Federal retirement expert, Chris Kowalik, discusses the legitimate frustrations that federal employees have felt about the TSP’s recent transition to its new platform – and how feds can protect themselves despite TSP’s errors.
- 4 FRUSTRATIONS: Irritants participants have experienced
- 3 CONCERNS: Areas causing participants to worry
- 2 ALARMS: Critical errors the TSP has made and how to correct them
- 1 LAPSE IN JUDGMENT: Where TSP missed the mark
- Local workshop locations and dates: FedImpact.com/attend
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If you are a federal employee, chances are you have heard of the seemingly disastrous rollout that the TSP recently did with its new platform. So today’s episode is all about the TSP’s comedy of errors that feds are now experiencing. Specifically, four frustrations, three concerns, two alarms, and one serious lapse in judgment. But we’re not here just to complain, we’ll give you steps to protect yourself and get things back on track if the TSP has derailed you, even if you don’t know it yet. Hi, Chris Kowalik of ProFeds here and welcome to the FedImpact podcast, where we offer candid insights on your federal retirement. So we have been bombarded with questions from feds who are at best truly disappointed. But in all reality, feds are demanding answers from the nation’s largest employer-sponsor plan, of course, the Thrift Savings Plan. And they not only want to figure out what went so horribly wrong in this transition but for the TSP to fix it.
So there is a lot to unpack here. Any of the resources that I mentioned today will be in the show notes. And for anyone looking for training or help from our team on their individual situation, we’ll tell you how to do that here at the end. So in late May the TSP essentially shut down their operations to change over to a new website. It’s now run by their new recordkeeper and many would argue that the site didn’t need to change at all. It was perfectly fine. There had already been some revisions to the website within the last couple of years. And so, that was kind of a shock to everybody. Like why was that change necessary? So that shut down lasted for a couple of weeks and it caused a slew of problems for those employees who are already retired and for those who are still working. It kept you for making changes to your investments when the market was going a little bit nuts and even keeping investors from initiating withdrawal requests during this time.
So to not be able to access your money when you want, seemed to be a pretty big bother to federal employees or in this case, retirees, because they did not have the control over their account that they thought they did. Let’s jump into the main content for today’s episode.
We’re going to start with the four frustrations, just little irritants.
Frustration #1: Account access
The first is account access. Now, when I say little irritant, if you have had a problem with your account access and you have been trying to contact the TSP to get it resolved, this is no little irritant to you. Because if you can’t get into your account, you’re going to have to stay on hold for many hours to get your login credentials and to get that underway. But if you haven’t been able to log in to establish your new credentials and be able to get into your account, you need to do so.
I know it’s a pain. I know you don’t have time to sit on the phone for all that time waiting for someone to answer at TSP and try to get this resolved. But you’re going to need that login access to get your statements, to make any changes to how much you’re contributing, how you’re contributing to the Roth or the traditional, changing up the different investments that you have, all of that. And then of course, when it comes time to withdraw money from your TSP, you know you’re going to have to have access then. So it’s a pain in the neck, but get in to that account. Here’s the deal, the problems that we’re going to talk about today in this episode, the only way you’re going to know if they happen to you is if you can log into your account. And so very, very important that you get in there. So that’s frustration number one.
Frustration #2: Statements
Frustration number two is with the statements. There’s some confusion on some parts of this statement, some modifications that they’ve made from the previous modifications that they had made to the statements, which were frustrating in and of themselves. Simple things like the statements don’t have how your new money is being invested in the TSP. So if you’ve decided that the majority of your money is going to sit in the G Fund, but all of your new money is going to be contributed in the C fund, you can’t easily tell that by looking at your statement. You’re going to have to sit down and do math based on how much was contributed versus how much went to each fund to figure out what your percentages were. It’s not hard math, but it’s unnecessary and there are some confusing parts to the statement that make it appear as though where your current money sits in TSP is also where your new money is going to go, which is not necessarily true.
Another frustration with respect to the statements is that the historical statements are not available in the TSP, on the website. They’re looking to try to get that resolved. Who knows how long that will take. But this becomes really important in matters of like a divorce where we’re trying to figure out how much was in the account based on a certain date and do all those calculations. And so for some of you, you don’t care about your historical statements and that’s okay, but for a select few of you, you’re going to care an awful lot about those statements. And if you didn’t keep a copy of them on a computer or you printed them out, you’re not going to be able to access those on the new TSP site until they get this feature fixed.
