[Federal Register Volume 59, Number 248 (Wednesday, December 28, 1994)]
[Unknown Section]
[Page ]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-31651]
[Federal Register: December 28, 1994]
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FEDERAL RETIREMENT THRIFT INVESTMENT BOARD
5 CFR Part 1650
Methods of Withdrawing Funds From the Thrift Savings Plan
AGENCY: Federal Retirement Thrift Investment Board.
ACTION: Proposed rule.
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SUMMARY: The Executive Director of the Federal Retirement Thrift
Investment Board (Board) is publishing new proposed regulations
concerning methods of withdrawing funds from the Thrift Savings Plan
(TSP). These new proposed regulations reflect changes made to
eligibility requirements for the withdrawal of accounts from the Thrift
Savings Plan resulting from the enactment of section 9 of the Federal
Workforce Restructuring Act of 1994. That law provides that all of the
withdrawal methods formerly reserved for persons retiring from
Government employment would become available to all Thrift Savings Plan
participants who separated from Government employment, regardless of
length of service or retirement eligibility at the time of separation.
DATES: Comments must be received on or before January 27, 1995.
ADDRESSES: Comments may be sent to: James B. Petrick, Federal
Retirement Thrift Investment Board, 1250 H Street, NW., Washington, DC
20005.
FOR FURTHER INFORMATION CONTACT:
James B. Petrick, (202) 942-1661.
SUPPLEMENTARY INFORMATION: The TSP was originally established by the
Federal Employees' Retirement System Act of 1986 (FERSA), Public Law
99-335. FERSA set forth provisions, found in subchapter III of chapter
84 of title 5, United States Code, for the administration of the TSP.
Provisions concerning TSP withdrawals were found primarily in sections
8433 and 8434 of title 5. As originally enacted, FERSA conditioned
eligibility for the various withdrawal methods upon eligibility for
basic retirement benefits. Consequently, persons without such
eligibility upon separation from Government employment (generally less
than 5 years of service) were not permitted to leave their accounts in
the TSP and were only permitted to withdraw them by transferring them
to an Individual Retirement Arrangement (IRA) or other eligible
retirement plan. They could not receive a cash payment of their
account. Persons with 5 or more years of service could leave their
accounts in the TSP and had more withdrawal options, but cash payment
options were only available to them when they reached retirement age.
These rules proved confusing to participants and difficult to
administer, requiring, for example, various withdrawal forms depending
upon the participant's retirement eligibility. As a result of Public
Law 103-226, which was enacted on March 30, 1994, all TSP participants
who separate from Government employment will now have the same
withdrawal options available to them. This has simplified the TSP
withdrawal process. Therefore, part 1650 is being revised to reflect
that all participants can choose among any of the available withdrawal
options and can leave their accounts in the TSP after separation.
Interim rules governing TSP withdrawals were originally published
in the Federal Register on August 16, 1987. At the time part 1650 was
originally published, the TSP was just beginning to pay withdrawals and
the Board had very little experience with this program. At present,
however, the TSP has been processing withdrawals for over seven years,
and has developed and finalized many policies in this area. Also, since
the original proposed regulations were issued, several pieces of
legislation have been enacted making significant changes to the TSP
withdrawal program. For example, Public Law 101-335 permitted the TSP
to issue cash payments automatically to any person who separated from
Government employment and whose vested account balance at the time of
payment was $3,500 or less. Therefore, the Board has deemed it
advisable to use the occasion of implementing the changes made by
Public Law 103-226 to reissue the entire part 1650 in proposed form.
In reissuing part 1650, the Board has also decided to reorganize
some of its provisions, to publish some provisions separately, and to
eliminate others. Original subpart G, Spousal Rights, will be retained
in part 1650 as subpart D, but has been issued separately for comment.
A new subpart, dealing with minimum distributions and to be designated
as subpart E, will also be issued separately. The subparts dealing with
court-ordered payments from TSP accounts and death benefits are each
being issued as separate parts in the Code of Federal Regulations.
Experience has shown that each of these areas has complex rules which
are different from those used to process withdrawals. Finally, the
subpart entitled ``Denial of Benefits,'' which was originally published
as subpart K of part 1650, is being eliminated entirely. Experience in
paying withdrawal benefits has shown that there is no need for a formal
``claims'' procedure with respect to those benefits. Participants or
others who wish to question or challenge certain aspects of a TSP
withdrawal are free to do so simply by contacting the TSP Service
Office or the Board. Each case must often be addressed or handled on
its own merits, although, as permitted in Sec. 1650.6, the account can
be ``frozen'' while the matter is under review. The Board currently
sees no merit in having particular procedures which participants must
follow in order to request such a review. Further, participants and
beneficiaries remain free to pursue any claim for benefits in Federal
court pursuant to 5 U.S.C. 8477.
Section by Section Analysis
Subpart A
Subpart A of part 1650 sets forth the general rules affecting a
participant's eligibility to withdraw his or her TSP account.
Section 1650.1 sets forth definitions of terms used in part 1650.
The TSP is a defined contribution retirement plan, similar to a private
sector 401(k) plan, for persons employed by the Federal Government. It
is administered by the Board, an independent Federal agency whithin the
Executive Branch, pursuant to the provisions of FERSA. Thus Sec. 1650.1
provides general definitions for the terms ``Board'', ``TSP,'' and
``Plan.''
Participants in the Plan are generally covered under either the
Federal Employees' Retirement System (FERS), established in 1986 along
with the TSP, or the Civil Service Retirement System (CSRS), which was
the previous retirement system for Federal employees. However, some
Federal employees, such as those employed by the State Department, are
covered under separate retirement systems, which are modeled after
either FERS or CSRS. Therefore, definitions of ``FERS'' and ``CSRS`'
are provided which make it clear that these terms also encompass
``equivalent retirement systems'' such as those for State Department
employees.
Definitions are also provided for the terms ``account balance,''
``participant,'' and ``spouse.'' The term ``account balance'' is
defined to mean the nonforfeitable, valued account balance as of the
month-end prior to a withdrawal. Pursuant to 5 U.S.C. 8432(g) and part
1603, Vesting, Agency Automatic (1%) Contributions of persons who
separate with less than three years (or in some cases two years) of
service are forfeited to the TSP prior to withdrawal of an account.
Also, as noted in the discussion of Sec. 1650.7, only the most recent
valued account balance is eligible to be withdrawn. Therefore, it was
deemed preferable to define ``account balance'' to mean the
nonforfeitable (also referred to as ``vested''), valued account balance
rather than to repeat both modifiers each time the term was used. The
term ``participant'' rather than ``employee'' is used to describe
persons having a TSP account, since the withdrawal rules primarily
affect people who have ceased to be ``employed'' but who are still
participating in the Plan. The term ``spouse'' is defined to include
any person to whom the participant is married (as determined under the
laws of the appropriate jurisdiction) on the date the participant signs
a TSP withdrawal form asking him or her to state marital status. This
definition recognizes that the TSP does not have information to
determine marital status as of the date of separation or as of the date
of payment. Instead, the TSP must rely upon the statement of the
participant as to his or her marital status when the participant files
TSP withdrawal forms. These statements are accompanied by a warning
that a false statement is subject to criminal penalties under 18 U.S.C.
1001. The regulation makes it clear that a separated spouse is treated
as a spouse under these rules.
Section 1650.2 states the general rule that, as a result of Public
Law 103-226, all TSP participants who separate from Government
employment have the right to choose any of the TSP withdrawal options.
Those withdrawal options are set forth in subpart B. However, the
availability of those withdrawal options may be affected by two other
sets of rules. First, the spousal rights provisions of FERSA restrict
the withdrawal options of married participants covered by the Federal
Employees' Retirement Systems (FERS participants) to the 50 percent
joint life annuity with level payments and no cash refund feature
unless the spouse waives his or her right to that option. Married
participants covered by the Civil Service Retirement (CSRS
participants) are not restricted in their choice of withdrawal options,
but the law requires that their spouses be notified of the withdrawal
method the participant chooses. Proposed rules implementing the changes
to spousal rights resulting from Public Law 103-226 were published in
the Federal Register on September 13, 1994 (59 FR 46934). The Board
intends to publish the final version of those rules as subpart D of
part 1650.
