With another potential collision between the U.S. Government’s need to borrow money and the limit currently imposed on its ability to do so, I am receiving frequent questions from TSP participants about the safety of their positions in the G Fund. So, is the G Fund safe from the threat of the federal debt ceiling? Practically, speaking, the answer is “yes”. Your investment in the G Fund is safe – at least as safe as any investment you’ll find. Whether, or not, the debt ceiling is raised, your investment in the G Fund, and the interest that is due, is guaranteed by the federal government as a matter of law. The law states that the government must make good on its obligation to G Fund investors.
Here is how the TSP explains the impact of the debt limit on a G Fund investment on its website:
“The total amount of debt that the U.S. Treasury can issue to the public and to Federal agencies is limited by law. In recent years this limit-and what to do when it has been reached-has been discussed in the news with increasing frequency. What does it have to do with the G Fund?
The G Fund is invested in short-term U.S. Treasury securities specially issued to the TSP. As a result, the G Fund can be affected when the statutory debt limit is reached. However, the principal and interest payments on these securities are guaranteed by the U.S. Government.
When it reaches the debt limit, the Treasury has to find ways to manage its cash and borrowing so that it can continue funding government activities. One of the many ways it can do this is by suspending investments of the G Fund. As a G Fund investor, you should know that if the Treasury takes this action, your investment is always protected, and your G Fund earnings are fully guaranteed by law under the Thrift Savings Plan Investment Act of 1987. Your G Fund account balance would be exactly the same from day- to-day as if it were invested in Treasury securities. It will continue to accrue earnings and be updated each business day, and loans and withdrawals will be unaffected.”
Of course, it’s always possible to imagine a scenario where all bets are off, and the sun no longer rises in the east. But like the sunrise, any rumor of the G Fund’s demise as the result of political wrangling is premature. There is no reason to believe, at this point, that G Fund is any less safe than it has been in its history, and certainly no less safe its alternatives.
Written by Mike Miles
For the Federal Times
Publication August 14, 2017