The Washington Post

Loss of pay through furloughs could mean less in retirement savings accounts

Federal employees who lose income by being furloughed also could end up with smaller retirement savings accounts.

Updated guidance from the 401(k)-style Thrift Savings Plan says that special investment, loan and other policies apply to investors who are put on unpaid leave. The investment policies could result in less money going into accounts from both personal and employer contributions.

Employees invest in the TSP based on a dollar amount per pay period or based on a percentage of salary. For those using the latter method and who are furloughed, the percentage invested “will be of the actual pay, not the original/regular salary, so the TSP contribution would be lower than the participant initially intended,” TSP spokeswoman Kim Weaver said in an e-mail. “The participant could, if financially able to, adjust the contribution to achieve the originally intended contribution.”

However, many federal employees may have to do the opposite, National Treasury Employees Union president Colleen M. Kelley said in an e-mail. “Many of our members live paycheck to paycheck and cutting those paychecks will constitute serious hardships for our members,” she said. “Some employees may have to dip into their TSPs and will have trouble making ends meet.”

Employees under the Federal Employees Retirement System also would face a reduction in employer contributions to their accounts. The automatic 1 percent of salary contribution is based on pay earned during each pay period, and matching contributions of up to an additional 4 percent are based on the amount the participant actually invests. Employees under the Civil Service Retirement System, which generally covers those hired before 1984, get no government contributions.

While on unpaid status, employees can continue to move their account balances among the available investment funds, according to the guidance. They also may continue to make hardship- or age-based withdrawals, but loans may be taken only if the furlough is expected to last fewer than 30 days.

Those who already have loans outstanding must take care not to miss more than two biweekly loan repayments while in unpaid status or risk having the loan declared a taxable distribution with an additional tax penalty. However, in certain circumstances participants could keep loans current by making repayments from other assets or could have the repayment requirement suspended due to the furlough; repayments would have to resume when the furlough ends.

As with other similar programs, the standard annual dollar limit for TSP investing is $17,500 this year, and those who are age 50 or older during the year may invest up to an additional $5,500. Those “catch-up contributions” can be made throughout the year, for investors who are saving at a rate that would reach the standard maximum by the end of the year.

Being furloughed would not affect the ability to make ongoing catch-up contributions, Weaver said, but it could affect the actual amount of those investments because “the percentage contribution based on a lower salary might not be enough to cover the amount of the contribution. Again, if a participant is financially able to afford to do so, she could adjust her contribution to reach the originally intended amount,” she said.

The guidance also addresses certain technical differences between continuous and discontinuous furloughs.

Many federal workers are facing the former type of furlough if political leaders cannot agree on a budget measure to continue agency funding past the expiration of a temporary measure March 27. That would trigger an immediate partial government shutdown in which employees whose work is emergency in nature would be expected to continue working, although unpaid at least for the meantime, while others would be kept home on unpaid leave.

The latter type of furlough also could take effect if sequestration occurs and agencies have to cut many of their accounts by about 10 percent or more. While sequestration would begin March 1, that type of furlough could not start until April, because of notice requirements. Several agencies have said they would spread out such furloughs over time but that nearly all employees, including those in functions such as law enforcement, would be vulnerable.

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