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G-Fund again saving the world (temporarily)

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If you have money invested in the Thrift Savings Plan’s G-Fund, take a bow. Your retirement nest egg is now part of a strategy to stave off worldwide financial calamity.

That’s because the Treasury Department intends to intentionally stiff the fund as one of several “extraordinary measures” announced last month to buy time after the government hit its legal $16.4 trillion debt ceiling Dec. 31.

Here’s how it works: the fund—technically known as the Government Securities Investment Fund—is continually re-invested in short-term government bonds. Because those bonds count toward the debt ceiling, Treasury suspends re-investments to free up more borrowing “headroom.” The G-Fund’s balance is currently about $156 billion, making the suspension by far the most significant of the steps now under way to delay a government default that many economists say would trigger a global panic.

The tactic is nothing new; Treasury used it during the last debt ceiling crisis in 2011. But if money is lying fallow, it’s not earning interest. The 2011 suspension temporarily cost the G-fund $378.5 million, the Government Accountability Office reported last year. But by law, the Treasury Department has to make the fund whole.  In its July report, the GAO confirmed that the fund had indeed been “fully restored.”

Understandably, however, feds are nervous. In a message posted on the TSP’s web site, Executive Director Greg Long reiterated that existing law “will work to ensure that G Fund investors are completely unaffected” by Treasury’s tactics. Loans and withdrawals will not be affected, Long added.

[This post has been updated.]

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G-Fund and postal benefits fund made whole, GAO says

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It’s official: The Thrift Savings Plan’s G-Fund is back to full strength after losing almost $400 million courtesy of last year’s debt ceiling showdown.

The confirmation comes from a Government Accountability Office review of the Treasury Department’s maneuvering to head off an unprecedented U.S. default after Congress initially deadlocked over raising the nation’s borrowing limit. The standoff was resolved (at least temporarily) last August with approval of the Budget Control Act, which traded a debt-ceiling increase for spending cuts.

But in the months before the act’s passage, Treasury resorted to a number of “extraordinary actions” to buy time. One involved the G-Fund (officially known as the Government Securities Investment Fund), which is invested in short-term bonds. Because those bonds count against the debt ceiling, the government in May 2011 halted new investments as a temporary means of holding down borrowing. But, of course, if that money’s not invested, it’s not earning interest. Some $137.5 billion in G-Fund principal lay fallow during the 3-1/2 month hiatus. By GAO’ s reckoning, the lost interest amounted to $378.5 million.

By law, however, the government has to make up the difference once the crisis is over. That’s since been done, the review says, as the Treasury Department has “fully restored” the lost interest.

“It’s exactly as if they had never had to use the extraordinary actions,” Susan Irving, one of the report’s authors, said in an interview.

The G-Fund was not the only account touched in this way. The Treasury Department performed similar maneuvers–albeit in smaller amounts–with the Civil Service Retirement and Disability Fund and the Postal Service Retiree Health Benefits Fund. Both have also been made whole, according to the report.

So relax, already. At least until next time.

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