Day traders and market timers are a thing of the past -- at least when it comes

to the Thrift Savings Plan.

The Federal Retirement Thrift Investment Board officially published its

amended interfund transfer (IFT) regulations today to limit the number of

interfund transfer requests to two per calendar month.  After a participant

has made two interfund transfers in a calendar month, the participant may make

additional interfund transfers only into the Government Securities Investment

(G) Fund until the first day of the next calendar month.   (href="http://www.myfederalretirement.com/public/253.cfm">To read the complete

ruling and commentary as published in the Federal Register, click here)

The rule amendment was targeted at federal employees who switch their

Thrift Savings Plan investments every few days in hope to make gains by beating

the stock market.

Last year, the

TSP raised concerns that frequent trading activity from a small percentage

of TSP participants -- about 3,000 -- was driving up the costs and thus diluting

the returns of the rest of the 3.8 million participants. 

There has been a href="http://www.myfederalretirement.com/public/238.cfm">flurry of debate on

the subject since, including opposition from nearly 4,000 TSP participants who

signed a petition coordinated by an Internet-based advocate group,

TSPShareholders.org.

The TSP received official comments from about 300 opposed to the

restrictions and 30 who supported them.

Most of those opposing the restriction have expressed they felt the

additional costs the TSP has incurred because of frequent trading are not a

significant amount compared to the more than $200 billion of assets in the

funds.  Opponents have also expressed that TSP participants should

have the right to change their allocations in funds as much as they want,

even if it means paying an additional fee per trade. 

But the TSP sharply rejected these assumptions.

"Those individual respondents who have personally made frequent interfund

transfers and oppose the proposed limits display a fundamental misunderstanding

of the statutory TSP design," the TSP ruling states.  "By misappropriating

language used in the capital markets (buys, sells, trades), some TSP

participants give the impression that their frequent interfund transfers are

trades in and out of the markets which affect only their own funds. This is

incorrect. All TSP assets are in a pooled investment which is designated by

statute as the Thrift Savings Fund" 

As an example, the TSP rule cited that frequent trading contributed

to a one-day $9.5 million increase in costs in the International

(I) Fund on August 16, 2007 -- and this cost was absorbed by

all participants in the I Fund.

"The Thrift Savings Plan was created to offer passive long-term investments

designed to improve the retirement security of federal employees", according to

the TSP rule.  "As a result of analysis performed in 2007, it became clear

that a small number of TSP participants were pursuing 'market timing' active

investment strategies in the TSP. These activities were diluting the earnings of

the long-term investors, and adversely affecting the ability of TSP managers to

replicate the performance of selected indexes as required by law."