Government shutdown and the G Fund

Thursday - 1/17/2013, 2:00am EST

When they want a safe place to park their retirement nest egg, many Thrift Savings Plan investors go to the super-safe, never-has-a-bad day Treasury securities G Fund. But super-safe also means super-conservative. And what happens to a Treasury-securities fund when the government stops borrowing money to operate?

Although feds love the G Fund, many get nervous each time Congress and the White House square off for a fight over raising the debt ceiling. The implication is that the only safe place for your money (better yet gold coins) is under armed Uncle Lem's mattress or buried in Mason jars in the back yard.

So what is the status of the G Fund (not to mention the stock market itself) when politicians push us toward, then rescue us from going over the fiscal cliff? Or paying our national debt, or facing mandatory cuts because of sequestration? But first, a quick overview of the TSP.

It has more than 3 million investors. Most of them are either active-duty or retired federal workers or members of the uniformed services. But some are the survivors of feds or former federal employees who work elsewhere but remain in the TSP because of its low administrative fees and the availability of the G Fund. Many high-income political appointees and super-rich people who come into the federal government (mostly ex-lawyers) switch their outside 401(k) plans to the TSP to take advantage of its low-fees and the super-safe nature of the G Fund.

While the G Fund never has a bad day, it will never make you rich. Or even keep pace with inflation. Last year (2012) for example, the G Fund return was 1.47 percent compared to 4.29 for the F Fund (bonds), 16.07 percent for the C Fund, 18.57 percent for the small cap stock S Fund and 18.62 percent for the international stock-index I Fund. For a numbers on the target-date funds, click here.

When the recession hit in 2007, many nervous TSP investors switched from the C, S, I and F funds into the safer G Fund.

Since the market bottomed out in March of 2009 — when many people moved into the G Fund — it has gone up 9.5 percent as of this month. The F Fund (bonds) has gone up 28.5 percent while the C Fund (S&P 500 index) has risen 134.9 percent. The S Fund (small-cap stocks) is up 177.4 percent and the international stock-index I Fund is up 105 percent.

So what about now? Congress and the White House are squaring off for yet another fight over the debt ceiling limit. The White House says it won't negotiate; House Republicans say it must. A government shutdown could be the result of the impasse. That troubles many G Fund investors since the fund is made up of special U.S. Treasury securities. Here's what the Government Accountability Office, and the TSP's executive director, Greg Long, says about the situation:

"As we await legislation on raising the federal debt limit, I would like to address your concerns about the possible suspension of issued securities to the Government Securities Investment (G) Fund. In the event that the U.S. Government reaches the statutory federal debt limit, the federal government may temporarily be unable to issue new securities to the G Fund because to do so would exceed the present debt limit. However, G Fund investors are always fully protected and G Fund earnings are fully guaranteed by the Federal Government due to statutory protections in the Thrift Savings Plan Investment Act of 1987. This protection, known as the "make-whole" provision, will work to ensure that G Fund investors are completely unaffected by the limitation on securities issued by the U.S. Treasury. G Fund account balances will continue to accrue earnings and be updated each business day, and loans and withdrawals will be unaffected.

"The Government Accountability Office has published a report which explains the full protection provided to G Fund investors when the U.S. government reaches the statutory federal debt limit. If you have any additional questions, please call the toll-free ThriftLine at 1-877-968-3778 and speak to a Participant Service Representative."


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