Fair Trade

Federal employee groups are at odds over whether new trading restrictions for the Thrift Savings Plan are in the best interest of the plan's 3.9 million participants.

The comment period on a proposal to limit the transfers opened last month. The Federal Retirement Thrift Investment Board has recommended allowing participants only two interfund transfers per month, after which additional transfers would be allowed only into the government securities (G) fund.

The comment period ended on Wednesday and several members of the Employee Thrift Advisory Council, which consists of labor unions and other federal employee groups, have weighed in on the proposal.

Colleen Kelley, president of the National Treasury Employees Union, proposed setting no limits on interfund transfers at the present time, noting that "the hallmark of the TSP is simplicity." She argued that "less draconian" methods adopted by the board -- letters to participants and publicity about the costs of 3,500 participants trading frequently -- already have tackled the problem of excessive interfund transfers.

Since November, the board has implemented a number of interim reforms designed to crack down on frequent trading by more than 3,500 TSP participants. An analysis by TSP officials of the international (I) fund found that in September and October 2007, the average daily trade was $224 million, well above the daily trade figures of $49 million in 2006 and $27 million in 2005.

Interim reforms included sending letters to the 3,500 participants urging them to scale back their transfers to three per month. Though many participants stopped their frequent trading activity, 549 exceeded the interim three-per-month rule, and TSP officials have since required those individuals to trade by mail.

So far, the interim rules have curbed frequent trading. At a board meeting in March, officials said interfund transfers declined significantly, falling from 260,044 in January to 137,320 in February.

"It seems to us that the problem has been greatly reduced and may be completely resolved in the future," Kelley said. "If for some reason, the board feels it is necessary to act now to change the system, then NTEU proposes a revision to the board's plan: allow two transfers per month and after two transfers, attach a fee for servicing the transfer."

Jacqueline Simon, public policy director for the American Federation of Government Employees, proposed allowing TSP participants four interfund transfers per month, with unlimited transfers available into the G Fund. The union also suggested charging participants a fee of 2 percent of the value of a trade for more than four interfund transfers.

"Numerous AFGE members have expressed their support for charging the full cost of excessive interfund transfers to individual traders," Simon wrote. "We believe that not only will this serve as a disincentive to imprudent, high-risk behavior, it will either minimize or even eliminate the adverse impact of frequent trading on those who refrain from the practice."

Other members of the Employee Thrift Advisory Council, however, believe the proposed restrictions serve the interests of all the plan's participants by keeping low the administrative costs of the plan.

"A small fraction of participants have driven up the costs for the 3.9 million Thrift Savings Plan participants," said Susan Tsui Grundmann, general counsel for the National Federation of Federal Employees. "Keeping costs as low as possible by using a simple system will help ensure the greatest investment return for all participants while maintaining the fundamental principles of the fund: long-term investment and enhancement."

Darryl Perkinson, president of the Federal Managers Association, pointed out that the TSP was never designed to be a day-trading benefit for federal workers, but rather an investment option to allow workers to grow their accounts to support their retirement.

"Despite the arguments of the day traders, most experts suggest that moving your funds at the dynamic levels practiced by some does not really increase your result," Perkinson said.

TSP Legislative Director Thomas Trabucco said on Tuesday that officials will not consider comments or establish final rules until the comment period is over. "I expect it will be at least a few days until we have something to say," he said.