Federal Retirement Fund Gets New National Security Mandate: China Investments Blocked in TSP Mutual Fund Window

The TSP Fiduciary Security Act of 2025 is a major shakeup for the Thrift Savings Fund (TSF), the huge retirement plan for millions of federal employees and military personnel. Simply put, this bill forces TSF managers to add national security to their list of top priorities when deciding where to put your money. It’s not just about maximizing returns anymore; they now have a legal duty to ensure that TSF investments and shareholder voting don't actively harm U.S. national security. This isn't just a tweak—it fundamentally changes the rules of the road for the TSF.

The New Fiduciary Duty: National Security First

Under this bill, the people managing the TSF now have a new responsibility: they must make sure, to the greatest extent possible, that the investments they pick and how they vote on company matters don't hurt U.S. national security. This is a big deal because fiduciary duty has traditionally focused almost entirely on the financial interests of the beneficiaries. This new requirement (found in SEC. 3) layers a geopolitical mandate on top of that. For the 30-something federal worker trying to save for a house and retirement, this means the pool of potential investments might get smaller if a country or company is deemed a security risk. The upside is that your retirement money is less likely to be tied up in entities that could be sanctioned or destabilized due to international conflict.

The China Ban and 'Covered Countries'

The bill gets very specific about what constitutes a national security risk, particularly when it comes to China. SEC. 5 imposes an outright ban: if you use the TSP mutual fund window (the option that lets you pick from a wider variety of funds), those funds cannot invest in any company based in the People's Republic of China (PRC) or any of its subsidiaries. This is a hard line that affects every TSF participant using that window. Beyond the PRC, SEC. 4 sets up a system where the Secretary of Labor, working with Defense, Treasury, and others, must create rules to flag investments in entities linked to the Communist Chinese military or those on the Commerce Department’s entity list.

It also defines a list of "covered countries"—including Russia, North Korea, Iran, and Venezuela—and says that supporting certain shareholder proposals related to companies in those countries (like outsourcing defense technology) is considered a breach of fiduciary duty. If you’re a TSF participant, this means your fund managers are now required to screen out investments that might otherwise be available to a standard private-sector 401(k).

The Liability Safety Net and Rulemaking Power

Here’s a detail that matters to the people running the show: SEC. 3 grants TSF managers a temporary shield. Until January 1, 2027, they won't be held personally liable for monetary damages if they mess up or breach this specific new national security requirement. This temporary protection is interesting—it gives managers a grace period to figure out how to implement this complex new rule without the immediate fear of being sued or penalized, which seems practical given the vagueness of defining what 'hurts national security.'

However, the bill hands significant power to the Secretary of Labor to define the rules of the road, including what constitutes non-compliance. SEC. 4 requires the Secretary to create standards, essentially giving them the authority to decide which investments are too risky. This medium level of vagueness means the real impact on your investment options won't be known until those rules are finalized. For the busy professional, this means watching closely over the next year to see how the government defines the boundaries of acceptable investment risk in the geopolitical arena.