The Executive Director of the Thrift Savings Plan Board has reported that there was a 5% increase in loans and a 26% increase in hardship withdrawals since December 26, 2018. Given the interest of TSP participants in requesting loans during the government shutdown, the Thrift Board is issuing an interim rule that amends the TSP regulations to allow certain TSP participants to request a loan during government shutdowns without regard to whether they are in pay status. The rule states that TSP participants affected by a lapse in appropriations will be allowed to take a loan and to immediately suspend payment on that loan.
Like many 401(k) plans, the TSP is designed to accept loan payments primarily through payroll deductions to ensure that participants do not suffer the tax consequences of defaulting on their loans. Since loan payments cannot be made through payroll deduction if the participant is not receiving a paycheck, the Thrift Board regulations contain a provision that makes loan eligibility contingent on pay status. However, given the recent government shutdown, the Board realized that the pay status impeded federal employees from taking loans.
The interim rule will be published in the Federal Register soon and will be effective on the date it is published. The Board took this unusual route in light of the recent shutdown and the fact that the current Continuing Resolution (CR) is set to expire on February 15. The Thrift Board announced that it will undertake the longer notice and comment rule-making as well but wanted to be in a position to provide assistance to participants should another shutdown occur in the near future. The Board cautions, however, that TSP participants who take loans may miss out on the investment earnings that would have accrued if that money had remained their retirement accounts. A TSP loan will still have to be repaid in order to avoid the loan being declared a taxable distribution.
NTEU applauds the Thrift Board for seeking ways to help federal employees caught in a crisis not of their making.