First update to retirement savings program in 30 years would provide more withdrawal flexibility for participants.
The House by voice vote approved a bill Wednesday that would make it easier for participants in the federal government’s 401(k)-style retirement program to manage their investments.
The TSP Modernization Act (H.R.3031), introduced by Reps. Elijah Cummings, D-Md., and Mark Meadows, R-N.C., would allow federal employees and retirees to make multiple age-based withdrawals from their Thrift Savings Plan accounts and remain eligible for partial withdrawals after they leave government as well. Additionally, those who have left government would be able to make multiple partial post-separation withdrawals.
The bill also would allow those receiving monthly payments to change the amount of their annuity at any time, instead of only once per year. Participants could change the frequency of payments as well.
Cummings said on the House floor Wednesday it is important to provide new ways for federal employees and retirees to manage their TSP accounts, given that the law governing the program has not been updated since its inception 30 years ago.
“This is a common sense, good government bill,” Cumming said. “With greater flexibility, studies show that participants are more likely to keep their assets in their TSP accounts.”
TSP officials said in April that they have found employees and retirees have long wanted the provisions proposed in the bill. In 2013, TSP participants who no longer worked for the federal government transferred $9 billion out of the program to other financial institutions.
Currently, feds who wish to make age-based withdrawals can only do so once while employed by the government, and then they cannot make a partial withdrawal after they leave their job. Those who have already left government can make one partial post-separation withdrawal, but then must move to full withdrawal options.
National Active and Retired Federal Employees Association President Richard Thissen applauded the bill's passage in a statement.
“The current restrictive TSP withdrawal options are one of the leading reasons why participants transfer their money out of the TSP, despite the fact that the TSP provides sound investment options at a low cost,” Thissen said. “The withdrawal options provided in this bill will create opportunities for participants before and during retirement, provide greater financial independence and encourage participants to keep their money in the TSP.”
A similar bill in the Senate (S. 873), introduced by Sens. Rob Portman, R-Ohio, and Tom Carper, D-Del., was approved by that chamber’s Homeland Security and Governmental Affairs Committee in July.