Fewer federal employees tapped their Thrift Savings Plan accounts for hardship withdrawals in 2015 than in 2014, according to the board that administers the government’s 401(k)-style retirement plan.
The Federal Retirement Thrift Investment Board reported 111,694 hardship withdrawals in 2015, totaling $1.02 billion, compared to 121,389 such withdrawals totaling $1.12 billion by participants in 2014.
“I’m hopeful that this one year turns into a trend, and that the messaging that we are doing is part of the reason we saw this activity in 2015,” said Renee Wilder, TSP’s director of enterprise planning, during a Monday phone call with the board to discuss the latest TSP data.
The TSP board has increased its online and social media outreach campaign to educate enrollees about the risks of withdrawing money and taking loans from their nest egg. During the 2013 government shutdown, which lasted 16 days in October that year, more than 14,000 federal employees turned to their retirement investments for cash. The number of hardship withdrawals in October 2013 was a new monthly record for the TSP at the time. While Congress ultimately opted to make all federal employees whole, thousands of workers took hardship withdrawals of at least $1,000 on their plans because of delayed paychecks.
Employees who withdraw money citing hardship are banned from contributing to their accounts for six months, which means they also lose their agency’s matching contributions for that time period – which could result in the loss of significant savings over time. The number of hardship withdrawals rose 13 percent between May and June 2015, though the TSP said that increase reflected similar seasonal increases in previous years related to paying for vacation and college tuition.
According to the latest FRTIB data, TSP participants took out more in loans in 2015 than in 2014: $4 billion compared to $2.9 billion (though the number of transactions remained roughly the same). In 2014, the TSP board put together a YouTube video to educate enrollees on the risks of borrowing against their retirement funds.
In addition, more participants took age-based withdrawals in 2015 than in 2014 – 20,242 such payments last year totaling $2.2 billion compared to 19,882 withdrawals in 2014 totaling $2.1 billion. Age-based withdrawals are withdrawals made by those employees who are 59 and a half or older.
Wilder said the TSP will look at why there’s been an uptick in age-based withdrawals, as well as continue to work on making withdrawals more flexible. Click here from more current information from the TSP on loans and withdrawals.
Still, TSP enrollees who separated from government took fewer lump sums and made fewer total balance transfers to other financial institutions in 2015, which Wilder said is a “good thing” for the TSP. Participants in this category tended to take monthly payments, or make partial withdrawals last year. TSP participation continues to grow among active-duty service members, as does the number of total Roth accounts (civilian and military), now hovering around 677,000.
If the latest volatility in the market is worrying TSP enrollees, the FRTIB wants to reinforce the message of staying the course.
“Significant movements can occur rapidly in the stock and bond markets,” said a message on the TSP website. “By the time you react to the situation, the market may be moving in the opposite direction, and you could miss out on significant gains. It's a good idea to periodically ask yourself whether your retirement portfolio properly reflects your willingness and ability to take risk. But if you are certain about the amount of risk you can tolerate, try not to let short-term market movements steer you off course.”
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