Second, the rules relating to required minimum distributions, which
are found in section 401(a)(9) of the Internal Revenue Code, require
tax-qualified government retirement plans, including the TSP, to begin
making distributions to participants by April 1 of the year following
the year they become age 70\1/2\ or the year they separate from
Government employment, whichever is later. These rules also require
that, in certain circumstances, minimum distribution amounts be paid
directly to the participant rather than transferred to an IRA or other
eligible retirement plan or used to purchase an annuity. Consequently,
the minimum distribution rules can limit the ability of some
participants to have their entire accounts paid according to the
withdrawal method they choose under these rules. The Board intends to
publish separate rules, adding subpart E to part 1650, describing the
effect of minimum distributions on TSP accounts. Reference to the
minimum distribution rules is required here because they limit the
participant's ability to withdraw the entire account according to his
or her choice. Until regulations are issued adding subpart E to part
1650, those rules will simply be referred to as ``minimum distribution
requirements.''
Section 1650.3 describes what constitutes a ``separation from
Government employment'' for purposes of determining who is entitled to
withdraw his or her TSP account. Section 8433 of title 5 limits the
ability to withdraw an account from the TSP to persons who have
``separated from Government employment.'' This limitation is in keeping
with the primary purpose of the TSP as a retirement plan under which
contributions and earnings are afforded favorable tax treatment because
they will be used primarily to fund retirement benefits.
Section 1650.3 makes it clear that the term ``separation from
Government employment'' encompasses separation from positions in the
Federal government, the Postal Service, and in organizations that have
employees who by statute are eligible to contribute to the TSP. For
example, certain employees of employee organizations and employees
working for a state or local government on an Intergovernmental
Personnel Act (IPA) assignment are eligible to participate in the TSP
under the provisions of Public Law 100-238. (See 5 CFR part 1620).
Under these regulations, separation from such positions will be
considered a separation from Government employment (unless the
participant returns to his or her position with the Federal
Government).
Section 1650.3 also makes it clear that the Board interprets the
term ``separation'' to mean separation from Government employment (as
described above) for at least 31 full calendar days. Because Congress
limited access to the often significant amounts of money in TSP
accounts to persons who had separated from Government employment, the
Board determined that persons transferring between Government jobs (for
example) should not be able to gain access to their TSP accounts after
a short break in service. Thus the regulation states that a break in
service must be at least 31 full calendar days. Similar rules have been
adopted by Congress to limit access to refunds under the FERS and CSRS
basic annuity programs.
Section 1650.4 sets forth rules for dealing with employees who are
rehired by the Government before they withdraw their TSP accounts.
Because the Board has decided to define ``separation'' to mean a break
in service of more than 31 full calendar days, it is necessary to
establish procedures to ensure that participants who are withdrawing
have the requisite break in service. Therefore, Sec. 1650.4(a)
describes the statements that participants must make concerning their
employment status and the length of their expected break in service in
order to be able to withdraw their TSP accounts.
This ``self-certifying'' approach was deemed preferable to an
approach requiring the agency immediately to report all rehired
employees. Because rehired employees are not permitted to resume TSP
contributions until the next election period (see 5 U.S.C. 8432(b)),
agencies may not need to report transactions to the TSP concerning
these employees for up to six months after the date of rehire.
Consequently, information concerning the rehired employee would not
otherwise be reported to the TSP promptly or within a consistent
timeframe after the date of rehire. Also, the Board wanted to avoid
imposing upon the employing agencies the administrative burden of
reporting every rehire action to the TSP, when only a few of those
actions would ever affect TSP withdrawals. Because false information
provided by the participant is subject to criminal penalties, self-
certification was deemed a reasonable way to ensure that persons who
have been rehired (or expect to be rehired) within 31 days are
prevented from withdrawing their accounts.
Section 1650.4(b) states the rules for persons who are rehired
after 31 full calendar days but still want to withdraw the portion of
their accounts attributable to the earlier period of employment.
Section 1650.4(b) provides that such a participant can only withdraw
the portion of the account balance attributable to the first period of
employment. The term ``attributable to the first period of employment''
means amounts contributed to the account during the period of
employment to which the separation relates and any earnings on those
amounts as of the date of payment. Amounts contributed after the date
of rehire and earnings on such amounts are excluded.
Section 1650.4(b) also provides that, if the amount in the account
attributable to the first period of employment is more than $3,500, the
participant can withdraw that amount only if he or she submits a valid
withdrawal request form prior to the date the participant is rehired.
As explained above, this requirement is fulfilled by the requirement
that the participant state on the form if he or she has been rehired.
It was not feasible to require that withdrawal actually occur before
the date of rehire, because administrative delays on the part of the
employing agency or the Board might make withdrawal impossible before
then. However, it seemed inappropriate to give rehired participants the
ability to withdraw their funds at any time (perhaps many years) after
they were rehired. Thus, the Board has established the rule that the
withdrawal request must be submitted before the date of rehire.
If, however, the amount in the participant's account attributable
to the first period of employment is $3,500 or less, the participant is
eligible to receive an ``automatic cashout'' under the procedures set
forth in Sec. 1650.17, without submitting any withdrawal forms.
Therefore, the participant cannot be required to submit a withdrawal
form prior to rehire in order to receive a withdrawal. For such a
participant, Sec. 1650.4(b) allows the scheduled automatic cashout of
the amount attributable to the first period of employment to proceed,
even if the person has already been rehired (after more than 31 days)
and no forms are submitted.
Section 1650.5 states the rule that a participant cannot withdraw
his or her TSP account until an outstanding loan has either been paid
in full or declared to be a taxable distribution. Under the TSP loan
program (see 5 CFR Part 1655), a participant who separates with an
outstanding loan must repay his or her loan in full within 90 days. If
the participant does not do so, the outstanding loan balance is
declared to be a taxable distribution. The participant can also speed
up the declaration of the taxable distribution by signing a statement
that he or she does not intend to repay the loan. The withdrawal must
be delayed until this process is completed so that, if the participant
pays the loan in full, that amount will be available to be included in
the withdrawal.
Section 1650.6 recognizes that, in certain circumstances, a
withdrawal cannot be paid because a TSP participant's account is
``frozen.'' The most common reason for placing a freeze on an account
is that the Board receives a retirement benefits court order or an
alimony or child support enforcement order. The Board is required by
title 5 to honor the terms of such orders if they meet certain
requirements. The requirements for such orders are discussed in part
1653, which was published in proposed form in the Federal Register on
October 26, 1994 (59 FR 53874). If such orders are found to be
qualifying, the account cannot be paid to the participant until the
interest of the other party (most frequently a spouse or former spouse)
has been determined and paid out. At that point the account can be
``unfrozen'' and the withdrawal can proceed. See 5 CFR 1653.3. This
section also recognizes that the Board may need to place a freeze on an
account for administrative reasons. For example, an employing agency
error may have caused the account to have the wrong address. Until such
an error is corrected, the account should not be paid.
Section 1650.7 discusses the timing of TSP withdrawal payments. The
TSP is a ``monthly valued'' plan. This means that the earnings (either
positive or negative) on a TSP account, and thus the ``value'' of the
account, is determined once a month as of the end of the preceding
month. For the TSP, this determination occurs at approximately mid-
month, although the exact date varies, depending on the availability of
the applicable rates of return. A TSP withdrawal cannot occur until the
valuation process is completed for a given month; otherwise the amount
to be withdrawn cannot be accurately determined. (Since all TSP funds
are held in individual accounts, the amount to be withdrawn must be
determined precisely; if too much or too little is paid, the difference
must be absorbed by all other accounts.) The timing of the withdrawal
payments in a monthly valued plan is also important for determining the
timing of other actions, such as when a withdrawal election can be
changed or canceled (see Sec. 1650.14).
