When the Federal Thrift Savings Plan (a sort of 401(k) for federal employees) replaced the defined benefit plan, a big concern was the potential conflicts of federal workers making regulatory and enforcement decisions that might affect portfolio companies. And so the solution was an index fund, where they would own the market as a whole and not individual portfolio securities.

But, as this article points out, that means that their retirement funds may. be in companies that are doing exactly what they are trying to spend their careers trying to prevent. This is just one example of the larger problem of separating ownership and control.

Many people who work for the Office of the Surgeon General have exposure to tobacco stocks. At the Environmental Protection Agency, scientists make money when polluters do well. And Justice Department lawyers who keep weapons off the streets stake some of their net worth on retailers that sell guns.

All these federal workers share the same 401(k)-like investment vehicle known as the Thrift Savings Plan. And despite years of effort, they still have no mutual funds on the menu that would allow them to put retirement money into stocks without profiting from industries that some find objectionable.

The T.S.P. is a monster, with $632 billion in employee savings from 5,677,989 participants as of Dec. 31. More than 49,620 of them have balances greater than $1 million. The biggest balance is $7,395,476.29. (If that’s you, please get in touch! I’d love to write about how you did it.)

That means the savings plan is ripe with trendsetting potential. According to Morningstar, $20.6 billion moved into funds focused on environmental, social and governance — or E.S.G. — issues last year. If around 3 percent of the plan’s balances could follow a similar path, the rolling river of dollars would equal that figure all by itself.

via Federal Workers Profit From Tobacco and Oil, Even If They Don’t Want To – The New York Times