Federal Manager's Daily Report

The TSP has said that while it normally requires documentation from agencies that an employee is in unpaid status for purposes of avoiding a default on a loan, for the present it does not need such documentation regarding employees affected by the partial government shutdown.

The notice comes just the pay distributions for the December 23-January 5 pay period are being issued, which will be payless for some 800,000 federal employees and cause them to miss a loan repayment.

A loan can be declared as in default after the borrower misses 2 ½ payments. The portion of the loan attributable to traditional (pre-tax) investing is declared to be a taxable distribution, with a 10 percent penalty added for those under age 59 ½. The TSP further allows for the suspension of loan payments when employees go into nonpay status to prevent a loan from going into default—however, in affected agencies, the staff who would handle such a transaction themselves are likely to be on furlough.

“Normally, we require documentation from your agency . . . However, the TSP does not need documentation of your furlough at this time,” says a notice posted on www.tsp.gov and sent out on a distribution list.

“If your loan payments were up to date prior to the furlough, missing one or two payments will not cause your loan to be in default . . . As long as retroactive pay is approved, all missed loan payments will be submitted and posted to your loan,” it says.

Those with an outstanding TSP loan can check their status on the TSP site’s personal account feature or by calling 877-968-3778.