How feds can access TSP loans during shutdowns

In the event Congress can't act to prevent a government shutdown on October 1, feds will have some peace of mind from knowing that they don't have to rely on new legislation to get back pay.

The bill that ended the 35-day government shutdown that spanned the end of 2018 and early 2019 included the Government Employee Fair Treatment Act of 2019, which mandates that feds will be paid "at the earliest date possible" after the close of a lapse in appropriations.

But for feds who miss one or more paychecks and need cash to meet expenses, there are options available via Thrift Savings Plans (TSP).

One option for government employees is to make a hardship withdrawal from their TSP account, although there are some limits. Feds younger than 59 and a half may see a 10% penalty tax if they use this option.

During the 2018-2019 shutdown, the number of feds taking hardship withdrawals out of their retirement Thrift Savings Plans a href="">spiked at 12,936. After the shutdown ended, Congress saw a flurry of bills introduced to give TSP participants assistance during a lapse in appropriations via hardship withdrawals, although none made it into law.

Another possibility for feds is taking out a loan against their TSP plan.

The Federal Retirement Thrift Investment Board, which administers the TSP, altered loan processes for participants after that 2018 shutdown to support cash-strapped plan participants.

Under rule changes made in early 2019, certain employees pushed into "non-pay" status by a shutdown -- furloughed employees and those working without pay -- can take out loans against their retirement accounts at any point during the lapse in appropriations and suspend those payments until the funding lapse ends, said Kim Weaver, the FRTIB's director of external affairs.

Feds can only have one outstanding general purpose loan and one outstanding residential loan at a time, though, so feds with outstanding general purpose loans within the last 60 days aren't eligible.

Participants also have to have at least $1,000 of their own contributions and earnings in their account to participate, and this only applies to people not being paid because of the shutdown, as opposed to other reasons like voluntary leave of absences or disciplinary suspensions.

That 2018 shutdown revealed a problem on the repayment side of loans as well, since feds with outstanding loans didn't have ways to make payments since loan payments are deducted from employee pay.

Now, TSP participants can request loan repayments be suspended if a shutdown lasts long enough that feds miss paychecks. Participants can also submit payments directly on their online account.

As for the FRTIB itself, it isn't funded through appropriations, so it doesn't shut down during funding lapses, Weaver said.

This article first appeared on FCW, a FederalSoup partner site.

Reader comments

Fri, Oct 1, 2021

The worst place to get a loan. Most people contribute pre-tax money, which mans they will pay tax when they withdraw in retirement. When they borrow, they pay the loan back with after tax money, which means they will pay tax on the same money twice because the after tax money they pay the loan back with replaces the pre-tax money they borrowed.

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