The 16 day government shutdown had many federal employees wondering what was happening in the Thrift Savings Plan. Would their accounts be affected? Could and should they take out hardship withdrawals to get through the month?
Kim Weaver is the Director of External Affairs at the Federal Retirement Thrift Investment Board. The Board runs the TSP. She told Chris Dorobek that the shutdown caused some major spikes in calls.
"What we saw was a spike in call volume. People started calling us to find out what their options were. On the day before the shutdown began we got 4,000 more calls than we did the previous day. People were asking what can I do about a loan? What can I do about a withdrawal? How much money do I have in there?" said Weaver.
- Those are the standard calls we get, but we just got a whole lot more of them. That higher call volume was sustained through first half of the shutdown. Then as it became a little clearer that everybody was going to be paid and then a little clearer that the resolution was on the horizon, the call volume started to taper off.
- We didn’t see a spike in loan volume per se but we did see a spike in hardship withdrawals. The difference between the two is that you can take a loan out against your TSP account for a general purpose up to $50,000. This isn’t just specific to the TSP this is the IRS rules for all 401K’s. You repay your loan at the interest rate the G-Fund is at the day you take out the loan. For example if you took out a loan today, for a five year loan, you would be repaying yourself at the G-Fund rate in effect today. That is frequently less than what you would get if you have a diversified portfolio.
- If you take out a hardship withdrawal you are permanently withdrawing money from your account. You have to pay a 10% early withdrawal penalty. You are also prohibited from contributing to the TSP for six months after the hardship withdrawal.
"So of the two options, if you have to do it, and remembering that TSP accounts are for retirement, but obviously if people have financial pressures they have financial pressures, a loan is better because you are not permanently diminishing your account," said Weaver.
Pre-planning for a cash crunch
"The other thing that people can think about, and this take a little pre-planning, Congress doesn’t always give everyone that kind of time, but if you foresee that you are going to have a cash crunch you can reduce your contribution to the TSP to sort of keep your cash flow moving, before you have to take money out. A lot of times we don’t have time to prepare for this. But there are different levers you can take in terms of your TSP account that will help you measure your cash flow a little better," said Weaver.
What were the results of the shutdown?
"The last of the paychecks were being processed through the end of October and we don’t necessarily get the money from a participant’s paycheck the same day they do. By the end of this month when we have our board meeting we will have a better and more complete picture of what happened or didn’t happen during the shutdown," said Weaver.
BackPay? How does that factor in?
"If you have been contributing a specific dollar amount, that dollar amount will come to us out of your paycheck. If you have been contributing a percentage that percentage will come out of the larger amount. It will be almost as though the shutdown didn’t happen. The only difference is it wasn’t invested when we would have normally received the funds, so there is a time lag for it not to be in your account," said Weaver.
Outside of the shutdown: if you looked at the TSP for October it was a good month
Even the F-Fund was up, and that reversed a downward trend. The year to date for the F-Fund is down a little shy of 1%. But all the other funds are up.
"The S-Fund is up almost 37%. Other than the whole shutdown thing October was not a bad month for the TSP," said Weaver.
Money on the move:
- During October we saw money washing back and forth between the G-Funds and the equities funds. People were moving into the G-Fund at the beginning of the shutdown and we had 128,000 inter-fund transfers between October 1st to the 16th. Compare that to 126,000 transfers for the whole month of September.
- On October 17th at the end of the shutdown we had over a billion dollars moving to the S-fund alone. Clearly people are trying to time and react to the market. But I am not a financial adviser so I can’t give advice, but it is rare that people time the market correctly. We urge people to look at the L-Funds as a way to diversify their portfolio and keep them from doing that kind of jump back and forth.
How does the DOMA decision affect feds?
"We published a regulation in late September to address the DOMA decision. The regulation said if you are married in a state that recognizes same sex marriage then you are married for the purposes of the TSP no matter where you live. If you haven’t named a beneficiary your TSP account is paid out in order of precedence that is laid out in the law. So it is to your spouse, children, parents, siblings and then it moves on down. Previous to the Supreme Court decision in DOMA if you had a same-sex partner you could have designated that person under a designated beneficiary form, now you don’t have to do that. Now your spouse will immediately be the first person to be paid out," said Weaver.
TSP Website is now mobile
"It is not an app, but we have reconfigured our website so that it recognizes that you are coming in on an iPhone or an Android and it reconfigures the website so you can read it on your phone. You can conduct business as though you are doing it on a laptop," said Weaver.