This House Proposal Would Almost Kill the G Fund

by | Oct 13, 2017

Last Updated June 11, 2024

fund

The proposed legislation was approved and suggests reducing the mandated interest rate of the Thrift Savings Plan G Fund. The G Fund is made up of government securities and this legislation wants to have its interest rate more adequately match its risk profile.

The budget report stated, “Securities within the G Fund are not subject to default. The U.S. government guarantees payment of principal and interest. Yet the interest rate paid is equivalent to a long-term security. As a result, those who participate in this are rewarded with a long-term rate on what is essentially a short-term security.”

Potential Changes to the G Funds Rate of Return

The report doesn’t lay out a plan for changing the G Funds rate of return, however, officials at TSP have run the numbers on tow possible replacements for the current formula. This fund’s current annual interest rate is 2.25 percent. Changing the formula would bring the rate down to 1.03 percent per year while basing it on a different timetable would bring the rate further down to 0.84 percent annually.

Kim Weaver, a TSP spokeswoman, said the agency opposes “any changes” to the funds rate of return. “Such a change to this would do significant damage to TSP participants’ annuity to save and invest for their retirement.”

According to a TSP report, the proposed changes could shorten the viability of an average participants’ retirement account by more than 10 years.

Lifecycle funds are designed to provide annuity until retirees reach age 92. The report said, “A participant had just retired and is invested 100 percent in the L Income Fund. The cut in the funds rate to a 3-month rate causes them to run out of TSP money at age 80 instead of 92.”

“Such a change would make this fund virtually worthless for TSP investors, as account growth would not keep pace with inflation nor be competitive with stable value funds. The fund would then only be serving the purpose of a money market account,” TSP officials said.

Legislative and Participant Concerns

Jessica Klement, legislative director for National Active and Retired Federal Employees Association said, “What it does is it renders the G Fund useless. The interest would be near zero, and way lower than inflation. As it is now, in years of low inflation, the return is already incredibly low.”

TSP said it would need to reallocate money and develop a replacement if Congress approves changing the rate of return. Although, they expressed doubts about how feasible that would be.

Officials said, “Given the size of the G Fund, it may not be possible to create a new TSP stable value fund or an inflation protection fund. If the [Federal Retirement Thrift Investment Board] tried to create a TSP stable value, it’s possible that the TSP would not be able to purchase sufficient securities or would have such an impact on that price that it would adversely impact both TSP participants and other investors in the market.”

Message us & find out if you qualify today!

  • This field is for validation purposes and should be left unchanged.

Recent Articles

When and How You’ll Get Your Federal Disability Retirement Payments

If your health has taken an unexpected turn and you’re facing a disabling medical condition, the last thing you should be worried about is how to make ends meet. But that’s the reality for many federal employees struggling with a medical condition. If the fear of...

A Guide To Early Retirement for Special Provisions Employees

As a federal Special Provisions employee, your career comes with unique demands—and your retirement benefits reflect that. You have access to specialized retirement options that offer flexibility and financial security. If you're considering early retirement, it's...

Federal Employee Resources

Our ever growing library of federal employee resources give you the knowledge you need to make smart choices about your future.

FAQs

Frequently Asked Questions

Get the answers you need on-demand, from a team of federal employee benefits professionals.

View FAQ
Webinars

Federal Benefit Webinars

Twice per month we host webinars to help federal employees better understand their benefits and answer their questions LIVE.

See Webinar Schedule
Guides

Benefit Guides

From guides to detailed charts, these educational resources will help clarify confusing federal employee benefits topics.

See our resources