Thread: TSP Warning Letters

I got mine today..

Dear XXXXX
As explained below, you have been identified as a frequent trader in the Thrift Savings Plan. Unless you reduce your trading activity to no more than 3 interfund transfers per month, we may require you to request interfund transfers by mail only.

Since the Thrift Savings Plan introduced daily valuation of participant accounts in 2003, it has not restricted the number or frequenct of participant-iniated interfund transfers. However, recently, the frequent trading activity of a small number of participants is resulting in higher transaction costs and reduced return for all participants in the affected TSP Funds - including long term investors who do not generate these costs. Frequent trading is also creating greater risk of performance deviation from the TSP Funds benchmark indexes.

By law, the Federal Retirement Thrift Investment Board (which administers the TSP) is required to develop investment policies which replicate the performance of the indexes selected for investment and provide for low expenses. Because frequent IFT activity diminishes the achievement of these goals, the Board is addressing the problem in two ways - (1) Structural changes to the TSP system to implement restrictions on the number of interfund transfers that can be executed per calandar month, and (2) intermin measures designed to lower trade volume in the meantime.

In November 2007, the Board approved a policy initiative that would permit two IFTs per calander month, with subsequent unlimited IFTs into the Government Securities Investment Fund. When compared to the more restrictive limits adopted by private sector defined contribution plans, record keepers, and/or investment fund managersm, this approach provides investment flexibility, administrative simplicity, and control over excessive trading.

Further, based on current behavior, approximately 99% of participants will not be affected by the proposed restrictions. We will soon publish proposed implementing regulations for public comment. The Federal Register notice will include a description of the problem, the restrictions established by other funds/plans, and our proposed solution. We will consider comments as we move towards resolution o this matter in the Spring of 2008. We are also notifying all participants of the proposed changes when we send the annual TSP participant statements in February, 2008.

Our immediate concern, however, and the reason for this letter to you, is the reduction of trading activity among those participants who trade most frequently. Based on the authority granted to the Executive Director to take appropriate action to restrict frequent interfund transfers, we are contacting those participants who have made frequent IFTs and asking them to voluntarily change their investment strategies.

Because in October, Novermber and December 2007, you made more than three IFTs each month, you fall within this frequent trading group. Therfore, unless you reduce your IFTs to no more than three per month (starting in February) we may notify you that you will be required to request your IFTs by mail until the permanent restrictions have been implemented. This proceedure is authorized by Federal Regulation 72 Fed, Reg. 73,251 (Dec 27, 2007) (to be codified at 5CFR 1601.32). We are asking for your cooperation in this matter.

We have posted a set of Questions and Answers about the frequent trading activity, as well as the November 6, 2007 memorandum to the Board, and it's accompanying presentation, under "Information about Interfund Transfer Restrictions" on the TSP Web site's Home page (www.tsp.gov). Links to the regulation cited above can be found at www.frtib.gov and www.tsp.gov ("What's New" or "Information about the Interfund Transfer Restrictions"). We will also post a link to the proposed regulations regarding the structural restrictions when that issuance is published in the Federal Register.

We strongly encourage you to read these materials so you understand the impact of your frequent trading activities and the reason we are taking these actions. If you have any questions regarding this letter, you may contact the TSP at 202-942-1460.

Sincerly,
Gregory T. Long
Executive Director

I received my letter today. Because of 3+ trades during those 3 months? Oh well. Not happy with the Board's plan of action, but hopefully we can all work together to come to a better resolution.

I just wish I could get the 5% match without having to contribute to TSP. Then I could just put everything into my ROTH IRA or my Trading Account and trade actual stocks.

I haven't been home today so don't know yet if I got a letter. I may not since I was only "hyperactive" for one month last fall after I started following Ebb. But didja notice the OTHER thing they're worried about????

They're worried the frequent-fliers will skew the performance of the funds away from index performance. Ie we're not supposed to do so well that we overbalance the stay-at-home types performance and pull the overall performance of the funds away from the index. Wouldja think about that for a moment? They don't want TSPers as a group overall to do better than the indices. Something wrong with this picture. Watch out everybody, they'll keep changing the rules until it becomes impossible to do much better than the indices.

