Columnist

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For federal employees accustomed to elected leaders focused on firing feds faster and bashing their benefits, here’s a little something to cheer.

Bipartisan legislation in the House and Senate would update the Thrift Savings Plan (TSP), a 401(k)-type program for federal employees, by allowing them greater flexibility in withdrawing their funds.

This might not sound like much compared to news about federal retirement cuts in President Trump’s proposed fiscal 2018 budget and the movement to undermine civil service protections. Yet this little something could make life easier for the 5 million people with TSP investments worth $490 billion.

Meanwhile, Democrats have escalated opposition to the planned cuts, with more than 100 House members “opposing President Trump’s proposal to gut pensions.” Then Trump described workplace protections as “outdated laws,” at a White House East Room signing ceremony Friday for legislation that now restricts civil service safeguards for Department of Veterans Affairs employees.

Currently, participants reaching the age of 59½ are allowed only one TSP withdrawal while actively employed in the government. When they leave federal service, they can withdraw a portion of their balance, but only once. After that, only full withdrawals are permitted.

The TSP Modernization Act introduced Friday by Reps. Elijah E. Cummings (D-Md.) and Mark Meadows (R-N.C.), and earlier in the Senate, would eliminate those restrictions. Investors could make multiple withdrawals at age 59½ and after leaving the government.

“It’s huge,” Kim Weaver, a TSP spokesperson, said of the legislation. It is supported by the Federal Retirement Thrift Investment Board, which administers the TSP.

In a memo to the board two years ago, Greg Long, then the executive director, said changes like those in the legislative proposals “will allow us to favorably respond to participant demand and move closer to typical plan design found in private and public sector plans. This set of changes will be a win for participants.”

The bill would “encourage participants to keep their TSP accounts to take advantage of low administrative fees even after they retire or separate from federal service,” Cummings said. The legislation would “give TSP participants what they want: greater flexibility to withdraw money from their accounts to address unexpected life events.”

It’s a win for the TSP too, which would keep more money longer.

Restrictive rules pushed many investors to transfer their balances to other financial institutions with more lenient policies but with higher fees.

Meadows called the bill “common-sense reform … It will give TSP recipients more access to their own funds and, over the long term, allow them the opportunity to continue taking advantage of benefits similar to those available throughout the private sector after federal service.”

Sens. Rob Portman (R-Ohio) and Thomas R. Carper (D-Del.) introduced similar Senate legislation in April.

The proposals put federal employee leaders in the relatively rare position of having something from Capitol Hill to praise, as they did in letters to Congress.

Richard G. Thissen, president of the National Active and Retired Federal Employees Association, said the legislation would “create opportunities for participants before and during retirement, provide greater financial independence and encourage participants to keep their money in the TSP.”

Although TSP “provides federal employees with extremely low administrative and investment fees, pretax and after-tax withdrawal options and an employer contribution,” Thomas S. Kahn, legislative affairs director of the American Federation of Government Employees, said it does not “provide sufficient options for withdrawals while in federal service, or much flexibility involving annuity payments.”

National Treasury Employees Union President Tony Reardon welcomed the legislation, saying “I have heard from many NTEU members over the years about the stringent withdrawal rules of the TSP … the withdrawal rules have not been changed since the TSP was established in 1986 and are outdated.”

While the TSP legislation gives feds reason to smile, Trump’s budget plan turns that smile upside down. His proposal for a 1.9 percent pay raise for fiscal 2018 is more than offset by his effort to reduce retirement income for federal workers.

Trump’s budget would increase individual out-of-pocket contributions to the Federal Employees Retirement System (FERS), base future retirement benefits on the high five years of salary instead of the high three, kill FERS cost-of-living adjustments (COLA), reduce the COLA for those in the Civil Service Retirement System and eliminate retirement supplements for FERS participants who retire beginning in 2018.

“Since 2010, federal employees have had $182 billion taken from their pay as a result of three years of pay freezes, furloughs, sequestration and increased employee retirement contributions,” Kahn said. “In addition to these losses in compensation and benefits, the cost of living has continued to rise. Nonetheless, federal employees save for retirement and pay into their TSP accounts.”

Federal employee retirement programs are threatened, but their TSP is on the verge of getting better. That’s good, but not much consolation.

 

Read more:

[New withdrawal options for TSP investors proposed]

[New VA law sets stage for government-wide cut in civil-service protections]

[Trump’s budget calls for hits on federal employee retirement programs]