The Trump administration has asked the board that runs the retirement savings program for federal employees and military personnel to not invest in Chinese businesses, ratcheting up the dispute into a potential showdown over who ultimately runs the program.

Labor Secretary Eugene Scalia on Monday sent a letter to the Thrift Savings Plan’s governing board saying, “At the direction of President Trump, the Board is to immediately halt all steps” toward switching to a broader international stock market index, one that includes China, in one of its investment funds.

Scalia’s letter followed one to him earlier in the day from Director of National Economic Policy Larry Kudlow and National Security Advisor Robert O’Brien in which they said “we believe the Board should cease implementation immediately.”

The letters, which were first reported by Fox Business, state in the most explicit terms to date that the Trump administration’s opposition to the planned change is at least in part motivated by China’s role in the coronavirus pandemic.

In addition to previously stated national security-related concerns about TSP money being invested in some Chinese companies, the letter from Kudlow and O’Brien says the Chinese government concealed critical information from the United States and the rest of the world regarding the coronavirus.

“These events dramatically increase the risk that Chinese companies could be subject to sanctions or boycotts that jeopardize their business and profitability and strongly militate against the Board making a significant investment of federal workers’ retirement funds in Chinese companies at this time,” they wrote.


The board’s response could come as soon as Wednesday at a regular monthly meeting that had been scheduled in advance of the letters.

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The board previously has resisted calls to stop the planned change, and TSP spokeswoman Kim Weaver said in a phone interview Tuesday that “Under the law, the board is responsible for investment policy.”

Underlying Scalia’s letter is an assertion that the TSP board is subject to outside authority, an assertion that never has been tested in the program’s 30-year existence.

The TSP is structured like a corporation, directed by a five-member board of financial and investment experts who serve part-time, and organizationally is not under the Labor Department or any other agency. It further does not draw appropriated money from Congress, operating instead on fees it charges to account holders.

At issue is an investment fund called the I Fund, which tracks international stock markets and is one of the five basic funds the TSP offers to its 5.9 million account holders. The fund holds about $41 billion in investor assets out of a total of some $557 billion in the TSP as of the end of March.

Currently, the fund reflects stock markets of 21 developed countries, mostly in Europe. The board first decided in 2017 to switch to a broader index that includes two dozen emerging market countries, one of which is China, on the recommendation of a consultant.


The consultant found that the broader index is commonly available in other large 401(k)-type programs and has higher potential for returns. In addition, its report said the broader index better meets a mandate in law that the I Fund be a “reasonably complete” representation of non-U.S. stock markets, reflecting 99% of those markets compared with the current index’s 58%. Stocks of China account for about a tenth of the broader index.

After bills were introduced in Congress to stop the change, the board had the consultant perform a second study last year, which reached the same conclusions.

The second report found that the 401(k)s of all 10 of the largest publicly traded U.S. companies, all 10 of the top federal contractors, all 20 of the largest state pension plans and all six of the largest target-date mutual fund providers invest in emerging markets including China.

The board then voted to reaffirm its decision and defended it in a letter to members of Congress who opposed the change.

The board cited the two studies, noted that investments in the I Fund are voluntary for account holders, and said that walling off investments in companies of China or any other country is a decision for the Treasury Department to make. An advisory council of a dozen federal employee organizations has taken the same positions.

The issue flared up again recently as the changeover in indexes approached.


Trump and some top aides – including trade adviser Peter Navarro, deputy national security adviser Matthew Pottinger and chief of staff Mark Meadows – want to take action against the Chinese. They’ve been encouraged by outside China critics, including former Trump campaign strategist Steve Bannon and other conservative activists.

Trump last week nominated replacements for the three board seats under his control – the other two are chosen by leaders of the House and Senate – on the expectation that they would reverse the decision. The regular terms of all five have expired and they are continuing to serve in hold-over status.

The Monday letters amount to a preemptory move by the White House to prevent the changeover, which is set to occur in the upcoming months, from occurring before those nominees could be confirmed by the Senate. However, they also raise for the first time issues of whether the TSP is subject to outside control.

“The president’s principal economic and national security advisors wrote to the secretary expressing those concerns – and the secretary communicated the president’s direction to the board – because the Department of Labor has broad investigative and audit authority over the activities of the TSP Board of Directors and other plan fiduciaries who make investments and operate the plan,” a Labor Department spokesman said in an email.

The Labor Department conducts “program audits” of the TSP similar to its oversight of other 401(k)-type plans, which involve matters such as information technology security, processing of loan and withdrawal requests and other administrative matters – but not investment policies.

However, Weaver of the TSP cited law which says that the TSP board “shall develop investment policies” with no provision for a role by anyone else.