What's Up With These Trust Funds?

Bruce Krasting's picture


The topic of the day is the Military Retirement Service (MRS) and the Federal Employee Retirement Fund (FERS). Let me be very clear at the onset of this – I don’t understand what is happening with these two. But, that's the point. I’m not sure that anyone knows what's going on here. At least not the folks in the Press, or the public.


My interest in FERS/MRS was tweaked a week ago with the release of the Congressional Budget Office’s (CBO) annual report on the economy and the budget. The critical number from the CBO was its calculation of the future Debt to Public/GDP ratio. There is a footnote to the CBO’s calculations:


a. Off-budget surpluses or deficits comprise surpluses or deficits in the Social Security trust funds and the net cash flow of the Postal Service.



I read this (me being the suspicious type) and said to myself;


Why did CBO exclude the results for FERS and MRS?


Social Security IS adding to the Debt Owed to the Public (DOP). CBO calculates the SS cash shortfall and includes it in the total for DOP. My question was do FERS and MRS also contribute to DOP? If so, by how much?


I did do some research; there is information on-line related to these entities . I did not find the answers to my questions however. I determined that the Congressional Research Service (CRS) is the source of most of the information that is available. The more I read, the more questions I had. Over the weekend I wrote a long e-mail to the author of the report for FERS. Sure enough, Monday morning I got an answer. Not bad for the Government, huh? Unfortunately it was not quite the answer I was hoping for:


CRS provides research and analysis exclusively to the U.S. Congress. Because we work only for Congress, we are unable to respond to other inquiries.


I can understand that CRS is too busy helping out legislators to answer any of my silly questions. But there is no other way to get the information I wanted other than to ask the folks in D.C. Color me disappointed.


For what it’s worth, I think that FERS and MRS are adding to the DOP in a significant way. It will be measured in the hundreds of billions over the next ten-years. Anyway, I do have some questions about the published materials, including:




FERS has a trust fund called the Civil Service Retirement and Disability Fund (CSRDF). Some raw data on CSRDF from CRS:


- The Balance of the Fund is $800 Billion! Sounds good! But…


- Because CSRS retirement benefits have never been fully funded by employer and employee contributions, the Civil Service Retirement and Disability Fund has an unfunded liability.


How big is the hole at FERS? Pretty big…


- The unfunded liability was $622.3 billion in FY2010. According to actuarial estimates, the unfunded liability of the CSRDF will continue to rise until about 2023, when it will peak at $684.8 billion.


There is a requirement to measure the projected results of any government trust fund over a 75-year period. I think this a complete waste of time as no one has a clue what the world will look like in 50+ years. This is what CRS thinks is in the future for its TF:




Well look at those beautiful numbers. The TF grows to a cool 14 trillion! There is one assumption that drives these results - The US economy is going to soar every week, month year and decade – for ever! CRS has the economy growing from a measly 16T today to – hold on - $450T in 2085. This miracle is the result of uninterrupted compound GDP growth of 4.5%. A growth rate like this is possible, but for a mature economy, with a non-stop aging problem and monstrous deficits this appears to be a “blue skies” outlook. Based on this, a 1 dollar cup of coffee today would cost $1,750 in 2085. With a tip, $2 grand.


The way FERS is set up, it gets bigger and bigger. Today it has a TF equal to 10 times current year payables. The TF will grow to 20 times then current payable over the forecast period. I think this is a perfect example of why the entire TF logic is flawed. The TFs should have a balance of one-year's worth of payments. The CRS recognizes the flaws in TF accounting:


Observers have suggested that investing the CSRDF entirely in U.S. Treasury bonds does not represent true “pre-funding” of CSRS and FERS annuities because these bonds are merely a claim held by the government against its own future revenues.


Bingo!! CRS says there is no “money” in the TF. For those of us who have been pounding the table on this, it's nice to see in print. CRS explains further:


From a cash perspective, when trust fund holdings are redeemed to authorize the payment of benefits, the Department of the Treasury finances the expenditure in the same way as any other Federal expenditure—by using current receipts or by borrowing from the public.


