Fiscal cliff (Photo by MrIncredible/Shutterstock)

Hardship withdrawals from TSP increased during shutdown

The 35-day government shutdown saw an extraordinary level of hardship withdrawals from federal retirement plans, but with the spike over, the agency that manages the plans is turning its attention to budgetary and legislative activity.

Speaking at the March Federal Retirement Thrift Investment Board (FRTIB) meeting, Director of Participant Services Tee Ramos said that, two months removed from the end of the longest-ever government shutdown, hardship withdrawals from Thrift Savings Plan (TSP) accounts dropped 44 percent from last month and are now "back in line with what our normal hardship amounts are."

"Last month," said Ramos, the number of account withdrawals peaked at 12,936, but has since "returned to normal levels," settling in at 7,282.

Now, the board faces a renewed presidential push to slash retirement benefits, plus a divided Congress that makes preparing for possible legislation a less clear exercise.

The White House's fiscal year 2020 budget proposes steep cuts to federal benefits. Retirement cuts include eliminating cost-of-living adjustments for Federal Employee Retirement System retirees, eliminating the special retirement supplement, recalculating the pension formula from the average of an employee's three highest salary years to the five highest, increasing employee retirement contributions by 1 percent per year and reducing the G Fund interest rate.

Kim Weaver, FRTIB director of external affairs, said while the board has previously opposed such changes to the G-fund interest rate, it's "unclear how the budget process" will play out with the divided Congress.

A Senate resolution introduced by Budget Committee Chairman Mike Enzi (R-Wyo.) proposed significant cuts to the civilian spend, calling for $176 billion in savings in part by increasing federal employee retirement contributions. The reconciliation instructions direct the Senate Homeland Security and Governmental Affairs Committee, which oversees the FRTIB, to reduce the deficit by at least $15 billion over the next five years.

Weaver said while the Senate plan didn't tag a specific number for how much employee contributions could increase, how this affects federal employees is "something to keep an eye on."

In response to the shutdown, five bills have been introduced by lawmakers on both sides of the aisle aimed at easing the withdrawal penalty for TSP participants who dip into their account early in the event of a lapse in appropriations. Weaver said she was "expecting one or more of the furlough bills to move."

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Contributors

Edward A. Zurndorfer Certified Financial Planner
Mike Causey Columnist
Tom Fox VP for Leadership and Innovation, Partnership for Public Service
Mathew B. Tully Legal Analyst

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