Indebted

Federal employees once again are bailing the United States out of a sticky debt situation. Treasury Secretary John Snow told Congress last week that the country was perilously close to reaching its debt ceiling, forcing him to dip into federal employee retirement savings to keep government operations running.

Specifically, until Congress raises the $8 trillion federal debt limit, Snow is freezing some reinvestments of the Thrift Savings Plan's government securities (G) fund.

Luckily, the government is good for it. TSP officials quickly issued a statement on their Web site last week reminding participants of a 1987 "make-whole" law guaranteeing that the plan is reimbursed for any interest lost under these circumstances.

Reinvestments allow the G fund, which holds 36 percent of all TSP investments, to rack up the interest that earns it about 4 percent steady growth every year. The fund matures and is reinvested daily, so the secretary can transfer some of the money that would have gone to that day's reinvestment into noninterest-bearing accounts, which don't count against the debt limit.

The "make-whole" provision ensures that individual TSP accounts won't be affected by the freeze. Loans and withdrawals will not be delayed, payments won't be reduced and, as the statement put it, "the integrity of the G fund [will] not be compromised."

TSP spokesman Tom Trabucco said that in the half-dozen times Treasury has raided the G fund over the years, it never has affected the plan.

"This is something we've dealt with since almost the very beginning of the program," Trabucco said. "Participants will be made whole. [The 1987] statute allows us to continue on as normal. It means nothing; we just continue our operation."

But TSP Executive Director Gary Amelio acknowledged Tuesday at a monthly board meeting that some investors feel uneasy about the loan.

"The ones that do view it as an issue of principle are rather passionate," Amelio said. "[It] puts the plan into simply an awkward situation."

Colleen Kelley, president of the National Treasury Employees Union, is among those opposed in principle to the move. On Tuesday, she called on Congress to raise the debt ceiling and leave the G Fund alone.

"It is not appropriate to use federal employees' retirement funds for general government expenses," Kelley said.

Kelley said her position stands despite the make-whole law because "federal workers are left with an uneasy feeling of concern about having money they are counting on for their retirement being used for another purpose."

There's little reason to be uneasy, however. The Congressional Research Service wrote a memorandum in 2002 reiterating Treasury's obligation to credit the G Fund after suspending reinvestment. The memo found that because TSP participants have their own accounts, their funds are protected by property rights.

"No one who has invested TSP contributions in the G Fund can suffer any reduction in assets or loss of interest income as a result of the actions taken by the secretary of Treasury," CRS said.

The G Fund is a perk of federal employment. It is invested in short-term U.S. Treasury securities only issued to the TSP and maintains a higher return than inflation at no risk. As of January, there was more than $64 billion in the fund.