When Does TSP Matching Start for Federal Employees?

The Thrift Savings Plan (TSP) is a retirement savings and investment program for federal employees and members of the uniformed services. This defined contribution plan operates similarly to 401(k) plans in the private sector. It is a significant component of the overall retirement benefits package for federal workers. The TSP is administered by the Federal Retirement Thrift Investment Board, an independent government agency.

Types of TSP Contributions

Employee contributions are deductions from a participant’s basic pay, directed into either a traditional TSP or a Roth TSP. Traditional contributions use pre-tax dollars, which can reduce current taxable income, while Roth contributions use after-tax dollars, allowing for tax-free withdrawals in retirement under qualified conditions.

The federal government also provides two types of agency contributions. The first is the Agency Automatic (1%) Contribution, where 1% of an employee’s basic pay is deposited into their TSP account each pay period. This contribution is made by the agency regardless of whether the employee contributes their own money.

The second type is the Agency Matching Contribution, which is contingent upon an employee’s personal contributions. For Federal Employees Retirement System (FERS) participants, the agency matches the first 3% of an employee’s contributions dollar-for-dollar. An additional 50 cents on the dollar is matched for the next 2% of contributions, meaning that contributing 5% of basic pay will result in a total agency match of 4%.

Eligibility for Matching Contributions

Eligibility for agency matching contributions is primarily extended to employees covered under the Federal Employees Retirement System (FERS). Employees under the older Civil Service Retirement System (CSRS) do not receive matching contributions.

Employees must actively contribute their own money to the TSP to receive matching contributions. To maximize the matching funds, FERS employees are encouraged to contribute at least 5% of their basic pay each pay period.

For most FERS employees, there is generally no specific waiting period or length of service requirement to begin receiving matching contributions once they start contributing. However, uniformed service members under the Blended Retirement System (BRS) who began service on or after January 1, 2018, typically begin receiving matching contributions after two years of service. This ensures that the matching component aligns with the employee’s ongoing commitment to their retirement savings.

Timing of Matching Contributions

Once a federal employee meets all eligibility requirements for TSP matching contributions, these contributions begin immediately and automatically. Agency matching contributions generally commence with the first full pay period in which an eligible employee makes their own contributions.

Initiating matching contributions does not require additional action from the employee beyond setting up their own contributions. The payroll system automatically calculates and applies the agency match based on the employee’s elected contribution percentage. It is important for employees to spread their contributions evenly across all pay periods throughout the year to ensure they receive the full potential matching contributions.

If an employee reaches the annual Internal Revenue Service (IRS) contribution limit before the end of the calendar year, their personal contributions will cease for the remaining pay periods. When employee contributions stop, agency matching contributions also stop for those pay periods. Therefore, carefully managing contribution amounts each pay period helps ensure that no matching funds are missed.

Vesting in Employer Contributions

Vesting refers to the point at which an employee gains full ownership of contributions made by their employer to a retirement plan. In the TSP, vesting rules differ between the Agency Automatic (1%) Contributions and the Agency Matching Contributions.

Agency Matching Contributions are immediately 100% vested, meaning employees have full ownership of these funds as soon as they are contributed to their account. This immediate vesting applies to the dollar-for-dollar match on the first 3% and the 50-cent match on the next 2% of employee contributions.

In contrast, the Agency Automatic (1%) Contributions are subject to a vesting schedule. For most FERS employees, full vesting in these 1% contributions and their associated earnings occurs after completing three years of creditable federal civilian service. For FERS employees in congressional and certain non-career positions, the vesting period is typically two years. If an employee leaves federal service before meeting their specific vesting requirement for the automatic 1% contributions, those contributions and any earnings they accrued may be forfeited.