Two senators on Thursday introduced a bipartisan bill to loosen the restrictions on how federal employees and retirees can withdraw money from the Thrift Savings Plan.
The TSP Modernization Act, introduced by Sens. Rob Portman, R-Ohio, and Tom Carper, D-Del., comes at the request of the Federal Retirement Thrift Investment Board, which governs the 401(k)-style retirement savings program. The withdrawal rules have not been changed since the TSP was established in 1986 and are outdated, according to the board.
Under the current statute, federal employees who wish to make age-based withdrawals can only do so once while they are employed, and then they cannot make a partial withdrawal once they leave government. Those who have left government and haven’t made any age-based withdrawals can make one partial post-separation withdrawal, but then must move to full withdrawal options.
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Portman and Carper’s bill would allow active federal employees to make multiple age-based withdrawals from their TSP accounts and remain eligible for partial withdrawals once they leave government as well. Those who have left government could make multiple partial post-separation withdrawals. The bill also would allow those receiving monthly payments to change the amount of their payment at any time—instead of only once per year--and they could change the frequency of payments as well.
In 2013, TSP participants who no longer worked for the federal government transferred $9 billion out of the TSP to other institutions. According to a TSP-conducted survey of those participants, 27 percent cited a desire for greater flexibility with payments and withdrawals.
“When these rules were written 30 years ago, most were thinking of the world as a defined benefit, a pension, and these kinds of rules make sense in a pension world,” said Kim Weaver, the TSP board’s director for external affairs. “But now, when we’re in a 401(k) combined contribution world, they just don’t work as well anymore.”
Portman and Carper said in a statement that updating the TSP rules surrounding account withdrawals will ensure the program remains viable in the years to come.
“The TSP has been instrumental in helping federal employees maximize their retirement security, and to mark the 30th anniversary of this critical savings vehicle this bill takes important steps to modernize this system to benefit them in the future,” Portman.
Greg Long, executive director of the Federal Retirement Thrift Investment Board, said the bill will ensure federal employees can adequately manage their money and save for retirement.
“Enactment of this legislation will meaningfully improve TSP participants’ ability to responsibly access their retirement savings,” he said.