[Federal Register Volume 77, Number 26 (Wednesday, February 8, 2012)]
[Proposed Rules]
[Pages 6504-6517]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2012-2489]
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Proposed Rules
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains notices to the public of
the proposed issuance of rules and regulations. The purpose of these
notices is to give interested persons an opportunity to participate in
the rule making prior to the adoption of the final rules.
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Federal Register / Vol. 77, No. 26 / Wednesday, February 8, 2012 /
Proposed Rules
[[Page 6504]]
FEDERAL RETIREMENT THRIFT INVESTMENT BOARD
5 CFR Parts 1600, 1601, 1604, 1605, 1650, 1651, 1653, 1655, and
1690
Roth Feature to the Thrift Savings Plan and Miscellaneous
Uniformed Services Account Amendments
AGENCY: Federal Retirement Thrift Investment Board.
ACTION: Proposed rule with request for comments.
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SUMMARY: The Federal Retirement Thrift Investment Board (Agency)
proposes to amend its regulations to add a Roth feature to the Thrift
Savings Plan. The Agency also proposes to reorganize regulatory
provisions pertaining to uniformed services accounts.
DATES: Comments must be received on or before April 9, 2012.
ADDRESSES: You may submit comments using one of the following methods:
Mail: Office of General Counsel, Attn: Thomas Emswiler,
Federal Retirement Thrift Investment Board, 1250 H Street NW.,
Washington, DC 20005.
Hand Delivery/Courier: The address for sending comments by
hand delivery or courier is the same as that for submitting comments by
mail.
Facsimile: Comments may be submitted by facsimile at (202)
942-1676.
The most helpful comments explain the reason for any recommended
change and include data, information, and the authority that supports
the recommended change.
FOR FURTHER INFORMATION CONTACT: Laurissa Stokes at (202) 942-1645.
SUPPLEMENTARY INFORMATION: The Federal Retirement Thrift Investment
Board (Agency) administers the Thrift Savings Plan (TSP), which was
established by the Federal Employees' Retirement System Act of 1986
(FERSA), Public Law 99-335, 100 Stat. 514. The TSP provisions of FERSA
are codified, as amended, largely at 5 U.S.C. 8351 and 8401-79. The TSP
is a defined-contribution retirement savings plan for Federal civilian
employees and members of the uniformed services. The TSP is similar to
a private-sector ``401(k) plan'', i.e., a cash or deferred arrangement
described in section 401(k) of the Internal Revenue Code (26 U.S.C.
401(k)).
The assets of the TSP are held in trust in the Thrift Savings Fund.
Contributions to, or distributions from, the Thrift Savings Fund are
treated under the Internal Revenue Code in the same manner as
contributions to, or distributions from, a qualified trust described in
section 401(a) of the Internal Revenue Code. See 5 U.S.C. 8440; 26
U.S.C. 7701(j).
The Thrift Savings Plan Enhancement Act of 2009, Public Law 111-31,
Division B, Title I, authorized the Agency to implement a qualified
Roth contribution program described in section 402A of the Internal
Revenue Code. This feature will allow participants to make TSP
contributions on an after-tax basis and receive tax-free earnings upon
distribution if (1) five years have passed since January 1 of the year
in which they made their first Roth contribution, and (2) a qualifying
event has occurred (i.e., attainment of age 59\1/2\, permanent
disability, or death). The TSP Roth feature is similar to a designated
Roth account maintained by a 401(k) plan.
Scope
This document sets forth the rules and procedures by which the
Agency proposes to administer the Roth feature. This document does not,
however, address in great detail the tax treatment of a contribution
to, or distribution from, a Roth TSP balance. The tax treatment of a
contribution to, or distribution from, a Roth TSP balance is governed
by section 402A of the Internal Revenue Code.
Types of TSP Accounts and Balances
The TSP offers the following four types of accounts: Civilian
accounts, uniformed services accounts, civilian beneficiary participant
accounts, and uniformed services beneficiary participant accounts. A
participant's Roth contributions and associated earnings may be one
balance among several balances maintained in one or more of these four
types of accounts. The Agency has adopted new terminology by which to
refer to each of these balances.
Within each of these four types of accounts, the Agency may
maintain a ``Roth balance.'' A Roth balance consists of (1) Roth
contributions and associated earnings and (2) Roth money transferred
into the TSP and associated earnings. No other contributions (e.g.
matching or Agency Automatic (1%) Contributions) will be allocated to
the participant's Roth balance. The Agency will separately account for
all Roth balance contributions, gains, and losses in order to determine
the taxable and nontaxable portions of a distribution from a
participant's account.
Within each of these four types of accounts, the Agency may also
maintain a ``traditional balance.'' A traditional balance consists of
(1) tax-deferred employee contributions and associated earnings; (2)
tax-deferred amounts rolled over or transferred into the TSP and
associated earnings; (3) tax-exempt contributions and associated
earnings; (4) matching contributions and associated earnings; and (5)
Agency Automatic (1%) Contributions and associated earnings.
Within a traditional balance, the Agency may maintain a ``tax-
deferred balance'' and a ``tax-exempt balance.'' A tax-deferred balance
consists of all amounts in a participant's traditional balance that
would otherwise be includible in gross income if paid directly to the
participant. A tax-exempt balance consists only of tax-exempt
contributions made to a participant's traditional balance. Earnings on
tax-exempt contributions will be included in the participant's tax-
deferred balance. Because a tax-exempt balance includes only tax-exempt
contributions, the terms ``tax-exempt balance'' and ``tax-exempt
contributions'' are interchangeable.
Tax-exempt contributions are employee contributions made to a
uniformed services participant's traditional balance from pay which is
exempt from taxation under 26 U.S.C. 112 because it was earned in a
combat zone. Consequently, only a traditional balance that is in a
uniformed services account or a uniformed services beneficiary
participant account may contain tax-exempt contributions.
The term ``tax-exempt contributions'' does not include
contributions made to the participant's Roth balance from pay
[[Page 6505]]
which is exempt from taxation under 26 U.S.C. 112. Whether a Roth
contribution is made from taxable pay or tax-exempt pay, the Agency
will maintain all Roth contributions in a participant's Roth balance.
Upon adoption of this proposed regulation, any reference in the
Agency's regulations to a participant's ``account balance'' will mean
the aggregate of the participant's traditional balance and the
participant's Roth balance.
Employee Contribution Elections
Section 1600.11 currently permits the following types of
contribution elections: (1) To make employee contributions; (2) to
change the amount of employee contributions; and (3) to terminate
employee contributions. The Agency proposes to amend Sec. 1600.11 to
add an election to change the type of employee contributions.
The Agency also proposes to add a new section, 1600.20, to describe
the types of employee contributions that a participant may make.
Section 1600.20 permits employees to make traditional contributions,
Roth contributions, or a combination of both. Paragraph (c) of Sec.
1600.20 ensures that a uniformed services participant's tax-exempt pay
will be contributed to his or her traditional or Roth balance (or a
combination of both) in accordance with the contribution election made
under Sec. 1600.11.
Section 1690.1 contains definitions generally applicable to the
TSP. The Agency proposes to add definitions for the terms ``employee
contributions,'' ``traditional contributions,'' and ``Roth
contributions.'' Employee contributions are traditional contributions
and Roth contributions made at the participant's election pursuant to
Sec. 1600.12 and deducted from compensation paid to the
participant.\1\
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\1\ The term ``employee contributions'' as defined in Sec.
1690.1 is not synonymous with the term ``employee contributions'' as
defined in 26 CFR 1.401(m)-1(a)(3).
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Traditional contributions are tax-deferred employee contributions
and tax-exempt employee contributions made to the participant's
traditional balance. Roth contributions are employee contributions made
to the participant's Roth balance. A participant's employing agency
will deduct Roth contributions from taxable pay on an after-tax basis
or from pay exempt from taxation under 26 U.S.C. 112.
Maximum Employee Contributions
Section 1600.22 currently provides that contributions, other than
catch-up contributions, made at the participant's election are subject
to the elective deferral limit contained in section 402(g) of the
Internal Revenue Code. Like tax-deferred employee contributions, Roth
contributions are subject to the Internal Revenue Code's elective
deferral limit. See 26 U.S.C. 402A(c)(2); 26 CFR 1.402(g)-1(b)(5).
The Agency proposes to revise Sec. 1600.22 to provide that tax-
deferred contributions and Roth contributions, but not tax-exempt
contributions to a participant's traditional balance, are subject to
the Internal Revenue Code's elective deferral limit. Elective deferrals
are, by definition, tax-deferred contributions unless they are Roth
contributions. See 26 CFR 1.402(g)-1(a). Tax-exempt contributions to a
participant's traditional balance are neither tax-deferred
contributions nor Roth contributions. These tax-exempt contributions
are treated as basis for tax purposes and the Agency does not track
them against the maximum elective deferral limit set forth in 26 U.S.C.
402(g).
A participant may make traditional contributions and Roth
contributions during the same year, but the combined total of tax-
deferred employee contributions and Roth contributions cannot exceed
the Internal Revenue Code's elective deferral limit. Likewise, a
participant may make employee contributions to both a civilian account
and a uniformed services account during the same year, but the combined
total of tax-deferred employee contributions and Roth contributions to
both accounts cannot exceed the Internal Revenue Code's elective
deferral limit.
The Agency also proposes to delete all references to the percentage
limitation on contributions that existed prior to 2006. Those
references are obsolete. The Consolidated Appropriations Act for Fiscal
Year 2001, Public Law 106-554, changed the limits on FERS and CSRS TSP
employee contributions by raising the percentage limitation by one
percent each year until 2006, when the limits were removed altogether.
The maximum TSP employee contribution is now limited only by the
provisions of the Internal Revenue Code.
Catch-up Contributions
The Agency proposes to move the catch-up contribution rules from
paragraph (b) of Sec. 1600.22 to a new section numbered 1600.23.
