[House Report 105-809]
[From the U.S. Government Publishing Office]



105th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES

 2d Session                                                     105-809
_______________________________________________________________________


 
 MODIFIED LIMITATIONS ON INDIVIDUAL CONTRIBUTIONS TO THE THRIFT SAVING 
                                  PLAN

                                _______
                                

October 10, 1998.--Committed to the Committee of the Whole House on the 
             State of the Union and ordered to be printed.

_______________________________________________________________________


  Mr.  Burton of Indiana, from the Committee on Government Reform and 
                   Oversight, submitted the following

                              R E P O R T

                        [To accompany H.R. 2526]

  The Committee on Government Reform and Oversight, to whom was 
referred the bill (H.R. 2526) to amend title 5, United States 
Code, to make the percentage limitations on individual 
contributions to the Thrift Savings Plan more consistent with 
the dollar amount limitation on elective deferrals, and for 
other purposes, having considered the same, report favorably 
thereon without amendment and recommend that the bill do pass.

                                CONTENTS
                                                                   Page
  I. Summary of Legislation...........................................1
 II. Background and Need for the Legislation..........................2
III. Legislative Hearings and Committee Actions.......................3
 IV. Committee Hearings and Written Testimony.........................3
  V. Explanation of the Bill..........................................3
 VI. Compliance With Rule XI..........................................3
VII. Budget Analysis and Projections..................................4
VIII.Cost Estimate of the Congressional Budget Office.................4

 IX. Specific Constitutional Authority for This Legislation...........4
  X. Committee Recommendation.........................................4
 XI. Congressional Accountability Act; Public Law 104-1...............4
XII. Unfunded Mandates Reform Act; Public Law 104-4, Sect. 423........4
XIII.Federal Advisory Committee Act (5 U.S.C. App.) Section 5(b)......4

XIV. Changes in Existing Law..........................................5

                    I. Short Summary of Legislation

    This bill authorizes federal employees to begin 
participation in the Thrift Savings Plan (TSP) immediately upon 
being hired rather than waiting a year as is required by 
current law. This legislation also authorizes new federal hires 
to contribute eligible rollover distributions from qualified 
trusts, including private sector 401(k) accounts, to the Thrift 
Savings Fund. Finally, this bill allows employees to contribute 
to the TSP up to the current IRS limit (now $10,000 per year), 
regardless of income level.

              II. Background and Need for the Legislation

    H.R. 2526 would bolster a critical component of Federal 
employee retirement benefits, TSP. The TSP is a retirement 
saving and investment plan for Federal and postal employees. 
TheTSP is a critical part of the Federal employee benefits 
package, and is particularly important for those employees hired in the 
last decade who, under the Federal Employees Retirement System (FERS), 
receive smaller civil service benefits and need to invest greater 
amounts in order to enhance their retirement income. Yet while the TSP 
offers the same type of savings and tax benefits that many private 
employers offer their employees under 401(k) plans, Federal employees 
may not contribute up to the IRS maximum. This limitation makes it more 
difficult for the Federal government to recruit and retain outstanding 
employees.
    Individuals who have accumulated assets in a 401(k) plan 
while working for a private employer are not now allowed to 
roll those assets into the TSP if they begin working for the 
federal government. As a result, highly qualified private 
sector employees are probably discouraged from considering job 
opportunities in the federal government. It is not clear why 
Congress did not permit such rollovers. Perhaps Congress wanted 
to insulate the TSP from defects which may be found in other 
qualified plans. For example, prior to 1992 it was unclear 
whether the joint and survivor annuity rules would apply to a 
transfer of funds from a transferror plan. Recent changes in 
the tax law. i.e., the Unemployment Compensation Act of 1992, 
Pub. L. 102-318, 106 Stat. 209 (1992), and final regulations 
issued by the IRS interpreting it, have clarified the rules 
applicable to transfers and rollovers. Under those regulations, 
the TSP will not be subject to rules which are applicable to 
the transferror plan or IRA. It now appears that the provisions 
of the Internal Revenue Code (and IRS regulations) encourage 
the type of transaction contemplated by this section.
    Under current law, participants in FERS can invest up to 10 
percent of their salary with a government match of up to 5 
percent. Participants in the Civil Service Retirement System 
(CSRS) can invest up to 5 percent of their salary. These 
current limits have proven overly restrictive, as Federal 
employees have become increasingly insecure about their 
retirement incomes. Employees face uncertainty due to factors 
such as the downsizing of the Federal workforce. In addition, 
half of all family heads in their late fifties possess less 
then $10,000 in net financial assets. With the retirement of 
America's baby-boomers approaching, a sensible way to encourage 
Federal employees to take personal responsibility and increase 
their savings for retirement is clearly needed.
    H.R. 2526 addresses the above-mentioned problems. This 
legislation would allow employees to invest up to the IRS limit 
of $10,000 to the TSP without changing the government 
contribution. Employees entering the Federal workforce would be 
permitted, under this legislation, to ``roll'' money from a 
private sector 401(k) into the TSP. This bill would also allow 
new Federal hires to begin contributing to the TSP immediately 
instead of waiting 6 to 12 months to start saving for their 
retirement. As under Federal law, the government's contribution 
would not begin until the second open season.

