Senate Takes Turn to End China Profiting Off of U.S. Federal Pensions

Last week, House Republican leadership opted not to include an amendment that would have banned China securities from the retirement funds offered to federal government employees and the military.  The amendment was put forth by Rep. Mike Waltz (R-FL) in the National Defense Authorization Act (NDAA), which passed last week.

Elsewhere in Florida, however, Sen. Marco Rubio (R-FL) has brought up the issue again for the Senate version of the NDAA.

The debate is whether government pension funds should be invested in Chinese stocks and bonds through the Thrift Savings Plan (TSP), a $720 billion government retirement plan for some six million current and former federal employees and military. House leadership’s rejection of the TSP amendment stands contrary to the public-facing image many Republicans in the House have made of themselves in this new Congress – as China hawks ready for action.

Sen. Rubio confirmed that the TSP amendment – known as the Taxpayers and Savers Protect Act – will likely see a floor vote in the Senate next week. Sen. Jeanne Shaheen (D-NH) and Joni Ernst (R-IA) are co-sponsors of that amendment and, if passed, would ban federal government employees from putting money into companies listed on the Chinese stock markets in Shanghai, Shenzhen, and Hong Kong.

CPA supports the passage of this amendment in the Senate’s version of the NDAA.

Worth noting, while the Chinese central bank and many of its largest companies are big holders of Treasury debt, millions of Chinese government workers are not allowed to invest in U.S. stocks. American workers fund Chinese companies, but Chinese workers are not allowed to fund American ones.

Last year, the Federal Retirement Thrift Investment Board (FRTIB), the main body in charge of government pensions, said that it would be “unfitting” for federal employees to invest in China given its newfound status as a “strategic rival”, according to the White House, and America’s No. 1 threat to national security, according to the Director of National Intelligence’s annual threat assessment.

“We agree it is unfitting for Americans to invest in companies from China or elsewhere that undermine U.S. national security,” FRTIB officials wrote, according to a letter seen by Fox Business News last summer.

***Read CPA’s Myths vs Facts on the TSP Act here.***

Opponents of Rubio’s TSP Act say it is unnecessary because the Treasury’s Office of Foreign Assets Control (OFAC) could just issue rules governing what the TSP cannot invest in rather than paint a broad brush. The TSP Act paints with a broad bush. It outright bans securities from countries deemed a national security threat by the DNI’s annual threat assessment report.

OFAC does theoretically ban investments in some Chinese defense contractors already, a move that began by Executive Order under the Trump administration that the Biden administration retained and updated in June of 2021. However, this does not preclude Congress from taking action to ensure that federal employees, including members of the U.S. Armed Forces, are not unwittingly investing in Chinese companies that the U.S. government has identified as national security risks or beneficiaries of forced labor, for example.

Companies like Hoshine Silicon Industries are on the Uyghur Forced Labor Prevention law’s covered entities list, meaning companies that produce goods made from Hoshine’s components (mostly in the solar industry) are banned entry. But their stocks are not off limits. Any U.S. Air Force Captain holding the Vanguard Emerging Markets mutual fund is invested in this banned entity. This mutual fund is available under the TSP.

According to data published by CPA, and that was reported on by The Wall Street Journal and Newsweek, the TSP has serious exposure to companies owned or controlled by the Chinese Communist Party. As such, “[m]illions of federal employees can invest in Chinese companies sanctioned by the U.S. government via its flagship retirement plan, even though these companies have been branded a danger to national security or are accused of profiting from forced labor or other human rights abuses,” the Newsweek article led with on May 22, 2023.

At one time, the FRTIB admitted publicly that it does not conduct due diligence to see whether the mutual funds it offers are invested in Chinese companies on entity lists. Hint: they are. CPA estimates that there are at least 24 companies that are either on an entity list facing trade restrictions or are part of China’s military-industrial complex and are holdings in the mutual funds federal employees can own in their retirement portfolio.

It will be hard to remove those companies from each individual fund. It is unlikely private investment firms like Vanguard or Fidelity will remove Chinese companies from their funds in order to placate TSP.  Rubio’s amendment would just take China out of the product lines altogether, meaning if China companies are in any of the global mutual funds on offer, it will be banned from the TSP.

Others in the House, like Rep. Andy Barr (R-KY) – a member of the House Financial Services and China Select Committees – have passed on this idea despite at one time pitching some legislation that might have increased sanctions on Chinese military companies. He says that Americans should be able to invest in Chinese companies that face no restrictions, like Alibaba, but should not invest in companies facing sanctions, including those on entity lists. This could prove to be the ultimate sticking point for this legislation to pass muster in both houses of Congress.