Subpart B of part 1650 describes the basic TSP withdrawal options
which, as noted above, are now available to any TSP participant who is
eligible to withdraw his or her TSP account balance under the rules
stated in subpart A, and subject to the limitations found in the other
rules identified in Sec. 1650.2. The conditions for eligibility
contained in subpart A are not repeated for each withdrawal method
identified in subpart B. Subpart B contains the rules governing the way
each withdrawal option can be exercised (for example, the availability
of certain annuity options to certain participants), as well as the
rules for transferring all or part of certain withdrawal payments,
making deferred withdrawal elections, changing withdrawal elections,
and imposing limits on the date by which a withdrawal choice must be
made.
Section 1650.8 provides that all TSP participants can withdraw
their account balances in a single payment. The term ``lump sum'' is
not used, since that term has a specific meaning for the tax treatment
of the payment, which may or may not be applicable to all payments made
under this method. All or part of the single payment received under
this method can be transferred to an IRA or other eligible retirement
plan in accordance with the rules set forth in Sec. 1650.11.
Section 1650.9 sets forth the types of monthly payment options a
participant can choose. Section 8433 of title 5 requires that the Board
offer a participant the opportunity to receive his or her account in
``one or more substantially equal payments to be made not less
frequently than annually. * * *'' Under this provision, the Board has
established three options for calculating monthly payments. The options
provide only for monthly payments because this was considered to be
consistent with the presumed intent of the law to provide participants
with the ability to receive a regular stream of retirement income from
their TSP accounts. Under the first option, described in
Sec. 1650.9(a)(1), a participant can choose monthly payments in a fixed
dollar amount of his or her choice, with a minimum monthly payment
amount of $25. The minimum amount avoids the administrative expense of
processing small monthly payments. Under this option, which allows the
participant to receive a predictable monthly income, payments continue
until the entire account is paid out. When the account decreases to a
point that the amount remaining is less than two payments, the
remaining amount is paid out in a single payment. Therefore, the last
payment may be larger than the chosen amount.
The second option, described in Sec. 1650.9(a)(2), allows the
participant to choose a fixed number of monthly payments instead of a
fixed monthly payment amount. Under this option, payments are initially
calculated by dividing the account balance by the number of payments
chosen. Initial payments must be at least $25 for the election to be
accepted. Payments are then recalculated each year in January by
dividing the December 31 account balance by the remaining number of
payments. Although each year's monthly payment amount will be different
from that of the previous year, because earnings will be reflected in
the annual recalculation, the annual recalculation allows the account
to be paid out as evenly as possible within the elected number of
payments. Each year's monthly payment amount will be increased to $25,
if necessary.
The third option, described in Sec. 1650.9(a)(3), allows a
participant to have monthly payments calculated based on Internal
Revenue Service (IRS) life expectancy multiple Table No. V, found at 26
CFR 1.72-9. Under this method, the monthly payment amount is calculated
by dividing the account balance by the multiple from the table
corresponding to the participant's age on his or her birthday in the
year payments are being made, and then dividing the result by 12.
Payments are recalculated in January of each year based upon the
December 31 account balance and the multiple corresponding to the
participant's age as of his or her birthday in the new payment year.
This method allows a participant to spread monthly payments over his or
her entire life expectancy. It also allows a participant who separates
from Government employment prior to the year in which he or she becomes
age 55 to avoid the 10 percent early withdrawal penalty on monthly
payments received before the participant becomes age 59\1/2\. This
result is allowed under the Internal Revenue Code because payments are
based on life expectancy. The early withdrawal penalty cannot be
avoided by choosing the other two monthly payment methods. However,
payments made under a TSP annuity (see Sec. 1650.10) are also exempted
because they are based on life expectancy.
Section 1650.9(b) states the rule that a participant cannot change
his or her monthly payment election and choose a different calculation
method or amount once payments have begun. This restriction is imposed
because the statute requires that the payments be ``substantially
equal.'' If a participant were able to change the calculation method or
amount at will, the payments would not comply with the ``substantially
equal'' requirement. Such a process could also create significant
administrative burdens for the Plan.
However, under Sec. 1650.9(c), a participant can decide at any time
to receive his or her remaining account balance in a final single
payment. This recognizes that participants may have a sudden need to
liquidate their account balances, for example in cases where there is a
health emergency. It was determined that the ``substantially equal''
rule was not violated where the account would be entirely liquidated
through a final single payment.
Section 1650.9(d) provides that, once they begin receiving equal
payments, participants may invest their TSP account balances in
accordance with the rules provided in part 1601, Participant Choices of
Investment Funds. Under current regulations, participant accounts must
be invested entirely in the Government Securities Investment Fund (G
Fund) while participants are receiving monthly payments. It was
originally thought that accounts of persons receiving monthly payments
should be invested only in the G Fund to ensure a predictable monthly
payment stream. However, with the elimination of the restrictions on
participants' investment choices which originally existed, demand has
grown to eliminate this restriction also. The calculation methods
described above automatically account for positive and negative
earnings associated with investing in the Common Stock Index Investment
Fund (C Fund) or the Fixed Income Investment Fund (F Fund), thus
insuring a relatively predictable income stream. The Board intends in
the future to allow participants receiving monthly payments to invest
in any investment funds offered by the TSP. When this change is
implemented, part 1601 will be amended, and the language of
Sec. 1650.9(d) will automatically incorporate the new rules.
Section 1650.10 describes the rules relating to TSP annuities,
including the various annuity options and features among which a
participant can choose. TSP annuities are monthly payments made to the
participant during his or her life or to the participant and a
designated joint annuitant while either one is alive. The TSP purchases
annuities for participants from a private sector annuity provider using
the participant's entire account balance (although in some cases
minimum distribution amounts must first be paid directly to the
participant).
Section 1650.10(a) describes the basic rules concerning the
purchase of a TSP annuity. Annuities are purchased in the mid-month
processing cycle and payments commence within approximately thirty days
after purchase. Because it is not practicable to purchase annuities
using small account balances, the minimum amount that can be used to
purchase an annuity is $3,500. All TSP annuities and annuity features
have equivalent actuarial values. This means that selection of
additional features will result in a reduction in the amount of the
monthly annuity payment.
Section 1650.10(b) describes the basic annuity types. Section 8434
of title 5 requires that the Board offer certain types of annuities for
the TSP. The basic types of annuities offered by the TSP conform to the
statutory requirement. These are a single life annuity for the
participant with level payments (Sec. 1650.10(b)(1)), a joint life
annuity for the participant and his or her spouse with level payments
(Sec. 1650.10(b)(2)), a single life annuity or a joint life annuity
with the spouse that has annual increasing payments
(Sec. 1650.10(b)(3)), and a joint life annuity with a former spouse or
a person having an insurable interest in the participant
(Sec. 1650.10(b)(4)).
Section 1650.10(b)(3) describes how the annual increase for
increasing annuities is calculated. The amount of the increase is based
upon the change in the Consumer Price Index. The statute prohibits
decreases in annual payments; therefore, the annual increases will be
zero in years where the relevant change in the index is either negative
or zero. Also, because of Internal Revenue Code limits, the annual
increase cannot be more than 3 percent.
Section 1650.10(b)(4) describes the rules for the option of a joint
life annuity with a person other than the spouse. As required by the
statute, this option can only be used to purchase a joint life annuity
with a former spouse or with a person having an ``insurable interest''
in the participant. The statute gives the Board discretion to define
the term ``insurable interest'' in regulations. The definition of
``insurable interest'' is based upon the idea that the survivor could
be expected to obtain continuing financial benefit from the
participant's life. Under this definition, close relatives and common
law spouses are presumed to have an insurable interest in the
participant. However, a method is also prescribed by which the
participant can establish by affidavit that another person, not in the
presumed group, has an insurable interest in him or her.