FERSA provides that an eligible participant (as defined by section
414(v) of the Internal Revenue Code) may make catch-up contributions to
the Thrift Savings Fund to the extent permitted by section 414(v) and
Agency regulations. 5 U.S.C. 8432(a)(3). The Internal Revenue Code
permits eligible participants to make Roth catch-up contributions. The
Agency therefore proposes to allow eligible participants to designate
catch-up contributions as Roth catch-up contributions.
Under section 414(v) of the Internal Revenue Code, catch-up
contributions must be elective deferrals. For reasons explained above,
the Agency does not treat tax-exempt contributions to a traditional
balance as elective deferrals. Therefore, members of the uniformed
services are not permitted to make catch-up contributions to a
traditional balance from tax-exempt pay. However, members of the
uniformed services may make catch-up contributions to a Roth balance
from tax-exempt pay. All catch-up contributions are subject to the
limit described in section 414(v) of the Internal Revenue Code.
A participant may make traditional catch-up contributions and Roth
catch-up contributions during the same year, but the combined total
amount of catch-up contributions of both types cannot exceed the
Internal Revenue Code's catch-up contribution limit. Likewise, a
participant who has both a civilian account and a uniformed services
account may make catch-up contributions to both accounts during the
same year, but the combined total amount of catch-up contributions to
both accounts cannot exceed the Internal Revenue Code's catch-up
contribution limit.
Employing Agency Contributions
The Agency proposes to add a new section, 1600.19, to address rules
and procedures related to employing agency contributions. Section
1600.19 provides that a participant's eligibility to receive matching
contributions is the same whether the participant chooses to make
traditional contributions, Roth contributions, or a combination of
both. Section 1600.19 also provides that the Agency will allocate all
employing agency contributions to the tax-deferred balance within a
participant's traditional balance.
For example, suppose a FERS participant elects to contribute 1% of
his or her basic pay as a traditional contribution and 2% of his or her
basic pay as a Roth contribution. The employing agency must contribute
3% of that employee's basic pay to the employee's tax-deferred balance
as a matching contribution. Because the employee is a FERS participant,
the employing agency must also contribute Agency Automatic (1%)
Contributions to the employee's tax-deferred balance
[[Page 6506]]
whether or not he or she continues to make employee contributions.
Transfers and Rollovers Into the TSP
The Agency proposes to amend Sec. 1690.1 to add a definition for
the term ``trustee-to-trustee transfer'' (or ``transfer''). A trustee-
to-trustee transfer is a payment of an eligible rollover distribution
directly from one eligible employer plan, traditional IRA, or Roth IRA
to another eligible employer plan, traditional IRA, or Roth IRA at the
participant's request.\2\
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\2\ The term ``trustee-to-trustee transfer,'' as it is used in
the Agency's regulations, is synonymous with the term ``direct
rollover'' as that term is used in 26 CFR 1.401(a)(31)-1.
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Section 1600.32 provides two methods for transferring an eligible
rollover distribution into the TSP: (1) Trustee-to-trustee transfer
(i.e., direct rollover), and (2) rollover by the participant within 60
days of receipt. The Agency proposes to revise Sec. 1600.32 by
redesignating it as Sec. 1600.31 and by providing the conditions under
which the Agency will accept a transfer consisting of Roth money.
Specifically, the Agency must receive (1) a statement from the plan
administrator indicating the first year of the participant's 5 year
Roth non-exclusion period (as defined by 26 U.S.C. 402A(d)(2)(B)) under
the distributing plan, and (2) either the portion of the transfer
amount that represents Roth contributions (i.e., tax basis) or a
statement that the entire amount of the transfer is a qualified Roth
distribution (as defined by 26 U.S.C. 402A(d)(2)(A)). This requirement
is necessary to enable the TSP to determine whether the earnings
portion of any subsequent distribution from the participant's Roth
balance may be received tax-free.
The Agency also proposes to revise Sec. 1600.32 to provide that
the TSP will not accept Roth money that is rolled over by a participant
after the participant has received the distribution. A rollover by the
participant in lieu of a transfer would result in several disadvantages
to the participant. First, when a participant does a rollover after he
or she receives a distribution of Roth money in lieu of doing a
transfer, the first taxable year in which the participant made a Roth
contribution to the distributing plan does not carry over to the TSP
for purposes of determining whether the earnings portion of a
subsequent distribution from the participant's Roth balance may be
received tax-free. See 26 CFR 1.402A-1, Q&A-5(c). Second, the Internal
Revenue Service prohibits participants from rolling over any nontaxable
portion of a distribution from a designated Roth account (i.e., a Roth
401(k), Roth 403(b), or Roth 457(b) account) after the participant has
received the distribution. See 26 CFR 1.402A-1, Q&A-5(a). For these
reasons, the TSP will accept Roth money only if the TSP receives the
money via trustee-to-trustee transfer (i.e., direct rollover).
FERSA provides that the maximum amount permitted to be transferred
to the Thrift Savings Fund shall not exceed the amount which would
otherwise have been included in the participant's gross income for
Federal income tax purposes. See 5 U.S.C. 8432(j)(2). In accordance
with FERSA, Sec. 1600.31 prohibits the transfer of after-tax or tax-
exempt money into the TSP. The Agency proposes to redesignate Sec.
1600.31 as Sec. 1600.30 and revise paragraph (c)(1)(vi) of
redesignated Sec. 1600.30 to clarify that FERSA's prohibition against
transferring after-tax money or tax-exempt money into the TSP does not
apply to Roth money. Although FERSA's prohibition against transferring
after-tax money or tax-exempt money into the TSP does not apply to Roth
money, the Internal Revenue Code prohibits the transfer of Roth money
from a Roth IRA to the TSP Roth balance. Therefore, the TSP will only
accept Roth money if it is transferred from a designated Roth account
(i.e., a Roth 401(k) account, Roth 403(b) account, or Roth 457(b)
account).
In summary, the Agency will not accept a rollover of Roth money
distributed from any plan or IRA after the participant has received the
money. The Agency cannot accept Roth money that is transferred from a
Roth IRA. The Agency will, however, accept Roth money that is
transferred from a designated Roth account (i.e., a Roth 401(k)
account, Roth 403(b) account, or Roth 457(b) account).
Automatic Enrollment Program
Section 1600.34 currently provides that all newly hired Federal
employees eligible to participate in the TSP (and Federal employees
rehired after a separation in service of 31 or more calendar days and
eligible to participate in the TSP) will automatically have 3% of their
basic pay contributed to the TSP. These default employee contributions
will be made unless the employee elects not to contribute or to
contribute at some other level before the end of the employee's first
pay period. The introduction of Roth contributions makes it necessary
to establish whether default employee contributions are traditional
contributions or Roth contributions. Accordingly, the Agency proposes
to amend Sec. 1600.34 to provide that all default employee
contributions shall be contributed to the employee's traditional
balance.
Section 1600.34 also currently provides that an employee can opt
out of automatic enrollment and/or terminate default employee
contributions by submitting a contribution election. Under the proposed
revision to Sec. 1600.11, a contribution election includes an election
to change, add, or terminate any type of contribution. For consistency,
the Agency also proposes to amend Sec. 1600.34 to provide that an
employee can opt out of automatic enrollment and/or terminate default
employee contributions by submitting an election to make Roth
contributions. A participant can opt out of automatic enrollment or
terminate default employee contributions by submitting an election to
make Roth contributions even if the election does not result in a
change to the employee's total contribution percentage or amount (e.g.,
a participant elects to contribute 3% of his or her basic pay as Roth
contributions and thus terminates all traditional contributions).
Uniformed Services Accounts
The Agency proposes to eliminate Part 1604 of the Agency's
regulations. Part 1604 currently contains rules that are uniquely
applicable to uniformed services accounts. However, Part 1604 also
contains some redundant rules and some rules not uniquely applicable to
uniformed services accounts. In addition, the Agency's regulations have
evolved such that other parts also contain rules that are uniquely
applicable to uniformed services accounts. For this reason, the Agency
proposes to eliminate Part 1604 by deleting redundant provisions and
relocating the remaining provisions as follows:
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Deleted part 1604 provision (5 CFR) Redundant provision (5 CFR)
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1604.5(a)(2).............................. 1655.6(c)
1604.6(a)................................. 1605.11
1604.7(b)................................. Part 1650, Subpart G
1604.9(a)................................. 1653.2(a)(1)(iii)
1604.10(a)(2)............................. 1655.4
1604.10(a)(3)............................. 1655.6(c)
1604.10(b)................................ 1655.13(a)(3)
1604.10(c)................................ 1655.16(b)
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[[Page 6507]]
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Relocated part 1604 provision (5 CFR) New location (5 CFR)
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1604.2.................................... 1690.1
1604.3.................................... 1600.12(e)
1604.4(a)(first two sentences)............ 1600.12(e)
1604.4(b)................................. 1600.19(b)
1604.5(a)(first two sentences)............ 1600.18
1604.5(a)(1).............................. 1600.22(c)
1604.5(b)................................. 1600.33
1604.6(b)................................. 1605.11(d)
1604.7(a)................................. 1650.2(g)
1604.7(c)................................. 1650.2(h)
1604.8.................................... 1651.14(a)
1604.9(b)................................. 1653.5(d)
1604.9(c)................................. 1653.5(m)
1604.9(d)................................. 1653.5(n)
1604.10(a)(1)............................. 1655.10(d)
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Error Correction
In Sec. 1605.1, the Agency proposes to add definitions for the
terms ``recharacterization'' and ``redesignation.'' Recharacterization
is the process of changing a contribution erroneously submitted by an
employing agency as a tax-deferred contribution to a tax-exempt
contribution or vice versa. Redesignation is the process of changing a
contribution erroneously submitted by an employing agency as a
traditional contribution to a Roth contribution or vice versa. The
Agency also proposes to set forth the rules and procedures for
redesignation and recharacterization in a new section numbered 1605.17.
