TSP board to limit interfund transfers

[James48843]

OK folks- another opportunity to go weigh in.

The Chicago Tribune carried this story today:

http://www.chicagotribune.com/busine...,3680617.story


chicagotribune.com

Trade limits cut 401(k) contributors options 401(k) contributors face more trading restrictions

Janet Kidd Stewart The journey
May 18, 2008

Have retirement savers lost too much control over their workplace savings plans?

Federal employees and millions of private-sector workers with 401(k) plans now face limits on trading within their retirement accounts. But while the limits upset some workers, only a tiny fraction will feel any impact because most people don't make trades in their accounts.

As restrictions mount in both spheres, however, there may be a point where they begin to interfere with legitimate efforts to maximize retirement savings, so it pays to keep an eye on your plan's rules, experts say.

Overwhelmingly, both public and private retirement savers rarely rebalance the investments in their account, let alone trade them actively, research shows.

Not everyone, however, believes these restrictions are necessarily for the best.

Under new rules that took effect this month, participants in the federal government's Thrift Savings Plan can move money among their investments just twice each month. They can shift to the safest option at any time, but if they've exceeded the trading limit, they can't shift back out until the following month.

Jim Pratt, 47, used to move in and out of stock funds in the federal retirement plan frequently. After a long run of positive days in the market, he would sideline his investments in safe havens and then move back into stocks hoping to catch the next upward wave.

Pratt, a Detroit-area representative for the Professional Aviation Safety Specialists union, said trading paid off in higher returns.

In a message board for the Web site GovernmentExecutive.com (www.govexec .com), other active traders boasted that they have boosted their returns dramatically by actively trading their accounts.

In the aggregate, though, virtually all the research studying investor behavior suggests that active trading produces lower returns.

"For most plan participants, [trading restrictions] aren't an issue," said Pam Hess, retirement research director for Hewitt Associates in Lincolnshire. "They don't trade that much, and they shouldn't be."

Mercer Bullard, University of Mississippi law professor and fund investor advocate, agreed: "You should be happy [about the restrictions] because you won't be paying the expenses of the frequent trader in the cubicle next door."

Administrators of the federal retirement plan said active trading by a relative few participants was running up trading and other costs for all participants.

"If a few participants are swinging hundreds of thousands of dollars around daily, investment managers have to anticipate cash flows, and it changes how they manage the money," said David Wray, president of the Profit Sharing/401(k) Council of America in Chicago.

Meanwhile, private-sector plans vary greatly in the number and type of trading restrictions they impose.

Sixty-two percent of large-employer plans impose restrictions on certain funds, according to Hewitt, while 11 percent place limits on all the funds in the plan. Many of those restrictions are limits imposed by retail funds in the plan, which affect all fund buyers, not just retirement account holders.

But as more administrators consider restrictions at the plan level and advocate one-stop target-date retirement funds, expect to see greater debate over what constitutes adequate flexibility.

"I guess there could be a point where [restrictions] inhibit people from making reasonable portfolio decisions," said Ann Combs, a principal at The Vanguard Group. But she said she doesn't believe this is a big problem yet.

"Trading restrictions are running up against optimal rebalancing strategy," Wray said. "If you were advocating daily rebalancing, that wouldn't be allowed in most plans today. With monthly rebalancing, many plans wouldn't even allow that.

"Plan sponsors are thinking all this through because they want participants to have control, but … they don't want the economic consequences of the few who actively trade to impose on the whole."



Have a retirement question? Write to yourmoney@trib une.com, or via mail at Your Money, Chicago Tribune, Room 400, 435 N. Michigan Ave., Chicago, IL 60611. If your letter is selected, we may include you and your question in a future column.

[luv2read]

OK folks- another opportunity to go weigh in.

"If a few participants are swinging hundreds of thousands of dollars around daily, investment managers have to anticipate cash flows, and it changes how they manage the money," said David Wray, president of the Profit Sharing/401(k) Council of America in Chicago.