FERS will collect $4.2B in CASH and $90B in PAPER in 2013. It will pay out $78B in CASH. To me, this implies that FERS will be forced to redeem $74B of its paper for the year. Every penny of that would force an equal increase in DOP. This number would not be reflected in any deficit calculation. If this interpretation of the cash flows is correct, then it would be a very big deal.




Note: While I’m unsure of the prior calculation, I’m certain that interest is a non-cash item. This would mean that FERS would force an increase of $16B in DOP in 2013. That’s still over $200B over the next ten years.


One final point on FERS – It breaks out the Postal contributions - $3.9B due in 2013. The PO has no money and no borrowing authority left. Any “payments” that the PO made to FERS in the past were the result of direct PO borrowing from the Treasury. There is no “money” in this system. It’s just a bunch of IOUs. Those IOUs are all going to be DOP at some point. What we have here is a house of cards.





Screen Shot 2013-02-12 at 5.50.57 PM


MRS has a fancy annual report. The audit is done by that powerhouse CPA firm – Acuity Consulting. Never heard of them? Neither have I. This is a boutique accounting firm (on the D.C. Beltway, of course) that specializes in government audits. The principals of Acuity are all ex Air Force. The boss went to the USAF Academy. I think this is one of those “close” relationships you hear about.


MRS is different in many ways from either SS or FERS. But it is similar in that it has a trust fund, receives payment from the government and makes benefit payments.

The Military TF also has assets, and those assets are expected to grow at a very rapid rate. In 2013 the TF totals $500B, it will grow to $2.676Trillion over the next 20 years. The compounded growth rate of the TF is a whopping 9%. A portion of this a function of increasing government payments, but the bulk of the growth comes from interest income. At least that is what MRS is saying. Here is the footnote that explains the critical assumptions on interest rates:


The preceding projections assume a long-term 5.75% interest rate each year.


Huh? The Congressional Budget office released its estimates for the MRS Trust Fund today. CBO thinks the MRS TF will grow to $966B in 2020, MRS has reported that the number will be $1.174 Trillion. A modest $210B variance. What's a 1/4 trillion amongst pals?


MRS is restricted to investments in government securities. How does one achieve a 5.75% return investing in Govvies? The answer is that it's not possible. The assumption used to value MRS is way out of line with interest rate assumption used by CBO, FERS and SS. Why?


Look at how MRS invests its money. This blows my mind:


Screen Shot 2013-02-06 at 9.07.42 PM


Fully 86% is invested in inflation-protected securities? The balance is in short date Treasury paper that has next to zero cash-on–cash return? What the hell are the Generals preparing for with this portfolio?

The military is storing its “nut” in an inflation bomb shelter. To get a 5.75% return on this portfolio, inflation (CPI) would have to be well north of 6%. If the country experienced inflation of that magnitude on a sustained basis, it would blow up. I wonder if the Generals consulted with Bernanke when they put this investment strategy together. Ben would have told the Brass they would never see those results. (Who knows?)


Some TIPS facts – They have a negative yield across all maturities today. The yearly inflation adjustment is added to the principal. The cash flows from a 5 Year tip (assuming 2% CPI)


Year 1 -102 (you pay a premium up front)

Year 2 0 (sorry, no cash interest for you)

Year 3 0 Ditto

Year 4 0 Ditto

Year 5 +110 (Finally, you get a cash return)



On paper, MRS is in good shape. For 2013 it anticipates “revenue” of $122.8B, of which $28.5B is interest income. Cash expenses will be $54.5B. If you assume that most of the interest income is accrual, and not cash, then the remaining income of $84.3b is more than sufficient to cover benefits. On the surface, there is a $30B surplus.


It's here that I get confused. MRS has to come up with $54.5B of cash this year. Where are they going to get that cash? The description of the MRS "money" flows:





From this chart I conclude that MRS has next to zero cash income. It has accrual (non cash) income from investments. All of the other sources are marked Intergovernmental Transfers. These are not cash transfers. The transfers are more of that “Borrowing Authority”.


