New Rule Allows Feds in Non-Pay Status During Shutdown to Take out TSP Loans

Categories: The Insider

The longest government shutdown in U.S. history put 800,000 federal employees in financial chaos as they were either forced to work without pay or locked out of work without pay for 35 days. To make ends meet, employees who have retirement savings turned to their savings to get by.   

 

According to Thrift Savings Plan officials, there was a 26% increase in hardship withdrawals during the period of the shutdown. Employees usually take hardship withdrawals as a last resort as it cannot be paid back and permanently depletes their TSP account.  

Employees couldn’t take out TSP loans either as current rules don’t allow employees in non-pay status – those furloughed without pay or forced to work without pay – to take out a TSP loan as it requires loan repayments through payroll deductions.  

 

As there’s a chance of another shutdown if the Trump administration and Congress can’t agree on the border wall funding by Feb. 15, TSP issued an interim rule to allow employees who are furloughed without pay or have to work without pay to take out TSP loans. The new rule takes effect after it’s published in the Federal Register the week of Feb. 4.  

 

“I have made the decision to issue an interim rule that will allow TSP participants affected by a lapse in appropriations to take a loan and to immediately suspend payment on that loan,” said TSP Executive Director Ravindra Deo in a Jan. 31 memo to the Employee Thrift Advisory Council.

 

“We will undertake the longer notice and comment rule-making, however, if another shutdown occurs in the near future, we want to be in a position to provide assistance to our participants immediately.”  

 

TSP officials warn, however, that the TSP loan program was not designed to replace the salaries of federal employees.  

 

“A TSP loan is not a costless alternative to paying federal employees for their work,” the officials said in the interim rule. “TSP participants who take loans may miss out on the investment earnings that would have accrued if that money had remained their retirement accounts. 


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