Barclays get PAID to do that, it's in the contract SOW. It's also the reason for the FV. If there's a problem, then the contract needs to be fixed, not member behavior.

My answer is here, straight from TSP.GOV:

http://www.tsptalk.com/mb/showpost.p...21&postcount=9

[Fivetears]

Well I'll be a son of a ... Perhaps B B B Benny and the Feds can send Barclays some of that easy button bailout money too, so they can restore the IFT rules previously agreed upon?

Barclays get PAID to do that, it's in the contract SOW. It's also the reason for the FV. If there's a problem, then the contract needs to be fixed, not member behavior.

My answer is here, straight from TSP.GOV:

http://www.tsptalk.com/mb/showpost.p...21&postcount=9

[Frixxxx]

OK,

I've waited to see the long updated numbers on the costs of trading with the imposed limits. Have the numbers been posted? Are we really saving trading costs? Since we aren't "supposedly" having the swing/day/smart investor trades, have they demonstrated their policy works?

If this is out there, please let me know. If not, I guess it's back to the letter campaign to my "elected officials"!!!!

I just want proof that their policy was sound!

[luv2read]

Check the minutes from the FRTIB meetings.

[Frixxxx]

Check the minutes from the FRTIB meetings.

Read those, but unfortunately, it "kind of" displayed only first quarter 08 numbers. (last attachment) I was looking for more substantiated information since the limits were imposed. It was only mentioned that interfund xfers were under 100K, no exact number. No cost savings were mentioned. I was hoping to see more data.

One of the lemmings, but to stubborn to go off the cliff!

[Aviator_Guy]

Man, I wish I had one more IFT this month, but I'm all out of IFT bullets!! If this storm in the Gulf heats up into something really big, it would've been a great time to jump in later in the week!!

Well, at least were making a lot of money by limiting our IFT transfers to only two per month?!?!?! LOL, Yeah, I didn’t think so either!!

[tsptalk]

OK,

I've waited to see the long updated numbers on the costs of trading with the imposed limits. Have the numbers been posted? Are we really saving trading costs? Since we aren't "supposedly" having the swing/day/smart investor trades, have they demonstrated their policy works?

If this is out there, please let me know. If not, I guess it's back to the letter campaign to my "elected officials"!!!!

I just want proof that their policy was sound!

That's a great question and I hope we get some real numbers soon and not ones they fabricate to substantiate their claims. I don't have any reason to believe they would do that but I'm guessing someone will take a lot of heat if it didn't save money.

[Guest2]

That's a great question and I hope we get some real numbers soon and not ones they fabricate to substantiate their claims. I don't have any reason to believe they would do that but I'm guessing someone will take a lot of heat if it didn't save money.

I can see it now, (of coarse this is just speculation)

"The increased amount of participants holding their monies within the
(G) Fund was due to market volatility, uncertainty of Bank and Credit
concerns and the rising price of oil. This has lead to a small increase
in costs throughout all funds. We are certain, that once the markets
return to normal, that costs will become more stable or even decline
as a result."

Don't think for a moment that their policies will ever come into question
when there's so much they can push it off on. Disappointment Expected !

[luv2read]

That's a great question and I hope we get some real numbers soon and not ones they fabricate to substantiate their claims. I don't have any reason to believe they would do that but I'm guessing someone will take a lot of heat if it didn't save money.

Didn't someone post something about it here or on tspshareholders.org in June or July? I seem to remember...

[James48843]

Costs have skyrocketed through the roof.

I posted some data in another thread, somewhere, but will have to look for it to see where I put it.

Two months they were much, much higher, and the third month it was down a bit. I'll have to go look through the minutes, compile all the data, and give a report. I was waiting until we had a few months worth of data- to compare month-over-month- to show exactly how costs have increased because of their limits.

Its on my to-do list- perhaps over labor day weekend.

[James48843]

Yes- costs have skyrocketed since the limits kicked in.

I have to put together some charts from the data in the minutes. Perhaps I can get to it over Labor Day weekend....