Raising Costs on Federal Workers
While the House removed TSP-related provisions of the two bills that it considered before passing them, they could be added back in the Senate or included in legislation allowing TSP to establish auto-enrollment. Such a move would complicate administration of the TSP, possibly raising fees, and take the first step in politicizing the investment of federal workers' retirement savings.

All of TSP's non-government Bond investment choices are index funds directly related to stock indices that are widely available, extremely low cost, and simple to track. To a large extent, TSP's low administrative fees are due to using index funds that have been developed by firms such as S&P and Dow-Jones and that can be traded by computer. Reconfiguring these indices to remove certain companies is very expensive, especially if that list of companies changes regularly.

According to the consulting firm Ennis Knupp & Associates, reconfiguring TSP's I Fund (which invests in international stocks) to avoid investing in non-U.S. companies that do business in either Iran or Sudan would cost $30 million for the first year and another $12.5 million every year after that. This represents a doubling of the annual administrative cost of the fund, from 0.03 percent of Assets to about 0.08 percent.

One reason for the high cost comes from the fact that most stock indices weight stocks listed in the index rather than treating them equally. For instance, TSP's S Fund, which is based upon the S&P 500 stock index, does not just invest equal amounts in 500 selected stocks. Instead, the S&P 500 index is weighted by market float. Under market float weighting, the proportion of each stock's share of the index is equal to the number of shares that S&P determines are available for public trading times the stock price. In order to determine the value of the S&P 500 index at any point, this calculation is performed for all 500 stocks on the index and summed. In the case of the S Fund, the proportion of the fund invested in each company is the proportion of its market float to the total market float of all the 500 stocks contained in the index.

When a company is removed from an index, as would have been required by the Darfur and Iran bills, it has to be replaced by another or the overall size of the index must shrink. In either case, the weightings of the stocks on the reconfigured index must be changed. This procedure is time-consuming and expensive.

Cutting out companies that invest in certain countries would radically change the focus of TSP. Given that the reason for making such a change is a foreign or political policy goal, rather than a pension fund's fiduciary duty to focus on maximizing a worker's retirement income, the result is that a worker's retirement money would be, by legal and fiduciary standards, misused. Though there are excellent political reasons for not investing in companies that do business in either Iran or Sudan, affecting foreign policy is not the purpose of either TSP or any other pension fund.

Any decision to inject politics into TSP investments could lead to a slippery slope. It is only a short step from requiring pension funds to base their investment decisions on foreign policy goals to basing them on short-term politics. This has actually happened in a number of state government employees' pension funds, where pension funds have been invested in factories that soon closed, public works projects that failed to produce profits, and similar projects that ended up causing significant losses for retirees.[1] TSP has been used exclusively to build federal workers' retirement security. It should not be used for any other purpose.