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U.S. Retirement Fund Okays China Investment After Senate Threat

Daniel Flatley

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The board that oversees retirement savings for U.S. government employees will allow one of its funds to invest in an international index that includes Chinese companies, despite the threat of legislation from lawmakers who say the investments will undermine national security and contribute to China’s economic and corporate growth.

The Federal Thrift Retirement Investment Board finalized the decision in its Wednesday meeting and informed the Senate sponsors of a bill that would ban such investments. The board said a review by an outside investment consultant concluded that the move would be in the best interests of plan participants.

“Investing in emerging markets is not only legal but is the overwhelming choice of fiduciaries across industries and the choice of individual Americans,” Michael Kennedy, the FTRIB chairman, wrote in a letter to the senators. “The board is fulfilling its role as fiduciary of a retirement plan.”

Marco Rubio, the bill’s lead sponsor, condemned the decision as “unconscionable” and said it would direct the retirement savings of military service members and federal employees to the Chinese Communist Party. He vowed legislative action on the issue and said the board’s “refusal to act in the best interests of the United States will not go without consequence.”

Rubio introduced the Taxpayers and Savers Protection Act last week along with a bipartisan group of senators including Jeanne Shaheen, Mitt Romney, Kirsten Gillibrand, Josh Hawley and Rick Scott. The bill has the same initials as the Thrift Savings Plan, which functions like a 401k for federal workers and military personnel.

U.S. Retirement Fund Would Face China Investment Ban Under Bill

“There’s no excuse for this decision,” said Shaheen, a New Hampshire Democrat. “This should have been an easy call to reverse course, yet the Board has decided to double down on this dangerous proposal.”

In his letter to senators, Kennedy said its investment consultant found that many U.S. companies and public pension funds allow access to emerging markets through non-U.S. equity benchmarks, and he defended the board’s decision to allow its $50 billion TSP I Fund to mirror an index that invests in emerging markets, including China.

Rubio and Shaheen say that index includes companies that are under U.S. sanctions and export bans and that investing the retirement assets of federal workers in these kinds of companies could be a security risk and goes against U.S. interests.

Their proposed legislation would prohibit TSP funds from being invested in Chinese companies unless certain conditions are met and would preclude the savings plan from investing in products or stocks in countries where the Public Company Accounting Oversight Board is restricted from accessing financial accounting information.

To contact the reporter on this story: Daniel Flatley in Washington at dflatley1@bloomberg.net

To contact the editors responsible for this story: Joe Sobczyk at jsobczyk@bloomberg.net, Anna Edgerton

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