather than a full withdrawal, as soon as they retire. Another feature of the new system allows participants to submit loan applications electronically, though there is still a paper-based step for married Federal Employees Retirement System (FERS) members, according to Trabucco.
"The TSP new system may be up and running, however it is near impossible to reach anyone by phone or complete the application electronically as was promised and advertised as a special new feature," a federal employee recently wrote to GovExec.com. "It's one thing to say the system is working. It's quite another to say so when it is patently not true. In fact, saying the TSP is working is like [President] Clinton saying he didn't inhale or have an affair with [Monica] Lewinsky. It may be true, but only if words are redefined."
During the past month, many GovExec.com readers have complained that their loan applications seem to be in limbo, interfund transfers have not been completed, and attempts to contact someone for help have been futile.
According to Trabucco, 106,641 interfund transfers were processed and 12,120 loans were issued as of July 15, but a data entry backlog has created some problems.
"We do have a backlog of data entry work and that includes loan repayment checks, paper loan applications and paper withdrawal applications, but we've brought more resources to bear on this and are working through it," Trabucco said. "What we are trying to do is work through, in particular, this data entry issue and get those moving through. We think that things will be improving when that's done."
Trabucco also noted that the Web site is handling as many as 50,000 transactions an hour, with the highest volume of Web site hits occurring between 8 a.m. and 12 p.m. EST.
The board hired American Management Systems in 1997 to modernize the computer system and give federal employees more tools to manage their 401k-style retirement accounts. The $30 million project was supposed to be completed by May 2000, but when the implementation date was moved back four times and the budget tripled, the board fired AMS in July 2001. The board sued the Fairfax, Va.-based company for $350 million in damages and AMS filed a breach of contract suit against the board. Recently the two brokered a settlement in which TSP participants will pay $36 million for the failed contract, along with the more than $33 million paid to the contractor who took over the project after AMS was fired.
.
+++++++++++++++++++++++++++++++++++++++++++++
Perhaps it's time for the House Committee to investigate again, why the Thrift Board would even consider tossing aside a $350 million dollar investment that works just fine, exactly as intended, and going back to the OLD way of doing business. |
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The Thrift Investment Board plans to curtail Interfund Transfers, but the proposed solution may cost more than the current problem they are trying to solve.
Better Alternatives Exist.
The Thrift Savings plan is the current retirement fund for approximately 3.8 million federal employees, and U.S. service members. As of September, 2007, the plan contains over $230 billion dollars, spread out over 5 investment vehicles.
The G fund contains government securities. The F fund contains bonds. Three stock funds make up the rest. Two are domestic index funds, reflecting the S&P 500, and a small to mid-cap index fund. One fund, the "I" fund, currently holds approximately $23 billion dollars in foreign securities.
In 2004, the plan was changed. Prior to that date, the plan only allowed changes in funds once per month. Under the new system, daily reallocations are possible. While the vast majority of share holders don't move or reallocate their own funds, many shareholders watch the markets carefully, and place their own money where they think it will work for their particular situation best.
Legacy Timing Issue:
One issue cited by Tracey Ray is that the I fund trades foreign securities. These securities are traded around the world, at times when the U.S. Domestic market is closed. The TSP established a cut-off time for announcing the day's value of the fund, as of 4 p.m. each day. TSP then made public the closing share prices at 7 p.m.each evening on it's dial in telephone line. TSP originally chose this time, because that is after the U.S. New York Stock Exchanged closed. Until 1996, the C fund, representing the S&P 500, was the only stock fund available to share holders.
When the international "I" fund was added in 1996, the thrift board continued to use the 4 p.m. eastern time cutoff for the day, and continued to announce a daily value of the funds, including the I fund, at approximately 7 PM. eastern time each night. However, the actual value of the shares would not be known until after trading began in overseas markets during the night. Each day the agent for TSP would make an estimate, called a "Fair Value" estimate, to estimate what the shares would be worth the next morning. If, during overnight trading, the estimate was wrong, then the error was absorbed as a cost to all TSP shareholders. These costs over time amounted to roughly 8 basis points per year of operation between 1996, when the I fund became available, and 2004, when the trading system was changed.
This legacy timing issue means that the market differences between the time of the declared price value by the TSP, and the actual trades conducted later that night, could either benefit, or hinder, the costs of the associated TSP account holders.
