[Senate Report 104-274]
[From the U.S. Government Publishing Office]
Calendar No. 412
104th Congress Report
SENATE
2d Session 104-274
_______________________________________________________________________
THRIFT SAVINGS INVESTMENT FUNDS ACT OF 1996
__________
R E P O R T
of the
COMMITTEE ON GOVERNMENTAL AFFAIRS
UNITED STATES SENATE
to accompany
S. 1080
TO AMEND CHAPTER 84 OF TITLE 5, UNITED STATES CODE, TO PROVIDE
ADDITIONAL INVESTMENT FUNDS FOR THE THRIFT SAVINGS PLAN
May 16, 1996.--Ordered to be printed
COMMITTEE ON GOVERNMENTAL AFFAIRS
TED STEVENS, Alaska, Chairman
JOHN GLENN, Ohio WILLIAM V. ROTH, Jr., Delaware
SAM NUNN, Georgia WILLIAM S. COHEN, Maine
CARL LEVIN, Michigan FRED THOMPSON, Tennessee
DAVID PRYOR, Arkansas THAD COCHRAN, Mississippi
JOSEPH I. LIEBERMAN, Connecticut JOHN McCAIN, Arizona
DANIEL K. AKAKA, Hawaii BOB SMITH, New Hampshire
BYRON L. DORGAN, North Dakota HANK BROWN, Colorado
Albert L. McDermott, Staff
Director
Leonard Weiss, Minority Staff
Director
Michal Sue Prosser, Chief Clerk
------
SUBCOMMITTEE ON POST OFFICE AND CIVIL SERVICE
TED STEVENS, Alaska, Chairman
DAVID PRYOR, Arkansas THAD COCHRAN, Mississippi
DANIEL K. AKAKA, Hawaii JOHN McCAIN, Arizona
BYRON L. DORGAN, North Dakota BOB SMITH, New Hampshire
Patricia A. Raymond, Staff
Director
Dale Cabaniss, Chief Counsel
Kimberly Weaver, Minority Staff
Director
Nancy Langley, Chief Clerk
C O N T E N T S
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Page
I. Summary and Purpose..............................................1
II. Background and Need for Legislation..............................2
III. Legislative History..............................................3
IV. Section-by-Section Analysis......................................3
V. Estimated Cost of Legislation....................................8
VI. Regulatory Impact of Legislation.................................8
VII. Changes to Existing Law..........................................9
Calendar No. 412
104th Congress Report
SENATE
2d Session 104-274
_______________________________________________________________________
THRIFT SAVINGS INVESTMENT FUNDS ACT OF 1996
_______
May 16, 1996.--Ordered to be printed
_______________________________________________________________________
Mr. Stevens, from the Committee on Governmental Affairs, submitted the
following
R E P O R T
[To accompany S. 1080]
The Committee on Governmental Affairs, to which was
referred the bill (S. 1080) to authorize additional investment
funds for the Thrift Savings Plan, and for other purposes,
having considered the same, reports favorably thereon with an
amendment in the nature of a substitute and recommends that the
bill as amended do pass.
I. Summary and Purpose
The Federal Employees Retirement System (FERS) covers
federal workers entering permanent civil service and postal
jobs in 1984 and thereafter. As part of the legislation
establishing FERS, Congress created the federal Thrift Savings
Plan, a tax-deferred savings plan patterned after plans widely
available in the private sector. S. 1080 would expand the
retirement investment options available to federal employees
through this Thrift Savings Plan, with the addition of a Small
Capitalization Stock Index Investment Fund and an International
Investment Stock Index Fund. Increased investment options will
give employees more opportunity to maximize the accumulation of
savings for retirement.
S. 1080 is also intended to improve the liquidity of the
accounts of those participating in the Thrift Savings Plan by
expanding the existing loan program and creating two new
withdrawal options. Increasing the liquidity of accounts in the
Thrift Savings Plan will provide employees the flexibility they
may need to increase their savings rate and encourage more
employees to begin saving for retirement. Lastly, under S.
1080, participants in the Thrift Savings Plan will be able to
tailor the manner in which they receive their account upon
retirement, allowing participants to design a retirement plan
which most suits their financial needs.
II. Background and Need for Legislation
Earlier in this Congress, the Subcommittee on the Post
Office and Civil Service undertook a review of Federal Pension
issues. The Federal Employees Retirement System (FERS) that we
created nearly ten years ago now provides retirement security
to half of the Federal and Postal workforce. The voluntary
Thrift Savings Plan (TSP) component has been embraced by FERS
employees, and Federal employees as a group have accumulated
more than $35 billion in their thrift savings accounts.
Last year, the Federal Retirement Thrift Investment Board
proposed that the Congress authorize new investment choices for
participants in addition to the three that are currently
available. The Plan has matured to the point where the
additional investment options can be easily integrated by the
Board. The addition of these two funds has the potential to
help increase an employee's investment earnings for retirement.
As part of the Subcommittee's review, we also looked at how
we might improve the liquidity and flexibility of the program,
to improve participation in the program and to encourage
employees to save. We looked at ways to allow employees to gain
access to their savings without jeopardizing the primary
purpose of providing retirement income security. We also looked
at how we might modify the withdrawal options under the program
so that upon retirement a participant could tailor a plan to
meet their retirement needs, for example taking a portion of
their account in a lump sum and a portion in the form of a
retirement annuity.
Access to TSP funds before separation is currently limited
by law to loans for specific purposes. This legislation would
improve the liquidity of the TSP by authorizing withdrawals
before separation in certain circumstances and by simplifying
and expanding the existing TSP loan program. The changes are
consistent with the practices of private sector 401(k) plans
and would encourage greater voluntary participation in the TSP.
While the overall participation in the TSP is now at
approximately 79.5% of the total FERS population, there is
still room for improvement. Some agencies, such as the State
Department, the Department of defense and NASA, have
participation rates at or above 90%. However, others such as
the National Archives and the Department of Veterans Affairs,
are at 69% and 72% respectively. FERS employees of the
Architect of the Capitol have a participation rate of only 57%.
Under S. 1080, two new withdrawal options would be
authorized. Participants in the Thrift Savings Plan who reach
age 59\1/2\ while still in federal service would be eligible
for a one-time withdrawal from their account. This is the age
after which the early withdrawal penalty of the Internal
Revenue Code no longer applies because individuals are deemed
to have reached retirement age. Second, in limited
circumstances, employees would be eligible for hardship
withdrawals in amounts needed to relieve immediate and heavy
financial need. The need would have to be documented and such
withdrawals are discouraged by the fact that under the Internal
Revenue Code such a withdrawal would be treated as a taxable
distribution and would be subject to an early withdrawal
penalty. Nevertheless in some cases such withdrawals are
necessary and would be authorized if justified.
In a further effort to improve the liquidity of accounts in
the Thrift Savings Plan and increase the savings rate for
participants who are wary of locking up their income in the
TSP, the existing loan program would be simplified and expanded
by eliminating the purposes to which the loans are restricted.
This is not intended to encourage unnecessary borrowing.
Rather, the experience with the TSP loan program supports the
idea that participants should be able to determine whether
their current needs are appropriately met by borrowing from
(and repaying) their own retirement savings account, just as is
the case with 401(k) plans. As is the case under current law, a
loan to a participant would be limited to an amount not
exceeding the value of that portion of their account which is
attributable to contributions made by the participant.
Loan repayment in the Thrift Savings Plan has proven to be
simple and certain. As the loan is repaid, the account is
replenished to later serve its primary role as income for
retirement. Only about one percent of the TSP loans issued each
year result in taxable distributions due to nonpayment by
active employees. The fact that loans are being repaid,
however, is due to the repayment structure (payroll allotment)
rather than to the limited purposes for which loans are
currently authorized.
When the TSP was under development in 1985, the Committee
on Governmental Affairs first dealt with the issue of access to
funds for retirement. In establishing the limited loan program
we recognized that, absent some form of liquidity, employees
might be simply unwilling to lock-up large amounts of
retirement savings.
Voluntary TSP participation by FERS employees now stands at
nearly 80% overall. While this rate is impressive, those who
are not saving might be more inclined to start (and those who
are saving might start saving more) upon the improvement of TSP
liquidity contained in S. 1080 as amended.
III. Legislative History
Beginning in May of 1995, the Subcommittee on the Post
Office and Civil Service undertook a review of federal pension
issues. During three days of hearings testimony was received
from more than twenty witnesses presenting various opinions and
perspectives. On July 27, 1995, Senator Stevens introduced S.
1080, to add two new investment options to the Federal Thrift
Savings Plan, cosponsored by Senators Pryor and Roth. On April
18, 1996, the Committee on Governmental Affairs adopted an
amendment offered by Senator Stevens in the nature of a
substitute to U.S. 1080, which included the liquidity
provisions, and the Committee reported favorably on S. 1080 by
voice vote.
IV. Section-by-Section Analysis
TITLE I--ADDITIONAL INVESTMENT FUNDS FOR THE TSP
Title I of the amendment would add two new investment funds
to those currently offered by the Thrift Savings Fund: a Small
Capitalization Stock Index Fund and an International Stock
Index Investment Fund.
Section 101. Short title
This title may be cited as the ``Thrift Savings Investment
Funds Act of 1996''.
Section 102. Additional investment funds for the Thrift Savings Plan
Section 102 makes changes to section 8438 of Title 5,
U.S.C., which are necessary to authorize the addition of the
two new investment funds. The language is similar to that in
section 8438 with respect to the Common Stock Index Investment
Fund, to which the two new funds bear the greatest resemblance.
Like that fund, the two new funds are required to be index
funds which invest in indices that represent certain defined
sectors in the equity markets.
Section 102 makes changes necessary to add the two new
funds to the list of those the Federal Retirement Thrift
Investment Board is authorized to establish by subsection
(b)(1) of section 8438. This is consistent with the statutory
treatment of the current investment funds. The Board is given
the responsibility to choose indices and establish investment
funds that fall within the parameters for each fund as set
forth in the statute.
The section also adds two new paragraphs to section 8438(b)
which describe the parameters of the two new investment funds.
New paragraph (3) of section 8438(b) describes the requirements
for the Small Capitalization Stock Index Investment Fund. The
Board must choose a commonly recognized index that represents
the market value of the United States equity markets, but
excluding that portion of the equity markets represented by the
common stocks included in the Common Stock Index Fund. It is
intended, therefore, that the Small Capitalization Stock Index
Investment Fund will be designed to replicate the performance
of an index representing smaller capitalization stocks not held
in the Common Stock Index Investment Fund.
New paragraph (4) describes the requirements for the
International Stock Index Investment fund. The Board must
choose a commonly recognized index that is a reasonably
complete representation of the international equity markets.
The term ``international equity markets'' excludes the United
States equity markets, which are represented by the other
funds.
Section 103. Acknowledgment of investment risk
Section 103 amends section 8439(d) of Title 5, U.S.C., to
add a reference to the two new investment funds in the section
requiring each Thrift Savings Plan participant who invests in
one of the enumerated funds sign an acknowledgment stating that
he understands that the investment is made at the participant's
own risk, that the Government will not protect the participant
against any loss on such investment, and that a return on the
investment is not guaranteed by the Government. As is the case
with the Common Stock Index Investment Fund and the Fixed
Income Investment Fund, the Small Capitalization Stock Index
Investment Fund and the International Stock Index Investment
Fund each carry the risk that an investment may lose value.
Therefore, it is appropriate to require the participant to sign
the same acknowledgment of risk statement prior to investing in
either of these funds.
Section 104. Effective date
Sectin 104 provides that the new funds will be offered at
the earliest date practicable as determined by the Executive
Director. By law, election periods are conducted every six
months. The Board is in the process of implementing a new
computer software system. The new system's development will
dictate the time frame for the offering of the new funds.
TITLE II--THRIFT SAVINGS ACCOUNTS LIQUIDITY
Title II improves the liquidity of TSP accounts during
employment and gives Federal employees greater flexibility with
their account upon separation. The amendment gives the
Executive Director discretion to determine which accounts are
so small that they should automatically be paid out upon
separation. Finally, the proposed legislation would eliminate
any need for and the existence of deferred TSP benefits,
eliminating the current requirement that participants make an
election as to how they wish to receive their account earlier
than is required for all other retirement accounts under the
Internal Revenue Code. Funds will simply remain on account
until payment is requested by a participant (or beneficiary),
required by law, or ordered by a court.
Section 201. Short title
This title may be cited as the ``Thrift Savings Plan Act of
1996''
Section 202. Notice to spouses for in-service withdrawals; de minimus
accounts; Civil Service Retirement System participants
Section 202 (1)(A) eliminates provisions allowing a
modification of the date of a withdrawal election after
separation. Under Title II elections for deferred payments are
rendered unnecessary and eliminated. Consequently, the need to
be able to modify the date of an election is no longer
necessary. Funds will simply remain on account to be paid
promptly upon request or to satisfy court-ordered or age-
related payment requirements.
Section 202 includes technical amendments expanding the
notice available to spouses of CSRS employees to apply to the
new in-service withdrawals in the same manner it currently
applies to loans.
Subsection 2(A) would eliminate the requirement that the
Executive Director automatically pay, upon separation, a non-
forfeitable account balance of $3,500 or less where a CSRS
employee fails to make a valid withdrawal election. This change
would permit the Executive Director to determine a de minimis
amount below which the account will automatically be disbursed.
Section 203. In-service withdrawals; withdrawal elections; Federal
Employees Retirement System participants
Section 203 allows TSP participants additional access to
their TSP accounts at separation by permitting more than one
type of withdrawal election and prior to separation by adding
two inservice withdrawal features. Access to TSP funds upon
separation is currently limited to one of three options; the
legislation would permit mixed withdrawal elections. Similarly,
access to TSP funds before separation is currently limited by
law to loans. Such loans are further limited by the requirement
that they be approved only for the specific purposes enumerated
in the statute. The legislation would remove these purpose
tests. Further, it eliminates elections for deferred withdrawal
payments.
Section 203 would eliminate the present statutory
restriction which permits participants to select only one
method of withdrawal payment upon separation. Subsection (a)
would allow the Executive Director to offer, by regulation, a
separated employee the opportunity to select one or more of the
presently approved withdrawal options. It would add the option
to a separated employee to make a one-time withdrawal or
transfer of any or all of an account in addition to the options
provided in subsection (a).
Subsection (a)(3) would eliminate the requirement that the
Executive Director automatically pay, upon separation, a
nonforfeitable account balance of $3,500 or less, as was done
for CSRS employees in section 1(c).
Subsection (a)(3) would also change the date by which a
separated participant must make a withdrawal election.
Employees who separate from service have a number of withdrawal
options. Currently, the statute provides that the TSP must
purchase an annuity if the participant has not made a valid
withdrawal election by February 1 of the year following the
latest of (1) the year in which the participant turns age 65,
(2) the tenth anniversary of the year in which the employee
became subject to the provisions of FERSA, or (3) the
employee's separation from service. Because the ten year
anniversary of the Plan occurs in 1997, this provision would
first take effect next year.
The purpose of the current provision is not clear, but it
may already have caused many participants to become confused
regarding TSP withdrawals. The change made by this subsection
will eliminate this arbitrary deadline and simply require that
annuity payments be made by April 1 of the year following the
later of the year in which the employee turns age 70\1/2\ or
the employee's separation from service, unless a withdrawal
election is made before that time.
Subsection (a)(5) simplifies and expands the current TSP
loan program by eliminating the present ``purpose''
restrictions on loans. Currently, loan applicants must show
that they qualify for a loan under one of four purposes
enumerated in the law. The proposed change would remove this
restriction and authorize certain withdrawals.
Subsection (a)(6) would allow employees the option to
withdraw all or a portion of their vested funds prior to
separation provided they have attained age 59\1/2\. Employees
are generally considered to be of retirement age when they
reach age 59\1/2\. Consequently, they are permitted to withdraw
retirement funds without the early withdrawal penalty imposed
on other inservice withdrawals by the Internal Revenue Code.
Subsection (a)(6) would also allow participants of any age
to withdraw their own contributions and associated earnings
prior to separation if they are able to demonstrate a financial
hardship. Such a withdrawal is a taxable distribution subject
to an early withdrawal penalty under the Internal Revenue Code
for those persons under age 59\1/2\. Thus, such withdrawals are
clearly discouraged but would not be prohibited where there is
a clear and demonstrable need.
