THRIFT SAVINGS 

PLAN

Adding a Socially 

Responsible Index 

Fund Presents 

Challenges

Report to the Ranking Member, Subcommittee 

on Technology, Information Policy, 

Intergovernmental Relations and Procurement 

Reform, Committee on Oversight and 

Government Reform, House of Representatives

June 2012

GAO-12-664

United States Government Accountability Office

GAO
United States Government Accountability Office

Highlights of GAO-12-664, a report to Ranking 

Member, Subcommittee on Technology, 

Information Policy, Intergovernmental 

Relations and Procurement Reform

Committee on Oversight and Government 

Reform, House of Representatives

June 2012

THRIFT SAVINGS PLAN

Adding a Socially Responsible Index Fund Presents 

Challenges 

s

Why GAO Did This Study

Socially responsible investment—

investment made on the basis of 

environmental, social, religious, or

corporate governance criteria— in 

U.S.-based mutual funds exceeded 

$300 billion in value in 2010. TSP—a 

$308 billion retirement plan with more 

than 4.5 million participants—currently 

offers five distinct low-cost investment 

options, and is authorized to offer a 

service that enables direct participant 

investment in mutual funds outside 

TSP. GAO was asked to consider the 

value of adding an SRI option to TSP. 

GAO examined: (1) What challenges 

might TSP face in adopting an SRI 

option? (2) How would the addition of 

an index fund tracking an SRI index 

have affected past TSP stock portfolio 

performance? (3) How do the 

performance and costs of SRI mutual 

funds compare to those of non-SRI 

mutual funds?

To analyze the challenges surrounding 

SRI, GAO interviewed federal officials, 

SRI experts, and representatives of 

public retirement plans that had 

considered SRI adoption. To examine 

the impact of adding an SRI fund to the 

existing TSP funds, GAO analyzed 

monthly benchmark return data. To 

examine mutual fund performance 

trends and costs, GAO analyzed 

historical summary data on US-based 

mutual funds.

GAO provided a copy of this draft 

report to the Board, the Department of 

Labor, and the Department of the 

Treasury for review and comment. 

None of the agencies provided formal 

comments on the report.

What GAO Recommends

This report contains no 

recommendations.

What GAO Found

Officials at the Thrift Savings Plan (TSP) and the other public retirement plans 

that had considered socially responsible investment (SRI) associated a number 

of common challenges with SRI adoption. While none of these plans were 

identical to TSP in scope or demographics, many plan officials shared similar 

challenges and concerns with TSP. For example, they identified participant 

demand, SRI screening criteria, and costs as the most common challenges. 

Officials at public retirement plans that had adopted SRI cited some short-term 

benefits of SRI, such as providing participants an opportunity to invest in 

accordance with their values, but said that the long-term benefits were unknown. 

When compared to the past performance of the TSP stock portfolio, the addition 

of a hypothetical SRI index fund tracking the best-performing U.S.-based SRI 

stock index would not have both increased returns and lowered volatility in any 

allocation scenario that GAO tested. Specifically, over the last 20 years, if TSP 

had included such an SRI index fund in its existing stock portfolio, it could have 

resulted in (1) lower returns and lower volatility, (2) lower returns and higher 

volatility, or (3) higher returns and higher volatility, based on GAO’s analysis of 

evenly distributed portfolio allocations. The managers of the SRI index explained 

the difference in the index’s performance over the last 20 years was a result of 

having different sector weightings than the overall market to align with the fund’s 

SRI strategy. Moreover, the addition of this SRI fund would have resulted in 

overlap with the TSP stock portfolio, and would not have provided a substantial 

opportunity for additional portfolio diversification. 

Effect of Adding an SRI Index Fund to a Portfolio of the TSP Stock Index Funds (1992 to 2011)

Looking more broadly at SRI mutual funds—the most common form of SRI in the 

United States—GAO found the comparative performance of SRI and non-SRI 

mutual funds to vary by asset class while costs were nearly the same. Regarding 

performance, SRI bond mutual funds had better risk-adjusted performance than 

their non-SRI counterparts over the last 15 years, while SRI stock and balanced 

funds did not. However, after controlling for various factors such as fund size, 

SRI stock mutual funds had better estimated performance as well. Regarding 

costs, in fiscal year 2010, the costs of SRI institutional grade mutual funds were 

similar to their non-SRI counterparts. Although TSP participants cannot currently 

invest in mutual funds through TSP, the Federal Retirement Thrift Investment 

Board (Board) is authorized to offer a mutual fund window if it determines that it 

is in the best interests of participants. View GAO-12-664. For more information, 

contact Charles Jeszeck at (202) 512-7215 or 

jeszeckc@gao.gov. 
Page i GAO-12-664 Thrift Savings Plan 

Letter 1 

Background 4

Officials Identified Several Challenges to SRI Adoption and Said 

the Long-term Economic Benefits of SRI Were Unknown 13

Adding an SRI Index Fund Would Not Have Improved Past TSP 

Portfolio Performance in Most Allocation Scenarios 19

SRI Mutual Fund Performance Varied by Asset Class, but Had 

Similar Costs to Non-SRI Mutual Funds 24

Concluding Observations 26

Agency Comments 27

Appendix I Objectives, Scope, and Methodology 28

Appendix II Variation of Annual Compound Rates of Return and Standard Deviation 

among Evenly Distributed Allocations of the Best Performing SRI Stock 

Index and Existing TSP Stock Index Funds, 1992 through 2011 36

Appendix III Additional Information on the Performance of SRI and Non-SRI 

Mutual Funds by Asset Class 37

Appendix IV GAO Contact and Staff Acknowledgment 42

Tables

Table 1: Investment Requirements for Existing TSP Funds 6

Table 2: Regression Coefficients on Non-SRI Indicator: U.S. Stock 

Funds, Institutional, Front-load, and No-load Share Classes 31

Table 3: Regression Coefficients on Non-SRI Indicator: U.S. 

Balanced Funds, Institutional, Front-load, and No-load 

Share Classes 33

Table 4: Regression Coefficients on Non-SRI Indicator: U.S. Bond 

Funds, Institutional, Front-load, and No-load Share Classes 34

Table 5: Coefficient on SRI Indicator in Regression with Annual 

Report Net Expense Ratio as Dependent Variable With and 

Without Control Variables 35

Contents
Page ii GAO-12-664 Thrift Savings Plan 

Table 6: Sharpe Ratio SRI and Non-SRI Bond Mutual Funds 39

Table 7: Sortino Ratio SRI and Non-SRI Bond Mutual Funds 39

Table 8: Sharpe Ratio SRI and Non-SRI Stock Mutual Funds 40

Table 9: Sortino Ratio SRI and Non-SRI Stock Mutual Funds 40

Table 10: Sharpe Ratio SRI and Non-SRI Balanced Mutual Funds 41

Table 11: Sortino Ratio SRI and Non-SRI Balanced Mutual Funds 41

Figures

Figure 1: Cumulative Growth in the Number of U.S. Open-end SRI 

Mutual Funds, 1952 through 2011 9

Figure 2: Investment Screens Applied by SRI Mutual Funds 12

Figure 3: Number of Public Retirement Plans Identifying 

Challenges Associated with SRI Adoption Similar to Ones 

Identified by TSP Officials 14

Figure 4: Effect of Adding a Hypothetical TSP SRI Index Fund on 

Past TSP Stock Portfolio Performance, 1992 to 2011 20

Figure 5: Annual and Cumulative Returns of the Indices Underlying 

the C, S, I, and SRI Funds, 1992 to 2011 22

Figure 6: Comparison of Annual Net Expense Ratios of SRI and 

Non-SRI Mutual Funds 26
Page iii GAO-12-664 Thrift Savings Plan 

Abbreviations

Board Federal Retirement Thrift Investment Board

C Fund Common Stock Index Investment Fund

DB defined benefit

DC defined contribution

ESG environmental, social, and corporate governance

ERISA Employee Retirement Income Security Act of 1974

ETAC Employee Thrift Advisory Council

FERS Federal Employees’ Retirement System

FERSA Federal Employees’ Retirement System Act of 1986

F Fund Fixed Income Investment Fund

G Fund Government Securities Investment Fund

I Fund International Stock Index Investment Fund

S Fund Small Capitalization Stock Index Investment Fund

SRI socially responsible investment

TSP Thrift Savings Plan

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Page 1 GAO-12-664 Thrift Savings Plan 

United States Government Accountability Office 

Washington, DC 20548

June 26, 2012

The Honorable Gerald E. Connolly

Ranking Member

Subcommittee on Technology, 

Information Policy, 

Intergovernmental Relations 

and Procurement Reform

Committee on Oversight 

and Government Reform

House of Representatives

Dear Mr. Connolly:

Since its inception in 1986, the federal government’s Thrift Savings Plan 

(TSP) has become a central component of federal employees’ retirement 

savings. Intended to resemble 401(k) pension plans in the private sector, 

TSP allows employees to contribute a portion of their current 

compensation through payroll salary deductions and to allocate their 

contributions and any associated earnings among the available 

investment options. As of February 2012, TSP held about $308 billion in 

retirement assets and had more than 4.5 million participants, making it 

one of the largest retirement savings plans in the United States.

The Federal Employees’ Retirement System Act of 1986 (FERSA) 

established TSP and the Federal Retirement Thrift Investment Board 

(Board), an independent agency in the executive branch, to administer it.1

 

1

5 U.S.C.§ 8472.

The five-member, presidentially appointed Board must manage TSP 

prudently and solely in the interest of the participants and their 

beneficiaries and cannot exercise the voting rights associated with 

ownership of securities in TSP. FERSA also established three TSP 

investment funds: the Government Securities Investment Fund (G Fund), 

Common Stock Index Investment Fund (C Fund), and Fixed Income 

Investment Fund (F Fund). In 1996, Congress authorized TSP to broaden 

its offerings with the International Stock Index Investment Fund (I Fund) 

 
 

Page 2 GAO-12-664 Thrift Savings Plan 

and Small Capitalization Stock Index Investment Fund (S Fund). Since 

August 2005, TSP participants also have had the option to choose one of 

five lifecycle funds, which diversify participant accounts among the G, F, 

C, S, and I Funds using investment mixes tailored for different retirement 

time horizons.

