Retirement Savings Changes Proposed

Legislation being pushed in the Senate Aging Committee affecting retirement savings programs generally could have a spillover effect on the TSP, although the precise effect would depend on how any final language is structured.

The bill is the only legislation currently pending that would impact the TSP, which last saw legislative changes in 2009. A proposal offered last year to allow participants to deposit money they receive from lump-sum distributions when they separate from federal service, such as the payment for unused annual leave at retirement, has not been reintroduced.

The bill would affect 401(k) and similar plans that operate under the same tax code provisions as does the TSP. One provision would limit the number of loans that a participant could have outstanding at any one time to three, but the TSP already has a more restrictive policy of allowing no more than two loans at a time, and that likely would not change even under a revision in the law since loan policy is a matter of the discretion of the plan sponsor, within limits set by the tax code.

One provision that potentially could affect the TSP would allow investors to put money back in right away rather than wait six months after an in-service financial hardship withdrawal. However, that idea could prove controversial. The waiting period was designed as a disincentive to people drawing out their money while still employed, and eliminating that waiting period might actually encourage more people to take hardship withdrawals and reduce their retirement savings.