[Senate Report 115-183]
[From the U.S. Government Publishing Office]


                                                   Calendar No. 260

115th Congress}                                            { Report
                                 SENATE
 1st Session  }                                            { 115-183

======================================================================
                                                                                   

                     TSP MODERNIZATION ACT OF 2017

                               __________

                              R E P O R T

                                 of the

                   COMMITTEE ON HOMELAND SECURITY AND

                          GOVERNMENTAL AFFAIRS

                          UNITED STATES SENATE

                              To Accompany

                                 S. 873

        TO AMEND SECTION 8433 OF TITLE 5, UNITED STATES CODE, TO
 PROVIDE FOR FLEXIBILITY IN MAKING WITHDRAWALS FROM THE THRIFT SAVINGS 
                                  FUND

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


                November 8, 2017.--Ordered to be printed
        COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS

                    RON JOHNSON, Wisconsin, Chairman
JOHN McCAIN, Arizona                 CLAIRE McCASKILL, Missouri
ROB PORTMAN, Ohio                    THOMAS R. CARPER, Delaware
RAND PAUL, Kentucky                  JON TESTER, Montana
JAMES LANKFORD, Oklahoma             HEIDI HEITKAMP, North Dakota
MICHAEL B. ENZI, Wyoming             GARY C. PETERS, Michigan
JOHN HOEVEN, North Dakota            MAGGIE HASSAN, New Hampshire
STEVE DAINES, Montana                KAMALA D. HARRIS, California

                  Christopher R. Hixon, Staff Director
                Gabrielle D'Adamo Singer, Chief Counsel
                   Satya P. Thallam, Chief Economist
               Margaret E. Daum, Minority Staff Director
               Stacia M. Cardille, Minority Chief Counsel
       Charles A. Moskowitz, Minority Senior Legislative Counsel
                 Katherine C. Sybenga, Minority Counsel
                     Laura W. Kilbride, Chief Clerk
                     
                     
                     
                     


                                                   Calendar No. 260

115th Congress}                                            { Report
                                 SENATE
 1st Session  }                                            { 115-183

======================================================================

 
                     TSP MODERNIZATION ACT OF 2017

                                _______
                                

                November 8, 2017.--Ordered to be printed

                                _______
                                

 Mr. Johnson, from the Committee on Homeland Security and Governmental 
                    Affairs, submitted the following

                              R E P O R T

                         [To accompany S. 873]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Homeland Security and Governmental 
Affairs, to which was referred the bill (S. 873) to amend 
section 8433 of title 5, United States Code, to provide for 
flexibility in making withdrawals from the Thrift Savings Fund, 
having considered the same, reports favorably thereon with an 
amendment and recommends that the bill, as amended, do pass.

                                CONTENTS

                                                                   Page
  I. Purpose and Summary..............................................1
 II. Background and Need for the Legislation..........................2
III. Legislative History..............................................3
 IV. Section-by-Section Analysis......................................3
  V. Evaluation of Regulatory Impact..................................4
 VI. Congressional Budget Office Cost Estimate........................5
VII. Changes in Existing Law Made by the Bill, as Reported............5

                         I. Purpose and Summary

    The TSP Modernization Act of 2017 seeks to provide greater 
flexibility for Federal employees and retirees to withdraw 
funds from their Thrift Savings Plan (TSP) accounts. Currently, 
upon separation from Federal employment, Federal employees are 
allowed only one partial post-separation withdrawal, after 
which only full withdrawal options are available.\1\ And 
similarly, for active Federal employees over age 59\1/2\, only 
one partial age-based withdrawal is allowed. Full withdrawal 
options include a regular stream of monthly payments, an 
annuity purchased through the TSP, or a full lump sum. The TSP 
Modernization Act would allow Federal employees to withdraw 
their money on an as-needed basis with more flexible rules.
---------------------------------------------------------------------------
    \1\Fed. Ret. Thrift Inv. Bd., Withdrawing Your TSP Account After 
Leaving Federal Service, TSPBK02, March 2014, at 4.
---------------------------------------------------------------------------

