The National Debt and How it Impacts Your Retirement and the G Fund

By on May 22, 2013 in Current Events with 37 Comments

It is that time again.

As our federal debt continues to spiral higher, the current debt ceiling limit of $16.7 trillion isn’t high enough to pay for government spending. The $16.7 trillion debt ceiling went back into effect on May 19 after being suspended earlier this year by Congress.

Earlier this year, Congress voted to suspend the debt ceiling limit until mid-May to avoid the risk of default and focused on sequestration to try and stop the spiraling federal debt. In what we now consider good news, the federal budget deficit will only increase by  $642 billion this year. The deficit last year was $1.1 trillion.

The debt limit debate has an impact on federal employees even if they are unaware of it.  On May 21st, the Treasury Department declared a “debt-issuance suspension period” under the statute governing the Civil Service Retirement and Disability Fund. That allows the federal government to redeem existing Treasury securities held by the fund as investments, and suspend new payments. The reason for the action is that each month the debt-issuance suspension is in effect, there is about a  $6.4 billion reduction in federal expenses, according to the Treasury Department.

This does not mean that civil service benefit payments will be canceled. Money will still be distributed and those impacted will not be affected by the action—just as happened the last few times this occurred. After the debt ceiling is raised, the money will be repaid.

The suspension period will be from May 20 to August  2nd according to the Treasury Secretary.  Additional investments of amounts credited to Postal Service Retiree Health Benefits Fund will also be suspended during this period. According to the Treasury Department, this action will provide about $19 billion in “headroom under the debt ceiling). (See also, How Much Do You Know About Funding of the Federal Retirement System?)

While the G fund is not impacted as of today, it will be in the near future. According to Kim Weaver, the Director of External Affairs for the TSP, “We anticipate that the G Fund will be impacted in the upcoming weeks, but it has not happened yet.”

In other words, as the debate continues on the debt ceiling, the G fund will be used as one way to offset the current federal deficit. As many readers are aware, the G Fund consists of special-issue Treasury securities that are only available to investors in the Thrift Savings Plan. As a way of delaying the inevitable run-up against the debt ceiling, the Treasury Department will begin “disinvesting” in the G fund.  In effect, the Treasury stops issuing these special securities. The result is to remove this source of federal debt and giving the government more money to spend on current expenses. Investors in the G fund have never lost money as the account balances continue to accrue earnings. Also,  loans and withdrawals are not impacted.

When the “disinvestment” period ends, the securities are reconstructed as if the suspension had not occurred. In short, the G fund is used as an accounting gimmick to give the federal government more time to work out the problem with the debt ceiling. Presumably, the ceiling will again be raised by some amount before there is a government default. That makes some G fund investors uncomfortable. In the long run, it has not made any difference in the value of the investment.

If this seems familiar, it is not your imagination playing tricks. This is a replay of an event that has occurred before. As our debt continues to spiral, using the G fund to prop up government spending is happening more frequently. (See, for example, Using the G Fund to Help Fund Federal Expenses and The “Debt Issuance Suspension Period” and $186 Billion of Your Retirement and TSP Funds.

The Debt Ceiling and Your G Fund Investment

As we approach the new, larger debt ceiling, the Secretary of the Treasury has the authority to “suspend the issuance of additional amounts of obligations of the United States, if such issuance could not be made without causing the public debt of the United States to exceed the public debt limit.” This is where your Thrift Savings Plan comes into play; specifically, the G fund.

The “G” fund is invested in interest-bearing Treasury securities that comprise part of the public debt. This is the reason the G fund is often described as an extremely safe, conservative investment for TSP investors. 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. The G fund matures and is reinvested daily. Rather than reinvesting the full balance of the G fund, the Secretary can (and probably will) credit some or all of the balance of the fund to non-interest-bearing accounts in the Treasury.

What Will Happen Next?

No one knows with certainty how the current situation will evolve. In the past, the debt ceiling has generally been raised. That is likely to happen again after wrangling in Congress on how much the debt limit should be raised and, for Republicans at least, how to try and bring federal spending within the revenue received by the federal government. A plan has been emerging in the House that would raise the debt limit but also contain spending cuts, a framework for tax reform and a “jobs” element which would probably be related to the Keystone XL pipeline.

It is unlikely there will be a resolution in the next few weeks and the debt ceiling and some of the issues surrounding it will probably not be resolved until sometime in the Fall. This means there is very little likelihood the G fund will avoid being used  again as one way to have the government continue paying its debts.

