Senator Joe Lieberman, I-CT has an idea that he’s turning into a bill. And the bill, if it becomes law, will turn your Thrift Savings Plan into a mess.
Over the years there have been proposals to add various funds to the TSP: a real estate fund, a gold fund, a dot-com fund…all of them, in hindsight, both bad investments and contrary to the point of the TSP. It’s supposed to follow the KISS principle—Keep It Simple, Stupid.
None of those proposals went anywhere, for good reason. By the time they could have been added to the TSP, the ride was over—the bubbles had burst.
The latest proposal to meddle with the TSP is potentially the worst, because it indicates a dangerous ignorance about the basics of how the plan works.
Lieberman’s idea is to “give all TSP participants the option to disinvest in companies that do business in or with countries labeled by the U.S. as state sponsors of terrorism,” according to Time Magazine. How you’ll be able to do that in your account is still open to discussion, apparently; Lieberman didn’t tell Time, and no one in Lieberman’s office or the office of the Senate Governmental Affairs Committee, which Lieberman chairs, could answer my specific questions about how he proposes to do this without dismantling the funds inside the TSP.
A quick recap of the TSP: there are three stock funds, which could potentially invest in the companies Lieberman is worried about. The C fund tracks the S&P 500; the S fund tracks the small-cap Dow Jones Wilshire 4500; and the I fund tracks the entire international stock market.
So in order to meet Senator Lieberman’s requirements, the Thrift Board would have to:
1) make a list of the companies that didn’t meet the Senator’s terrorism requirements; and
2) figure out how to strip those companies from the indexes built by Barclays Global Investors;
The most likely scenario is that Barclays will have to come up with a special “morally acceptable” index to add to the TSP portfolio. Of course, that will drive up the exceptionally low costs TSP participants enjoy, and defeat the purpose of the plan.
This isn’t the first time that a do-gooder (or a bunch of them) wanted to use the TSP to make a political statement. And the sentiment behind the idea isn’t necessarily a bad one. But the execution is all wrong. Lieberman is currently an Independent, but he’s a committee chair thanks to the grace of a Democratic leadership. What happens when another Chairman, with another pet idea, wants to add his or her pet fund to the TSP? What if it had been when Republicans were passing their “freedom fries” foolishness? Would we now have a French-free fund? It wouldn’t take long to make the TSP look silly in its pettiness.
The best thing Senator Lieberman could do is leave your TSP alone. If you agree, send him a message and tell him so. Because if he gets his way, your TSP as you know it today will be ruined before you know it. And you don’t deserve that.