The term ``recharacterization'' is not synonymous with that term as
it is used in regulations or guidance published by the Internal Revenue
Service.\3\ The Agency uses ``recharacterization'' and
``redesignation'' to refer methods of error correction only. That is, a
TSP contribution cannot be recharacterized or redesignated at the
participant's request. Once a contribution has been made to the
participant's account, it cannot be recharacterized or redesignated
unless the employing agency erred in its submission. Therefore, a
participant cannot elect to retroactively change the tax
characteristics of contributions that have already been made. See 26
CFR 1.401(k)-1(f)(i).
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\3\ Under regulations published by the Internal Revenue Service,
an IRA owner may choose to ``recharacterize'' certain contributions
(i.e., treat a contribution made to one type of IRA as made to a
different type of IRA) for a taxable year. 26 CFR 1.408A-5.
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The Agency also proposes to revise Sec. 1605.12 to provide that
positive earnings on an erroneous contribution to a participant's Roth
balance will be moved to the participant's traditional balance when the
error is corrected. If the Agency were to permit earnings attributable
to an erroneous contribution to remain in the Roth balance when the
contribution should have been to the participant's traditional balance,
the Agency would arguably permit a transfer of value from the
participant's traditional balance to the participant's Roth balance.
The Internal Revenue Service prohibits any transaction or accounting
method involving a participant's Roth balance and any other balance
that has the effect of directly or indirectly transferring value from
the other balance into the Roth balance. See 26 CFR 1.402A-1, Q&A-13.
In Sec. 1605.11, the Agency proposes to amend paragraph (c)(1) to
provide that the schedule of makeup contributions elected by the
participant must establish the type of contribution (i.e., traditional,
Roth, or both) to be made each pay period over the duration of the
schedule. The Agency also proposes to add paragraph (c)(12) to provide
that a participant cannot contribute a makeup contribution with an ``as
of '' date occurring prior to [Roth implementation date] to his or her
Roth balance. If the ``as of '' date of a late or makeup Roth
contribution is earlier than the existing date of a participant's first
Roth contribution, the Agency will adjust the start date of the
participant's 5 year non-exclusion period (as defined by 26 U.S.C.
402A(d)(2)(B) accordingly.
Transfers From the TSP
The Agency proposes to revise Sec. Sec. 1650.2, 1650.23, 1651.14,
1653.3, and 1653.5 to add Roth IRAs to the types of retirement savings
vehicles to which a participant, beneficiary, or alternate payee might
choose to transfer or roll over a TSP distribution. The Agency also
proposes to add a new section, 1650.25, to address rules and procedures
pertaining to transfers from the TSP.
Proposed Sec. 1650.25 permits a participant to elect to transfer
an eligible rollover distribution consisting of funds from his or her
traditional balance to a single eligible employer plan or IRA and funds
from his or her Roth balance to another eligible employer plan or IRA.
The Agency will also allow a participant to elect to transfer the
traditional and Roth portions of a payment to the same plan or IRA but,
for each type of balance, the election must be made separately and each
type of balance will be transferred separately. The Agency will not
transfer portions of a participant's traditional balance to two
different eligible employer plans and/or IRAs or portions of a
participant's Roth balance to two different eligible employer plans
and/or IRAs.
Paragraph (c) of Sec. 1650.25 requires the TSP to inform the plan
administrator or trustee of the plan or Roth IRA receiving a
distribution from a Roth TSP balance of (1) the start date of the
participant's Roth 5 year non-exclusion period or the date of the
participant's first Roth contribution, and (2) the portion of the
distribution that represents Roth contributions. If a participant
elects not to transfer a distribution from his or her Roth balance, the
Agency will inform the participant of the amount of the distribution
that represents Roth contributions.
Paragraph (e) of Sec. 1650.25 clarifies that a participant may
transfer a distribution from the TSP to another eligible employer plan
or to an IRA only to the extent the transfer is permitted by the
Internal Revenue Code.
Pro Rata Distributions
The Agency proposes to amend its regulations to provide that all
distributions (including loans, death benefit distributions, court-
ordered payments, and required minimum distributions) from the TSP will
be disbursed pro rata from a participant's traditional and Roth
balance. To allow participants to designate the source of their
distributions would require significant record keeping system
modifications that would delay the availability of Roth contributions.
The Agency intends to revisit this distribution policy three to five
years after the Roth contribution feature becomes available.
Internal Revenue Code section 72 precludes the TSP from allocating
the portion of an account balance that has already been taxed to a
distribution in a manner that is other than pro rata. Moreover, the
Agency is required to treat any distribution from a Roth balance as
consisting proportionately of contributions and proportionately of
earnings. See 26 CFR 1.402A-1, Q&A-7. The Agency therefore proposes to
amend its regulations to require any distribution (including loans,
death benefit distributions, court-ordered payments, and required
minimum distributions) from a traditional balance to be pro rated
between the tax-deferred balance and tax-exempt contributions (if any).
In addition, any distribution (including loans, death benefit
distributions, court-ordered payments, and required minimum
distributions) from a Roth balance must be pro rated between
contributions in the Roth balance and earnings in the Roth balance.
[[Page 6508]]
Annuities
The Internal Revenue Service prohibits any transaction involving a
participant's Roth balance and any other balances that would have the
effect of directly or indirectly transferring value from the other
balance(s) into the Roth balance. 26 CFR 1.402A-1, Q&A-13. The Internal
Revenue Service has noted that it may be difficult for a single annuity
contract to have guarantees that apply to both Roth and non-Roth
balances without the potential for a prohibited transfer of value
between the balances. See 72 FR 21107 (third column). Accordingly, the
Agency proposes to amend Sec. 1650.14 to prohibit the purchase of one
annuity contract with both the traditional portion and the Roth portion
of a withdrawal. If a participant who has a Roth balance and a
traditional balance desires to purchase an annuity, he or she must
purchase two separate contracts; one with the traditional balance and
one with the Roth balance.
Section 1650.14 currently requires a minimum amount of $3,500 to
purchase an annuity. The Agency proposes to amend Sec. 1650.14 to
provide that the $3,500 minimum threshold applies to each annuity
purchased. If a participant who has a Roth balance elects to use 100%
of a withdrawal to purchase life annuities and both the traditional
balance and the Roth balance are below $3,500, the TSP will reject the
participant's withdrawal request. If only one balance is below $3,500,
then the TSP will pay that balance to the participant in a single
payment and use the balance that is $3,500 or above to purchase an
annuity.
If a participant who has a Roth balance makes a mixed withdrawal
election and both the traditional balance and the Roth balance are
below $3,500, the TSP will reject the withdrawal request. If only one
balance is below $3,500, then the TSP will pro rate that balance among
the participant's other elected withdrawal options and will use the
balance that is $3,500 or above to purchase an annuity.
Section 1650.14 currently allows a participant to select from
several types of annuities: (1) Single life, (2) joint life of the
participant and spouse, and (3) joint life of the participant and a
person with an insurable interest in the participant. The Agency
proposes to amend Sec. 1650.14 to provide that, if a participant is
required to purchase two separate annuities, the participant's
withdrawal election among the types of annuities and any available
options and features, will apply to both annuities purchased. A
participant cannot elect more than one type of annuity per account.
Death Benefits
The Agency proposes to amend Sec. 1651.3 to provide that a
beneficiary designation form is not valid if it attempts to designate
beneficiaries for the participant's traditional balance and the
participant's Roth balance separately. The Agency also proposes to
amend Sec. 1651.17 to provide that a valid disclaimer cannot specify
which balance shall be disclaimed.
Court Orders
A TSP participant's account balance cannot be assigned or alienated
and is not subject to execution, levy, attachment, garnishment, or
other legal process except as provided for in 5 U.S.C. 8437(e)(3).
Section 8437(e)(3) provides that a participant's account balance shall
be subject to an obligation of the Executive Director to make a payment
to another person under a domestic relations court order described in
section 8467.
A domestic relations court order is enforceable against the TSP
only if it is a ``qualifying retirement benefits court order'' or
``qualifying legal process'' as defined by 5 CFR 1653. A retirement
benefits court order or legal process is qualifying only if it
satisfies the requirements and conditions set forth in 5 CFR 1653.2 or
5 CFR 1653.12, respectively. The Agency proposes to amend Sec. Sec.
1653.2 and 1653.12 to provide that a retirement benefits court order or
legal process is not qualifying if it purports to designate the TSP
Fund, source of contributions, or balance (e.g. traditional, Roth, or
tax-exempt) from which the payment or portions of the payment shall be
made.
Loans
The Agency proposes to amend Sec. 1655.9 to provide that the TSP
will credit loan payments to a participant's traditional and Roth
balances in the same proportion that the loan was distributed from the
participant's account. This requirement is necessary to ensure that the
loan repayment requirements under Internal Revenue Code section
72(p)(2)(C) (i.e., at least quarterly amortization of principal and
interest) are satisfied separately with respect to the Roth balance.
Regulatory Flexibility Act
I certify that this regulation will not have a significant economic
impact on a substantial number of small entities. This regulation will
affect Federal employees and members of the uniformed services who
participate in the Thrift Savings Plan, which is a Federal defined
contribution retirement savings plan created under the Federal
Employees' Retirement System Act of 1986 (FERSA), Public Law 99-335,
100 Stat. 514, and which is administered by the Agency.
Paperwork Reduction Act
I certify that these regulations do not require additional
reporting under the criteria of the Paperwork Reduction Act.
Unfunded Mandates Reform Act of 1995
Pursuant to the Unfunded Mandates Reform Act of 1995, 2 U.S.C. 602,
632, 653, 1501-1571, the effects of this regulation on state, local,
and tribal governments and the private sector have been assessed. This
regulation will not compel the expenditure in any one year of $100
million or more by state, local, and tribal governments, in the
aggregate, or by the private sector. Therefore, a statement under Sec.
1532 is not required.
List of Subjects
5 CFR Part 1600
Government employees, Pensions, Retirement.
5 CFR Part 1601
Government employees, Pensions, Retirement.
5 CFR Part 1604
Military personnel, Pensions, Retirement.
5 CFR Part 1605
Claims, Government employees, Pensions, Retirement.
5 CFR Part 1650
Alimony, Claims, Government employees, Pensions, Retirement.
5 CFR Part 1651
Claims, Government employees, Pensions, Retirement.
