Federal Employees, Federal Benefits and Debt

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By on August 20, 2017 in Pay & Benefits, Retirement with 0 Comments

US flag sticking in a pile of American dollars

The debt ceiling for the federal government was reached in March 2017 as the federal government continues to spend much more money than it receives. The debt limit has not been raised by Congress.

In the meantime, the Department of the Treasury has been using “extraordinary measures” in order for the Federal government to pay its bills. It has been doing this for some months now.

Congress will presumably vote on raising the debt limit by the end of September. We do not know, of course, whether the debt limit will be raised and by how much.

The Treasury Department recently said it continues to expect to be able to fund the government through September 30th. It also said it is critical that Congress act “promptly” to raise the borrowing limit to avoid further problems.

The underlying problem, obviously, is that while the federal government is taking in record amounts of revenue, federal spending continues to exceed revenue and the debt keeps piling up with the government’s national debt now exceeding the United States’ GDP.

What is the Debt Limit?

The debt limit is the total amount the Federal Government is authorized to borrow to meet its legal obligations. These obligations include Social Security and Medicare benefits, military salaries, interest on the national debt, tax refunds, and other payments.

The debt limit does not authorize new spending commitments. It only allows the government to finance existing legal obligations that Congresses and presidents of both parties have made in the past.

The total national debt is now about $20 trillion. Currently, the debt limit is about $19.808 trillion.

If the debt limit is not raised, no one knows exactly what will happen or how federal employees would be impacted.

Extraordinary Measures Impacting Federal Employees and Retirees

Treasury secretaries in both Republican and Democratic administrations have used their authority to implement extraordinary measures in order to prevent the United States from defaulting on its obligations as Congress deliberates on increasing the statutory debt limit.

The extraordinary measures available to Treasury that are of most interest to FedSmith readers include:

  • Determining that a “debt issuance suspension period” exists, which permits the redemption of existing, and the suspension of new, investments of the Civil Service Retirement and Disability Fund and the Postal Service Retirees Health Benefit Fund; and
  • Suspending reinvestment of the Government Securities Investment Fund (the G Fund in the TSP).

These actions create some financial breathing room and allow the Federal Government to remain under the current debt limit. The reality is that the breathing room is almost exhausted according to the Department of the Treasury.

On average, the public debt of the United States is new increasing by approximately $100 billion per month.

The Civil Service Retirement and Disability Fund (CSRDF) and the Debt Limit

The CSRDF provides defined benefits to retired and disabled Federal employees covered by the Civil Service Retirement System.

The Civil Service Retirement and Disability Fund (CSRDF) invests in special-issue Treasury securities. These securities count against the debt limit.

The Treasury Department is authorized to suspend investing money received by the CSRDF. This authority can be used when the Secretary of the Treasury determines that additional investments cannot be made without exceeding the debt limit. Also, the Treasury can redeem existing investments held by the CSRDF when the Secretary of the Treasury determines a “debt issuance suspension period.”

Currently, the Secretary of the Treasury has determined a debt issuance suspension period. Treasury Secretary Steven T. Mnuchin wrote on July 28, 2017:

I have determined that a “debt issuance suspension period,” previously determined to last until July 28, 2017, will continue through September 29, 2017. As a result, the Treasury Department will continue to suspend additional investments of amounts credited to, and redeem an additional portion of the investments held by, the CSRDF, as authorized by law.

By law, the CSRDF will be made whole once the debt limit is increased. Federal retirees and employees will be unaffected by these actions.

Based upon our available information, I believe that it is critical that Congress act to increase the nation’s borrowing authority by September 29, 2017. I urge Congress to act promptly on this important matter.

Note from this statement there is no intent to withhold pension payments to federal retirees. That could change as noted below.

Consequences

No one really knows what the consequences will be if the debt limit is not raised. The debate is caught up in the philosophical differences between Democrats who generally do not want to cut back on government spending, particularly with regard to social programs, and Republicans who want to reduce government spending but rebuild the U.S. military.

Generally, Democrats prefer a new, higher debt ceiling without restrictions. Republicans generally want to cut government spending overall and to work on reducing the spiraling debt.

How these differences will be resolved remains to be seen. Certainly there is little doubt that the Treasury Department will continue suspending investments in the CSRDF and redeeming an additional portion of the investments held by the CSRDF.

Also, an accounting gimmick the government uses to buy more time before hitting the debt ceiling is to suspend reinvestment into the G Fund (reinvestments normally happen daily). The money will eventually be put back into the G Fund (with interest) after the debt ceiling is raised but the process will likely last beyond October 1st.

What will happen after September 29th (or mid-October according to the Congressional Budget Office) remains to be seen.

Note this statement in a March 2017 Treasury Department publication regarding payments to federal retirees:

By law, the CSRDF will be made whole once the debt limit is increased. Benefits for retired and disabled Federal employees will not be affected by this action and will continue to be paid. Once the United States has exhausted the extraordinary measures it has available to preserve lawful borrowing authority without exceeding the debt limit, however, the U.S. Government will be limited in its ability to make payments across the government.

In practice, this means that some government payments will be made after the “extraordinary measures” have been exhausted. Payments will presumably be based on the actual revenue received by the federal government rather than spending additional amounts of borrowed money.

We do not know which payments would be made and which payments would be withheld under such a system. It raises the possibility that there could at least be a reduction in annuity payments until the issue is resolved.

Eventually, the debt ceiling will be raised in some fashion and the new (probably borrowed) money will make up for the investments that were not made during the debt suspension period.

Political pressure will increase on both parties after September 29th. With the increasing acrimony and political divisions now evident in our country as various groups work to have their causes featured in the media, it may require this increased political pressure for any compromise to be reached in Congress.

© 2017 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. Follow Ralph on Twitter: @RalphSmith47

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