Treasury Suspends Investments to TSP G Fund

In order to protect the federal government’s debt ceiling, Department of Treasury Secretary Janet Yellen sent a letter to Congress last week stating that the department would exercise its statutory extraordinary measures in order to suspend investments in three federal retirement programs:

  • Thrift Savings Plan’s G Fund
  • Postal Service Retiree Health Benefits Fund
  • Civil Service Retirement and Disability Fund

In 2019, President Trump suspended the federal government’s borrowing limit two years.  That suspension expired on July 31st, 2021. Congress did not pass any legislation to raise the debt limit on August 1st, 2021. 

What is the debt limit? 

The Congressional Budget Office (CBO) describes the debt limit this way: 

The debt limit — commonly called the debt ceiling — is the maximum amount of debt that the Department of the Treasury can issue to the public or to other federal agencies. The amount is set by law and has been increased over the years to finance the government’s operations. Currently, there is no statutory limit on the issuance of new federal debt because the Bipartisan Budget Act of 2019 (Public Law 116-37), enacted in August 2019, suspended the limit through July 31st, 2021. On August 1st, 2021, the debt limit will be reset to the previous ceiling of $22.0 trillion, plus the cumulative borrowing that occurred during the period of suspension. Unless additional legislation either extends the suspension or increases the limit, existing statutes will allow the Treasury to declare a “debt issuance suspension period” and to take “extraordinary measures” to borrow additional funds for a period of time without breaching the debt ceiling. 

The Treasury’s cash balance and those extraordinary measures would enable it to continue financing the government’s activities for a short period of time. However, if the debt limit remained unchanged, the Congressional Budget Office estimates that the ability to borrow using those measures would be exhausted, and the Treasury would likely run out of money during in the first quarter of the next fiscal year (which begins on October 1st, 2021). If this scenario played out, the government would be unable to pay its obligations fully, and it would delay making payments for its activities and default on its debt obligations. 

In her letter, Yellen highlighted that this temporary measure will not have a direct impact on federal employees and retirees or their benefits. 

“My predecessors have taken this suspension action in similar circumstances,” Yellen said in the letter.  She went on to say that federal retirement programs affected will be made whole once the debt limit is increased or suspended and that “by law, the G Fund, [CSRDF and the PSRHBF] will be made whole once the debt limit is increased or suspended,” Yellen wrote. “Federal retirees and employees will be unaffected by these actions. I respectfully urge Congress to protect the full faith and credit of the United States by acting as soon as possible.” 

Naturally, this situation makes many G fund investors nervous, especially since it is one of the largest funds in the TSP.

The important takeaway here is that Federal employees’ TSP accounts aren’t affected from this suspension, TSP participants who are invested in the G fund won’t lose anything during this period, and the TSP says G fund account balances will stay the same as if they were invested in Treasury securities.

When the “disinvestment” period ends, the G fund securities are reconstructed as if the suspension had never occurred. Simply put, the federal government is using the G fund as an accounting crutch to give itself more time to work out the debt ceiling dilemma.

Click here to read the CBO’s July 2021 report “Federal Debt and the Statutory Limit”.

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