Section 1650.10(c) describes the two levels of survivor benefits
that are available for joint life annuities, whether with a spouse or
with another person. These particular levels were not prescribed by
statute, but rather were adopted by the Board based upon annuity
options commonly available in the private sector. A participant who
chooses a joint life annuity must also choose one of these levels. The
50 percent survivor benefit provides that, whenever one of the joint
annuitants dies, the other will receive, during his or her lifetime, 50
percent of the benefit that was paid to the participant when both were
alive. The 100 percent survivor benefit provides that the same amount
paid to the participant when both the participant and the joint
annuitant are alive will continue to be paid to the survivor during the
survivor's lifetime. The initial payment amount will be lower if the
100 percent survivor level is chosen than if the 50 percent survivor
level is chosen. Under the IRS minimum distribution rules, the 100
percent survivor benefit cannot be chosen for a joint annuity with
someone other than the spouse if the joint annuitant is more than 10
years younger than the participant. This rule is designed to prevent
the use of retirement annuities to transfer income to a much younger
beneficiary (for example, a child or grandchild). However, the
regulations provide (in accordance with IRS regulations) that a 100
percent benefit can be chosen for a joint annuity with any former
spouse, regardless of age, if a qualifying court order (as described in
part 1653) so provides.
Section 1650.10(d) describes two additional features that can be
combined with certain annuities. These features are not required by
statute. The Board decided to make them available based upon its
evaluation of annuity features that participants would be likely to
find attractive. If either feature is chosen, the monthly payment
amount is reduced.
The first feature, described in Sec. 1650.10(d)(1), is the ``cash
refund'' feature. This feature, which can be selected for any type of
annuity, provides that, if the participant (or the participant and
joint annuitant in the case of a joint annuity) dies before the amount
used to purchase the annuity has been paid out, the remainder of the
amount used to purchase the annuity will be paid in a lump sum to the
beneficiary or beneficiaries named by the participant. The participant
who chooses this feature must, before the annuity can be purchased,
complete Form TSP-11-B, Beneficiary Designation for a TSP Annuity, to
mane the beneficiaries to receive this payment and to state the portion
of the payment to be paid to each beneficiary. After the annuity is
purchased, the participant may change the beneficiaries. If the annuity
is a joint life annuity, the survivor (even if not the participant) may
also change the beneficiaries or their shares. Beneficiary changes
after the purchase of an annuity are handled between the annuitant and
the annuity provider and do not involve the TSP.
The second feature, described in Sec. 1650.10(d)(2), is known as
the ``10-year certain'' feature. This feature provides that, if a
single life annuity is chosen, payments will be made for at least 10
years. If the participant dies before the 10-year period expires,
payments will be made to a designated beneficiary for the remainder of
the period. Beneficiaries under this feature are designated on a Form
TSP-11-B, in the same way as under the cash refund feature. The 10-year
certain feature is only available for single life annuities, because it
is expected that, in most cases, payments under joint life annuities
would last at least 10 years.
Section 1650.10(e) provides that the Board can establish other
types of annuities and other optional annuity features, as it did in
the case of the cash refund and 10-year certain features. The statute
makes it clear that the Board can decide to offer additional annuity
options.
Section 1650.10(f) reflects the requirement found in the statute
that any annuity method must be available to separating participants
for at least 5 years after the date it is eliminated. This provision
appears to have been designed to prevent the Board from eliminating
annuity methods precipitously, when a participant may have been
planning to choose such a method. Although the 5 year requirement may
have little applicability to younger participants, it appears to be
designed to preserve options for those participants who are near
retirement age and who might be able to change their retirement date if
they knew in advance that an annuity method would cease to be offered.
Although the statute only speaks in terms of elimination of a ``method
of payment,'' the regulation makes it clear that the Board would apply
this rule to any annuity type (other than the statutorily prescribed
annuity types), any benefit level, or any other annuity feature (such
as the cash refund feature) that the Board has previously decided to
offer.
Section 1650.11 describes the situations under which a participant
can have the TSP transfer all or a portion of a TSP withdrawal payment
to an IRA or other eligible retirement plan, as defined in the Internal
Revenue Code. Transfer of the entire account balance to an eligible
retirement plan was mandated by Congress in FERSA. At the time of
issuance of the original interim regulations in 1987, the participant
had to choose to transfer either the entire account balance or nothing
at all. However, in 1992 Congress enacted Public Law 102-318, which
required all tax-qualified retirement plans (including the TSP),
effective in 1993, to allow the transfer to an IRA or other eligible
retirement plan of all or part of any ``eligible rollover
distribution.'' Any part of an eligible rollover distribution that is
not directly transferred is subject to mandatory 20 percent income tax
withholding. Therefore, beginning in 1993, the Board implemented
changes in the TSP transfer option to comply with the requirements of
Public Law 102-318. This means that all TSP withdrawals that are
identified as ``eligible rollover distributions'' can now be
transferred, in whole or in part, to an IRA or other eligible
retirement plan. Eligible rollover distributions include all single
payments, as well as final single payments that end a series of monthly
payments. Thus, a participant who wants his or her entire account
balance transferred can elect a single payment (which is an option now
available to all) and can have the entire payment transferred.
Because the definition of ``eligible rollover distribution'' in
Public Law 102-318 includes monthly payments expected to be made for
fewer than 10 years and not based on life expectancy, certain TSP
monthly payments also qualify for transfer. Section 1650.11 explains
that monthly payments can be transferred if the participant elects
fewer than 120 payments (i.E., fewer than 10 years of monthly
payments), or the participant elects a monthly payment amount which
when divided into the account balance, yields a number less than 85.
This number was chosen based upon an assumed annual earnings rate of 8
percent for the account. This means that a fixed payment amount chosen
by the participant that would result in fewer than 85 payments if paid
in equal monthly installments from his or her existing account balance
could be expected to result in fewer than 120 payments if the account
accrued earnings at the rate of 8 percent per year during the payout
period. TSP monthly payments calculated based on life expectancy cannot
be transferred. This is because the Internal Revenue Code does not
allow any payment which is calculated based on life expectancy to be
transferred. (This also means that TSP annuity payments and minimum
distribution payments cannot be transferred.)
Section 1650.11(d) states the definition of an eligible retirement
plan, which is found in section 402(c)(8) of the Internal Revenue Code.
An IRA is included in the definition of an eligible retirement plan.
The Internal Revenue Code also requires that an IRA or other eligible
retirement plan be maintained in the United States, which is defined as
the 50 states and the District of Columbia. Plans maintained in foreign
countries or in United States possessions, such as Puerto Rico, the
Virgin Islands, or Guam, do not qualify.
Section 1650.12(a) contains the basic rule establishing the
participant's right to choose that a single payment be made, or that
monthly payments or an annuity begin, at a future date of his or her
own choosing. This type of election is referred to as a ``deferred
withdrawal'' election, and is specifically authorized in 5 U.S.C.
8433(b).
Section 1650.12(b) describes the time limit placed by 5 U.S.C.
8433(b) upon the participant's right to make a deferred withdrawal
election. Under that section, a participant must choose a date for his
or her withdrawal to begin that is no later than April 1 of the year
following the year the participant becomes age 70\1/2\. Because the TSP
is a monthly valued plan, as explained in Sec. 1650.7, the month chosen
for payment under Sec. 1650.12(b) must be no later than March of the
relevant year, so that a payment can be made by April 1. Also, because
the first annuity payment is made approximately 30 days after the
annuity is purchased, an annuity will be purchased in the monthly cycle
prior to the month chosen. Therefore, if a participant chooses an
annuity to begin in March of the year following the year in which he or
she becomes age 70\1/2\ (i.e., the latest possible date), the annuity
will be purchased in February of that year. Persons who are already
past the limit date (e.g., participants who separate when they are age
73) when they make a withdrawal election cannot make a deferred
withdrawal election. They must elect an immediate withdrawal.
The rule stated in Sec. 1650.12(b) generally comports with the
minimum distribution requirements found in the Internal Revenue Code.
The minimum distribution rules generally require separated participants
to begin receiving payments from their accounts by April 1 of the year
following the year they become age 70\1/2\. The rule set forth in
Sec. 1650.12(b) requires a TSP withdrawal method to begin by the same
date. Eventually, the Board expects the rule set forth in
Sec. 1650.12(b), in conjunction with the rule set forth in Sec. 1650.13
concerning the date by which an election is required, to eliminate the
need for most required minimum distribution payments, except for those
made in conjunction with another withdrawal election. However, as
explained further in the discussion of Sec. 1650.13, because some
participants over age 70\1/2\ who leave Government employment with less
than 10 years of service will still be able to defer making a decision,
minimum distribution payments will continue to be made to this group.