There is a possibility that MRS gets a bunch of paper which it immediately redeems with Treasury for the needed cash. If that were the case, then MRS would be forcing Treasury to issue more DOP (+50B?).


For America, the DOP to GDP ratio is crucial (more important than the Total Debt to GDP – that includes those meaningless TF IOUs). We know that DOP goes up when there is a budget deficit – but DOP also rises based on what is happening with the big Trust Funds. How much the TFs are driving DOP is something I would like to know, and I’m disappointed and frustrated that I can’t give you the “right” answer. If any readers can clear this up, it would be most appreciated. I’ll be sure to send a link of this to CBO, OMB, CRS, FERS, MRS and SS. If I do hear from someone, I'll let you know; don't hold your breath.

Note: For those who have a check coming from FERS/MRS please don't read this as a suggestion that your benefits are at risk. That is not the case. Those benefits are money good. The taxpayers, well, they are going to have a problem with this.





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valley chick's picture

but...but...but...they tell the postal workers that the "safest" place is the G fund.  As I told my fellow workers...if you don't hold it...you don't own it.  Good Luck.

kchrisc's picture

Though I appreciate the info, it is a moot point.

Any dollars the gov funds these "trusts" with goes straight to US debt. It's Peter and Paul robbing each other. Just like SS.

Next, and also like SS, these "trusts" cannot "grow" because to grow they would need to compound "real" returns and not interest paid from Paul or is that Peter--forget it, I'm confused, or is that Confucius.

Confucius say government is the greatest Ponzi but with guns.


steveo77's picture

Hey check this one out, I just did a Checklist of Governments in Terminal Decline (kind of stolen from Simon Black) 
http://oahutrading.blogspot.com/2013/02/checklist-for-government- in-terminal.html

H E D G E H O G's picture

oh me? i'm just sittin here enjoying the read from you guys and cleaning my new Browning Short Trac .270 semi auto. got my V-Day gift to myself from Apmex too. life is good, as long as you're free, and distanced from the incompetent, unaccountable, bureaucratic bullshit that abounds in our society today. hope and pray for the best, but prepare for the worst.

“Rebellion to tyranny is obedience to God.”-ThomasJefferson's picture



Hmmmm.......Unfunded liabilities! 

We're going to need to get a shit-load more paper and ink.  Fire up the printing presses.

Other than that, business as usual.  Move along.....

andrewp111's picture

Trillion dollar coins will pay for everything, Bitchez!

Careless Whisper's picture

MRS has a fancy annual report. The audit is done by that powerhouse CPA firm – Acuity Consulting. Never heard of themNeither have I. This is a boutique accounting firm (on the D.C. Beltway, of course) that specializes in government audits. The principals of Acuity are all ex Air Force. 


bwahahahahahahahahaha. That's the best belly laugh I had all day.

At least they have a web site. It lists some of their qualifications. For example, Mona Thomas, the Director of Operations: As a former Air Force officer, she supported the Maverick Missile, SRAM II Missile, F-15 Fighter and C-17 Cargo System Program Offices as a budget and cost analyst.

That's what I like to see in an Auditor, support for tactical air-to-ground laser missiles. 



Bicycle Repairman's picture

What?  This country is a meritocracy.  What you talkin' 'bout, Willis???

world_debt_slave's picture

I was young and foolish when I joined the US Navy at 19 yrs old, but I woke up while serving for six years and got out when my enlistment was up.

jldpc's picture

They are cheering Obama as I write; and the level of bullshit has hit an all time high. If only the some force could do some good while they are all assembled? didn't Lincoln predict we would have to start over?

whisperin's picture


You might try and contact NARFE which is the National Association of Retired and Federal Employees. Granted they try to keep the benefits already in place and advocate for more but they do have numerous contacts and sources from all the governmental organizations you're interested in. More importantly they probably can put you in touch with those who have the "institutional" knowledge you seek. The trick will be talking your way through the organizational BS. the site is narfe.org.

jharry's picture

Kick the can down the road long enough and a miracle will happen. This was an idea in "Shakespeare in Love", and it applies today.  Stop worrying so much DUDES.  Be the Dude. We're all gonna terminate.  Enjoy the ride.

nmewn's picture

You've finally gotten there Bruce, welcome aboard ;-)

Debt is a negative, an obligation until paid back.

One can't pay back a debt, plus interest, with more debt with even less interest or even no interest, as what you are paying with, is an obligation of still more debt.

You can throw the addition of more debt/obligation over to the "plus side" to balance the book...but normal people (outside of government) go to jail for that sort of accounting for "assets"...lol.

This is the reason why the People no longer trust government or the law. Two systems, standing side by side, with one system at a distinct advantage by "law". The greatest tell is "non-marketable securities".

A free market would short them into the dust...and they know it.

disabledvet's picture

you could argue "all Government employment is in fact a debt owed to taxpayers" so in that sense i would agree with you...but as a former Government employee i would argue you "might get a difference of opinion on that." There is in fact another Government retirement system which could very well be argue is in fact "a debt" (i think it's called CSRS--Civil Service Retirement System) and that is indeed "Social Security for Government people" (in addition to Social Security of course. AKA "ye olde Double Dippers.") FERS is in fact nothing more than an IRA for Government employees...one need not contribute to it but contributions are matched. Government could therefore save a lot of money by not allowing the matching funds "ala the totality of America Incorporated right now." The other thing is that FERS is not required by law to invest in Government securities...however i would imagine "the Agency pension system is." Good luck finding the numbers for those retirement programs. From my (albeit short) experience the "retirement money wasn't all that good" which is probably why "Aldrich Ames sold out his country for such a small sum of money and STILL was easily caught." (For the record Wall Street has done a FAR better job selling out their country in the middle of a war "for the money." And yes that is meant as a compliment...and i expect it to be taken as such.) Don't know a thing about the military retirement system but i would guess it's really not all that much money. Those guys were "suppose to be done in 20 and onto the private sector." I believe outside of an occasional media star "that is how the totality of the military folk survive." i would agree that should Treasuries tank there can be all sorts of problems with Agency retirement systems...not the least of course being Social Security itself which is nothing BUT treasuries. Obviously this goes a VERY long way in understanding why the Fed is doing what it's doing...but does it explain why Wall Street and the world keep front running the Fed to push rates lower anyways? Go ahead and take a stab at that one Bruce if you want to try your hand at "financial rock star status." I know when i see post offices being closed down "this country has completely failed at everything." we had World War II and that never happened. trust me "the problem ain't with corruption" as far as the Agency is concerned. Anywho i think this article would be FAR better oriented if it was discuss STATE GOVERNMENT pension and medical monies since "those can't be printed away" and they make the Federal look like pikers in comparison. That's why i've always focused on how local Government works not Federal. You die if you phuck Federal. And i have taken note "matching contributions at the state level have gone the way of the doe doe bird." One other thing i was thinking of today...in the name of "streamlining the Federal workforce" of course...why isn't the Fed just folded into the Treasury Department? I mean...basically they're just a bunch of overpaid mouthpieces at the Fed now...why not have them work for somebody for a change? Clearly "under Fed guidelines monetizing the debt is wholly illegal"...but this is not true for Treasury Department officials. That's the "do whatever it takes" Agency. I find it rather odd that the Fed of all places is where people now go to "spend it all...and tell the world that's the right way for a Central Bank to behave." Since they already have "that great Government gig"...why not give them "that great Government boss to go with it?" You know...the guy who says...all the time..."i don't like the numbers here. Do them again" even though he's told you this 20 times already and the numbers always come up the same.

TexasAggie's picture

The funds you mention, were raided by TaxCut Pro TG to fund the borrowing before the debt limit was raised. FERS has seveal funds and only the one in USG funds could be used. The Stock Fund, the Commercial Bond Fund, the International and the Dated retirement funds could not be touched.

nmewn's picture

"you could argue "all Government employment is in fact a debt owed to taxpayers"

If you meant "all government employment is a debt paid by taxpayers" I would agree.

