[Federal Register Volume 72, Number 247 (Thursday, December 27, 2007)]
[Rules and Regulations]
[Pages 73251-73252]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-25007]



 ========================================================================
 Rules and Regulations
                                                 Federal Register
 ________________________________________________________________________
 
 This section of the FEDERAL REGISTER contains regulatory documents 
 having general applicability and legal effect, most of which are keyed 
 to and codified in the Code of Federal Regulations, which is published 
 under 50 titles pursuant to 44 U.S.C. 1510.
 
 The Code of Federal Regulations is sold by the Superintendent of Documents. 
 Prices of new books are listed in the first FEDERAL REGISTER issue of each 
 week.
 
 ========================================================================
 

  Federal Register / Vol. 72, No. 247 / Thursday, December 27, 2007 / 
Rules and Regulations  

[[Page 73251]]



FEDERAL RETIREMENT THRIFT INVESTMENT BOARD

5 CFR Part 1601


Participants' Choices of TSP Funds

AGENCY: Federal Retirement Thrift Investment Board.

ACTION: Interim rule, with request for comments.

-----------------------------------------------------------------------

SUMMARY: The Agency is amending its interfund transfer regulations to 
provide that the Executive Director may adopt a policy of setting 
limits on the number of interfund transfer requests. In the near term, 
this amendment will allow the Executive Director to immediately address 
and, if necessary, restrict the activity of frequent traders, who have 
disrupted management of the Funds and whose activity has resulted in 
increased costs to participants.

DATES: This interim rule is effective January 7, 2008.

ADDRESSES: Comments may be sent to Thomas K. Emswiler, General Counsel, 
Federal Retirement Thrift Investment Board, 1250 H Street, NW., 
Washington, DC 20005. The Agency's Fax number is (202) 942-1676.

FOR FURTHER INFORMATION CONTACT: Tracey Ray on (202) 942-1665.

SUPPLEMENTARY INFORMATION: The Agency administers the TSP, which was 
established by the Federal Employees' Retirement System Act of 1986 
(FERSA), Public Law 99-335, 100 Stat. 514. The TSP provisions of FERSA 
are codified, as amended, largely at 5 U.S.C. 8351 and 8401-79. The TSP 
is a tax-deferred retirement savings plan for Federal civilian 
employees and members of the uniformed services. The TSP is similar to 
cash or deferred arrangements established for private-sector employees 
under section 401(k) of the Internal Revenue Code (26 U.S.C. 401(k)).

Interfund Transfer Requests

    The Agency is amending its regulations pertaining to interfund 
transfers. While most private-sector defined contribution plans, record 
keepers and/or investment managers, e.g., Vanguard, Federated, ING, 
Janus, and Royce, have adopted policies designed to limit frequent 
trading, the Agency currently places no limit on its participants 
regarding the number or frequency of interfund transfers.
    Recently, however, this policy has been called into question as 
excessive trading caused costs borne by TSP participants to more than 
double from 2005 to 2006 (from $6.7 million in 2005 to $15 million in 
2006), and this pattern of frequent trading has continued in 2007. 
These costs, which have resulted largely from the activities of 
approximately 3,000 of the TSP's 3.8 million participants, increase 
expenses for all TSP participants. In 2006, the unrestricted trading in 
the I Fund resulted in trades of $12 billion of securities with 
associated trading costs of $13.8 million or 8 basis points ($.80 per 
$1,000); nearly three times the TSP's net administrative expense of 3 
basis points ($.30 per $1,000).
    Because the Board and Executive Director have a fiduciary duty to 
manage the TSP prudently, for the exclusive purpose of providing 
benefits to participants and their beneficiaries and defraying 
reasonable expenses of administering the Thrift Savings Fund, the 
Agency must respond to this abusive and costly investment activity. 5 
U.S.C. 8477(b).
    As mentioned, the Agency studied the policies of other funds as 
well as regulatory guidance from the Securities and Exchange Commission 
(SEC). Vanguard, for example, limits its participants to one repurchase 
every sixty days, and the SEC recommends that, under certain 
circumstances, plans charge trading fees. Other investment vehicles 
limit participants to a fixed number of trades per year or charge fees 
on certain redemptions.
    The Agency desires to stop this excessive trading immediately and 
also, after continued analysis, to design an interfund transfer policy 
that provides for administrative efficiency, investment flexibility, 
retirement security, as well as reduced trading costs.
    To that end, in the near term, the Agency is adopting a regulation 
to grant the Executive Director the authority to notify the small 
percentage of participants who are driving up costs through their 
excessive trading and request that they cease their practices. 
Otherwise, these participants will be required to request interfund 
transfers by mail. It is the Agency's hope that this swift and direct 
action will inform such participants of the unreasonable expenses 
associated with their trading and persuade them to voluntarily curb 
their trading, thereby curtailing the excessive trading costs borne by 
all participants who hold the C, F, S, I, and L Funds.
    Further, upon continued inquiry, including an analysis of the 
actions that can be taken on an automated basis, the Agency likely will 
amend its regulations (via a separate publication in the Federal 
Register) to permit two interfund transfers per calendar month with 
subsequent unlimited interfund transfers only into the G Fund. The 
Agency believes this policy, when compared to others adopted in the 
private sector, provides the desired level of administrative 
simplicity, investment flexibility and security, and control over 
excessive trading.

Regulatory Flexibility Act

    I certify that these regulations will not have a significant 
economic impact on a substantial number of small entities. They will 
affect only employees of the Federal Government.

Paperwork Reduction Act

    I certify that these regulations do not require additional 
reporting under the criteria of the Paperwork Reduction Act.

Unfunded Mandates Reform Act of 1995

    Pursuant to the Unfunded Mandates Reform Act of 1995, 2 U.S.C. 602, 
632, 653, 1501-1571, the effects of this regulation on State, local, 
and tribal governments and the private sector have been assessed. This 
regulation will not compel the expenditure in any one year of $100 
million or more by State, local, and tribal governments, in the 
aggregate, or by the private sector. Therefore, a statement under Sec.  
1532 is not required.

Submission to Congress and the General Accounting Office

    Pursuant to 5 U.S.C. 810(a)(1)(A), the Agency submitted a report 
containing this rule and other required information

[[Page 73252]]

to the U.S. Senate, the U.S. House of Representatives, and the 
Comptroller General of the United States before publication of this 
rule in the Federal Register. This rule is not a major rule as defined 
at 5 U.S.C. 814(2).

List of Subjects in 5 CFR Part 1601

    Government employees, Pensions, Retirement.

Gregory T. Long,
Executive Director, Federal Retirement Thrift Investment Board.

0
For the reasons set forth in the preamble, the Agency amends 5 CFR 
chapter VI as follows:

PART 1601--PARTICIPANTS' CHOICES OF TSP FUNDS

0
1. The authority citation for part 1601 continues to read as follows:

    Authority: 5 U.S.C. 8351, 8438, 8474(b)(5) and (c)(1).

0
2. Amend Sec.  1601.32, by revising paragraph (b) to read as follows:


Sec.  1601.32  Timing and Posting Dates.

* * * * *
    (b) Limit. There is no limit on the number of contribution 
allocation or interfund transfer requests that may be made by a 
participant. In order to mitigate excessive trading expenses, the 
Executive Director may write to any participant who engages in 
excessive trading and ask the participant to stop this practice. If the 
participant continues to engage in excessive trading, the participant 
may be required to request interfund transfers by mail.

 [FR Doc. E7-25007 Filed 12-26-07; 8:45 am]
BILLING CODE 6760-01-P