Senator Tim Kaine (D-Va.) is among senators introducing a bill to ensure that federal contractors affected by a government shutdown can withdraw funds from their retirement savings without being penalized.
“For 35 days, many federal contractors suffered steep financial costs because of President Trump’s shutdown,” Kaine said. “This bill provides federal contractors living paycheck-to-paycheck with additional resources to help them endure the financial hardships caused by government shutdowns.”
The Emergency Relief for Federal Contractors Act would:
- Waive the 10 Percent Early Distribution Penalty. Under current law, retirement savers who are age 59 ½ or younger may be subject to an additional 10 percent early withdrawal penalty for taking a hardship withdrawal from their retirement account or an early distribution from their individual retirement account (IRA). The Emergency Relief for Federal Contractors Act would waive this additional 10 percent penalty. Government contractors who take a hardship withdrawal would still be responsible for paying any other taxes that are due on the amount of withdrawal.
- Allow for Recontribution of Qualified Shutdown Distribution. In order to restore workers’ retirement savings after the shutdown ends, the Emergency Relief for Federal Contractors Act would allow government contractors who take a hardship distribution from their retirement plans or an early distribution from their IRAs to recontribute some or all of the distribution (up to $30,000) within a three-year period.
- Allow for Income Inclusion to be Spread over a Three-Year Period. For government contractors who choose not to recontribute their qualified shutdown distribution, this bill would allow such individuals to include the amount of their qualified shutdown distributions ratably over a three-taxable-year period.
Last month, Kaine cosponsored the Fair Compensation for Low-Wage Contractor Employees Act, legislation to provide back pay for low-wage federal contractor employees who lost pay during the government shutdown.