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Federal Managers Association

Washington Report

  • As a means to fund an extension of the highway bill, Senators proposed altering the method to calculate the rate of the return of the Thrift Savings Fund (TSP) G Fund. The G Fund is the most commonly used method of saving for those enrolled in the TSP, as until recently, enrollees used to be automatically entered to the G Fund. However, proposed changes would base the fund’s interest rate on a three-month average rather than the current four-year average, saving an estimated $32 billion over 10 years. This would also reduce the G Fund’s rate of return from 2.25 percent a year to 0.02 percent. According to the Federal Retirement Thrift Investment Board (FRTIB), these changes would essentially make the G Fund worthless. The Federal Managers Association (FMA) warned Senators on the damages these changes would cause, and the negative impact on federal employees' retirement.

    FRTIB issued a statement in June, opposing any changes to the G Fund interest rate. It stated that a ten percent cut in the G Fund rate would drastically reduce earnings. “This would eliminate an income stream at age 90, when a person is extremely vulnerable and unable to replace that income. The TSP participant who is affected by a G Fund interest rate change is not in a position to meaningfully alter their savings situation at that point.”

    In a letter to Senators, FMA National President Patricia Niehaus stated, "TSP participants are unlikely to keep any money in a fund that yields an interest rate of 0.02 percent. The current 12-month returns were only 2.19 percent. Over the past 10 years, the returns averaged 3.19 percent. The projected savings estimates do not take these factors into account, and would jeopardize the value of the TSP, which is the largest employer-sponsored defined contribution plan in the United States." By implementing these changes, the Senate would not have the needed funds necessary to pay for the current highway bill; it would unnecessarily limit employees' retirement savings instead. The Senate decided not to use the G Fund as a means of savings, however, earlier this year the House of Representatives proposed similar changes as a means for savings.

    The Federal-Postal Coalition, of which FMA is a member, also issued a letter to Senators, expressing the need to keep the G Fund intact, as the originally proposed change would cut $32 billion in retirement funds. The Coalition stated, “Every nickel redirected from the rate of return on the TSP G Fund to finance the highway bill would be money out of the pocket of a retired federal employee or veteran. Any change in the G Fund interest rate will effectively remove the only safe harbor in the TSP and have a chilling effect on the structural integrity of a plan that has provided a stable path to financial security in retirement for uniformed and civilian personnel alike.”

    FMA will continue to monitor the G Fund and any proposed changes to it Congress offers. To read the full letters from FMA and the Federal-Postal Coalition, please visit the Legislative Action Center of FMA's website,www.fedmanagers.org.


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