5 CFR Part 1653
Alimony, Child support, Claims, Government employees, Pensions,
Retirement.
5 CFR Part 1655
Credit, Government employees, Pensions, Retirement.
5 CFR Part 1690
Government employees, Pensions, Retirement.
Gregory T. Long,
Executive Director,
Federal Retirement Thrift Investment Board.
[[Page 6509]]
For the reasons stated in the preamble, the Agency proposes to
amend 5 CFR chapter VI as follows:
PART 1600--EMPLOYEE CONTRIBUTION ELECTIONS, CONTRIBUTION
ALLOCATIONS, AND AUTOMATIC ENROLLMENT PROGRAM
1. Revise the authority citation for part 1600 to read as follows:
Authority: 5 U.S.C. 8351, 8432(a), 8432(b), 8432(c), 8432(j),
8432d, 8474(b)(5) and (c)(1).
2. Amend Sec. 1600.11 by revising paragraphs (a)(2) and (3) and
adding paragraph (a)(4) to read as follows:
Sec. 1600.11 Types of elections.
(a) * * *
(2) To change the amount of employee contributions;
(3) To change the type of employee contributions (traditional or
Roth); or
(4) To terminate employee contributions.
* * * * *
4. Amend Sec. 1600.12 by adding paragraph (e) to read as follows:
Sec. 1600.12 Contribution elections.
* * * * *
(e) A uniformed service member may elect to contribute sums to the
TSP from basic pay and special or incentive pay (including bonuses).
However, in order to contribute to the TSP from special or incentive
pay (including bonuses), the uniformed service member must also elect
to contribute to the TSP from basic pay. A uniformed service member may
elect to contribute from special pay or incentive pay (including
bonuses) in anticipation of receiving such pay (that is, he or she does
not have to be receiving the special or incentive pay (including
bonuses) when the contribution election is made); those elections will
take effect when the uniformed service member receives the special or
incentive pay (including bonuses).
Sec. 1600.13 [Removed]
5. In Subpart B, remove Sec. 1600.13.
Sec. 1600.14 [Redesignated as Sec. 1600.13]
6. In Subpart B, redesignate Sec. 1600.14 as Sec. 1600.13.
7. In Subpart C, add Sec. 1600.18 to read as follows:
Sec. 1600.18 Separate service member and civilian contributions.
The TSP maintains uniformed services accounts separately from
civilian accounts. Therefore, a participant who has made contributions
as a uniformed service member and as a civilian employee will have two
TSP accounts: a uniformed services account and a civilian account.
8. In Subpart C, add Sec. 1600.19 to read as follows:
Sec. 1600.19 Employing agency contributions.
(a) Agency Automatic (1%) Contributions. Each pay period, any
agency that employs an individual covered by FERS must make a
contribution to that employee's tax-deferred balance for the benefit of
the individual equal to 1% of the basic pay paid to such employee for
service performed during that pay period. The employing agency must
make Agency Automatic (1%) Contributions without regard to whether the
employee elects to make employee contributions.
(b) Agency Matching Contributions. (1) Any agency that employs an
individual covered by FERS (or any service that employs an individual
who has an agreement described in 37 U.S.C. 211(d)) must make a
contribution to the employee's tax-deferred balance for the benefit of
the employee equal to the sum of:
(i) The amount of the employee's contribution that does not exceed
3% of the employee's basic pay for such pay period; and
(ii) One-half of such portion of the amount of the employee's
contributions that exceeds 3% but does not exceed 5% of the employee's
basic pay for such period.
(2) A uniformed service member who receives matching contributions
under 37 U.S.C. 211(d) is not entitled to matching contributions for
contributions deducted from special or incentive pay (including
bonuses).
(c) Timing of employing agency contributions. An employee appointed
or reappointed to a position covered by FERS is immediately eligible to
receive employing agency contributions.
9. In Subpart C, add Sec. 1600.20 to read as follows:
Sec. 1600.20 Types of employee contributions.
(a) Traditional contributions. A participant may make traditional
contributions.
(b) Roth contributions. A participant may make Roth contributions
in addition to or in lieu of traditional contributions.
(c) Contributions from tax-exempt pay. A uniformed service member
who receives pay which is exempt from taxation under 26 U.S.C. 112 will
have contributions deducted from such pay and made to his or her
traditional or Roth balance in accordance with an election made under
paragraph (a) or (b) of this section.
10. Revise Sec. 1600.21 to read as follows:
Sec. 1600.21 Contributions in whole percentages or whole dollar
amounts.
(a) Civilian employees may elect to contribute a percentage of
basic pay or a dollar amount, subject to the limits described in Sec.
1600.22. The election must be expressed in whole percentages or whole
dollar amounts. A participant may contribute a percentage for one type
of contribution and a dollar amount for another type of contribution.
If a participant elects to contribute a dollar amount to his or her
traditional balance and a dollar amount to his or her Roth balance, but
the total dollar amount elected is less than the amount available to be
deducted from the participant's basic pay, the employing agency will
deduct traditional contributions first and Roth contributions second.
(b) Uniformed services members may elect to contribute a percentage
of basic pay and special or incentive pay (including bonus pay) subject
to the limits described in Sec. 1600.22. The election must be
expressed in a whole percentage for each type of contribution.
11. Revise Sec. 1600.22 to read as follows:
Sec. 1600.22 Maximum employee contributions.
A participant's employee contributions are subject to the following
limitations:
(a) The maximum employee contribution will be limited only by the
provisions of the Internal Revenue Code (26 U.S.C.).
(b) A participant may make traditional contributions and Roth
contributions during the same year, but the combined total amount of
the participant's tax-deferred employee contributions and Roth
contributions cannot exceed the applicable Internal Revenue Code
elective deferral limit for the year.
(c) A participant who has both a civilian and a uniformed services
account can make employee contributions to both accounts, but the
combined total amount of the participant's tax-deferred employee
contributions and Roth contributions made to both accounts cannot
exceed the Internal Revenue Code elective deferral limit for the year.
12. In Subpart C, add Sec. 1600.23 to read as follows:
Sec. 1600.23 Catch-up contributions.
(a) A participant may make traditional catch-up contributions or
Roth catch-up contributions from basic pay at any time during the
calendar year if he or she:
[[Page 6510]]
(1) Is at least age 50 by the end of the calendar year;
(2) Is making employee contributions at a rate that will result in
the participant making the maximum employee contributions permitted
under Sec. 1600.22; and
(3) Does not exceed the annual limit on catch-up contributions
contained in section 414(v) of the Internal Revenue Code.
(b) An election to make catch-up contributions must be made using a
Catch-Up Contribution Election form (or an electronic substitute) and
will be valid only through the end of the calendar year in which the
election is made. An election to make catch-up contributions will be
separate from the participant's regular contribution election. The
election must be expressed in whole dollar amounts.
(c) A participant may make traditional catch-up contributions and
Roth catch-up contributions during the same year, but the combined
total amount of catch-up contributions of both types cannot exceed the
applicable Internal Revenue Code catch-up contribution limit for the
year.
(d) A participant who has both a civilian account and a uniformed
services account may make catch-up contributions to both accounts, but
the combined total amount of catch-up contributions to both accounts
cannot exceed the Internal Revenue Code catch-up contribution limit for
the year.
(e) A participant cannot make catch-up contributions to his or her
traditional balance from pay which is exempt from taxation under 26
U.S.C. 112.
(f) A participant may make catch-up contributions to his or her
Roth balance from pay which is exempt from taxation under 26 U.S.C.
112.
(g) A participant cannot make catch-up contributions from special
or incentive pay (including bonus pay).
(h) Catch-up contributions are not eligible for matching
contributions.
Sec. 1600.31 [Redesignated as Sec. 1600.30]
13. In subpart D, redesignate Sec. 1600.31 as Sec. 1600.30 and
revise paragraph (a) and add paragraphs (c) and (d) to read as follows:
Sec. 1600.30 Accounts eligible for transfer or rollover to the TSP.
(a) A participant who has an open TSP account and is entitled to
receive (or receives) an eligible rollover distribution, within the
meaning of I.R.C. section 402(c)(4) (26 U.S.C. 402(c)(4)), from an
eligible employer plan or a rollover contribution, within the meaning
of I.R.C. section 408(d)(3) (26 U.S.C. 408(d)(3)), from a traditional
IRA may transfer or roll over that distribution into his or her
existing TSP account in accordance with Sec. 1600.31.
* * * * *
(c) Notwithstanding paragraph (b) of this section, the TSP will
accept Roth funds that are transferred via trustee-to-trustee transfer
from an eligible employer plan that maintains a qualified Roth
contribution program described in section 402A of the Internal Revenue
Code.
(d) The TSP will accept a transfer or rollover only to the extent
the transfer or rollover is permitted by the Internal Revenue Code.
Sec. 1600.32 [Redesignated as Sec. 1600.31]
14. In subpart D, redesignate Sec. 1600.32 as Sec. 1600.31 and
amend it by revising paragraphs (a), (b) introductory text, and (b)(1),
the second sentence in paragraph (b)(2), the first sentence in
paragraph (b)(3), and paragraphs (b)(4) and (c)(1)(vi) to read as
follows:
Sec. 1600.31 Methods for transferring or rolling over eligible
rollover distributions to the TSP.
(a) Trustee-to-trustee transfer. (1) A participant may request that
the administrator or trustee of an eligible employer plan or
traditional IRA transfer any or all of his or her account directly to
the TSP by executing and submitting the appropriate TSP form to the
administrator or trustee. The administrator or trustee must complete
the appropriate section of the form and forward the completed form and
the distribution to the TSP recordkeeper or the Agency must receive
sufficient evidence from which to reasonably conclude that a
contribution is a valid rollover contribution (as defined by 26 CFR
1.401(a)(31)-1, Q&A-14). By way of example, sufficient evidence to
conclude a contribution is a valid rollover contribution includes a
copy of the plan's determination letter, a letter or other statement
from the plan administrator or trustee indicating that it is an
eligible employer plan or traditional IRA, a check indicating that the
contribution is a direct rollover, or a tax notice from the plan to the
participant indicating that the participant could receive a rollover
from the plan.
