Democrats introduce bill to ease TSP withdrawals, loans during shutdowns

Sen. Tim Kaine, D-Va., this week introduced new legislation aimed at making it easier for federal workers to take advantage of the federal government’s 401(k)-style retirement savings program to help make ends meet during government shutdowns.

The Emergency Relief for Federal Workers Act would clarify that lapses in appropriations that last at least two weeks are considered a financial hardship for the purposes of taking an early withdrawal from a federal employee’s Thrift Savings Plan account. It would also waive the 10% early distribution penalty that is applied when a federal employee 59 years old or younger takes money out of their TSP, though not the taxes associated with the withdrawal, and the measure would allow feds who take shutdown-related withdrawals to recontribute some or all of what they withdrew once the government reopens.

The legislation also makes tweaks to how federal workers can take out loans against their TSP savings during appropriation lapses. It ensures that federal workers can access TSP loans if a shutdown lasts at least 30 days, and it suspends the requirement that federal workers make repayments on existing loans for the duration of a shutdown, ensures that outstanding loan payments are deducted from workers’ post-shutdown back pay, and prohibits the TSP from reclassifying a loan into a taxable early distribution as a result of non-repayment during a funding lapse.

The bill has the support of 18 Senate Democrats, and Rep. Don Beyer, D-Va., introduced a companion bill in the House Friday.

“Government shutdowns inflict senseless pain on federal workers,” Kaine said in a statement. “While I successfully passed my bill to guarantee back pay for federal employees during a shutdown [in 2019], paychecks can still be delayed. If workers need to withdraw funds from their retirement accounts during a shutdown, this bill would ensure they don’t face penalties, that they can access TSP loans, and will address other problems a shutdown can create for TSP account holders.”

“Government shutdowns are a disaster for federal employees and contractors, and for their families,” Beyer said. “My bill would ensure feds can withdraw funds from their retirement accounts during a shutdown without penalties, and remove other barriers that increase financial hardship at this difficult time.”