Want a Loan? Pay Up

Gary Amelio, executive director of the Federal Retirement Thrift Investment Board, has formally proposed charging Thrift Savings Plan members a $50 fee when they borrow money from their retirement plans.

The proposal was unveiled Wednesday in the Federal Register. TSP investors have until May 7 to submit comments on it.

During a March 24 meeting of the Employee Thrift Advisory Council, Amelio said the fee was necessary because each loan costs about $48 to process. Only 20 percent of TSP participants have loans, he said, and the remaining 80 percent have subsidized those borrowers. The ETAC members were generally accepting of the move.

"The loan program … encourages participants to contribute more to the TSP because they know they will have access to some of the money in their accounts to help purchase a home or pay unexpected bills," the proposed rule said. "However, the TSP is not a checking or savings account; it is a long-term investment intended for retirement. Removing money from a TSP account -- even when it is paid back -- may diminish the amount available to the participant for retirement."

Investors took out about 300,000 loans from the Thrift Savings Plan in 2003, according to the Thrift board. That was approximately double the number of loans taken out in 2002, TSP officials said. Amelio acknowledged that the new fee could discourage members from applying for loans.

"To be honest, we are hoping it does," he said.

The Thrift board proposal also would require borrowers to have only one general purpose loan out at one time, and would put in place a 60-day waiting period after a loan is repaid and a new loan can be taken out.

If a TSP participant has two loans, according to the proposed rule, the second would have to be a residential loan -- which could be used for a down payment on a house. The waiting period, Amelio said, was to avoid potential complications when a new loan request arrived at the processing center before a final payment.

Comments can be faxed to 202-942-1676 or mailed to: