Trump Wants to Divest Federal Retirement Fund of China Stocks

Should public employee pensions be an asset in the administration's foreign policy?

WaPo (“Trump eyes federal retirement plan investments as part of showdown with China over coronavirus“):

President Trump’s intensifying showdown with China over its handling of the coronavirus pandemic is expanding to a new battlefield: the retirement portfolios of 5.9 million federal employees and U.S. service members.

In recent days, White House officials have moved to seize control of a little-known board that administers the $557 billion federal retirement program for most active and retired federal employees and military members, with some aides eager to halt the flow of billions of dollars into an index fund that includes Chinese companies, according to two White House officials and an outside Trump adviser involved in the discussions.

Trump on Monday nominated three members to replace the majority on the Federal Retirement Thrift Investment Board, made up of five investment experts who oversee the retirement plan. All of their four-year terms have expired, and Senate Majority Leader Mitch McConnell (R-Ky.) and House Speaker Nancy Pelosi (D-Calif.) have not replaced those serving in the two seats they control.

As both a federal employee and a decided not-fan of the current administration, I’m more than a bit leery of the fund being used as a political football. It’s not at all obvious to me why such a board should be politically appointed at all as opposed to, say, voted on by federal employees.

But, as to the divestment issue, I’m rather torn.

With its new nominees, the White House is taking steps to block the plan’s $40 billion international fund from investing in a fund that contains about 11 percent of China-based stocks, according to people familiar with the strategy.

“Obviously, the president doesn’t want this investment to take place and is looking for other alternatives,” said a senior administration official who was not authorized to speak about the nominations. “These individuals will be key to making that happen.”

The move comes as Trump has sought to put the blame on China for the coronavirus pandemic and senior U.S. officials have begun explore proposals to punish or demand financial compensation from the country.

The effort to block any Chinese investment by the retirement plan, the largest defined contribution program in the world, comes as the current board is preparing to transfer assets to the new fund. The board has said it is following a responsible investment strategy — recommended twice by an outside consultant — that will allow its members to accrue potential gains from China’s growing economy.

TSP spokeswoman, Kim Weaver, told The Washington Post last month the shift in strategy “is not about China, from our perspective.”

Advocates for federal workers say reversing the strategy could hurt millions of employees saving for retirement by walling off investments that are widely available in other 401(k)-type plans.

“Participants want investment options that pass the fiduciary responsibility test — not any political test,” said Jacqueline Simon, policy director for the American Federation of Government Employees, the largest union representing federal workers.

I’m not particularly sympathetic to Simon’s position. While I have a vested interest in my retirement fund being as robust as possible, it seems perfectly reasonable for investments to align with the foreign policy of the country. During the Cold War, I wouldn’t have expected the fund to have investments in the Soviet Union or its satellites. And, while we’re not exactly in a cold war with the PRC, we’re strategic competitors and the relationship is worsening.

Still, as with all things in the Trump era, this is further complicated by the nature of our policymaking process. I would be more cheerful about the fund being constrained by American foreign policy interests if our foreign policy were being made according to American interests rather than Trump’s pique, whims, and other personal considerations.

FILED UNDER: China, Donald Trump, Government
James Joyner
About James Joyner
James Joyner is Professor and Department Head of Security Studies at Marine Corps University's Command and Staff College and a nonresident senior fellow at the Scowcroft Center for Strategy and Security at the Atlantic Council. He's a former Army officer and Desert Storm vet. Views expressed here are his own. Follow James on Twitter @DrJJoyner.

Comments

  1. Mikey says:

    I think it’s just a pretext to enable political control of a big chunk of federal retirement. You know as well as I do that the Trumpian Republicans despise not only federal employees as a group but the very concept of a federal workforce that isn’t subject to the political whims of the executive.

    Just look at how the administration has been trying to get its tentacles into OPM and return us to the era when the President personally decided who got what positions.

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  2. JohnMcC says:

    How peculiar that I happened on two threads as they opened! I should buy a lottery ticket (for the first time).

    I wonder at the sudden interest in making PRC our foe. Definitely don’t want to ignore the many reasons to oppose the Chinese: Uighurs, 7-dot line, Hong Kong. Choose your own.

    But there is a strong movement in the rumbling bowels of the R-party that seems to point at the People’s Republic as a WW2 level adversary. Because otherwise this virus is OUR fault — seems to be their conclusion.

    Your retirement is to some degree caught in that net.

    GOP delenda est.

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  3. Jc says:

    If I invest in Walmart am I not also investing in China? Has Trumps family divested from China? If I remember, you can still choose your TSP funds to invest in

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  4. Stormy Dragon says:

    As both a federal employee and a decided not-fan of the current administration, I’m more than a bit leery of the fund being used as a political football.

    I’d note that one (not the only reason, but one) of the reasons State pensions are so underwater is that they started using them to invest in schemes that were more about pushing political agendas than offering a risk-appropriate return on investment.

