Two new bills have been introduced in the House of Representatives that are designed to help alleviate potential financial problems for federal employees and contractors resulting from the ongoing partial government shutdown.
Both bills are sponsored by Congressman Suhas Subramanyam (D-VA), a freshman member of Congress, who said that he introduced them after listening to stories from his constituents about the impacts of previous shutdowns.
He represents Virginia’s 10th Congressional district which includes Loudoun and Fauquier counties and parts of Fairfax, Prince William, and Rappahannock counties and is home to over 38,000 federal employees.
Shutdown Guidance for Financial Institutions Act
The Shutdown Guidance for Financial Institutions Act (H.R. 5689) is designed to protect federal employees and contractors from financial losses during government shutdowns. Subramanyam said that federal workers and contractors encountered risks in the past such as denial of mortgage and loan applications, missed monthly payments, and adverse information that negatively impacted their credit scores which in turn affected their regular financial transactions and security clearance investigations.
The legislation, which was initially introduced and passed by Congresswoman Jennifer Wexton (D-VA) in 2019, would require that federal financial regulators, including the Federal Reserve, Consumer Financial Protection Bureau, and National Credit Union Association, proactively issue guidance to financial institutions within 180 days of enactment. This guidance would instruct these institutions to:
- Acknowledge that consumers and businesses affected by a shutdown may lose access to credit and face temporary difficulties in making payments on debts like mortgages, student loans, car loans, business loans, or credit cards
- Consider prudent measures to modify terms on existing loans or extend new credit to assist consumers and businesses affected by a shutdown, adhering to safe-and-sound lending practices
- Take steps to prevent adverse information from being reported and utilized in any manner that harms consumers affected by a shutdown; this includes preventing modified credit arrangements intended to help consumers fulfill their financial obligations from being reported to and coded by consumer reporting agencies in a way that negatively affects the consumer’s creditworthiness
Regulators would be required to issue a joint press release to inform financial institutions, consumers, and businesses about this guidance.
Emergency Relief for Federal Contractors Act
The Emergency Relief for Federal Contractors Act (H.R. 5690) is intended to provide financial assistance to federal contractors by allowing them to withdraw funds from their retirement accounts without incurring the 10% early distribution penalty.
Currently, retirement savers aged 59 ½ or younger may face an additional 10% penalty for withdrawals from their retirement accounts. The bill waives this fee for up to $30,000 in disbursements.
To restore workers’ retirement savings after the shutdown ends, the legislation provides a mechanism for government contractors who take hardship distributions from their retirement plans or early distributions from their IRAs during a shutdown to put back some or all of these distributions (up to $30,000) within a three-year period.
Furthermore, for government contractors who choose not to recontribute their qualified shutdown distributions, the bill allows them to include the amount of these distributions in their taxable income over a three-taxable-year period.
Other Shutdown Relief Legislation for Federal Employees
The Emergency Relief for Federal Contractors Act is similar to another bill introduced recently that was designed for federal employees specifically since it involves the Thrift Savings Plan (TSP).
The Emergency Relief for Federal Workers Act was introduced in both the House and Senate and would allow federal employees to withdraw from their TSP accounts without penalties and ensure that the funds could be put back at a later date.
Among its provisions: it would automatically classify shutdowns as financial hardships, waive the 10% early withdrawal penalty, and allow for the re-contribution of withdrawn funds. Additionally, it guarantees access to TSP loans, pauses loan repayments during shutdowns, and prevents missed payments from becoming taxable events.
