Shutdown Impacts Deepen But TSP Hardship Withdrawal Bills Offer Potential Lifeline

With the partial government shutdown now entering its second week, the financial impact is becoming very real for thousands of federal employees — many of whom are now working without pay or are furloughed indefinitely.

Back Pay in Question

In an unexpected twist, the White House and the Office of Management and Budget (OMB) have raised doubts about whether back pay for furloughed employees is automatic — despite the Government Employee Fair Treatment Act of 2019 having guaranteed it in previous shutdowns.

Sen. Chris Van Hollen (D-MD), one of the law’s authors, countered sharply:

Still, the uncertainty has rattled many households that depend on consistent pay cycles.

For employees living paycheck to paycheck, this delay is more than an inconvenience — it’s a crisis.

Proposed TSP Relief Measures

In response, two bills — H.R. 5674 and S. 2966 — have been introduced in Congress to offer temporary relief through the Thrift Savings Plan (TSP).

If enacted, they would:

• Automatically make employees eligible for financial hardship withdrawals once a shutdown reaches two weeks.

• Waive the 10% early withdrawal penalty for participants under age 59½ (though normal taxes would still apply).

• Allow repayment of withdrawn funds once operations resume — a major change from current hardship withdrawal rules.

These measures aim to give federal employees access to emergency funds without permanently damaging their retirement savings.

TSP Loan Protections Remain in Place

According to the TSP’s official guidance, participants with existing loans will remain in good standing, even if payroll deductions stop.

Employees can also still request new TSP loans as long as they meet the normal eligibility criteria.

Insurance Coverage Will Continue

The Office of Personnel Management (OPM) has confirmed that federal insurance programs — FEHB, FEGLI, FEDVIP, and FLTCIP — will not be canceled for nonpayment during the shutdown.

Premiums will simply be deducted from back pay once funding is restored.

This ensures continued access to health, dental, vision, and long-term care coverage during this period of uncertainty.

What You Can Do Now

While this shutdown’s resolution remains uncertain, here are a few steps you can take to protect your finances:

1. Hold off on TSP withdrawals unless absolutely necessary — these should be a last resort.

2. Check your cash reserves. If this period exposes a gap, plan to rebuild a 3–6 month emergency fund once regular pay resumes.

3. Stay informed — track updates directly from TSP.gov, OPM, and the Federal Wealth Retirement Newsletter.

4. Avoid making rash TSP allocation changes. Volatility and emotion are a dangerous mix for long-term savers.

Shutdowns are a stark reminder that even “safe” government employment can face short-term disruption.

Maintaining an emergency buffer — even just one month’s worth of expenses — can prevent a financial emergency from turning into a retirement setback.

Best,
—FWR