Originally Posted by whitemingo

Has anyone else got their warning letters? Mine came today. It states that I am a frequent trader based on the fact that I made more than 3 trades per month during October, November and December. Therefore I must reduce my IFTs to no more than 3 per month starting in February.

You don't have to do JACK until and if these IFT limits go into effect.

Keep in mind their "fine" print-

we may require...

The heck with them... IFT away until and IF the limits go into affect.

Originally Posted by Rod

You don't have to do JACK until and if these IFT limits go into effect.

Keep in mind their "fine" print-

The heck with them... IFT away until and IF the limits go into affect.

You are exactly right, Rod. If I get one of these letters (and I hope I do), I plan to change NOTHING about my trading habits unless and until the actual restrictions go into effect. And, I also plan to respond to FRTIB that they cannot legally implement any such restrictions, because their proposed interim rule about this did not follow proper procedure, AND they never published a final decision on that proposal. Without that, they can't legally implement any of this, including forcing TSP members to make interfund transfers via snail mail. Paladin and Rod, do you guys agree? I say let's not give up the fight yet.......this is nothing but a bluff on their part, it's not legally binding.

I hate to think that one of America's governing agencies is intentionally bluffing it's own people, but it does look and feel that way, leaving themselves an out saying they 'may' restrict IFTs to snailmail. It's a thinly veiled threat. Suprisingly low-life tacticts for the heads of a goverment agency, IMO. (At least a U.S. goverment agency).

"In the work ahead, we must be guided by the philosophy that made our nation great. As Americans, we believe in the power of individuals to determine their destiny and shape the course of history. We believe that the most reliable guide for our country is the collective wisdom of ordinary citizens.

So in all we do, we must trust in the ability of free people to make wise decisions, and empower them to improve their lives and their futures.

To build a prosperous future, we must trust people with their own money and empower them to grow our economy.

“…We trust Americans with their own money…” "

President G.W. Bush, State of the Union Message, January 28, 2008

Yep, I came home to my wife--who didn't know that I knew it was coming--handing me the opened letter and saying, "You need to read this, but I don't want you to be ρï$$€♂ off all night."

I tend to agree with the following:

Originally Posted by RAE

You are exactly right, Rod. If I get one of these letters (and I hope I do), I plan to change NOTHING about my trading habits unless and until the actual restrictions go into effect. And, I also plan to respond to FRTIB that they cannot legally implement any such restrictions, because their proposed interim rule about this did not follow proper procedure, AND they never published a final decision on that proposal. Without that, they can't legally implement any of this, including forcing TSP members to make interfund transfers via snail mail. Paladin and Rod, do you guys agree? I say let's not give up the fight yet.......this is nothing but a bluff on their part, it's not legally binding.

However, I have my concerns. I am curious about the following (thank you, rob, for doing the extensive typing that would have taken me all night):

Originally Posted by rob10000

Based on the authority granted to the Executive Director to take appropriate action to restrict frequent interfund transfers, we are contacting those participants who have made frequent IFTs and asking them to voluntarily change their investment strategies…This proceedure is authorized by Federal Regulation 72 Fed, Reg. 73,251 (Dec 27, 2007) (to be codified at 5CFR 1601.32)

Who granted this unelected "Director" power? As far as I understand, the TSP rules still say "unlimited interfund transfers."

Anyway, whether they can legally do it or not, the fact is they have the capability (or maybe they don't...). I am not really in a position to "fight" them on it--obviously they are counting on this. I hesitate to defy their recommendation because this market is not exactly one in which I want to be snail mailing IFTs. Who knows when all this might get sorted out. I am still working full time, and fortunately or unfortunately, my TSP balance is not exactly in the range that my lost earnings would cover the expense of a lawsuit.

Do we have any lawyers who can step out and comment on this. I might be interested in the class action idea if somebody else organizes it, but I'm not sure where else to go from here.

I also wanted to highlight

Originally Posted by rob10000

This procedure is authorized by Federal Regulation 72 Fed, Reg. 73,251 (Dec 27, 2007) (to be codified at 5CFR 1601.32)

They seem to be pretty confident that it will be codified; even so, can they "act" on uncodified whateveritis?

