TSP Transfer Restriction Proposal Brings Debate

December 24, 2007 (PLANSPONSOR.com) - Members of the federal Thrift Savings Plan's Employee Thrift Advisory Council are divided as to whether a new plan to restrict the number of interfund transfers participants can conduct each month is the proper strategy to curb frequent trading activity within the plan.

TSP officials said last month they were considering allowing participants only two interfund transfers per month and additional transfers only into the government securities fund, effective as early as April 2008 (see TSP Combats Rapid Traders with Transaction Limits ).

The Council, which consists of labor unions and other federal employee groups, discussed alternate strategies that would curb frequent trading while also preserving the rights of participants, according to GovExec.com.

Catherine Ball, a representative of the National Treasury Employees Union, offered the suggestion of charging a fee to participants who exceed two trades per month, according to the report. However, Tracey Ray, chief investment officer of the TSP, said that under such a plan, a small fee of $8 or $9 wouldn’t begin to offset trading costs. Instead, some participants might have to be charged thousands of dollars in fees, depending on the amount and size of their trades.

Other employee groups asked if the TSP could expand the number of trades allowed to at least three per month.

The plan’s frequent traders have banded together to oppose limits on trading, the news report said. A Web site, http://tspshareholder.org/ , has been set up that includes a petition signed by more than 2,000 TSP participants opposing the new restrictions.

Turnover Costs

The proposal is a result of a recent analysis by TSP officials on the impact of trading activity on fund management and transaction expenses. Officials found the average daily trade in September and October for the fund with the highest costs, the International fund, was $224 million, far above the daily trades of $49 million in 2006 and $27 million in 2005. The majority of the higher trading volume was due to fewer than 3,000 participants who engaged in frequent trading, officials found.