            III. Legislative Hearings and Committee Actions

    The Committee held no legislative hearings on H.R. 2526. 
Rep. Constance A. Morella (MD) introduced H.R. 2526 on 
September 23, 1997. The bill was referred to the Committee on 
Government Reform and Oversight. On September 29, 1997, the 
bill was referred to the Subcommittee on Civil Service, On July 
21, 1998, the Subcommittee considered the bill, and forwarded 
the bill to the Committee on Government Reform and Oversight by 
voice vote. On July 23, 1998, the Committee on Government 
Reform and Oversight considered the bill, and ordered the bill 
to be reported to the House by voice vote.

              IV. Committee Hearings and Written Testimony

    The Committee did not hold any hearings related to this 
legislation.

       V. Explanation of the Bill as Reported: Section-by-Section

Section 1. Percentage limitations on contributions

    Under current law, those who participate in the TSP may not 
contribute more than a fixed percentage of their basic pay. The 
caps are either 10% or 5%, depending upon their positions or 
whether they are in the FERS or CSRS retirement plans. This 
section eliminates those caps, which would permit individuals 
to contribute up to the limit established by the Internal 
Revenue Service. This section shall take effect 6 months after 
enactment or at such earlier date the Executive Director of the 
Federal Retirement Thrift Investment Board may prescribe by 
regulation.

Section 2. Eligible rollover distributions

    This section amends 5 U.S.C. 8432 to permit employees and 
members to transfer to the TSP his or her account balance from 
a plan qualified under section 401(a) or 408(b) of the Internal 
Revenue Code or an Individual Retirement Arrangement (IRA) 
qualified under sections 408(a) or 408(b) to the TSP.

Section 3. Immediate participation in the Thrift Savings Plan

    This section amend 5 U.S.C. 8432(b) to eliminate 
statutorily required waiting periods before employees and 
Members may contribute to the TSP. Under this section, such 
individuals shall be eligible to contribute on the day they 
began service or, if that is not administratively feasible, on 
the earliest date thereafter that the Executive Director 
determines to be feasible.

                      VI. Compliance With Rule XI

    Pursuant to rule XI, clause 2(l)(3)(A) of the Rules of the 
House of Representatives, under the authority of rule X, clause 
2(b)(1) and clause 3(f), the results and findings from 
Committee oversight activities are incorporated in the bill and 
this report.

                  VII. Budget Analysis and Projections

    Based upon revenue estimates prepared by the Joint 
Committee on Taxation, the Committee estimates that this 
legislation would decrease revenues in fiscal years 1999 
through2002 by $869 million. The current level of revenues 
exceeds the revenue amount established in H. Con. Res. 84 for this 
period by $3,075,000,000.

         VIII. Cost Estimate of the Congressional Budget Office

    The Committee did not receive a cost estimate from the 
Congressional Budget Office before it was necessary to file 
this report.

       IX. Specific Constitutional Authority for This Legislation

    Clauses 1 and 18 of Article I, Sec. 8 of the Constitution 
grant Congress the power to enact this law.

                      X. Committee Recommendation

    On July 23, 1998, a quorum being present, the Committee 
ordered the bill favorably reported.

Comittee on Government Reform and Oversight--105th Congress. Rollcall

    Dated: July 23, 1998.
    Final: Passage of H.R. 2526.
    Offered by: Hon. Constance A. Morella (MD).
    Adopted by voice vote.

    XI. Congressional Accountability Act; Public Law 104-1; Section 
                               102(B)(3)

    H.R. 2526 covers employees of the legislative branch who 
participate in the Thrift Savings Plan.