© 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. zephod says:

    I have a solution to the G-Fund Robbing. Everyone pull their G fund money out and place that money in the F-Fund as a protest !

    • Fed Up! says:

      Great idea Beblebrox, the F fund is in negative territory. My money is in the CSI funds making more money for me. Keep your financial advice and protest for the Vogons.

      • RETVET03 says:

        Haha….yes you are right on the “money”, as they say. One needs to invest with logic and intelligence…not ideology and emotions. You’re right on target.

    • NearingCareerEnd says:

      Zephod, Regardless of what smart mouth Fed Up! says, I did take all my G fund out and put it into the F fund (which has minimal reduction) the last time Big Brother ‘borrowed’ our money early January. When it was repaid I transferred back to the G fund. However this time the F fund would not be a good choice, but neither are the CSI funds. I believe these funds will have to take hit, and probably a big one – what goes up usually comes down. The Dow, NASDEC, etc. are just to hot and volitable. So, it would be a greater risk to move the G fund now. We are kinda boxed in this time.

  2. PhoenixWoman says:

    1) The Federal debt isn’t growing right now: It’s shrinking.

    From a May 20, 2013 Reuters article, “Analysis: Shrinking deficit reduces pressure for budget deal”:
    “The news about the shrinking deficit came Tuesday, when the Congressional Budget Office slashed its deficit forecast for 2013, projecting it will be equivalent to 4 percent of America’s economic output, less than half its 2009 level, and will drop to 2.1 percent, based on current projections, by 2015.”

    2) Healthcare expenditures are among the biggest parts of the non-Pentagon parts of the budget, yet Medicare (unlike the VA and unlike every private healthcare provider) is not allowed to negotiate with drug providers for lower costs.

    3) Why is it that the very rich people like Honeywell CEO David Cote who are behind “Fix the Debt” and other well-funded Astroturf groups are themselves notorious tax dodgers? If they really thought the deficit was that big a problem, why don’t they throw some of their own considerable fortunes at it instead of setting up death panels to force us to go without Social Security and Medicare?

    From the February 11, 2013 Truthout article titled “Protesters Confront CEO and “Fix the Debt” Leader over Corporate Tax Breaks”:

    “Three minutes into Cote’s keynote address, the first heckler trumpeted:

    ‘Fix the Debt claims to seek bipartisan solutions to reduce the deficit, but Fix the Debt is nothing more than a CEO lobby whose real objective is huge corporate tax breaks and drastic cuts in Social Security, Medicare and Medicaid. David Cote and his CEO friends receive a lot from government: In 2011, Honeywell received $725 million in government deals, making it the 35th largest federal contractor. However, Honeywell and other companies pay next to nothing in taxes. Honeywell’s tax rate from 2008-2011 was 2 percent. Does anyone in this room pay 2 percent?’

    The crowd applauded, but Cote only laughed nervously.”

    • tag1555 says:

      The Reuters article cited in (1) went on to say in the next paragraph: “But the report said the deficit would start widening again in 2016 and continue on an upward path with “serious negative consequences” on the economy, increasing “the risk of a fiscal crisis.””
      http://www.reuters.com/article
      http://www.cbo.gov/publication

      Its also worth remembering that having a lower deficit means that the debt is continuing to get larger, just at a lower rate, i.e. the hole is still getting deeper, but its happening slower than before.
      http://www.treasurydirect.gov/

    • Manage This! says:

      Though I agree with points 2 and 3, your first point raises questions on your credibility due to the “Shrinking Deficit” point you bring up as argument to “The Federal DEBT isn’t growing right now: It’s shrinking” a DEBT and a DEFICIT are not the same or interchangeable words. A deficit is an issue of insufficient funds to pay an expense – a debt is simply money you owe. Our ability to pay out the deficit means we need to have more money coming in than we have going out – simply put – the taxes are not enough to pay the expenses – so we roll out a revolving charge account – constantly increasing what we owe. Not just paying off what we owe.

  3. notts62 says:

    Is the government borrowing TSP funds or is the Treasury simply stopping interest payments to the G Fund for a period? I was thinking of borrowing against my TSP to help against the impact of my furlough, but then I thought if too many people do the same and the Gov. is also borrowing TSP money, I might get denied.

