TSP loan rules relaxed ahead of next shutdown deadline

A rule change taking effect Feb. 5 allows furloughed feds and those working without pay to take out loans against their retirement during shutdowns.

The move comes on the heels of the longest government shutdown in U.S. history and 10 days ahead of another appropriations deadline that could result in a shutdown.

An interim rule from the Federal Retirement Thrift Investment Board allows federal employees to obtain loans against their Thrift Savings Plans if they are furloughed or working without pay under essential or excepted status because of a shutdown.

Additionally, the rule allows feds to request that loan payments be suspended in the event that a shutdown pushes the employee into non-pay status.

During the recent shutdown, feds with outstanding TSP loans had no means of making payments, because deductions are typically made from employee pay. Also, employees who needed money to make ends meet were unable to dip into their retirement accounts for cash to make ends meet. The new rule is designed as a fix to those problems, but the notice states that this is not proposed as a solution to the problem of government shutdowns.

"The FRTIB's loan program was not designed to replace the salaries of Federal employees," the notice reads. "A TSP loan is not a costless alternative to paying Federal employees for their work. TSP participants who take loans may miss out on the investment earnings that would have accrued if that money had remained their retirement accounts. A TSP loan will still have to be repaid in order to avoid the loan being declared a taxable distribution."

According to the notice, FRTIB has designed a manual process as a workaround to the automated functioning of the loan and repayment system "in order to make this interim rule effective immediately so these participants will have access TSP loans in the event of another government shutdown."

The agency opted to issue an interim rule, which forgoes the public comment period, because it deemed "doing so is necessary to respond to an emergency situation." Before publishing the final rule, it will consider public comments.

Only feds in non-pay status because of a shutdown are eligible. Those not receiving checks because they are taking sabbatical, on leave of absence, on disciplinary suspension or because their work for the federal government is seasonal are not eligible.