Pay & Benefits Watch Pay & Benefits WatchPay & Benefits Watch
Key developments in the world of federal employee benefits: health, pay, and much more.

Guarding the G Fund

ARCHIVES
Since 1987, the federal government has tapped the Thrift Savings Plan's G Fund five times to avoid hitting the federal debt ceiling. Each time, the government has made good on the requirement that it repay the G Fund for its temporary losses as soon as possible. Now the G Fund may be tapped again. And once again, the government would be required to repay the G Fund as soon as it can. The thought of your employer tapping your retirement funds to stave off a debt crisis is sure to make you think of Enron and the fate of its employees' pension fund. But the federal government is not Enron, and the G Fund is not like the Enron pension fund. The 401k-style Thrift Savings Plan invests the retirement savings of federal employees and military personnel in five funds: the C, S, I, F and G Funds. The first four funds are invested in stocks and bonds. The G Fund is invested in government securities. The Treasury Department invests the G Fund in securities that mature in one day. The G Fund earns interest on those investments, more like a bank account than a stock fund, since the G Fund never loses value. Meanwhile, the government each day tries to keep itself under a statutory debt ceiling. The current debt ceiling is $5.95 trillion, which the Treasury Department expects to exceed in the next few weeks. Congress could increase the debt limit, but such a move is running into opposition on Capitol Hill. If the debt limit isn't raised, then Treasury's first move to avoid defaulting on its debt each day would be to tap the G Fund. The way Treasury taps the G Fund is by holding off on investing the fund's money. That move keeps Treasury below the debt ceiling, but also prevents the G Fund from collecting scheduled interest. In a 1996 report, (AIMD-96-130), the General Accounting Office provided a one-day example of how the maneuver works. The example comes from the last time the government came close to breaking the debt ceiling, during the November 1995 to March 1996 debt crisis and government shutdown period.

"On Jan. 17, 1996, excluding G Fund transactions, Treasury issued about $17 billion and redeemed about $11.4 billion in securities that counted against the debt ceiling," the report explained. "Since Treasury had been at the debt ceiling the previous day, Treasury could not invest the entire amount ($21.8 billion) that the G Fund had requested without exceeding the debt ceiling. As a result, the $5.6 billion difference was added to the amount of uninvested G Fund receipts and raised the amount of uninvested funds for the G Fund to $7.2 billion on that date. Interest on the uninvested funds was not paid until the debt ceiling crisis ended." Treasury and the Federal Retirement Thrift Investment Board, which oversees the TSP, kept track of the interest that would have been earned had the investments taken place. During the 1995-96 debt crisis, the government didn't pay $255 million of interest that should have been credited to the G Fund. As soon as the crisis ended, the government paid that amount into the G Fund. G Fund investors didn't lose any money. If another debt ceiling limit is reached in the next few weeks, the scenario would be the same. Each day, the Treasury would calculate the amount of public debt, not including the G Fund investments, that the government would incur that day. Then Treasury would calculate how much of the G Fund's current $41.6 billion could be invested without going over the debt ceiling. The amount falling within the debt ceiling would be invested; the amount over the debt ceiling would not be invested. The government would keep track of how much interest the G Fund would have earned had the full amount been invested. Then, once the debt ceiling is raised or concerns about hitting the debt ceiling pass, Treasury would pay all of the outstanding interest to the G Fund. According to the Federal Retirement Thrift Investment Board, the G Fund's investments generate more than $5.6 million in interest per day. Treasury is required by law to repay any outstanding interest owed to the G Fund. The safeguard on G Fund investments, called the 'make-whole' provision, has been in place since President Reagan signed the 1987 Thrift Savings Fund Investment Act. Before 1995, the government tapped the G Fund three times in 1987 and once in 1989. Each time, the government repaid the outstanding interest as soon as the debt ceiling was no longer threatened. Despite that safeguard, National Treasury Employees Union President Colleen Kelley said Wednesday that Congress should raise the debt limit instead of tapping the G Fund. "The position of the House Republican leadership is wrong, inappropriate and fiscally irresponsible, particularly so in the wake of the Enron debacle," Kelley said in a statement. "This maneuver appears to be driven by the political consideration of not wanting to raise the debt ceiling in an election year. … On this issue, fiscal responsibility to federal employees and the American public should be above politics." In 1995 and 1996, it was congressional Republicans who criticized the Clinton administration for tapping the G Fund. At that time, House Republicans proposed a provision that would have eliminated the 1987 Thrift Savings Fund Investment Act requirement that the government repay the interest the G Fund loses during debt crises. The proposal made it all the way to the White House as part of a larger bill, but President Clinton vetoed the bill. "At every opportunity, I have advised the Congress that, with the make-whole protection, G Fund investments are safe," TSP Executive Director Roger Mehle said in 1996 when Congress considered revoking the 1987 law. If such a proposal were to resurface, federal employees could start worrying about their investments. But as long as the make-whole provision is part of the law, G Fund investors won't be shortchanged if and when the government turns to the fund during a debt crisis.