    Of course, for Republicans, bankrupting the federal pension is probably a feature rather than a bug.

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  5. Sleeping Dog says:

    Lurking in the background of this is a huge unintended consequences mallet. Tiny and his mob are not very good at measuring down side risk, just ask farmers about the consequences that befell them when the tariffs went into effect.

    A question for the attorneys out there. In general pension boards have a fiduciary responsibility to seek the best investments, balancing potential return and risk, for the members, does having the pension fund hijacked for political purposes open the board to a law suit?

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  6. Stormy Dragon says:

    @Sleeping Dog:

    Courts have already ruled that State pensions enjoy sovereign immunity in federal court. It’s unlikely that wouldn’t also apply to the federal pension, so the answer is they can only sue if the Federal government agrees to allow themselves to be sued.

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  7. James Joyner says:

    @JohnMcC: We’ve been framing China as the near-peer competitor since the early 90s and the Obama administration rolled out its Pivot to Asia in 2011, so this predates Trump. And Trump started the trade war–or, more charitably, decided to fight a trade war that China had been winning unopposed for years—well before COVID-19 was a thing. But, yes, he’s definitely escalating to escape responsibility for his poor leadership.

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  8. James Joyner says:

    @Stormy Dragon: Yes. My preference is for broad index funds. But I can see the notion that we should invest only in the US economy with government funds.

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  9. gVOR08 says:

    As you allude in your last paragraph, this isn’t foreign policy, it’s electoral strategy.

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  10. al Ameda says:

    I would hope the Ivanka divests her portfolio of the trademarks and copywrites that China granted.

    As always, Trump makes everything worse.

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  11. Barry says:

    James, you are a brave man. If I found out that Trump had a majority stake in my pension, I’d have p*ssed myself.

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  12. Barry says:

    OTOH, with the current SCOTUS, you don’t have to worry about corruption, because corruption will not be called ‘corruption’.

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  13. DrDaveT says:

    While I have a vested interest in my retirement fund being as robust as possible, it seems perfectly reasonable for investments to align with the foreign policy of the country.

    1) You seem to be confused about whose money we’re talking about.
    2) Which part of capitalism do you not understand?

    As others have noted, this administration has no “foreign policy”; they have grifts. When Trump and his family divest themselves from China, we can reconsider the question of whether this is an actual policy, and not just pandering to the anti-China prejudices of his base.

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  14. SC_Birdflyte says:

    @Mikey: Well, if Trump had ANY knowledge of American history, he might recall the sad fate of James A. Garfield, shot by a disgruntled office-seeker. Having the power to reward also means you’re vulnerable to anyone who doesn’t get a reward.

  15. James Joyner says:

    @DrDaveT:

    1) You seem to be confused about whose money we’re talking about.

    I’m not at all confused. It’s my money and that of my fellow vested federal employees. But it’s managed by a politically-appointed board, which means politics are inherently going to play into how it’s managed.

    2) Which part of capitalism do you not understand?

    So long as I’ve been paying attention to such things—going back nearly 40 years now—large funds have been managed with an eye to political/social/moral considerations. I can’t imagine a lot of American funds were investing in the Soviet Union or Cuba during the Cold War. Huge funds were divesting from South Africa so as not to support apartheid back in the 1980s. There may well be a good argument for disinvesting from an increasingly totalitarian China now.

    As others have noted, this administration has no “foreign policy”; they have grifts.

    Yes, I made that point in the OP. Whenever I’m analyzing the Trump administration, I both caveat that they’re not normal and then consider whether, were this a normal administration, it’s a legal/sound/justifiable position. If every post were simply “Trump’s a corrupt idiot,” they’d get old fast. (And, indeed, it’s partly why my writing volume is way down since he took office.)

  16. DrDaveT says:

    @James Joyner:

    But it’s managed by a politically-appointed board, which means politics are inherently going to play into how it’s managed.

    No. This is not true. It can be true, if we’re screwing up as a nation, but it need not be. That’s what bureaucracy is for — to prevent politics from affecting the day to day business of what government does. Fox News propaganda notwithstanding, politics plays no role in how your tax return is processed, or whether you qualify for Social Security Disability. These are good things.

    So long as I’ve been paying attention to such things—going back nearly 40 years now—large funds have been managed with an eye to political/social/moral considerations.

    If we’re talking about the Vanguards and Fidelities and TIAA/CREFs and such, those are for-profit businesses that choose to take certain social/ethical positions for business reasons. Customers (including employers whose pension funds are managed by those businesses) who do not like those positions can choose a different fund provider. Federal employees would not have that option.

    If the government really felt there were a moral or national security imperative, they would make it illegal for US-based funds to own those stocks and bonds. Singling out the Thrift Savings Plan while letting everyone else invest in China is just posturing, with a side benefit of hurting federal employees some more.