Treasury Suspends Investment Into TSP Federal Employee Retirement Funds to Avoid Hitting Debt Ceiling

Federal employees checking their pensions this month might notice a change in the government’s contribution. In early December, The Treasury Department, led by Treasury Secretary Steven Mnuchin announced that the government would no longer pay into Federal employee retirement funds and thrift savings plans (TSP) in order to avoid hitting the debt ceiling.

The contribution freeze is part of what Mnuchin refers to as “extraordinary measures” to make it through the end of the year, though many employees are left wondering when the government will resume its payments and if other retirement fund contributions will be affected. Several funds are affected, and thousands of employees aren’t likely to see the matching contributions they rely on in December. Keeping reading to learn what this funding change means for federal workers.   

When Are Payments Likely to Resume?

The last time contributions to these plans were stopped was in July of this year. Mnuchin says the pensions will be made whole again once the 2018 budget is approved and the funds are accessible. However, experts predict the government will be unable to make contributions whole until after January 31st, 2018.

Furthermore, the Congressional Budget Office (CBO) reports that if the debt ceiling isn’t raised, the government’s ability to cut back and borrow through these “extraordinary measures,” will run out by March or April. In this case, “the Treasury will most likely run out of cash…the government would be unable to pay its obligations fully,” meaning it would delay payments or default on its debt.

Which Funds Are Affected By The Contribution Freeze?

The first step employees need to follow is checking to see whether their accounts were affected by the measures set out by the Treasury Department. The following retirement funds and TSP funds will not receive contributions through the rest of December and the likely the first past of January.

The Civil Service Retirement and Disability Fund

This Civil Service Retirement System was established in 1920 to provide coverage for federal employees. It was replaced by the Federal Employees Retirement System (FERS) starting in 1987. Employee contributions to the CSRS will be matched by the government.  

The Postal Service Retiree Health Benefits Fund

This fund was established in 2006 through the Postal Accountability and Enhancement Act. The goal is for the post office to pre-fund retiree health insurance to ensure there’s enough money to pay retired employees. This fund has defaulted multiple times since its inception, meaning it lost money due to more employees needing payment than contributing. Typically the federal government made up the deficit.

The Thrift Savings Plan Government Securities (G) Fund

The G Fund invests in short-term U.S. Treasury securities. It’s part of the TSP which offers the government’s version of a 401(k) plan. This fund has a lower risk than other choices and is popular with employees because full payment of the investment is guaranteed. The interest rate paid to employees is calculated monthly based on four years of history.

If your fund isn’t on this list, it doesn’t mean that there won’t be a freeze on government contributions. It just means it wasn’t listed in the first round of “extraordinary measures” laid out by Mnuchin. However, in the meantime, it won’t affect your accounts at all.  

What Does the Fund and TSP Contribution Freeze Mean For Employees?

This is a lot of information on a high level, but often leaves employees and retired workers wondering what it means for them.

In the short run, Mnuchin says current employees will also be unaffected. They won’t receive contributions to their retirement funds in the next few months, but they should resume sometime in the Spring as long as a raise of the debt ceiling is approved. When you look at your contributions in the long run, the appropriate amount should be matched.  

Overall, retired employees should be unaffected by the change. They are done contributing to these funds and will continue to receive the TSP payments that they’re owed.

Most experts don’t want employees to worry about their retirement accounts because of this freeze. It’s important for employees to note that the government’s matching contribution does not affect their ability to contribute money to their accounts. Most people will continue paying into their retirement plans but will simply have to wait for the government’s half to join it.

What Can Federal Employees Do While They Wait for the Government?

Over the next few weeks, federal employees can review their current plans to see if they’re happy with their current contribution levels. 2018 might be the year you adjust your plans to increase payments or consider changing plans for better coverage.

In the meantime, talk to a benefits specialist who understands your needs and local plans to make sure you’re covered for retirement. Any time the government makes changes to payments or plans, it’s a good idea to make sure you’re still on track with your investment goals. Contact MyFed Benefits today to review your account and plan for the future.