Rise in TSP loans, withdrawals accompanies furloughs

August 9, 2013
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Federal employees have been taking out loans and financial hardship withdrawals from their retirement savings accounts at an increasing rate in recent months, new data from the 401(k)-style Thrift Savings Plan data show.

Financial hardship withdrawals, which averaged about 10,000 a month over the prior five years and through March, rose every month starting in April, to more than 14,300 in July.

Similarly, loans, which had averaged about 21,000 a month, began rising in April, and in July neared 30,200.

Furloughs of federal employees following sequestration began in April at some agencies and surged in July with unpaid days averaging one day a week for some 640,000 Defense Department workers. Federal employee unions had asserted that in addition to reducing current income for employees, furloughs would have a spillover effect on their retirement savings.

“The July hardship distributions were the highest in plan history, while the loan distributions were at the highest level since June 2004,” said an analysis by the agency. The TSP began operations in the late 1980s.

While loans must be repaid into the account — investors in effect borrow from themselves — financial hardship withdrawals are not repaid and permanently deplete the investor’s account. There also is a six-month waiting period after taking such a withdrawal before the account holder can begin investing again.

TSP spokeswoman Kim Weaver said the TSP “does not know whether this is a trend or an anomaly at this point. We will monitor the data to see what happens in August. We also will be asking our participants in our upcoming participant survey whether budget constraints have caused them to make changes to their TSP participation or contribution.”

In March, 87.1 percent of employees under the Federal Employees Retirement System, which covers more than four-fifths of the workforce, were investing in the program, a figure that fell to 86.7 percent in July. While FERS employees get an automatic government contribution toward their accounts equal to 1 percent of salary, they must invest from their own money to receive additional matching contributions of up to 4 percent.

The amount invested each month has remained stable at around $2 billion. Those numbers vary according to how pay periods fall within a month and “aren’t enough for us to say overall contributions are falling,” Weaver said in an e-mail.

More than 2.5 million federal workers — including employees of the U.S. Postal Service, which is exempt from furloughs — have TSP accounts, plus about 700,000 military personnel, who also are exempt.

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