The Washington PostDemocracy Dies in Darkness

Trump eyes federal retirement plan investments as part of showdown with China over coronavirus

President Trump participates in the White House National Day of Prayer Service in the Rose Garden on May 7, 2020.
President Trump participates in the White House National Day of Prayer Service in the Rose Garden on May 7, 2020. (Jabin Botsford/The Washington Post)

President Trump’s intensifying showdown with China over its handling of the coronavirus pandemic is expanding to a new battlefield: the retirement portfolios of 5.9 million federal employees and U.S. service members.

In recent days, White House officials have moved to seize control of a little-known board that administers the $557 billion federal retirement program for most active and retired federal employees and military members, with some aides eager to halt the flow of billions of dollars into an index fund that includes Chinese companies, according to two White House officials and an outside Trump adviser involved in the discussions.

Trump on Monday nominated three members to replace the majority on the Federal Retirement Thrift Investment Board, made up of five investment experts who oversee the retirement plan. All of their four-year terms have expired, and Senate Majority Leader Mitch McConnell (R-Ky.) and House Speaker Nancy Pelosi (D-Calif.) have not replaced those serving in the two seats they control.

President Trump has both praised China’s response to the coronavirus outbreak and criticized China for not being forthcoming enough about the virus. (Video: The Washington Post, Photo: Jabin Botsford/The Washington Post)

With its new nominees, the White House is taking steps to block the plan’s $40 billion international fund from investing in a fund that contains about 11 percent of China-based stocks, according to people familiar with the strategy.

“Obviously, the president doesn’t want this investment to take place and is looking for other alternatives,” said a senior administration official who was not authorized to speak about the nominations. “These individuals will be key to making that happen.”

The move comes as Trump has sought to put the blame on China for the coronavirus pandemic and senior U.S. officials have begun explore proposals to punish or demand financial compensation from the country.

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The effort to block any Chinese investment by the retirement plan, the largest defined contribution program in the world, comes as the current board is preparing to transfer assets to the new fund. The board has said it is following a responsible investment strategy — recommended twice by an outside consultant — that will allow its members to accrue potential gains from China’s growing economy.

House Minority Leader Kevin McCarthy (R-Calif.) said on May 7 a new committee will probe Chinese influence operations, economic threats and covid-19's origins. (Video: The Washington Post)

A TSP spokeswoman, Kim Weaver, told The Washington Post last month the shift in strategy “is not about China, from our perspective.”

Advocates for federal workers say reversing the strategy could hurt millions of employees saving for retirement by walling off investments that are widely available in other 401(k)-type plans.

“Participants want investment options that pass the fiduciary responsibility test — not any political test,” said Jacqueline Simon, policy director for the American Federation of Government Employees, the largest union representing federal workers.

Investment in the international stock fund is voluntary and investors could put their money instead in a range of other options, she added.

In recent weeks, China hard-liners close to Trump have made the case to the president and senior administration leaders that the country’s influence in American stock portfolios must be reduced, taking advantage of retaliatory mood toward Beijing, according to people familiar with their lobbying.

Former military leaders object to plan by federal retirement fund to invest in China

Roger Robinson, who served on the National Security Council under President Ronald Reagan, said he began meeting with top White House officials last summer to alert them that the Thrift Savings Plan’s new investment strategy could be seen as undercutting national security by subsidizing Chinese companies involved in weapons manufacturing and other interests detrimental to the United States.

“The Thrift Savings Plan issue is a microcosm of the broader problems of U.S.-sanctioned Chinese companies and other corporate bad actors in our capital markets and Beijing’s noncompliance with federal securities laws,” said Robinson, who is chairman of the Prague Security Studies Institute, a think tank focused on democracies in post-communist states.

The Chinese Embassy in Washington did not reply to a request for comment.

The White House is working on a backup plan if it is unable to get its nominees to the board confirmed quickly by the Senate, according to the people familiar with the strategy, who spoke on the condition of anonymity to describe internal discussions.

Trade adviser Peter Navarro is drafting a possible executive order that could block the plan from investing in any Chinese funds, a third administration official said. The White House Office of Legal Counsel is reviewing the order, which could face legal hurdles since the retirement plan is governed by an independent board.

The effort to remake the board and reorient its investment strategy has intensified tensions inside the administration about the appropriate approach toward China.