Frustration #3: Delayed or late payments
All right, next step. The third frustration are delayed or late payments. So those people who are already taking scheduled payments, many of them saw a delay in those payments being received. And no doubt, there are 6 million participants in the TSP. So chances are, if something goes wrong, we’re going to see it and voices are going to be very loud. But when you’re expecting those payments to hit your account because you have bills to pay. And you’ve had those payments coming to you month in and month out, or a quarter in quarter out, whatever it might be, and they don’t show up on time, it can kind of wreak havoc. So another plug for always having cash in reserve so that you can dip into that in your emergency savings if something like this were to happen again.
Frustration #4: Broken links
All right, fourth frustration and this is one that for people who deal a lot with the TSP and we’re dealing with articles and podcasts and webinars and all of that, we oftentimes link to the TSP to certain forms or a certain webpage where they’re referencing something some sort of material that we found relevant.
Well, the TSP has broken most of their links. So I don’t know why they didn’t have some foresight in this, but there are about a bajillion links out there from publishers and other resources that are linking back to the TSP. And the fact that they did not do a redirect on all of those URLs, the actual links to redirect people to the right place where they’ve placed the material on the site now, it’s kind of beyond me. It was a senseless error, an unforced error that the TSP had. And anybody who has ever built and rebuilt a website knows that you have to do redirects on links that are out there that are prevalently out there in the marketplace. So that when people click on old articles, or an old podcast, or webinar reference material, it’s going to still come to the right place.
So if you are clicking around and you’re wondering, why do I keep getting this error message that what I’m looking for is no longer available on TSP, this is why. So if you are on the website and you’re like, “Gosh, why do I keep getting these errors?” You might think, well I’ll use the new virtual assistant on the TSP website. They call it Ava. I have found this to be pretty useless. It’s like every other bot system that you try to interact with and it’s just so easy to get frustrated and it not actually having the wherewithal to get you what you’re looking for. All right, so those are the four frustrations.
Concern #1: 7-day delay when moving money out of the TSP
Let’s move on to the three concerns. So the first is that withdrawal processing, to process a withdrawal to come out to an IRA, there is an automatic seven-day delay in that processing.
And they’re couching it as, oh, you’re putting a new address on your account. Meaning the address of the custodian of the IRA where the money is going to go to. And that’s all fine that they want to call it that. But the fact that they make you pause the transaction to let the seven days pass after you’ve added the new custodians address, and then have to return back to the account and finish processing the transaction to get the money out to an IRA is incredibly frustrating. They’ve made it pretty easy to get your own money out of the TSP, but they’re trying to throw these little wrenches into when you want to move money out to an IRA to a different custodian. And that of course, is a concern, right? Because when you have a decision to make to move money out and that’s what you’ve decided you want to do, who’s the TSP to tell you have to wait an extra seven days before being able to finish the transaction?
It doesn’t mean the money’s going to get to you in seven days. You can’t go back in and finish the transaction for seven days. And then there’s the natural delay in you actually getting the money.
Concern #2: Misleading questions on withdrawal process
So the next concern, when you go through the forms to actually make a withdrawal, the questions that they ask you are incredibly misleading. I see an incredible potential for causing tons of errors in these transactions. They use words like cash. And cash seems like a pretty easy word. For many of you, it’s your favorite four letter word. But if you don’t know what they’re referring to, you may end up getting a big tax hit for no good reason. It wasn’t what you intended, but the questions… Honestly, I don’t know if whoever designed this is not terribly familiar with rollovers and the language that’s typically used, but they’ve gone out of their way to make this confusing.
And I suspect we’re going to see a lot of feds very angry when they try to do this on their own and they end up selecting the wrong option because the language is confusing and it cause huge tax problems. So please, get help on a withdrawal, talk to a financial professional who actually knows what they’re looking at and sees the consequences. Because once these documents are processed, as long as it’s processed in a way that the TSP can execute it, they will. It doesn’t mean it will be in your best interest. It doesn’t mean it will necessarily be what you think you are doing on these forms. But once it’s done, it’s done. So if they end up sending you a check directly and they withheld tax from it. Even though your intention was perhaps to move the money to an IRA where no tax would’ve been issued at that point, then for you to fix that, you’re going to have to come up with a tax that was withheld to put the money back in the account.
