Treasury taps federal pensions as Uncle Sam hits debt ceiling
Treasury Secretary Timothy Geithner announced a debt issuance suspension period from May 16 to Aug. 2, when the government expects to default on its obligations. The law allows the government to take extraordinary measures to avoid a default, including tapping into and suspending investments into the Civil Service Retirement and Disability Fund and halting the daily reinvestment of the government securities (G) fund, the most stable offering in the Thrift Savings Plan's portfolio.
Federal law (Sections 8348 and 8438 of U.S. Code Title 5) requires the Treasury secretary to refill the coffers of the G Fund and the CSRF once the issue of the debt ceiling is resolved and to make up, in addition, for any interest lost on those investments during the suspension. This has happened five times since 1996, most recently in 2006.
"Each of these actions has been taken in the past by my predecessors during previous debt limit impasses," Geithner wrote in a letter to Senate Majority Leader Harry Reid, D-Nev., and other lawmakers. "By law, the CSRDF and G Funds will be made whole once the debt limit is increased. Federal retirees and employees will be unaffected by these actions."
Andrew Saul, chairman of the Federal Retirement Thrift Investment Board, echoed Geithner's comments. "The important thing from the participant standpoint is there's no effect [on retirement funds]. Call it what you want, but you have an IOU from the government."
But if the government's alternative financing options are exhausted by Aug. 2, and Treasury runs low on cash before a new debt limit is agreed upon, "there could be delays in honoring checks and disruptions in the normal flow of government services," a 1995 CBO report stated. That would have serious economic consequences and possibly result in furloughs for federal employees.
Lawmakers and the Obama administration are negotiating over reducing the pay and benefits of federal employees to rein in spending and tackle the deficit. The Senate Budget Committee this week plans to consider the House-passed fiscal 2012 budget resolution which calls for a federal pay freeze through 2015 and a requirement that federal employees pay for half the defined benefit they receive with their pensions at retirement, an increase from the current contribution of 0.8 percent of payroll. The resolution also recommends an attrition policy that permits the government to hire only one new employee for every three workers who retire. Overall, the resolution asserts that the proposals aimed at federal employees would save about $375 billion during the next 10 years.
The Washington Post on Sunday reported that the Obama administration is open to the idea of requiring federal employees to contribute more to their retirement plans, though not necessarily at the same rate or pace as GOP proposals envision.
Federal employee unions are ramping up their efforts to lobby against measures that would reduce federal pay and benefits. According to the Federal Managers Association, workers would contribute a larger share of their Federal Employees Retirement System pension but would see no additional benefit in retirement under the increased contribution proposal, essentially amounting to a 5 percent pay cut. On May 12, the Federal Postal Coalition, comprised of 22 organizations representing government workers, sent a letter to the leadership of the Senate Budget Committee urging them to reject proposals in the House resolution adversely affecting federal pay and benefits.
The amount of money Treasury estimates it will save by tapping into and suspending payments into the CSRDF and G funds during the next few months is not insignificant. Treasury makes approximately $6 billion in civil service benefit payments from the CSRDF each month. The department estimates that halting reinvestments into the G Fund will give the government about $130 billion worth of wiggle room.