Section 1650.12 (c) and (d) describe the TSP procedures for
notifying participants who have made deferred withdrawal elections of
what actions they are permitted or required to take prior to
implementation of their election.
Section 1650.13 provides rules for implementing the provisions of 5
U.S.C. 8433(h)(3). This section requires a TSP participant to make a
withdrawal election by February 1 of the year following the year in
which the later of three events occurs--the participant becomes age 65,
the participant separates from Government employment, or the
participant has 10 years of Plan participation. The status expresses
the latter event as ``the tenth anniversary of the year in which * * *
[the participant] became subject to this subchapter.'' The regulation
reflects the Board's interpretation of this language to mean the
effective date of the first contribution made to the participant's TSP
account, but no earlier than April 1, 1987, the date the TSP first
began accepting contributions. The effective date of the first
contribution is also chosen for administrative purposes, because it is
a date that is clearly reflected in TSP records.
For most participants (i.e., those with more than 10 years of
Government service who separate or retire before age 65), this
provision will operate to require a choice by February 1 of the year
following the year in which the participant reaches age 65. the
participant is still permitted to make a deferred election at that
time, but the date of the deferral is subject to the limits stated in
Sec. 1650.12(b), which require that a deferred election must begin by
April 1 of the year following the year a participant becomes age 70\1/
2\. Together, these provisions ensure that a decision about the method
of withdrawing the TSP account is made on or about the time a
participant might be expected to retire and that payments begin no
later than the year following the year in which the participant becomes
age 70\1/2\. This allows both the TSP and the participant's spouse, who
has certain rights with respect to the election, to be aware of the
chosen withdrawal method by the normal retirement age. This also
prevents the participant from receiving his or her entire account
balance through the minimum distribution process without spousal
involvement.
However, because TSP participation only began in April 1987, the
10th anniversary of the first TSP contributions will not occur until
1997. Therefore, a withdrawal election will not need to be made under
this provision until February 1, 1998, at the earliest.
By establishing a date by which the participant must make an
election, the Board has also interpreted the statute as providing that
a separated TSP participant need not make any withdrawal election prior
to that date. Instead, a participant who separates from Government
employment can decide to lead his or her account in the Plan and take
no action until the required date.
If a withdrawal election is not made by the required date, the
statute provides that the ``benefits under this subchapter will be paid
as an annuity. * * *'' Because the 10-year anniversary has not yet
occurred for any TSP participant, there has as yet been no need to
address participants who do not make an election by the required date.
Section 1650.13(d) describes procedures which reasonably accommodate
the language of the statute requiring that an annuity be purchased for
such persons, yet also recognizes that the TSP may not be able to
purchase an annuity for a participant who will not provide required
information (such as a current address).
Section 1650.13(d) also provides that, for married FERS
participants, the annuity that must be purchased is the required joint
life annuity with the spouse. Although this is not explicitly stated in
5 U.S.C. 8433(h)(3), 5 U.S.C. 8435 requires a married FERS participant
to purchase the required joint life annuity with his or her spouse if
the spouse does not waive that right. If the required joint life
annuity were not purchased under Sec. 1650.13, a married FERS
participant could effectively avoid the requirement to purchase a joint
life annuity with the spouse by refusing to make any election at all.
For single participants covered by FERS and all participants covered by
CSRS, however, a single life annuity will be purchased, since there is
no statutory requirement to purchase a joint life annuity with the
spouse.
Section 1650.13(d)(3) recognizes that, in certain cases, the
participant will not provide the TSP with adequate information to
purchase the required annuity (either single life or joint life with
spouse). Because the law does not allow accounts in this status to
remain open indefinitely, the regulation describes a procedure whereby
an account will be forfeited if there is not adequate information to
purchase an annuity. However, if any person (such as the spouse or a
guardian, for example) can provide such information, the account will
be restored and the annuity purchased. At the time of forfeiture, the
participant generally would lose the right to choose a different method
of withdrawal.
Section 1650.14 sets forth rules concerning participants who change
or cancel their withdrawal elections. Generally, participants can
change their withdrawal elections as long as they have met any
applicable spouse rights requirements with respect to the new election.
For example, if a spouse of a FERS participant waives his or her right
to a survivor benefit when the participant chooses a single life
annuity, the participant can later change his or her election to a
single payment without obtaining another waiver from that spouse.
However, if the participant has a different spouse when a new election
is made, a waiver would be required from the new spouse.
The right both to change and cancel a withdrawal election is also
affected by the date the payment is scheduled. As explained in
Sec. 1650.7, the TSP is a monthly valued plan. As such, payments are
scheduled to occur once a month during the mid-month processing cycle.
Participants who have their accounts invested only in the G Fund can
change or cancel their election as long as the change or cancellation
can be processed prior to the mid-month cycle in which the account is
scheduled to pay. This is because the underlying value of investments
in the G Fund does not fluctuate. However, if a participant has all or
a portion of his or her account invested in the C Fund or the F Fund,
the underlying value can fluctuate. Therefore, the change or
cancellation must be processed no later than the second-to-last
business day (the ``cutoff date'') of the month preceding the mid-month
cycle in which the account is scheduled to pay, so that the amount to
be withdrawn can be insulated from fluctuations in value after the end
of the month. Failure to remove funds scheduled for withdrawal from the
C and F Funds on the last day of the month would result in all other
accounts having to absorb the fluctuations in the C and F Fund values
after the end of the month. However, a person with money in the C or F
Funds can change (but not cancel) his or her withdrawal election after
the cutoff date if, under the changed election method, there is no
change in the amount to be withdrawn from the C and F Funds as
originally scheduled.
Section 1650.14(d) provides an example to illustrate the treatment
of elections to change withdrawal method made by participants whose
accounts are invested in the C or F Funds.
Subpart C of part 1650 sets forth procedures adopted by the Board
for processing TSP withdrawal elections and payments.
Section 1650.15 sets forth the information that must be provided by
the employing agency both to the TSP and to the participant at the time
of the participant's separation from Government employment.
Section 1650.15(a) requires the agency to inform the TSP
recordkeeper of the participant's separation from Government
employment. This is done by submitting a code indicating the separation
from employment and the date of separation. Until this information is
received, the withdrawal cannot be processed. Also a withdrawal cannot
occur until 30 days have elapsed since the date of separation reported
by the agency. This interval ensures that normal contributions are
received before the date of withdrawal and that the participant has a
reasonable period of time after receipt of withdrawal and tax
information from the employing agency to make withdrawal and tax
withholding decisions. (The 30-day interval described in this section
does not operate to enforce the rule stated in Sec. 1650.3 that an
employee rehired within 31 days is not permitted to withdraw. As
explained earlier, the TSP does not maintain information on the dates
employees are rehired. Therefore, the 30-day interval could not ensure
that employees rehired within that period were not paid. Rather, as
provided in Sec. 1650.4, that requirement is enforced by asking the
participant to certify to the length of his or her break in service and
his or her employment status.)
Section 1650.15(b) requires the agency to provide certain
withdrawal and tax information to the participant at the time he or she
separates from employment. The Board relies on the employing agencies
to distribute this information to participants. This includes TSP
withdrawal materials and forms and the written explanation required by
section 402(f) of the Internal Revenue Code. The Code requires plans to
furnish this explanation to participants within a reasonable time prior
to their withdrawal. In order to facilitate TSP participants' ability
to withdraw their accounts in a timely manner, the Board has instructed
employing agencies to provide participants with this information when
they separate. (The TSP also mails this notice to each participant upon
receipt of separation information from his or her agency, unless
withdrawal forms have already been received from the participant.)
Section 1650.16 states the basic rule that, in order to withdraw
his or her TSP account, a participant must complete the basic TSP
withdrawal form (TSP-70) and any other form required by the TSP. As a
result of the standardization of TSP withdrawal options accomplished by
Public Law 103-226, the Board has been able to devise a withdrawal form
that can be used by every participant to make a withdrawal choice under
any of the withdrawal methods. Participants with account balances of
$3,500 or less are also eligible to receive an ``automatic cashout'' of
their accounts which require no paperwork, as described in
Sec. 1650.17.