    XII. Unfunded Mandates Reform Act; Public Law 104-4; Section 423

    In the opinion of the Committee H.R. 2526 contains no 
intergovernmental or private-sector mandates as defined in the 
Unfunded Mandates Reform Act (UMRA) and would not have any 
significant effects on the budgets of state, local, or tribal 
governments. The Committee has not received an estimate from 
the Congressional Budget Office.

   XIII. Federal Advisory Committee Act (5 U.S.C. App.) Section 5(b)

    The Committee finds that H.R. 2526 does not establish or 
authorize establishment of an advisory committee within the 
definition of 5 U.S.C. App., Section 5(b).

         Changes in Existing Law Made by the Bill, as Reported

    In compliance with clause 3 of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, 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

           *       *       *       *       *       *       *


PART III--EMPLOYEES

           *       *       *       *       *       *       *


Subpart G--Insurance and Annuities

           *       *       *       *       *       *       *


CHAPTER 83--RETIREMENT

           *       *       *       *       *       *       *


SUBCHAPTER III--CIVIL SERVICE RETIREMENT

           *       *       *       *       *       *       *


Sec. 8351. Participation in the Thrift Savings Plan

  (a) * * *
  (b)(1) Except as otherwise provided in this subsection, the 
provisions of subchapters III and VII of chapter 84 of this 
title shall apply with respect to employees and Members making 
contributions to the Thrift Savings Fund under subsection (a) 
of this section.
  (2) An employee or Member may contribute to the Thrift 
Savings Fund in any pay period any amount not exceeding [5 
percent of] the amount of the employee's or Member's basic pay 
for such period.

           *       *       *       *       *       *       *


CHAPTER 84--FEDERAL EMPLOYEES' RETIREMENT SYSTEM

           *       *       *       *       *       *       *


SUBCHAPTER III--THRIFT SAVINGS PLAN

           *       *       *       *       *       *       *


Sec. 8432. Contributions

  (a) An employee or Member may contribute to the Thrift 
Savings Fund in any pay period, pursuant to an election under 
subsection (b)[(1)], an amount not to exceed [10 percent of] 
such individual's basic pay for such period. [Contributions 
made under this subsection during any 6-month period for which 
an election period is provided under subsection (b)(1) shall be 
made each pay period during such 6-month period pursuant to a 
program of regular contributions provided in regulations 
prescribed by the Executive Director.] Contributions under this 
subsection pursuant to such an election shall, with respect to 
each pay period for which such election remains in effect, be 
made in accordance with a program of regular contributions 
provided in regulations prescribed by the Executive Director.
  (b)(1)(A) * * *
  (B) The amount to be contributed pursuant to an election 
under subparagraph (A) (or any election allowable by virtue of 
paragraph (4)) shall be the percentage of basic pay or amount 
designated by the employee or Member.

           *       *       *       *       *       *       *

  (3) [Notwithstanding paragraph (2)(A), an] An employee or 
Member who elects to become subject to this chapter under 
section 301 of the Federal Employees' Retirement System Act of 
1986 may make the first election for the purpose of subsection 
(a) during the period prescribed for such purpose by the 
Executive Director. The period prescribed by the Executive 
Director shall commence on the date on which the employee or 
Member makes the election to become subject to this chapter.
  [(4)(A) Notwithstanding paragraph (2)(A), an employee or 
Member who is an employee or Member on January 1, 1987, and 
continues as an employee or Member without a break in service 
through April 1, 1987, may make the first election for the 
purpose of subsection (a) during the election period prescribed 
for such purpose by the Executive Director. The Executive 
Director shall prescribe an election period for such purpose 
which shall commence on April 1, 1987. An election by such an 
employee or Member during that election period shall be 
effective on the first day of the employee's or Member's first 
pay period which begins after the date on which the employee or 
Member makes that election.
  [(B) Notwithstanding subsection (a), the maximum amount that 
an employee or Member may contribute during any pay period 
which begins on or after April 1, 1987, and before October 1, 
1987, pursuant to an election made during the election period 
provided under subparagraph (A) is the amount equal to 15 
percent of such individual's basic pay for such period.]
  (4) The Executive Director shall prescribe such regulations 
as may be necessary to carry out the following:
          (A) Notwithstanding subparagraph (A) of paragraph 
        (2), an employee or Member described in such 
        subparagraph shall be afforded a reasonable opportunity 
        to first make an election under this subsection 
        beginning on the date of commencing service or, if that 
        is not administratively feasible, beginning on the 
        earliest date thereafter that such an election becomes 
        administratively feasible, as determined by the 
        Executive Director.
          (B) An employee or Member described in subparagraph 
        (B) of paragraph (2) shall be afforded a reasonable 
        opportunity to first make an election under this 
        subsection (based on the appointment or election 
        described in such subparagraph) beginning on the date 
        of commencing service pursuant to such appointment or 
        election or, if that is not administratively feasible, 
        beginning on the earliest date thereafter that such an 
        election becomes administratively feasible, as 
        determined by the Executive Director.
          (C) Notwithstanding the preceding provisions of this 
        paragraph, contributions under paragraphs (1) and (2) 
        of subsection (c) shall not be payable with respect to 
        any pay period before the earliest pay period for which 
        such contributions would otherwise be allowable under 
        this subsection if this paragraph had not been enacted.
          (D) Sections 8351(a)(2), 8440a(a)(2), 8440b(a)(2), 
        8440c(a)(2), and 8440d(a)(2) shall be applied in a 
        manner consistent with the purposes of subparagraphs 
        (A) and (B), to the extent those subparagraphs can be 
        applied with respect thereto.
          (E) Nothing in this paragraph shall affect paragraph 
        (3).

