Using the G Fund to Help Fund Federal Expenses

By on December 30, 2012 in Current Events, Retirement with 85 Comments

During the Christmas holidays, everyone gets preoccupied with the events surrounding friends and family and the spirit of the season.

While New Year’s day isn’t until next week, those that invest in the G fund for their current or future retirement always find it of interest when there is a debate about raising the debt ceiling. The reason: The federal government has to come up with money until the debt ceiling is approved. Your G fund investments will help fund the government while our elected representatives haggle and debate over what to do about the ever increasing debt and the need to, yet again, increase the amount of debt that can legally be incurred by the government.

The Treasury recently announced a series of measures that will delay the day the government will exceed its legal borrowing authority as imposed by Congress. These steps could delay the inevitable for up to two months depending on how much the government spends each day beyond what it takes in during that time.

One of these first measures to be taken by the Treasury Department is to suspend investment in the G fund and, presumably, the Civil Service Retirement and Disability Fund. According to Treasury Secretary Timothy Geithner, these steps, including suspending investments in the G fund, “can create approximately $200 billion in headroom under the debt limit.”

How Much Are We Borrowing?

On December 12, 2012, the US Treasury Department reported that the federal Government had a budget deficit of $172 billion for the month of November, an increase of 74.8% over the monthly budget deficit for the prior year. With total outlays of $334 billion for the month, this means the government borrowed 51.6 cents for every dollar it spent.

The federal government is currently allowed to borrow up to $16.4 trillion dollars and we will reach that number in the next few days. The Constitution provides that borrowing money requires congressional action. In Article I, Section 8, Congress is granted the power “to borrow money on the credit of the United States.”

The Obama administration has proposed to give the power to the president to borrow the amount of money he considers necessary. No doubt, any attempt to eliminate Congress from this process, as has been suggested by some who would prefer that the president incur additional debt without Congressional approval, will trigger a new political debate and eventually end up in court if there is no political solution reached.

To put the current level of government spending into perspective, the Office of Management and Budget (OMB) figures show that in 2007 , the year before the last recession took hold, federal receipts were $2.568 trillion. Expenses totaled $2.728 trillion.  The estimated receipts for 2012 are $2.468 trillion or about $100 billion less than in 2007.  The real problem is how much we spent. The government will spend about $3.795 trillion in 2012 or more than $1 trillion than we spent in 2007.

The 2012 $1.1 trillion deficit was $953 billion (in inflation-adjusted dollars), or 547 percent greater than the pre-recession deficit in 2007.

The deficit spending has been as much as $1.4 trillion in 2009 and has exceeded $1.2 trillion each year from 2009 – 2012. That rate of spending is obviously the reason we keep hitting the debt ceiling every couple of years.

For those with an interest, here are the figures from the Office of Management and Budget:

Year Receipts Outlay Deficit
2007 2,567,985 2,728,686 -160,701
2008 2,523,991 2,982,544 -458,553
2009 2,104,989 3,517,677 -1,412,688
2010 2,162,724 3,456,213 -1,293,489
2011 2,303,466 3,603,061 -1,299,595
2012 estimate 2,468,599 3,795,547 -1,326,948
2013 estimate 2,901,956 3,803,364 -901,408

We know from past experience that the Treasury Department can use some retirement funds of federal employees to avoid increasing the debt limit which is capped by law. That is likely to happen again if the debt limit is not raised by Congress.

Your G Fund and Previous Debt Ceiling Limits

When this is done, here is what happens to some of your retirement funds:

“In these circumstances, the Secretary of the Treasury is authorized to

  • suspend the investment of amounts in the Civil Service Retirement and Disability Fund that normally would be invested in interest-bearing Treasury securities;
  • sell or redeem Treasury securities held by the CSRDF prior to maturity; and
  • suspend the issuance of interest-bearing Treasury securities to the “G” fund of the Thrift Savings Plan.”

Why is the G Fund Different Than Other TSP Funds?

The Thrift Savings Plan (TSP) is similar to employer-sponsored “401(k)” plans in the private sector. The Thrift TSP consists of individual accounts owned by employees and former federal employees who participate in the plan. Your contributions to the TSP and contributions made by your employing agencies are credited to a deposit fund in the Treasury Department.

Here is where the G fund is different from the other TSP funds. The “G” fund – is invested in interest-bearing Treasury securities that comprise part of the public debt. In fact, this is the reason that the G fund is often described as an extremely safe, conservative investment for federal employees. The securities that are in the G fund are issued to that fund–the Treasury securities in the G fund are short-term securities that are not available to the general public.

On the other hand, since the G fund becomes part of the trillions of dollars in debt held by the federal government, a portion of the G fund becomes part of the accounting procedures used to avoid increasing the debt limit.