Subsection (b) would invalidate elections with deferred
payment dates that have not been executed once participants are
eligible to submit an election at any time for immediate
payment.
Section 204. Survivor annuities for former spouses; notice to federal
employees retirement system spouses for in-service withdrawals
Section 204 contains technical amendments eliminating
references to changes of a withdrawal election and expanding
the notice and consent portions of the statute available to
spouses of FERS employees to apply to the new in-service
withdrawals in the same manner they currently apply to loans.
Section 205. De minimus accounts relating to the judiciary
Section 205 would eliminate the requirement that the
Executive Director automatically pay, upon separation, a
nonforfeitable account balance of $3,500 or less where FERS
employees who are justices or judges as defined by section 451
of title 28, bankruptcy judges and magistrates, or Court of
Federal Claims judges, fail to make a valid withdrawal
election, as was done for CSRS and other FERS employees.
Section 206. Definition of basic pay
Eliminating the special definition of basic pay would have
the effect of applying to the TSP the same basic pay
calculation as applies to amounts contributed to the FERS and
CSRS defined benefit programs. The current definition of basic
pay for TSP purposes found at 5 U.S.C. section 8431 authorizes
the use of the ``uncapped'' rate of pay as it relates to
Federal Wage System employees. This unique definition has
caused unnecessary confusion and errors in calculations by
employing agencies. Each year since 1988 Congress has approved
legislative language requiring that the actual rate of basic
pay be substituted for the special definition. The elimination
of the special definition of basic pay for TSP purposes makes
this change permanent.
Section 207. Effective date
Section 207 establishes that this title will take effect
upon date of enactment and that the changes in the withdrawals
and elections as provided under the amendments will be made at
the earliest practicable date as determined by the Executive
Director.
V. Estimated Cost of Legislation
U.S. Congress,
Congressional Budget Office,
Washington, DC, May 1, 1996.
Hon. Ted Stevens,
Chairman, Committee on Governmental Affairs, U.S. Senate, Washington,
DC.
Dear Mr. Chairman. The Congressional Budget Office has
reviewed S. 1080, the Thrift Savings Investment Funds Act of
1996, as ordered by the Committee on Governmental Affairs on
April 18, 1996. The bill would add two new investment funds to
those currently offered by the Thrift Savings Fund: a Small
Capitalization Stock Index Fund and an International Stock
Index fund. Further, the bill would provide current and former
federal employees greater flexibility with their Thrift Savings
Plan (TSP) accounts and would expand the options for
withdrawals.
These provisions would make TSP more attractive to federal
employees and would tend to increase participation in the plan.
Increased participation in TSP would reduce federal income tax
revenues, because federal employees contribute portions of
their salaries to TSP on a pre-tax basis. On the other hand,
the bill would increase tax revenues by accelerating taxable
disbursements from TSP. Discretionary costs also would
increase, because agencies provided a limited match to employee
contributions. For each 1 percent increase in agency matching
contributions, the cost to the government would be about $15
million in 1997 and about $30 million by 2002. CBO estimates
that the bill would increase participation in TSP only
modestly, and that the resulting effects on the federal budget
would be small, but we cannot provide a precise estimate.
The bill contains no intergovernmental or private sector
mandates as defined in Public Law 104-4, and would impose no
direct costs on state, local, or tribal governments.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is Wayne
Boyington.
Sincerely,
James L. Blum
(For June E. O'Neill, Director).
VI. Regulatory Impact of Legislation
Purusant to the requirements of paragraph 11(b), rule XXVI
of the Standing Rules of the Senate, the Committee has
considered the regulatory impact of S. 1080.
S. 1080 will have minimal regulatory impact, generally
limited to the operating procedures of the Federal Retirement
Thrift Investment Board and the administration of the Thrift
Savings Plan. The Federal Employees' Retirement System Act
already provides the Executive Director with the authority to
prescribe regulations to carry out the functions of the TSP.
Under S. 1080, the Executive Director of the Board is given
additional authority to prescribe the regulations necessary for
the addition and implementation of the two new investment funds
to the Thrift Savings Plan and the new in-service withdrawal,
loan and mixed election options.
VII. CHANGES TO EXISTING LAW
In compliance with paragraph 12 of rule XXVI of the
Standing Rules of the Senate, changes in existing law made by
S. 1080, as reported, are shown as follows (existing law
proposed to be omitted is enclosed in black brackets, new
matter is printed in italic, existing law in which no change is
proposed is shown in roman):
TITLE 5, UNITED STATES CODE: GOVERNMENT ORGANIZATION AND EMPLOYEES
Subchapter III--Civil Service Retirement
Sec. 8351. Participation in the Thrift Savings Plan
* * * * * * *
(b)(5)(B) [An election, change of election, or modification
(relating to the commencement date of a deferred annuity)] An
election or change of election autorized by subchapter III of
chapter 84 of this title shall be effective in the case of a
married employee or Member, and a loan or withdrawal may be
approved under section 8433(g) and (h) of this title in such
case, only after the Executive Director notifies the employee's
or Member's spouse that [the election, change of election, or
modification] the election or change of election has been made
or that the Executive Director has received an application for
such loan or withdrawal, as the case may be.
(C) Subparagraph (B) may be waived with respect to a spouse
if the employee or Member establishes to the satisfaction of
the Executive Director of the Federal Retirement Thrift
Investment Board that the whereabouts of such spouse cannot be
determined.