Congress has proposed legislation to require TSP to offer additional 

investment options in an effort to give participants and beneficiaries 

greater investment choice. Several of these proposals have sought to 

require TSP to include a responsible investment index fund that would 

track a market index comprised of stocks that were prescreened for 

corporate governance, environmental practices, workplace relations and 

benefits, product safety and impact, international operations and human 

rights, involvement with repressive regimes, and community relations.2

• What challenges might TSP face in adopting an SRI option?

Commonly referred to as socially responsible investment (SRI), this kind 

of investment strategy seeks to generate long-term competitive financial 

returns while realizing positive societal impact by investing in accordance 

with one’s values or certain environmental, social, or corporate 

governance criteria. Investment in SRI mutual funds—the most common 

SRI vehicle—exceeded $300 billion in 2010. Congress asked us to 

examine the value of adding an additional investment option to TSP in the 

form of an SRI index fund. In response to this request, we examined the 

following questions:

• How would the addition of an index fund tracking an SRI index have 

affected past TSP stock fund portfolio performance?

• How do the performance and costs of SRI mutual funds compare to 

non-SRI mutual funds?

To determine the challenges associated with SRI, we reviewed relevant 

federal laws and regulations related to FERSA and TSP, and literature. We 

also interviewed officials from TSP, the Employee Thrift Advisory Council 

(ETAC), investment management or consultant firms, and a 

 

2

The Financial Industry Regulatory Authority defines index funds as passive funds that 

seek to replicate the performance of a market index instead of outperforming it. Index 

funds differ from mutual funds which are investment companies that pool money from 

many investors and invest it based on specific investment goals.
 

Page 3 GAO-12-664 Thrift Savings Plan 

nonrepresentative sample of 15 public pension plans. To identify our 

sample, we contacted plans that were signatories of the United Nations’ 

Principles for Responsible Investment and employed a snowball sampling 

technique based on recommendations of interviewees. To assess how the 

addition of an index fund tracking an SRI index would have affected past 

TSP stock fund portfolio performance, we identified the best performing 

U.S.-based SRI stock index based on 10-year risk-adjusted performance 

data, and analyzed its potential impact on the TSP stock portfolio over the 

past 20 years (1992 through 2011).3 Because this analysis is strictly based 

on past performance, this result does not guarantee or imply that the 

addition of an SRI index would have the same effect on future TSP stock 

fund portfolio performance. To determine how the performance and costs 

of SRI mutual funds compared with those of non-SRI mutual funds, we 

analyzed historical performance data for several time periods over the past 

15 years (dating back from December 2011)—the longest time period for 

which data were available—and cost data from fiscal year 2010. We 

focused our analysis exclusively on three share classes of mutual funds—

institutional, front-load, and no-load—of U.S. domiciled open-end mutual 

funds, which experts identified as the most common form of SRI funds.4

We assessed the reliability of the quantitative data used in this 

engagement by reviewing related documentation, interviewing 

knowledgeable officials, reviewing related internal controls, comparing to 

published data, and tracing a selection of data to source documentation. 

Based on this evaluation, we determined these data were reliable for the 

purposes of this report. Additional details regarding our methodology can 

be found in appendix I.

To 

better demonstrate the full range of performance and costs trends between 

SRI and non-SRI mutual funds, we analyzed funds by subcategories such 

as share class, and also ran regressions to control for factors such as fund 

asset size and investment strategy.

 

3

We selected the best performing SRI stock index from the five U.S.-based SRI stock 

indices with at least a 10-year history that were active as of December 2011. (We 

identified three other U.S.-based SRI stock indices that did not have a 10-year history.) 

We did not run a similar analysis on an SRI bond index because no U.S-based SRI bond 

indices exist.

4

Morningstar, Inc., identified three share classes of mutual funds—institutional, front-load, 

and no-load—as the most common share classes used by institutional investors. We refer 

to these three share classes together as institutional grade mutual funds.
 

Page 4 GAO-12-664 Thrift Savings Plan 

We conducted this performance audit from July 2011 to June 2012 in 

accordance with generally accepted government auditing standards. 

Those standards require that we plan and perform the audit to obtain 

sufficient, appropriate evidence to provide a reasonable basis for our 

findings and conclusions based on our audit objectives. We believe that 

the evidence obtained provides a reasonable basis for our findings and 

conclusions based on our audit objectives.

FERSA created TSP to provide options for retirement planning and 

encourage personal retirement saving among the federal workforce. Most 

federal workers are allowed to participate in TSP, which is available to 

federal and postal employees, including members of Congress and 

congressional employees and members of the uniformed services, and 

members of the judicial branch. TSP is structured to allow eligible federal 

employees to contribute a fixed percentage of their annual base pay or a 

flat amount, subject to Internal Revenue Service limits, into an individual 

tax-deferred account. Additionally, Federal Employees’ Retirement 

System (FERS) participants are eligible for automatic 1-percent 

contributions and limited matching contributions from the employing 

federal agency. TSP provides federal (and in most cases, state) income 

tax deferral on contributions and their related earnings, similar to those 

offered by many private sector 401(k)-type pension plans.5

 

5

FERSA created FERS. As part of FERS, TSP is also part of the current three-part 

retirement system for federal employees, which includes Social Security benefits, the 

basic defined benefit (DB) plan, and TSP. The Office of Personnel Management trains 

retirement counselors about each part of the plan. Prior to FERS, most federal employees 

were covered by the Civil Service Retirement System. 

As is typical in 

defined contribution (DC) plans, TSP allows participants to manage their 

accounts and conduct a variety of transactions similar to those available 

to 401(k) participants, including reallocating contributions or account 

Background

The Thrift Savings Plan
 

Page 5 GAO-12-664 Thrift Savings Plan 

balances, borrowing from the account, making withdrawals, or purchasing 

annuities.6

Administration of TSP falls under the purview of the Board, an agency 

established by Congress under FERSA. The Board is composed of five 

members appointed by the President, with the advice and consent of the 

Senate. They are authorized to appoint the executive director who hires 

additional personnel, and ETAC—a 15-member council that provides 

advice to the Board and the executive director on the investment policies 

and administration of TSP.7 The Board is responsible for establishing 

policies for the investment and management of TSP, as well as

administration of the plan. The executive director and Board staff are 

responsible for implementing the Board’s policies and managing the dayto-day operations of TSP, prescribing regulations to administer FERSA, 

and other duties. The Board members and the executive director serve as 

plan fiduciaries.8 FERSA has other investment policy provisions, such as 

who can exercise voting rights associated with the ownership of stocks 

held by TSP.9

The Board has less discretion than private sector plan sponsors in setting 

investment policy because the investment options available to TSP 

participants are outlined in federal law, whereas private sector plan 

For example, the Board and the executive director may not 

exercise voting rights associated with the ownership of TSP securities.

 

6

Pension plans may be classified either as DB or as DC plans. DB plans promise to 

provide, generally, a fixed level of monthly retirement income for life that is typically 

determined by a formula based on particular factors specified by the plan, such as salary, 

years of service, or age at retirement regardless of how the plan’s investments perform. In 

contrast, benefits from DC plans will vary with the contributions to and the performance of 

the investments in individual accounts, which may fluctuate in value. 

7

5 U.S.C. § 8473.

8

Similar to fiduciaries in private pension plan under the Employee Retirement Income 

Security Act of 1974 (ERISA), TSP fiduciaries are the persons who have discretionary 

control or authority over the management or administration of the plan, including 

management of the plan’s assets. TSP fiduciaries are required to perform their 

responsibilities in the interest of participants and beneficiaries for the exclusive purpose of 

providing benefits to participants and their beneficiaries and defraying the reasonable 

expenses of administering the TSP. Other fiduciary responsibilities include the duty to act 

prudently and, to the extent permitted by law, to diversify the investment of the fund so as 

to minimize the risk of large losses, unless under the circumstances it is clearly prudent 

not to do so.

9

5 U.S.C. § 8438(f). 
 

Page 6 GAO-12-664 Thrift Savings Plan 

sponsors have greater discretion in choosing which investment options to 

offer participants.10

Table 1: Investment Requirements for Existing TSP Funds 

In addition, Congress must amend FERSA to approve 

a change in TSP investment options offered to participants. TSP’s 

authorizing statute specifies the number and types of funds available to 

participants, and requires that some of these funds track indexes, which 

are broad, diversified market indicators. The Board may select the 

particular indices for the funds to follow as well as review the investment 

options and suggest additional funds. The Board has developed 

investment policies for each TSP fund. These policies, which the Board 

reaffirms quarterly, provide the rationale for selecting the fund’s 

investments. Table 1 shows FERSA requirements and Board policies 

regarding each fund and its underlying index.

Fund FERSA investment requirements Board investment policies 

G Fund Treasury securities specially issued to TSP with a 

maturity determined by the executive director that 

provide the generally higher interest rates of securities 

with a term of at least 4 years [5 U.S.C. § 8438(a)(4)].

Short-term securities that mature in 1 to 4 days 

F Fund Fixed-income securities [5 U.S.C. § 8438(a)(3)]. An index including bonds and asset-backed securities to track 

the Barclay’s Capital U.S. Aggregate Bond Index.

C Fund A portfolio that tracks a broad index representing the 

U.S. stock market [5 U.S.C. § 8438(a)(1)].

An index of stocks of large to medium-sized companies to track 

the Standard & Poor’s 500 Index. 

S Fund A portfolio that tracks a broad index representing U.S. 

stocks not included in the C Fund [5 U.S.C. § 

8438(a)(3)(B)]. 

An index of stocks in small and medium-sized companies not 

represented in the Standard & Poor’s 500 Index to track the Dow 

Jones Total Stock Market Completion Index. 

I Fund A portfolio that tracks a broad index representing 

international stock markets outside of the United 

States [5 U.S.C. § 8438(a)(5)].

An index of the stock markets of the developed world outside of 

the United States and Canada to track the Morgan Stanley 

Capital International Europe, Australasia, and Far East Index. 

