Feds Dodge Proposed Cut to Their TSP Benefits

This story has been updated. 

Federal employees appear to have dodged one potential cut to their retirement benefits, for now. Changes in the rate of return on the Thrift Savings Plan’s government securities (G) fund were not part of a deal senators announced Tuesday on a six-year extension of highway funding.

A reduction in the G Fund’s rate of return had reportedly been on the table in the Senate as a way to finance the funding extension. The House passed a shorter-term bill last week that does not target the G Fund.

The proposal that had been under consideration in the Senate would have changed the formula for returns on the G Fund to the three-month Treasury rate, decreasing the fund’s rate of return from an average of 2.25 percent annually to an average of 0.02 percent, according to the National Active and Retired Federal Employees Association. The idea originated in the House Budget Resolution, but was dropped there as well.

“The Senate has soundly rejected this proposal, and this should be the last time such a proposal rears its ugly head,” said NARFE President Richard Thissen, in a statement after Tuesday’s deal was announced. “At a time when federal employees, retirees, job seekers and their families are reeling from news that their most personal information and financial data have been compromised, it is unconscionable that some members of Congress would consider targeting the retirement security of this very constituency to pay for completely unrelated legislation.”

NARFE argued – as it did when the proposal was first reported – that in addition to hurting federal employees and retirees, the plan would not produce the estimated savings of $32 billion.  If the G Fund’s rate of return drops below inflation, then the Federal Thrift Retirement Investment Board would divest $21 billion of lifecycle (L) fund holdings from the G Fund and would tell participants to do the same, the organization said. That divestment would in turn increase the public debt, because the Treasury Department would need to come up with cash to convert G Fund securities to other assets in TSP accounts.

The Senate deal funds highway projects for three years and leaves the next Congress to figure out how to finance the second half of the extension. The deal has already run into trouble, with Democrats joining some Republicans in voting against a cloture motion to proceed with the bill. Democrats wanted more time to review the deal. 

Eric Katz contributed to this report. 

(Image via Andrey Burmakin / Shutterstock.com)