(2) If the distribution is from a Roth account maintained by an
eligible employer plan, the plan administrator must also provide to the
TSP a statement indicating the first year of the participant's Roth 5
year non-exclusion period under the distributing plan and either:
(i) The portion of the trustee-to-trustee transfer amount that
represents Roth contributions (i.e. basis); or
(ii) A statement that the entire amount of the trustee-to-trustee
transfer is a qualified Roth distribution (as defined by Internal
Revenue Code section 402A(d)(2)).
(b) Rollover by participant. A participant who has already received
a distribution from an eligible employer plan or traditional IRA may
roll over all or part of the distribution into the TSP. However, the
TSP will not accept a rollover by the participant of Roth funds
distributed from an eligible employer plan. A distribution of Roth
funds from an eligible employer plan may be rolled into the TSP by
trustee-to-trustee transfer only. The TSP will accept a rollover by the
participant of tax-deferred amounts if the following requirements and
conditions are satisfied:
(1) The participant must complete the appropriate TSP form.
(2) * * * By way of example, sufficient evidence to conclude a
contribution is a valid rollover contribution includes a copy of the
plan's determination letter, a letter or other statement from the plan
indicating that it is an eligible employer plan or traditional IRA, a
check indicating that the contribution is a direct rollover, or a tax
notice from the plan to the participant indicating that the participant
could receive a rollover from the plan.
(3) The participant must submit the completed TSP form, together
with a certified check, cashier's check, cashier's draft, money order,
treasurer's check from a credit union, or personal check, made out to
the ``Thrift Savings Plan,'' for the entire amount of the rollover. * *
*
(4) The transaction must be completed within 60 days of the
participant's receipt of the distribution from his or her eligible
employer plan or traditional IRA. The transaction is not complete until
the TSP recordkeeper receives the appropriate TSP form, executed by the
participant and administrator, trustee, or custodian, together with the
guaranteed funds for the amount to be rolled over.
(c) * * *
(1) * * *
(vi) If not transferred or rolled over, would be includible in
gross income for the tax year in which the distribution is paid. This
paragraph shall not apply to Roth funds distributed from an eligible
employer plan.
* * * * *
[[Page 6511]]
Sec. 1600.33 [Redesignated as Sec. 1600.32]
15. In subpart D, redesignate Sec. 1600.33 as Sec. 1600.32.
Sec. 1600.32 [Amended]
16. In newly redesignated Sec. 1600.32, in paragraphs (a) through
(c), remove the phrase ``Sec. Sec. 1600.31 and 1600.32'' and add in
its place the phrase ``Sec. Sec. 1600.30 and 1600.31''.
16. In Subpart D, add new Sec. 1600.33 to read as follows:
Sec. 1600.33 Combining uniformed services accounts and civilian
accounts.
Uniformed services TSP account balances and civilian TSP account
balances may be combined (thus producing one account), subject to the
following rules:
(a) An account balance can be combined with another once the TSP is
informed (by the participant's employing agency) that the participant
has separated from Government service.
(b) Tax-exempt contributions may not be transferred from a
uniformed services TSP account to a civilian TSP account.
(c) A traditional balance and a Roth balance cannot be combined.
(d) Funds transferred to the gaining account will be allocated
among the TSP Funds according to the contribution allocation in effect
for the account into which the funds are transferred.
(e) Funds transferred to the gaining account will be treated as
employee contributions and otherwise invested as described at 5 CFR
part 1600.
(f) A uniformed servicemember must obtain the consent of his or her
spouse before combining a uniformed services TSP account balance with a
civilian account that is not subject to FERS spousal rights. A request
for an exception to the spousal consent requirement will be evaluated
under the rules explained in 5 CFR part 1650.
(g) Before the accounts can be combined, any outstanding loans from
the losing account must be closed as described in 5 CFR part 1655.
17. Revise Sec. 1600.34 to read as follows:
Sec. 1600.34 Automatic enrollment program.
(a) All newly hired civilian employees who are eligible to
participate in the Thrift Savings Plan and those civilian employees who
are rehired after a separation in service of 31 or more calendar days
and who are eligible to participate in the TSP will automatically have
3% of their basic pay contributed to the employee's traditional TSP
balance (default employee contribution) unless they elect by the end of
the employee's first pay period (subject to the agency's processing
time frames):
(1) To not contribute;
(2) To contribute at some other level; or
(3) To make Roth contributions in addition to, or in lieu of,
traditional contributions.
(b) After being automatically enrolled, a participant may elect, at
any time, to terminate default employee contributions, change his or
her contribution percentage or amount, or make Roth contributions in
addition to, or in lieu of, traditional contributions.
18. Amend Sec. 1600.37 by revising paragraphs (a) and (b) to read
as follows:
Sec. 1600.37 Employing agency notice.
* * * * *
(a) That default employee contributions equal to 3 percent of the
employee's basic pay will be deducted from the employee's pay and
contributed to the employee's traditional TSP balance on the employee's
behalf if the employee does not make an affirmative contribution
election;
(b) The employee's right to elect to not have default employee
contributions made to the TSP on the employee's behalf, to elect to
have a different percentage or amount of basic pay contributed to the
TSP, or to make Roth contributions;
* * * * *
PART 1601--PARTICIPANTS' CHOICES OF TSP FUNDS
19. Revise the authority citation for part 1601 to read as follows:
Authority: 5 U.S.C. 8351, 8432d, 8438, 8474(b)(5) and (c)(1).
20. Amend Sec. 1601.13 by revising paragraph (a)(5) and paragraph
(c) to read as follows:
Sec. 1601.13 Elections.
(a) * * *
(5) Once a contribution allocation becomes effective, it remains in
effect until it is superseded by a subsequent contribution allocation
or the participant withdraws his or her entire account. If a separated
participant is rehired and had not withdrawn his or her entire TSP
account, the participant's last contribution allocation before
separation from Government service will be effective until a new
allocation is made. If, however, the participant had withdrawn his or
her entire TSP account, then the participant's contributions will be
allocated to the G Fund until a new allocation is made.
* * * * *
(c) Contribution elections. A participant may designate the amount
or type of employee contributions he or she wishes to make to the TSP
or may stop contributions only in accordance with 5 CFR part 1600.
PART 1604--[REMOVED AND RESERVED]
21. Under the authority of 5 U.S.C. 8474(b)(5), remove and reserve
part 1604.
PART 1605--CORRECTION OF ADMINISTRATIVE ERRORS
22. Revise the authority citation for part 1605 to read as follows:
Authority: 5 U.S.C. 8351, 8432a, 8432d, 8474(b)(5) and (c)(1).
Subpart B also issued under section 1043(b) of Pub. L. 104-106, 110
Stat. 186 and Sec. 7202(m)(2) of Pub. L. 101-508, 104 Stat. 1388.
23. Amend Sec. 1605.1(b) as follows:
a. Revise the definition of attributable pay date.
b. Add definitions for recharacterization, recharacterization
record, redesignation, and redesignation record.
The revision and additions read as follows:
Sec. 1605.1 Definitions.
* * * * *
(b) * * *
Attributable pay date means:
(1) The pay date of a contribution that is being redesignated from
traditional to Roth, or vice versa;
(2) In the case of the uniformed services, the pay date of a
contribution that is being recharacterized from tax-deferred to tax-
exempt, or vice versa; or
(3) The pay date of an erroneous contribution for which a negative
adjustment is being made. However, if the erroneous contribution for
which a negative adjustment is being made was a makeup or late
contribution, the attributable pay date is the ``as of'' date of the
erroneous makeup or late contribution.
* * * * *
Recharacterization means the process of changing a contribution
that the employing agency erroneously submitted as a tax-deferred
contribution to a tax-exempt contribution (or vice versa).
Recharacterization is a method of error correction only. It applies
only to the traditional balance of a uniformed services account.
Recharacterization record means a data record submitted by an
employing agency to recharacterize a tax-deferred contribution that the
employing agency erroneously submitted as a tax-exempt contribution (or
vice versa).
[[Page 6512]]
Redesignation means the process of moving a contribution (and its
associated positive earnings) from a participant's traditional balance
to the participant's Roth balance or vice versa in order to correct an
employing agency error that caused the contribution to be submitted to
the wrong balance. Redesignation is a method of error correction only.
A participant cannot request the redesignation of contributions unless
the employing agency made an error in the submission of the
contributions.
Redesignation record means a data record submitted by an employing
agency to redesignate a contribution that the employing agency
erroneously submitted to the wrong balance (traditional or Roth).
24. Amend Sec. 1605.11 by revising paragraph (c)(1) and the second
sentence in paragraph (c)(8), by adding paragraphs (c)(12) and (13),
and by adding paragraph (d) to read as follows:
Sec. 1605.11 Makeup of missed or insufficient contributions.
* * * * *
(c) * * *
(1) The schedule of makeup contributions elected by the participant
must establish the dollar amount of the contributions and the type of
employee contributions (traditional or Roth) to be made each pay period
over the duration of the schedule. The contribution amount per pay
period may vary during the course of the schedule, but the total amount
to be contributed must be established when the schedule is created.
After the schedule is created, a participant may, with the agreement of
his or her agency, elect to change his or her payment amount (e.g., to
accelerate payment) or elect to change the type of employee
contributions (traditional or Roth). The length of the schedule may not
exceed four times the number of pay periods over which the error
occurred.
* * * * *
(8) * * * If a participant separates from Government service, the
participant may elect to accelerate the payment schedule by a lump sum
contribution from his or her final paycheck.
* * * * *
(12) A participant is not eligible to contribute makeup
contributions with an ``as of'' date occurring prior to [Roth
implementation date] to his or her Roth balance.
(13) If the ``as of'' date of a Roth contribution that is submitted
as a makeup contribution is earlier than the participant's existing
Roth initiation date, the TSP will adjust the participant's Roth
initiation date.