Source: GAO analysis of FERSA.

Members of Congress have introduced bills calling for new investment 

options to be added to TSP. In the past four sessions of Congress, a 

number of bills have been proposed to add investment options to TSP, 

including a corporate responsibility stock index fund, a precious metals 

investment fund, a real estate stock index fund, and a terror-free 

international investment option. In addition, Congress passed the Federal 

Retirement Reform Act of 2009, which among other things, authorized 

 

10GAO, Federal Retirement Thrift Investment Board: Many Responsibilities and 

Investment Policies Set by Congress, GAO-07-611 (Washington, D.C.: June 21, 2007).
 

Page 7 GAO-12-664 Thrift Savings Plan 

TSP to offer a service that would enable participants to invest in mutual 

funds outside TSP, if the Board determined that such a mutual fund 

window was in the best interests of participants.11 The law stipulated that 

the Board had to ensure that any expenses charged for use of the mutual 

fund window would be borne solely by the participants who used it. The 

Board has not implemented the mutual fund window. According to TSP 

officials, both the Board and ETAC were similarly split on whether to 

include a mutual fund window and the Board tabled the discussion of the 

mutual fund window to address more immediate issues, such as adding a 

Roth TSP option.12 They also noted that while TSP has not moved 

forward with adding a mutual fund window, it may at some future point.13

FERSA also requires the Board to defray reasonable expenses of 

administering TSP.14 TSP’s administrative expenses include management 

fees for each investment fund; the costs of operating and maintaining 

TSP’s recordkeeping system; the cost of providing participant services; 

and the printing and mailing of notices, statements, and publications.15

 

11Pub.L.No. 111-31, Div.B, §104, 123 Stat.1852, 1854 (codified at 5 U.S.C.§ 8438(b)(1)). 

These expenses are offset by (1) forfeitures of agency automatic (1 

percent) contributions made to employees who participated in the FERS 

12The Roth TSP, as authorized by the Thrift Savings Plan Enhancement Act of 2009 

(enacted June 22, 2009), allows federal civilian employees and members of the uniformed 

services to contribute after-tax dollars into the TSP for the first time. Both the contributions 

and their earnings will be tax-free when withdrawn, as long as IRS requirements are met. 

The Roth TSP option has been available to participants since May 2012.

13TSP’s 2008 participant survey found that 39 percent of respondents said TSP would be 

a better program if it provided a self-directed mutual fund window, 24 percent said they 

would transfer some of their TSP account balance, and 10 percent would be willing to pay 

$100 annual fee to use the window. In a 2009 memorandum to the Board, the TSP 

executive director recommended the addition of a mutual fund window as an appealing 

feature to participants who sought more specialized or sophisticated TSP investments. 

Moreover, the window would allow participants to invest in funds that better matched their 

individualized risk tolerance or particular interests, such as SRI funds. According to the 

Department of Labor, the Board would need to consider the application of FERSA’s 

fiduciary standards to the design and operation of such a mutual fund window.

145 U.S.C. § 8477(b)(1)(A)(ii). 

15According to the Department of Labor, the ERISA fiduciary standards governing 

investment decisions apply to an ERISA fiduciary’s selection of a “socially responsible” 

mutual fund as a designated investment alternative under a private-sector pension plan.
 

Page 8 GAO-12-664 Thrift Savings Plan 

but left federal service before becoming vested,16 (2) other forfeitures, 

and (3) loan fees. Because these amounts are not sufficient to cover all of 

TSP’s expenses, TSP participants share in the remainder of the costs. 

The cost to participants to invest in TSP is measured as an expense ratio 

of the total administrative expenses charged to a fund during a specific 

time period, divided by that fund’s average balance for that specific time 

period. In 2011, expenses charged to each TSP account were 

approximately 25 cents per each $1,000 of investment, or 2.5 basis 

points. TSP’s expense ratio typically falls below the average expense 

ratio of other 401(k) type plans.

SRI—investment made on the basis of environmental, social, and 

corporate governance (ESG) criteria—is a global phenomenon and is 

growing in popularity in the United States. In 2006, the United Nations 

issued Principles for Responsible Investment that maintained a belief that 

ESG issues can affect the performance of investment portfolios and 

therefore must be given appropriate consideration by investors if they are 

to fulfill their fiduciary duty.17

• incorporate ESG issues into investment analysis and decision-making 

processes,

By supporting the principles, institutional 

investors commit to better align investors with broader societal goals 

while acting in the best long-term interests of their beneficiaries. 

Specifically, signatories agreed to

• be active owners and incorporate ESG issues into their ownership 

policies and practices,

• seek appropriate disclosure on ESG issues by the entities in which 

they invest,

• promote acceptance and implementation of these principles within the 

investment industry to affect the performance of investment,

 

16Vesting means that the TSP provides that an employee’s right to a benefit is 

nonforfeitable upon the attainment of the required period of service under the law.

17For more information on these principles, see http://www.unpri.org, accessed May 24, 

2012.

Socially Responsible 

Investment
 

Page 9 GAO-12-664 Thrift Savings Plan 

• work together to enhance the effectiveness of the principles, and

• report on their activities and progress in implementing the principles.

In 2012, there were more than 1,000 asset owners, investment 

managers, and professional service partners that had committed to these 

principles worldwide—136 of them in the United States, according to the 

United Nations’ website.

According to a 2010 report by US SIF18

Figure 1: Cumulative Growth in the Number of U.S. Open-end SRI Mutual Funds, 1952 through 2011

—a leading SRI advocacy group—

U.S.-based, open-end mutual funds comprise the largest share of funds 

that incorporate ESG factors in the United States with holdings of more 

than $300 billion. Other investment vehicles that incorporate ESG factors 

include exchange traded funds, variable annuity products, and alternative 

investment funds. As shown in figure 1, the number of SRI mutual funds 

open to investors has grown steadily since 1990.

 

18US SIF was formerly known as the Social Investment Forum (SIF). US SIF is a U.S. 

membership association for professionals, firms, institutions, and organizations engaged 

in sustainable and responsible investing.
 

Page 10 GAO-12-664 Thrift Savings Plan 

According to US SIF, there are three principal components of SRI:

• Investment screening. Investment screening is a practice of 

evaluating investment portfolios or mutual funds based on ESG 

criteria. Screening may involve including only strong performers, 

avoiding poor performers, or otherwise incorporating ESG factors into 

the process of investment analysis and management. Some 

responsible investors may avoid investment in companies whose 

products and business practices are harmful to individuals, 

communities, or the environment. Others may apply SRI screens to 

invest in companies that are leaders in adopting clean technologies 

and exceptional social and governance practices.

• Shareholder advocacy. Shareholder advocacy involves engaging 

companies directly on issues of concern through shareholder 

resolutions or proxy voting. Shareholder advocacy frequently involves 

the filing of shareholder resolutions to improve business practices. 

The resolutions are then voted on by all owners of a corporation. For 

example, shareholders can use resolutions to urge a company to 

improve its sustainability practices, such as by reducing its carbon 

emissions, or by improving its supply chain to ensure that labor laws 

are fully enforced. Similarly, proxy voting is the primary means by 

which shareholders are able to direct company management to act in 

a socially responsible manner. As partial owners of companies, 

shareholders have the right to weigh in on important issues through 

the process of proxy voting.

• Community investing. Community investing directs capital from 

investors and lenders to communities that are underserved by 

traditional financial services institutions. Community investing 

provides access to credit, equity, capital, and basic banking products 

that these communities would otherwise lack.

According to experts, investors pursue SRI for a variety of reasons. Some 

investors may invest solely in accordance with their values without 

considering financial implications. Other investors may pursue SRI for 

purely financial motives and seek out well managed companies that take 

steps to manage their ESG risks in the belief that these companies will 

outperform their competitors in the long run. SRI mutual funds offer a 

broad range of investment screens, including negative screens, which 

exclude industry sectors associated with certain products or processes; 

restricted screens, which set a threshold for investment in companies 

associated with certain products or processes; and positive screens, 
 

Page 11 GAO-12-664 Thrift Savings Plan 

which include industry sectors associated with certain products, 

processes, or values, or invest in “best-in-class” companies that 

demonstrate the strongest record of incorporating ESG criteria into their 

business models. Figure 2 provides an overview of investment screens 

applied by current SRI mutual funds in the United States.
 

Page 12 GAO-12-664 Thrift Savings Plan 

Figure 2: Investment Screens Applied by SRI Mutual Funds
 

Page 13 GAO-12-664 Thrift Savings Plan 

Officials at TSP and the other public retirement plans that had considered 

adding an SRI option associated a number of common challenges with 

the implementation of SRI. While none of the plan officials that we 

contacted had plans that were identical to TSP in terms of its federal 

scope or participant demographics, many of them shared similar 

challenges and concerns with TSP.19

 

19We included responses from officials from three public DB plans who, like TSP officials, 

were responsible for managing plans with large asset holdings and large, diverse 

participant groups. Although the fiduciary role of these officials differed significantly from 

that of TSP officials in terms of their ability to pursue SRI, these officials identified other 

challenges that were similar to the challenges that TSP officials identified. 

As shown in figure 3, participant 

demand, SRI screening criteria, and costs were the most common 

challenges identified by public retirement plans.

Officials Identified 

Several Challenges to 

SRI Adoption and 

Said the Long-term 

Economic Benefits of 

SRI Were Unknown

Challenges
 

Page 14 GAO-12-664 Thrift Savings Plan 

Figure 3: Number of Public Retirement Plans Identifying Challenges Associated 

with SRI Adoption Similar to Ones Identified by TSP Officials

TSP and most other public plan officials we contacted identified low 

participant demand for SRI as a challenge to adopting SRI. TSP officials 

told us that based on the results of their participant surveys and the 

experiences of ETAC there was little demand for an SRI fund among TSP 

participants. Specifically, they noted that the results of periodic participant 

surveys have consistently indicated that there was no overwhelming 

demand for any new investment options, including an SRI option.20

 

20TSP’s 2006-2007 participant survey found that none of the additional investment options 

that participants were asked to rate, including a socially responsible fund, had a majority 

of respondents who were willing to add the funds if there would be additional costs 

associated with utilizing those funds.

