Record Number of Feds Withdrew Retirement Investments in October

Mario Aguilar/Shutterstock.com

More than 14,000 federal employees turned to their retirement investments for cash in October, marking a new monthly record for the Thrift Savings Plan.

Between 10,000 and 12,000 TSP participants make hardship withdrawals in a typical month, according to Federal Retirement Thrift Investment Board officials, with the October jump coming as a result of the 16-day government shutdown that delayed paychecks for most federal workers.

Roughly 900,000 federal employees were furloughed and unsure if they would receive pay for the time they missed when the shutdown began, while the remaining employees required to work were guaranteed retroactive pay when government reopened. While Congress opted to make all federal employees whole, thousands of workers took hardship withdrawals of at least $1,000 on their plans.

Employees who made the withdrawals had to prove negative monthly cash flow or extraordinary new expenses, such as medical or legal bills, and are now banned from contributing to their accounts for six months. This means they will also lose their agency’s matching contributions for that time period.

“It is very unfortunate that these employees were forced to withdraw money that should be saved for their retirement to make ends meet,” said Colleen M. Kelley, president of the National Treasury Employees Union. “This is yet another negative and harmful effect of the shutdown that will reverberate into the future.”

FRTIB also announced it will move forward with its plan to automatically enroll new federal employees in its lifecycle funds, rather than its safer government securities offering, after receiving an endorsement from federal employee groups at a meeting Monday. The Employee Thrift Advisory Council -- made up primarily of federal employee unions and professional associations-- originally opposed the switch, saying members simply wanted the near-guarantee of TSP’s government securities fund.

The TSP overseers warned this was unsound fiscal logic, as employees would see much higher returns in the L Funds, which move federal employees to safer portfolios as they near retirement. As of April, the various lifecycle funds -- L Income, L2020, L2030, L2040 and L2050 -- had grown between 35 percent and 43 percent since their inception in 2005, while the G Fund had grown 28 percent in the same period. The board has found that many enrollees do not take the time to re-allocate their investments.

Since August 2010, all new federal employees have automatically had 3 percent of their base salaries contributed to their TSPs, unless the individual actively opted out of the plan. All employees receive at least a 1 percent agency contribution into their plans. More than 400,000 G Fund-invested, auto-enrolled accounts show no investment activity. These employees’ accounts would not be affected by the switch, as it would only apply to new hires.

With ETAC’s backing, TSP officials will consult with the plan’s Senate-confirmed, five-member board and subsequently propose the change to Congress, as the switch would require legislative action.

“While there may be concern that we are exposing a participant’s retirement savings to the risk inherent in the capital markets, we believe the L Funds appropriately address those risks in their design,” FRTIB wrote in a memorandum to announce the proposal. “Further, and importantly, those participants who conclude they do not want to assume market risk will always have the ability to change their allocations or move their account balances to the G Fund.”

In a move that could perhaps put some detractors of the switch at ease, FRTIB also announced the lifecycle funds will now allocate a larger proportion of their total configuration to the G Fund. The board contracted a consulting firm to review its L Funds allocations and opted to make the change in light of the findings.   

(Image via Mario Aguilar/Shutterstock.com)

Stay up-to-date with federal news alerts and analysis — Sign up for GovExec's email newsletters.
FROM OUR SPONSORS
JOIN THE DISCUSSION
Close [ x ] More from GovExec
 
 

Thank you for subscribing to newsletters from GovExec.com.
We think these reports might interest you:

  • Going Agile:Revolutionizing Federal Digital Services Delivery

    Here’s one indication that times have changed: Harriet Tubman is going to be the next face of the twenty dollar bill. Another sign of change? The way in which the federal government arrived at that decision.

    Download
  • Cyber Risk Report: Cybercrime Trends from 2016

    In our first half 2016 cyber trends report, SurfWatch Labs threat intelligence analysts noted one key theme – the interconnected nature of cybercrime – and the second half of the year saw organizations continuing to struggle with that reality. The number of potential cyber threats, the pool of already compromised information, and the ease of finding increasingly sophisticated cybercriminal tools continued to snowball throughout the year.

    Download
  • Featured Content from RSA Conference: Dissed by NIST

    Learn more about the latest draft of the U.S. National Institute of Standards and Technology guidance document on authentication and lifecycle management.

    Download
  • GBC Issue Brief: The Future of 9-1-1

    A Look Into the Next Generation of Emergency Services

    Download
  • GBC Survey Report: Securing the Perimeters

    A candid survey on cybersecurity in state and local governments

    Download
  • The New IP: Moving Government Agencies Toward the Network of The Future

    Federal IT managers are looking to modernize legacy network infrastructures that are taxed by growing demands from mobile devices, video, vast amounts of data, and more. This issue brief discusses the federal government network landscape, as well as market, financial force drivers for network modernization.

    Download
  • eBook: State & Local Cybersecurity

    CenturyLink is committed to helping state and local governments meet their cybersecurity challenges. Towards that end, CenturyLink commissioned a study from the Government Business Council that looked at the perceptions, attitudes and experiences of state and local leaders around the cybersecurity issue. The results were surprising in a number of ways. Learn more about their findings and the ways in which state and local governments can combat cybersecurity threats with this eBook.

    Download

When you download a report, your information may be shared with the underwriters of that document.