TSP Officials Provide Update on CARES Act, New Lifecycle Funds

Officials at the federal government’s 401(k)-style retirement savings program on Monday touted the successful addition of several new lifecycle funds to the program's offerings and provided an update on how federal employees and retirees are taking advantage of new flexibilities amid the coronavirus pandemic.

Over the last four months, officials at the Thrift Savings Plan have worked to implement several provisions of the Coronavirus Aid, Relief and Economic Security Act, including suspending required minimum distributions that were set to kick in in 2020, allowing participants to suspend TSP loan payments until the end of this year, and temporary increases to the maximum loan amount available to participants.

On July 11, the agency implemented its final CARES Act provision: allowing participants to make a one-time withdrawal of up to $100,000, and waiving typical rules that participants be at least 59 1/2 years old and incur a 10% tax penalty.

TSP Project Manager Tanner Nohe said that as of July 24, more than 13,700 participants had taken the new CARES Act withdrawal, averaging $26,900 per transaction. Additionally, the TSP has suspended loan payments for 12,922 participants, and nearly 1,200 people have taken out loans of more than the usual $50,000 cap. On average, those loans were around $74,500.

Nohe said that participants who took out new loans since the beginning of the pandemic are also eligible to suspend loan payments until the end of the year, although they must file for the suspension separately. He also outlined how each of these temporary programs will be phased out later this year.

“The loan amount increase will be available until almost the end of September, the 22nd of September,” Nohe said. “[The] last day we will accept paperwork for the loan payment suspension will be Nov. 30. You’re able to suspend payments through the end of the year, but we’re cutting it off a month early because of the timing involved with payroll receiving the suspension, and there’s probably a couple of weeks in there so it doesn’t make sense to suspend for one payment. And our [online] wizards for CARES Act withdrawals will go offline on Dec. 15 to allow for processing to make sure they’re all done by the end of the year. Dec. 29 will be our last day of processing CARES Act withdrawals.”

TSP Portfolio Manager Sahr Nyandemoh said that the transition to new five-year lifecycle funds, which shift investments to more stable portfolios as participants get closer to retirement, went off without a hitch on July 1. The agency successfully shifted more than $21 billion in assets—representing the investments of 260,000 participants—from the L 2020 Fund to the L Income Fund, which is designed for people who have begun taking regular withdrawals. And younger participants have already begun moving into the new funds offered in five-year increments.

“As of this morning, the new L Funds have a total of 62,000 participants with assets totaling $4.7 billion,” Nyandemoh said. “And I am happy to report that 13,000 new participants have arrived since the new L Fund lineups rolled out, and all were assigned to age-appropriate L Funds exactly as planned. Around 4,000 participants born in 2000 or later, mostly members of the uniformed services, were defaulted into the L 2065 Fund.”