But the issue here is, it's paid in real time, by real taxation, by the private sector for it's services, just like any other service for hire.

The fiscal & budgetary problem many see (and have realized for years) is, they are carrying forward debt/liability on their balance sheet and calling it an asset.

It is not.

Timmy Geithner was kind enough to explain intra-governmental transactions to us in his own distorted way. Without a debt increase by act of Congress (more borrowing/printing) he would have to "raid" government employees retirement "accounts" to balance his books which free market accountants cannot audit or see. This implies a savings but a savings of what?

Its a savings of a debt (a negative) because without the debt increase it cannot be paid back into that pot...can it? Thats what he said. The Treasurer of the United States.

The simplest way I or anyone else can explain it is this, government itself is a net monetary liability, a monetary loss to the taxed. It produces nothing. It earns nothing that it does not confiscate from outside of itself. For if it did, it could do more of that and there would be no need for taxation at all and it would be self perpetual. 

Complete nirvana has been tried...and failed, bloodily, many times ;-)

There may be a benefit derived from it (and there is) but if it is not supported by taxation it becomes bankrupt.

ramacers's picture

part and parcel of ultimate implosion and the rivers of blood that will ensue.

Big Ben's picture

What the government calls a "trust fund" is really a "slush fund". If there is money going into it, you can bet your bottom dollar that lawmakers have worked out some way to get the money right back out.

Most people in the private sector are now on 401K plans. Does anyone know of any government employees anywhere that are on defined contribution plans? Defined contribution plans are much harder for the lawmakers to raid. They also make it much more difficult for the government to promise all sorts of unfunded future benefits.

SmallerGovNow2's picture

TSP (Trift Savings Plan)....

lunaticfringe's picture

It's more manugafactured BS from the same government and citizenry that think SS money is in some severable trust- safe and secure. Over funded and fully solvent.

Almost Solvent's picture

What can not be sustained will not be sustained.

mikla's picture


Good job sleuthing, Bruce.

However, what you describe is evidence that the fraud was intentional -- no cash flows, no money, no payments.

Disagree with your closing "note" to retire-ees.  They will absolutely be screwed, and the checks will *not* come.

Assertions to the contrary are unsupported (wishful thinking, under the assumption that this can continue forever).

Bruce Krasting's picture

Tks. Fraud you say? No, that is the wrong word. But I'm not sure what the right word is either.

The checks will be delivered. This is the military you're taking about. It is also all those Federal workers. They will cut SS well before they hit these beneficiaries.

The issue is not whether checks will get sent. It's that $2000 cup of coffee that will be the problem.


Bicycle Repairman's picture

"The checks will be delivered. This is the military you're taking about. It is also all those Federal workers. They will cut SS well before they hit these beneficiaries."

LOL.  That's your opinion.  It's simply a matter of which fund "hits the wall" first.  SS delivers a much smaller stipend to a much larger audience.  Moreover earmarked contributions are and continue to be made to SS.  It can go on indefinitely.  FERS and MRS will be hitting the wall before SS.

But it's nice to know you're learning, Bruce.  You need to look at pensions of all kinds.  They all will hit the wall before SS.  FDR designed SS pretty well.

StychoKiller's picture

The werd you're looking for is "delusional!"

Rick64's picture

Okay, Peter I'm going to take this from you and give it to Paul, but but thats robbery. Cooking the books is fraud Bruce!

Tedster's picture

Hi Bruce,

My dad used to tell me a story about a buddy many years ago, let me see if I remember this right, he was a "triple dipper" in retirement terms. My dad was pissed, iirc, because they were about the same age (young!). The guy had enlisted into the .mil at 18 or whatever, did his twenty and retired, and then took a job with the post office. In those days they calculated things like years of federal service differently, so maybe he retired from the post office too at that point. For Federal employment, the Civil Service employees are probably just about all retired by now? Current employees have a defined contribution plan through FERS, that is apparently drained fairly regularly and/or whenever there is a debt limit kerfluffle in congress.

