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Too-Frequent Traders?

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By Stephen Barr
Thursday, December 20, 2007

J im Pratt, who works for the Federal Aviation Administration in Michigan, has made 28 stock and bond trades this year through his Thrift Savings Plan account. With the trades, Pratt hopes to build a big nest egg for retirement.

"I know my own experience, my own level of comfort with risk," he said. "I should be able to place the money where it works for me. If I guess wrong, I have to live with the consequences."

Last month, the TSP board voted to crack down on government employees who try to beat the stock market by jumping in and out of TSP funds every few days, saying that the "frequent traders" are driving up plan costs and eroding returns for other participants.

The TSP proposal would limit participants to two trades a month, although employees who think they had made an investment mistake would be allowed to move their money into the plan's risk-free government securities fund.

Pratt objects to the proposal, saying, "The TSP is taking away the freedom to manage your own retirement fund." He has launched an Internet-based campaign ( http://www.tspshareholder.org) to stir opposition to trading limits.

The campaign, which has drawn about 2,200 signatures on a petition, urges federal employees to call and write the TSP and the Employee Thrift Advisory Council, a group of unions and management associations that represent employee interests.

The council met yesterday, and some of the union and management association representatives said they had received several e-mails objecting to the TSP's plan. The council meeting was called by James W. Sauber, council chairman and chief of staff to the National Association of Letter Carriers, to learn about the proposed trading curbs.

Gregory T. Long, the TSP executive director, Tracey A. Ray, TSP's chief investment officer, and Tom Trabucco, the external affairs director, briefed the council and took questions.

Ray said about 3,000 TSP members with large accounts are moving in and out of the market quickly, trading large amounts of dollars that drive up the plan's costs. The board's research showed that participants stepped up transfers among the TSP's five funds about two years ago, she said.

For example, Ray said, on Oct. 19, federal employees transferred $371 million into the TSP's international stock fund, and on Oct. 24 took $391 million out of it. The transactions were made by 2,018 employees, and 323 traded $250,000 or more.

The TSP also found that these 323 employees made 18 trades in a 40-day period, with one person trading more than $1 million back and forth a number of times.

Such trading, with large dollar volumes, has led to higher broker fees and other transaction costs, especially in the international fund, Ray said.


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© 2007 The Washington Post Company

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