Treasury restores millions to G Fund as debt crisis ends

The Treasury Department on Tuesday restored $27.7 million in interest to a federal employee retirement fund. The interest was withheld for nearly two weeks during a government debt crisis.

From April 4 to April 15, Treasury suspended investment of as much as $18.7 billion of federal employees' money in the G Fund, the portion of the federal 401k-style Thrift Savings Plan that is normally invested in Treasury securities.

Treasury used the maneuver to avoid breaking the federal debt ceiling of $5.95 trillion. Breaking the statutory ceiling could damage the government's credit.

"Recent revenues have enabled the Treasury to fully restore the G Fund as required by law," Treasury Secretary Paul O'Neill said in an April 17 letter to Congress. "The G Fund and its beneficiaries are now in the same financial position as if investments had never been suspended, including a full credit for interest owed."

To avoid breaking the debt ceiling each day, the Treasury Department moved varying amounts of the $40 billion G Fund into non-interest bearing accounts. On April 4, for example, $13.7 billion was moved into non-interest bearing accounts. By April 15, the government owed the G Fund about $27.7 million in interest.

As tax payments arrived at Treasury this week, the department was able to restore the interest and begin fully investing the G Fund each day.

The Thrift Savings Plan invests the retirement savings of federal employees and military personnel in five funds: the C, S, I, F and G Funds. The first four funds are invested in stocks and bonds. Because the G Fund is invested in government securities, it never loses value, operating more like an interest-bearing bank account than like a stock fund.

The G Fund maneuvers during the debt crisis are essentially paper exercises. TSP enrollees who withdrew money from the G Fund during the crisis would have received the same amount of money as if the G Fund had been invested normally each day.

Treasury is required by law to repay any outstanding interest owed to the G Fund. The safeguard on G Fund investments, called the 'make-whole' provision, has been in place since President Reagan signed the 1987 Thrift Savings Fund Investment Act. The government tapped the G Fund three times in 1987, once in 1989 and once in 1995-1996. Each time, the government repaid the outstanding interest as soon as the debt ceiling was no longer threatened.

Treasury may have to turn to the G Fund again-and to other sources--in June to avoid breaching the debt limit, O'Neill said in his letter. He urged Congress to increase the debt limit by $750 billion so that Treasury won't be forced to do the maneuver again.

Federal employee union representatives have been critical of the maneuver, arguing that the administration should not play with federal employees' money. "Fiscal responsibility to federal employees and the American public should be above politics," National Treasury Employees Union President Colleen Kelley said at the beginning of April.