Section 1650.17 describes the procedures for paying out TSP
accounts of $3,500 or less. These procedures differ from those relating
to other TSP accounts because of Public Law 101-335. That statute
amended title 5 of the United States Code to provide that a separated
TSP participant with an account balance of $3,500 or less will
automatically be paid the amount in his or her account in a single
payment, unless the participant elects another withdrawal method. This
payment is referred to as an ``automatic cashout.'' These participants
can also choose to leave their accounts in the Plan.
Section 1650.17(c) states that spousal notice and waiver provisions
(to be published as subpart D) do not apply to the withdrawal of
accounts of $3,500 or less. This also reflects the provisions of Public
Law 101-335.
Section 1650.17(d) confirms that the automatic cashout provisions
apply only while the account is $3,500 or less. If the account
increases to more than $3,500 (due to additional contributions or
earnings), these rules cease to apply and the participant must submit
withdrawal forms as required in Sec. 1650.16.
Section 1650.17(e) excludes accounts of less than $5.00 from the
automatic cashout procedures. Many participants have contacted the TSP
asking that they not continue to be sent information about very small
account balances. Often these accounts represent amounts deposited into
a participant's account after an initial withdrawal, where a former
employing agency has discovered that it owed small amounts of lost
earnings to a group of employees. (See part 1605 for rules concerning
agency paid lost earnings.) The Board has also determined that, for
accounts of less than $5.00, it is not prudent to undertake the
administrative processing costs associated with an automatic cashout.
The Board plans to forfeit these accounts to the Plan automatically
under procedures to be developed. The procedures will allow
participants to reclaim these amounts, if they wish.
Regulatory Flexibility Act
I certify that these regulations will not have a significant
economic impact on a substantial number of small entities. They will
affect only the ability of Federal employees to withdraw their TSP
accounts and Board procedures relating to those withdrawals.
Paperwork Reduction Act
I certify that these regulations do not require additional
reporting under the criteria of the Paperwork Reduction Act of 1980.
List of Subjects in 5 CFR Part 1650
Employee benefit plans, Government employees, Retirement, Pensions.
Roger W. Mehle,
Executive Director, Federal Retirement Thrift Investment Board.
For the reasons set out in the preamble, part 1650 of chapter VI of
title 5 of the Code of Federal Regulations is proposed to be revised to
read as follows:
PART 1650--METHODS OF WITHDRAWING FUNDS FROM THE THRIFT SAVINGS
PLAN
Subpart A--General
1650.1 Definitions.
1650.2 Eligibility.
1650.3 Separation from Government employment.
1650.4 Rehired employees.
1650.5 Outstanding loans.
1650.6 Frozen accounts.
1650.7 Monthly cycle for withdrawal payments.
Subpart B--Withdrawal Options
1650.8 Single payment.
1650.9 Monthly payments.
1650.10 Annuities.
1650.11 Transfer of withdrawal payments.
1650.12 Deferred withdrawal elections.
1650.13 Required date for making withdrawal election.
1650.14 Changes and cancellation of withdrawal election.
Subpart C--Procedures for Withdrawing TSP Accounts
1650.15 Information to be provided by agency.
1650.16 Accounts of more than $3,500.
1650.17 Accounts of $3,500 or less.
Authority: 5 U.S.C. 8351, 8433, 8434, 8435, 8467(b)(5), and
8474(c)(1).
Subpart A--General
Sec. 1650.1 Definitions.
As used in this part:
Account balance means, unless otherwise specified, the
nonforfeitable valued account balance of a TSP participant as of the
most recent month end prior to the date a withdrawal occurs;
Board means the Federal Retirement Thrift Investment Board,
established pursuant to 5 U.S.C. 8472;
CSRS means the Civil Service Retirement System established by 5
U.S.C. chapter 83, subchapter III, or any equivalent retirement system;
FERS means the Federal Employees' Retirement System established by
5 U.S.C. chapter 84, or any equivalent retirement system.
Participant means any person with an account in the Thrift Savings
Plan;
Spouse means the person to whom a TSP participant is married on the
date he or she signs withdrawal forms to be submitted to the TSP,
including a spouse from whom the participant is legally separated.
Thrift Savings Plan, TSP, or Plan means the Federal Retirement
Thrift Savings Plan, established under subchapters III and VII of the
Federal Employees' Retirement System Act of 1986, 5 U.S.C. 8431 et
seq.;
Thrift Savings Plan Service Office means the office established by
the Board to service separated TSP participants. This office's current
address is: Thrift Savings Plan Service Office, National Finance
Center, P.O. Box 61500, New Orleans, Louisiana 70161-1500.
Sec. 1650.2 Eligibility.
A participant who separates from Government employment, as
described in Sec. 1650.3, is immediately eligible to choose one of the
withdrawal methods described in subpart B of this part, subject to the
rules relating to spouses' rights,\1\ minimum distributions, and
domestic relations orders (part 1653).\2\ A participant cannot choose a
withdrawal method before he or she separates from Government
employment.
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\1\These rules were proposed in the Federal Register of
September 13, 1994 (59 FR 46934).
\2\Part 1653 was proposed in the Federal Register of October 26,
1994 (59 FR 53874).
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Sec. 1650.3 Separation from Government employment.
For purposes of this part, a separation from Government employment
occurs when a participant ceases employment with the Federal Government
or 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 at least 31 full calendar days.
Sec. 1650.4 Rehired employees.
(a) A participant who is reemployed in a position in which he or
she can participate in the TSP on or before the 31st full calendar day
after the date of separation is not eligible to withdraw his or her TSP
account. In order to be eligible to withdraw his or her TSP account, a
participant must state on Form TSP-70 (Withdrawal Request) that he or
she is separated and expects the separation to last at least 31 full
calendar days. If a participant is scheduled for an automatic cashout,
as described in Sec. 1650.17, the cashout will be canceled if the
participant states to the TSP that he or she has been reemployed or
expects to be reemployed within 31 full calendar days.
(b) A participant who is reemployed after 31 full calendar days
after his or her date of separation in a position in which the
participant is eligible to participate in the TSP may withdraw the
portion of his or her account balance attributable to the earlier
period of employment. However, if the amount in the account
attributable to the first period of employment is greater than $3,500,
the participant must submit, prior to the date of his or her
reemployment, a properly completed withdrawal form (TSP-70) choosing a
withdrawal option that results in an immediate withdrawal. A reemployed
participant may not make a deferred withdrawal election, as described
in Sec. 1650.12, or an election of monthly payments, as described in
Sec. 1650.9. If a reemployed participant is already receiving monthly
withdrawal payments, such payments will stop.
Sec. 1650.5 Outstanding loans.
A participant is not entitled to withdraw his or her account
balance until any loan outstanding at the time of separation has either
been repaid in full or declared to be a taxable distribution.
Sec. 1650.6 Frozen accounts.
A participant may not withdraw any portion of his or her account
balance if the account is frozen as a result of a retirement benefits
court order or a child support or alimony enforcement order, as
described in part 1653,\3\ or as a result of a freeze placed on the
account by the Board for another reason.
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\3\See Footnote 2 to section 1650.2.
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Sec. 1650.7 Monthly cycle for withdrawal payments.
The value of a TSP account is determined at approximately mid-
month, as of the end of the preceding month, after earnings are
allocated to the account. TSP transactions that require valued account
balances, such as withdrawals, can only occur after the value of an
account has been determined. Because of this, withdrawal payments are
generally made once a month, during what is known as the ``mid-month
processing cycle.''
Subpart B--Withdrawal Options
Sec. 1650.8 Single payment.
A participant can withdraw his or her entire account in a single
payment.
Sec. 1650.9 Monthly payments.
(a) A participant can withdraw his or her account balance in two or
more substantially equal monthly payments, to be calculated under one
of the following methods:
(1) A fixed monthly payment amount. The amount must be at least $25
per month and must satisfy any minimum distribution requirements.
Payments will be made each month until the account is expended. If the
last scheduled payment would be less than the chosen amount, it will be
combined and paid with the previous payment;
(2) A fixed number of monthly payments. The participant's month-end
account balance for the month preceding the month of the first payment
will be divided by the number of payments chosen in order to determine
the monthly amount. If that amount is less than $25, the election is
rejected. The payment must also meet any minimum distribution
requirements. In January of each subsequent year, the TSP will divide
the December 31 account balance from the prior year by the remaining
number of payments in order to determine that year's monthly payments.
