Federal Employees now have more options in regards to investing in and withdrawing from their Thrift Savings Plans. The changes allow employees to choose from different TSP funds than the ones currently offered by the Thrift Savings Plan.
TSP’s board sanctioned a window of time where employees would be able to invest in more mutual funds. Additionally, these changes also provide choices for individuals wishing to withdraw funds from the retirement account while they still work for the government, after retirement or following a leave from employment with their federal program.
One major reason the TSP board approved this change was to help reduce the number of investors they lose following an employee’s retirement. Many retirees withdraw their funds from the TSP to invest in more competitive, and flexible, accounts like the IRA.
A report by the board showed that an estimated 41 percent of investors that retired or changed employment to a non-federal program in 2012 took withdrew their money from the TSP within 12 months, even though they had permission to keep their funds in the Thrift Savings Plan. New reports suggest that number has jumped to 55 percent.
The executive director of the TSP Board, Greg Long, said that he is not concerned so much with the loss of accounts, as he is with the fact that customers who take their money from the TSP to invest in IRAs are losing money to higher account fees.
According to reports from the board, over a quarter of those who withdrew their money from the Thrift Savings Plan said they did so because they wanted an account that offered more flexibility. This new window will provide the flexibility that these clients want, while still providing access to the lower account fees the TSP offers.
An additional change would allow current and former federal employees to make several withdraws following their separation from federal employment. Current withdraw schedules only allow for a total of two withdraws, with the second applying to the entire remaining balance. New options allow withdraws to occur in lump sums, equal monthly withdraws, as an annuity or a combination of any of the above. Additionally, federal employees still employed after 59 ½ will be allowed to make multiple withdraws without penalty.
This board proposed these changes in May as well as providing service that is more personal to investors. The old system centered on completing transactions and only communication with investors who initiated it by transferring or investing funds. With over $4.5 billion in assets for some 4.7 million current and retired federal employees, this shift will allow access to consultation services and have more access to their investments.
The changes to the Thrift Savings Plan may take some time to implement, with some projections estimating up to 5-years before the changes are fully in place. The TSP board has had approval to open a window for current and former employees to change their investment options since 2009. Changes to withdraw options are limited because further options require the passage of new legislation.