    • Sincerely_09 says:

      I’d highly recommend not borrowing against your TSP – it may relieve some immediate stress but you are taking a double hit for it. Unless of course you cannot pay for food, mortgage or similar necessities after stopping any spending that is not mandated for survival. In my opinion, it is better to suspend cable, pay minimum payments & tighten the belt on everything for a couple months rather than take a hit on your investments.

    • Duncan Duhnut says:

      They are suspending the interest payments, although your statements won’t show this. The article suggests that the government will also fail to purchase any securities when employees make contributions to the G fund. This is a slick accounting gimmick designed to make it look like the government is not issuing new debt and this allows them to operate longer without violating the debt ceiling. The key phrase is the Treasury has the authority to “suspend the issuance of additional amounts of obligations”. Now if they also have the ability to stop reinvestment in the current short term securities when they they expire, that takes even more ‘debt’ off the books. But not to worry since everything will be set right by the Treasury once a debt limit deal is reached.

      As for borrowing against your TSP, you have the right to do so and the government will have to convert existing securities into cash. I don’t know offhand if you can select the loan to come from a certain fund, you might have to do an interfund transfer separate from the loan.

  4. steve5656546346 says:

    This is all for now: but what happens in the future…when the US becomes like Greece…and then worse than Greece?

    If we make any meaningful cuts, the voters won’t stand for it. If we don’t, we’ll be bankrupt and the voters will not have any choices left. This is how democracies end.

    • PhoenixWoman says:

      How about making our rich people pay taxes for a change? Ours pay far less taxes now than they have in the past eighty-odd years. That includes corporate taxes, which since there are so many loopholes are effectively much lighter than anywhere in Europe.
      If our rich people paid the tax rates that were in effect under Eisenhower, there wouldn’t be a deficit. Come to think of it, under Eisenhower and his tax rates, far higher for the rich than are today’s tax rate, the Federal Government ran a surplus. This is not a coincidence.

      • Sincerely_09 says:

        You’re dreaming Phoenix. How can you negatively compare us to Europe when we are well on our way to becoming just like them? Taxing isn’t the problem – spending/waste & DEBT is. Look at our government, you honestly think they would spend money more wisely if they only had more of it?

        You seem to think we are great shape if our deficit decreases by 1 or 2%. Here is a comparison for you… for 5 years your annual income has been $50,000 which you spend & also borrow & spend an additional $20,000 each year. In the 6th year you only borrow $10,000. By your rationale, you are probably cutting too much & hurting your lifestyle because you cut a whopping 50% of your deficit in just 1 year! You are still $110,000 in debt with no hope of reducing it.

        Here is something I didn’t think of… why don’t you just increase your annual income to $150,000 or hey let’s not be stingy here, why not $1 million? Surely that would solve your debt problem. 1) easier said than done. 2) no it wouldn’t. If you don’t have the discipline to live within your means at the lower income, you are simply going to continue your bad spending habits.

        You can tweak all the %’s, loopholes, etc all you want. Until we learn to live within our means, nothing will improve, let alone be fixed.

        • Fed Up! says:

          The facts (and history) don’t back you up. Many countries in Europe and Britain have cut its govt. spending, and most have gone back into recession. The only way we become more like them is if the R-TP has its way and drastically cuts spending.

          • Sincerely_09 says:

            My history is wrong? Name another country that gained wealth as quickly & sustained it for as long as the USA… based upon free market capitalism & personal liberty & freedom. It is over time we have begun to return to European style government & societal norms that has caused the trouble we are in now. Freedom & Liberty do not work when society is unable to govern themselves.
            I forgot to add – European recession is inevitable if their Gov cuts spending, just like you said. That is because Gov is controlling so many areas of their lives i.e. health, entitlements, benefits, education, etc. If their Gov wasn’t so involved, they wouldn’t need it to continue unsustainable spending in order to not crash their economy.

          • Fed Up! says:

            I could name almost all other European nations, like Germany bombed back to the 19th century, that rose from their ashes to exceed our standard of living it took the U.S. 100 years. It took them 25 or less -with our ‘socialist’ help. Like Europe doesn’t have freedom and liberty? So I guess we lost WW2 and the Soviet Union took over all of Europe from the Nazis. Last I checked, all European nations have the same basic freedoms we do, hold free elections and have much higher standards of living. Yes, I’d say you’re history is wrong. And recession is good for them and us? Yeah right.