(D) Except with respect to the making of loans or
withdrawals under section 8433(g) or (h), none of the
provisions of this paragraph requiring notification to a spouse
or former spouse of an employee, Member, former employee, or
former Member shall apply in any case in which the
nonforteitable account balance of the employee, Member, former
employee, or former Member is $3,500 or less.
(6) Notwithstanding subsection (4), if an employee or
Member separates from Government employment, and such
employee's or Member's nonforfeitable account balance is
[$3,400 or less] less than an amount that the Executive
Director prescribes by regulation, the Executive Director shall
pay the nonforfeitable account balance to the participant in a
single payment [unless the employee or Member elects, at such
time and otherwise in such manner as the executive Director
prescribes, one of the options available under subsection (b)].
* * * * * * *
Sec. 8401. Definitions
* * * * * * *
(4) [except as provided in subchapter III of this chapter,]
the term ``basic pay'' has the meaning given such term by
section 8331(3);
* * * * * * *
Subchapter III--Thrift Savings Plan
[Sec. 8431. Definition
Notwithstanding section 8401 of this title, for the purpose
of this subchapter, the term ``basic pay'', when used with
respect to an employee or Member, means the basic pay of the
employee or Member established pursuant to law, without regard
to any provision of law (existing sections 5303(e), 5304(g),
and 5382(b) of this title) limiting the rate of pay actually
payable in any pay period (including any provision of law
restricting the use of appropriated funds).]
Sec. 8433. Benefits and election of benefits
* * * * * * *
[(b) Subject to section 8435 of this title, any employee or
Member who separates for Government employment is entitled and
may elect--
[(1) to receive an immediate annuity from the Thrift
Savings Fund;
((2) to defer the commencement of the payment of an
annuity from the Thrift Savings Fund until such date as
the employee or Member specifies, but not later than
April 1 of the year following the year in which the
employee or Member becomes 70\1/2\ years of age;
[(3) to withdraw the amount of the balance in the
employee's or Member's account in the Thrift Savings
Fund in one or more substantially equal payments to be
made not less frequently than annually and to commence
before April 1 of the year following the hear in which
the employee or Member becomes 70\1/2\ years of age; or
[(4) to transfer the amount of the balance in the
employee's or Member's account to an eligible
retirement plan as provided in subsection (c).
[(c)(1) The Executive Director shall make each transfer
elected under subsection (b)(4) directly to an eligible
retirement plan or plans (as defined in section 402(c)(8) of
the Internal Revenue Code of 1986) identified by the employee,
Member, former employee, or former Member for whom the transfer
is made.
[(2) A transfer may not be made for an employee, Member,
former employee, or former Member under paragraph (1) until the
Executive Director receives from that individual the
information required by the Executive Director specifically to
identify the eligible retirement plan or plans to which the
transfer is to be made.]
(b) Subject to section 8435 of this title, any employee or
Member who separates from Government employment is entitled and
may elect to withdraw from the Thrift Savings Fund the balance
of the employee's or Member's account as--
(1) an annuity;
(2) a single payment;
(3) 2 or more substantially equal payments to be made
not less frequently than annually; or
(4) any combination of payments as provided under
paragraphs (1) through (3) as the Executive Director
may prescribe by regulation.
(c)(1) In addition to the right provided under subsection
(b) to withdraw the balance of the account, an employee or
Member who separates from Government service and who has not
made a withdrawal under subsection (h)(1)(A) may make one
withdrawal of any amount as a single payment in accordance with
subsection (b)(2) from the employee's or Member's account.
(2) An employee or Member may request that the amount
withdrawn from the Thrift Savings Fund in accordance with
subsections (b)(2) be transferred to an eligible retirement
plan.
(3) The Executive Director shall make each transfer elected
under paragraph (2) directly to an eligible retirement plan or
plans (as defined in section 402(c)(8) of the Internal Revenue
Code of 1986) identified by the employee, Member, former
employee, or former Member for whom the transfer is made.
(4) A transfer may not be made for an employee, Member,
former employee, or former Member under paragraph (2) until the
Executive Director receives from that individual with the
information required by the Executive Director specifically to
identify the eligible retirement plan or plans to which the
transfer is to be made.
(d)(1) [Subject to paragraph (3)(A)] Subject to paragraph
(3) and subsections (a) and (c) of section 8435 of this title,
an employee or Member may change an election previously made
under this subchapter.
[(2) Subject to paragraph (3)(B) and section 8435(c) of
this title, a former employee or Member who has made an
election pursuant to subsection (b)(2) may modify the date
specified in such election or in a previous modification under
this paragraph.]
(2) [(A)] A former employee or Member may not change an
election under this section on or after the date on which a
payment is made in accordance with such election or, in the
case of an election to receive an annuity, the date on which an
annuity contract is purchased to provide for the annuity
elected by the former employee or Member.
[(B) A modification of a date may not be made under
paragraph (2) on or after the date on which an annuity contract
is purchased to provide for the annuity involved, and may not
specify a date for the commencement of an annuity earlier than
90 days after the date on which the modification is submitted
to the Executive Director (or such period shorter than 90 days
as the Executive Director may be regulation prescribe).]
(e) If an employee or Member (or former employee or Member)
dies without having made an election under this section or
after having elected an annuity under this section but before
making an election under section 8434 of this title, an amount
equal to the value of that individual's account (as of death)
shall, subject to any decree, order, or agreement referred to
in section 8435(c)(2) of this title be paid in a manner
consistent with section 8424(d) of this title.