           *       *       *       *       *       *       *

  (i)(1) This subsection applies to any employee--
          (A) to whom section 8432b applies; and
          (B) who, during the period of such employee's absence 
        from civilian service (as referred to in section 
        8432b(b)(2)(B))--
                  (i) is eligible to make an election described 
                in subsection (b)(1); or
                  (ii) would be so eligible but for having 
                [either elected to terminate individual 
                contributions to the Thrift Savings Fund within 
                2 months before commencing military service or] 
                separated in order to perform military service.

           *       *       *       *       *       *       *

  (j)(1) For the purpose of this subsection--
          (A) the term ``eligible rollover distribution'' has 
        the meaning given such term by section 402(c)(4) of the 
        Internal Revenue Code of 1986; and
          (B) the term ``qualified trust'' has the meaning 
        given such term by section 402(c)(8) of the Internal 
        Revenue Code of 1986.
  (2) An employee or Member may contribute to the Thrift 
Savings Fund an eligible rollover distribution from a qualified 
trust. A contribution made under this subsection shall be made 
in the form described in section 401(a)(31) of the Internal 
Revenue Code of 1986. In the case of an eligible rollover 
distribution, the maximum amount transferred to the Thrift 
Savings Fund shall not exceed the amount which would otherwise 
have been included in the employee's or Member's gross income 
for Federal income tax purposes.
  (3) The Executive Director shall prescribe regulations to 
carry out this subsection.

           *       *       *       *       *       *       *


Sec. 8439. Accounting and information

  (a)(1) The Executive Director shall establish and maintain an 
account for each individual who makes contributions or for whom 
contributions are made under section [8432(c)(1)] 8432 of this 
titleor who makes contributions to the Thrift Savings Fund 
under section 8351 of this title.

           *       *       *       *       *       *       *

  (c)(1) * * *
  (2) Information under this subsection shall be provided at 
least 30 calendar days before the beginning of each election 
period under section 8432(b)(1)(A) of this title, and in a 
manner designed to facilitate informed decisionmaking with 
respect to elections under sections 8432 and 8438 of this 
title. Nothing in this paragraph shall be considered to limit 
the dissemination of information only to the times required 
under the preceding sentence.

           *       *       *       *       *       *       *


Sec. 8440a. Justices and judges

  (a)(1) * * *
  (2) An election may be made under paragraph (1) only during a 
period provided under section 8432(b) for individuals subject 
to [chapter 84 of this title: Provided, however, That a justice 
or judge may make the first such election within 60 days of the 
effective date of this section.] this chapter.
  (b)(1) * * *
  [(2) The amount contributed by a justice or judge shall not 
exceed 5 percent of basic pay.]
  [(3)] (2) No contributions shall be made for the benefit of a 
justice or judge under section 8432(c) of this title.
  [(4)] (3) Section 8433(b) of this title applies with respect 
to elections available to any justice or judge who retires 
under section 371 (a) or (b) or section 372(a) of title 28. 
Retirement under section 371 (a) or (b) or section 372(a) of 
title 28 is a separation from service for the purposes of 
subchapters III and VII or chapter 84 of this title.
  [(5)] (4) Section 8433(b) of this title applies to any 
justice or judge who resigns without having met the age and 
service requirements set forth in section 371(c) of title 28.
  [(6)] (5) The provisions of section 8351(b)(5) of this title 
shall govern the rights of spouses of justices or judges 
contributing to the Thrift Savings Fund under this section.
  [(7)] (6) Notwithstanding paragraphs [(4) and (5)] (3) and 
(4), if any justice or judge retires under subsection (a) or 
(b) of section 371 or section 372(a) of title 28, 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 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.