The Long Term Impact on Your G Fund

Previously, G fund investors have not been harmed by actions taken by the Treasury. We do not anticipate there will be any long term harm to G fund investors in this round of negotiations either. No doubt, despite the history of everything coming out well in the end, the fact that federal employee retirement investments are used as part of the process makes many current and retired federal employees uncomfortable.

Moreover, with each new round of negotiations, the problem is much worse than it was previously.

When the debt ceiling limit was last raised in 2011 the debt ceiling went from $14.29 trillion to more than $16.39 trillion. We don’t know what the next debt ceiling will be, perhaps as much as $20 trillion or so. Of course, the federal government pays interest on the money that it borrows. While interest rates are currently at historically low levels, largely as a result of the Federal Reserve printing money and buying much of the debt, in 2011, these interest payments claimed $230 billion, or about 6 percent of the budget. Since the government is printing a large amount of money each month which is then used to purchase the government debt, there are inflationary pressures building in the economy. When or how large the ultimate inflation will be remains to be seen.  But, when interest rates do finally go up, the amount of money spent by the government to finance the debt will go up rapidly.

In short, the current debt ceiling debate is only part of the problem. And, in addition to the pay freeze that has been in effect, federal employees are also helping with the problem through the involuntary use of G fund as explained above.

© 2016 Ralph R. Smith. All rights reserved. This article may not be reproduced without express written consent from Ralph R. Smith.

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About the Author

Ralph Smith has several decades of experience working with federal human resources issues. He has written extensively on a full range of human resources topics in books and newsletters and is a co-founder of two companies and several newsletters on federal human resources.

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  1. Bill G says:

    We were always told that we can’t lose money in the G-Fund and several Federal Employees have been duped into investing most of their earnings in the G-Fund. Perhaps our employers should have warned us that the G-Fund actually isn’t safe in the event the US Government cannot take care of it’s finances!

  2. Bee says:

    This may be a little off of the G fund subject but maybe the government should re-organize the Postal Service….stop saturday delivery and only deliver mail on Monday, Wednesday and Friday.  The Postal Service opperates the same as they did prior to email.  There may be a reason for 6 day a week mail delivery but I don’t see it.  We have to get used to every other change so why not make this change and save some money. 

  3. jimijr says:

    Sorry guys, I had a hassle renewing by password or something and I just saw your remarks.

    TIRA = traditional IRA as opposed to a ROTH.

  4. PA says:

     

    Correction:   The annual federal deficit is more than
    one trillion dollars, the national debt approaching seventeen trillion. Just
    last week, the non-partisan Government Accounting Office warned once again that
    federal spending is “unsustainable.” That means if government
    spending is not curtailed, and quickly, the U.S. dollar could collapse.

  5. Mylittle Retirement says:

    Leave my GD money alone.  It ain’t yours.  

  6. Tired of Dummies says:

    After 25 years of Federal employment, now retired, I’m counting on MY money in the G Fund.  I’ve handled my finances well and just because those J— A—- in DC can’t does not mean they have the right constitutianlly or otherwise to take the money I PUT IN and the % that they matched!   They’ve dreained SS and now they are stealing our money.  Then I suppose the Federal Government  really falls off the cliff, all cliffs.

  7. Paul Trice says:

    I do not think it is fare for the government to come in and rob are G-fund that we are going to count on for retirement.  I have been this route before, pay cuts (freeze), took my retirement that I was counting on (company went bankrupt and turn a 98% funded retirement over to the PBGC, in which I LOST A LOT OF Money.  I was planning on retiring but with little pennsion from a previous job, and now with the government going to raid MY retirement again.  New plan work to you die.

  8. Richard Spence says:

    I am sixty-six years old, retired and depend on my TSP G fund to support me in the future.  I have little to no confidence in the government sheltering my investments; and would withdraw all my G fund if I didn’t have to pay twenty-five percen to do so. 

  9. sinead9191 says:

    Am I connecting the dots incorrectly — or, is this raid on our retirement investment similar to that of the execs (some of whom now reside at Club Fed) from AIG, Enron, etc.?  “Do as I say, not as I do” seems to have been the prevailing motto of the White House and Congress since the time Lyndon Johnson found a way to raid another of our investments, Social Security.  George W. Bush’s suggestion of allowing employees to put a portion of their retirement funds in private investments was shot down by some in his own party, as well as the spendthrift Democrats, who enlisted support of retired folks on fixed incomes by frightening them with predictions of total loss of income.  If the idea had been implemented, we would have the option of controlling our own money today.  Instead, we are faced with having our investment replaced with worthless IOUs, as those entitlement recipients are funded for almost unlimited unemployment payouts, Obamaphones, Obamacare, etc.  Club Fed seems a fitting retirement venue for the thieves who temporarily reside in OUR executive and legislative buildings in DC.  They’ve forgotten they work for US, the American people.

