TSP board agrees to research real estate investment fund option

The board of the Thrift Savings Plan is responding to pressure from Congress to investigate the feasibility of adding a real estate investment fund to the plan, but is not making any promises on the outcome.

The TSP is the government's 401(k)-style retirement savings plan, which is run by an independent board not subject to traditional legislative review. It receives no appropriations from Congress, instead funding its efforts solely from participants' contributions.

In an Aug. 11 letter, all five members of the TSP board and its executive director, Gary Amelio, told members of Congress that they expected to hire an investment consultant to review the option of adding a real estate investment trust, or REIT, to the plan by September.

Board members said it would probably take more than a year for the independent consultant to reach a conclusion about the viability of a real estate fund in the TSP. That timeline would submit the report to Congress approximately eight months later than the requested deadline of Jan. 1, 2006.

A REIT fund would be in addition to the six funds the TSP currently offers. At present, none of the TSP funds invests in a single area, like real estate. Instead, they track stocks and bonds invested in a range of fields.

In the letter, the TSP board noted that REIT securities were included in both the S and C funds, among other options.

The letter was in response to correspondence from members of the House and Senate to the TSP board in early July, leaning on the board to come through on its promise to investigate the possibility of adding a REIT fund.

Congress will use the consultant's findings in considering the Real Estate Investment Savings Act (H.R. 1578). That bill was introduced by Reps. Chris Van Hollen, D-Md. and Jon Porter, R-Nev.

According to Steven Weschler, president of the National Association of Real Estate Investment Trusts, "The reliable dividend income, proven portfolio diversification benefits and impressive long-term performance of REITs make them an ideal investment option for TSP participants."

Lawmakers who support the bill note that many traditional investment plans have invested specifically in real estate.

Federal employees "should have a broader range of choices, just like participants in private sector 401(k) plans," Van Hollen said. "A real estate option can be a useful tool for greater diversification."

In testimony before the House Government Reform Subcommittee on the Federal Workforce and Agency Organization on April 19, TSP Board Chairman Andrew Saul and Amelio both voiced strong opposition to adding a REIT fund.

"For the TSP this would be the wrong fund at the wrong time," Saul said.

TSP board members wrote to Congress that "The fiduciaries must ensure that all funds are spent prudently and solely in the interest of TSP participants." They added that the TSP is focused on making the newly introduced life cycle (L) funds successful.

Rather than specifying that the investment consultant the TSP board hires would investigate REIT funds, the letter outlined a number of broader assignments. These included reviewing the indexes used to track current funds; assessing the risk of management practices used; and assisting in the public bidding process for the fixed income (F), common stock (C), small capitalization (S) and international (I) funds.

The consultant's final duty, according to the letter, would be "reviewing existing and other available investment options and providing appropriate recommendations concerning new investment funds, if any."

TSP members also told Congress that it was "premature" to determine what kinds of advice the consultant would provide the board, and that the assignment of reviewing the possibility of REIT funds would be the last task.