Filed Under:Markets, Employee Benefits

Treasury to tap federal pension funds to ease fiscal cliff

U.S. Treasury Secretary Timothy Geithner speaks about the U.S. economy in Los Angeles, July 31, 2012. (AP/Nick Ut)
U.S. Treasury Secretary Timothy Geithner speaks about the U.S. economy in Los Angeles, July 31, 2012. (AP/Nick Ut)

The 11th hour of fiscal cliff now in full effect, the big threats are starting to come out — one of which might see the U.S. Treasury tapping federal employee pension funds to keep the country afloat.

This worst-case scenario, discussed by the Washington Post, may be part political posturing, but federal officials are now scrambling to find measures to keep the wheels of government — and the economy — rolling as leaders continue to bicker over the details of a solution to the impending tax hikes.

In working to batten down the hatches before the fiscal storm hits, Treasury has announced that it temporarily suspend a program designed to help state and local governments handle their own spending issues — effective Friday. That's expected to loosen between $4 billion to $17 billion.

If a political solution is not found in the near future, Treasury has announced that it will begin using the federal employee pension reserves as a bank — though it has promised to pay back the money once the fiscal cliff issue is fixed.

The money would be drawn from the money market fund used by many federal employees as part of their retirement savings plans. That could free up approximately $185 billion in wiggle room, officials say.

It all sounds a bit more like the financial strategies of a failing muffler shop in Muncie than a world superpower, but Treasury officials say these are necessary steps as the debt limit comes perilously closer and closer.

“Treasury reached the same conclusion that other administrations had reached about these options,” the Treasury inspector general wrote in analysis, the Post notes. “None of them could reasonably protect the full faith and credit of the U.S., the American economy or individual citizens from very serious harm.”

The pension "borrowing" is part of a swath of "extraordinary measures" proposed by Treasury secretary Timothy Geithner, necessary to help double the approximately $100 billion a month the federal goverment currently requires to stay afloat.

Originally published on BenefitsPro. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

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