TSP

John Grobe

What does the SECURE Act mean to federal employees? First and foremost it means that Congress will do anything to come up with a “good” acronym. This proposed law, which would bring changes to retirement savings, struggles with the name “Setting Every Community Up for Retirement Enhancement” in order to come up with the catchy name of SECURE. Please Congress; stop torturing the English language!

Despite broad bipartisan support (it passed the House of Representatives on May 23 by a vote of 417 – 3), it is stalled in the Senate because of holds placed on it by Senators Ted Cruz (R-TX) and Pat Toomey (R-PA). The bill would expand access to retirement savings programs for many Americans who today have no such access. Amazingly, 35% of American workers don’t even have a defined contribution plan to which to contribute. The bill encourages small employers to participate in pooled plans and provides access to retirement plans for many part-time workers who are not currently covered.

How would the act affect federal employees who already have access to retirement plans? One provision of the act that would directly affect Thrift Savings Plan participants is that those who choose to wait until they are required to take money out of the TSP will be able to avoid required minimum distributions (RMDs) until the age of 72, rather than the current 70.5.

Other parts of the SECURE act that, while they would impact federal employees, apply to everyone:

1) Allowing money from 529 college savings plans to be used for qualified student loan repayment.

2) Eliminating the age limitation (currently the year in which one turns 70.5) on contributing to traditional IRAs.

3) requiring all inherited IRAs to be emptied within ten years of the original owner’s death, and distributions can be spread out over the inheritor’s life expectancy.

There are pros and cons for federal employees and retirees in the SECURE act, but your average American worker will see a lot more of the pros. One thing that becomes more and more clear as we learn about how most Americans are treated vis a vis retirement is that we federal employees/retirees are fortunate. We are blessed with both a defined contribution annuity and a defined contribution plan.