    Congrats to those who elected and re-elected these crooks!  Have they looked ahead to the day when the rest of those who are supporting their entitlements are also out of work?  What will they do when their Obamaphones are no longer in service, their “free” medical care disappears and their unemployment insurance payments stop coming?  I guess long-term planning isn’t in their agenda — only immediate gratification — unlike those of us who have endeavored to plan for our retirement.  Live and learn.

  10. Retired Federal Worker says:

    Who is the genius that thought up this ridiculous and insane idea.  Once again they are using the FEDERAL WORKERS to get OBAMA out of trouble…

  11. Dave J says:

    What our our options if we have no trust in the Government and their promise to pay back the money they borrow from us without our permission? Can the Government also take money out of other Thrift Savings Funds? If so, are there any funds in the TSP that is safe from the hands of the Government? How much of a hit will we take if we end up withdrawing money we placed in the G-Fund and invested it elsewhere such as an IRA from a bank or other financial institution. Seeing how our Government has allowed the Social Security Trust fund go dry and neglected other problems, I am not expecting them to pay back any money they “borrow” from the G-Fund.

  12. Sarge says:

    Why funds are sent to other countries? These funds should be used to cut back the deficit?

  13. Carpenter10 says:

    Why is the Government taking our money – Our tax refunds, our Social Security, our “G Fund” that is our retirement.  This is our money – We paid our taxes – so if we overpaid does that mean the Government can take a interest, penalty free loan from us. If I don’t pay my taxes in a timely manner I will be penalized or charged hugh amounts of interest.  I paid into Social Security all of my working life.  Does that mean the Government can help themselves to my money.  They don’t know how to budget – is that my fault.  I am sick of all the trips (vacations) the President and his family feel as tho they are “entitled”.  This is WAY out of control. What to do? What to do?

  14. unhappyretiree says:

    the government is in debt up to their ears through no fault of mine.  I didn’t give them permission to blow the taxpayers hard earned money to support people who don’t want to go out and earn a living.   I worked until I was 70 1/2 years old.  Now I want to enjoy my retirement and receive the money I invested for the last 20 years.  I don’t want my money to be used to pay off a debt that I did not incur.  Keep your hands out of my G-Fund Annuity.

  15. Sherry says:

    Why do they alwasy mess with our retirement.  We didn’t ask to be put under FERS, we had no choice.

    If they are using our TSP in any way it had bettre be on the Government matching part.  It would be totally illegal for them to take any of the money we’ve actually had subtracted from our pays for years and we are only allowed to even borrow it for specific reasons.  Plus we have to pay it back with interest and they take that right out of our pays.  The Government will never pay this back – their IOUs mean nothing.

    They never ever mess with the CSRC money.  That is also not all money they had taken out of their pays – they had government funds added in also.

    But they made us go into FERS.  They gave us no choice.  Now they are giving us no choice when they mess with our retirement.  It’s a sick joke.

  16. Mike0795 says:

    The foundation of the United States problems all reside in MONEY and its influence within Congress as well all election scenarios throughout the contury.  MONEY is the problem is because no one can run for election without MONEY, the majority of which is donated with the implied understanding that those accepting that money will “owe” a favor in the future.  Our elected representatives (at all levels)  are well in tune with the ill gotten benefits that they can receive.  To retain their position (i.e., power as well as the potential to exponetially increase their personal wealth) elected representative repay their “debt” by supporting what the donors want–protect the donors position or worse, allow them to write legislation that benefits their interests–not Democrats, not Republicans, not male or female, not liberals, not conservatives, not a particular religious affiliation, and so on.
    The solution to all of the dysfunctional behavior of elected representatives is to change the entire election process at every level in the country (federal, state, county, city) by adopting the following actions:
    — NO personal or donated money is permitted in elections
    — ALL elections are funded by tax dollars
    — Implement a limit on what an election candidate can spend
    — Limit the time to run for election (e.g., 6 months NOT 2 years)
    — Implement term limits for all positions
    — Prohibit lobbyists and special interest groups from soliciting elected representatives in private (i.e., all lobbying will be done before the entire body of elected representatives)
    Once the MONEY is removed, no one is beholden to anyone except the public.  Term limits restrict opportunities to retain power and influence for decades (as currently exists).  Elected representatives can then focus on what their responsibilites should be: execute your job for the benefit of the public good not your own personal agenda or some lobbyists or special interest group.

  17. Fedup says:

    Isn’t this a criminal offense?  Can we all spell “Class Action Suit”!

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