Vote on contentious TSP real estate fund postponed

After a heated, adversarial hearing, lawmakers delayed a vote Wednesday on a bill to add a real estate fund to the Thrift Savings Plan.

Rep. Tom Davis, R-Va., chairman of the House Government Reform Committee, asked the subcommittee scheduled to vote on the bill to pass it up to the full committee without voting on it first.

"Chairman Davis has asked that we postpone consideration of this legislation and instead consider the bill at the full committee at a later date so that there could be a full and fair debate about the proposal among the members of the entire committee and all stakeholder groups," said Rep. Jon Porter, R-Nev., chairman of the Federal Workforce and Agency Organization subcommittee.

A staffer for Porter's panel said there is no date scheduled for the full committee vote.

The bill, H.R. 1578, pits the presidentially appointed board of the TSP -- a $180 billion 401(k)-style retirement savings plan for federal employees -- against more than 160 members of the House who have co-sponsored legislation to add a Real Estate Investment Trust fund to the five existing funds in the plan.

Members of Congress who support the legislation argue that REITs are big earners and federal employees should have the choice, as many private 401(k) investors do, to put money into them. REITs also react differently to market forces than stocks and bonds, providing diversification, which protects assets, the lawmakers argue.

But REIT detractors, including members of the TSP board, have said that a fund dedicated to real estate is too narrow. The current TSP offerings are broad index funds that cover a variety of industries. If Congress imposes a REIT fund, that could open the door to a host of other interest groups wanting to add funds. Too many funds in the plan could raise administrative costs and decrease participation levels, TSP board members argue.

Timing

TSP Executive Director Gary Amelio and Director of External Affairs Tom Trabucco testified at Wednesday's hearing against the addition of a REIT fund. The TSP board hired consulting firm Ennis Knupp & Associates of Chicago to recommend adding funds, and Amelio said the board wants to wait for the firm's recommendations before taking action.

Amelio said his fiduciary responsibility to plan participants requires him to hire a consultant to examine the full range of fund possibilities before adding options to the TSP.

But Davis and Porter accused Amelio of purposely running out the clock on the current session of Congress, which will end in October before mid-term elections, in hopes that the REIT bill will fade away.

Davis told Amelio at the hearing that the delays "destroyed any credibility you had with me."

Lobbying

Subcommittee members also brought up a recent Federal Times article that linked money from the National Association of Real Estate Investment Trusts -- a coalition of real estate companies -- to lawmakers who backed the bill. Specifically, the article cited $92,500 in contributions to Porter that came from political action committees that previously received NAREIT donations.

Porter and Davis attacked the story, arguing that there is no direct link from NAREIT to Porter via the PAC contributions. One of the PACs cited by the article, the Federal Victory Fund, is Davis' own leadership PAC, designed to help fellow Republicans in Congress. NAREIT gave $5,000 to the fund in December 2005 and Davis gave Porter $1,000 from that fund in June 2005.

"I've been in office 20 some years and fund-raising is a part of running for any office," Porter said Thursday in an interview with Government Executive. "My principles are very clear and have been for 20 years. When someone donates to my campaign, it's based upon a trust that I'm going to do the right thing for the right reasons."

"I'm going to do what is right especially for federal employees," Porter continued. "I feel strongly, strongly that they deserve the same advantages as the private sector."

Porter also said he inherited the bill from Rep. Jo Ann Davis, R-Va. who chaired the subcommittee before him, and that he is continuing to back it because he supports the idea.

About half of the lawmakers -- 78 of 163 - co-sponsoring the REIT bill received direct contributions from NAREIT of between $1,000 and $7,500 since January 2005, Federal Times reported.

Michael Grupe, NAREIT's senior vice president of research and investment affairs, denied that the co-sponsors got contributions to support this bill. NAREIT executives said the fact that half of the sponsors did not receive any direct contributions shows that money was not the main factor.

"Our political contributions are divorced from legislative initiatives such as this," Grupe said. "It might surprise you but we have a wide range of issues we follow -- everything from terrorism insurance to a whole range of tax issues to telecommunication. We have observed legislators for a long period of time who have understood the central role commercial real estate has played and seen how they have performed in office and used a variety of factors to determine who should receive political contributions."

But Amelio told the committee that "it appears to me that [congressional pushes on the bill] were driven by the industry."

Former TSP Executive Director Frank Cavanaugh, who is retired and free to speak openly about the issue, said in an interview that in 20 years of the plan, an interest group has never been this successful in attempting to add a fund to the TSP.

"It would be tragic if after all these years of insulation from politics, the Congress were to politicize the only remaining agency of the United States government [that] was not political especially at a time when the public is disgusted with Abramoff," Cavanaugh said. "I can't believe they would have the gall to go ahead and do something so nakedly political."

History Lessons

Advocates on both sides of the REIT debate have turned to congressional history to bolster their point.

In a May 17, 2005, letter to Porter, Amelio cited this passage from the 1986 conference committee report, when the TSP was created:

"A great deal of concern was raised about the possibility of political manipulation of large pools of Thrift Plan money. This legislation was designed to preclude that possibility. One, the board, composed of presidential appointees, could be susceptible to pressure from the administration. Two, the Congress might be tempted to use the large pool of thrift money for political purposes."

Amelio underlined the last sentence in his letter.

But in Porter's opening statement at the hearing, he said the conference committee's only concern about congressional political manipulation "was a concern about the possibility of some sort of 'raid' on the trust fund by Congress during budget cuts, not about Congress selecting new index funds."

The conference report did make clear that "should additional investment vehicles become desirable, Congress can authorize them."

Cavanaugh ran the plan at its inception and said Congress has tried to impose funds before.

"The biggest attempt was [when] the ink was hardly dry on the legislation when the housing lobby descended on me back in 1987, and they insisted that we have a fund for housing related securities," Cavanaugh said.

In that instance, Congress rejected the request.

"I regarded that as a wonderful experience, that it established at the outset that Congress meant what it said, that we would not favor any particular industry or company," Cavanaugh said.

Independent Council?

Also at issue was a March resolution passed by the Employee Thrift Advisory Council opposing the addition of a REIT fund. The council, which is composed of representatives from federal employee unions, including the American Federation of Government Employees, and nonbargaining employee groups such as the National Active and Retired Federal Employees Association, said "any development of a new fund should come from an independent process developed by the plan's fiduciary," and not Congress.

But Porter, Davis and Rep. Chris Van Hollen, D-Md., who introduced the bill along with the other two, questioned the independence of this council from the board itself. Van Hollen said that in March 2005, AFGE told him it would not oppose a REIT fund in the TSP. He questioned whether Amelio and Trabucco held sway over ETAC's position.

Committee members asked Amelio and Trabucco to clarify what resources the board shared with ETAC. They said the council used the board's lawyers for legal questions and came to Trabucco for research, but Trabucco said ETAC chair James Sauber -- a staffer at the National Association of Letter Carriers -- initiated the resolution on his own.

In a wrinkle, the Senior Executives Association, which is represented on ETAC, wrote a letter to Porter April 4 rescinding its vote for the resolution, instead choosing to take no position on the REIT fund.

National Air Traffic Controllers Association president Ruth Marlin wrote Porter Wednesday expressing support for REIT funds.