Tens of thousands of participants in the Thrift Savings Plan have so far taken advantage of the options Congress included in the pandemic relief legislation, and many of the loan and withdrawal options are just a few weeks old.
The Coronavirus Aid, Relief and Economic Security (CARES) Act gave TSP participants, as well as other Americans enrolled in their own 401(k) retirement plans, some extra options to help them borrow from their own accounts or hold on to more of their savings.
The Federal Retirement Thrift Investment Board said it had the option of implementing these provisions but choose to adopt all four.
To qualify for most of these provisions, participants must be diagnosed with coronavirus, have a spouse or dependent who has the virus or experience adverse consequences due to the pandemic. “Adverse consequences” include losing work hours, being laid off, furloughed or quarantined, or being unable to work due to lack of child care or school options.
The CARES Act, for example, allowed participants at any age to take a one-time withdrawal from their TSP, worth up to $100,000. Participants have up to three years to pay back the distribution, and the typical 10% tax penalty on early withdrawals has been waived.
Some 13,720 participants have made a CARES Act withdrawal since July 11, the date the TSP made the option live. Participants have taken withdrawals worth $26,900 on average, said Tanner Nohe, an FRTIB project manager.
“A lot of people have visited the page and taken the CARES Act withdrawal,” he told the board last week at the FRTIB’s monthly meeting.
Participants have until Dec. 15 to make a CARES Act withdrawal, but the FRTIB will continue processing them through Dec. 29.
TSP participants with an outstanding loan can suspend payments on it through Dec. 31. Once the year ends, the TSP will reamortize a participant’s loan for a new payment amount or extend the payoff date, Nohe said.
As of mid-July, 2,922 participants have suspended a TSP loan.
Participants have until Nov. 30 to submit paperwork for a loan payment suspension, the TSP said.
In addition, the TSP allowed participants to take a loan worth up to $100,000. Under usual circumstances, TSP loans are limited to $50,000.
Nearly 1,200 participants have taken a CARES Act loan worth more than $50,000, with the average allowance totaling $74,500, the TSP said.
CARES Act loans are available through Sept. 22.
Finally, the CARES Act allowed the TSP to suspend all required minimum distributions (RMDs) for 2020.
Under current rules, retirees at age 72 or older must withdraw a minimum amount from their accounts each year. Minimums are determined using a specific formula, which is based on a retiree’s account balance at the end of 2019.
Though the TSP quickly suspended RMDs back in April, it took several months to stand up new loan and withdrawal options.
“We had a lot of different changes to make for the loan changes, as well as the withdrawals,” Nohe said. “For the loans, we made changes to 10 applications and had roughly 151 test cases we had to work through. For the withdrawals, we tried to leverage current functionality, but we still had to make changes to six different applications and we went through 102 test cases. That explains a little bit of the timing between the March passage of the law and the implementation in June and July of this year. It was a lot of work undertaken by a lot of people at the agency.”
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Beyond launching the CARES Act provisions, the TSP has also been busy with the recent rollout of six new lifecycle funds.
Participants should have seen L funds in five-year increments now, instead of the usual 10. The L 2020 fund is gone, and the L 2065 fund is new.
The TSP transferred some $21 billion in assets from 260,000 participants enrolled in the L 2020 fund and moved them to the L income fund.
And as of last Monday, about 62,000 participants have invested $4.7 billion in the new L funds, according to the FRTIB.
The TSP created the L funds back in 2005. The goal was to create a series of funds that allows participants to better target their investments toward their own goals and timelines, adjusting risk downward as they approach retirement. The new five-year lifecycle increments give participants the option of further targeting their investments to an even more specific retirement date.
Nearly 13,000 new participants have enrolled in the TSP since the launch of the new L funds. All of them have been assigned to a new, age-appropriate fund, including 4,000 participants born in 2000 or later.
Most of these new participants are members of the uniformed services and have been assigned to brand new 2065 fund.