View this article online at https://www.fedsmith.com/2017/03/21/government-begins-borrowing-from-the-g-fund-to-offset-debt-ceiling/ and visit FedSmith.com to sign up for free news updates

The TSP recently announced that the government has begun borrowing from the G Fund to avoid running up against the debt ceiling limit.

The national debt is now approaching $20 trillion. That is just over $61,000 per citizen and almost $166,000 per taxpayer.

We do not know when the next debt ceiling limit will be raised but there is little doubt it will be raised. The Treasury Department has already begun calling on Congress to raise the debt ceiling. Treasury Secretary Steven Mnuchin sent a letter to House Speaker Paul Ryan on March 8 urging Congress to raise the debt ceiling as soon as possible.

Borrowing from the G Fund

In the meantime, many federal employees are contributing to financing the operation of the federal government whether they know about it or not. The reason is because the G fund assets within the Thrift Savings Plan (TSP) are used by the federal government to help meet expenses.

The TSP issued this statement on March 16:

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 Government Securities Investment Fund (G Fund) is one of these other government accounts used to fund the government on a short-term basis. There are assets of about $480 billion in the TSP, 38% of which is in the G fund.

As most readers know, the TSP is similar to a 401(k) retirement fund for over 5 million current and former government employees and uniformed service members. To make up for the deficit spending by the government, the Treasury has “suspended reinvestment” or taken assets out of the G Fund to pay for other expenses.

This is not the first time this action has occurred within the G fund. 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.

This is a statement made by the TSP in similar situations that have occurred previously:

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.

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 debt ceiling will again be raised by some amount before there is a government default. That makes some G fund investors uncomfortable, however, in the long run, it has not made any difference in the value of the investment.