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Treasury Secretary Steven Mnuchin has privately waved the president off sweeping action against the retirement plan, concerned that restricting investment could hurt financial markets and threaten the first phase of the China trade deal, a White House official said.

But Trump and other top aides — including Navarro, deputy national security adviser Matthew Pottinger and chief of staff Mark Meadows — want action against the Chinese, furious at the government’s lack of transparency as the coronavirus spread across the globe, according to people familiar with their views.

They’ve been encouraged by outside China critics, including former Trump campaign strategist Stephen K. Bannon and other conservative activists. Last month, eight former senior military leaders issued a letter objecting to the China investment strategy in an effort coordinated with a group led by Bannon and others.

The stakes are high and could affect the performance of the Thrift Savings Plan, which resembles a private-sector 401(k) plan and is managed by BlackRock.

In 2017, the board hired an outside consultant, Aon Hewitt, which advised shifting its investments to a fund that includes shares of emerging market companies.

The idea was to diversify its portfolio and allow fund participants to get higher returns. The board, whose members are experienced pension benefit plan investors, voted in October of that year to expand the reach of its international fund to more broadly represent international stock markets. Preparations for the changeover have been underway since and it is projected to take effect in the coming months.

“The spin that is being placed on it is that all these funds are going to be invested into the Chinese market is absolutely false,” said Clifford Dailing, an official with the National Rural Letter Carriers’ Association who leads a council of a dozen federal employee organizations that advise the board.

“It’s politically motivated,” Dailing said of the White House move. “I would hope that any of the individuals that come on to the board would not come on with a political mission to undo what a previous board has in place.”

Trump’s nominees to the board are Frank Dunlevy, counselor to the chief executive officer of the U.S. International Development Finance Corporation; Christopher Bancroft Burnham, chairman and co-founder of Cambridge Global Capital, a District-based investment firm, and John M. Barger, managing director at NorthernCross Partners, an investment firm in Los Angeles.

Burnham declined to comment. Dunlevy and Barger did not immediately respond to requests for comment.

Weaver, the spokeswoman for the plan, said in a statement that “it is the President’s responsibility to appoint board members. We look forward to working with the nominees.”

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The retirement board’s plan to offer an index fund with Chinese companies had drawn condemnation from China hard-liners in Congress for months. But only in recent weeks did their lobbying campaign reach the president, who has been taking a more aggressive stand toward China amid the pandemic.

Trump announced last week that he is restricting use of electrical equipment in the domestic grid with links to “a foreign adversary” — a reference to China.

In private, Trump and aides have discussed stripping China of its “sovereign immunity,” with the goal is allowing the U.S. government or virus victims to sue China for damages, The Post previously reported.

Asked at the White House this week if he plans to impose tariffs on China as a punishment or because of trade violations, Trump said, “I don’t want to talk about that now. We’re in the midst of some very big things.”

White House aides were not initially aware that federal employee retirement savings plan was overseen by a board, let alone the details of the board’s investment strategy, according to one White House adviser.

Robinson said he contacted lawmakers on Capitol Hill last summer to urge a pressure campaign against the board. Sens. Marco Rubio (R-Fla.) and Jeanne Shaheen (D-N.H) introduced legislation to block the new investment strategy. The House effort was led by Meadows, then still a congressman.

They didn’t get far, Robinson said. Still, the board requested a second report from Aon in response to the opposition. It reached the same conclusions as the first. In November, the board voted to reaffirm an earlier decision to move forward with the new investment strategy.

Then came the pandemic. Amid the focus on China, Robinson, who said he was worried that the fund was preparing to shift its investments, said he stepped up his outreach to the White House and some friends of the president whom he declined to name.

Several of the president’s favorite news outlets also began running segments on the obscure board and its investment strategy, including Fox News. Sinclair Broadcast Group ran a report on April 30 that said the president had instructed top aides to “rein in” the retirement savings plan before it expanded its investment portfolio to include Chinese-held entities that U.S. officials believe are tied “directly to the Chinese military and to the country’s global intelligence apparatus.”

The report described Trump as “incredulous over the looming prospect of U.S. service members seeing their paychecks deducted for the purpose of funding the Chinese military.”

Alice Crites and Anne Gearan contributed to this report.