Why does it matter if a TSP fund’s performance differs from the performance of the benchmark index for the fund?
The performance difference (tracking error) between a TSP fund and its benchmark index can be positive or negative, but the TSP is charged by statute to keep this tracking error as low as possible since the funds must, by law, replicate their respective indexes. See 5 U.S.C. 8438. Reducing the dollar amount of interfund transfers will lower the amount of cash the investment manager must hold and will therefore reduce tracking error.
