The Congressional debt limit standoff is now impacting the federal government’s 401(k)-like Thrift Savings Plan, according to a letter to congressional leadership sent today by Treasury Secretary Janet Yellen.
“As of January 23, I have also determined that, by reason of the statutory debt limit, I will be unable to invest fully the Government Securities Investment Fund (G Fund) of the Thrift Savings Fund, part of the Federal Employees’ Retirement System, in interest-bearing securities of the United States,” Yellen wrote in the letter, sent to all members of Congressional leadership regarding the debt limit.
“The statute governing G Fund investments expressly authorizes the Secretary of the Treasury to suspend investment of the G Fund to avoid breaching the statutory debt limit. My predecessors have taken this suspension action in similar circumstances. By law, the G Fund will be made whole once the debt limit is increased or suspended. Federal retirees and employees will be unaffected by this action.”
The ultra-conservative G Fund was the only TSP fund to generate a positive return in 2022, up a modest 2.98% over the course of the year while the C Fund was down -18.13%, the S Fund down -26.26%, the I Fund down -13.94%, and the F Fund down -12.83%.
The G Fund invests in a special non-marketable treasury security issued specifically for the TSP by the U.S. government, and is the only fund in the TSP that guarantees the return of the investor’s principal.
As stock market declines rattled TSP investors during the middle of last year, many abandoned the more aggressive funds for the relative safety of the G Fund, making it the largest of the TSP’s funds. The amount of money transferred into the G Fund went from about $1.82 billion in April 2022 to about $6.35 billion transferred in May 2022—a remarkable 249% increase.
On Jan. 19, Yellen sent another letter to Congressional leaders, noting that she had determined that a debt issuance suspension period began on that date, and will last through Monday, June 5, 2023, with respect to the Civil Service Retirement and Disability Fund, and that Treasury was also suspending investments of amounts credited to the Postal Service Retiree Health Benefits Fund, in accordance with law.
Again, Yellen added that by law, the CSRDF and the PSRHBF will be made whole once the debt limit is increased or suspended, and federal retirees and employees will be unaffected by these actions.
SEE ALSO:
• Retirement Watch: Debt Limit Debate, Ultra-Rich Beg to be Taxed, French Protests
• TSP Rings in the New Year with Bleak Performance
• TSP Participants Flock to G Fund Amid Stock Market Declines
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.
