Instead of restricting a shareholder's right to move to two times a month, you COULD
1. Change the time of day that the value of the I fund is calculated, to reflect the price at 7 a.m. the next morning, rather than 7 p.m. that day. This would eliminate Fair Value calculation errors, and make the I fund price more accurate. This change alone would save an estimated 70% to 80% of the "costs" attributed to interfund transfers in the TSP.
2. If you must limit transfers, limit the amount moved in a single day to $100,000 per account. This would reduce the volume of money moving each day, but still protect the majority of shareholders with being able to make dollar cost average moves. Smaller accounts would be unaffected by the limit. Larger accounts would be moderated in the daily volume being moved.
3. Make the limit 24 or 36 times per year, rather than 2 times per month. This would protect the ability to move in volatile market movements, yet still cut back on the total number of moves. Many people don't move money at all for long periods of time in a stable market, but need the flexibility to capture gains during turbulent periods.
4. Charge a simple $10 fee per IFT transaction. TSP data shows on average there are 200,000 moves per month currently. A fee of $10 per move would generate over $24 million per year. That's more than the dollar amount the Thrift Board is saying that trading costs added up to last year. It's fair, because if you don't move at all, you don't spend a dime. And if you move a lot, you pay a lot. Someone moving 30 times in a year pays $300. That's fair. And it's simple to administer, and much less costly than developing new software to track if you've made two moves already each month, etc.
5. Do nothing. Rewrite the next contract with Barclays to reflect the higher dollar amount being moved each day as the Thrift Fund grows. The current contract was developed at a time when the dollar value of the TSP was much lower than it is today. TSP has grown to over $230 BILLION dollars, precisely because people have the ability to move their own money where they see is best for their own situation. On any given day, less than 1% of the fund balance in any single fund is being moved. It's NOT the problem the Thrift Board is saying it is.
All these options need to be considered as alternatives BEFORE they impose limits that won't cure the "problem".
What do you think?
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