The U.S Treasury Taps Retirement Funds (Explained)

The U.S. Treasury Department is taking extraordinary measures to avoid default after hitting the federal debt limit on Thursday. The department has implemented an “extraordinary measure” that will allow it to borrow more money from government pension funds and shift around available resources to keep financing government operations for the next few weeks. According to Treasury Secretary Steven Mnuchin, Congress must act soon to raise the debt ceiling and avert any potential economic disaster.

If lawmakers fail to take action, the consequences could be dire for the nation’s economy, with interest rates rising and consumer confidence dropping in response to a potential default. The situation will require intense negotiations between Republicans and Democrats over how best to raise the debt ceiling without making cuts or raising taxes, which both sides have historically resisted during budget debates.

The department is drawing on the financial resources of two state funds for retirees to allow the Treasury to continue making federal payments while unable to increase overall debt. (Bloomberg)

Treasury Secretary Janet Yellen informed congressional leaders of both parties about the move in a letter on Thursday. She had already informed them about the plan last week, when she indicated that the debt limit would be reached on January 19.

Yellen reiterated that the period during which the extraordinary measures will keep the government from running out of money is “subject to significant uncertainty” and urged Congress to act immediately to raise the debt limit.

The specific funds affected by the Treasury Department’s action are:

The Civil Service Pension and Disability Fund (CSRDF), which provides defined benefits to retirees and disabled federal employees

The Civil Service Retirement and Disability Fund (CSRDF) provides defined benefits to retired and disabled federal employees. This fund is managed by the U.S. Department of Treasury, which oversees its investment strategies to ensure that payments are made on time and in full. The CSRDF has been around since 1920, when Congress established it to provide financial security for government employees upon retirement or disability.

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The CSRDF also helps protect retirees from inflation by providing cost-of-living adjustments (COLAs). These COLAs are based on the Consumer Price Index (CPI), which measures changes in prices consumers pay for goods and services over time. The fund also provides survivors’ benefits – if a federal employee passes away before they retire, their spouse may be eligible to receive survivor’s benefits from the CSRDF.

The Postal Service Retiree Health Benefits Fund (PSRHBF) makes bonus payments for retirees. The fund is also invested in special issues of Treasuries

The U.S. Treasury has tapped into a special retirement fund to make bonus payments for postal service retirees – the Postal Service Retiree Health Benefits Fund (PSRHBF). The PSRHBF is a trust fund established under the Postal Reorganization Act of 1970 and used solely to pay for retiree health benefits. It currently holds over $46 billion in assets and is one of the most significant funds managed by the U.S. Treasury.

In addition to its current holdings, the PSRHBF also invests in specific securities, such as mortgage-backed securities, corporate bonds, and other investments that provide higher yields than government debt obligations. These investments are designed to help ensure the fund’s long-term solvency and provide additional income for retirees who may be dependent on their pension benefits due to financial hardship or other circumstances.

The Postal Service Retiree Health Benefits Fund (PSRHBF) is a unique addition to the retirement fund offered by the United States government. This fund provides bonus payments for postal service retirees, helping them to maintain their quality of life after retirement. Additionally, the PSRHBF invests in special funds to help ensure that these retirees have access to health benefits even after leaving the workforce.

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The U.S. Treasury has recently announced plans to tap into this retiree health benefits fund to help meet its debt obligations and budgetary goals. The decision has sparked some controversy among postal workers and their families, who worry that this will make it more difficult for them to achieve financial security during retirement.

The two funds invest in special issues of government bonds that fall below the debt limit. After the debt limit is raised, the three are made “whole,” with participants unaffected.

What is the debt ceiling and will the US raise it?

The U.S. Treasury is facing a critical deadline and hopes to avoid defaulting on its debt obligations. At the center of this crisis is the debt ceiling, an arbitrary limit on how much money the U.S. government can borrow from other countries and private lenders. But what exactly is the debt ceiling, and will it be raised in time?

The debt ceiling has been around since 1917, when Congress passed a bill that granted borrowing authority to the Treasury Department for World War I expenses. The amount of money governments is allowed to borrow increased multiple times over the years, reaching its current level in 2019 with a total of 22 trillion dollars owed by the US government. The debt ceiling acts as a “check” on government spending, as legislators must agree to raise it if they want to approve additional funding for initiatives such as infrastructure and research projects.

It’s far from the first time the Treasury Department has resorted to these steps: the agency has used such measures more than a dozen times since 1985.

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Speaking for the CSRDF, Yellen said the Treasury Department will enter a “debt issuance suspension phase” beginning Thursday and through June 5. The Treasury will suspend additional investments credited to the fund and withdraw some of the investments it holds, she said.

As for the PSRHBF, the Treasury Department will suspend additional investment of amounts credited to that fund, Yellen said.

Last week, Yellen said the Treasury Department is also expected to draw – this month – a third fund, the Government Securities Investment Fund of the Federal Employees Retirement System Thrift Savings Plan, which is a defined contribution pension fund for federal employee acts.

The so-called G-Fonds is a defined contribution pension fund for federal employees and also invests in special issue government bonds that fall below the debt limit. Yellen’s letter on Thursday made no mention of the G Fund.

Other measures the Treasury has taken in the past to maintain headroom below the debt limit include suspending daily reinvestment of securities held by the Currency Stabilization Fund. This is a special vehicle from the 1930s over which the Treasury Secretary has a great deal of discretion.

The Treasury Department also previously suspended the issuance of state and local government Treasuries. These securities are a place for state and local governments to park cash, and they count toward the federal debt limit. These governments must invest in other assets when SLGS issuance is suspended.

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