Senators Marco Rubio (R-FL) and Jeanne Shaheen (D-NH), members of the Senate Committee on Foreign Relations, Monday urged Michael Kennedy, the Chairman of the Federal Retirement Thrift Investment Board (FRTIB), reverse its November 2017 decision to change the Thrift Savings Plan’s International Stock Fund (TSP’s I Fund) to mirror the MSCI All Country World ex-U.S. Investable Market Index (ACWI ex-US IMI).
The Senators warn the decision will effectively use these retirement savings to fund the Chinese government and Communist Party’s efforts to undermine U.S. economic and national security. This decision will expose nearly $50 billion in retirement assets of federal government employees, including members of the U.S. Armed Forces, to “severe and undisclosed material risks” associated with many of the Chinese companies listed on the MSCI ACWI ex-US IMI, according to Rubio and Shaheen.
The current index for the TSP’s I Fund is the MSCI EAFI which is designed to measure the stock market performance of developed markets outside of the U.S. & Canada and includes more than 600 mid-sized and large companies.
“The FRTIB’s decision to track this MSCI index constitutes a decision to invest in China-based companies, including many firms that are involved in the Chinese Government’s military, espionage, human rights abuses, and “Made in China 2025” industrial policy, and therefore poses fundamental questions about the Board’s statutory and fiduciary responsibilities to American public servants who invest in federal retirement plans,” the Senators wrote. “This change, which is expected to be implemented next year, will expose nearly $50 billion in retirement assets of federal government employees, including members of the U.S. Armed Forces, to severe and undisclosed material risks associated with many of the Chinese companies listed on this MSCI index.”
The letter requests the FRTIB respond to the following questions no later than September 6, 2019:
(1) What criteria were used to identify and evaluate the suitability of a new index for the I Fund, and to what extent was due diligence related to security, human rights, and financial transparency performed by the Board? What criteria did the Board use when deciding that federal employees and military personnel should be investing in Chinese military modernization?
(2) Were the members of the Board aware at the time of the motion to adopt the new index for the I Fund that constituent firms of this index were previously subject to U.S. Government sanctions? Since the Board’s November 2017 vote, the U.S. government has censured constituent firms of the MSCI ACWI ex-US IMI—or the controlling shareholders of such firms—through such measures as designation to the Entity List and federal procurement prohibitions. How did the Board take these developments into account when considering or revisiting investment decisions?
(3) What disclosures is the Board planning to issue to TSP participants warning them of the material risks associated with investment in Chinese firms, including those sanctioned by the U.S. Government? How was the Board planning to inform federal employees that the I Fund may invest in companies involved in the build-up of the People’s Liberation Army’s conventional and nuclear-related military capabilities as well as firms responsible for the Chinese Government’s Orwellian surveillance and egregious human rights abuses against Uighur Muslims and other religious and ethnic minorities in Xinjiang?
(4) What alternative investment vehicles, designed to shield TSP participants from exposure to Chinese national security, human rights, and financial disclosure risks, did the Board consider?
The full text of the letter is available here.