Thrift Savings Plan Crackdown Is Working

By Stephen Barr
Tuesday, March 18, 2008

Efforts to discourage "market timers" in the Thrift Savings Plan are showing progress.

Only 549 people last month defied a new policy limiting trades in the TSP, a 401(k)-type program used by government employees, the plan's executive director said yesterday.

That's down from the 3,775 whom the TSP had identified as frequent traders, who shift their investments every few days in an attempt to beat the stock market.

The TSP became alarmed last year by such practices, contending that a relatively small number of government employees were driving up the plan's transaction costs, such as commissions to brokers, to the detriment of all of the plan's 3.8 million participants.

A letter was sent in late January to the frequent traders, asking them to adhere to a policy adopted in November that limits plan participants to two stock trades per month.

The number of interfund transfers dropped after that, but there were 549 who did not comply with the policy. Some of them have been moving large sums among the TSP's funds, with one account holder transferring $1 million in and out of the funds.

As a result, the TSP will reprogram computers to block the 549 participants from making electronic transfers, effective March 31. To order an investment change, they will have to mail in a paper form, said Gregory T. Long, the TSP's executive director.

Because of mail-delivery and handling times, it should effectively stop participants from using a long-term savings program for short-term purposes.

The crackdown has led to about 100 complaints from participants and the formation of an Internet-based campaign to protest trading restrictions. But the protests do not seem likely to derail the TSP's policy.

On March 10, the Federal Retirement Thrift Investment Board, which sets TSP policies, published a proposed rule to limit trading in the plan. Under the rule, participants may make two interfund transfers in a month. After those two trades are made, the participant may make an additional transfer into the plan's government-securities fund, which the rule describes as a "safe harbor" because it has been designed to never lose money.

The thrift board will accept comments on its policy change through April 9.

The restriction should not affect most government employees who invest in the plan. According to the rule, more than 99 percent of the TSP's participants requested 12 or fewer interfund transfers in 2007.

The frequent traders often focused on the TSP's international fund, which tracks the Morgan Stanley Europe, Australasia and Far East Index, the rule says. The TSP international fund has been a top performer, gaining 26.32 percent in 2006 and 11.43 percent in 2007.

But it is down 9.13 percent since the start of this year, and many government employees have pulled out of the international and other stock funds in the past few months as volatility has increased on Wall Street and overseas.

For example, TSP participants transferred large amounts out of stocks in January, moving $4.4 billion into government securities and $1.3 billion into bonds. Last month, they transferred $810 million into government securities and $242 million into bonds, according to data released at yesterday's board meeting.

Wall Street's recent slump has pulled down the TSP's overall value. Account balances have dropped by $8.7 billion since December, to $222.9 billion last month.

Mileage Rate Increase

The General Services Administration has raised the mileage reimbursement rate to 50.5 cents per mile for government employees who use their personal automobile on official business.

The new rate, up from 48.5 cents per mile, will go into effect tomorrow, according to a GSA Web site posting.

The increase is in line with the rate authorized by the Internal Revenue Service for taxpayers who deduct mileage for business purposes.

The National Treasury Employees Union had urged the GSA to act quickly, noting that gasoline prices are more than $3 per gallon. "Timely, fair and adequate mileage reimbursement for all public servants is critical," union President Colleen M. Kelley said yesterday.

Stephen Barr's e-mail address isbarrs@washpost.com.