In 

addition, ETAC members told us that they were unaware of demand for 

SRI among TSP participants. They said that they would respond if 

demand ever presented itself. While consultants and fund managers that 

we contacted reported a growing demand for SRI in the United States, 

public plan officials that we spoke with generally reported low participant 

interest in SRI adoption. Officials at several plans noted that continued 

pressure and repeated demands from small vocal groups of participants 

in support of SRI had been a principal driver in the plans’ decision to have 

an SRI option. However, officials at several of these plans said that, while 

Participant Demand
 

Page 15 GAO-12-664 Thrift Savings Plan 

the SRI option did attract a small percentage of participants, overall 

participation in the SRI funds ranged from less than 0.5 percent (in one 

plan with 20 investment options) to about 10 percent (in a plan that 

offered 9 investment options).21

TSP and most other public plan officials we contacted identified the 

difficulty of finding broadly acceptable SRI criteria as a distinct challenge to 

adopting SRI. According to TSP officials, different interpretations of what 

social criteria to apply to an SRI fund could lead to the need to develop 

multiple funds to satisfy participants. Officials also noted that it would be 

hard to reach agreement on what values an SRI fund should endorse. 

Moreover, officials at most of the other plans we contacted said that the 

lack of a common definition of SRI and the selection of SRI criteria was 

challenging. For example, officials at one plan noted that social issues were 

difficult to incorporate into an investment approach because, while some 

basic social issues, such as child labor, imprisonment, and forced slavery, 

were generally acceptable screens, reaching broad consensus on other 

issues, such as labor laws, workers’ rights, weapons, guns, and tobacco, 

was more difficult. An official at another plan noted that it was incumbent 

upon participants to tell them what social policy they wished to pursue. 

Officials at the plans we contacted that considered selection of screening 

criteria to be a challenge overcame this challenge by either using an off-the 

shelf SRI fund, or relying on the expertise and experience of the SRI fund 

managers, or educating participants on why fund managers selected the 

investments they did.

TSP and other public plan officials we contacted had varied opinions on 

the degree to which the costs associated with the creation and 

administration of an SRI index fund presented a challenge to adopting 

SRI. According to TSP officials, the costs to create a new index fund 

would be considerable. In addition, they said an SRI index fund would 

cost more because it requires additional screening and monitoring. Under 

TSP’s current cost structure, any costs associated with a new SRI index 

fund would be borne by all participants whether or not they chose to 

 

21This range of participation rates in SRI funds is not a reflection on SRI as a viable 

investment option. For example, plans with more than 10 investment options could have 

10 percent of participants investing in each option, including the SRI option. In contrast, 

plans like TSP with fewer investment options might consider a 10-percent SRI 

participation rate low when compared to the participation rates in the plan’s other 

investment options. 

Selection of SRI criteria

Costs
 

Page 16 GAO-12-664 Thrift Savings Plan 

invest in the SRI index fund.22

While TSP and some public plan officials we contacted asserted that their 

role as fiduciary was a challenge in that it precluded the adoption of SRI, 

officials at other public plans with an SRI option said there were no 

fiduciary concerns surrounding the inclusion of an SRI option in a DC plan. 

According to a 1990 memorandum sent from the TSP executive director to 

the Board, Congress considered and rejected the concept of social 

investment when creating TSP. The memorandum noted that the strict 

fiduciary provisions of the law, which require the Board to discharge its 

responsibilities solely in the interest of participants, excluded the possibility 

of social investing, and that any authorization outside the realm of interest 

of all participants would be inconsistent with the notion of employee 

ownership of TSP assets. Officials at all of the public plans that had not 

implemented an SRI option considered fiduciary issues a challenge to 

adopting SRI, while officials at other plans did not. For example, an official 

at one plan with an SRI option stated that fiduciary duty was not a 

challenge when adding an SRI fund to the investment options to a DC plan 

because participants have individual account ownership, are free to choose 

how they invest, and must assume responsibility for any risks associated 

with the underlying investments. One plan official noted that the fiduciary 

responsibility of a DC plan extends to exercising due diligence in the 

selection of a fund manager, providing appropriate participant 

communications about the fund, offering enough investment options, and 

acting in the best interest of the majority of participants.

Other public plan officials we contacted 

had varied opinions on the degree to which these costs presented a 

challenge. While there would be certain upfront costs associated with 

adding an SRI fund, which could include member communication and 

manager selection, officials at several plans said that adding a new fund 

to its existing portfolio would not adversely affect administrative costs. 

According to some investment managers we contacted, the key factors 

affecting cost of any fund are (1) its asset size—the larger the asset base, 

the better the economies of scale and the lower the overall cost ratio—

and (2) whether the fund’s investment strategy requires active 

management or passively tracking of a market index.

 

22According to TSP regulations, the amount of accrued administrative expenses not 

covered by forfeitures (agency contributions made to employees who leave federal service 

before vesting) and not directly attributable to an individual fund (such as fund 

management fees) are charged on a pro rata basis to all TSP funds, based on the 

respective fund balances on the last business day of the prior month end. 

Fiduciary Issues
 

Page 17 GAO-12-664 Thrift Savings Plan 

TSP and some public plan officials that we contacted asserted that 

investment decisions made on any basis other than the economic welfare 

of participants could present a challenge in that it would expose the plan 

to potential political interference. In its 2006 investment option review, a 

consulting firm hired by TSP eliminated SRI from consideration in part on 

the grounds that identifying screening criteria that all could agree to would 

be difficult to find and likely draw attention from opposing parties of 

interest.23

Officials at TSP and some other public plans identified SRI fund 

performance as a challenge to adopting an SRI fund. According to TSP 

officials, participants who allocated assets to an SRI fund instead of a 

standard fund that included all relevant companies would narrow the 

number of companies in which they were indirectly investing, thereby 

limiting their exposure to the performance of the broader, more diversified 

market. While officials at some public plans that we contacted believed 

that SRI funds had lower performance than other funds, other officials 

had mixed views on whether the performance of SRI funds was any more 

challenging than the performance of non-SRI funds. Officials at several 

plans, which had considered but not implemented SRI, cited SRI 

performance as a reason for not incorporating SRI in their plans. Officials 

at one plan said they would reconsider offering an SRI fund if it 

demonstrated better long-term performance than non-SRI funds. 

According to the 1990 memorandum from the TSP executive 

director, the laws that established the current TSP funds prevent the 

political manipulation of TSP funds, and officials told us that TSP has 

taken steps in the past to avoid political interference. Officials at the 

public plans we contacted had different views on the extent to which 

political interference was a challenge. For example, officials at some 

public plans that did not implement SRI identified political interference as 

one of the reasons they chose not to do so. On the other hand, officials at 

other public plans that had implemented SRI said that political 

interference was not a challenge. For example, officials at one public plan 

noted that the state’s legislative mandate to maximize returns and 

improve levels of risk prevented political interference. An official at 

another public plan that adopted SRI told us that although they had 

anticipated political interference by state officials following their decision 

to divest from alcohol or tobacco companies, it had not materialized.

 

23See “Investment Option Review for the Federal Thrift Savings Plan,” Ennis Knupp and 

Associates, Oct. 2006. The report is accessible on the Board’s website:

http://www.frtib.gov/FOIA/index.html, accessed June 15, 2012.

Concerns about Political 

Interference 

SRI Performance
 

Page 18 GAO-12-664 Thrift Savings Plan 

However, officials at several other plans that implemented SRI told us 

that the SRI fund produced comparable and sometimes better returns 

than other funds in their portfolio. Officials at one plan said the plan would 

terminate its working relationship with an external fund manager if its SRI 

investments did not perform as well as other funds.

While TSP officials considered the lack of peer implementation of SRI as 

a challenge to adopting an SRI fund, officials at other public plans we 

contacted said that it was not a challenge. As part of its investment 

options review in 2006, a consulting firm advised TSP that SRI funds 

were not a common practice among TSP’s peers and identified this 

criterion as a reason for eliminating SRI from further consideration. 

According to TSP officials, the fact that similar plans had not adopted SRI 

was a challenge in that TSP had no precedent to follow. We found a 

number plans similar in asset size and membership to TSP that applied 

SRI principles through investment screening. Officials at several plans we 

contacted said that peer implementation of SRI did not factor in their 

decision to incorporate SRI into their investment strategy.

Officials at most of the public plans we contacted had no restrictions 

regarding investment overlap between funds and thus did not view such 

overlap as a challenge to adopting SRI. According to TSP officials, the 

Board is permitted to suggest legislation to address any gaps in 

investment options as long as there is no evident overlap. In the past, for 

example, TSP proposed legislation authorizing the addition of the S Fund 

and the I Fund to provide participants with options for greater 

diversification of investments in the small capitalization and international 

markets. According to TSP officials, each of the current funds tracks 

different companies in different segments of the overall financial market 

without overlap, helping to reduce the risk of incurring large losses on a 

broader portfolio. Officials at other public plans, which did not face the 

same restrictions as TSP, said that overlap was not a consideration, and 

that certain amount of overlap with existing investments was both 

expected and accepted. Some officials noted that the purpose of SRI was 

to select companies that met certain criteria and provided an alternative 

investment choice.

Officials at some of the nine public plans we contacted that offered an 

SRI option cited some short-term benefits associated with SRI but said 

that the long-term benefits were unknown. For example, officials at 

several plans noted that the greatest benefit of having an SRI option is 

giving participants broader investment choice and an opportunity to make 

Peer Practice

Investment Overlap

Benefits
 

Page 19 GAO-12-664 Thrift Savings Plan 

a statement in the way they invest. Officials at other plans said that 

having an SRI option could serve as a recruiting tool for the plan in that it 

encouraged more eligible employees to join the plan. Regarding the longterm benefits of SRI, officials at two of the public plans stated that it was 

still too early to judge the benefit of SRI. As one plan official noted, 

responsible investment involves making investment decisions that are 

important to the long-term value and profitability of a company over time.