There are a few funds to choose - a "G" fund that invests in Treasuries, and various stock equity funds that mimic the S&P and EAFE, etc. Some were able to trade the various funds in their own accounts enough to warrant a crackdown on the number of trades one is allowed per month, due to overnight repricing of certain funds aka "time zone arbitrage." Really. One is always allowed to return to the loving arms of the G Fund however, without penalty.

SmallerGovNow2's picture

The only thing that employee's have a choice on is the Thrift Savings Plan TSP.  You get to choose how that is invested, G fund, stocks, etc...  But the FERS retirement system, you have no choice...  Who knows where those funds go...

Midas's picture

Bruce-  The reason the USPS is in trouble is because the feds make them save for the future so the feds can spend the savings.

I lifted the following from the USPS's latest 10-Q:

According to the most recent actuarial estimate received from OPM, the Postal Service had overfunded
its FERS obligations by $2.6 billion at September 30, 2011, the latest actual data available. The reduction
in the estimated surplus from amounts previously reported resulted primarily from changes to
government-wide economic and demographic assumptions made by OPM, as well as actual fiscal year
2011 experience. OPM’s most recent calculation shows that the FERS surplus was projected to grow to
approximately $3.0 billion by September 30, 2012. The Office of Inspector General has reported that if
Postal Service-specific assumptions and demographics are used to calculate the FERS liability, rather
than government-wide averages, the overfunding amount would be substantially greater.


Bruce Krasting's picture

1) The PO has many employees. As part of that employment the PO is supposed to set aside money for retirement benefits it has promised.


2) The PO has no money.


3) The PO borrows what it owes to FERS from the Federal Financing Bank (arm of Treasury).


4) The "money" from the PO goes to FERS.


5) Now FIRS has this "money". But the law is that FIRS must invest any money with the Treasury. So the Money goes back to Treasury and FIRS gets an IOU to grow its Trust Fund.


There is no money. It is just pieces of paper that represent borrowing authority. #1s through #5 are a complete circle. But sooner or later these IOUs will be cashed in. And we will have to ask China (nicely) for the money.


l.kimbot's picture

My evil side waits patiently for certain retired Postal douches' to " get theirs"

illyia's picture

This just sux. And Obama and those be-suited congress critters just clap on cue and smile with such vigorous satisfaction.

They think we are stupid.

For the most part, they are correct.

Midas's picture

I knew better than to watch it.  I'd rather read Bruce than listen to those trained monkeys, er, excuse me, listen to those trained seals clap.

Midas's picture

Yearly revenue is around 64 billion.  About 80% of the expenses are employee compensation.  That leaves around 50 billion for 550,000 employees.

Ninety grand compensation per employee and you claim the PO has no money?  What we agree on is there is no money.  What I am trying to tell you is that it is getting looted.

Marge N Call's picture

Disagree mikla,

"They will absolutely be screwed, and the checks will *not* come."

The checks will come as promised. They will get their $100K or so per year as promised. But according to even the fakes gov data trend, a cup of coffee will be $500.00. They are about to get a lesson in nominal vs real.

If they can see Timmay and BenDover printing and every gov borrowing to pay the monthly bill, and NOT SEE the massive shit-storm of inflation coming, then they are.....Americans.


Edmon Plume's picture

They can, and will make those payments.  However, they won't be able to guarantee the value of those payments.  With any luck, there will be an inverse relationship between inflation and the cost of ingredients used to make catfood.

rocker's picture

"The Value of those payments" is the correct analysis.  Remember the bailouts. Lloyd Blankfein got his 100 million dollar bonus only because they were bailed out.

That kind of money paid for no or bad service is just what is still going on right now with the Bernanke monetizing the bad debt of bad banks every day.

They just simply call it QE something.  And they keep the public at bay by saying the debt of the government is the only problem. Please. The Devaluation continues.