(d) Missed bonus contributions. This paragraph (d) applies when an
employing agency fails to implement a contribution election that was
properly submitted by a uniformed service member requesting that a TSP
contribution be deducted from bonus pay. Within 30 days of receiving
the employing agency's acknowledgment of the error, a uniformed service
member may establish a schedule of makeup contributions with his or her
employing agency to replace the missed contribution through future
payroll deductions. These makeup contributions can be made in addition
to any TSP contributions that the uniformed service member is otherwise
entitled to make.
(1) The schedule of makeup contributions may not exceed four times
the number of months it would take for the uniformed service member to
earn basic pay equal to the dollar amount of the missed contribution.
For example, a uniformed service member who earns $29,000 yearly in
basic pay and who missed a $2,500 bonus contribution to the TSP can
establish a schedule of makeup contributions with a maximum duration of
8 months. This is because it takes the uniformed service member 2
months to earn $2,500 in basic pay (at $2,416.67 per month).
(2) At its discretion, an employing agency may set a ceiling on the
length of a schedule of employee makeup contributions. The ceiling may
not, however, be less than twice the number of months it would take for
the uniformed service member to earn basic pay equal to the dollar
amount of the missed contribution.
25. Amend Sec. 1605.12 by revising paragraph (d)(1) as follows:
Sec. 1605.12 Removal of erroneous contributions.
* * * * *
(d) * * *
(1) If, on the posting date, the amount calculated under paragraph
(c) of this section is equal to or greater than the amount of the
proposed negative adjustment, the full amount of the adjustment will be
removed from the participant's account and returned to the employing
agency. Earnings on the erroneous contribution will remain in the
participant's account. However, positive earnings on an erroneous
contribution to the participant's Roth balance will be moved to the
participant's traditional balance;
* * * * *
26. Amend Sec. 1605.14 by revising the first sentence in paragraph
(b)(4) and the first sentence in paragraph (c)(3) to read as follows:
Sec. 1605.14 Misclassified retirement system coverage.
* * * * *
(b) * * *
(4) If the retirement coverage correction is a Federal Employees'
Retirement Coverage Act (FERCCA) correction, the employing agency must
submit makeup employee contributions on late payment records. The
participant is entitled to breakage on contributions from all sources.
* * *
* * * * *
(c) * * *
(3) The TSP will consider a participant to be separated from
Government service for all TSP purposes and the employing agency must
submit an employee data record to reflect separation from Government
service. * * *
* * * * *
27. Amend Sec. 1605.15 by adding paragraph (d) to read as follows:
Sec. 1605.15 Reporting and processing late contributions and late
loan payments.
* * * * *
(d) If the ``as of'' date of a late Roth contribution is earlier
than the participant's existing Roth initiation date, the TSP will
adjust the participant's Roth initiation date.
28. In Subpart B, add Sec. 1605.17 to read as follows:
Sec. 1605.17 Redesignation and recharacterization.
(a) Applicability. This section applies to the redesignation of
contributions which, due to employing agency error, were contributed to
the participant's traditional balance when they should have been
contributed to the participant's Roth balance or were contributed to
the participant's Roth balance when they should have been contributed
to the participant's traditional balance. This section also applies to
the recharacterization of contributions which, due to employing agency
error, were contributed as tax-deferred contributions when they should
have been contributed as tax-exempt contributions (or vice versa). It
is the responsibility of the employing agency to determine whether it
has made an error that entitles a participant to error correction under
this section.
(b) Method of correction. The employing agency must promptly submit
a redesignation record or a recharacterization record in accordance
with this part and the procedures provided to employing agencies by the
Board in bulletins or other guidance.
(c) Processing redesignations and recharacterizations. (1) Upon
receipt of a properly submitted redesignation
[[Page 6513]]
record, the TSP shall treat the erroneously submitted contribution (and
associated positive earnings) as if the contribution had been made to
the correct balance on the date that it was contributed to the wrong
balance. The TSP will adjust the participant's traditional balance and
the participant's Roth balance accordingly. The TSP will also adjust
the participant's Roth initiation date as necessary.
(2) Upon receipt of a properly submitted recharacterization record
or recharacterization request, the TSP will change the tax
characterization of the erroneously characterized contribution.
(3) Agency Automatic (1%) Contributions and matching contributions
cannot be redesignated as Roth contributions or recharacterized as tax-
exempt contributions.
(4) There is no breakage associated with redesignation or
recharacterization actions.
PART 1650--METHODS OF WITHDRAWING FUNDS FROM THE THRIFT SAVINGS
PLAN
29. Revise the authority citation for part 1650 to read as follows:
Authority: 5 U.S.C. 8351, 8432d, 8433, 8434, 8435, 8474(b)(5)
and 8474(c)(1).
30. Amend Sec. 1650.2 by revising the section heading and
paragraphs (f) and (g) and by adding paragraph (h) to read as follows:
Sec. 1650.2 Eligibility and general rules for a TSP withdrawal.
* * * * *
(f) A participant can elect to have any portion of a single or
monthly payment that is not transferred to an eligible employer plan,
traditional IRA, or Roth IRA deposited directly, by electronic funds
transfer (EFT), into a savings or checking account at a financial
institution in the United States.
(g) If a participant has a civilian TSP account and a uniformed
services TSP account, the rules in this part apply to each account
separately. For example, the participant is eligible to make one age-
based in-service withdrawal from each account. A separate withdrawal
request must be made for each account.
(h) All withdrawals will be distributed pro rata from the
participant's traditional and Roth balances. The distribution from the
traditional balance will be further pro rated between the tax-deferred
balance and tax-exempt balance. The distribution from the Roth balance
will be further pro rated between contributions in the Roth balance and
earnings in the Roth balance. In addition, all withdrawals will be
distributed pro rata from all TSP Funds in which the participant's
account is invested. All pro rated amounts will be based on the
balances in each TSP Fund or source of contributions on the day the
withdrawal is processed.
31. Amend Sec. 1650.11 by revising the first sentence in paragraph
(c) to read as follows:
Sec. 1650.11 Withdrawal elections.
* * * * *
(c) If a participant's vested account balance is less than $200
when he or she separates from Government service, the TSP will
automatically pay the balance to the participant at his or her TSP
address of record.* * *
32. Amend Sec. 1650.14 by:
a. Revising paragraph (a);
b. Redesignating existing paragraphs (b) through (d) as paragraphs
(f) through (h);
c. Redesignating existing paragraphs (e) through (g) as (j) through
(l); and
d. Adding new paragraphs (b), (c), (d), (e) and (i).
The revision and additions read as follows:
Sec. 1650.14 Annuities.
(a) A participant electing a full post-employment withdrawal can
use all or a portion of his or her account balance to purchase a life
annuity.
(b) If a participant has a traditional balance and a Roth balance,
the TSP must purchase two separate annuity contracts for the
participant: one from the portion of the withdrawal distributed from
his or her traditional balance and one from the portion of the
withdrawal distributed from his or her Roth balance.
(c) A participant cannot select only one balance (traditional or
Roth) from which to purchase an annuity.
(d) A participant cannot elect to purchase an annuity contract with
less than $3,500.
(1) If a participant who has a traditional balance and a Roth
balance elects to use 100% of his or her withdrawal to purchase a life
annuity and both the traditional balance and the Roth balance are below
$3,500, the TSP will reject the participant's request. If only one
balance is below $3,500, then the TSP will pay that balance to the
participant in a single payment and use the balance that is at least
$3,500 to purchase an annuity in accordance with the participant's
election.
(2) If a participant who has a Roth balance and traditional balance
makes a mixed withdrawal election and both the traditional portion of
the amount designated to purchase an annuity and the Roth portion of
the amount designated to purchase an annuity are below $3,500, the TSP
will reject the withdrawal request. If only one portion is below
$3,500, then the TSP will pro rate that portion among the participant's
other elected withdrawal options and use the portion that is at least
$3,500 to purchase an annuity in accordance with the participant's
election.
(e) The TSP will purchase the annuity from the TSP's annuity vendor
using the participant's entire account balance or the portion
specified, unless an amount must be paid directly to the participant to
satisfy any applicable minimum distribution requirement of the Internal
Revenue Code. In the event that a minimum distribution is required by
section 401(a)(9) of the Internal Revenue Code before the date of the
first annuity payment, the TSP will compute that amount, and pay it
directly to the participant.
* * * * *
(i) If the TSP must purchase two annuity contracts, the type of
annuity, the annuity features, and the joint annuitant (if applicable)
selected by the participant will apply to both annuities purchased. A
participant cannot elect more than one type of annuity by which to
receive a withdrawal, or portion thereof, from any one account.
* * * * *
33. Revise Sec. 1650.23 to read as follows:
Sec. 1650.23 Accounts of less than $200.
Upon receiving information from the employing agency that a
participant has been separated for more than 31 days and that any
outstanding loans have been closed, the TSP record keeper will
distribute the entire amount of his or her account balance if the
account balance is $5.00 or more but less than $200. The TSP will not
pay this amount by EFT. The participant may not elect to leave this
amount in the TSP, nor will the TSP transfer this amount to an eligible
employer plan, traditional IRA, or Roth IRA. However, the participant
may elect to roll over this payment into an eligible employer plan,
traditional IRA, or Roth IRA to the extent the roll over is permitted
by the Internal Revenue Code.
34. Revise Sec. 1650.24 to read as follows:
Sec. 1650.24 How to obtain a post-employment withdrawal.
To request a post-employment withdrawal, a participant must submit
to the TSP record keeper a properly completed paper TSP post-employment
withdrawal request form or use the TSP Web site to initiate a request.
[[Page 6514]]
35. In Subpart C, add Sec. 1650.25 to read as follows:
Sec. 1650.25 Transfers from the TSP.
(a) The TSP will, at the participant's election, transfer all or
any portion of an eligible rollover distribution (as defined by section
402(c)(4) of the Internal Revenue Code) of $200 or more directly to an
eligible employer plan or an IRA.