(f)(1) Notwithstanding subsection (b), if an employee or
Member separates from Government employment, and such
employee's or Member's nonforfeitable account balance is
[$3,500 or less] less than an amount that the Executive
Director prescribes by regulation, the Executive Director shall
pay the nonforfeitable account balance to the participant in a
single payment [unless the employee or Member elects, at such
time and otherwise in such manner as the Executive Director
prescribes, one of the options available under subsection (b),
or], unless an election under section 8435(h)(2) is made to
treat such separation for purposes of this paragraph as if it
had never occurred.
(2) Unless otherwise elected under this section, and
subject to paragraph (1), benefits under this subchapter shall
be paid as an annuity commencing for an employee, Member,
former employee, or former Member on [February 1] April 1 of
the year following the latest of the year in which--
(A) the employee, Member, former employee, or former
Member becomes [65] 70\1/2\ years of age; or
[(B) occurs the tenth anniversary of the year in
which the employee, Member, former employee, or former
Member became subject to this subchapter; or]
(B) the employee, Member, former employee, or former
Member separates from Government employment.
(g)(1) At any time [after December 31, 1987, and] before
separation, an employee or Member may apply to the Board for
permission to borrow from the employee's or Member's account an
amount not exceeding the value of that portion of such account
which is attributable to contributions made by the employee or
Member under section 8432(a) of this title.
[(2) An application under this subsection may be approved
only for--
[(A) the purchase of a primary residence;
[(B) educational expenses;
[(C) medical expenses; or
[(D) financial hardship.]
(2) Loans under this subsection shall be available to
all employees and Members on a reasonably equivalent
basis, and shall be subject to such other conditions as
the Board may by regulation prescribe. The restrictions
of section 8477(c)(1) of this title shall not apply to
loans made under this subsection.
(3) A loan may not be made under this subsection to
the extent that the loan would be treated as a taxable
distribution under section 72(p) of the Internal
Revenue Code of 1986.
(4) A loan may not be made under this subsection
unless the requirements of section 8435(e) of this
title are satisfied.
(h)(1) An employee or Member may apply, before separation,
to the Board for permission to withdraw an amount from the
employee's or Member's account based upon--
(A) the employee or Member having attained age 59\1/2\; or
(B) financial hardship.
(2) A withdrawal under paragraph (1)(A) shall be available
to each eligible participant one time only.
(3) A withdrawal under paragraph (1)(B) shall be available
only for an amount not exceeding the value of that portion of
such account which is attributable to contributions made by the
employee or Member under section 8432(a) of this title.
(4) A withdrawals under paragraph (1) shall be subjection
to such other conditions as the Executive Director may
prescribe by regulation.
(5) A withdrawal may not be made under this subsection
unless the requirements of section 8435(e) of this title are
satisfied.
Sec. 8435. Protections for spouses and former spouses
(a)(1)(A) A married employee or Member (or former employee
or Member) [may make an election under subsection (b)(3) or
(b)(4) of section 8433 of this title or change an election
previously made under subsection (b)(1) or (b)(2) of such
section] may withdraw all or part of a Thrift Savings Fund
Account under subsection (b)(2), (b)(3) or (b)(4) of section
8433 of this title or change a withdrawal election only if the
employee or Member (or former employee or Member) satisfies the
requirements of subparagraph (B). A married employee or Member
(or former employee or Member) may make a withdraw from a
Thrift Savings Fund account under subsection (c)(1) of section
8433 of this title only if the employee or Member (or former
employee or Member) satisfies the requirements of subparagraph
(B).
(B) An employee or Member (or former employee or Member)
may make an election or change referred to in subparagraph (A)
if the employee or Member and the employee's or Member's spouse
(or the former employee or Member and the former employee's or
Member's spouse) jointly waive, by written election, any right
which the spouse may have to a survivor annuity with respect to
such employee or Member (or former employee or Member) under
section 8434 of this title or subsection (b).
(2) Paragraph (1) shall not apply to an election [or change
of election] by an employee or Member (or former employee or
Member) who establishes to the satisfaction of the Executive
Director (at the time of the election or change and in
accordance with regulations prescribed by the Executive
Director)--
(A) that the spouse's whereabouts cannot be
determined; or
(B) that, due to exceptional circumstances, requiring
the spouse's waiver would otherwise be inappropriate.
* * * * * * *
(c)(1) [An election, change of election, or modification of
the commencement date of a deferred annunity] An election or
change of election shall not be effective under this subchapter
to the extent that the election, change, [modification, or
transfer] or transfer conflicts with any court decree, order,
or agreement described in paragraph (2).
(2) A court decree, order, or agreement referred to in
paragraph (1) is, with respect to an employee or Member (or
former employee or Member), a court decree of divorce,
annulment, or legal separation issued in the case of such
employee or Member (or former employee or Member) or any court
order or court-approved property settlement incident to such
decree if--
(A) the decree, order, or agreement, expressly
relates to any portion of the balance in the employee's
or Member's (or former employee's or Member's) account;
and
(B) notice of the decree, order, or agreement was
received by the Executive Director before--
(i) the date on which payment is made, or
(ii) in the case of an annuity, the date on
which an annuity contract is purchased to
provide for the annuity, in accordance with the
election, change, [modification,] or
contribution referred to in paragraph (1).
(3) The Executive Director shall prescribe regulations
under which this subsection shall be applied in any case in
which the Executive Director receives two or more decrees,
orders, or agreements referred to in paragraph (1).
* * * * * * *
(e)(1)(A) A loan or withdrawal may be made to a married
employee or Member under section 8433(g) and (h) of this title
only if the employee's or Member's spouse consents to such loan
or withdrawal in writing.
(B) A consent under subparagraph (A) shall be irrevocable
with respect to the loan or withdrawal to which the consent
relates.
