Fears return over rumored changes to TSP’s G Fund

The congressional stalemate over funding a long-term highway bill is reviving fears that lawmakers could raid the Thrift Savings Plan.

The Employee Thrift Advisory Council, which brings federal employees’ concerns before TSP administrators, and the National Active and Retired Federal Employees Association have penned separate letters to senators warning against the temptation to weaken the TSP’s G Fund to free up billions of dollars.

“It is our understanding that lawmakers tasked with determining a funding stream to finance the highway trust fund reauthorization have their sights set on a bedrock element of the independent 401(k) retirement accounts of the nation’s uniformed military personnel and federal civilian employees — the Thrift Savings Plan,” wrote NARFE President Richard Thissen.

House budget writers in March floated the idea of altering the G Fund. In essence, the budget report said that the G Fund, backed by government securities, is too good of a deal. By basing the fund’s interest rate on a three-month average rather than the current four-year average, the government could save up to $32 billion over 10 years, the report suggested.

If the proposal were in effect today, it would drop the G Fund’s rate of return from 2.25 percent a year to 0.02 percent, said Kim Weaver, external affairs director for the Federal Retirement Thrift Investment Board, which operates the TSP.

“That would make the G Fund virtually worthless for our participants,” she said.

The G Fund is now the safest and most popular option for TSP participants. Nearly 45 percent of the TSP’s $450 billion in holdings is invested in the G Fund. But that would change if Congress altered the interest rate, the letter writers contend.

The G Fund would no longer be an attractive option if returns could not keep pace with inflation, Thissen said. Congress would never realize the $32 billion in savings if federal employees pulled their money out of the G Fund and the Thrift Board had to rebalance all of the composite life cycle funds that include G Fund holdings, he wrote.

Should that occur, it would seriously damage the TSP and lead to costly administrative changes, wrote ETAC Vice Chairman James Sauber.

Given the size of the G Fund, the board said it might not be able to create a suitable replacement.

The groups are focusing their lobbying efforts on the Senate. There, a committee approved a long-term highway authorization bill, but did not specify where the money would come from. A spokesman said Senate Majority Leader Mitch McConnell (R-Ky.) has not publicly endorsed any payment mechanism.

While the TSP proposal originated in the House, it is not included in that chamber’s version of the highway bill.

The Obama administration estimates it needs $478 billion over six years for road construction and maintenance. The current law is set to expire at the end of this month.

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