Not only will does sequestration impose the threat of furloughs, federal employees are also threatened by the fact that Thrift Savings Plan (TSP) contributions will not be made or will be reduced. If Congress cannot develop a solution to avoid the across-the-board cuts as called for in sequestration, federal employees can face furloughs as early as mid-April and reduced budgets for departments. As a result, the TSP advisory board commented that investors who are put on unpaid leave will not receive the same contributions they received before the furlough.

TSP is a defined contribution retirement plan and the amount of retirement income participants receive from their TSP account will depend on how much is put into the account during working years and the earnings accumulated over that time. Often, federal employees use a percentage of their salary to determine contribution amounts. For those who use this method, if furloughs are implemented, contributions will be determined by actual pay, not original or regular salary. Additionally, employer contributions will be diminished. Employers automatically contribute one percent to TSP which is based on the amount the participant can actually contribute.

While on unpaid leave, those contributing to TSP can still move account balances among available funds. Additionally, hardship and age based withdrawals can be made. Loans are available to furloughed employees, but according to TSP guidance, only if the furlough is expected to last less than a month. Federal employees who already have outstanding loans, it is necessary they do not miss more than two biweekly payments. Doing so can declare the loan a taxable distribution and cause tax penalties.

For more information on TSP, please visit: www.tsp.gov.