New TSP Withdrawal Options and Four Other Features Coming to the TSP Within This Year by Bill Eager
Great news for federal employees is that the administrators of the Thrift Savings Plan are planning to introduce more withdrawal options for employees who are TSP account holders. They will also add a series of new tools that will help federal employees save a considerable amount of their retirement, according to Bill Eager.
The agency that looks after the TSP, Federal Retirement Thrift Investment Board (FRTIB), has created a to-do list, and we must mention here that new TSP withdrawal options are the first thing to do in that list. These new options will be available for participants after September 15.
This agency has been working on new withdrawal options for the past year or so, even before our President signed the TSP Modernization Act into law in November 2017.
Congress approved two years for the FRTIB to try and access the new rules, which authorize lots of new withdrawal options for people holding a TSP account and saving money from their accounts, according to Bill Eager.Federal employees gave feedback to Congress and pressurized the government to introduce more flexibility in TSP. During a survey done in 2017, 62% of participants said that they were satisfied with the existing withdrawal options.
Here are the New TSP withdrawal Options
· Option to take installment payments-monthly, quarterly, and annually.
· Unlimited post-separation and partial withdrawal options.
· Freedom to take partial withdrawals and installment payments in one go.
· Ability to withdraw payments from any of traditional, Roth or both.
· Age basis should be up to four based in-service payment withdrawals at age 59 1/2 or older.
· No contribution suspensions if a federal employee takes a hardship withdrawal.
To prepare new withdrawal options, the TSP agency is working on new forms that can be easily used by the employees to bring changes to or stop withdrawal payments and withdrawal while in-service or post-separation.
According to Tanner Nohe, the FRTIB’s withdrawal project manager, all existing forms will be acceptable to the TSP until September 6. New forms will be applied after September 15 and will support online tools so that participants can thoroughly fill them in with the complete information.
Obviously, these online forms will be more user-friendly compared to the already existing TSP paper or PDF forms, and they will guide employees through making changes to withdrawing funds from their TSP accounts. This online tool will also show participants their Roth balance if they have any. Based on an individual account, this tool will help users see future distributions in their accounts.
Nohe added that participants could log off from their tool at this point, and their information will be saved for seven days. If someone wants to change the current withdrawal option, then he or she can cancel the already existing one and start a new one after creating a new transaction.
More information on the upcoming withdrawal options can be checked by the employees on the website in July. The FRTIB is planning to update the regulations and open up with a public comment period at the end of this week.
With the new Thrift Saving Plan withdrawal options, there are four other features that would be added to the TSP within the next year so that employees can take full advantage of this plan.
Introducing New ‘Spillover’ Option in January 2020
The TSP agency is planning to come up with new features and options that would help participants plan their retirement in a better way. They will be able to contribute more to their retirement accounts.
For now, the IRS has set a limit each year on participant contributions to their retirement accounts. From records, it is estimated that the elective deferral limit is $19,000 as far as 2019 is concerned. Participants over the age of 50 get an additional contribution advantage of up to $6,000 in “catch-up” funds.
During a meeting of the TSP board and the Employee Thrift Advisory Council, Jim Courtney, the FRTIB’s Director of Communications and Education, said that if you talk to their trainers and folks who go out and teach about the TSP, you would know that most of the participants actually don’t understand “catch-up” contributions.
Nearly one-quarter of the 125,000 people in the Federal Employee Retirement System who contributed to catching up funds in 2017 stood nowhere when they were compared to the elective deferral limit.
Two-thirds of the 39,000 FERS participants were investing on track and were about to reach the limit early were age 50+.
Courtney further added that at some point in time, they had to stop accepting their contributions because they had reached the elected deferral limit, even if they still wanted to contribute to their savings plan.
To clear this confusion, in January 2020, the TSP agency will strictly implement a new “spillover” option.
Courtney said that participants who are over 50 would not be asked to make a separate election for their catch-up contributions.
They will only be required to contribute as per their regular contributions, and if their elected deferral limit is reached, any additional contributions from their side will spill over and go to catch-up contributions. This strategy will continue until the participant contribution reaches 5% of their salary. An ‘easy-button’ will be available for payroll offices and would help them know that there is no need to track these two sets of contributions differently.
Two-factor Authentication Will be Made Compulsory
The Federal Retirement Thrift Investment Board is planning to make two-factor authentication compulsory for all employees holding a TSP account online from December.
The board added tight security measures for the participants holding online accounts way back in April. Now participants have an option to add two-factor authentication, but this feature will be made mandatory from December.
An OTP will be sent to all participants via email or text each time they try to log into their TSP online accounts.
Tee Ramos, the FRTIB’s Director of Participant Services, stated that more than 133,000 participants already use two-factor authentication, according to records as of mid-April. Another 11,000 are expected to enroll this week.
Before this two-factor authentication, employees used to enter their user ID and password to access their accounts. Recently, the FRTIB has added a feature that allows participants to change their account passwords online. Earlier, they could change passwords only over the phone.
New Communication Methods
According to the TSP agency, the TSP will send a new e-newsletter, called the “Thrift Savings Planner” to all 3.5 million participants who have registered their email addresses.
In addition to this, the FRTIB will send targeted emails and postcards to all participants in order to remind them of savings they could make by bringing some changes to their existing contribution rate.
Last fall season, the agency identified more than 1,254 active federal employees who are active participants and auto-enrolled themselves at the 3% contribution rate in the TSP. A behavioral scientist helped the FRTIB to craft two different sets of emails to send to almost 60% of these participants.
One email was sent to 30% of participants of this group with a liner that informed participants about the missing matching contributions from them. It also contained additional information that guided how to change their contribution rates according to their agency’s rules and regulations.
In order to attain the highest match from an agency employer, a TSP participant is required to contribute at least 5% of his or her salary.
Another email went to the rest of the 30% of the participants, saying that some federal employees are skipping their full contributions from the agencies.
Participants were supposed to make changes twice after receiving one of the two emails compared to the remaining 40% of employees who didn’t get an email from the FRTIB.
Those who failed to make any change were forced to contribute the median contribution rate of up to $140 a month.
Clifford Dailing, chairman of the Employee Thrift Advisory Council and secretary-treasurer for the National Rural Letter Carriers’ Association, said that he sees the TSP as a powerful tool to help federal employees live better even after their retirement.
During the meeting, he said that it is a scary thing that some participants gave feedback, claiming that they wished they’d known about this plan earlier.
Automatic 5% Contribution Rate Enrollment
Not only this, but the FRTIB is planning to automatically enroll new employees into the TSP at a contribution rate of 5% from October 2020.
As of now, employees contribute only 3% of their salaries to their TSP retirement accounts.
The FRTIB believes that this is one of the best and the simple ways to allow federal employees to invest more in their retirement plans. If any other participant doesn’t want to contribute 5%, he or she can change their rates as well.