TSP board: Don’t worry about the G Fund as debt ceiling looms

The board that manages the Thrift Savings Plan expressed confidence Tuesday over its operations if the government hits the debt ceiling again and is forced to tap federal retirement accounts to avoid a default.

Susan Crowder, acting chief financial officer of the Federal Retirement Thrift Investment Board, said FRTIB has talked with the Treasury Department about the process in place. Enrollees will not be affected if the government suspends investments into the government securities (G) fund until the debt limit is increased, and it will be “business as usual,” Crowder reminded board members. The government is expected to hit its debt ceiling of $16.4 trillion at the end of December but has until February 2013 to avert a default if it uses the tools at its disposal, according to most observers.

The law allows the government to take extraordinary measures to avoid a default, including tapping into and suspending investments into the Civil Service Retirement and Disability Fund and halting the daily reinvestment of the G Fund, the most stable offering in the Thrift Savings Plan's portfolio. The G Fund is invested in interest-bearing Treasury securities -- bonds -- that make up the public debt. The Civil Service Retirement Fund finances benefit payments under the Civil Service Retirement System and the basic retirement annuity of the Federal Employees' Retirement System, and those investments are made up of securities also considered part of the public debt. Federal law (Sections 8348 and 8438 of U.S. Code Title 5) requires the Treasury secretary to refill the coffers of the G Fund and the Civil Service Retirement Fund once the issue of the debt ceiling is resolved, and in addition, to make up for any interest lost on those investments during the suspension.

“We understand how it works,” James Petrick, acting executive director of the board, said of the Treasury’s G Fund option during a debt issuance suspension period. “The process -- it’s hard to say it operates smoothly -- but it really does operate smoothly.” The government last suspended investments into the G Fund because of the debt ceiling nearly a year ago, in January 2012.

FRTIB also is closely monitoring negotiations between Congress and the Obama administration over the so-called fiscal cliff. The market is in a holding pattern at the moment while political leaders try to broker a deal before the end of the year over a series of expiring tax cuts and looming governmentwide budget cuts resulting from sequestration.