If the monthly payment amount is less than $25, it will be increased to
$25. This process will be repeated each year until the account is
expended; or
(3) A monthly payment amount calculated using the factors set forth
in Internal Revenue Service expected return multiple table V, 26 CFR
1.72-9. There is no $25 minimum monthly payment under this method. In
the year payments begin, the monthly payment amount is calculated by
dividing the month-end account balance for the month preceding the
month of the first payment by the factor from table V based upon the
participant's age as of his or her birthday in that year. This amount
is then divided by 12 to yield the monthly payment amount. In
subsequent years, the monthly payment amount is recalculated each
January by dividing the December 31 account balance from the previous
year by the factor from Table V based upon the participant's age as of
his or her birthday in the year payments will be made. That amount is
divided by 12 to yield the monthly payment amount.
(b) A participant who chooses to receive monthly payments
calculated using one of the three methods set forth in paragraph (a) of
this section cannot change the method after payments begin. Also,
except as provided in paragraph (c) of this section, the participant
cannot change the number of payments or the payment amount after
payments begin.
(c) A participant receiving monthly payments can choose to receive
the remainder of his or her account balance in a final single payment.
(d) A participant receiving monthly payments may invest his or her
account balance as provided in 5 CFR part 1601.
Sec. 1650.10 Annuities.
(a) A participant can withdraw his or her entire account balance in
the form of a life annuity. The participant's account balance must be
$3,500 or more in order for the TSP to purchase an annuity. If a
participant chooses this method, the TSP will purchase the annuity from
the TSP's annuity vendor using the participant's entire account
balance, except for any amount necessary to satisfy minimum
distribution requirements. The first annuity payment will be made
approximately 30 calendar days after the purchase of the annuity. The
annuity will provide a payment for life to the participant and, if
applicable, the participant's survivor, in accordance with the type of
annuity chosen.
(b) The following types of annuities are available to participants:
(1) A single life annuity with level payments. This annuity is
based upon the life expectancy of the participant at the time of
purchase and provides monthly payments to the participant as long as
the participant lives.
(2) A joint life annuity for the participant and his or her spouse
with level payments. This annuity is based upon the combined life
expectancies of the participant and the spouse and provides monthly
payments to the participant, as long as both the participant and spouse
are alive, and monthly payments to the survivor, as long as he or she
is alive.
(3) Either a single life or joint life annuity (as described in
paragraph (b)(1) or (b)(2) of this section) where the amount of the
monthly payment can increase each year on the anniversary date of the
first annuity payment. The amount of the increase is based on the
average annual change in the Consumer Price Index for Urban Wage
Earners and Clerical Workers as measured between the period of July
through September in the second calendar year preceding the anniversary
date and July through September in the calendar year preceding the
anniversary date. For example, if the anniversary date of an increasing
annuity occurs in November of 1995, the amount of the increase will be
calculated based upon the change in the index between the July-
September period in 1993 and the July-September period in 1994. Monthly
payments cannot decrease, nor can they increase more than 3 percent
each year. If this option is chosen in conjunction with a joint life
annuity with the spouse, the annual increase continues to apply to
benefits received by the survivor.
(4) A joint life annuity, with level payments, for the participant
and another person who either is a former spouse or has an insurable
interest in the participant. This annuity is based upon the combined
life expectancies of the participant and the other person. It provides
monthly payments to the participant as long as both the participant and
the joint annuitant are alive, and monthly payments to the survivor as
long as he or she is alive. Increasing payments cannot be chosen for a
joint annuity with a person other than the spouse.
(i) A person has an ``insurable interest'' in a participant if the
person is financially dependent on the participant and could reasonably
expect to derive financial benefit from the participant's continued
life.
(ii) The following persons are presumed to have an insurable
interest in the participant:
(A) A relative (whether blood or adopted, but not by marriage) who
is closer than a first cousin; or
(B) A person with whom a participant is living in a relationship
that constitutes a common-law marriage in the jurisdiction in which
they live.
(iii) A participant can establish that a person not described in
paragraph (b)(4)(ii) of this section has an insurable interest in him
or her by submitting with the annuity request an affidavit from a
person other than the participant or the joint annuitant demonstrating
that the designated joint annuitant has an insurable interest (as
defined in paragraph 9b)(4)(i) of this section) in the participant.
(c) Participants who choose a joint life annuity (with either a
spouse or a person with an insurable interest) must choose either a 50
percent or a 100 percent survivor benefit. A 50 percent survivor
benefit provides a monthly payment to the survivor which is 50 percent
of the payment made when both the participant and the joint annuitant
are alive. A 100 percent survivor benefit provides a monthly payment to
the survivor which is 100 percent of the payment made when both the
participant and the survivor are alive. Either the 50 percent or the
100 percent survivor benefit may be combined with any joint life
annuity option, except that the 100 percent survivor benefit can be
combined with a joint annuity with a person other than the spouse (or a
former spouse, if required by a retirement benefits court order
described in part 1653)\4\ only if the joint annuitant is not more than
10 years younger than the participant.
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\4\See Footnote 2 to section 1650.2.
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(d) The following mutually exclusive features can be combined with
certain types of annuities, as indicated:
(1) Cash refund. This feature provides that, if the participant
(and joint annuitant, if applicable) dies before an amount equal to the
balance used to purchase the annuity has been paid out, the difference
between the balance used to purchase the annuity and the sum of monthly
payments already made will be paid to the named beneficiaries. The
participant (or the joint annuitant, if the participant is deceased)
may name or change the beneficiaries. This feature can be combined with
any other annuity option.
(2) Ten-year certain. This feature provides that, if the
participant dies before annuity payments have been made for 10 years
(120 payments), monthly payments will continue to be made to the
beneficiaries selected by the participant until 120 payments have been
made. This feature can be combined with any single life annuity option,
but cannot be selected in conjunction with any joint life annuity
option.
(e) The Board can, from time to time, establish other types of
annuities, other levels of survivor benefits, and other annuity
features.
(f) The Board can, from time to time, eliminate a type of annuity
(except for those annuities described in paragraph (b) of this
section), a survivor benefit level, or an annuity feature. However, if
the Board does so, it must continue to allow participants to purchase
annuities of the eliminated type or containing the eliminated feature
for 5 years after the date the decision to eliminate the annuity type
or feature is announced in the Federal Register.
(g) Once an annuity has been purchased, the type of annuity, any
annuity features, and the identity of the joint annuity cannot be
changed, and the annuity cannot be terminated.
Sec. 1650.11 Transfer of withdrawal payments.
(a) At the participant's request, the TSP will transfer directly to
an eligible retirement plan all or part of any withdrawal that is an
``eligible rollover distribution,'' as defined in 26 U.S.C. 402(c)(4).
A withdrawal method that is not an eligible rollover distribution
cannot be transferred.
(b) The following TSP withdrawal methods are considered eligible
rollover distributions:
(1) A single payment, as described in Sec. 1650.8;
(2) Monthly payments, as described in Sec. 1650.9, where payments
are expected to last less than 10 years at the time they begin,
according to the following rules:
(i) If the participant elects a number of monthly payments, the
number of payments must be fewer than 120;
(ii) If the participant elects a monthly payment amount, the
amount, when divided into the participant's account balance as of the
end of the month prior to the first payment, must yield a number less
than 85.
(3) A final single payment, as described in Sec. 1650.9(c).
(c) The following withdrawal methods are not eligible rollover
distributions:
(1) Any annuity purchased by the TSP;
(2) Any monthly payment that does not meet the rules set forth in
paragraph (b)(2) of this section, including any monthly payment
computed based on the Internal Revenue Service expected return multiple
table V (see Sec. 1650.9(a)(3)).
(3) Any minimum distribution payments or any portion of another
payment which represents a minimum distribution payment.
(d) An eligible retirement plan is a plan defined in 26 U.S.C.