(C) subparagraph (A) shall not apply to a loan or
withdrawal to an employee or Member who establishes to the
satisfaction or the Executive Director (at the time the
employee or Member applies for such loan or withdrawal and in
accordance with regulations prescribed by the Executive
Director)--
(i) that the spouse's whereabouts cannot be
determined; or
(ii) that, due to exceptional circumstances,
requiring the employee or Member to seek the spouse's
consent would otherwise be inappropriate.
(2) An application for a loan or withdrawal under section
8433(g) and (h) of this title shall not be approved if approval
would have the result described under subsection (c)(1).
(f) Waivers and notifications required by this section and
waivers of the requirements for such waivers and notifications
(as authorized by this section) may be made only in accordance
with procedures prescribed by the Executive Director.
(g) Except with respect to the making of loans or
withdrawals under section 8433(g) and (h), none of the
provisions of this section requiring notification to, or the
consent or waiver or, a spouse or former spouse of an employee,
Member, former employee, or former Member shall apply in any
case in which the nonforfeitable account balance of the
employee, Member, former employee, or former Member is $3,500
or less.
(h) The protections provided by this section are in
addition to the protections provided by section 8467 of this
title.
Sec. 8438. Investment of Thrift Savings Fund
(a) For the purposes of this section--
(1) the term ``Common Stock Index Investment Fund''
means the Common Stock Index Investment Fund
established under subsection (b)(1)(C);
(2) the term ``equity capital'' means common and
preferred stock, surplus, undivided profits,
contingency reserves, and other capital reserves;
(3) the term ``Fixed Income Investment Fund'' means
the Fixed Income Investment Fund established under
subsection (b)(1)(B);
(4) the term ``Government Securities Investment
Fund'' means the Government Securities Investment Fund
established under subsection (b)(10(A);
(5) the term ``International Stock Index Investment
Fund'' means the International Stock Index Investment
Fund established under subsection (b)(1)(E);
(7) the term ``plan'' means an employee benefit plan,
as defined in section 3(3) of the Employee Retirement
Income Security Act of 1974 (29 U.S.C. 1002(3));
(8) the term ``qualified professional asset manager''
means--
(A) a bank, as defined in section 202(a)(2)
of the Investment Advisers Act of 1940 (15
U.S.C. 80b-2(a)(2)) which--
(i) has the power to manage, acquire,
or dispose of assets of a plan; and
(ii) has, as of the last day of its
latest fiscal year ending before the
date of a determination for the purpose
of this clause, equity capital in
excess of $1,000,000;
(B) a savings and loan association, the
accounts of which are insured by the Federal
Deposit Insurance Corporation, which--
(i) has applied for and been granted
trust powers to manage, acquire, or
dispose of assets of a plan by a State
or Government authority having
supervision over savings and loan
associations; and
(ii) has, as of the last day of its
latest fiscal year ending before the
date of a determination for the purpose
of this clause, equity capital in
excess of $1,000,000;
(C) an insurance company which--
(i) is qualified under the laws of
more than one State to manage, acquire,
or dispose of any assets of a plan;
(ii) has, as of the last day of its
latest fiscal year ending before the
date of a determination for the purpose
of this clause, equity capital in
excess of $1,000,000; and
(iii) is subject to supervision and
examination by a State authority having
supervision over insurance companies;
or
(D) an investment adviser registered under
section 203 of the Investment Advisers Act of
1940 (15 U.S.C. 80b-3) if the investment
adviser has, on the last day of its latest
fiscal year ending before the date of a
determination for the purpose of this
subparagraph, total client assets under its
management and control in excess of
450,000,000, and--
(i) the investment adviser has, on
such day, shareholder's or partner's
equity in excess of $750,000; or
(ii) payment of all of the investment
adviser's liabilities, including any
liabilities which may arise by reason
of a breach or violation of a duty
described in section 8477 of this
title, is unconditionally guaranteed
by--
(I) a person (as defined in
section 8471(4) of this title)
who directly or indirectly,
through one or more
intermediaries, controls, is
controlled by, or is under
common control with the
investment adviser and who has,
on the last day of the person's
latest fiscal year ending
before the date of a
determination for the purpose
of this clause, shareholder's
or partner's equity in an
amount which, when added to the
amount of the shareholder's or
partner's equity of the
investment adviser on such day,
exceeds $750,000;
(II) a qualified professional
asset manager described in
subparagraph (A), (B) or (C);
or
(III) a broker or dealer
registered under section 15 of
the Securities Exchange Act of
1934 (15 U.S.C. 70o) that has,
on the last day of the broker's
or dealer's latest fiscal year
ending before the date of a
determination for the purpose
of this clause, net worth in
excess of $750,000; [and]
(9) the term ``shareholder's or partner's equity'',
as used in paragraph (8)(D) with respect to an
investment adviser or a person (as defined in section
8471(4) of this title) who is affiliated with the
investment adviser in a manner described in clause
(ii)(I) of such paragraph (8)(D), means the equity
shown in the most recent balance sheet prepared for
such investment adviser or affiliated person, in
accordance with generally accepted accounting
principles, within 2 years before the date on which the
investment adviser's status as a qualified professional
asset manager is determined for the purpose of this
section; and
(10) the term ``Small Capitalization Stock Index
Investment Fund'' means the Small Capitalization Stock
Index Investment Fund established under subsection
(b)(1)(D).
