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TSP Board Will Resist Adding Real Estate Fund

By Stephen Barr
Tuesday, April 19, 2005; Page B02

T he Federal Retirement Thrift Investment Board will oppose adding a real estate investment trust fund to the Thrift Savings Plan "at this time," the board's chairman said yesterday.

A House bill would expand the TSP to include REITs, but Andrew M. Saul, the board chairman, told board members that he did not think the TSP "structure of funds" -- four broad-based, low-cost index funds that track major stock and bond markets and a government securities fund -- should be altered.

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He also noted that he was not ruling out changes to the TSP, the 401(k)-type retirement and investment plan for government employees, in the future.

Saul and Gary A. Amelio, the board's executive director, are scheduled to testify before the House federal workforce subcommittee this morning on the REIT legislation. Saul consulted with board members yesterday about the proposed REIT fund at the board's regular monthly meeting.

The National Association of Real Estate Investment Trusts supports adding a real estate fund as a way to increase diversification in the TSP. Association officials have pointed out that most private sector 401(k) plans offer more investment options than the five in the TSP.

Last Tuesday, Reps. Jon Porter (R-Nev.), Chris Van Hollen (D-Md.) and Thomas M. Davis III (R-Va.) introduced the bill to add a REIT fund to the TSP. They, too, have said that a real estate fund would provide government employees with greater choice when they invest for retirement.

REITs are publicly traded companies that own and usually operate commercial real estate, such as shopping centers and office buildings. They provide a way to invest in an array of commercial properties without having to buy them directly.

The TSP expanded investment options in 2001, when it added two funds -- a small and medium-size stock index fund (S) and an international stock index fund (I). The S Fund seeks to match the performance of the Wilshire 4500 index of U.S. companies, and the I Fund tracks a Morgan Stanley index of companies in 21 developed countries.

They joined the C Fund, which mirrors the S&P 500 stock index for large and medium-size companies; the F Fund, a broad index of the U.S. bond market that follows a Lehman Brothers index; and the G Fund, which allows daily investments in long-term government securities without any risk of loss of principal.

Tom Trabucco, the board's director of external affairs, told board members that the TSP spent two years researching options before deciding on the S and I funds. After developing those investment options, the board sent a legislative proposal to Congress that called for creation of the funds.

Elizabeth S. Woodruff, the board's general counsel, also provided board members with an overview of the 1986 law that created the TSP. Under the law, board members set investment policies for the TSP and administer the plan "solely in the interest of the participants and beneficiaries."

In a memo, Woodruff noted that the law was designed so that decisions about the TSP "are insulated from the politics of the Congress and the administration." The memo also said that the law also allows Congress, through legislation, to "substitute its judgment for the judgment of the fiduciaries," or the board.

Yesterday's board meeting began with a salute to the Pentagon. Amelio presented plaques to Charles Witschonke, deputy director of military compensation at the Defense Department, and to Army Lt. Col. Janet Fenton, executive director of the Armed Forces Tax Council, in recognition of the Pentagon's efforts to enroll military personnel in the TSP.

For the first time, more members of the uniformed services (about 478,000) are participating in the TSP than employees covered by the old Civil Service Retirement System (about 454,000), according to a February snapshot. About 1.8 million employees covered by the Federal Employees Retirement System participate in the TSP and receive matching contributions from their agencies.

At yesterday's meeting, representatives of Deloitte & Touche gave the TSP a clean audit and said they found no major problems with TSP's internal financial controls. Saul has pushed for more rigorous audits of TSP operations since being appointed by President Bush and signaled yesterday that he plans to continue those efforts.

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E-mail: barrs@washpost.com

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