402(c)(8). There are three types of eligible retirement plans: an
Individual Retirement Arrangement (IRA) (which can be either an
individual retirement account or an individual retirement annuity), a
plan qualified under 26 U.S.C. 401(a), and a plan described in 26
U.S.C. 403(a). An IRA or other eligible retirement plan must be
maintained in the United States, which means one of the 50 states or
the District of Columbia.
Sec. 1650.12 Deferred withdrawal elections.
(a) Subject to paragraph (b) of this section, a participant who
separates from Government employment and elects to withdraw his or her
account under one of the methods provided in Secs. 1650.8, 1650.9, or
1650.10 may specify a future date (which shall be a month and year) for
payment of the withdrawal.
(b) The future date chosen under this section cannot be later than
March of the year following the year in which the participant becomes
age 70\1/2\. If that date has already passed when the participant makes
an election, the participant cannot choose a future date.
(c) If the withdrawal method chosen for future payment is a single
payment or monthly payments (and the date specified for payment is more
than four months in the future on the date the election form is
processed), the participant will be notified before the date chosen
that such payments are scheduled to begin. If the payments are eligible
rollover distributions, the participant may choose to transfer all or
part of the payments to an Individual Retirement Arrangement (IRA) or
another eligible retirement plan.
(d) If the withdrawal method chosen for future payment is an
annuity (and the date specified for payment is more than four months in
the future on the date the election form is processed), the participant
will be notified before the date chosen. At that time the participant
will be sent information asking him or her to choose an annuity method,
name a beneficiary (if the cash refund or 10-year certain feature is
chosen), and provide any necessary spousal waiver or spousal
information.
Sec. 1650.13 Required date for making withdrawal election.
(a) A participant who separates from Government employment need not
elect one of the withdrawal methods provided in Secs. 1650.8, 1650.9,
or 1650.10 until February 1 of the year following the latest of these
dates:
(1) The date upon which the participant becomes age 65;
(2) The date that is 10 years after the effective date of the first
TSP contribution made by or on behalf of the participant (but not
earlier than April 1, 1987); or
(3) The date the participant separates from Government employment.
(b) A separated participant may make a withdrawal election before
the date described in paragraph (a) of this section, but is not
required to do so.
(c) A participant will fulfill the requirements of paragraph (a) of
this section by making a deferred withdrawal election (as described in
Sec. 1650.12) by the required date, provided that the date described in
Sec. 1650.12(b) has not already occurred.
(d) If a participant does not make an election by the date required
by this section, the TSP will purchase an annuity for the participant
in accordance with the following rules:
(1) If a participant is covered by the Federal Employees'
Retirement System (FERS) and is married on the date an election is
required by this section, the TSP will purchase a joint life annuity
with his or her spouse with a 50 percent survivor benefit, level
payments, and no cash feature.
(2) If the participant is covered by the Civil Service Retirement
System (CSRS) or the participant is not married on the date an election
is required by this section, the TSP will purchase a single life
annuity with no other features.
(3) If the participant fails to provide the TSP with adequate
information to purchase one of the annuities described in either
paragraph (d)(1) or (d)(2) of this section, as appropriate, by the date
an election is required by this section, and such information cannot be
obtained by the TSP from other sources, the participant's account will
be forfeited. If the TSP is later provided with the required
information, the TSP will purchase an annuity in accordance with this
section, using the amount forfeited. No earnings will be credited to
this amount after the date of forfeiture.
Sec. 1650.14 Changes and cancellation of withdrawal election.
(a) Basic rule. Subject to paragraphs (b) and (c) of this section
and the rules relating to spouses' rights, a participant who has
separated from Government employment can change his or her withdrawal
election to any other withdrawal election or can cancel his or her
withdrawal election if the change or cancellation can be processed
before the withdrawal election is scheduled for disbursement.
(b) Cutoff dates. For participants who have any part of their
accounts invested in the Common Stock Index Investment Fund (C Fund) or
the Fixed Income Index Investment Fund (F Fund), a withdrawal payment
that has been approved is scheduled on the second-to-last business day
of the month preceding the month the withdrawal payment is to be made.
For participants whose accounts are invested entirely in the Government
Securities Investment Fund (G Fund), a withdrawal payment that has been
approved is scheduled by the close of business on the day before the
mid-month processing cycle in which payments are made.
(c) Special Rule for C and F Fund Participants. Participants who
have any part of their accounts invested in the C or F Funds may also
change to another withdrawal method if the requested change can be
processed before the close of business on the day before the mid-month
processing cycle in which payment will be made, and provided that under
the new withdrawal method the amounts they have invested in the C or F
Funds will still be withdrawn as originally scheduled from those Funds
during the mid-month processing cycle.
(d) Example for participants whose accounts are invested in the C
or F Funds. This example illustrates the operation of the rules set
forth in paragraphs (b) and (c) of this section for participants who
have a portion of their account invested in the C or F Funds. Assume
that such a participant wishes to withdraw the account by purchasing a
single life annuity at the earliest possible date. The participant is
married and has obtained the necessary waiver from her spouse for the
purpose. All necessary forms have been submitted by the middle of
April; thus, on the second-to-last business day in April, the annuity
will be scheduled to be purchased in the May mid-month processing
cycle. However, in late April, the participant decides that she would
rather receive the account in a single payment. The participant must
submit a new Form TSP-70 electing the new withdrawal method. (She does
not need a new spousal waiver, since her spouse already waived his
right to a survivor benefit.) In this case, the participant will be
able to change to a single payment if her properly completed Form TSP-
70 is received and processed by the TSP recordkeeper by the close of
business on the day before the May mid-month processing cycle. If that
occurs, she will receive the single payment in May, instead of having
the annuity purchased then. If, on the other hand, the participant
wished to cancel her annuity purchase and leave her money in the Plan
(or to change to a deferred withdrawal option), the TSP recordkeeper
would have to be able to process her cancellation or change no later
than the second-to-last business day in April. If that did not occur,
the annuity purchase would proceed in May.
Subpart C--Procedures for Withdrawing TSP Accounts
Sec. 1650.15 Information to be provided by agency.
(a) Information to be provided to the TSP. When a TSP participant
separates from Government employment, his or her employing agency must
report the separation (including the date of separation) to the TSP
recordkeeper. Until the TSP recordkeeper receives this information from
the employing agency, it cannot process a withdrawal for the
participant. A withdrawal cannot occur until at least 30 full calendar
days have elapsed after the date of separation.
(b) Information to be provided to the participant. When a TSP
participant separates from Government employment, his or her employing
agency must furnish the participant with the most recent copies of the
TSP withdrawal booklet, withdrawal forms, and tax notice.
Sec. 1650.16 Accounts of more than $3,500.
A participant whose account balance is more than $3,500 must submit
a properly completed withdrawal election on Form TSP-70, Withdrawal
Request, and any other form required by the TSP, in order to elect a
withdrawal of his or her account balance.
Sec. 1650.17 Accounts of $3,500 or less.
(a) Unless he or she has already submitted a complete withdrawal
election and can be scheduled for payment, a participant whose account
balance is $3,500 or less as of the month end following receipt of
separation information from the employing agency will be sent a notice
informing him or her that the account balance will be paid directly to
the participant automatically in the third mid-month cycle following
the date of the notice if the account balance is still $3,500 or less
on the date of payment. The notice will inform the participant that he
or she can:
(1) Choose to transfer all or part of this payment to an Individual
Retirement Arrangement (IRA) or other eligible retirement plan;
(2) Choose another withdrawal method (as described in subpart B of
this part);
(3) Choose to have the payment made directly to him or her as soon
as possible; or
(4) Choose to leave his or her money in the Plan.
(b) If the participant does not take one of the actions described
in paragraph (a) of this section, payment will be made as scheduled.
(c) No spousal rights attach to any withdrawals made to a
participant whose account balance is $3,500 or less.
(d) If a participant's account balance is $3,500 or less after
separation but later increases to more than $3,500, this section will
cease to apply to that participant.
(e) The rules stated in this section do not apply to accounts
containing a balance of less than $5.00.
[FR Doc. 94-31651 Filed 12-27-94; 8:45 am]
BILLING CODE 6760-01-M