When compared to the past performance of the TSP stock portfolio (the 

C, S, and I Funds), the addition of a hypothetical SRI index fund tracking 

the best-performing U.S.-based SRI stock index would not have both 

increased returns and lowered volatility in any allocation scenario we 

tested. Specifically, over the last 20 years, if TSP had included such an 

SRI index fund (SRI Fund) in its existing stock portfolio,24 it could have 

resulted in (1) lower returns and lower volatility, (2) lower returns and 

higher volatility, or (3) higher returns and higher volatility, based on our 

analysis of evenly distributed portfolio allocations containing the SRI Fund 

against the TSP stock portfolio alone (a C, S, and I Funds combination).25

For example, as shown in figure 4, adding the SRI Fund to the existing 

TSP stock funds (an SRI, C, S, and I Funds combination) would have 

resulted in lower returns and lower volatility; substituting the SRI Fund for 

the C Fund (an SRI, S, and I Funds combination) would have resulted in 

lower returns and higher volatility; and substituting the SRI Fund for the I 

Fund (an SRI, C, and S Funds combination) would have resulted in 

higher returns and higher volatility.26

 

24TSP’s stock portfolio includes TSP’s three stock index funds—C fund, S fund, and I 

fund. We did not include a similar analysis of bond funds because no U.S.-based SRI 

bond indices exist.

Because this analysis is strictly 

based on past performance, this result does not guarantee or imply that 

25For example, four-way combinations allocate 25 percent to each fund and three-way 

combinations allocate 33 percent to each fund. Portfolios were rebalanced annually to 

maintain even distributions. In this section, returns are measured by the compound rate of 

return and volatility is measured by standard deviation of annual returns. Standard 

deviation is a statistical measure of the range of a fund’s performance. When a fund has a 

high standard deviation, its range of performance has been very wide, indicating that there 

is a greater potential for volatility. 

26For more information on the annual compound rates of return and standard deviation of 

these funds, see appendix II.

Adding an SRI Index 

Fund Would Not Have 

Improved Past TSP 

Portfolio Performance 

in Most Allocation 

Scenarios
 

Page 20 GAO-12-664 Thrift Savings Plan 

the addition of an SRI index would have the same effect on future TSP 

stock fund portfolio performance.

Figure 4: Effect of Adding a Hypothetical TSP SRI Index Fund on Past TSP Stock Portfolio Performance, 1992 to 2011
 

Page 21 GAO-12-664 Thrift Savings Plan 

Notes 

1. We used a time-weighted basis for our analysis and rebalanced portfolios annually to maintain the 

evenly distributed allocations. A time-weighted basis gives equal weight to each unit of time; thus, the 

annual rate of return in 1992 gets just as much weight in the analysis as the annual rate of return in 

2011. We used a time-weighted analysis in order to focus on investment performance itself, rather 

than on the particular economic consequences in the time period under study. For a TSP participant, 

the overall compound rate of return would be affected by interim cash flow into and out of the plan. 

For example, for a TSP participant who made regular contributions to the plan during the 1992 to 

2011 period, the overall rate of return would be more influenced by particular performance in the later 

years, when more contributions are at stake, than in the earlier years. 

2. In this figure, returns represent annualized compound return (i.e., geometric average annual 

return), while volatility represents standard deviation of annual return. 

Overall, portfolio performance is directly tied to the individual fund 

performance, which varied by time period. A comparison of the underlying 

indices of these four funds shows that, while the SRI Fund had higher 

cumulative returns than the I Fund over the last 20 years, it had lower 

cumulative returns than all three of the TSP funds over the last 10 years. 

Figure 5 shows the funds’ annual and cumulative returns and highlights 

their performance during market cycles.
 

Page 22 GAO-12-664 Thrift Savings Plan 

Figure 5: Annual and Cumulative Returns of the Indices Underlying the C, S, I, and SRI Funds, 1992 to 2011

The managers of the SRI index explained the difference in the index’s 

performance over the last 20 years in comparison with the Standard & 

Poor’s 500 Index (the C Fund index) was a result of having different 

sector weightings than the overall market to align with the fund’s SRI 

strategy. For example, they told us that, in the late 1990s, the index was 

relatively overweighted in technology, consumer, and finance stocks and 

underweighted in energy and utilities, resulting in higher performance in 

the “dot com” boom of the late 1990s and lower performance in the 2001 

recession. Moreover, the SRI index also excludes companies involved in 

the production of military weapons, which may have contributed to lower

returns over the past decade while the country has been at war.
 

Page 23 GAO-12-664 Thrift Savings Plan 

In addition to providing less return overall than the C Fund over the 20-

year period, the inclusion of this SRI Fund would have resulted in overlap 

with the C Fund and not have provided a substantial opportunity for 

additional portfolio diversification.27 By law, holdings in TSP stock funds 

may not overlap. Fifty-seven percent of the companies included in the 

SRI Fund index, which includes large, mid, and small capitalization 

stocks, overlap with companies included in the C Fund index.28 In part, as 

a result of this overlap, the SRI Fund and the C Fund are highly 

correlated in their returns, and thus adding this SRI Fund would not 

provide a substantial opportunity for additional portfolio diversification. 

Portfolio diversification aims to reduce risk by investing in various 

financial instruments and markets so that market events will not affect all 

assets in the same way. Diversification opportunities exist if investments 

have independent price movement, and therefore, independent returns. 

The price movement between these two funds over the last 20 years was 

1.94 percent independent, suggesting that the same external causes 

affected their returns to nearly the same degree.29 By contrast, over the 

same time period, the independence in price movement between the S 

Fund and C Fund was 17.27 percent, and between the I Fund and C 

Fund was 42.19 percent.

 

27Investors may pursue SRI for reasons other than portfolio diversification, including 

directing their retirement savings to socially responsible companies.

28Other SRI indices may have had more or less overlap with the C Fund index.

29Price movements between two funds can be between 0 and 100 percent independent. 

The independence of price movements is measured by 100 percent independence of 

price movements less the common variance. The common variance is a statistical 

measure that measures independence of price movements, and is the square of the 

correlation coefficient. The correlation coefficient of the two funds was 0.99 over this time 

period. Correlation coefficient is a statistical measure that falls between -1.0 and +1.0. A 

coefficient of +1.0 means that the two indices move in the same direction at the same time 

in the same (relative) amounts. 
 

Page 24 GAO-12-664 Thrift Savings Plan 

Looking more broadly at SRI mutual funds, the most common form of SRI 

in the United States, we found that the comparative performance of SRI 

and non-SRI mutual funds over the last 15 years varied by asset class. 

While TSP participants cannot currently invest in mutual funds through 

TSP, the Board is authorized to offer a mutual fund window if it 

determines that it is in the best interests of participants. Specifically, our 

analysis of institutional-grade mutual funds30 over the last 5, 10, and 15 

years (dating back from December 2011) found that SRI bond mutual 

funds had better risk-adjusted performance than their non-SRI 

counterparts. In contrast, SRI stock funds and SRI balanced funds—

which hold bonds and stocks—had worse risk-adjusted performance than 

their non-SRI counterparts over these time periods.31

 

30Morningstar identified three share classes of mutual funds—institutional, front-load and 

no-load—as the most common share classes used by institutional investors. We refer to 

these three share classes together as institutional grade mutual funds. We did not analyze 

other forms of SRI funds such as variable annuities and exchange traded funds. Hence, 

the results of our analysis are not generalizable to non-institutional grade mutual funds or 

to other forms of SRI. We included three asset classes of mutual funds in our analysis, 

stocks, bonds, and balanced. Stock funds invest in stocks, bond funds invest in bonds, 

and balanced funds invest in a combination of stocks and bonds. Looking at institutional 

grade share classes of mutual funds, we identified: (1) 21 SRI bond mutual funds, 118 SRI 

stock mutual funds, and 30 SRI balanced mutual funds, and (2) 2,403 non-SRI bond 

mutual funds, 3,579 non-SRI stock mutual funds, and 1,366 non-SRI balanced mutual 

funds active as of December 2011.

Because this 

analysis is strictly based on past performance, these results do not 

31In this section, risk-adjusted returns are measured by Sharpe and Sortino ratios. Sharpe 

ratio is calculated by using standard deviation and excess return to determine reward per 

unit of risk. The higher the Sharpe ratio is, the better the fund’s historical risk-adjusted 

performance. The Sortino ratio differentiates harmful volatility from volatility in general by 

using a value for downside deviation. The Sortino ratio is the excess return over the riskfree rate divided by the downside semi-variance. For additional details on performance by 

asset class, see appendix III.

SRI Mutual Fund 

Performance Varied 

by Asset Class, but 

Had Similar Costs to 

Non-SRI Mutual 

Funds

After Controlling for Fund 

Size and Strategy, SRI 

Bond Mutual Funds and 

SRI Stock Mutual Funds 

Outperformed Their NonSRI Counterparts
 

Page 25 GAO-12-664 Thrift Savings Plan 

guarantee or imply that these asset classes would perform similarly in the 

future.

After controlling for fund size and investment strategies (other than SRI 

approaches), we found that the performance gap between the SRI and 

non-SRI mutual funds narrowed significantly for stock funds but not for 

balanced funds. Moreover, our regression estimates showed that SRI 

stock mutual funds performed better than their non-SRI stock 

counterparts in the 5- and 15-year timeframes, after controlling for 

differences in asset size, share class, and investment strategies.32 (See 

appendix I for additional information on the regression analyses.)

In fiscal year 2010, the costs of SRI institutional grade mutual funds were 

similar to their non-SRI counterparts. It is important to note that our cost 

analysis included only the most recent year of data available (fiscal year 

2010) for three share classes of institutional grade mutual funds, and it 

did not look at all SRI product types such as variable annuities or 

exchange traded funds, which may have had higher costs.33 In addition, 

fiscal year 2010 cost data are not indicative of past or future costs. As 

shown in figure 7, there was considerable overlap in the costs associated 

with these funds, as measured by their annual net expense ratio—the 

actual percentage of assets deducted each fiscal year for fund 

expenses.34

 

32We ran regressions to control for fund size, share class, and investment strategy other 

than SRI approaches. The investment strategy control variables were whether a fund is 

actively managed or passively tracks an index, the broad investment category of a fund 

based on portfolio statistics and composition (e.g., natural resources, real estate, or 

financial), the more narrowly defined institutional investment category of a fund based on 

portfolio statistics and composition (e.g., materials, domestic energy, or technology), and 

the market capitalization and type of stock (value, blend, and growth). 

