TSP officials hear from participants on interfund restrictions

Thrift Savings Plan officials said Monday they were receiving both positive and negative feedback on a new proposal to limit the number of interfund transfers that participants can conduct each month.

Officials overseeing the 401(k)-style plan said so far the TSP has received two letters in favor of and 10 letters opposed to interfund transfer restrictions. They pointed specifically to a letter sent Nov. 27 by one participant, who opposed the plan's taking away the rights of participants to "protect their investments."

"Please let me control my money," the TSP member wrote. "If cost is an issue, charge participants when they move their money from one investment vehicle to another."

Officials said at a regular board meeting last month that they would begin allowing participants only two interfund transfers per month in April 2008. Thereafter, additional transfers would be allowed only into the government securities fund.

The change is a result of a recent analysis by TSP officials on the impact of trading activity on fund management and transaction expenses. Officials studied the fund with the highest costs, the International fund, and found that in September and October, the average daily trade was $224 million, far above the daily trades of $49 million in 2006 and $27 million in 2005.

Officials highlighted additional evidence of the impact of frequent trading at Monday's meeting, noting that more than $25 billion has been traded out of the I Fund in the past 12 months, resulting in trading costs of nearly $16 million.

"As far as I'm concerned, you have my total support," said Andrew Saul, chairman of the Federal Retirement Thrift Investment Board. "This is a savings account; this is a retirement account, and it is the board's [duty] to make sure nothing can derail the fact that this is a long-term plan."

On Wednesday, TSP officials will meet with the Employee Thrift Advisory Council, which consists of labor unions and other federal employee groups, to discuss the restrictions. The proposal also will be published in the Federal Register and open to public comment before moving forward, said TSP Executive Director Gregory Long.

Meanwhile, TSP officials also said they are experiencing some challenges in phone center support, largely due to the introduction of new account numbers to replace Social Security numbers. Since October, the plan is receiving about 15,000 calls per day, up from its usual 9,000, according to Pamela Jeanne Moran, TSP's director of participant services.

Moran said one of the plan's priorities for 2008 is to establish a customizable user identification for participants. "That will make a whole lot of folks happy because they will now be able to memorize their user ID," she said.

Additionally, Legislative Director Thomas Trabucco said TSP officials are scheduled to meet with Senate and House committee staff Monday afternoon to discuss potential legislation that would allow automatic employee enrollment and change the default fund for indecisive investors.

Trabucco noted that committee staffers are particularly concerned with the automatic enrollment proposal, largely because of its associated cost implications. While the Congressional Budget Office has not submitted an official estimate, Trabucco said an unofficial accounting indicates the proposal could cost hundreds of millions of dollars, largely because more federal employees would be deferring some of their salary from their taxable income.

"This would have a significant revenue expense to the Treasury," Trabucco said. "With that in mind, we're sitting down with staff to come to an agreement on language and what it means."