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The G fund: portfolio effects of a dominant asset

Published online by Cambridge University Press:  16 November 2007

LEE S. REDDING
LEE S. REDDING
Affiliation:
Department of Accounting and Finance, University of Michigan – Dearborn, Dearborn, MI 48126USA (e-mail: LRedding@umich.edu)
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Abstract

The Thrift Savings Plan (TSP) is the defined contribution pension plan for the employees of the US Federal Government. It is also mentioned as a model to implement private investment accounts as part of US Social Security reform. The TSP has one unique investment opportunity – the Government Securities Investment Fund. This ‘G Fund’ is a short-term asset which pays long-term rates. This provides an implicit subsidy to federal employees. To collect this subsidy, however, employees must alter their portfolios. The subsidy may therefore be an inefficient means of compensating federal employees. Within a social security system, however, the G Fund would present the opportunity to partially ‘opt out’ of a private investment account.

Type
Articles
Information
Journal of Pension Economics & Finance , Volume 8 , Issue 2 , April 2009 , pp. 225 - 238
Copyright
Copyright © 2007 Cambridge University Press

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