New TSP withdrawal options nearly ready for Sept. 15 launch, agency says

Two senators are also questioning the Federal Retirement Thrift Investment Board's decision to move the Thrift Savings Plan's I fund to a new index.

The long-awaited arrival of new withdrawal options for the Thrift Savings Plan is nearly here.

The Federal Retirement Thrift Investment Board (FRTIB), the agency that administers the TSP, is putting the finishing touches on a series of IT updates needed to launch the new withdrawal options, which will go live Sept. 15.

On Sept. 15, participants will have:

  • The option to take monthly, quarterly and annual installment payments;
  • Ability to take unlimited post-separation, partial withdrawals;
  • Ability to take partial withdrawals and installment payments simultaneously;
  • Option to choose the source of withdrawal payments, including traditional, Roth or both;
  • Up to four age-based in-service withdrawals at age 59-and-a-half or older; and
  • An end to contribution suspensions if a participant takes a hardship withdrawal.

Testing for the FRTIB’s third phase of development will finish this week, Tanner Nohe, the agency’s withdrawals project manager, said Tuesday at the board’s monthly meeting.

The cutoff date for TSP participants to make withdrawal requests using the agency’s current forms is Sept. 6.

“If we get your form by close of business on Sept. 6, that form will be processed before the new code gets launched,” he said. “We won’t be accepting any old forms after that time.”

The agency created three new forms and overhauled three others, which participants will use moving forward to make changes to or stop withdrawal payments and make in-service and post-separation withdrawals.

The new forms include online “wizards,” which will serve as a step-by-step guide to help participants fill in the correct information. These forms, for example, will automatically show participants their Roth balance or what future distributions might look like based on unique account information.

Preparing the new withdrawal option program was a heavy lift for the FRTIB, which required updates to 13 agency applications and at least 66 changes to agency communications and notices.

The FRTIB also held a series of webinars to teach TSP participants about the new withdrawal changes, which 4,300 people joined.

The agency has been preparing for the changes for the past year or so, well before the president signed the TSP Modernization Act into law in November 2017.

Congress gave the FRTIB two years to implement the new law, which ultimately authorized the TSP agency to make these changes. The Sept. 15 launch of new withdrawal options puts the FRTIB nearly two months ahead of the congressionally-mandated deadline.

Feedback from federal employees had initially pushed Congress to authorize more TSP flexibilities. Roughly 62% of participants said they were satisfied with the current TSP options, yet 90% said they were satisfied overall with the plan, according to the agency’s 2017 participant survey.

Read more about the specific, upcoming withdrawal changes here.

Senators ask TSP to reconsider upcoming I fund changes

The FRTIB’s plans to change the benchmark for the TSP’s international fund is earning some bipartisan criticism from lawmakers.

Sens. Marco Rubio (R-Fla.) and Jeanne Shaheen (D-N.H.) have asked the agency to reconsider its plans to move the I fund to a different index. The FRTIB made this decision back in November 2017.

The I fund currently benchmarks Morgan Stanley Capital International Europe, Australasia and Far East Index (MSCI EAFE). In the future, the fund will move to Morgan Stanley Capital International All Country World Ex-US Investable Market Index (MSCI ACWI Ex-US IMI), which covers 22 developed and 26 emerging markets and consists of large, mid- and small-cap stocks from more than 6,000 companies.

Many of those companies, the senators argued, are linked to the Chinese government and its own interests.

The decision “poses fundamental questions about the board’s statutory and fiduciary responsibilities to American public servants who invest in federal retirement plans,” the senators wrote in an Aug. 26 letter to FRTIB Chairman Michael Kennedy. “This change, which is expected to be implemented next year, will expose nearly $50 billion in retirement assets of federal government employees, including members of the US Armed Forces, to severe and undisclosed material risks associated with many of the Chinese companies listed on the MSCI index.”

The senators said the board hadn’t done its “due diligence” to review the national security, human rights or financial implications this change would have on US interests.

“It is well known that the Chinese government uses state-owned and state-directed enterprises to control production, compete in global markets and serve the Chinese Community Party’s military, political and economic goals,” Rubio and Shaheen said. “Many of these Chinese companies may soon receive investments directly from the paychecks of members of the US Armed Services and other federal government employees because of your decision.”

The senators asked the FRTIB to explain its justification, as well as the risks and alternatives associated with the change, which Kim Weaver, the agency’s director of external affairs, said the agency was reviewing.

“We’ll take the letter and their comments under advisement, and certainly we’ll provide a response in the appropriate time frame,” Kennedy said at Tuesday’s board meeting.

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