The Administration’s 2019 budget proposes to significantly lower the rate earned by the G Fund.  In particular it would change the statutorily guaranteed rate that the G Fund earns to that earned by short-term T-Bills, rather than its current guarantee of an average of the return of all Treasuries with four or more years to maturity (which is generally quite close to the yield on the Ten-Year Treasury Bond).

To give an idea of the effect of this change – on February 13th, the Ten-Year Treasury paid 2.87% and the short-term T-Bill paid 1.35%.  This would cut the G Fund’s rate of return in half.

Consider a scenario where employees with nothing in the TSP contribute 10% of their salaries to the G Fund over a thirty year period: When they begin contributing, their salary is $60,000 and it increases at a rate of 1% per year.  If the G Fund rate were 2.87% for the entire thirty years, they would wind up with $482,606.78 in their accounts.  If the rate were cut to 1.35%, the final balance would be just $381,474.07.  That’s over $100,000 less set aside for retirement.  I used the TSP calculator (available on the TSP website) for the calculations

And what would the administration gain over the long term?  If we’re talking about the Traditional TSP (which is far more popular than the Roth TSP) – not much. All of the interest paid on G Fund investments in the traditional TSP will ultimately be taxed, so it will be a wash as far as revenue is concerned.  What the administration would gain is the ability to use that money sooner, to meet short term needs. And at least one negative consequence for the wider economy would be to limit capital flows from retirees to whatever businesses count them as customers.

Will this threatened cut actually take place?  It’s hard to say, as there are a lot of complicating factors like the budget “deal” that was reached after the Administration’s proposed budget was developed, but before it was released, among other things.  What can you do?  You can write your Representatives and Senators and make your feelings known.