TSP loans, hardship withdrawals hit 10-year high last year

More Thrift Savings Plan participants withdrew money from their accounts early in 2013 than in any other year over the past decade. The board processed a total ...

More Thrift Savings Plan participants withdrew money from their accounts early in 2013 than in any other year over the past decade.

The board processed a total of 291,000 loans and about 138,000 hardship withdrawals last year, according to statistics presented at the board’s monthly meeting Monday.

More than 14,000 of the hardship withdrawals taken last year came during the month of October, when partisan gridlock led to a 16-day government shutdown and financial uncertainty and delayed paychecks for thousands of federal employees.

“With government furloughs, our withdrawal and loan rates had shown a meaningful increase,” said Renee Wilder, the board’s director of enterprise planning. “While the rate did temper at the end of the month, we really did close out the year with higher loan and in-service withdrawals than we have had in the past.”

The board is particularly concerned about the longer-term effects of hardship withdrawals, since participants who do withdraw from their accounts early are locked out of making contributions again for the next six months and can’t receive matching agency contributions.

The number of active TSP participants is already trending slightly downward, according to Wilder.

“Closing out calendar 2013, we did see some softness in our participation rate,” she said. The participation rate under the Federal Employees Retirement System (FERS) declined from 86.1 percent in November to 85.9 percent in December.

Still, the decline wasn’t entirely unexpected, Wilder added, because some participants had likely maxed out their contribution limits set by the Internal Revenue Service.

“Typically, we see a meaningful bounce-back at the end of January,” Wilder said. “So, we’ve got our fingers crossed.”

Roth TSP gains ground

Despite the slight drop in participation, by the end of the year, TSP plan assets had risen to a high of $397 billion, thanks to the booming stock performance through most of 2013.

Another bright spot over the past year was the ground gained by the Roth TSP option.

Over the course of 2013, the number of TSP participants contributing to a Roth account nearly tripled, ending the year with more than 294,000 participants, according to statistics presented at Monday’s meeting. Meanwhile, total assets in Roth plans reached $937 million — a 623 percent increase.

The Roth TSP, which allows participants to contribute after-tax dollars toward their TSP accounts, officially launched in May 2012. But the rollout hit a few snags early on because not all federal payroll processors were prepared for the launch. Active-duty service members, for example, couldn’t make Roth contributions until October 2012 — some seven months after the new option was launched.

“But now that we are up and running, I would say it’s a very successful program,” Wilder told board members.

And, in fact, the Roth option has turned out to be a very popular option for the uniformed services, who make up more than 45 percent of all Roth TSP participants.

Will Senate postal bill ‘Balkanize’ TSP?

Board officials also heard an update on the potential impacts of proposed postal reform legislation that would have an impact on the TSP.

The original version of a draft bill from the Senate Homeland Security and Governmental Affairs Committee would have allowed the Postal Service and its unions to bargain over new postal employees’ participation in the Thrift Savings Plan.

But after meeting with TSP officials last month, the committee agreed to amend the bill by limiting the bargaining to TSP contributions — not outright participation — and a requirement that the agency and its unions reach a single option for the entire workforce.

“So, they mitigated our biggest concerns,” said Kim Weaver, the board’s director of external affairs. “We still aren’t wild about the idea of the TSP being Balkanized this way.”

The Senate committee plans to mark up the postal reform bill Wednesday.

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