It is a complete disaster when that happens and we want to do everything we can to help you not go down that path. So those questions, I hope they clean those up. Because of course, me and the financial professionals that we’re partnered with throughout the country, we’re used to looking at these types of documents and we can sort it all out. But for the average fed who has never perhaps done a withdrawal out at the TSP, it will be very, very easy to be confused.
Concern #3: Spouses no longer provide notarized consent
Now the third concern is that spouses are no longer providing their notarized consent for a withdrawal. Now, this sounds like a win. And as long as your spouse is on board with moving money out of the TSP, it is. It’s an absolute win because getting a notary is a pain in the neck. But everyone can see that there’s potential for abuse here.
Your spouse still has to provide their written consent, but it’s just not through a notary. So what’s going to happen is your spouse will get an email. So you’re going to enter an email address for a spouse, one that the TSP does not currently have on file. But they’re going to email to that email address, they’re going to ask your spouse to sign through DocuSign, that they are acknowledging that you are moving money. Couple of problems here, one is the TSP has no idea who’s on the other end of that email. And two, the message that your spouse is receiving at that email address often contains the wrong figures. So let’s say your plan is to move a half a million dollars out of the TSP, they’re going to receive a message and it might say a half a million dollars that you plan to move, but it also might say zero. It might have some arbitrary number.
And we don’t exactly know where this problem is stemming from, but it is a big problem. Because if the spouse is acknowledging that $0 is coming out of the TSP and they sign it, yet a half a million dollars comes out instead. Where’s the protection that there was supposed to be for that spouse? So that’s a real concern. Because we want to make sure both parties are served well. And we’re never in the business of trying to pit somebody against each other or pull a fast one. But there’s potential for abuse here. Let me be clear, we’re all about getting rid of the notary because gosh, that sounds amazing to not have to go through that rigamarole. But how do we still give the spouse the control that was intended in The Thrift Savings Plan? So it’s a hard balance to try to strike.
And that was always the understanding with notaries that it’s the only way to really feel like we’re giving the most protection to a spouse by making them go through those hoops and standing before a notary to sign a document. But how do we replicate that same type of protection for a spouse without that notary. And it goes without saying, but do not ever, ever sign for your spouse. You do not want to be making the headlines of the big issue that the TSP had with taking away the notaries. You don’t want to end up in an article. You don’t want to end up on the news. So do not ever, ever sign for your spouse I would say in any situation, but certainly not here with the TSP. All right, so we covered the frustrations and we covered the concerns.
Next, we need to talk about two alarms. So both of these are very, very important. And so I’m going to run through them and give as much guidance as I can on how to fix these problems if you identify that they’ve happened to you in the TSP. :
Alarm #1: Beneficiaries changed without participants’ consent
The first is that many beneficiaries fell off of the TSP accounts during the transition. These might be primary beneficiaries. It might be contingent beneficiaries. Here’s the problem. The TSP has come out and said, well, there were a number of people who had beneficiaries that were on before, but then we realized that there was insufficient information or incomplete documentation that caused us not to be able to honor that beneficiary and so, that’s why they fell off. That was the reason that the TSP gave. Here’s why I’m not buying it.
If that was the case, the TSP would’ve known exactly who they removed the beneficiaries for. And they could have notified them, but they didn’t. And that becomes a big problem. Because the only way that feds are going to know if their beneficiary fell off by accident or intentionally by the TSP but without the participant’s knowledge, is that they log into their account. So if you don’t know that yours has changed, or if it’s changed, please log into your account. You should be able to see your primary and your contingent beneficiaries listed if you have named them. Now, in the event that you experience what my husband and I experienced. My husband’s a federal employee. He has the TSP and I am his primary beneficiary, but our contingent is our trust and our trust fell off of his TSP. And so we had to go back in and add the trust as the beneficiary.
