TSP Board to Critique Stock, Bond Indexes for Retirement Investing

By Stephen Barr
Monday, January 16, 2006

As part of its 2006 agenda, the five-member, nonpartisan board that oversees the Thrift Savings Plan will be reviewing the stock and bond indexes used to shape the investment choices of the plan's more than 3 million participants.

Under the law that created the TSP, federal employees may invest their retirement savings in stock and bond funds that track the markets and produce similar rates of return. With that approach, Congress ensured that the TSP would not be picking winners and losers in the stock and bond markets but would provide participants with broad investment categories and the lowest possible management fees and administrative costs.

For example, the TSP's C Fund, or large company common-stock fund, uses the Standard & Poor's 500-stock index as its model. The TSP's bond fund, the F Fund, or fixed-income investment fund, tries to match the performance of the Lehman Brothers U.S. Aggregate Index.

Only Congress can add or subtract TSP funds or change the definitions of the funds. Congress added the S Fund, to cover small and medium-size company stocks, and the I Fund, to mirror international stock returns, about five years ago.

But the law allows the Federal Retirement Thrift Investment Board to make changes within existing definitions, such as in 1991 when the TSP's index for the F Fund was modified to bring in mortgage-backed securities.

For the first time, the board has hired an investment consultant, Ennis Krupp & Associates of Chicago, to help review current and potential indexes for use in the existing TSP funds. The review began last year and will shape the board's agenda this year. Later in 2006, Ennis Krupp will look at whether other investment funds, such as a real estate trust fund, an energy fund or other specialized fund, should be added to the TSP menu.

The board also will have another big decision to make this year. The contracts for managing the stock and bond funds will expire this year. Barclays Global Investors, based in San Francisco, holds the contract to manage the four funds and has a long relationship with the TSP.

But TSP officials are interested in exploring potential ways of restructuring fund management and hope to attract enough bidders to create what Gary A. Amelio , the board's executive director, calls "robust competition." Amelio has hired the board's first chief investment officer, Tracey A. Ray , to help sort through its options.

The board, of course, will have a voice in the final decisions. It is chaired by Andrew M. Saul of New York, managing partner of his family's investment firm. His background includes management of apparel chains; he is a former chairman of Cache Inc. and a former president of Brooks Fashion Stores.

During monthly board meetings, Saul has pushed for improvements in technology and customer service. He also was instrumental in having the board hire an outside auditor to review TSP financial statements and bring any concerns directly to the board rather than to TSP staff.

The Senate confirmed Saul and two other board members, Gordon J. Whiting of New York and Alejandro M. Sanchez of Florida, in late 2002. They were joined by Terrence A. Duffy of Illinois in 2003.

Whiting is the managing director at an investment management firm and an Eagle Scout. He, too, has raised questions about the board's procedures and how the board can best help government employees prepare for retirement.

Sanchez is the chief executive officer of the Florida Bankers Association and serves on the boards of several nonprofit organizations. He has expressed keen interest in boosting TSP participation by military personnel, who were allowed into the plan under a 2001 law.

Duffy is chairman of the board of the Chicago Mercantile Exchange. In 2002, President Bush named him to serve at the national summit on retirement savings. He usually participates in TSP board meetings by telephone from Chicago.

Rounding out the board is Thomas A. Fink , who served six years as mayor of Anchorage and has been in semi-retirement since 1994. He joined the board in March 1996 and often asks TSP staff members to explain how they arrived at their numbers.

This year, the board members and Amelio plan to solicit feedback from TSP participants. "We want to learn what participants know about the plan, what they like, what they don't like and what changes they would like to see," Amelio said.


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