Retirement funds for federal, military retirees may soon be investing in China defense firms
Investment board for federal pensioners proceeds with plan despite warnings from Navy boss, lawmakers.
America’s top investment firms predict China is poised to overtake the United States as the world’s largest economy. U.S defense officials warn Beijing is seeking military supremacy in the Pacific rim. U.S. intelligence keeps highlighting Chinese efforts to steal U.S. trade secrets and intellectual property. And officials from President Trump on down accuse China of hiding the severity of the coronavirus, setting back the global response to the pandemic by weeks.
Yet despite all that consternation, the U.S. entity is about to embark on a new effort that could benefit the Chinese economy, including its defense industrial complex, through investments of the retirement funds of federal and U.S. military retirees.
The main actor in this little-noticed drama is the five-person Federal Retirement Thrift Investment Board (FRTIB) that administers the Federal Thrift Savings Plan (TSP), the 401(k) for federal workers which serves nearly 6 million current and retired military and civilian federal employees and controls tens of billions of dollars.
In November 2017, FRTIB Chairman Michael Kennedy, who is Managing Director of Korn/Ferry International, and his board decided to change $50 billion in U.S. government retirement funds to a new global investment index known as the MSCI ACWI Index. The board hopes the change allows for greater returns on investments in emerging Asian markets but critics warn the index would allow investments in adversarial nation-owned companies in Russia and China.
The board is in the final stages of completing that transition this month, despite repeated and vocal objections ranging from former Navy Secretary Richard Spencer, former House Speaker Newt Gingrich and a bipartisan group of lawmakers led by Sens. Marco Rubio, R-Fla., and Jeanne Shaheen, D-N.H.
In their October letter to the pension board, Rubio and Shaheen wrote, “This decision would effectively invest the retirement savings of America’s civil servants and military personnel in constituent companies of the ACWI ex-US IMI that assist in the Chinese government’s military activities, espionage, and human rights abuses, as well as many other Chinese companies that lack basic financial transparency.”
“It is our responsibility to these public servants to ensure that the investment of their retirement savings does not undermine the American interests for which they serve,” they added.
In his October 23, Wall Street Journal op-ed, then-Navy Secretary Spencer called the board’s decision “insanity.”
“As secretary of the Navy, I have a duty to represent the dedicated members of America’s naval forces and ensure that, as investors, they are not unwittingly helping to underwrite the threats China and Russia pose to their lives,” he wrote. “For the good of the country and those who serve it, the FRTIB must reverse its decision to adopt the All Countries World Index – and do it before a single dollar from its fund pays for a weapon system aimed in our direction.”
Spencer listed several companies that federal retirees’ money could soon be invested in that have been labeled sanctions violators, fraudulent actors, intellectual-property thieves and human rights abusers.
Nonetheless, objections have not slowed the board’s effort to make the transition, which supporters say will allow federal retirees to earn more returns on their retirement savings.
And that means that President Trump could be the last resort to stopping it from happening by month’s end, according to experts.
“Imagine for a moment the outrage that will accompany our uniform military unwittingly investing personal retirement dollars in Chinese PLA-affiliated advanced weapons manufacturers whose corporate mission is to kill them in the event of a conflict, or even preemptively,” said Roger Robinson, Jr., Chairman of the Prague Security Studies Institute and former Senior Director for International Economic Affairs at the Reagan National Security Council.
Michael Pillsbury, an academic who Trump calls his leading outside expert on China, said the fact that the board is poised to complete the transition despite the security concerns is a testament to how powerful China’s lobbying efforts are on U.S. soil.
“So this is the problem with action against China. We have the rhetoric,” Pillsbury told Just the News during an interview with the John Solomon Reports podcast. “If we had widespread understanding that we are about to enter a Chinese-led world order, and then we are about to become a little brother to our Chinese leader, if that were widespread, I think you would see a different attitude.”
Robinson said there are real concerns that foreign companies in the new index will inject new risk to federal pensioners.
“These Chinese companies are not in compliance with federal securities laws, auditing requirements, SEC material risk disclosure or even granting access to their corporate financials. It is a clear case of Chinese companies receiving preferential treatment over their American corporate counterparts in our capital markets,” he warned.
Last year, in an interview on MSNBC, Rubio stated that the Chinese companies are “instruments of state power,” and raised the question, “Should the U.S. be invested in them?”
Rep. Jim Banks was so concerned in spring 2019 that he introduced the “Blocking Investments in our Adversaries Act,” (HR2903) and although no action has been taken yet, the bill specifically limits “the investments of the International Stock Index Investment Fund (I Fund) under the Thrift Savings Plan.”
After FRTIB received letters from the senators, board members discussed the concerns during their October 2019 board meeting, and at their November 2019 meeting voted to proceed with making the index transition in 2020.
The minutes show that the Employee Thrift Advisory Council “favors transitioning to a new benchmark. ETAC believes investment options for TSP participants should closely mirror those available to private sector investors. ETAC believes that the I Fund transition provides TSP participants with the option to invest as they choose, without respect to political concerns.”
Following the board meeting, Kennedy and Clifford Dailing, the ETAC chairman, published a column in the Government Executive defending the change as good for federal pensioners.
“TSP funds are solely the property of plan participants – it is not federal money and it is not taxpayer money,” they wrote. “Choices on how to invest in the TSP funds being solely to participants. The FRTIB is required by Congress to make decisions that are in the best interest of all TSP participants, and not consider issues left to other federal entities.”
Kennedy did not return a message at his Korn/Ferry office in Atlanta seeking comment.