In a letter to congressional leaders, Lew said that he would tap the civil service retirement and disability fund and a similar fund that covers retired postal workers. The law allows him to remove investments from these funds to clear room for more borrowing until Congress votes to raise the debt limit
Under the law, any investments diverted from the pension funds must be replaced with interest once Congress approves raising the debt limit.
Lew has said the various bookkeeping measures he is allowed to employ should provide enough maneuvering room to keep the government from defaulting on its debt until after Labor Day. Other estimates say Lew may be able to forestall a default until as late as November.
In January, Congress voted to temporarily suspend the debt limit but that suspension ended Sunday.
Before the suspension, the debt limit stood at $16.4 trillion. The government has borrowed $300 billion since the suspension took effect. On Sunday, the debt limit reset at the higher level of $16.7 trillion.
The government has run annual deficits of more than $1 trillion for the past four years. But the Congressional Budget Office last week estimated that this year's deficit will drop to $643 billion, an improvement that reflects increased revenue from a stronger economy and the effect of tax increases that took effect in January.
Republicans want to reduce future deficits by cutting back on spending. Democrats have proposed a mix of spending cuts and tax increases, which Republicans oppose. The dispute has led to the current budget impasse.
A standoff over budget issues in August 2011 pushed the country close to its first-ever default before President Barack Obama and Republicans reached a last-minute compromise. That battle prompted Standard & Poor's to issue the first-ever downgrade on long-term Treasury debt. The administration has vowed to prevent Republicans from using the need to raise the borrowing limit as leverage in the current budget battle.
"I respectfully urge Congress to protect America's good credit and avoid the potentially catastrophic consequences of failing to act by increasing the debt limit in a timely fashion," Lew said in his Monday letter.