For most Americans preparing for retirement, the workplace 401(k) and the Thrift Savings Plan (TSP) seems to be the best retirement savings option. This is especially true for a vast majority of non-federal employees whose employers do not match their 401k plans or provide stand-alone retirement plans like FERS or CSRS.
The TSP is certainly an exceptional investment. It offers some of the lowest administrative costs in the investment industry, has federal oversight, and covers over 6 million present, past, and retired federal employees, including the nation’s elected and appointed leaders.
There were 112,880 people with million-dollar TSP accounts as of December 31, 2021. Another 105,000 have between $750,000 and $999,999 in their accounts. Participants also receive up to 5% matching contributions from their employers.
TSP doesn’t offer most features that other programs (that typically cost consumers much more) do because it follows its congressional mission to keep things simple and inexpensive to manage. Although the TSP recently announced that further changes are on the way.
Most federal employees who moved their TSP funds at the end of their working days, including those who left for other jobs, say that it is easier to access their money—and choose from a wider range of options—in private investments.
Abraham Grungold, a long-serving federal employee who recently retired, is now a full-time financial advisor. The majority of his clientele are current or former federal employees. The TSP’s loan and repayment rules are one of the adjustments he’d want to see, especially in this time of the pandemic. Here’s what he had to say.
The 2022 Federal Financial Crisis
While the coronavirus restrictions are gradually being lifted due to the vaccines and many people have returned to work, the effect is still being felt, especially the inflation. The experience of the last two years is still very fresh in our minds.
When the pandemic was at its highest point, and government employees were being put to the ultimate test, they and their families were at risk of becoming very ill. The ongoing health difficulties provided a new burden.
People had a lot of bills to pay, including health bills. Most used credit cards, while a majority took a loan off their TSP.
The TSP allows you to take out a single personal loan of up to $50,000 and repay it over five years. You can apply for the loan online with a $50 application fee. You can’t take a loan with an IRA, and most 401k plans at private companies don’t allow it either—although some private sector firms can choose to include the option in their 401k programs.
I’ve been reading up on all of the new features to be included in the TSP in 2022. Thanks to the new setup, more finances, online assistance, and other fantastic features are now available.
On the other hand, empathy is not the TSP Board’s top priority. I recently worked with a customer who was having financial difficulties. He was just one payment away from having his TSP debt paid off. His wife, however, could only work part-time due to her medical concerns. The family was left with a considerable quantity of credit card debt and medical expenditures.
I offered to take out a TSP loan to pay off his expenses and repay himself. It is more advantageous for him to pay himself the interest rather than a credit card business or a bank. He explained that he had to wait 60 days to apply for the loan since he was nearing the end of repayment on another TSP loan.
The TSP board, for example, mandates participants to wait 60 days before taking out another loan. In this challenging and unexpected scenario, I advised my client to call the TSP and request that his 60-day period be waived. The TSP Board responded by stating that there were no exceptions to their 60-day waiting period.
I recall my first visit to Burger King many years ago. They claimed you could have your burger however you want it; unique requests were not a problem. Similarly, throughout my federal career, management has always told me that if I needed assistance, I should just ask.
The TSP Board, on the other hand, does not appear to accommodate its members in the same way.
The TSP Board does not deviate from its guidelines in a moment of crisis, whether it is due to financial difficulties or a pandemic. I was aware of the 2021 Cares Act, but it only applied to withdrawals.
Like for my client, the TSP should make exceptions for its members. My client’s money is still on the line, and he’s willing to cover both the application cost and the loan.
TSP participants should be given a one-time pass to avoid the 60-day waiting period. No one wants to beg for aid, but in times of financial trouble, the TSP board of directors could approve this waiver to relieve members’ stress and obligations.
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