33We ran cost regressions to control for fund size, share class, and investment strategy 

other than SRI approaches. 

34According to Morningstar, the annual net expense ratio reflects the actual fees charged 

during a particular fiscal year. The expense ratio is expressed as the percentage of assets 

deducted each fiscal year for fund expenses.

SRI and Non-SRI Mutual 

Funds Had Similar Costs
 

Page 26 GAO-12-664 Thrift Savings Plan 

Figure 6: Comparison of Annual Net Expense Ratios of SRI and Non-SRI Mutual Funds

a

The non-SRI maximum annual net expense ratio was 7.93 percent

While non-SRI mutual funds had a broader range of costs than SRI mutual 

funds, the vast majority of SRI and non-SRI funds reported expense ratios 

from 0.12 to 1.81 percent. On average, the reported expense ratios for SRI 

mutual funds were 0.2 percentage points higher than non-SRI mutual 

funds.35 When asset size and investment strategy were taken into account, 

SRI mutual fund cost ratios were estimated to be only 0.06 percentage 

points higher than non-SRI mutual fund cost ratios.36 For additional details 

on our regression analysis on cost ratios, see appendix I.

Adoption of an SRI index fund would present challenges for TSP. 

Currently, the law limits the types of funds that TSP can offer, prohibits 

overlap among existing funds, and charges TSP to keep its costs low. 

First, TSP would have difficulty finding an SRI index fund that did not 

overlap with the existing TSP funds, limiting opportunities for additional 

portfolio diversification. However, officials at other DC plans, which do not 

face the same restrictions as TSP, said that a certain amount of overlap 

with SRI and other investment options was acceptable and the purpose of 

SRI was to provide an alternative investment choice. Second, TSP would 

have difficulty selecting SRI screening criteria that all participants and the 

 

35In fiscal year 2010, SRI mutual funds had an average net-expense ratio of 1.08 percent 

and non-SRI mutual had an average net-expense ratio of 0.88 percent.

36We ran cost regressions to control for fund size, share class, and investment strategy 

other than SRI approaches. 

Concluding 

Observations
 

Page 27 GAO-12-664 Thrift Savings Plan 

Congress would find acceptable. While challenging, a number of plans 

have a long history of SRI in their plans. Finally, under TSP’s current 

structure, the costs of adding a new fund would be distributed among all 

participants regardless of whether they participated in that fund. We note 

that the Board has the authority to open a mutual fund window for 

participants to invest in mutual funds managed outside TSP. If the Board 

decides to act on this authority and allow the mutual fund window, 

participants seeking other forms of investment, including SRI, could invest 

in mutual funds and would bear the costs associated with this investment.

We provided a copy of this draft report to the Federal Retirement Thrift 

Investment Board, the Department of Labor, and the Department of the 

Treasury for review and comment. None of the agencies provided formal 

comments. The Department of Labor provided technical comments, which 

we incorporated in the report, as appropriate.

As agreed with your office, unless you publicly announce its contents 

earlier, we plan no further distribution of this report until 30 days from its 

issue date. At that time, we will send copies of this report to relevant 

congressional committees and other interested parties. In addition, this 

report will be available at no charge on GAO’s website at 

http://www.gao.gov. 

If you or your staff have any questions about this report, please contact 

me at (202) 512-7215 or jeszeckc@gao.gov. Contact points for our 

Offices of Congressional Relations and Public Affairs may be found on 

the last page of this report. GAO staff making key contributions to this 

report is listed in appendix IV.

Sincerely yours,

Charles A. Jeszeck

Director

Education, Workforce, 

and Income Security Issues

Agency Comments
Appendix I: Objectives, Scope, and 

Methodology

Page 28 GAO-12-664 Thrift Savings Plan 

To determine the challenges associated with socially responsible 

investment (SRI), we reviewed relevant federal laws, regulations, and 

literature. For example, we reviewed the Federal Employees’ Retirement 

System Act of 1986, the Federal Retirement Reform Act of 2009, and the 

2006 United Nations’ Principles for Responsible Investment. We also 

interviewed officials from the Thrift Savings Plan (TSP), the Employee Thrift 

Advisory Council, investment management and consultant firms, and 15 

selected public pension plans. Our nonrepresentative sample of pension 

plans included 9 domestic defined contribution (DC) and defined benefit 

(DB) plans that incorporated SRI, and 6 plans that considered but did not 

adopt an SRI component. To identify our sample, we contacted plans that 

were signatories of the United Nations’ Principles for Responsible 

Investment and employed a snowball sampling technique based on 

recommendations of interviewees. We analyzed interview responses of 

pension plan officials and other SRI experts on the challenges and benefits 

associated with SRI, and how these experiences might affect TSP.

To determine how the addition of an SRI index fund to a TSP stock portfolio 

would have affected past TSP stock portfolio performance, we identified the 

best performing U.S.-based SRI index and assessed its potential impact on 

the TSP stock portfolio based on historical performance data of the three 

TSP stock fund underlying indices.1 To identify the best performing U.S.-

based SRI stock index (SRI Fund) we (1) identified all U.S.-based SRI stock 

indices with at least a 10-year history, and (2) selected the index with the 

best 10-year Sharpe ratio (dating back from December 2011).2

 

1

The Common Stock Index Investment Fund (C Fund) is indexed to the Standard & Poor’s 

500 Index. The Small Capitalization Stock Index Investment Fund (S Fund) is indexed to 

the Dow Jones U.S. Completion Total Stock Market Index. The International Stock Index 

Investment Fund (I Fund) is indexed to the Morgan Stanley Capital International Europe, 

Australasia, and Far East Index. 

To determine 

how the SRI Fund would have affected TSP stock portfolio performance from 

1992 to 2011, we analyzed monthly total return data for the SRI Fund and 

the underlying indices of the three TSP stock funds provided by Morningstar, 

Inc.—a leading independent financial market research firm. We used these 

data to analyze changes in annual returns and volatility, in a manner similar 

to past analysis conducted by TSP when considering whether to add funds 

2

We selected the best performing SRI stock index from the five U.S.-based SRI stock 

indices with at least a 10-year history that were active as of December 2011. Sharpe ratio 

is calculated by using standard deviation and excess return to determine reward per unit 

of risk. As such, the higher the Sharpe ratio, the better the fund’s historical risk-adjusted 

performance. 

Appendix I: Objectives, Scope, and 

Methodology 
Appendix I: Objectives, Scope, and 

Methodology

Page 29 GAO-12-664 Thrift Savings Plan 

to the TSP portfolio. An important element of any performance statistic is the 

unit of time measurement. Our analysis measures returns on an annual 

basis, and measures risk based on the variation in year-to-year returns. 

Using a different unit of time, such as a month or even a multi-year period, 

could give a different picture of the risk/reward tradeoff. We calculated the 

compound rates of return and standard deviation3

• a four-way combination (25 percent, 25 percent, 25 percent, and 25 

percent) of the SRI Fund and the three TSP stock funds indices,

based on annual rates of 

return from 1992 to 2011 for an annually rebalanced, evenly distributed 

portfolio of the three existing TSP stock fund indices (a distribution of 33 

percent, 33 percent, and 33 percent). We then calculated the change in 

compound rates of return and standard deviation of annual returns for the 

following evenly distributed portfolios:

• all of the three-way combinations (33 percent, 33 percent, and 33 

percent) of the SRI Fund with two of the TSP stock fund indices,

• all two-way combinations (50 percent and 50 percent) of the SRI Fund 

with one of the TSP stock fund indices, and

• the SRI Fund alone (100 percent).

Another decision in any performance assessment is whether to do the 

analysis on a time-weighted or a dollar-weighted basis. A time-weighted 

basis gives equal weight to each unit of time; thus, the annual rate of 

return in 1992 gets just as much weight in the analysis as the annual rate 

of return in 2011. A dollar-weighted basis gives greater weight to the 

periods when more money is at stake. For example, for a TSP participant 

who made regular contributions to the plan during the 1992 to 2011 

period, the overall rate of return would be more influenced by particular 

performance in the later years, when more contributions are at stake, 

than in the earlier years. We used a time-weighted basis for our analysis, 

in order to focus on investment performance itself, rather than on the 

particular economic consequences in the time period under study.

 

3

Specifically, we calculated annualized compound return (i.e., geometric average annual 

return) and standard deviation of annual return. Standard deviation is a statistical measure 

of the range of a fund’s performance. When a fund has a high standard deviation, its 

range of performance has been very wide, indicating that there is a greater potential for 

volatility.
Appendix I: Objectives, Scope, and 

Methodology

Page 30 GAO-12-664 Thrift Savings Plan 

To further assess the performance of the SRI Fund, we compared annual 

rates of return and compound cumulative rates of return for the three TSP 

stock fund indices over various time periods. Specifically, we reviewed 

performance over the 20-year period (1992 to 2011), the 10-year period 

(2002 to 2011), and periods of market weakness. Because this analysis is 

strictly based on past performance, this result does not guarantee or 

imply that the addition of an SRI index would have the same effect on 

future TSP stock fund portfolio performance. In addition, we analyzed the 

overlap of holdings of the SRI Fund and the C Fund as of April 2012. To 

analyze the diversification potential of the SRI Fund for the TSP stock 

portfolio, we analyzed the correlation coefficient, common variance, and 

independence of price movement between the SRI Fund and the C Fund 

over the last 20 years.4

To determine how the performance and cost of SRI mutual funds compare 

with those of non-SRI mutual funds, we compared performance over the 

past 15 years (1997 to 2011)— the longest time period for which data were 

available—and costs as of fiscal year 2010 provided by Morningstar. To 

identify the universe of SRI mutual funds, we included mutual funds from 

Morningstar considered to be SRI mutual funds based on ethical screen 

employed and data on SRI mutual funds maintained by US SIF.5

 

4

Correlation coefficient is a statistical measure that falls between -1.0 and +1.0. A 

coefficient of +1.0 means that the two indices move in the same direction at the same time 

in the same (relative) amounts. The independence of price movements is measured by 

100 percent independence of price movements less the common variance. The common 

variance is a statistical measure that measures independence of price movements, and is 

the square of the correlation coefficient.