              II. Background and the Need for Legislation

    The Federal Employees' Retirement System Act of 1986 
(FERSA) established the Federal Employees Retirement System 
(FERS), which includes a defined-contribution plan available to 
Federal employees, known as the TSP.\2\ The FERSA began the 
transition away from the Civil Service Retirement System, with 
employees hired after December 31, 1983 eligible for the new 
system.\3\
---------------------------------------------------------------------------
    \2\Pub. L. No. 99-335 (codified as amended in scattered sections 5 
U.S.C.).
    \3\Wilmer L. Kerns, Federal Employees' Retirement System Act of 
1986, 49 SOCIAL SEC. BULLETIN, no. 11, November 1986, at 5.
---------------------------------------------------------------------------
    The FERSA created different options for TSP withdrawals 
depending on a participant's Federal service. Participants 
eligible for retirement and annuity payment under FERS could: 
(1) withdraw the account in one or more payments; (2) receive 
an annuity; (3) defer an annuity; or (4) transfer the funds to 
an IRA or any qualified plan.\4\ Those participants not 
entitled to an annuity (e.g., those with less than five years 
of Federal service) would have two options: (1) withdraw the 
funds at age 62; or (2) rollover to an IRA or any qualified 
pension plan.\5\
---------------------------------------------------------------------------
    \4\Pub. L. No. 99-335 (codified as amended at 5 U.S.C. Sec. 8433).
    \5\Id.
---------------------------------------------------------------------------
    As the TSP was implemented, the Federal Retirement Thrift 
Investment Board (FRTIB) found that these options were 
confusing to participants and difficult to clearly explain. 
Congress sought to address these issues through the Federal 
Workforce Restructuring Act of 1994.\6\ The law increased 
withdrawal flexibility so that all participants, irrespective 
of eligibility for retirement benefits, would be entitled to 
all withdrawal options.\7\ Additionally, it expanded spousal 
waiver provisions, which previously applied only to FERS 
participants who separated with retirement eligibility, to all 
FERS participants.\8\ According to the FRTIB, the law ``greatly 
enhanced communication efforts by reducing the number of 
complicated forms and communications materials, reduced 
administrative costs, and improved withdrawal time frames.''\9\
---------------------------------------------------------------------------
    \6\Pub. L. No. 103-226.
    \7\Id. at Sec. 9.
    \8\Id.
    \9\Briefing for Majority Committee Staff Before the Perm. Subcomm. 
on Investigations of the S. Comm. on Homeland Sec. & Governmental 
Affairs, 115th Cong. (2017) (statement of Kim Weaver, Director of 
External Affairs, Federal Retirement Thrift Investment Board).
---------------------------------------------------------------------------
    April 2017 marked the 30th anniversary of the first 
contributions made to the TSP. Today more than five million 
Americans have savings in TSP accounts, worth a combined $512 
billion in assets.\10\ Yet FRTIB surveys consistently show that 
participants dislike the plan's lack of withdrawal 
flexibility.\11\ These surveys show ``significant participant 
dissatisfaction with the availability of only one partial 
withdrawal'' and ``[m]any participants view the TSP as overly 
restrictive.''\12\ The plan's overly restrictive partial 
withdrawal rules have caused workers to cash out from their TSP 
entirely, often into higher fee private retirement 
accounts.\13\
---------------------------------------------------------------------------
    \10\Fed. Ret. Thrift Inv. Bd., Fund Info. (July, 2017).
    \11\Fed. Ret. Thrift Inv. Bd., Ann. Rep. of the Thrift Sav. Plan 
Required by Sec. 105 of the TSP Enhancement Act of 2009 (2017), at 2.
    \12\Memorandum from Greg Long, Exec. Dir., Fed. Ret. Thrift Inv. 
Bd., to Fed. Ret. Thrift Inv. Bd. Members (July 7, 2015).
    \13\Id.
---------------------------------------------------------------------------
    In addition, the FRTIB surveyed options offered by other 
defined contribution plans, both in the private sector and 
state/local governments.\14\ While there is no single private 
sector standard, it is clear that the bulk of the other plans 
provide significantly greater withdrawal flexibility than is 
currently offered by the TSP.\15\ Other plans also tend to 
offer greater ability to make multiple partial withdrawals as 
well as make more frequent changes to their monthly payment 
amounts.\16\
---------------------------------------------------------------------------
    \14\Id.
    \15\Vanguard, How America Saves 2016 97 (2016).
    \16\Id.
---------------------------------------------------------------------------
    The TSP Modernization Act of 2017 would provide more 
options to Federal employees and members of the uniformed 
services who would like greater flexibility in accessing their 
TSP retirement savings. The bill would amend section 8433, 
Title 5, to allow for multiple partial post-separation 
withdrawals, and multiple age-based withdrawals. Allowing 
multiple partial post-separation and age-based withdrawals 
would enable Federal employees to withdraw their money on an 
as-needed basis. In addition to enabling multiple post-
separation and age-based withdrawals, S. 873 would make the 
following changes to the withdrawal rules:
           for participants who choose to withdraw 
        their money via periodic payments, they may revise the 
        timing and amounts of periodic payments;
           separated federal employees will have the 
        option of combining partial withdrawals or taking an 
        annuity with periodic payments; and
           the bill eliminates automatic annuities as 
        the default option if participants do not elect an 
        alternative.

