Government Shutdown – Key Financial Impacts

Presented by Marc Aarons

I hope you’re doing well. With the federal government now in a partial shutdown, I wanted to provide an overview of what’s happening and what financial impacts Americans may experience.

What is a government shutdown?

A government shutdown occurs when Congress fails to pass the necessary funding legislation to keep federal agencies fully operational. In a partial shutdown like the one we’re in now, some agencies remain funded and continue running while many “non-essential” services pause until a funding agreement is reached.

When will the government reopen?

Unfortunately, there’s no set timeline. A shutdown can last a few days or extend several weeks, depending on how quickly lawmakers reach a compromise. In the meantime, some federal services may experience delays or limited availability.

What financial impacts could Americans experience?

1. Essential financial benefits will continue: The good news is that many core federal services remain operational. Social Security, Medicare, and Medicaid benefits will continue to be distributed. Veterans’ benefits will also remain in place. The Supplemental Nutrition Assistance Program (SNAP) and the Special Supplemental Nutrition Program for Women, Infants, and Children (WIC) will continue as funds allow. Most IRS operations, including tax filings and refunds, are expected to proceed as well.
2. Delays are likely in some government services: Depending on the duration of the shutdown, the delivery of some government services may be delayed. These can include federal housing loan approvals through the Federal Housing Administration (FHA), the Department of Housing and Urban Development (HUD), and the United States Department of Agriculture (USDA). The processing and approving of new SBA 7(a) and CDC/504 loans are paused. Key federal data reports — such as those related to employment or inflation — could be postponed.
3. Federal employees may be affected: Many federal employees are currently furloughed or working without pay. While back pay is typically issued once funding is restored, the uncertainty and disruption can be difficult for those impacted.
4. Broader economic impact is possible: Short-term government shutdowns have historically had a limited impact on financial markets. However, a prolonged disruption can affect consumer confidence, delay economic data reports, and impact federally supported programs. Depending on shutdown length, this could be especially significant for the Federal Reserve, which meets at the end of October and relies on jobs and inflation reports to guide decisions on interest rates.

While these factors are unlikely to require immediate changes to most financial plans, it can be helpful for Americans to have this broader economic context.

If you have questions about how this may affect your financial plans or simply want to talk  through your investment strategy, please don’t hesitate to reach out. I am always here as a resource for you.

Please don’t hesitate to reach out with any questions or concerns.

Marc Aarons may be reached at 714-887-8000 or Email Marc

Money Managers inc. Website

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Provided by Marc Aarons @ Money Managers Inc.

 By 2020, federal employees with Thrift Savings Plan (TSP) accounts should have new withdrawal choices for their invested assets. New rules are scheduled to be implemented through the TSP Modernization Act, permitting TSP participants more flexibility.¹

The TSP withdrawal rules have been strict for many years. Too strict, in the opinion of many – especially compared to the private-sector workplace retirement plans the TSP takes after. Once a federal worker makes a partial withdrawal, he or she is locked into three choices. Choice one is converting the remaining balance to a life annuity (which the federal worker must buy and which is not the same as a TSP monthly payment or the annuity the federal employee gets with a retirement package). Choice two is cashing out the remaining TSP balance. Choice three is arranging a sequence of monthly payments that may be altered only once a year.^2,3

Moreover, if a federal worker makes an age-based withdrawal from the TSP while still employed by the federal government, that worker loses the ability to make partial withdrawals after retiring. As for retirees who avoid age-based withdrawals, they can make one partial withdrawal once retired under the current rules, but are subsequently left with full withdrawal options.⁴

These restrictions often prompted federal employees and retiring service members to roll their TSPs into IRAs at retirement, even though investment fees for many IRAs exceeded those for the TSP.²

The TSP Modernization Act is a response to all this. It addresses two crucial issues. The new law strikes down the withdrawal election deadline, allowing TSP participants to arrange and revise the amount and frequency of their withdrawals whenever they want. It also removes the curbs on partial withdrawals.^2,4

The new law makes one other noteworthy change: TSP participants who have made both traditional and Roth contributions no longer have to take them out pro rata or proportionally distributed. Soon they will gain the ability to specify how much of a withdrawal should come from Roth TSP assets and non-Roth TSP assets.¹

The new rules will take time to roll out. Forms, web pages, and publications all need to be revised, and a public comment period on the changes is required by law. While some of these revision steps were taken pursuant to the passage of the TSP Modernization Act, some are forthcoming.¹

Until the new rules are implemented, TSP participants must abide by the old rules. A TSP factsheet on the forthcoming withdrawal choices notes that TSP participants facing their withdrawal deadlines can choose monthly payments as low as $25 and let their remaining TSP balances sit until the new withdrawal options are available, if their financial situations allow.¹

TSP participants who have account balances when the new rules are in effect may take advantage of the expanded withdrawal options, even if they have made a partial withdrawal or already begun to receive monthly TSP account payments. Of course, if a participant changes the time period for his or her payments, there may be tax implications.¹

The change in TSP withdrawal rules is welcome. In sum, federal workers will gain the ability to make multiple age-based withdrawals during their careers, and will still be able to make partial withdrawals once retired. As National Treasury Employees Union president Tony Reardon commented last year, “The rules for how federal employees can manage their accounts have not kept pace with the modern workforce, and these changes [make] the TSP a more attractive and user-friendly choice for employees and retirees.”⁴

Marc Aarons may be reached at 714-887-8000 or marc@ocmoneymanagers.com

www.ocmoneymanagers.com

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Citations.

1 – tsp.gov/PDF/formspubs/tspfs10.pdf [12/17]

2 – kiplinger.com/article/retirement/T047-C000-S002-federal-retirees-get-a-break-on-tsp-withdrawal-rul.html [2/1/18]

3 – tsp.gov/PlanParticipation/LoansAndWithdrawals/annuities/purchasing.html [4/9/18]

4 – federalnewsradio.com/legislation/2017/07/new-bill-would-loosen-restrictions-on-tsp-withdrawals [7/27/17]

^{This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.}

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