To 

analyze performance and cost of SRI and non-SRI mutual funds active as 

of December 2011, we focused our analysis exclusively on three 

institutional grade share classes—institutional, front-load and no-load—of 

U.S. domiciled open-end mutual funds, which experts identified as the most 

common form of SRI funds. We did not examine other forms of SRI, such 

as exchange traded funds, hedge funds, or variable annuities. Because this 

analysis is strictly based on past performance, these results do not 

guarantee or imply that these asset classes would perform similarly in the 

future. Performance statistics include measures of risk-adjusted returns 

over 5-, 10-, and 15-year time periods dating back from December 2011. 

5

US SIF was formerly the Social Investment Forum (SIF). US SIF is a U.S. membership 

association for professionals, firms, institutions and organizations engaged in sustainable 

and responsible investing.
Appendix I: Objectives, Scope, and 

Methodology

Page 31 GAO-12-664 Thrift Savings Plan 

Some mutual funds had more recent inception dates, thus limiting the 

number of funds in longer-term performance comparisons. Risk-adjusted 

return statistics include the Sharpe and Sortino ratios. Cost measures 

include fiscal year 2010 annual report net-expense ratios.6

To investigate why SRI and non-SRI mutual funds differed in 

performance, we ran regressions with and without controls for fund size, 

share class, and investment strategy not inherently related to SRI. We 

used the risk-adjusted performance measures, Sharpe and Sortino ratios, 

as the dependent variables. Table 2 summarizes the results of 24 

regressions for U.S. stock funds. The numbers in the columns labeled 

“Outcome Variable 1” and “Outcome Variable 2” are coefficient estimates 

on a flag indicating that a fund was non-SRI.7

Table 2: Regression Coefficients on Non-SRI Indicator: U.S. Stock Funds, 

Institutional, Front-load, and No-load Share Classes

Time frame and control 

variables

Outcome 

variable 1, 

Sharpe ratio

Outcome 

variable 2, 

Sortino ratio

Average 

percentage 

change in 

non-SRI 

coefficient 

with controls

5-year, without control variables 0.014 0.017 

with fund size 0.001 -0.001 -100%

with strategy categories 0.009 0.010 -37

with all controls -0.004 -0.008 -139

10-year, without control 

variables

0.077 0.110 

with fund size 0.054 0.077 -30

with strategy categories 0.044 0.061 -44

with all controls 0.02 0.027 -75

15-year, without control 

variables

0.026 0.037 

 

6

Annual report expense ratios reflect the actual fees charged during a particular fiscal 

year. The expense ratio expresses the percentage of assets deducted each fiscal year for 

fund expenses.

7

We do not report standard errors of estimates here because our results are based on the 

universe of mutual funds that fit our criteria, rather than a sample. Thus standard errors 

are not applicable. 
Appendix I: Objectives, Scope, and 

Methodology

Page 32 GAO-12-664 Thrift Savings Plan 

Time frame and control 

variables

Outcome 

variable 1, 

Sharpe ratio

Outcome 

variable 2, 

Sortino ratio

Average 

percentage 

change in 

non-SRI 

coefficient 

with controls

with fund size 0.002 0.002 -95

with strategy categories 0.009 0.011 -68

with all controls -0.015 -0.024 -161

Average change in coefficient across all time periods with inclusion of 

fund size categories

-75

Average change in coefficient across all time periods with inclusion of 

fund strategy control variables

-50

Average change in coefficient across all time periods with inclusion of 

full set of controls

-125

Source: GAO analysis of data received from Morningstar, Inc.

As shown above, the Sharpe ratio served as the outcome variable for the 

first set of regressions (second column of the table). The Sortino ratio 

served as the outcome variable for the second set of regressions (third 

column of the table). The last column shows the average impact on the 

non-SRI flag coefficient of inclusion of the control variables for the row. For 

each outcome variable, inclusion of the control variables generally reduced 

the estimated performance premium of non-SRI funds versus SRI funds. 

The fund size and strategy variable sets both had substantial impacts on 

the estimated difference in SRI and non-SRI fund performance.

The rows of the table show regression results for the 5-, 10-, and 15-year 

time frames. The rows indicating no control variables included only the 

non-SRI flag. The rows indicating “with fund size” included fund size, 

along with the SRI variable as explanatory variables.8

 

8

The size intervals were determined using an SPSS Decision Tree algorithm. The algorithm 

found six size categories which differed significantly from each other in the ratio of SRI to 

non-SRI funds. Breaking fund size into categories allowed including funds without fund size 

data in the analysis, because the missing data were grouped into a category. 

The row indicating 

“with strategy categories” include controls for whether a fund is actively 

managed or passively tracks an index, the broad investment category of a 

fund based on portfolio statistics and composition (e.g., natural resources, 

real estate, or financial), the more narrowly defined institutional 

investment category of a fund based on portfolio statistics and 
Appendix I: Objectives, Scope, and 

Methodology

Page 33 GAO-12-664 Thrift Savings Plan 

composition (e.g., materials, domestic energy, technology, or utilities), 

and the market capitalization and type of stock (value, blend, and growth). 

The row indicating “with all controls” provides results for regressions with 

share class as an explanatory variable in addition to the fund size and 

strategy variables.9

Table 3 shows results from 24 regressions for balanced funds. The 

methodology for these regressions was the same as that used for the 

regressions in table 2. Accounting for covariates did not have a consistent 

impact on the estimated difference in performance between SRI and nonSRI funds for these funds, with the addition of control variables to the 

regressions sometimes increasing the estimated difference in 

performance and sometimes decreasing it.

Table 3: Regression Coefficients on Non-SRI Indicator: U.S. Balanced Funds, 

Institutional, Front-load, and No-load Share Classes

Time frame and control 

variables

Outcome 

variable 1

Sharpe ratio

Outcome 

variable 2

Sortino ratio

Average 

percentage 

change in nonSRI coefficient 

with controls

5-year, without control variables 0.057 0.082 

with fund size 0.040 0.060 -28%

with strategy categories 0.078 0.112 37

with all controls 0.063 0.09 10

10-year, without control variables 0.164 0.241

with fund size 0.130 0.191 -21

with strategy categories 0.148 0.217 -1 

with all controls 0.125 0.185 -23

15-year, without control variables 0.111 0.166 

with fund size 0.056 0.083 -50

with strategy categories 0.094 0.139 -16

with all controls 0.063 0.093 -43

Average change in coefficient across all time periods with inclusion of 

fund size categories 

-33

 

9

We did not include standard deviation as an explanatory variable in the regressions 

because volatility is accounted for in the risk-adjusted performance measures. 
Appendix I: Objectives, Scope, and 

Methodology

Page 34 GAO-12-664 Thrift Savings Plan 

Time frame and control 

variables

Outcome 

variable 1

Sharpe ratio

Outcome 

variable 2

Sortino ratio

Average 

percentage 

change in nonSRI coefficient 

with controls

Average change in coefficient across all time periods with inclusion of 

fund strategy control variables

4 

Average change in coefficient across all time periods with inclusion of 

full set of controls

-19

Source: GAO analysis of data received from Morningstar, Inc.

Table 4 shows results for 24 regressions for bond funds. The 

methodology for these regressions was the same as that used for the 

regressions in table 2 except that one field (equity style box) was not 

included as an explanatory variable because it was not populated for 90 

percent of these funds. Accounting for covariates generally decreased the 

estimated difference in performance between the SRI and non-SRI funds.

Table 4: Regression Coefficients on Non-SRI Indicator: U.S. Bond Funds, 

Institutional, Front-load, and No-load Share Classes

Time frame and control 

variables

Outcome 

variable 1

Sharpe ratio

Outcome 

variable 2

Sortino ratio

Average 

percentage 

change in nonSRI coefficient 

with controls

5-year, without control variables -0.264 -0.452 

with fund size -0.277 -0.486 -6%

with strategy categories -0.028 0.055 101

with all controls -0.028 0.037 99

10-year, without control variables -0.154 -0.222

with fund size -0.159 -0.235 -5 

with strategy categories -0.006 0.047 109

with all controls -0.005 0.045 109

15-year, without control variables -0.252 -0.380 

with fund size -0.250 -0.375 1 

with strategy categories -0.071 -0.085 75

with all controls -0.065 -0.072 78

Average change in coefficient 

across all time periods with 

inclusion of fund size variables

-3 
Appendix I: Objectives, Scope, and 

Methodology

Page 35 GAO-12-664 Thrift Savings Plan 

Time frame and control 

variables

Outcome 

variable 1

Sharpe ratio

Outcome 

variable 2

Sortino ratio

Average 

percentage 

change in nonSRI coefficient 

with controls

Average change in coefficient 

across all time periods with 

inclusion of fund strategy control 

variables

95

Average change in coefficient 

across all time periods with 

inclusion of full set of controls

95

Source: GAO analysis of data received from Morningstar, Inc.

To investigate disparities between SRI and non-SRI mutual fund costs, 

we ran regressions that controlled for fund size, share class, and 

investment strategy. The coefficient for a flag indicating SRI status is 

reported for four regressions in table 5. The regression reported in the 

third column used fund size categories along with the SRI variable as 

explanatory variables. The strategy variables used in the regressions 

reported in the fourth and fifth columns were the same as those used for 

the performance regressions reported above. Once the fund size and 

investment strategy variables are taken into account, the estimated 

difference in cost between SRI and non-SRI funds falls to 0.06 percent.