This legacy timing "Fair Valuation" can either help TSP accounts overall, or hurt TSP accounts overall, depending on the day of the trade. The Board has been well aware of this fact for some time.
It the February 20 , 2007 Federal Retirement Thrift Investment Board meeting minutes, TSP CIO Tracey Ray noted that the Fair Valuation of the I fund benefited investors in January, 2007. The February meeting minutes record : Ms. Ray noted that the I Fund outperformed the index by 62 basis points due to a fair valuation adjustment.
In real dollars, that means the trading in the I fund in January 2007 resulted in a profit to the TSP of approximately $20 million dollars for TSP shareholders. In February, the difference was reversed, the Fair Value method missing slightly, costing 61 basis points, or $20 million dollars back due to the fund manger's Fair Value misestimates. The net result over the two month period was a net gain for I fund holders of 1 basis point, or about even.
In a single day, March 5th, the miss-guess of the Fair Value allowed TSP shareholders a single day gain of $8 million dollars, when traders placed sell orders, the Fair Value was set, and the share prices announced at 7 PM., yet the overseas markets were actually higher when the trades were executed overnight. The Thrift Board's minutes of April 16th, 2007 note that Ms. Ray said "it could have easily gone the other way".
On November 19, 2007, in a Board Meeting the Thrift Board decided to stop trading of TSP accounts of active members. Citing a cost of trading on this "Fair Value" issue, Tracey Ray accused TSP account holders of costing the fund money.
The fact is that some months the trades cost money, and some months they bring in millions in extra income. In September, 2007, trading resulted in $1.3 Million in PROFIT for the TSP overall. It's not a loss, it's a gain.
The fact is that it is the "Fair Value" system of declaring a share price BEFORE the trade is executed that resulted in value errors and potential trading expenses. Sometimes they go in favor of the TSP, and sometimes they don't. Trading restrictions will have little or no affect on the Fair Value errors.
This decision to limit trades puts the board in the position of deciding, instead of share holder members deciding, what is best for them.
Shareholders overwhelmingly view this as a wrong decision. According to a Federaltimes.com poll, only 11% of federal employees said they support the decision to limit trades.
The solution chosen by the board could increase, rather than decrease, costs for TSP shareholders. Under the Board's November 19 solution, TSP shareholders will be limited to two trades per month. This COULD mean that all trades are executed in a single session, rather than spread out over 10 trading days. For example, two weeks worth of trades COULD be pent up into a single day, and without changing the time the Share Prices are calculated, this could mean the FV problem is actually magnified by a multiple of 10.
Federal Employees reject this proposed solution of limiting trades by an overwhelming majority. According to a Federaltimes.com poll conducted over the weekend of November 23rd to 25, only 10% of shareholders thought limiting trading to twice per month was a satisfactory solution to the problem. An overwhelming 83% of shareholders wanted to continue the ability to make daily allocations without restriction, or with a small fee.
Federal Times Poll, as of November 2007
Should the Thrift Savings Plan limit the number of fund transfers investors can make?
| Yes, to 2 per month as planned. |
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10 % (399) |
| Yes, but more than 2 per month should be allowed. |
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7 % (305) |
| No, but those transferring money should pay fees to cover transfer costs. |
|
20 % (798) |
| No, unlimited free transfers should continue. |
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63 % (2,570) |
| Total votes: 4072 | |
BETTER SOLUTIONS:
The only way to eliminate the risk of Fair Value Price errors, is to eliminate or greatly reduce the use of Fair Value pricing. While the SEC guidelines talk about using Fair Value Pricing, the TSP is not subject to SEC regulation. Further, the SEC also allows waivers for alternate plans that more accurately reflect share holder value in the private sector. The Thrift Board should explore this option.
Instead of limiting trades to two per month, the Thrift Board could adopt a policy of not setting share prices until the following morning, once all trading has taken place. Instead of publishing share prices at 7 p.m. eastern time each evening, the Board easily could wait until foreign markets open, and the trades are executed. Publishing the share price at 7 a.m. the following morning would allow the elimination of "Fair Value Pricing" guesses, and use the actual price data from trades conducted in foreign markets overnight.
Further, it would still allow enough time to update employee account records, and for employees to know their actual account balances within two or three hours of the new set pricing time, in time to decide what to do before the next day's noon cut-off time for making a move.
By adopting this change in share price announcement timing, the TSP could eliminate all costs associated with the "Fair Value Price" estimates. Using the Thrift Board's own figures, this would save TSP account holders over $25 million in administrative costs currently borne by all account holders.
