The Effect of the Suspension of Issuance of Treasury Securities to the Government Securities Investment (G) Fund

By on April 28, 2011 in Current Events with 4 Comments

Absent legislation by Congress to
raise the Federal debt limit, the Secretary of the Treasury may determine that
portions of the monies in the G Fund cannot be reinvested in Treasury
securities because to do so would exceed the present Federal debt limit. However, all of the G Fund monies would still
be on ac­count with the Treasury, and the interest which would accrue if the G
Fund were fully invested would still be credited to the G Fund.

Some published reports have
mischaracterized the actions which may be taken by the Treasury, which are
authorized under the law. G Fund
investments are safe and will continue, by law, to accrue earnings. The integrity of the G Fund would not be
compromised. TSP participants’ accounts
would not be affected as a result of any suspension of issuance of Treasury
securities to the G Fund.

This is possible because of the
“make-whole” provision con­tained in the relevant section of the Thrift Savings
Fund Invest­ment Act of 1987 (P.L. 100-43), 5 U.S.C. § 8438(g)(4), covering
this very situation (i.e., a suspension of Treasury securities issuance because
of the debt ceiling). The make-whole
provision means that TSP participants who have invested in the G Fund will not
lose anything. The G Fund account
balances would be exactly the same from day to day as if they were invested in
Treasury securities. Furthermore,
disbursements of TSP loans and with­drawals would not be delayed, nor would the
amounts of those pay­ments be reduced.

A Congressional Research Service
explaining the use of Federal retirement funds during debt
issuance suspension periods was issued on March 20, 2002. This report accurately describes the actions
which may be taken by the Secretary of the Treasury and the com­plete
protection of TSP participants’ G Fund accounts afforded by the make-whole
provision. The General Ac­counting
Office issued a report on August 30, 1996, (AIMD-96-130) con­firming
that the statutory make-whole protection (which re­mains in effect) was
properly implemented when it was used in 1995-96.

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