A government “shutdown” is looming due to the debt ceiling and political disputes evident in Congress. We do not know if the debt ceiling will be raised in time to prevent a temporary government shutdown.
How Debt Ceiling Impacts the Thrift Savings Plan
Here is a statement from the TSP about the impact of the lack of a new debt ceiling on the G Fund of the Thrift Savings Plan (TSP):
As of August 2, the U.S. Treasury was unable to fully invest the Government Securities Investment (G) Fund due to the statutory ceiling on the federal debt. However, G Fund investors remain fully protected and G Fund earnings are fully guaranteed by the federal government. This statutory guarantee has effectively protected G Fund investors many times over the past 30 years. G Fund account balances will continue to accrue earnings and will be updated each business day, and loans and withdrawals will be unaffected.
Here is what is going on with the G Fund and how the current situation impacts the TSP.
The Government Securities Investment Fund (G Fund) is a government account used to fund the government on a short-term basis. There are assets of about $795 billion in the TSP, 33.7% of which is in the G fund. At the end of August 2021, 26.5% of TSP investor assets were in the G Fund. For the core TSP Funds, 33.7% of investor assets were in the G Fund.
In effect, the Treasury Department takes “extraordinary measures” to avoid hitting the current debt ceiling until Congress approves a new debt ceiling. One of these “extraordinary measures” is using the assets of the G Fund to help fund the federal government.
In effect, a large number of federal employees are contributing to financing the operation of the federal government whether they know about it or not.
On previous occasions when this has occurred, the TSP has issued the following statement:
The U.S. Treasury was unable to fully invest the Government Securities Investment (G) Fund due to the statutory ceiling on the federal debt. However, G Fund investors remain fully protected and G Fund earnings are fully guaranteed by the federal government. This statutory guarantee has effectively protected G Fund investors many times over the past 25 years. G Fund account balances will continue to accrue earnings and will be updated each business day, and loans and withdrawals will be unaffected.
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.
Kim Weaver, Director of External Affairs for the Federal Retirement Thrift Investment Board (FRTIB), noted at the most recent public meeting that the FRTIB will not be impacted by any shutdown as it does not operate with appropriated funds.
TSP Fund Performance in September
TSP investors have become used to seeing positive returns. But, as those investing in the stock market know, returns are not always positive. That has been the case for most of the TSP core funds for September through the stock market closing data as of September 27th.
Here is how the TSP core funds have fared so far in September.
| Fund | September Return % | Year-to-Date Return % |
| G | 0.1 | 0.98 |
| F | -0.58 | -1.13 |
| C | -1.67 | 19.52 |
| S | -0.54 | 15.68 |
| I | -0.61 | 11.01 |
Events always impact the price of stocks. As central banks start to raise interest rates, that has a negative impact on stock prices. In effect, stocks have benefitted by having low-interest rates. As inflation starts to grow, as it has done so far in 2021, central banks raise interest rates and that will often drive stock prices down.
Why Is the G Fund Going Up When Stock Funds Are Down?
This change in direction also has an impact on bond prices. Note that the G Fund is up so far in September—the only TSP core fund to have a positive return. The yield on 10-year Treasury notes has gone up for six days in a row.
Here is what the TSP writes about the G Fund:
The G Fund’s investment objective is to ensure preservation of capital and generate returns above those of short-term U.S. Treasury securities. The G Fund invests in nonmarketable U.S. Treasury securities specially issued to the TSP. The G Fund rate is calculated by the U.S. Treasury as the weighted average yield of approximately 153 U.S. Treasury securities on the last day of the previous month.
In effect, the G Fund is a counter-weight to the TSP stock funds in an investment portfolio. Stock prices generally go up more than the G Fund goes up. That is not always the case. While the overall return of the G Fund is often lower than the return on stocks, the G Fund is likely to go up and provide a positive return when stock prices go down.
How TSP Investors Allocate Their Investments
Here is how investors in the Thrift Savings Plan have allocated their investments as of August 31, 2021.
- G Fund: 26.5%
- F Fund: 3.3%
- C Fund: 31.9%
- S Fund: 2%
- I Fund: 3.9%
- L Funds: 22.6%
FedSmith will publish the monthly returns for readers for all of the TSP funds early in October.
