Democrats Introduce Bills Waiving TSP Withdrawal Penalties During Shutdown

Congressional Democrats introduced bills that would waive penalties for federal workers who make withdrawals from their Thrift Savings Plan accounts during the government shutdown.

The legislation enables TSP participants who were furloughed due to the shutdown to withdraw up to $30,000 from their accounts without incurring the usual 10% withdrawal penalty, if the shutdown lasts at least two weeks. However, they will still be responsible for paying income taxes on any amount withdrawn.

Additionally, the Emergency Relief for Federal Workers Act of 2025 would allow the workers to put any funds they withdrew back into the plan, which is not currently allowed during a typical TSP hardship withdrawal.

The legislation also aims to ensure that federal employees have access to TSP loans during government shutdowns, even if the shutdown is expected to last more than 30 days. The most recent shutdown, from December 2018 into January 2019, lasted more than 30 days.

Additionally, the bill proposes to suspend TSP loan repayments during shutdowns. Loan repayments, typically deducted from payroll, would be automatically paused until the government reopens. Once operations resume, any outstanding payments would be deducted from employees’ back pay.

The legislation also prohibits missed loan payments from being counted as taxable distributions, which would shield employees from potential penalties related to late contributions.

Senator Tim Kaine, D-Virginia, introduced the Senate version, and Representative Don Beyer, D-Virginia, introduced the House version. The bills have a total of 28 co-sponsors, all Democrats, indicating that it is highly unlikely the bills will receive a vote from Republicans, who control both houses of Congress.

However, the legislation addresses a key point of contention during government shutdowns, since government workers are either furloughed or work without pay when the government is closed.

The Congressional Budget Office estimated that 750,000 employees could be furloughed each day, with the daily cost of worker compensation approaching $400 million.

Though the Government Employee Fair Treatment Act of 2019, passed following the most recent shutdown in 2019 during President Donald Trump’s first term, guarantees federal workers receive back pay, the White House has reportedly considered not granting back pay. That would put added financial pressure on government workers already not receiving pay, potentially making it more likely they would take out hardship withdrawals.

Another option, and apparently an increasingly popular choice among federal workers, is retirement. According to an October 3 blog post by the U.S. Office of Personnel Management, there are currently “35,000 retirement applications pending in ORA with a September retirement date.” Scott Kupor, director of OPM, noted in the post that if historical trends hold true, the office can expect to receive a similar volume of retirement applications in the next two to three weeks, a significant surge in retirements.

In the meantime, the government shutdown, already one week long, appears likely to drag on. Polymarket, a prediction and betting site that gained traction for its forecasts during the 2024 presidential election, currently indicates an 83% probability that the shutdown will continue until at least October 15.