Treasury to suspend G Fund investments

The Treasury Department will suspend daily investments of billions of dollars of federal employees' retirement funds for two weeks to avoid breaking the federal debt ceiling, Treasury Secretary Paul O'Neill said Tuesday.

In a letter to key members of Congress, O'Neill said money in the G Fund, the portion of the federal 401k-style Thrift Savings Plan that is normally invested in Treasury securities, will not be invested from April 4 to April 18. The move will prevent the government from exceeding a statutory $5.95 trillion debt ceiling.

"The G Fund will receive complete restoration of all funds temporarily affected by this necessary action, including full and automatic restoration of any interest that would have been credited to the fund," O'Neill said in his letter to Senate and House leaders. "In short, the result on the G Fund and its beneficiaries will be the same as if this temporary action had never taken place."

Federal employees have about $40 billion of their retirement funds invested in the G Fund, one of five funds available through the TSP (the other four funds invest in common stocks, bonds, small stocks and foreign stocks). Normally, the Treasury Department invests the money in the G Fund each day in Treasury securities, generating more than $5 million in interest. Over the next two weeks, Treasury each day will move some of the $40 billion into noninterest-bearing accounts that don't count against the federal debt ceiling.

Treasury will keep track of the interest that the G Fund should have earned each day. When the government is no longer in danger of hitting the debt limit, Treasury will restore the lost interest to the G Fund.

Over the next two weeks, federal employees will still be able to withdraw or reinvest money in their G Fund accounts. Employees won't run into any delays, according to the Federal Retirement Thrift Investment Board, which runs the TSP. The Congressional Research Service, an analytical arm of Congress, issued a memorandum on March 20 agreeing that there won't be any effect on TSP accounts held by federal employees.

If O'Neill failed to suspend the G Fund investments, the government could face a shutdown of some of its operations, the Congressional Research Service report said.

In a fact sheet, the Treasury Department said that the government usually runs low on cash in early April, before tax receipts come in during the middle of the month. Because cash on hand and tax receipts won't cover federal benefit payments (such as Social Security), pay for federal employees, tax refunds and other expenditures, the government would have had to exceed the debt limit if it didn't tap the G Fund.

O'Neill has asked Congress to raise the debt limit three times this year to avoid tapping the G Fund, but lawmakers have resisted.

A spokesman for House Speaker Dennis Hastert, R-Ill., Tuesday said House Republican leaders plan to move a debt limit increase bill later this year, and that they are likely to attach it to the fiscal 2002 supplemental spending bill proposed last month by the Bush administration.

Federal employee representatives were sharply critical of the G Fund maneuver. In a letter to Office of Personnel Management Director Kay Coles James, National Treasury Employees Union President Colleen Kelley criticized the Bush administration for not communicating with federal employees about the Treasury Department's action.

"Working Americans who play by the rules and save for their retirement have had their confidence rocked by the Enron scandal," Kelley said. "Federal employees and retirees deserve to know what plans the administration has to 'borrow' their hard-earned money without their permission."