GovernmentExecutive.com

Federal employees once again are bailing the United States out of a sticky debt situation. Treasury Secretary John Snow told Congress last week that the country was perilously close to reaching its debt ceiling, forcing him to dip into federal employee retirement savings to keep government operations running.

Specifically, until Congress raises the $8 trillion federal debt limit, Snow is freezing some reinvestments of the Thrift Savings Plan's government securities (G) fund.

Luckily, the government is good for it. TSP officials quickly issued a statement on their Web site last week reminding participants of a 1987 "make-whole" law guaranteeing that the plan is reimbursed for any interest lost under these circumstances.

Reinvestments allow the G fund, which holds 36 percent of all TSP investments, to rack up the interest that earns it about 4 percent steady growth every year. The fund matures and is reinvested daily, so the secretary can transfer some of the money that would have gone to that day's reinvestment into noninterest-bearing accounts, which don't count against the debt limit.

The "make-whole" provision ensures that individual TSP accounts won't be affected by the freeze. Loans and withdrawals will not be delayed, payments won't be reduced and, as the statement put it, "the integrity of the G fund [will] not be compromised."

TSP spokesman Tom Trabucco said that in the half-dozen times Treasury has raided the G fund over the years, it never has affected the plan.

"This is something we've dealt with since almost the very beginning of the program," Trabucco said. "Participants will be made whole. [The 1987] statute allows us to continue on as normal. It means nothing; we just continue our operation."

But TSP Executive Director Gary Amelio acknowledged Tuesday at a monthly board meeting that some investors feel uneasy about the loan.

"The ones that do view it as an issue of principle are rather passionate," Amelio said. "[It] puts the plan into simply an awkward situation."

Colleen Kelley, president of the National Treasury Employees Union, is among those opposed in principle to the move. On Tuesday, she called on Congress to raise the debt ceiling and leave the G Fund alone.

"It is not appropriate to use federal employees' retirement funds for general government expenses," Kelley said.

Kelley said her position stands despite the make-whole law because "federal workers are left with an uneasy feeling of concern about having money they are counting on for their retirement being used for another purpose."

There's little reason to be uneasy, however. The Congressional Research Service wrote a memorandum in 2002 reiterating Treasury's obligation to credit the G Fund after suspending reinvestment. The memo found that because TSP participants have their own accounts, their funds are protected by property rights.

"No one who has invested TSP contributions in the G Fund can suffer any reduction in assets or loss of interest income as a result of the actions taken by the secretary of Treasury," CRS said.

The G Fund is a perk of federal employment. It is invested in short-term U.S. Treasury securities only issued to the TSP and maintains a higher return than inflation at no risk. As of January, there was more than $64 billion in the fund.

COMMENTS

• Taxpayer, You have some points there. First off, I don’t really believe the costs are all that high and they have little to do with my strategy. My problem with your proposal is using my retirement for a political statement; whether it be the government’s or my own. I don’t play with my family's future; and would never recommend anyone else do either. If you feel that strongly about it, then okay, do what you have to do. I only hope very few people follow your lead because if you don’t think an overnight shifting of a third of the world’s largest retirement fund isn’t a pile driver; I recommend you take “Macroeconomics.” As for politics and the stock market in general, I have some difficulties. I still hate the circumvention of the debt limit. An emergency is one thing, but Dubya is playing a continuous shell game. I like the TSP and use this vehicle to the max I can, but as for the government being in the market at all? I request you investigate the following: http://www.cato.org/testimony/ct-mt043097.html I don’t agree with all the author says but he, too, has many valid points. As a read … it’s an eye opener. As for the F Fund itself: As long as I anticipate stock funds to go up, I don’t go near the F Fund. In general, when stocks are up, the F Fund is down; and vice versa. Remember when the stock funds tanked out and everyone moved what they had left into the G Fund? I moved mine into the F Fund, and it flourished well about the rest. Please note, stocks are rising and the F Fund is doing squat. I’ve done my homework and charted the data. Personally, I regularly determine what I think to be the trend for the near future and about two and a half years ago started shifting my funds from the F Fund to the stock funds. Currently I’ve 5 percent in the G and 0 percent in the F Funds. See me in two years; I may be back in them. I still recommend each individual evaluate their goals, determine their level of risk, research the data, and make their own decisions. And yes, life is a gamble. Thanks for the expression of your views, it makes me think. Tip off. Tip Posted March 2, 2006 11:24 AM
• Rds: Your position has its merits but I wonder how you would feel if the government keeps dipping with the justification that it was a emergency and when you went to cash your investment in, it wasn't there? Is the money you put in savings the banks money or just on loan drawing interest for you and loan interest for the bank? Are there charges incurred for withdrawals and who's paying for these withdrawals? If we're the ones putting the money into TSP are we allowed to make these same withdrawals? Some retirement systems have an ironclad law that states the funds can't be touched. Must be a reason. Will TSP be raided to supplement Social Security? Count on it! Does any one know where the retirement money for Bush, congressmen, senators, federal judges etc is kept? Wonder if the government is dipping onto that pot? GovExec.com reader Posted March 1, 2006 7:54 AM
• Tip, You ignore the total cost involved. If the trading cost is $1.3 million, you must consider the fact that the return in the C, I, or S fund is significantly higher than in the G Fund. The increased trading cost should be largely offset by the higher return. The difference is in the level of risk. Therefore, to remain in a near same risk I suggest the F Fund, in which case you probably are close to correct. However, the trading cost of moving from the G Fund to the F Fund should be nowhere near the cost you put forth. In fact a major drawback to the G Fund is that TSP assigns the same administrative cost to the G Fund as to the other funds. They have no cost of investing in the G Fund and investors are overcharged with expenses to subsidize the C, S, I and F funds. Personally, I would prefer the I Fund but I have other sources of less risky investments to offset the risks. Those that cannot offset the risk should move to the F Fund. This is not a pile drive to kill a fly. It is a swatter to correct a very big wrong in the investment of government employee funds. There absolutely is no other mutual fund in government securities that allow the government to "dip" into the fund for financing -- why should that be tolerated here? Taxpayer Posted February 28, 2006 9:11 AM