The Federal Thrift Savings Plan

The Federal Employees Retirement System Act of 1986 extended the tax advantages of salary reduction to all civilian employees of the federal government through the Thrift Savings Plan (TSP). That plan is subject to the same limits on employee contributions that apply to 401(k) plans. For employees hired after 1983, the TSP contains a specific formula for matching contributions.⁽¹⁾ The government contributes the equivalent of 1 percent of an eligible employee's salary automatically regardless of whether the employee participates in the plan or not. For those who do participate, the government matches 100 percent of employees' contributions up to 3 percent of salary. The government then contributes 50 percent of any additional contributions by employees up to 5 percent of salary. Thus, if a worker contributes at least 5 percent of his or her salary to the TSP, the government contributes the equivalent of 5 percent. The TSP offers five funds in which the participant may invest. Alternatively, "life-cycle" options automatically allocate assets among the available funds on the basis of the participant's anticipated date of retirement.⁽²⁾

Participants may borrow against their own contributions to the plan; however, they may not borrow against the government's contributions. Hardship withdrawals are possible but only for a few reasons (primarily medical expenses and legal costs incident to a divorce).