TSP assets safe if company that manages plan goes under

If the contractor responsible for managing Thrift Savings Plan went bankrupt, the plan's assets would be protected, officials overseeing the program said on Monday.

At a monthly meeting of the Federal Retirement Thrift Investment Board, officials pointed to the results of a report released last week by Buchanan, Ingersoll and Rooney, which said TSP assets would not be damaged in the event of insolvency at Barclays Global Investors, manager of the plan's funds.

"TSP funds are held under a true trust arrangement," said Thomas Emswiler, general counsel for the TSP. "Even if BGI were to experience financial difficulty, TSP funds would be safe."

The board called for a review of BGI earlier this year following reports of financial difficulty at Bear Stearns, an investment bank recently bailed out by the Federal Reserve and JPMorgan Chase.

The review found that if financial turmoil were to hit BGI, the plan's funds would be transferred to another independent fiduciary. Also, Emswiler said, funds managed by BGI could not be frozen and no bank creditor would be able to reach the TSP's assets.

Emswiler also said any losses caused by a rogue trading incident would not affect the TSP, largely because BGI could voluntarily make up the losses or the TSP could sue for those losses under a 1934 securities law.

Andrew Saul, chairman of the board, suggested that TSP officials talk to BGI about guaranteeing the make-up of rogue trading losses when the agency renews its contract. "This is a thing to indemnify us," he said.

Meanwhile, TSP Legislative Director Thomas Trabucco pointed to changes proposed by the 10th Quadrennial Review of Military Compensation that could affect the TSP. Under the proposal, the Defense Department annually would contribute up to 5 percent of basic pay into the TSP. The plan would be vested at 10 years and begin paying benefits at age 60.

Defense will "eventually sort through it all and come up with a proposal for the Congress most likely next year," Trabucco said. "There's a long way to go yet, but I wanted to make you all aware that the TSP is factoring even larger into military compensation."

Tracey Ray, chief investment officer at the TSP, noted that the plan's I Fund has posted large monthly and year-to-date losses. "The sharp move [downward] in the dollar has affected the performance of the I Fund because it's priced in dollars," she said.

Ray used the example of a poor-performing I Fund to communicate to participants that "the fund that has done the best in the past isn't going to be the best in the future."

She pointed to positive returns in the plan's C and S funds in August to make a case for investing life-cycle funds, which automatically shift participants' money from a mix of higher risk to more conservative investments as they age.

"We have seen the I Fund being the stellar performer, and now it's down year-to-date," she said. "It just goes to highlight how helpful the L Funds can be for participants who are not able to see into the future."