          • Sincerely_09 says:

            Please tell me you are joking… Have you ever been to Europe??? Germany mandates kids go to public school… currently a family fled Germany because they were going to have their kids confiscated just because they wanted to home school them. Try getting a minor surgery performed over there. I personally know several people that needed a simple surgery i.e. hernia… waiting time was over 2 years. They were laborers/farmers so couldn’t work & had to sell off parts of their land and/or nearly starved while waiting so they could return to work. They have RATIONED CARE… someone else decided whether you deserve treatment or not. Simply because their government has not completely snuffed out their right to breathe or mandate a line of work due to “their class” does not mean they are free. Quality of living… again, I’m led to believe you have never been there or didn’t get off the tour bus & actually look around.

          • Fed Up! says:

            Did you ever live in the U.S.?! Kids are mandated to go to school here until 16 years of age here. Unfortunately in some places we HAVE to give up my (public) tax funds to support religious schools -thats not freedom! Yes, I’ve been to Europe (have relatives there), China and Japan. I’m not claiming they have higher living standards, its all the surveys and studies that say that. Including the FACTS that health care and mortality rates in the U.S. are far down the list compared to Europe but costs us several times more per patient for less care.

          • Sincerely_09 says:

            Please reread your previous posts… you previously claimed that Europe has much higher standards of living & now in your last post cite unnamed studies to support that claim… even though you actually disagree with those studies based upon your personal experience? How does that work? Hey – did you know that studies have shown if your hand is bigger than your face there is a 99% chance you have cancer? Step closer, put up your hand & I’ll show you how it works. 😉

            I think you misunderstood my home school example for freedom. Yes USA & German kids must attend school until a certain age. My point is that in Germany the government has mandated that only government sanctioned public schools are permitted & noncompliance will lead to fines & give them just cause to confiscate your children. Police have literally shown up at homes when children didn’t attend & dragged them to school.

            Your claim that taxes are used to fund religious schools… that doesn’t seem right but I don’t know so I’ll trust it is accurate. Comparison: If I choose to send my children to religious schools, can I opt out of paying that portion of taxes which go to public schools? Of course the answer is no & by your own rationale – that’s not freedom!

            I don’t think your “FACTS” that the USA provides far less care at such a higher cost per patient is accurate but again I won’t claim to have all the stats in front of me. The logic doesn’t make sense though. You stated that USA has longer life spans… that would seem to indicate that our preventative care and/or treatment is superior & more readily available compared to Europe’s. So if Europe’s costs are much lower & their mortality rates are much higher – that seems to indicate that they treat fewer patients… which means they are rationing the care and/or patients needing care die before it is available. Is that freedom?

            If my logic is flawed please explain with practical examples. There is no need to cite “studies” or “facts” with no example or application.

          • goldgoldgold666 says:

            In SIncerely’s analogy above, let us now have two neighbors in the income/deficit/debt situation he described. One decides to get his house in order and has to downgrade his car, sell his boat, sell home furnishings etc. The other points out how terrible the neighbor’s strategy is because now his lifestyle is less awesome. “That loser doesn’t even have a boat now.” Who do you think you are in this example? But the recovering debt-slave has forestalled his day of reckoning–short term pain for long term gain.

            More seriously, cutting spending will always reduce GDP by definition. Government spending is right there in the equation used to calculate GDP. But this is just short term pain for long term gain again.

            Of course the spending that is cut should also be the most discretionary items. Here in the US liberals will force the cuts to hit the most popular and visible items in order to maximize taxpayer pain and create the illusion that the government cannot be cut without dire consequences. And to be fair, conservatives will only advocates cuts when they are not in power, because they do not want to accept sole blame for the short-term pain from the unsophisticated voters who just want their free stuff.

          • Fed Up! says:

            Lets have that neighbor (your Uncle) save most of his money from his low wage job in his mattress and never spend more than then he needs to eat beans and rice. He splurges and buys a guard dog and high fence for his property to keep potential criminals out. But he won’t even spend money to replace his roof every 20 years or fix up the porch cause paying the carpenter costs more than he takes in in a week. After 10 years he has no debts, ignores his poor nephews, sleeps on a cool 1/2 mill, but his roof is leaking, his porch is falling down so no one comes to see him. Then he steps on a nail and cause he can keep wearing the same worn out shoes he has had for 20 years he dies from tetanus. The house is bulldozed, the money goes to his nephews, but it is now worthless confederate dollars and dog is euthanized at a shelter. What profited this man in his life?