Recommendation 1: That the Federal Retirement Thrift Investment Board retract it's proposed 2-per month limit on TSP trades, and instead adopt a policy to price shares at 7 a.m. each morning, for the shares traded the previous day. This is a change from the current policy of publishing prices at 7 p.m. each trading day. A simple 12 hour delay in publishing share prices could save millions in costs to shareholders.
This simple change would allow massive savings to shareholders, allow maximum flexibility to shareholders for managing their own accounts, and solve the "Fair Value" swing issue perceived by the Board.
Alternate Recommendation 2: That the Thrift Board adopt a fee of $10 per move to compensate for costs associated with Interfund Moves.
Data over the last two years shows, on average, TSP Shareholders make between 180,000 and 220,000 Interfund Transfers per month. By applying a simple $10 per move fee, fees would generate approximately $24 million dollars per year, more than the TSP currently says that fund moves cost.
The plan would work because A. It's simple to impose. A minimal amount of software modifications would be required. B. Those who move more often would pay more. If someone does not move at all, they pay nothing. If someone moves often, they pay for each move. The amount recoups the costs now being incurred, and does it in a simple fashion.
Alternate Recommendation 3: Limit the dollar amount of each move to a fixed $200,000 limit per day.
The Thrift Board Spokesmen all speak about the daily variations in the amount being trading as one of the items they are concerned with. Setting a fixed number of trades at two per month does nothing to limit the potential dollar value that could be expected to be traded on any single day. Dollar cost averagers, who currently may take 20% of their account off the table and into safety during strong moves up would be limited if the two trade limit is imposed. But by limiting the dollar amount per day, instead of the number of days per month, the daily variation is reduced, without harming smaller accounts. Large Account holders can still move significant amounts of cash, but the impact of the 300 large dollar traders would be reduced significantly on any given day.
These are just some of the ideas we think are worth exploring, before imposing draconian limits. We're talking about other ideas here, and in the http://tsptalk.com message boards, among other places. If you have ideas on better alternatives, drop by the message boards at TSP Talk and contribute your ideas.
We all work better, when we work together.
See you over at the message boards. |
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HOW MUCH TRADING IS TAKING PLACE?
 Over the course of a month, an average of about 200,000 Interfund Transfers are made by TSP Share Holders.
The Thrift Board is now saying that they want to limit your ability to move your own money, because too much money is being moved around.
It turns out that they are mostly concerned with moves in the I fund. So how much money is actually in the I fund? In September, it was $25,281,000,000
And how much was moved on an average day?
Would you believe LESS THAN 1%?
That's right. They want to take away your right to control your own money, because less than $244,000,000, or less than 1%, is being moved on an average day.
We believe there are better ways. Don't let them take away your right to move your money where YOU think it will work for you best.
Sign the petition to STOP THE TSP TRADE LIMITS. |
| It's at: http://tspshareholder.org |
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Putting on the Heat:
Thousands of TSP Shareholders have already signed the Petition to STOP THE PROPOSED TSP TRADING LIMITS, and your voice is starting to be heard.
The Petition has already garnered over 2,500 signatures, and the Thrift Baord is starting to realize that Federal Employees will not accept turning the clock back and limiting trades.
In a recent interview on http://federalnewsradio.com, TSP Director of External Affairs Tom Trabucco said his office is starting to hear from customers, and they are looking for ideas as alternatives. Listen to what Tom had to say to a reporter at Federal News Radio last week. He says many of you are starting to weigh in, and starting to make your voice heard.
Now it's time to exchange ideas, and work on alternatives that the Thrift Board can think about. We're working on ideas over in the messages boards of http://tsptalk.com. Come over and chime in. Let's collaborate on ideas.
Trading limits ARE NOT a done deal. YOUR voice and your ideas will be important in the process.
As we outlined in our last Issue, we believe the TSP is performing exactly as intended, and that there is no performance problem. Costs ARE under control, and costs are within reason for the type of investment vehicle that the TSP is.
The I fund, along with all the other funds, are meeting the goals that the designers of TSP, exactly as intended. There is no excessive cost issue, and we believe TSP Shareholders are already getting the lowest cost investment vehicle in the world.
Simply put, there is no reason to alter the world's largest, lowest cost, most successful employee accepted retirement investment plan in the world.
There is no reason to change a winner.
Period.
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