Protesters display placards during an Oct. 1 demonstration in front of the Capitol in Washington. A record number of people made hardship withdraws from their TSPs during the 16-day government shutdown. (Jewel Samad / Getty Images)
Hardship withdrawals from the Thrift Savings Plan set a record last month, as thousands of participants tapped their retirement accounts during the 16-day partial government shutdown, according to figures released Monday.
For October, the number of withdrawals hit 14,361, the highest monthly total in the program’s 26-year history, said Kim Weaver, spokeswoman for the Federal Retirement Thrift Investment Board, which runs the TSP.
The average amount withdrawn was $9,300 or slightly above the norm of $8,900. Because TSP savings are intended for retirement, IRS rules exact a stiff price from account holders who take money out early. Besides charging a 10 percent early withdrawal penalty, the board withholds 20 percent for income taxes and bars those participants from making new contributions to their accounts for six months.
Just before and during the shutdown, which ran from Oct. 1 to Oct. 16, the number of phone inquiries to the board from TSP participants also shot up and account holders shifted several billion dollars into the ultra-safe G Fund, which is invested in government bonds, only to move their money back to other funds once the shutdown ended.
“We’re very pleased it’s over and we hope it never happens again,” Greg Long, the board’s executive director, said Monday at the regular semi-annual meeting of the Employee Thrift Advisory Council.
In other business, the council, made up of representatives from federal and postal employee organizations, informally signed off on making the Lifecycle Fund (L Fund) the default investment option for new federal employees automatically enrolled in the TSP. The current default option is the G Fund, which has a much lower rate of return than the L Fund, which tailors its investment portfolio to an enrollee’s age.
Long stressed that participants would be free to change their options after enrollment. The next step will be to seek the TSP board’s approval to pursue legislation to make the change; that could happen as early as next Monday.