                        III. Legislative History

    Senator Rob Portman (R-OH) introduced S. 873 on April 6, 
2017, with Senator Thomas R. Carper (D-DE). The bill was 
referred to the Committee on Homeland Security and Governmental 
Affairs. The Committee considered S. 873 at a July 26, 2017 
business meeting.
    The Committee ordered S. 873 reported favorably on July 26, 
2017, by voice vote en bloc. Senators present were Johnson, 
Portman, Lankford, Daines, McCaskill, Tester, Heitkamp, Peters, 
Hassan and Harris. Consistent with Committee Rule 11, the 
Committee reports the bill with a technical amendment by mutual 
agreement of the Chairman and Ranking Member.

        IV. Section-by-Section Analysis of the Bill, as Reported


Section 1. Short title

    This section provides the bill's short title, the ``TSP 
Modernization Act of 2017.''

Section 2. Thrift Savings Plan account withdrawal flexibility

    Section (a)(1) would eliminate the restriction that 
participants cannot take partial post-separation withdrawals if 
they've already taken a partial in-service withdrawal and would 
permit multiple post-separation withdrawals.
    Section (a)(2) would permit, but does not require, the 
Executive Director of the Federal Retirement Thrift Investment 
Board to limit the number of post-separation withdrawals. This 
language would allow the FRTIB to address the situation of 
administrative costs increasing unexpectedly as a result of 
this legislative change.
    Section (b) permits the Executive Director to allow 
participants to stop periodic payments by regulation. In 
conjunction with existing Section 8433(b)(4), it would also 
permit the Executive Director to allow participants to elect an 
annuity while receiving monthly payments.
    Section (c) eliminates the withdrawal election deadline. 
TSP participants are required to make a post-separation 
withdrawal election by April 1st of the year following the year 
in which they turn 70\1/2\ and are separated from Federal 
service. This withdrawal election deadline is independent of 
the IRS requirement to begin distributing required minimum 
distributions (RMDs) annually by April 1st of the year 
following the year in which they are 70\1/2\ and separated from 
Federal service. This amendment does not impact the RMD rules.
    Section (d) permits multiple age-based withdrawals.
    Section (e) contains a technical amendment eliminating the 
reference to paragraphs (1) and (2) of section (h) and 
replacing it with the correct reference paragraphs (1) and (2) 
of section 8433(f) to conform to amendments made by Public Law 
103-226.
    Section (f) requires the FRTIB Executive Director to issue 
regulations to implement this Act, as soon as administratively 
practicable.
    Section (g) contains the effective date of the legislation. 
The amendments shall take effect on the date of enactment and 
shall apply on and after the effective date of the regulations 
issued under section (f).

                   V. Evaluation of Regulatory Impact

    Pursuant to the requirements of paragraph 11(b) of rule 
XXVI of the Standing Rules of the Senate, the Committee has 
considered the regulatory impact of this bill and determined 
that the bill will have no regulatory impact within the meaning 
of the rules. The Committee agrees with the Congressional 
Budget Office's statement that the bill contains no 
intergovernmental or private-sector mandates as defined in the 
Unfunded Mandates Reform Act and would impose no costs on 
state, local, or tribal governments.

             VI. Congressional Budget Office Cost Estimate

                                                   August 17, 2017.
Hon. Ron Johnson,
Chairman, Committee on Homeland Security and Governmental Affairs, U.S. 
        Senate, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for S. 873, the TSP 
Modernization Act of 2017.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Dan Ready.
            Sincerely,
                                                        Keith Hall.
    Enclosure.