Sec. 8440b. Bankruptcy judges and magistrates

  (a) * * *
  (b)(1) * * *
  [(2) The amount contributed by a bankruptcy judge or 
magistrate for any pay period shall not exceed 5 percent of 
basic pay for such pay period.]
  [(3)] (2) No contributions shall be made under section 
8432(c) of this title for the benefit of a bankruptcy judge or 
magistrate making contributions under subsection (a) of this 
section.
  [(4)] (3)(A) Section 8433(b) of this title applies to a 
bankruptcy judge or magistrate who elects to make contributions 
to the Thrift Savings Fund under subsection (a) of this section 
and who retires entitled to an immediate annuity under section 
377 of title 28 (including a disability annuity under 
subsection (d) of such section) or section 2(c) of the 
Retirement and Survivors' Annuities for Bankruptcy Judges and 
Magistrates Act of 1988.

           *       *       *       *       *       *       *

  [(5)] (4) With respect to bankruptcy judges and magistrates 
to whom this section applies, any of the actions described 
under paragraph [(4)(A)] (3)(A), (B), or (C) shall be 
considered a separation from service for purposes of this 
subchapter and subchapter VII.
  [(6)] (5) For purposes of this section, the terms 
``retirement'' and ``retire'' include removal from office under 
section 377(d) of title 28 on the sole ground of mental or 
physical disability.
  [(7)] (6) 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.
  [(8)] (7) Notwithstanding paragraph [(4)] (3), 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 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.

Sec. 8440c. Claims Court judges

  (a) * * *
  (b)(1) * * *
  [(2) The amount contributed by a Claims Court judge for any 
pay period shall not exceed 5 percent of basic pay for such pay 
period.]
  [(3)] (2) No contributions shall be made under section 
8432(c) of this title for the benefit of a Claims Court judge 
making contributions under subsection (a) of this section.
  [(4)] (3)(A) Section 8433(b) of this title applies to a 
Claims court judge who elects to make contributions to the 
Thrift Savings Fund under subsection (a) of this section and 
who retires entitled to an annuity under section 178 of title 
28 (including a disability annuity under subsection (c) of such 
section).
  (B) Section 8433(b) of this title applies to any Claims Court 
judge who elects to make contributions to the Thrift Savings 
Fund under subsection (a) of this section and who retires 
before becoming entitled to an annuity under section 178 of 
title 28.
  [(5)] (4) With respect to Claims Court judges to whom this 
section applies, any of the actions described in paragraph 
[(4)(A)] (3)(A) or (B) shall be considered a separation from 
service for purposes of this subchapter and subchapter VII.
  [(6)] (5) For purposes of this section, the terms 
``retirement'' and ``retire'' include removal from office under 
section 178(c) of title 28 on the sole ground of mental or 
physical disability.
  [(7)] (6) In the case of a Claims Court 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 Governments contribution to 
that person's Thrift Savings Account, without regard to earning 
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)] (7) Notwithstanding paragraph [(4)] (3), if any Claims 
Court judge retires under circumstances making such judge 
eligible to make an election under section 8433(b), and such 
judge's nonforfeitable account balance is 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.

Sec. 8440d. Judges of the United States Court of Veterans Appeals

  (a)(1) * * *
  (2) An election may be made under paragraph (1) only during a 
period provided under section 8432(b) of this title for 
individuals subject to [chapter 84 of this title.] this 
chapter.
  (b)(1) * * *
  [(2) The amount contributed by a judge may not exceed 5 
percent of the amount of the judge's basic pay. Basic pay does 
not include any retired pay paid pursuant to section 7296 of 
title 38.]
  (2) For purposes of contributions made to the Thrift Savings 
Fund, basic pay does not include any retired pay paid pursuant 
to section 7296 of title 38.

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