 

Brian Friel is founder of One Nation Analytics, an independent research, analytics and consulting firm for the federal market.

FROM OUR SPONSORS
JOIN THE DISCUSSION
Close [ x ] More from GovExec
 
 

Thank you for subscribing to newsletters from GovExec.com.
We think these reports might interest you:

  • Sponsored by Brocade

    Best of 2016 Federal Forum eBook

    Earlier this summer, Federal and tech industry leaders convened to talk security, machine learning, network modernization, DevOps, and much more at the 2016 Federal Forum. This eBook includes a useful summary highlighting the best content shared at the 2016 Federal Forum to help agencies modernize their network infrastructure.

    Download
  • Sponsored by CDW-G

    GBC Flash Poll Series: Merger & Acquisitions

    Download this GBC Flash Poll to learn more about federal perspectives on the impact of industry consolidation.

    Download
  • Sponsored by One Identity

    One Nation Under Guard: Securing User Identities Across State and Local Government

    In 2016, the government can expect even more sophisticated threats on the horizon, making it all the more imperative that agencies enforce proper identity and access management (IAM) practices. In order to better measure the current state of IAM at the state and local level, Government Business Council (GBC) conducted an in-depth research study of state and local employees.

    Download
  • Sponsored by Aquilent

    The Next Federal Evolution of Cloud

    This GBC report explains the evolution of cloud computing in federal government, and provides an outlook for the future of the cloud in government IT.

    Download
  • Sponsored by Aquilent

    A DevOps Roadmap for the Federal Government

    This GBC Report discusses how DevOps is steadily gaining traction among some of government's leading IT developers and agencies.

    Download
  • Sponsored by LTC Partners, administrators of the Federal Long Term Care Insurance Program

    Approaching the Brink of Federal Retirement

    Approximately 10,000 baby boomers are reaching retirement age per day, and a growing number of federal employees are preparing themselves for the next chapter of their lives. Learn how to tackle the challenges that today's workforce faces in laying the groundwork for a smooth and secure retirement.

    Download
  • Sponsored by Hewlett Packard Enterprise

    Cyber Defense 101: Arming the Next Generation of Government Employees

    Read this issue brief to learn about the sector's most potent challenges in the new cyber landscape and how government organizations are building a robust, threat-aware infrastructure

    Download
  • Sponsored by Aquilent

    GBC Issue Brief: Cultivating Digital Services in the Federal Landscape

    Read this GBC issue brief to learn more about the current state of digital services in the government, and how key players are pushing enhancements towards a user-centric approach.

    Download
  • Sponsored by CDW-G

    Joint Enterprise Licensing Agreements

    Read this eBook to learn how defense agencies can achieve savings and efficiencies with an Enterprise Software Agreement.

    Download
  • Sponsored by Cloudera

    Government Forum Content Library

    Get all the essential resources needed for effective technology strategies in the federal landscape.

    Download

When you download a report, your information may be shared with the underwriters of that document.