(b) If a withdrawal includes a payment from a participant's
traditional balance and a payment from the participant's Roth balance,
the TSP will, at the participant's election, transfer all or a portion
of the payment from the traditional balance to a single plan or IRA and
all or a portion of the payment from the Roth balance to another plan
or IRA. The TSP will also allow the traditional and Roth portions of a
payment to be transferred to the same plan or IRA but, for each type of
balance, the election must be made separately by the participant and
each type of balance will be transferred separately. However, the TSP
will not transfer portions of the participant's traditional balance to
two different institutions or portions of the participant's Roth
balance to two different institutions.
(c) If a withdrawal includes an amount from a participant's Roth
balance and the participant elects to transfer that amount to another
eligible employer plan or Roth IRA, the TSP will inform the plan
administrator or trustee of the start date of the participants Roth 5
year non-exclusion period or the participant's Roth initiation date,
and the portion of the distribution that represents Roth contributions.
If a withdrawal includes an amount from a participant's Roth balance
and the participant does not elect to transfer the amount, the TSP will
inform the participant of the portion of the distribution that
represents Roth contributions.
(d) Tax-exempt contributions can be transferred only if the IRA or
plan accepts such funds.
(e) The TSP will transfer distributions only to the extent that the
transfer is permitted by the Internal Revenue Code.
36. Amend Sec. 1650.31 by revising the first sentence in paragraph
(a) and revising paragraph (b) to read as follows:
Sec. 1650.31 Age-based withdrawals.
(a) A participant who has reached age 59\1/2\ and who has not
separated from Government service is eligible to withdraw all or a
portion of his or her vested TSP account balance in a single payment. *
* *
(b) An age-based withdrawal is an eligible rollover distribution,
so a participant may request that the TSP transfer all or a portion of
the withdrawal to a traditional IRA, an eligible employer plan, or a
Roth IRA in accordance with Sec. 1650.25.
* * * * *
37. Amend Sec. 1650.41 by revising the second sentence to read as
follows:
Sec. 1650.41 How to obtain an age-based withdrawal.
* * * A participant's ability to complete an age-based withdrawal
on the Web will depend on his or her retirement system coverage,
marital status, and whether or not all or part of the withdrawal will
be transferred to an eligible employer plan, traditional IRA, or Roth
IRA.
PART 1651--DEATH BENEFITS
38. Revise the authority citation for part 1651 to read as follows:
Authority: 5 U.S.C. 8424(d), 8432d, 8432(j), 8433(e),
8435(c)(2), 8474(b)(5) and 8474(c)(1).
39. Amend Sec. 1651.3 by adding paragraph (c)(8) to read as
follows:
Sec. 1651.3 Designation of beneficiary.
* * * * *
(c) * * *
(8) Not attempt to designate beneficiaries for the participant's
traditional balance and the participant's Roth balance separately.
* * * * *
40. Amend Sec. 1651.14, by:
a. Redesignating paragraphs (d) through (i) as paragraphs (c)(1)
through (c)(6), respectively; and
b. Revising paragraphs (a) through newly redesignated paragraph (c)
introductory text and newly redesignated paragraph (c)(4) to read as
follows:
Sec. 1651.14 How payment is made.
(a) Each beneficiary's death benefit will be disbursed pro rata
from the participant's traditional and Roth balances. The payment from
the traditional balance will be further pro rated between the tax-
deferred balance and tax-exempt balance. The payment from the Roth
balance will be further pro rated between contributions in the Roth
balance and earnings in the Roth balance. In addition, all death
benefits will be disbursed pro rata from all TSP Funds in which the
deceased participant's account is invested. All pro rated amounts will
be based on the balances in each TSP Fund or source of contributions on
the day the disbursement is made. Disbursement will be made separately
for each entitled beneficiary.
(b) Spouse beneficiaries. The TSP will automatically transfer a
surviving spouse's death benefit to a beneficiary participant account
(described in Sec. 1651.19) established in the spouse's name. The TSP
will not maintain a beneficiary participant account if the balance of
the beneficiary participant account is less than $200 on the date the
account is established. The Agency also will not transfer this amount
or pay it by electronic funds transfer. Instead the spouse will receive
an immediate distribution in the form of a check.
(c) Nonspouse beneficiaries. The TSP record keeper will send notice
of pending payment to each beneficiary. Payment will be sent to the
address that is provided on the participant's TSP designation of
beneficiary form unless the TSP receives written notice of a more
recent address. All beneficiaries must provide the TSP record keeper
with a taxpayer identification number; i.e., Social Security number
(SSN), employee identification number (EIN), or individual taxpayer
identification number (ITIN), as appropriate. The following additional
rules apply to payments to nonspouse beneficiaries:
* * * * *
(4) Payment to inherited IRA on behalf of a nonspouse beneficiary.
If payment is to an inherited IRA on behalf of a nonspouse beneficiary,
the check will be made payable to the account. Information pertaining
to the inherited IRA must be submitted by the IRA trustee. A payment to
an inherited IRA will be made only in accordance with the rules set
forth in 5 CFR 1650.25.
* * * * *
41. Amend Sec. 1651.17 by revising paragraphs (c) and (d) to read
as follows:
Sec. 1651.17 Disclaimer of benefits.
* * * * *
(c) Invalid disclaimer. A disclaimer is invalid if it:
(1) Is revocable;
(2) Directs to whom the disclaimed benefit should be paid; or
(3) Specifies which balance (traditional, Roth, or tax-exempt) is
to be disclaimed.
(d) Disclaimer effect. The disclaimed share will be paid as though
the beneficiary predeceased the participant, according to the rules set
forth in Sec. 1651.10. Any part of the death benefit which is not
disclaimed will be paid to the disclaimant pursuant to Sec. 1651.14.
42. Amend Sec. 1651.19 by adding paragraph (c)(3) and revising
paragraph (m)(3) to read as follows:
Sec. 1651.19 Beneficiary participant accounts.
* * * * *
(c) * * *
[[Page 6515]]
(3) The TSP will disburse minimum distributions pro rata from the
beneficiary participant's traditional balance and the beneficiary
participant's Roth balance.
* * * * *
(m) * * *
(3) If a uniformed services beneficiary participant account
contains tax-exempt contributions, any payments or withdrawals from the
account will be distributed pro rata from the tax-deferred balance and
the tax-exempt balance;
* * * * *
PART 1653--COURT ORDERS AND LEGAL PROCESSES AFFECTING THRIFT
SAVINGS PLAN ACCOUNTS
43. Revise the authority citation for part 1653 to read as follows:
Authority: 5 U.S.C. 8432d, 8435, 8436(b), 8437(e), 8439(a)(3),
8467, 8474(b)(5) and 8474(c)(1).
44. Amend Sec. 1653.2 by revising paragraphs (b)(2) and (5),
removing the period and adding ``; and'' to the end of paragraph
(b)(6), and adding paragraph (b)(7) to read as follows:
Sec. 1653.2 Qualifying retirement benefits court orders.
* * * * *
(b) * * *
(2) An order relating to a TSP account that contains only nonvested
money, unless the money will become vested within 30 days of the date
the TSP receives the order if the participant were to remain in
Government service;
* * * * *
(5) An order that does not specify the account to which the order
applies, if the participant has both a civilian TSP account and a
uniformed services TSP account;
* * * * *
(7) An order that designates the TSP Fund, source of contributions,
or balance (e.g. traditional, Roth, or tax-exempt) from which the
payment or portions of the payment shall be made.
45. Amend Sec. 1653.3 by revising paragraph (f)(4)(iv) to read as
follows:
Sec. 1653.3 Processing retirement benefits court orders.
* * * * *
(f) * * *
(4) * * *
(iv) Information and the form needed to transfer the payment to an
eligible employer plan, traditional IRA, or Roth IRA (if the payee is
the current or former spouse of the participant); and
* * * * *
46. Amend Sec. 1653.5 by revising paragraph (a)(1)(i), paragraph
(d), and paragraph (e)(1), and by adding paragraphs (m) and (n) to read
as follows:
Sec. 1653.5 Payment.
(a) * * *
(1) * * *
(i) The payee makes a tax withholding election, requests payment by
EFT, or requests a transfer of all or a portion of the payment to a
traditional IRA, Roth IRA, or eligible employer plan (the TSP decision
letter will provide the forms a payee must use to choose one of these
payment options); and
* * * * *
(d) Payment will be made pro rata from the participant's
traditional and Roth balances. The distribution from the traditional
balance will be further pro rated between the tax-deferred balance and
tax-exempt balance. The payment from the Roth balance will be further
pro rated between contributions in the Roth balance and earnings in the
Roth balance. In addition, all payments will be distributed pro rata
from all TSP Funds in which the participant's account is invested. All
pro rated amounts will be based on the balances in each fund or source
of contributions on the day the disbursement is made. The TSP will not
honor provisions of a court order that require payment to be made from
a specific TSP Fund, source of contributions, or balance.
(e) * * *
(1) If payment is made to the current or former spouse of the
participant, the distribution will be reported to the Internal Revenue
Service (IRS) as income to the payee. If the court order specifies a
third-party mailing address for the payment, the TSP will mail to the
address specified any portion of the payment that is not transferred to
a traditional IRA, Roth IRA, or eligible employer plan.
* * * * *
(m) A payee who is a current or former spouse of the participant
may elect to transfer a court-ordered payment to a traditional IRA,
eligible employer plan, or Roth IRA. Any election permitted by this
paragraph (m) must be made pursuant to the rules described in 5 CFR
1650.25.
(n) If the TSP maintains an account (other than a beneficiary
participant account) for a court order payee who is the current or
former spouse of the participant, the payee can request that the TSP
transfer the court-ordered payment to the payee's TSP account in
accordance with the rules described in 5 CFR 1650.25. However, any pro
rata share attributable to tax-exempt contributions cannot be
transferred; instead it will be paid directly to the payee.
47. Amend Sec. 1653.12 by revising paragraphs (c)(2) by adding
paragraph (c)(6) to read as follows:
Sec. 1653.12 Qualifying legal processes.
