Should another government shutdown arise, the Federal Retirement Thrift Investment Board (FRTIB) has taken steps to ensure that all Thrift Savings Plan (TSP) participants can request financial assistance in the shape of a loan. For those in non-pay status as a direct result of a lapse in appropriations, borrowing from retirement accounts will be an option with these new changes.
As well as taking a loan, the rule changes will also allow for loan payments to be suspended before resuming again upon the end of the lapse. As long as the worker is excepted and working without pay or has been furloughed, this will apply; those in a non-pay status for other reasons will not have the same luxury.
New Stance for the FRTIB
In a recent interview, the director of external affairs, Kim Weaver, noted how these changes were essential since this year’s shutdown reached five full weeks. As many federal workers experienced during the shutdown, current rules give a penalty for missing loan payments, and this caused havoc as the whole system is automated. With workers receiving no pay, a certain percentage couldn’t go towards the loan payments, and they couldn’t request a loan since they weren’t in pay status.
With this interim rule, this kink in the rules will be fixed somewhat; the FRTIB is willing to take public comments before the final ruling, but they’re trying to push the changes through as a matter of urgency.
Is a Second Shutdown Likely?
With the White House and Congress constantly at war over the wall’s funding, another shutdown is entirely possible. Replacing the automated processes, manual systems have been introduced to allow for the immediate introduction of the interim rule. If a shutdown were to occur tomorrow, for example, the systems would be in place to allow for TSP loans.
Despite these changes, the FRTIB wants to make clear that a TSP loan should never be an adequate replacement of salaries. By taking a loan under these circumstances, investment earnings can be missed, and repayments are still necessary to avoid extra tax. However, it seems to be a case of ‘something is better than nothing,’ and it should at least allow for some financial relief in troubling times.
Federal Worker Advice
How can federal workers apply for a loan if another shutdown occurs? All information will be available on the TSP website. Thankfully, the FRTIB is working with the Office of Personnel Management, the Office of Management and Budget, and the IRS so federal workers have an easy process to follow.
After the previous shutdown, a number of Congress members suggested TSP rule changes with many focused on hardship withdrawal availability. While looking at the problem from slightly different angles, they all seemed to suggest a removal of the 10% early withdrawal fee and the ability to repay the loan. For the FRTIB, they’ve already noted how the provisions during a presidentially-declared natural disaster could be extended to include government shutdowns. With this in mind, it would allow workers to take penalty-free hardship withdrawals.
So far, hardship withdrawal changes haven’t been confirmed, and the FRTIB have said they will continue their work with congressional staffers. According to Weaver, the worst-case scenario would be passing a bill and then not having the tools to implement it quickly which is why this current stage is so important (and why we’ll have to wait for news in the coming weeks!).