To most Americans savings for retirement, the Thrift Savings Plan, Uncle’s Sam’s in-house 401k, seems like the best of all worlds. Especially for the majority of working non-feds whose companies don’t match their 401k plans, nor offer a stand-alone retirement plan like FERS and CSRS. How good is it? In an interview once, John Bogle, the founder of Vanguard and the father of the index fund, told me he wished he could get into the TSP!
So yes, its good. It has among the lowest administrative fees in the investing business. It has federal oversight, undersight, you-name-it. And it covers the nation’s elected and appointed leaders, as well as 6 million current, former and retired feds. As of Dec. 31, 2021, the were 112,880 people with million-dollar-plus accounts. Another 105,000 had between $750,000 and $999,999. And participants get matching contributions from their agencies of up to 5%.
In following its congressional mandate to keep-it-simple, keep-it-inexpensive to operate, the TSP doesn’t offer some perks that outside plans (that often cost users much, much more) do. Recently the TSP announced some more changes are forthcoming.
Many feds who move their TSP accounts when they leave or retire say its because it is easier to get at their money — and pick among more choices — in outside investments. Abraham Grungold, long-time fed who just retired, is now a full-time financial coach. Most of his clients are current or former feds. One of the changes he like to see — especially in this time of pandemic — is in the TSPs loan and repayment policies. Here’s what he wrote:
The COVID-19 pandemic has not ended, and federal employees are facing the ultimate test. They, as well as their families, can get very sick. This leaves members of the household missing work or school. Continuing health issues pose a new challenge as bills are piling up. How do you try and pay your bills? You must turn to credits cards, or maybe apply for a Thrift Savings Plan loan.
The TSP allows for one personal loan of up to 50,000 dollars, and you can pay it back on a five-year plan. With an application fee of $50, you can make the loan request online. IRAs do not allow you to take a loan, and most private company 401k plans do not allow it either. It is an optional choice for private sector employers to grant this provision in their 401k plans.
I have been reading about all the new features that could be available in the 2022 TSP. The new setup allows for more funds, online assistance, and other great features. However, empathy is not the TSP Board’s main priority.
I recently had a client who was in a difficult financial situation. He was one payment away from paying off his TSP loan. However, due to his wife’s medical issues, she could only work part-time. This left the family with a large amount of credit card debt and medical bills. I suggested taking out a TSP loan to both pay off the bills and pay himself back. For him, it is more beneficial to pay himself the interest rather than paying it to a credit card company or to the bank. He mentioned that he had to wait 60 days to request the loan because he was finishing repaying a different TSP loan. For reference, the TSP board requires participants to wait 60 days before they can take out another loan. I encouraged my client to contact the TSP and ask them to waive his 60-day period per this difficult and unexpected situation. In response, the TSP Board said there were no exceptions to their 60-day waiting period.
Long ago, I remember when I first went to Burger King. They said you can have your burger any way you want; special orders did not upset them. Similarly, over my federal career, management always said if you need help, just ask. I do not find that the TSP Board accommodates its members in the same way.
During a time of crisis, the Thrift Savings Board does not break its rules, not for financial hardships or even a pandemic. I know we had the 2021 Cares Act, but that pertained to withdrawals only. The TSP should make waiving exceptions for its members just like my client. The loan is still my client’s money, and he is willing to pay both the application fee and the loan. TSP participants should be granted a one-time pass to waive the 60-day period. No one likes to ask for help, but in times of financial hardships, the TSP board could grant this waiver to alleviate stress and burdens for their members.
Financial success can easily be achieved; it only takes a little effort.