Thousands of federal employees turned to the Thrift Savings Plan to weather the two-week government shutdown earlier this month.
Hardship withdrawals shot up in the first few weeks of October and thousands more employees opted to shift their investments out of higher-risk areas and into the G Fund, TSP officials said at at the board’s monthly meeting Monday.
“We had an interesting month as I’m sure you’re aware,” the board’s executive director, Greg Long, told board members. “The shutdown happened and it is now, thankfully, over. It also translated into some changes in behavior” of TSP participants.
During the shutdown, some 8,200 participants requested hardship withdrawals, compared to 5,500 during the same period of time last year, according to statistics provided by Veronica Mance, the board’s policy research officer.
“We did see a significant spike in hardship withdrawals,” Mance said. Participants facing financial difficulties can withdraw $1,000 or more from their accounts but are barred from making contributions (and receiving an agency matching contribution) for the next six months.
‘Huge cash flows’ into G Fund
With fears that the shutdown would impact the stock market, TSP participants were also quick to move their money into the less risky G Fund — which is invested in government securities.
Between Oct. 1 and Oct. 16, there were 128,000 total transactions compared to 125,000 total transactions for the entire month of September.
Of that, some $2 billion was moved into the G Fund during the 16-day shutdown, Long said.
“As the shutdown became clear starting Sept. 30, we saw money move into the G Fund in a significant way,” Long said.
But despite the “huge cash flows” going into the fund, Long said there were no issues on the board’s end in processing the requests.
TSP call centers were also slammed with calls, Mance told the board. On Sept. 30, alone, the centers received 4,000 more calls than the previous business day, she said.
Most of the calls dealt with loans, hardship withdrawals and account balances. Those are fairly typical questions, but many of them revolved around the specific circumstances of the shutdown, Mance said.
Now that the shutdown has ended, call volume is comparable to what it was this time last year, she said.
As part of the short-term funding deal that reopened the government, Congress also extended the debt ceiling to Feb. 7, bringing to a temporary end the “extraordinary measures” — including suspending investments into the G Fund — the Treasury Department undertook to stave off default.
Long told the board the G Fund has since been fully reinvested. Despite frequent questions that crop up, participants’ accounts were unharmed by Treasury’s maneuvers, he said.
“The impact to participants was zero,” Long said. “There was no impact at all.”
The five Lifecycle funds could also get a bit of a makeover under a proposal discussed by the board.
Lifecycle, or target-date funds, are a professionally administered mix of investments from the five regular funds that automatically shift toward lower-risk funds, such as a G Fund, the closer participants get to withdrawing money from their accounts during their retirement.
For example, the L 2020 Fund is designed for participants who will begin withdrawing their money between 2015 and 2024. The G Fund currently makes up about 40 percent of the fund’s investment mix, but by 2020, that will increase to 74 percent.
Consulting firm Mercer recommended the board increase the allocation of the G Fund in the Lifecycle options and increase higher-reward stock options, or equity, by 5 percent over the life of the funds.
The recommendation was not up for review, and the board is not slated to vote on the measure any time soon, although it was generally well-received.
The Employee Thrift Advisory Council, made up of board members and federal-employee unions, is currently considering whether to make enrollment in one of the L Funds the default investment option for new federal hires.
The board, overall, is concerned that too many participants remain in the G Fund — which is now the default for automatic enrollment. Currently, more than 40 percent of TSP participants remain in the G Fund exclusively.