Dems Introduce Bill to Eliminate TSP Early Withdrawal Penalties During Government Shutdown

Brian Anderson

2 months ago

The Emergency Relief for Federal Workers Act, legislation that would remove penalties for federal employees who wish to make hardship withdrawals from their Thrift Savings Plan (TSP) to pay bills during a protracted government shutdown—was introduced on Oct. 3 by Rep. Don Beyer (D-VA), who represents a Northern Virginia congressional district with one of the largest concentrations of federal workers in the U.S. House.

The Democrat-backed bill would also allow workers withdrawing such funds to restore them to their retirement accounts later.

“Government shutdowns are a disaster for federal employees and contractors, and for their families. I am working with my colleagues to do all we can to support these workers in every way we can until the shutdown ends,” said Beyer. “My bill would ensure feds can withdraw funds from their retirement accounts during a shutdown without penalties, and remove other barriers that increase financial hardship at this difficult time.”

Companion legislation was introduced in the Senate last week by Sen. Tim Kaine (D-VA). Beyer is an original cosponsor of the Emergency Relief for Federal Contractors Act, introduced by Rep. Suhas Subramanyam (D-VA), which would make similar changes for retirement account withdrawals during a shutdown for federal contractors.

Beyer previously helped enact legislation, now law, that guarantees back pay for federal workers at the end of any government shutdown. He is a cosponsor of legislation offered by Rep. Ayanna Pressley (D-MA), the Fair Pay for Federal Contractors Act, to provide back pay to contractors. Beyer is also a co-lead of legislation introduced with Rep. Sarah Elfreth, the Help Federal Employees During a Shutdown (FEDS) Act, to make excepted federal workers eligible for temporary unemployment benefits during a shutdown.

The Emergency Relief for Federal Workers Act would:

Establish government shutdowns are financial hardships. Current law allows TSP participants to withdraw funds due to financial hardship and requires them to certify under penalties of perjury that they are facing a financial hardship and the amount of the request is not greater than the dollar amount of the financial hardship. By establishing government shutdowns that last two weeks or longer as financial hardships, it would eliminate the need for federal employees to make additional demonstrations of this hardship.
Waive the 10% Early Distribution Penalty for federal employees who withdraw funds under financial hardship. Under current law, federal employees who are 59 years old or younger are subject to an additional 10% early withdrawal penalty when they withdraw funds from their TSP. The bill would eliminate that penalty but still require them to pay taxes on the funds they withdraw.
Allow for recontribution of funds. The bill would allow federal employees who withdraw funds from their TSP to recontribute some or all of the funds they have withdrawn from their TSP in order to preserve retirement savings.
Ensure federal employees can access TSP loans. Under current law, TSP loans are not available if a shutdown is expected to last more than 30 days. This bill would ensure TSP loans will be available to affected federal employees who need to access those funds during a shutdown that causes such employees to miss a paycheck.
Suspend TSP loan payments during shutdowns and deduct outstanding loan payments from back pay provided after shutdowns. TSP loan repayments are made through payroll deductions. This bill would automatically suspend loan payments until the government reopens. Once the government reopens, the outstanding loan payments will be deducted from federal employees’ back pay.
Prohibit missed loan payments from becoming taxable distributions during shutdowns.The bill would prohibit any missed loan payments from becoming a taxable distribution that could be subject to the 10% withdrawal penalty.

The legislation is cosponsored by U.S. Representatives Sarah Elfreth (D-MD), Suhas Subramanyam (D-VA), Jennifer McClellan (D-VA), James Walkinshaw (D-VA), April McClain Delaney (D-MD), Seth Moulton (D-MA), Nydia Velazquez (D-NY), George Whitesides (D-CA), Jonathan Jackson (D-IL), Jerrold Nadler (D-NY), LaMonica McIver (D-NJ), Bonnie Watson Coleman (D-NJ), Troy Carter (D-LA), Rashida Tlaib (D-MI), Hank Johnson (D-GA), Brad Schneider (D-IL), Dan Goldman (D-NY), Lois Frankel (D-FL), Gwen Moore (D-WI), Shri Thanedar (D-MI), and Jim Costa (D-CA).

In a Republican-controlled Congress, the bill with no Republican co-sponsors has virtually no chance of getting a hearing, let alone a vote. Partisan bills in this environment are often “messaging bills,” designed to signal what the minority party stand for—to voters, advocacy groups, and potential donors—while simultaneously highlighting what the party in power is not supporting.

The full text of the bill is available on Congressman Beyer’s website, and a summary can be found on Senator Kaine’s website.