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. 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 balances, borrowing from the account, making withdrawals, or purchasing annuities. 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. 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 day- to-day operations of TSP, prescribing regulations to administer FERSA, and other duties. The Board members and the executive director serve as plan fiduciaries. FERSA has other investment policy provisions, such as who can exercise voting rights associated with the ownership of stocks held by TSP. For example, the Board and the executive director may not exercise voting rights associated with the ownership of TSP securities. 5 U.S.C. § 8473. sponsors have greater discretion in choosing which investment options to offer participants. 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. 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 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. 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. They also noted that while TSP has not moved forward with adding a mutual fund window, it may at some future point. FERSA also requires the Board to defray reasonable expenses of administering TSP. 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. 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.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 By supporting the principles, institutional incorporate ESG issues into investment analysis and decision-making processes, be active owners and incorporate ESG issues into their ownership 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, 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. 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. As shown in figure 3, participant demand, SRI screening criteria, and costs were the most common challenges identified by public retirement plans. 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. 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 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). 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 invest in the SRI index fund.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.