Table 5: Coefficient on SRI Indicator in Regression with Annual Report Net Expense 

Ratio as Dependent Variable With and Without Control Variables

Control variables

No control 

variables

Fund size 

categories

Strategy 

variables

Strategy share 

class, and fund 

size categories

Estimated percentage 

point difference in cost 

between SRI and nonSRI mutual funds

0.20 0.15 0.12 0.06

Source: GAO analysis of mutual fund annual report net-expense ratio data received from Morningstar Inc.

We assessed the reliability of the quantitative data used in this engagement 

provided by Morningstar by reviewing related documentation, interviewing 

knowledgeable officials, reviewing related internal controls, comparing to 

published data, and tracing a selection of data to source documentation. 

Based on this evaluation, we determined these data were reliable for the 

purposes of this report. We supplemented our quantitative analysis with 

qualitative data obtained from our interviews.
Appendix II: Variation of Annual Compound 

Rates of Return and Standard Deviation among 

Evenly Distributed Allocations of the Best 

Performing SRI Stock Index and Existing TSP 

Stock Index Funds, 1992 through 2011

Page 36 GAO-12-664 Thrift Savings Plan 

Allocations

Change in compound rate 

of return from baseline 

(percentage per year)

Change in standard 

deviation from baseline 

(percentage overall)

Existing TSP Funds (C, S, I)

(baseline)

0.00 0.00

SRI ,C, S, I -0.18 -0.24

SRI, C, I -0.75 -0.57

SRI, C, S 0.39 0.12

SRI, S, I -0.43 0.03

SRI, C -0.20 -0.06

SRI, S 0.33 0.47

SRI, I -1.42 -0.33

SRI Fund only -0.88 0.21

C Fund only 0.46 -0.24

S Fund only 1.38 1.79

I Fund only -2.41 2.00

Source: GAO analysis of annual rates of total return based on monthly total return data from Morningstar, Inc.

Appendix II: Variation of Annual Compound Rates of

Return and Standard Deviation among Evenly Distributed 

Allocations of the Best Performing SRI Stock Index and 

Existing TSP Stock Index Funds, 1992 through 2011
Appendix III: Additional Information on the 

Performance of SRI and Non-SRI Mutual Funds 

by Asset Class 

Page 37 GAO-12-664 Thrift Savings Plan 

Our analysis of institutional-grade mutual funds over the last 5, 10, and 15 

years (dating back from December 2011) showed that SRI bond mutual 

funds had better risk-adjusted performance than their non-SRI 

counterparts, while SRI stock and SRI balanced funds did not.1

Specifically, we reviewed measures of risk-adjusted performance 

including the Sharpe and Sortino ratios. Morningstar Inc. defines these 

ratios as follows: 

 Sharpe ratio. This statistic is a reward to variability ratio, which offers 

a means of locating an optimal risky portfolio. The equation is: 

ൌ ݏ

ிݎ െ஺ ݎ

ߪ

rA= expected return on the series or portfolio 

σ= the standard deviation 

rF= the risk-free rate 

And where standard deviation is: 

ߪ௬ ൌ ඩ 1

݊െ1෍ ݎ௧ െ ݎഺଶ

௡

௧ୀଵ

 

1

Morningstar identified three share classes of mutual funds—institutional, front-load and 

no-load—as the most common share classes used by institutional investors. We refer to 

these three share classes together as institutional grade mutual funds. We did not analyze 

other forms of SRI funds such as variable annuities and exchange traded funds. Hence, 

the results of our analysis are not generalizable to non-institutional grade mutual funds or 

to other forms of SRI. We included three asset classes of mutual funds in our analysis, 

stocks, bonds, and balanced. Stock funds invest in stocks, bond funds invest in bonds, 

and balanced funds invest in a combination of stocks and bonds. After controlling for fund 

size and investment strategies (other than SRI approaches), we found that the gap 

between the performance of SRI and non-SRI mutual funds narrowed significantly for 

stock funds but not for balanced funds. 

Appendix III: Additional Information on the 

Performance of SRI and Non-SRI Mutual 

Funds by Asset Class 
Appendix III: Additional Information on the 

Performance of SRI and Non-SRI Mutual Funds 

by Asset Class 

Page 38 GAO-12-664 Thrift Savings Plan 

Where: 

σ= the Greek letter commonly used to denote standard deviation 

rt= expected return on the series or portfolio 

ݎ =ഺthe arithmetic mean of the return series r

n= the number of periods 

 Sortino ratio. The Sortino ratio is a risk adjusted return ratio that 

considers excess return over a designated target return and the risk of 

not achieving that target return. Excess return is defined as the series’ 

return less the target return; risk is considered to be the semistandard deviation below the target return. The Sortino ratio therefore 

tells you how well you are being compensated by a series for each 

unit of shortfall risk you are incurring. 

The formula for the Sortino ratio: 

Where: 

T= target return 

SD= the target semi-standard deviation of the return series in 

question over the period in question. This is the square root of the 

target semi-variance, with T as the target return 

ܴ௣ തതതത the arithmetic average return of the return series in question over 

the period in question 
Appendix III: Additional Information on the 

Performance of SRI and Non-SRI Mutual Funds 

by Asset Class 

Page 39 GAO-12-664 Thrift Savings Plan 

The following tables provide additional information on risk-adjusted 

performance of SRI and non-SRI mutual funds by asset class.

Bond Mutual Funds

Table 6: Sharpe Ratio SRI and Non-SRI Bond Mutual Funds

Annualized time period

Type of fund Measure 5 year 10 year 15 year

SRI

Mean 1.02 0.82 0.77

Median 1.00 0.87 0.75

Maximum 1.53 1.20 0.84

Minimum 0.27 0.38 0.73

Number 18 17 4 

Non-SRI

Mean 0.76 0.66 0.52

Median 0.68 0.64 0.48

Maximum 2.82 2.05 1.84

Minimum -2.98 -2.09 -2.71

Number 2,103 1,799 1,449

Source: GAO analysis of mutual fund performance data received from Morningstar, Inc.

Table 7: Sortino Ratio SRI and Non-SRI Bond Mutual Funds

Annualized time period

Type of fund Measure 5 year 10 year 15 year

SRI

Mean 1.80 1.27 1.19

Median 1.69 1.32 1.19

Maximum 3.01 2.15 1.28

Minimum 0.36 0.51 1.09

Number 18 17 4 

Non-SRI

Mean 1.35 1.05 0.81

Median 1.04 0.96 0.71

Maximum 14.80 3.96 3.69

Minimum -2.48 -2.60 -2.76

Number 2,103 1,799 1,449

Source: GAO analysis of mutual fund performance data received from Morningstar, Inc.
Appendix III: Additional Information on the 

Performance of SRI and Non-SRI Mutual Funds 

by Asset Class 

Page 40 GAO-12-664 Thrift Savings Plan 

Stock Mutual Funds

Table 8: Sharpe Ratio SRI and Non-SRI Stock Mutual Funds

Annualized time period

Type of fund Measure 5 year 10 year 15 year

SRI

Mean 0.05 0.14 0.24

Median 0.06 0.12 0.23

Maximum 0.33 0.52 0.47

Minimum -0.49 -0.05 -0.01

Number 86 68 37

Non-SRI

Mean 0.07 0.22 0.27

Median 0.06 0.20 0.26

Maximum 0.73 0.68 0.72

Minimum -0.94 -0.38 -0.13

Number 3,165 2,466 1,431

Source: GAO analysis of mutual fund performance data received from Morningstar, Inc.

Table 9: Sortino Ratio SRI and Non-SRI Stock Mutual Funds

Annualized time period

Type of fund Measure 5 year 10 year 15 year

SRI

Mean 0.08 0.20 0.35

Median 0.09 0.17 0.33

Maximum 0.50 0.78 0.69

Minimum -0.57 -0.06 -0.01

Number 86 68 37

Non-SRI

Mean 0.10 0.31 0.39

Median 0.09 0.28 0.37

Maximum 1.29 1.04 1.12

Minimum -1.02 -0.45 -0.16

Number 3,165 2,466 1,431

Source: GAO analysis of mutual fund performance data received from Morningstar, Inc.
Appendix III: Additional Information on the 

Performance of SRI and Non-SRI Mutual Funds 

by Asset Class 

Page 41 GAO-12-664 Thrift Savings Plan 

Balanced Mutual Funds

Table 10: Sharpe Ratio SRI and Non-SRI Balanced Mutual Funds

Annualized time period

Type of fund Measure 5 year 10 year 15 year

SRI

Mean 0.05 0.13 0.21

Median 0.02 0.15 0.20

Maximum 0.38 0.23 0.36

Minimum -0.15 -0.16 -0.02

Number 20 13 8 

Non-SRI

Mean 0.11 0.29 0.32

Median 0.09 0.27 0.30

Maximum 0.89 0.95 0.78

Minimum -1.20 -1.18 -0.93

Number 897 454 318

Source: GAO analysis of mutual fund performance data received from Morningstar, Inc.

Table 11: Sortino Ratio SRI and Non-SRI Balanced Mutual Funds

Annualized time period

Type of fund Measure 5 year 10 year 15 year

SRI

Mean 0.07 0.18 0.29

Median 0.02 0.20 0.28

Maximum 0.57 0.31 0.51

Minimum -0.19 -0.20 -0.03

Number 20 13 8 

Non-SRI

Mean 0.16 0.42 0.45

Median 0.12 0.38 0.42

Maximum 1.57 1.64 1.32

Minimum -1.26 -1.16 -1.00

Number 897 454 318

Source: GAO analysis of mutual fund performance data received from Morningstar, Inc.
Appendix IV: GAO Contact and Staff 

Acknowledgment

Page 42 GAO-12-664 Thrift Savings Plan 

Charles A. Jeszeck, (202) 512-7215 or jeszeckc@gao.gov

In addition to the individual named above, Kimberley Granger, Assistant 

Director; Jonathan S. McMurray, Analyst-in-Charge; James Bennett; and 

Sarah Kaczmarek made significant contributions to this report. Kenneth 

Stockbridge, Roger Thomas, and Jack Wang also made key 

contributions.

Appendix IV: GAO Contact and Staff 

Acknowledgment 

GAO Contact

Staff 

Acknowledgment

(131099)
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