S. 873--TSP Modernization Act of 2017

    S. 873 would expand the withdrawal options for participants 
in the Thrift Savings Plan (TSP), the federal government's 
defined-contribution retirement plan. Currently, participants 
may only make one partial withdrawal after they turn 59\1/2\ 
while employed or one such withdrawal after they retire. (A 
partial withdrawal is a single withdrawal up to the full 
balance in the participant's account that is not repeated 
regularly.) Enacting S. 873 would allow an unlimited number of 
such withdrawals.
    The staff of the Joint Committee on Taxation estimate that 
enacting S. 873 would affect revenues because TSP participants 
would be able to withdraw funds differently than under current 
law and those withdrawals could affect the timing of taxes paid 
on the withdrawn amounts; those effects, however, would be 
negligible. Because the bill would affect revenues, pay-as-you-
go procedures apply. Enacting the bill would not affect direct 
spending.
    CBO estimates that enacting S. 873 would not increase net 
direct spending or significantly affect on-budget deficits in 
any of the four consecutive 10-year periods beginning in 2028.
    S. 873 contains no intergovernmental or private-sector 
mandates as defined in the Unfunded Mandates Reform Act and 
would impose no costs on state, local, or tribal governments.
    On August 16, 2017, CBO transmitted an estimate for H.R. 
3031, as ordered reported by the House Committee on Oversight 
and Government Reform on July 19, 2017. The two bills are 
similar and the estimated budgetary effects are the same.
    The CBO staff contact for this estimate is Dan Ready. The 
estimate was approved by H. Samuel Papenfuss, Deputy Assistant 
Director for Budget Analysis.

       VII. Changes in Existing Law Made by the Bill, as Reported

    In compliance with paragraph 12 of rule XXVI of the 
Standing Rules of the Senate, changes in existing law made by 
S. 873 as reported are shown as follows (existing law proposed 
to be omitted is enclosed in brackets, new matter is printed in 
italic, and existing law in which no change is proposed is 
shown in roman):

UNITED STATES CODE

           *       *       *       *       *       *       *


TITLE 5--GOVERNMENT ORGANIZATION AND EMPLOYEES

           *       *       *       *       *       *       *


PART III--EMPLOYEES

           *       *       *       *       *       *       *


Subpart G--Insurance and Annuities

           *       *       *       *       *       *       *


CHAPTER 84--FEDERAL EMPLOYEES' RETIREMENT SYSTEM

           *       *       *       *       *       *       *



Subchapter III--Thrift Savings Plan

           *       *       *       *       *       *       *



SEC. 8432B. CONTRIBUTIONS OF PERSONS WHO PERFORM MILITARY SERVICE.

    (a) * * *

           *       *       *       *       *       *       *

    (h)(1) * * *
    (2)(A) An employee to whom this section applies may elect, 
for purposes of [section 8433(d), or paragraph (1) or (2) of 
section 8433(h)] subsection (d) or (f) of section 8433, as the 
case may be, to have such employee's separation (described in 
subsection (a)(1)) treated as if it had never occurred.

           *       *       *       *       *       *       *


SEC. 8433. BENEFITS AND ELECTION OF BENEFITS.

    (a) * * *
    (b) * * *
    (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] may make 1 or more withdrawals of any amount as a 
single payment in accordance with subsection (b)(2) from the 
employee's or Member's account.

           *       *       *       *       *       *       *

    (4) * * *
    (5) Withdrawals under this subsection shall be subject to 
such other conditions as the Executive Director may prescribe 
by regulation.
    (d)(1) * * *
    (2) A former employee or Member may not [change an] return 
a payment that was made under an election under this section on 
or after the date on which [a payment] such 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.
    (e) * * *
    (f)[(1) Notwithstanding] Notwithstanding subsection (b), if 
an employee or Member separates from Government employment, and 
such employee's or Member'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, unless 
an election under section 8432b(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 April 1 of the year 
following the latest of the year in which--
          [(A) the employee, Member, former employee, or former 
        Member becomes 70\1/2\ years of age; or
          [(B) the employee, Member, former employee, or former 
        Member separates from Government employment.]
    (g) * * *
    (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)] (2) 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.
    [(4)] (3) Withdrawals under paragraph (1) shall be subject 
to such other conditions as the Executive Director may 
prescribe by regulation.
    [(5)] (4) A withdrawal may not be made under this 
subsection unless the requirements of section 8435(e) of this 
title are satisfied.

                                  [all]