          • Sincerely_09 says:

            He did profit in his life because he had the FREEDOM OF CHOICE! He was free to live his life as he deemed worthy.

            Clearly, you believe that yourself or the government could have done a much better job of managing his life… at what point would you have stepped in to intervene on this man’s behalf? At the beginning of your 20 yr example? Perhaps before then so to educate him on the true meaning of his purpose in life so he wouldn’t have made that “mistake” in the first place? Why wait that long… why not take control at birth so that no one makes bad decisions for their lifespan?
            Should everyone be assigned a “life coach” at birth to make all their decisions for them so they don’t deviate off the strict path that was designed for them?

      • $31427826 says:

        Come on Phoenix Woman, do you really want the wealthy to pay 90%? I agree the Bush cuts set this country on its downward spiral but 70 to 90% is confiscatory. No more 15% tax rates to hedge fund managers either.

        • RETVET03 says:

          90 percent, even on the way, way, WAY upper brackets seems obscene to me. However, no wealthy person THESE days would EVER hit those brackets because they have the money, power, and lawyers to game the system. For instance, few of the extremely wealthy people have an “income” that they pay taxes on like us working stiffs. On the other hand, now that corporations are “people”, and not just entities (like originally envisioned), we are starting to feel like a plutocracy.

  5. Comrade1917 says:

    Federal employees must share their wealth with the masses.
    Be good comrades!

  6. Enchanted says:

    I have been in the government a long time. My retirement has been stolen many times over the years. I will be getting my money when I retire. I have other things to worry about right now and that includes the 5.5% additional amount obama and company want us to contribute to our basic retirement AND I (we) will only get a small percentage of that money back when we retire. This is another tax in disguise because come tax time you won’t be able to deduct the difference because it is going under the title “retirement contributions”

    • Fed_Peasant says:

      “tax in disguise” is correct. FERS is already solvent. This will somewhat resemble the pre-funded & over funded US Postal Service health benefits situation. Except this time, the employee, & not the agency, pays for the over funding.

      • PhoenixWoman says:

        Yup. No other enterprise, public or private, is forced to have an eighty-year rolling cushion to pay for retirees who haven’t even been born yet! Undo the 2006 law, pushed by the outgoing GOP Congress of the time, and most of the Postal Service’s problems disappear.

        • goldgoldgold666 says:

          God forbid a goobermint pension scheme actually be funded. The rosy assumptions of other pension schemes are the ones that should be revised, particularly those of state and local goobermints.

    • Manage This! says:

      You really need to rethink your comment before posting it. The additional 5.5% is not for those who have been in service more than two years (I think it actually works out to hired within the last year). Those of us who are vested FERS empoyees will continue to pay the rate we have been paying all along. Don’t go with the hype – read the actual documentation on the change at OPM.

      • Enchanted says:

        I don’t refute your comment, however ‘they’ are thinking of including everyone. Whether they do it, is another story. Think about it. There is going to be a lot of downsizing. The number of personnel coming into the government will be almost nill compared to previous years. So how are they going to make a lot of money (and it is money in their coffers) when there is little to no one to contribute? It is logical to capture everyone. Regardless they are not thinking of the federal worker, they are only thinking about the cash cow and how much money they can garner to spend on their pet rocks.

  7. Keeg says:

    Best thing to do – don’t put your money in the G fund.

    • Enchanted says:

      It depends where you stand in relationship to retiring. If you have lots of time left, go for the more risky funds. If you are close to retirement it is best not to gamble.

  8. Fed Up! says:

    Absolutely NADA. Waste of time & space article.

  9. TheRealOldFed says:

    Once again, Federal employees are bailing out the Federal gov’t. While we are constantly reviled by Congress and the general public, the money from OUR retirement fund is being used to support this nation and pay its bills.

  10. m says:

    So does this mean the G fund will do better or worse???

    • TheRealOldFed says:

      neither one. After the “borrowed” money is returned (which is REQUIRED by law), the performance of the G fund is “reconstructed” according to what it should have made and all employees are made whole. It is very fortunate that Federal law requires the G fund money to be returned by the U.S. Treasury. Otherwise, we’d get one of those fake IOU’s that they issue for Social Security fund money that is stolen by Congress, and never get it back.

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