Thrift Savings Plan or TSP has always been a great tool for increasing federal employee federal retirement benefits. But many people prefer to transfer their funds out of the plan and shift them to other qualified plans or IRAs. But a new legislation has been introduced recently that could encourage federal employees to keep their savings in TSP.
Details of Legislation Suggest Lawmakers Believe Current Thrift Savings Plan Rules Encourage Transfers
U.S. Sen. Rob Portman (R-OH) believes the current TSP platform encourages Thrift Savings Plan participants to transfer their retirement savings. The recent legislation he proposed is aimed at stopping feds from transferring the savings to other retirement benefits accounts.
How Much Money is Shifted from Thrift Savings Plan or TSP Every Year?
If one needs to know how much money is shifted from Thrift Savings Plan or TSP every year, you should know that about $9 billion is transferred from TSP retirement account each year. The TSP is, what is called, a defined-contribution plan, similar to 401(k) plans offered in the private sector. Federal employees can access similar retirement benefits by rolling over their TSP funds into a 401(k) of a future employer or an IRA when they retire or as they reach TSP minimum age requirements for an in-service distribution.
Why Easing of Thrift Savings Plan or TSP Rules is Necessary?
Senator Portman believes there is a need to ease the Thrift Savings Plan or TSP rules as a recent survey revealed that the strict withdrawal rules of Thrift Savings Plan or TSP are the main reason why federal employees are switching to outside retirement accounts. This transfer happens despite the TSP having relatively low fees.
The TSP Modernization Act
Portman’s legislation, the TSP Modernization Act will change the current rules which restrict employees separating from the federal workforce to only two post-separation withdrawals. It would let multiple post-separation withdrawals so that the feds can meet individual needs over time.
While introducing the bill, Portman stated that TSP had played an instrumental role in assisting federal employees to maximize their retirement security and to mark the 30th anniversary of this vital savings vehicle, this bills takes several important steps to modernize the system so that it continues to benefit them in the future as well. He also urged his Senate colleagues to support the bipartisan legislation.
There are multiple benefits of the bill. Primarily, the bill would allow multiple Age-based withdrawals for the current federal employees who are older than 59.5. Secondly, it would encourage TSP plan participation by allowing quarterly or annual payments. It will also permit periodic withdrawals that can be changed anytime during a year.
U.S. Sen. Tom Carper (D-RI) was the one who introduced the TSP Modernization Act along with Portman. He also mentioned the benefits offered by the bill. He said that making smart choices to prepare for retirement can be a difficult task, but every person deserves to have the financial stability when their career is at an end.
Carper also stated that Thrift Savings Plan or TSP is a useful tool and the hardworking federal employees depend on it while they plan their futures. But there is a need to make it work better for the users. He was pleased to have worked with Senator Portman on a bipartisan effort with an aim to do just that.
Greg Long who serves as the Executive Director of the Federal Retirement Thrift Investment Board also shared his views on the matter by stating that the efforts of Senators Portman and Carper are appreciative. He added that the enactment of said legislation would improve the ability of TSP participants to access their retirement savings in a responsible manner.
It is quite evident that the legislation that plans to ease the Thrift Savings Plan or TSP rules would make things easier for the federal employees who find it hard to withdraw their federal retirement benefits swiftly and are forced to switch to other and more expensive retirement benefits accounts.