It wasn’t terribly difficult, but there were some snags along the way that I’m going to bring to your attention. Because I was paying very, very close attention to what was happening in each step of the process and there are some things that don’t add up at all. So the first thing you’re going to do if you’re going to add a new beneficiary is to put in their name. Nice and easy. And you’re able to put primaries, contingents, all that good stuff. Next, this is where things get a little sideways. Next, you’re going to name a witness. Now, this cannot be a beneficiary. So very important that someone other than your named beneficiaries is signing. Here’s the part that gets sideways. When you name this witness, you’re also going to enter their email address. And they, just like your spouse, they are going to get an email that asks them to DocuSign as a witness.
Now, that’s no problem. That actually seems like a logical thing to do. Except first, what are they witnessing? They’re not witnessing you signing it. So what role does this play? I’m not exactly sure. But aside from that, when they have completed their signature, they get a copy of your form. Now, some of you don’t care, others are like, wow, that’s none of their business. So just beware that the person that you name as your witness will get a copy of your beneficiary form. I do believe that this is a mistake that the TSP made because the participant, the TSP participant, so you don’t get a copy of the completed form. So I think they have their settings wrong to where the wrong person is being notified when the document has been completed by the witness. But still, some people really don’t love other people being in their business. Especially if it’s like a coworker or maybe somebody in your family who’s not a named beneficiary, but you don’t necessarily want them knowing who you’ve got listed.
So be aware of that. Next stage in the process is you want to make sure that your beneficiary designation has been completed. The only way you’re going to know is by logging into your account. You will not get a copy of the actual beneficiary designation. You will not receive an email to let you know that your witness has signed the document. Again, I was paying very specific attention when we were updating this for our family. And those were the things that I would’ve expected to see. As my husband being the TSP participant, I would’ve expected to see those types of notifications come through by email and we didn’t. Now next step, you want to make sure to save a copy for your family. So hard to save a copy when you’re not actually receiving a copy. So worst case scenario, take a screen capture and make a note.
If you print that out, if you put it on a thumb drive, wherever it is your family can get to it and that it’s kept safely for them, make sure that you’re identifying what date you made the change, who the witness was that you named, all of that. The other way that you could document this is simply ask the witness who received a copy of your beneficiary designation to forward you a copy. So you want to make sure that you’ve got that in a safe spot for your family to be able to access in the event of your death. Because if something else happens to your beneficiary designation, TSP makes another change 10 years from now, and your beneficiary falls off. You need your family to have something to advocate for so that your wishes are carried out.
And if they don’t know that you made a specific designation with the TSP, they’re not going to know to fight for it. So give them the chance, give them the tools to be able to make sure that your wishes are carried out. Because again, if the TSP drops the ball in the future, who’s to say that something, bad timing, all of that happens and the wrong people are paid the money that you intended to go to somebody else. All right, so these beneficiaries, this is a big problem. Listen, it’s no big deal as long as you don’t die before you get this fixed. But we would really want to make sure that this is corrected and do it soon. Don’t wait. Again, I know it’s a pain to deal with the TSP right now, long hold times. It seems like forever to be able to get anything resolved, but it is worth it to your family to make sure that you get in there and get these beneficiaries either confirmed or corrected if they’re different than what you think they should be.
Alarm #2: TSP changed investments without participants’ consent
The second alarm, this one floored me. I couldn’t believe that this was really happening in real life.
The TSP in the transition process, changed a number of investments that employees or I’ll say participants had. This happened both to employees and to retirees. To where the current holdings, so the G, F, C, S, and I changed without the consent of the participant. And so, we received a report that we had an employee that was primarily in the G fund, actually all in the G fund, and had been for years. They open up their new statement once they were finally able to get into their account, only to realize that 93% of their account is now invested in the C fund. And during that time, the market’s going up, the market’s going down and the G fund never goes down. It doesn’t go up very much either, but at least never goes down. And so, imagine their shock when they see this and realize that their account has lost money due to an error made by the TSP.
Now my hope is that the TSP is going to do whatever they need to, to make this right, because this was purely an administrative error. I doubt there’s any malice or intent here. But with 6 million people, you have to make sure that these things come over right. And so, if it happened to one person, how many other people did it happen to? Well, the fact is it happened to a ton of other people. New reports keep pouring in from all sorts of different sources that this continues to happen. People are starting to realize what’s happened now that they’re finally able to get into their account. So please log in, make sure that where your current money is, is where you think it should be. And if you identify that there has been an error on TSP’s side, you need to do everything you can to find as many of those prior statements as possible that you had prior to the transition. And anything you can do to justify that was not your decision, you did not give authorization for that and get in contact with the TSP.
