Dear Congress: Stop Messing With the G Fund
5:26 PM ET
Lawmakers must stop targeting the Thrift Savings Plan's government securities fund in budget negotiations, several federal employee advocates said on Thursday.
Congressional proposals to limit the rate of return on the G Fund to reduce the deficit keep surfacing, most recently in Senate talks to finance an extension of highway and transportation funding. While federal employee unions and other advocates, along with the Federal Retirement Thrift Investment Board, succeeded in getting lawmakers to take the proposal off the table during those negotiations, no one believes the idea is completely gone.
"We were safe in July, but we can't assume that it's dead, dead, dead," said Kim Weaver, the TSP board's director of external affairs. The board will continue to crunch numbers and educate Capitol Hill about the adverse impact on TSP participants of limiting the rate of return on the G Fund, Weaver said. The board's staunchest ally in the fight is the Employee Thrift Advisory Council, which includes representatives from several federal employee advocacy groups.
Cathy Ball, legislative representative for the National Treasury Employees Union, recommended that ETAC send a letter soon to congressional leadership urging them to take any proposals to change the G Fund permanently off the table during budget negotiations. When Congress returns from recess, it has a lot to do before Oct. 1, including funding federal agencies before the start of fiscal 2016 so the government doesn't shut down. Many federal employee advocates are worried talk of changes to the G Fund will crop up again in the fall as lawmakers debate how to cut costs.
"Just the suggestion of a change to the TSP indicates to federal employees that it can be manipulated by Congress," Ball said during a joint ETAC-FRTIB meeting on Thursday.
The proposed change, in remission for the moment, would affect the calculation of the interest rate for the G Fund, essentially basing it on a three-month, rather than a four-year, average. Such a change would decrease the fund's rate of return from an average of 2.25 percent annually to an average of 0.02 percent, making it virtually worthless for TSP enrollees. "Participants will receive a significantly lower rate of return on the G Fund that will not allow them sufficient growth to meet investment objectives, which includes saving enough for retirement and protecting against inflation," said a TSP board summary of the proposed change.
An early version of the House fiscal 2016 budget resolution estimated that curbing the rate of return on the G Fund could save up to $32 billion over the next decade.
"Payment of principal and interest is guaranteed by the U.S. government. Yet the interest rate paid is equivalent to a long-term bond," said an early version of the language. "As a result, those who participate in the G Fund are rewarded with a long-term rate on what is essentially a short-term security." The idea was later dropped from the House resolution.
Opponents of the proposal, including the National Active and Retired Federal Employees Association, said that in addition to hurting TSP participants, it would not end up saving the government any money. If the G Fund's rate of return drops below inflation, then the Federal Thrift Retirement Investment Board would divest $21 billion of lifecycle (L) fund holdings from the G Fund and would tell participants to do the same, the organization said. That divestment would in turn increase the public debt, because the Treasury Department would need to come up with cash to convert G Fund securities to other assets in TSP accounts.
Weaver has previously pointed out that the interest on Treasury securities in the TSP's G Fund is calculated using the same formula as the securities issued to Social Security's Old-Age, Survivors, and Disability Insurance Trust Funds. "This means every American contributing to Social Security is benefiting from the same investment formulas as is available in the G Fund," she told Government Executive in April.
The current balance in the G Fund is approximately $195 billion.
(Image via Africa Studio / Shutterstock.com)
5:26 PM ET
Dear Congress: Stop Messing With the G Fund
Posted by: sarah_oz@yahoo.com
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