TSP

Budget Proposal Targets Federal Retirement

By now you’ve probably heard that cuts to your federal retirement have been put on the table as part of the White House’s 2018 budget proposal.  These threats are all directed at our FERS (and to a lesser extent CSRS) annuities, and those annuities represent only a part of our total retirement income.  Could cuts to Social Security and the Thrift Savings Plan be in the works as well?

Maybe. Consider that Social Security recipients and those who are contributing to Social Security have encountered threats in the past, but recent proposals (e.g., raising the retirement age, cutting benefits, raising payroll taxes, etc.) have not come to pass.  The last big threat was changing how the Social Security COLA was computed for some 64 million Americans but political appetite waned and it died.

There are no current threats to the Thrift Savings Plan in the Trump budget, or elsewhere.  In fact, if the goal of the administration is to “bring federal benefits in line with private sector benefits” the TSP should be strengthened, or at a minimum, left alone.  Though not coming from the White House, there is an attempt to liberalize the withdrawal options that are available to separated TSP participants.  In April a bill was introduced in the Senate to make TSP withdrawal options more flexible and just last month a companion bill was introduced in the House.

At the end of May the Thrift Board announced that the L Funds would be expanded so that they would be offered in five year increments, rather than the current ten years.  At the same time the Board agreed to consider a consultant’s recommendation to expand the I Fund to cover more of the International market than it currently does. 

While these are positive developments, just two years ago the House attempted to reduce the G Fund’s rate of return – and we could see this idea resurface. The House had passed a measure which was narrowly defeated in the Senate that would have changed the G Fund’s rate of return from its current rate which tracks outstanding Treasuries with 4 or more years to maturity, to the rate paid by ultra short–term Treasuries.  This would have resulted in the G Fund having a return like that of a money market fund.

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