Officials with the 401(k)-style retirement savings plan for federal employees said a proposal floated in the House’s fiscal 2018 budget resolution could effectively cripple one of its major investment portfolios.

The legislation, approved Thursday, suggests reducing the statutorily mandated interest rate of the Thrift Savings Plan’s G Fund, which is made up of government securities, to more adequately match its “risk profile.”

“Securities within the G Fund are not subject to default,” the budget report said. “Payment of principal and interest is guaranteed by the U.S. government. Yet the interest rate paid is equivalent to a long-term security. As a result, those who participate in the G Fund are rewarded with a long-term rate on what is essentially a short-term security.”

Although the report does not lay out a specific plan for changing the G-Fund’s rate of return, officials at the TSP have run the numbers on two possible replacements for its current formula.

The current annual interest rate for the G Fund is 2.25 percent. Changing the formula to track with the three-month U.S. Treasury bill would bring the rate down to 1.03 percent per year, while basing it on the four-week T-bill would drop the rate even further to 0.84 percent annually.

TSP spokeswoman Kim Weaver said the agency, which receives no appropriations from Congress, opposes “any change” to the G Fund’s rate of return.

“Such a change to the G Fund would do significant damage to TSP participants’ ability to save and invest for their retirement,” she said.

According to a TSP report, the outlined changes to the G Fund could shorten the viability of an average participant’s retirement account by more than a decade. Officials noted that the lifecycle funds, which shift investments toward more stable portfolios as people get closer to retirement, are designed to provide annuities until retirees reach the age of 92.

“A participant has just retired and is invested 100 percent in the L Income Fund,” the report said. “The cut in the G Fund rate to a three-month rate causes them to run out of TSP money at age 80 instead of 92.”

And under the three-month rate, a federal employee hired in 2017 saving at the same rate as a current participant would accrue around $65,000 less over their career. And their portfolio would run out of money as early as age 77.

As of June 2017, the TSP manages $505.2 billion in investments, of which, around $204 billion is in the G Fund. Nearly 73 percent of the TSP’s more than 5 million participants have at least some money invested in the portfolio.

“Such a change would make the G Fund virtually worthless for TSP investors, as account growth would not keep pace with inflation nor be competitive with stable value funds,” TSP officials said in a statement. “The G Fund would then only be serving the purpose of a money market account.”

Jessica Klement, legislative director for the National Active and Retired Federal Employees Association, echoed that sentiment. She noted that the idea was initially floated as a way to pay for Congress’ long-term transportation bill in 2015, and the estimated savings would have been $32 billion, which is the amount that the current budget resolution asks the House Oversight and Government Reform Committee to slash over the next decade.

“What it does is it renders the G Fund useless,” she said. “The interest would be near zero, and way lower than inflation. As it is, in years of low inflation, the G Fund return is already incredibly low.”

If Congress approves changing the G Fund rate of return, TSP said it would need to reallocate the money currently invested in government securities and develop a replacement, although it expressed doubts about how feasible that would be.

“Given the size of the G Fund, it may not be possible to create a new TSP stable value fund or an inflation protection fund,” officials said. “If the [Federal Retirement Thrift Investment Board] tried to create a TSP stable value fund, it is very possible that the TSP would not be able to purchase sufficient securities or would have such an impact on the price that it would adversely impact both TSP participants and other investors in the market.”