* * * * *
(c) * * *
(2) A legal process relating to a TSP account that contains only
nonvested money, unless the money will become vested within 30 days of
the date the TSP receives the order if the participant were to remain
in Government service;
* * * * *
(6) A legal process that designates the specific TSP Fund, source
of contributions, or balance from which the payment or portions of the
payment shall be made.
PART 1655--LOAN PROGRAM
48. Revise the authority citation for part 1655 to read as follows:
Authority: 5 U.S.C. 8432d, 8433(g), 8439(a)(3) and 8474.
49. Amend Sec. 1655.9 by redesignating paragraph (c) as paragraph
(d) and revising it and by adding new paragraph (c) to read as follows:
Sec. 1655.9 Effect of loans on individual account.
* * * * *
(c) The loan principal will be disbursed pro rata from the
participant's traditional and Roth balances. The disbursement from the
traditional balance will be further pro rated between the tax-deferred
balance and tax-exempt balance. The disbursement from the Roth balance
will be further pro rated between contributions in the Roth balance and
earnings in the Roth balance. In addition, all loan disbursements will
be distributed pro rata from all TSP Funds in which the participant's
account is invested. All pro rated amounts will be based on the
balances in each TSP Fund or source of contributions on the day the
disbursement is processed.
(d) Loan payments, including both principal and interest, will be
credited to the participant's individual account. Loan payments will be
credited to the appropriate TSP Fund in accordance with the
participant's most recent contribution allocation. Loan payments will
be credited to the participant's traditional and Roth balances in the
same proportion that the loan was distributed from the participant's
account.
50. Amend Sec. 1655.10 by adding paragraph (d) to read as follows:
[[Page 6516]]
Sec. 1655.10 Loan application process.
* * * * *
(d) If the TSP maintains a uniformed services account and a
civilian account for an individual, a separate loan application must be
made for each account.
51. Amend Sec. 1655.15 by revising paragraph (b) to read as
follows:
Sec. 1655.15 Taxable distributions.
* * * * *
(b) If a taxable distribution occurs in accordance with paragraph
(a) of this section, the Board will notify the participant of the
amount and date of the distribution. The Board will report the
distribution to the Internal Revenue Service as income for the year in
which it occurs.
* * * * *
PART 1690--THRIFT SAVINGS PLAN
52. The authority citation for part 1690 continues to read as
follows:
Authority: 5 U.S.C. 8474.
53. Amend Sec. 1690.1 as follows:
a. Remove the definitions of regular contributions and combat zone
compensation.
b. Revise the definitions of account or individual account, catch-
up contributions, contribution election, employing agency, separation
from Government service, source of contributions, tax-deferred balance,
and tax-exempt balance.
c. Add definitions for bonus contributions, civilian account,
civilian employee, employee contributions, Federal civilian retirement
system, Ready Reserve, Roth 5 year non-exclusion period, Roth balance,
Roth contributions, Roth initiation date, Roth IRA, uniformed service
member, special or incentive pay, tax-deferred contributions, tax-
exempt contributions, traditional balance, traditional contributions,
traditional IRA, trustee-to-trustee transfer, and uniformed services
account.
Sec. 1690.1 Definitions.
As used in this chapter:
Account or individual account means the account established for a
participant in the Thrift Savings Plan under 5 U.S.C. 8439(a). The TSP
offers four types of accounts: civilian participant accounts, uniformed
services accounts, civilian beneficiary participant accounts, and
uniformed services beneficiary participant accounts. Each type of
account may contain a traditional balance, a Roth balance, or both.
* * * * *
Bonus contributions means contributions made by a participant from
a bonus as defined in 37 U.S.C. chapter 5.
* * * * *
Catch-up contributions means TSP contributions from basic pay that
are made by participants age 50 and over, which exceed the elective
deferral limit of 26 U.S.C. 402(g) and meet the requirements of 5 CFR
1600.23.
Civilian account means a TSP account to which contributions have
been made by or on behalf of a civilian employee.
* * * * *
Civilian employee means a TSP participant covered by the Federal
Employees' Retirement System, the Civil Service Retirement System, or
equivalent retirement plan.
* * * * *
Contribution election means a request by an employee to start
contributing to the TSP, to change the amount or type of contributions
(traditional or Roth) made to the TSP each pay period, or to terminate
contributions to the TSP.
* * * * *
Employee contributions means traditional contributions and Roth
contributions. Employee contributions are made at the participant's
election pursuant to Sec. 1600.12 and are deducted from compensation
paid to the employee.
* * * * *
Employing agency means the organization (or the payroll office that
services the organization) that employs an individual eligible to
contribute to the TSP and that has authority to make personnel
compensation decisions for the individual. It includes the uniformed
services and their servicing payroll office(s).
* * * * *
Federal civilian retirement system means the Civil Service
Retirement System established by 5 U.S.C. chapter 83, subchapter III,
the Federal Employees' Retirement System established by 5 U.S.C.
chapter 84, or any equivalent Federal civilian retirement system.
* * * * *
Ready Reserve means those members of the uniformed services
described at 10 U.S.C. 10142.
Roth 5 year non-exclusion period means the period of five
consecutive calendar years beginning on the first day of the calendar
year in which the participant's Roth initiation date occurs. It is the
period described in section 402A(d)(2)(B) of the Internal Revenue Code.
Roth balance means the sum of:
(1) Roth contributions and associated earnings; and
(2) Amounts transferred to the TSP from a Roth account maintained
by an eligible employer plans and earnings on those amounts.
Roth contributions means employee contributions made to the
participant's Roth balance which are authorized by 5 U.S.C. 8432d. Roth
contributions may be deducted from taxable pay on an after-tax basis or
from pay exempt from taxation under 26 U.S.C. 112.
Roth initiation date means
(1) The earlier of:
(i) The actual date of a participant's first Roth contribution to
the TSP;
(ii) The ``as of'' date or attributable pay date (as defined in
Sec. 1605.1 of this subchapter) that established the date of the
participant's first Roth contribution to the TSP; or
(iii) The date used, by a plan from which the participant directly
transferred Roth money into the TSP, to measure the participant's Roth
five year non-exclusion period.
(2) If a participant has a civilian account and a uniformed
services account, the Roth initiation date for both accounts will be
the same.
Roth IRA means an individual retirement plan described in Internal
Revenue Code section 408A (26 U.S.C. 408A).
* * * * *
Separation from Government service means generally the cessation of
employment with the Federal Government. For civilian employees it means
termination of employment with the U.S. Postal Service or with any
other employer from a position that is deemed to be Government
employment for purposes of participating in the TSP for 31 or more full
calendar days. For uniformed services members, it means the discharge
from active duty or the Ready Reserve or the transfer to inactive
status or to a retired list pursuant to any provision of title 10 of
the United States Code. The discharge or transfer may not be followed,
before the end of the 31-day period beginning on the day following the
effective date of the discharge, by resumption of active duty, an
appointment to a civilian position covered by the Federal Employees'
Retirement System, the Civil Service Retirement System, or an
equivalent retirement system, or continued service in or affiliation
with the Ready Reserve. Reserve component members serving on full-time
active duty who terminate their active duty status and subsequently
participate in the drilling reserve are said to continue in the Ready
Reserve. Active component members
[[Page 6517]]
who are released from active duty and subsequently participate in the
drilling reserve are said to affiliate with the Ready Reserve.
* * * * *
Source of contributions means traditional contributions, Roth
contributions, Agency Automatic (1%) Contributions, or matching
contributions. All amounts in a participant's account are attributed to
one of these four sources. Catch-up contributions, transfers,
rollovers, and loan payments are included in the traditional
contribution source or the Roth contribution source.
Special or incentive pay means pay payable as special or incentive
pay under 37 U.S.C. chapter 5.
* * * * *
Tax-deferred balance means the sum of:
(1) All contributions, rollovers, and transfers in a participant's
traditional balance that would otherwise be includible in gross income
if paid directly to the participant and earnings on those amounts; and
(ii) Earnings on any tax-exempt contributions in the traditional
balance. The tax-deferred balance does not include tax-exempt
contributions.
Tax-deferred contributions means employee contributions made to a
participant's traditional balance that would otherwise be includible in
gross income if paid directly to the participant.
Tax-exempt balance means the sum of tax-exempt contributions within
a participant's traditional balance. It does not include earnings on
such contributions. Only a traditional balance in a uniformed services
participant account or a uniformed services beneficiary participant
account may contain a tax-exempt balance.
Tax-exempt contributions means employee contributions made to the
participant's traditional balance from pay which is exempt from
taxation by 26 U.S.C. 112. The Federal income tax exclusion at 26
U.S.C. 112 is applicable to compensation for active service during a
month in which a uniformed service member serves in a combat zone. The
term ``tax-exempt contributions'' does not include contributions made
to the participant's Roth balance from pay which is exempt from
taxation by 26 U.S.C. 112.
* * * * *
Traditional balance means the sum of:
(1) Tax-deferred contributions and associated earnings;
(2) Tax-deferred amounts rolled over or transferred into the TSP
and associated earnings;
(3) Tax-exempt contributions and associated earnings;
(4) Matching contributions and associated earnings;
(5) Agency Automatic (1%) Contributions and associated earnings.
Traditional contributions means tax-deferred employee contributions
and tax-exempt employee contributions made to the participant's
traditional balance.
Traditional IRA means an individual retirement account described in
I.R.C. section 408(a) (26 U.S.C. 408(a)) and an individual retirement
annuity described in I.R.C. section 408(b) (26 U.S.C. 408(b)) (other
than an endowment contract).
Trustee-to-trustee transfer or transfer means the payment of an
eligible rollover distribution (as defined in section 402(c)(4) of the
Internal Revenue Code) from an eligible employer plan or IRA directly
to another eligible employer plan or IRA at the participant's request.
* * * * *
Uniformed services account means a TSP account to which
contributions have been made by or on behalf of a member of the
uniformed services.
Uniformed service member means a member of the uniformed services
on active duty or a member of the Ready Reserve in any pay status.
* * * * *
[FR Doc. 2012-2489 Filed 2-7-12; 8:45 am]
BILLING CODE 6760-01-P