More TSP Hardship Allowances for Potential Shutdowns?

For many bipartisan, bicameral lawmakers, they want the country to learn from the 35-day shutdown. Therefore, they’re already investigating ways to offer financial flexibility for all federal employees should another shutdown occur.

During the last shutdown, a number of Congress members introduced bills to allow federal employees to withdraw from their TSP in future lapses of appropriations; something that lawmakers have said will be considered times of ‘financial hardship’. Currently, a 10% early withdrawal penalty looms for those who take a hardship withdrawal before the age of 59 and a half.

According to the FRTIB’s statistics, compared to last year’s data, hardship withdrawals increased by over 25% while the number of loans increased by 5% between the period of December 26 to late January. Of course, lawmakers did introduce new legislations as the shutdown continually expanded, but the FRTIB believes there’s an opportunity to overhaul the current regulations.
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Legislation Changes During the Shutdown

Director of External Affairs, Kim Weaver, said congressional staffers were engaged while discussing TSP withdrawals and that it was pleasing to see. Just recently, the Financial Relief for Feds Act was introduced which would allow all federal employees a withdrawal of up to $4,000 every two weeks while in a government shutdown. While taking this withdrawal, employees won’t have to pay the early withdrawal fee that normally applies. For Weaver, this is something that needs to be addressed permanently to prevent the future panic of hundreds of thousands of workers.

Similarly, the Emergency Relief for Federal Workers Act would allow a $30,000 withdrawal from a given TSP with a government shutdown officially considered a ‘financial hardship.’ During a lapse, employees would no longer have to prove financial hardship either. As well as removing the 10% fee, the bill would also allow employees to recontribute either all or some of their withdrawal within 120 days of the shutdown’s end.

For those under the age of 59 and a half, the Shutdown Relief Act from Rep Elaine Luria also allows hardship loans to be taken without any penalty. With this particular legislation, TSP participants would be allowed to withdraw their lost salaries before then having 180 days to recontribute back to their TSP accounts.

FRTIB Support and Improvement

For Kim Weaver, these bills were certainly positive steps because they allowed some financial stability to those affected by the prolonged shutdown. However, she stated proposed legislations could be tweaked. In certain circumstances, like a presidentially-declared natural disaster, there are flexibilities to the TSP. Just last year, financial hardship withdrawal in-service requests were qualified by the FRTIB after many government workers were hit by Hurricanes Florence and Michael – they would be qualified as simple hardship withdrawals. Furthermore, after taking a hardship withdrawal, participants are normally prevented from contributing to their TSP for six months, but this was waived.

For Weaver, federal workers who need help during a government shutdown should have rules such as these. With TSP’s upcoming adjustments, the six-month contribution rule after a hardship withdrawal will be removed by the FRTIB. If all goes to plan, this will occur with other changes in September 2019.

While staffers have been open to discussion, the debate now is whether or not they’ll mimic the TSP regulations (on natural disaster withdrawals) in the Olson bill. Either way, the fact that solutions for government workers are being discussed is a positive step. Weaver was pleased that staffers are working hard to have something to implement to ensure the same problems aren’t encountered to the same extent in future shutdowns.

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