(b)(1) The Board shall establish--
(A) a Government Securities Investment Fund under
which sums in the Thrift Savings Fund are invested in
securities of the United States Government issued as
provided in subsection (e);
(B) a Fixed Income Investment Fund under which sums
in the Thrift Savings Fund are invested in--
(i) insurance contracts;
(ii) certificates of deposits; or
(iii) other instruments or obligations
selected by qualified professional asset
managers,
which return the amount invested and pay interest, at a
specified rate or rates, on that amount during a
specified period of time; [and]
(C) a Common Stock Index Investment Fund as provided
in paragraph (2);
(D) a Small Capitalization Stock Index Investment
Fund as provided in paragraph (3); and
(E) an International Stock Index Investment Fund as
provided in paragraph (4).
* * * * * * *
(3)(A) The Board shall select an index which is a commonly
recognized index comprised of common stock the aggregate market
value of which represents the United States equity markets
excluding the common stocks included in the Common Stock Index
Investment Fund.
(B) The Small Capitalization Stock Index Investment Fund
shall be invested in a portfolio designed to replicate the
performance of the index in subparagraph (A). The portfolio
shall be designed such that, to the extent practicable, the
percentage of the Small Capitalization Stock Index Investment
Fund that is invested in each stock is the same as the
percentage determined by dividing the aggregate market value of
all shares of that stock by the aggregate market value of all
shares of all stocks included in such index.
(4)(A) The Board shall select an index which is a commonly
recognized index comprised of common stock the aggregate market
value of which is a reasonably complete representation of the
international equity markets excluding the United States equity
markets.
(B) The International Stock Index Investment Fund shall be
invested in a portfolio designed to replicate the performance
of the index in subparagraph (A). The portfolio shall be
designed such that, to the extent practicable, the percentage
of the International Stock Index Investment Fund that is
invested in each stock is the same as the percentage determined
by dividing the aggregate market value of all shares of that
stock by the aggregate market value of all shares of all stocks
included in such index.
* * * * * * *
Sec. 8439. Accounting and information
* * * * * * *
(d) [Each employee, Member, former employee, or former
Member who elects to invest in the Common Stock Index
Investment Fund or the Fixed Income Investment Fund described
in paragraphs (1) and (3),] Each employee, Member, former
employee, or former Member who elects to invest in the Common
Stock Index Investment Fund, the Fixed Income Investment Fund,
the International Stock Index Investment Fund, or the Small
Capitalization Stock Index Investment Fund, defined in
paragraphs (1), (3), (5), and (10), respectively, of section
8438(a) of this title shall sign an acknowledgment prescribed
by the Executive Director which states that the employee,
Member, former employee, or former Member understands that an
investment in [either] such Funds is made at the employee's,
Member's, former employee's, or former Member's risk, that the
employee, Member, former employee, or former Member is not
protected by the Government against any loss on such
investment, and that a return on such investment is not
guaranteed by the Government.
* * * * * * *
Sec. 8440a. Justices and judges
* * * * * * *
(b)(7) Notwithstanding paragraphs (4) and (5), if any
justice or judge retires under subsection (a) or resigns
without having met the age and service requirements set forth
under section 371(c) of title 28, and such justice's or judge's
nonforfeitable account balance is [$3,500 or less] less than an
amount that the Executive Director prescribes by regulation,
the Executive Director shall pay the nonforfeitable account
balance to the participant in a single payment [unless the
justice or judge elects, at such time and otherwise in such
manner as the Executive Director prescribes, one of the options
available under section 8433(b)].
* * * * * * *
Sec. 8440b. Bankruptcy judges and magistrates
* * * * * * *
(b)(7) In the case of a bankruptcy judge or magistrate who
receives a distribution from the Thrift Savings Plan and who
later receives an annuity under section 377 of title 28, that
annuity shall be offset by an amount equal to the amount of the
distribution which represents the Government's contribution to
that person's Thrift Savings Account, without regard to
earnings attributable to that amount. Where such an offset
would exceed 50 percent of the annuity to be received in the
first year, the offset may be divided equally over the first 2
years in which that person receives the annuity.
(b)(8) Notwithstanding paragraph (4), if any bankruptcy
judge or magistrate retires under circumstances making such
bankruptcy judge or magistrate eligible to make an election
under subsection (b) of section 8433, and such bankruptcy
judge's or magistrate's nonforfeitable account balance is
[$3,500 or less] less than an amount that the Executive
Director prescribes by regulation, the Executive Director shall
pay the nonforfeitable account balance to the participant in a
single payment [unless the justice or judge elects, at such
time and otherwise in such manner as the Executive Director
prescribes, one of the options available under section
8433(b)].
* * * * * * *
Sec. 8440c. Court of Federal Claims judges
* * * * * * *
(b)(7) In the case of a Court of Federal Claims judge who
receives a distribution from the Thrift Savings Plan and who
later receives an annuity under section 178 of title 28, such
annuity shall be offset by an amount equal to the amount of the
distribution which represents the Government's contribution to
that person's Thrift Savings Account, without regard to
earnings attributable to that amount. Where such an offset
would exceed 50 percent of the annuity to be received in the
first year, the offset may be divided equally over the first 2
years in which that person receives the annuity.
(8) Notwithstanding paragraph (4), if any Court of Federal
Claims judge retires under circumstances making such judge
eligible to make an election under section 8433(b), and such
judge's nonforfeitable account balance is [$3,500 or less] less
than an amount that the Executive Director prescribes by
regulation. The Executive Director shall pay the nonforfeitable
account balance to the participant in a single payment [unless
the justice or judge elects, at such time and otherwise in such
manner as the Executive Director prescribes, one of the options
available under section 8433(b)]
* * * * * * *