And I will share with you, we can make a phone call, and if we can get things right, great. This is one of those problems that is not going to be resolved over the phone. And so chances are, it’s going to need to be escalated. So make sure that you are documenting every conversation you have with TSP. You’re gathering the different documentation that you can from prior statements. And you are providing written communication to the TSP, outlining exactly what you believe happened and that you expect it to be resolved. And make sure that any of that is sent by certified mail so someone has to sign for it and there’s tracking to make sure that the TSP receives it. Again, we can complain all day long about what’s happened, but we need to find a way to make these things right and get them solved for you. All right, so those were our two alerts, beneficiary problems and unauthorized investment changes.
1 LAPSE IN JUDGMENT
And now we are on to number one, which is the one serious lapse in judgment and that is this mutual fund window. By all measure, this has been a flop. The TSP estimated that only 2% to 3% of all of the TSP participants would consider using the mutual fund window.
Which is crazy because the TSP cited this lack of investment choices is one of the big reasons that people move money out of the TSP when they retire. They’re missing the boat. They’re not paying attention to the real problems that exist in the TSP as a retiree when you need that fund to provide income to you. There’s a lot more wrong with the TSP than just the investment choices that are available. Now listen, I know that TSP has a lot of good parts. We love free money. We love that we can dump this much money into the traditional or even the Roth, even better especially for those who don’t qualify for those accounts in the private sector. Lots of cool stuff in the TSP while you’re working. But once you retire, things look very different. And I think the TSP expected that if there was this mutual fund window that they could offer, fewer people would actually leave the TSP.
And that’s not it at all. Because they have to have people participating in the mutual fund window to even consider leaving it there. And so, the amount of man hours, and time, and energy, and effort, and money that went into this mutual fund window for such a minute portion of this audience that actually wanted those types of opportunities and were willing to pay that kind of price, was a serious lapse in judgment on the TSP’s part. And so, definitely something to consider. If you like the idea of mutual funds, that’s okay. We like mutual funds in the outside too, but there’s tons of them out there that you can go invest in. You don’t need the TSP to let you do it or to be beholden to their weird restrictions. So you need to make sure that you’re getting proper guidance, that you’ve got a good investment strategy.
It’s not just a matter of having your money in lots of different places, but having a strategy for how that money’s actually going to be used, very, very important. All right, So TSP’s comedy of errors, it’s not funny at all to you if you’ve been experiencing these things. But at some point, we do have to look back and just say, how did it get this bad? I do sincerely hope that they get these things resolved. This was a big misstep by the TSP, they know it. But how quickly they resolve it is still left to be determined. So of course, we love talking about the items that affect you. We prefer to talk about the items that affect you in great ways. Unfortunately, we had to cover today’s topic because we’re getting so many sad letters from federal employees that are so frustrated that this is happening and they’re looking to us for guidance to fix it.
And unfortunately, other than contacting the TSP, there is nothing that our team can do. But we’re hopeful that the TSP is staffing to be able to get all these items resolved and that they’re fixing them on the back end in this platform as well.
So if you are listening to today’s episode on a traditional podcast platform, you of course, don’t have access to any of our resources. But if you’d like access to that and things like the transcript of today’s episode, you can text the word PODCAST to 224-444-6144, and we will send that right away. Again, text the word PODCAST to 224-4446-144. All right, so just to wrap up today’s session, be sure to get into your account and make sure everything is as it should be. That includes the funds that you’re invested in, beneficiary designations, and be sure to familiarize yourself with the new statement. I sure hope they fixed that statement to make it more useful to feds.
Next, if you identify an error, don’t delay in getting it fixed, get on the phone right away to TSP and document everything you can. And remember, if your problem is not resolved with the TSP quickly, please submit a written request for your problem to be resolved. And be sure to send it in a way that’s trackable and that someone must sign for it. We want to help you to advocate for yourself to ensure that your accounts are protected.
All right, well, that’s it for today. I hope our talk about TSP’s comedy of errors has been helpful to you as you think through how you might have been affected by these changes. I hope that you’ll stay tuned to the FedImpact podcast to get straight answers and candid insights on your federal retirement. And of course, if you haven’t already, subscribe today so you’re sure not to miss an episode.