Debt crisis forces Treasury to tap employee retirement funds again

For the second time this year, the Treasury Department will suspend daily investments of billions of dollars of federal employees' retirement funds to avoid breaking the federal debt ceiling, Treasury Secretary Paul O'Neill said Tuesday.

In a letter to Congress, O'Neill said suspending the retirement fund investments would ease the government's debt crisis by $44 billion between May 16 and mid-June. The suspension would affect $4 billion in the Civil Service Retirement and Disability Fund and $40 billion in the Thrift Savings Plan's G Fund.

Federal employees and retirees won't see any changes in their pensions or TSP accounts because of the accounting maneuver, which will prevent the government from exceeding a statutory $5.95 trillion debt ceiling.

"Both funds will be restored in full as to principal and interest once the debt limit has been raised," O'Neill said. "There will be no effect on beneficiaries."

Treasury must use the maneuvers because the department, by law, cannot let the government's debt exceed the statutory limit. 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. When the April debt crisis was over, Treasury restored $27 million in interest to the G Fund.

The G Fund and pension fund maneuvers are essentially paper exercises. TSP enrollees who withdraw money from the G Fund during the crisis will get the same amount of money as if the G Fund had been invested normally each day.

The Bush administration wants Congress to raise the debt ceiling by $750 billion in order to eliminate the need to tap the federal employee retirement funds. But members of Congress have resisted, worried that a vote to raise the debt ceiling would hurt them politically.

Federal employee union representatives have been critical of the debt maneuvers. "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.