Do you really ‘own’ your TSP account?

“Ownership” is a rather fuzzy concept where federal retirement accounts are concerned. However, there is perfect clarity in recognizing feds don’t enjoy the same custody rights within their retirement nest eggs as other retirement savers do.

According to Merriam-Webster, to “own” means “to have power or mastery over.” But, do federal employees enjoy full “ownership” or “mastery” of their Thrift Savings Plan (TSP) assets? Consider they have no authority to prevent the Treasury secretary from exploiting their assets held in the G-Fund. Specifically, when it is “deemed necessary” to purpose this (congressionally granted) line of credit.

silvey chart
Chart courtesy of the Federal Retirement Thrift Investment Board

Per the Federal Retirement Thrift Investment Board’s Director of External Affairs Kim Weaver, federal employees were maintaining nearly $219 billion (more than 45 percent of all TSP assets) in the TSP’s G fund as of Aug. 31, 2016.

Nice job of “socking it away,” feds. But, are YOU the definitive “owners” of your retirement savings? Examine the definition of “ownership,” then ask yourself, who’s been swiping your (proverbial) TSP ATM card?

Of course, the federal government guarantees it will pay back all money borrowed from the G-Fund. However, this is a subject of ownership, not promises. If an employer can acquire retirement funds from their employees without their consent, who really owns (or has mastery over) those retirement assets? This is an ambiguous subject, to say the least.

Consider:

  1. This repayment guarantee comes from a borrower that is (at least) $19 trillion in debt and spends 17 percent more than they earn. (See InsideGov.com).
  2. This plan has been devised to allow the Treasury secretary to appropriate a loan without seeking the consent of the lender (federal employees).
  3. The confiscation of this source of funds creates a bypass of any real fiscal accountability. The G-Fund loans don’t “officially” increase the national debt. Subsequently, this allows the borrowers to circumvent their own, self-imposed, spending limits.

It should be noted that every time the government has borrowed from the G-Fund, it has always paid it back. However, (to pilfer a phrase from my industry) past performance is no indication of future results. The risk is real: one day the loan repayment may be delayed, postponed or even defaulted.
Whenever there is a “continuing resolution issue” or “debt ceiling crisis,” one of the Treasury secretary’s most accessible options is the G-Fund.

My crystal ball says, “With more and more continuing resolution issues, debt ceiling crises, growing G-Fund balances and an insurmountable national debt … this particular loan program can expect a great deal more exploitation.”

According to InsideGov.com, the 2016 national receipts are estimated to be $2.99 trillion. The 2016 national outlays will be approximately $3.54 trillion. Leaving a 2016 annual deficit of $552 billion.

These figures may help explain the ongoing allure, for government officials, to penetrate these vulnerable federal retirement accounts. When utilized, the question arises: Is this program’s purpose to shield and underwrite Washington’s out-of-control spending activities?

Washington’s unrestrained spending flurry does appear to be a contributing transformative catalyst. One that may have influenced the conversion of the TSP (G fund) from an autonomous “personal” retirement asset, (contributed by and for federal employees) to a proverbial government “trust fund.”
Important issues often misunderstood about the G-Fund:

  1. There are no guarantees that address any inflation-fighting aspect (it offers a stated goal but not a guarantee). It is entirely possible (perhaps even likely) to place money in the G-Fund that will lose buying power over time. More on this in a moment.
  2. A large percentage of a federal employee’s retirement assets placed into the G-Fund may not be an appropriate fit for them. For employees that need true “inflation-fighting” growth, the G-Fund may even be counterproductive as an investment choice.
  3. The G-Fund is the only index fund available in the TSP not managed by an outside manager. It is managed by the FRTIB, a federal department that is part of the executive branch. The other index funds are managed by Blackrock, a well-respected Wall Street player.
  4. The G-Fund is the only index fund in the TSP, currently subject to this loan program.

Concerning the aggressive patronage of the G-Fund by federal employees, some speculate that feds have fallen victim to oblivious passivity. If that is true, feds are likely prone to remain unwitting investors in the G-Fund loan program. They may be subject to utilizing the G-Fund in amounts and at times that are inappropriate for their needs. Why? Because they don’t know what they don’t know, and they fear making “the wrong choice.” This creates a potential paradox for many feds. This oblivious passivity may well lead to feds placing (or leaving) large amounts in the G-Fund.

Unfortunately, this could be the exact “wrong choice” they were attempting to avoid in the first place.
Even with this knowledge, it is understandable why feds continue to place so much of their hard-earned savings in the G-Fund. Frankly, it is fear and the desire to create “no-risk” security for their retirement savings. Where market risk is concerned, the G-Fund is one of, if not the least volatile investment options available. There are, however, other risks to consider, such as inflation risk.

Inflation risk is the risk an investment exposes the investor to — of not likely being able to offset the losses experienced through inflation (i.e. a dollar doesn’t go as far as it used to). Inflation is the largest contributor to that fact. Investments that offer low-inflation risk are expected to potentially provide gains that will outpace future inflation rates. The G-Fund is not typically looked at as one of these types of investments.

Many of the (federal employee) lenders are convinced that if they put money into the G-Fund line of credit, the borrower will guarantee the G-Fund values will not drop. They believe the G-Fund is guaranteed to only go up (not down) in dollar amounts.

Sorry to say, but this simply isn’t true. The G-Fund has no such guarantees.

Many of us understand that “control is (often) an illusion.” But, in reference to retirement savings, feds deserve better than control/ownership ambiguity. It is unconscionable that their retirement accounts are subject to government confiscations. Their retirement savings should incontrovertibly belong to them alone, just as similar retirement accounts belong to other Americans.

Possible compromise: If national leadership would like to continue to feed their poor spending habits by borrowing federal employees’ retirement money, feds should have a right to turn down their loan request … barring that, the ability to negotiate mutually acceptable terms!


Note: Silverlight Financial donates free/no obligation Federal Retirement Readiness Reviews (FRRR). These reviews culminate with a no-cost, one-on-one, hour-long phone meeting with founder Randy Silvey. To personally request your FRRR, email randy.silvey@lpl.com.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Investing involves risks, including the loss of principal. No strategy assures success or protects against loss. For a list of states in which I am registered to do business, please visit www.silverlightfinancial.com. Securities offered through LPL Financial, member FINRA/SIPC.