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TSP execs expect more loans, lower contributions

Feb. 25, 2013 - 04:21PM   |  
By STEPHEN LOSEY   |   Comments
Gregory Long is executive director of the Thrift Savings Plan.
Gregory Long is executive director of the Thrift Savings Plan. (Tom Brown / Staff)

The board governing the Thrift Savings Plan said Monday it is preparing for an increase in hardship loans or emergency withdrawals if sequestration goes into effect and hundreds of thousands of federal employees are furloughed.

The Federal Retirement Thrift Investment Board also said some TSP participants may scale back their contributions to their retirement funds if they are furloughed for as many as 22 days.

“I don’t know that there’s a whole lot we can do about that, but we’re watching that,” Executive Director Gregory Long said. “That’s not necessarily behavior I would want to dissuade, because it is rational.”

Long did not say exactly what TSP is doing to prepare for increased loans or decreased contributions, besides monitoring participant activity.

External affairs director Kim Weaver said that TSP participants would not be allowed to take out loans if they are furloughed more than 30 days. But since the government does not plan to furlough employees for more than 22 days — any more and the furloughs would become reductions in force, or layoffs — furloughed employees will be able to take out loans.

Even if furloughed TSP participants do not choose to reduce the percentage of their salaries they contribute to their retirement accounts, contributions would still decrease as their furlough paychecks shrink. The additional 1 percent contribution agencies make to Federal Employees Retirement System employees’ TSP accounts would also shrink, since it is based on the amount an employee earns in a pay period.

Weaver said TSP recently updated information on its website regarding loans while in nonpay status, such as furloughs. Furloughed employees will be allowed to suspend their loan payments for up to one year if they are in nonpay status.

But furloughed employees must notify the TSP when they enter or leave nonpay status. If those payments are not suspended while an employee is not drawing a salary, or are not resumed when an employee goes back to work, the employee will default on his loan. And loan interest will continue to accrue while employees are in nonpay status, so some employees may choose to keep paying their loans even while they’re not earning money.

Weaver also said the Treasury Department this month resumed investing in TSP’s G Fund since Congress and President Obama agreed to suspend the debt ceiling. Treasury stopped investing in the G Fund on Jan. 15 to give the government additional “headroom” to avoid defaulting on the nation’s debts. After the debt ceiling was suspended, Treasury redeposited the funds that should have been invested in the G Fund, including interest.

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