Feds Dodge Cut in G Fund Interest Rate

By on July 21, 2015 in Retirement with 23 Comments

Federal employees who enjoy the interest rate currently paid by the G fund will breath a sigh of relief knowing that a proposal to substantially cut the interest rate did not pass in the Senate.

A recent possibility floated by Senate Republicans was to cut the interest rate paid by the G fund to a rate comparable to the rate paid by many money market funds. (See Republicans Consider Cutting G Fund Interest Rate to Raise Money)

The money that would have been saved by cutting the interest rate would have been used to partially fund the Highway Trust Fund. A bipartisan deal on the Highway Trust Fund has been agreed but does not include a cut in the G fund interest rate.

The result would have been cutting the G fund interest rate from what is currently paid (the G fund provided a 2.31% return in 2014) to a rate that would be closer to 0.02% according to the National Association of Active and Retired Federal Employees (NARFE).

NARFE wrote in a press release: “The Senate has soundly rejected this proposal, and this should be the last time such a proposal rears its ugly head, At a time when federal employees, retirees, job seekers and their families are reeling from news that their most personal information and financial data have been compromised, it is unconscionable that some members of Congress would consider targeting the retirement security of this very constituency to pay for completely unrelated legislation.”

NARFE and federal employee unions had lobbied against the change in the G fund rate.

NARFE released this quote from Richard G. Thissen, NARFE President: “Of the more than $458 billion invested in the TSP, almost $200 billion is invested in the G Fund. Of the 4.7 million TSP participants, more than 4.3 million have all or some of their account balance invested in the G Fund. This is because the G Fund provides a stable, sound investment with a rate of return calculated using the same formula as the securities issued to the Social Security Old-Age, Survivors, and Disability Insurance (OASDI) Trust Funds.”

The Senate deal would fund highway projects for three years but it leaves it up to the next Congress to figure out how to finance the second half of the extension. The bipartisan deal may not work out though as some Republicans are joining Democrats in voting against a motion to proceed with the bill.

So, the Highway Trust Fund is not yet resolved. No doubt, the Trust Fund issue has run into a number of controversial roadblocks before getting this far including a dispute regarding flying the Confederate flag on federal land so no one can be certain of what will happen next. (See The Confederate Flag and Your 2016 Pay Raise)

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

Tags:

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.

Top