I just reviewed the FAQ's, and I think they are playing games with the numbers. I'm not an accountant, though, and we need someone with that kind of background to go through this and pick apart their arguments. For example, here is one question and answer in their FAQ sheet:
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Q8. The TSP's expense ratio was only 3 basis points (.03%) in 2006. Why does the TSP need to limit trading when expenses are already low?
A. Transaction costs are investment expenses that reduce investment income before deductions for administrative expenses and
are not included in the administrative expense ratio. (See the Thrift Savings Plan Statement of Changes in Net Assets Available for Plan Benefits portion of the Plan’s
financial statement.) Transaction costs of $13.8 million reduced the I Fund return by 8 basis points (or .08%) in 2006; net administrative expenses only reduced participants’ returns by 3 basis points (.03%) in 2006.
Frequent trading also increases the cash the investment manager must hold to meet redemptions, which leads to a greater chance of differences in performance from the indexes tracked by the funds. It is the goal of the TSP to keep this "tracking error" as low as possible since the funds are designed to mimic their respective indexes.
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This does not make sense to me. It seems to me that transactions costs must be part of the overall administrative expense ratio. If they weren't, mutual funds could charge investors all sorts of "transaction costs", while quoting a low administrative expense ratio, to attract more investors. I doubt that the SEC would permit that. If you read the FRTIB meeting minutes from Sept, Oct, and previous months, the only thing they normally discuss is the admin. expense ratio...i.e., what is the trend in number of basis points for managing the TSP. So, if there are all these additional "transaction costs" that are suddenly so important to them, why have we heard nothing about it until now?
They say in response to another question that "99% of TSP members" will not be affected by the new IFT restrictions. If that is true (and I don't doubt that it is, since most folks I know pay very little attention to their TSP accounts), then what they are saying is that frequent trading by 1% of TSP members is causing a huge problem!. That is simply not plausible, and their numbers don't prove their case.
The trend in basis points is down, folks.....currently ONE BASIS POINT for managing TSP as a whole (Oct. 07 meeting minutes).
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