Funding the Federal Government with the G Fund

As we quickly near the latest debt ceiling limit for the federal government, the G fund will again by eyed as a temporary way to continue government spending.

Most Americans do not have access to the Thrift Savings Plan (TSP) and the G fund in the TSP is unique in that money in the G fund is invested in Treasury securities that only TSP investors can buy. There was about $191 billion in the G fund at the end of January.

An issue that would not seem to be related to the G fund is the federal debt limit ceiling. According to the Treasury Department, the federal government is continuing to spend a great deal more money than the government receives in revenue despite new records being set for federal revenue receipts.

In any event, about March 15th, the debt ceiling will be reached. The government will continue to spend more money than it receives in revenue even though it cannot borrow any more money to spend. The debt ceiling is currently about $18.1 trillion.

How will the government continue to function without getting more money? One way is to use the G fund and the Civil Service Retirement and Disability Fund as a way of raising funds. Treasury Secretary Jack Lew told Congress on March 6 that  he will start using the package of emergency measures he has used in the past to keep the federal government from going over the debt limit.

Eventually though, the federal government will have to either be able to borrow money or cut spending. Politics being what it is, cutting spending isn’t likely to happen. This means that in October or November of 2015, Congress will have to again raise the debt ceiling. Borrowing money from the G fund and the retirement fund will help the government meet its spending requirements until later this year.

This is not the first time this action has occurred with the G fund when the debt limit expires. In fact, it has become a routine action taken by the Treasury Department as the federal government keeps spending money at an extraordinary rate above the amount that is received each year. The last time it occurred was in February 2014.

Previously, no investors in the G fund have lost any of their money. That is the most likely scenario that will occur again this year. Here is the information the TSP management has provided to investors in the past when this situation has occurred.

“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.”

Each time this occurs, readers ask why the federal government can use retirement funds to fund the government. Here is a quote from the Congressional Research Service:

“Congress has granted to the Secretary of the Treasury the authority to take certain actions that allow the Treasury temporarily to continue borrowing cash from the public without increasing the public debt. The Secretary is authorized to take these actions, which effectively reduce the obligations of the government that are counted toward the public debt ceiling, only during a “debt-issuance suspension period.”

When “extraordinary measures” are taken, 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.”

The Treasury Department cannot sell or redeem Treasury bonds held by TSP participants.

But the Treasury Secretary does have 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.”

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. These non-interest-bearing accounts do not count against the public debt limit.

Of course, while unlikely, it is also possible that the debt limit will not be raised and the federal government would only be able to spend what it receives in revenue. Chances are, that would result in furloughs of federal employees. Moreover, our elected leaders in Washington would likely opt to withhold spending money on items that are guaranteed to make headlines, place blame on whoever is not issuing the press release, and put pressure on Congress to raise the limit immediately or enact new spending cuts.

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. Follow Ralph on Twitter: @RalphSmith47