House passes bill to relax TSP withdrawal restrictions

The House of Representatives voted unanimously to pass a bill that would increase federal employees’ flexibility in withdrawing funds from their retirement accounts.

The Thrift Savings Plan Modernization Act, introduced by Reps. Elijah Cummings (D-Md.) and Mark Meadows (R-N.C.), relaxes the current restrictions over the retirement accounts of employees and retirees.

“Providing more flexibility will allow federal employees and retirees to more easily access their retirement savings to address emergencies or life events and encourage them to retain their assets in the TSP which has one of the lowest administrative fees in the industry,” Cummings said.

Meadows said the reform “will go a long way in facilitating needed updates to the Thrift Savings Plan program, providing more flexibility for retirees and allowing TSP recipients to keep taking advantage of benefits, similar to those available for private sector employees, after their time in federal service has ended.” 

Currently, federal employees are limited to one withdrawal from their accounts while in the federal service after reaching 59-and-a-half years old. Upon leaving federal service, TSP participants are permitted one withdrawal of a portion of the account balance.

The  bill would eliminate these restrictions and allow participants to control the timing and amounts of periodic payments, as well as the ability to combine partial withdrawals or an annuity with periodic payments.

The bill would also eliminate automatic annuities as a default option without participants opting in.

In addition to the House's support, the bill is viewed favorably by federal employees and their unions. It has support from the National Active and Retired Federal Employees Association, the American Federation of Government Employees, the National Treasury Employees Union as well as the Federal Retirement Thrift Investment Board, the agency that manages the TSP.

A 2013 study conducted by the investment management company Vanguard found that employees are much more likely to remain in retirement plans that allow for more flexible account access.  A 2014 survey conducted by the Federal Retirement Thrift Investment Board found that more than 50 percent of respondents reported they would like greater flexibility in accessing their retirement accounts.

On the Senate side, a companion bill has been introduced by Rob Portman (R-Ohio) and Tom Carper (D-Del.).