Sen. Ben Cardin, D-Md., speaking at an event in March.

Sen. Ben Cardin, D-Md., speaking at an event in March. Cliff Owen/Associated Press

Congress Doesn’t Have Appetite For Messing with the G Fund, Senator Says

A proposal to limit the return rate on the TSP’s most stable offering is unlikely, according to Maryland Democrat.

A House proposal to limit the rate of return on the Thrift Savings Plan’s government securities fund to help reduce the deficit is unlikely to become reality, according to one Democratic senator.

“I think we are going to be very reluctant to fool around with the Thrift Savings option,” said Sen. Ben Cardin of Maryland, in response to a question during a recent town hall with federal employees and contractors at the National Institutes of Health. “I don’t think you are going to find any interest in adjusting those returns.”

The House Budget Committee’s fiscal 2016 blueprint targets federal retirement benefits, among several other areas, for more than $280 billion in budget savings over the next 10 years. Those recommendations include aligning the G Fund “with an appropriate risk profile,” according to the committee report on the concurrent resolution, which the House passed on March 25. The Senate has also passed its budget blueprint, which does not include a provision affecting the G Fund. The president does not sign budget resolutions, so they do not become law, but rather provide a framework for the two chambers as they craft budget priorities for the upcoming fiscal year. The House and Senate are working to incorporate their different versions into a single blueprint this spring.

The G Fund is the TSP’s most stable offering, and it is not subject to risk of default. “Payment of principal and interest is guaranteed by the U.S. government. Yet the interest rate paid is equivalent to a long-term bond,” the House budget resolution said. “As a result, those who participate in the G Fund are rewarded with a long-term rate on what is essentially a short-term security.” The resolution estimated that curbing the rate of return on the G Fund could save up to $32 billion over the next decade.

The Federal Retirement Thrift Investment Board “strongly opposes this change,” said Kim Weaver, the board’s director of external affairs, in an email. The change would affect the calculation of the interest rate for the G Fund, essentially basing it on a three-month, rather than a four-year, average. Weaver said the proposal would cause the interest rate payable on the G Fund to drop to 0.01 percent, making it “virtually worthless” for TSP participants since it would not keep pace with inflation. Of the $436.8 billion invested in the TSP as of Jan. 31, $191 billion is invested in the G Fund; of the approximately 4.7 million TSP participants, more than 4.3 million participants have all or some of their account balance invested in the G Fund, according to the board’s data.

The interest on Treasury securities in the TSP’s G Fund is calculated using the same formula as the securities issued to Social Security’s Old-Age, Survivors, and Disability Insurance Trust Funds, Weaver pointed out. “This means every American contributing to Social Security is benefiting from the same investment formulas as is available in the G Fund.”

Weaver said the board has shared its concerns with lawmakers. The board will respond in “several ways,” according to Weaver, if the G Fund proposal is enacted, including asking Congress to allow a new TSP offering since the G Fund acts as a “money market fund, a stable value fund and an inflation-protected securities fund.”

Cardin said ultimately lawmakers have little appetite for tinkering with the TSP’s most stable offering. “We want to offer fair opportunities for our federal workforce, and therefore we don’t want to overly discriminate against the options that you pick,” he told the NIH audience. “So I don’t think it’s going to happen.”