Originally Posted by qibovin

Yep, I came home to my wife--who didn't know that I knew it was coming--handing me the opened letter and saying, "You need to read this, but I don't want you to be ρï$$€♂ off all night."

I tend to agree with the following:


However, I have my concerns. I am curious about the following (thank you, rob, for doing the extensive typing that would have taken me all night):

Who granted this unelected "Director" power? As far as I understand, the TSP rules still say "unlimited interfund transfers."

Anyway, whether they can legally do it or not, the fact is they have the capability (or maybe they don't...). I am not really in a position to "fight" them on it--obviously they are counting on this. I hesitate to defy their recommendation because this market is not exactly one in which I want to be snail mailing IFTs. Who knows when all this might get sorted out. I am still working full time, and fortunately or unfortunately, my TSP balance is not exactly in the range that my lost earnings would cover the expense of a lawsuit.

Do we have any lawyers who can step out and comment on this. I might be interested in the class action idea if somebody else organizes it, but I'm not sure where else to go from here.

Also, if there are any lawyers out there, I would like to know if there is any law against political appointees making threats of punitive action against federal employees. Maybe the Hatch Act covers this. I don't know if there is precedence but it certainly seems as if there should be.

The Thirft Board blew it in the resolution they passed.

Here's how:

In the resolution they allowed for the executive director to cut people off, PROVIDED that the ETAC also approve the resolution.

That means they delegated the duty to the ETAC to make the decision.

If the ETAC had told them “no”, they couldn’t have done it.

While the Thrift Board members, and the Executive Director are technically federal employees acting within the scope of their employment, and also have specific law preventing anyone from suing them for losses, the ETAC members do NOT have such protection.

To be clear, if ANYONE gets cut off, and can show on paper that he/she would have made more money if he/she were allowed to move their money, then the ETAC members, individually, are now liable under the law, and CAN be sued personally.

It's because they way the Board worded their proposal, leaving it up to the ETAC to decide whether to give that authority to the Director.

Think about them apples.

The ETAC members will have to pay OUT OF THEIR OWN POCKETS, and without government representation, in any lawsuit that results from this. There is no protection for them under the law as there is for the Board and the Director. They are not acting under the scope of their employment, so the Justice Department will not defend their actions.

To quote: “Any fiduciary other than the Executive Director or TSP Board member who breaches his fiduciary responsibility, duty, or obligation, as set out in FERSA, shall be personally liable to TSP for any losses resulting from each breach or violation and will be responsible for restoring to TSP any profits made through use of TSP assets, and shall be subject to such other equitable or remedial relief a court may consider appropriate. These fiduciaries may also be removed for a fiduciary breach.”
From: GAO Report 03-400, page 6, at web link: http://www.gao.gov/new.items/d03400.pdf


Here is what the Thrift Board passed:

RESOLUTION

WHEREAS the Federal Employees' Retirement System Act
of 1986, as amended (5 U.S.C. § 8401 et seq.), provides that the Board members shall establish policies for the investment and management of the Thrift Savings Fund (5 U. S . C. § 8472 (f) (l) ); and

WHEREAS frequent trading has been shown to have a detrimental effect on fund performance because of the resulting increase in transaction costs; and

WHEREAS the TSP was designed as a cost-effective, long-term
investment vehicle, to generate retirement savings.

NOW THEREFORE BE IT RESOLVED that, subject to advice from the Employee Thrift Advisory Council, the Board adopts a policy of placing trading restrictions on all of the funds in the Thrift Savings Plan. Initially, this policy shall be to advise excessive traders that they must stop this activity or face being restricted to requesting interfund transfers via mail. Eventually, with changes in automation, this policy shall be to allow participants two interfund transfers per calendar month with additional transfers allowed only into the G Fund.
++++++++++++++++++++++++++++

By making the policy "subject to advice from the ETAC", they just put ETAC members in the position of making the policy, rather then themselves, and opening ETAC members up to personal liability for ANY losses. If the ETAC had told them no, they could not have done it. Therefore, they delegated the decision making to the ETAC, and with it, the responsibility to make up any loss incurred by a TSP share holder.

Start keeping track of each and every move you make, or would have made, had the ETAC not voted to impose the limit. Because THAT is your basis for filing a claim against the ETAC members PERSONALLY.

Got it?