[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.
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\1\Fed. Ret. Thrift Inv. Bd., Withdrawing Your TSP Account After
Leaving Federal Service, TSPBK02, March 2014, at 4.
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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\
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\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.
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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\
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\4\Pub. L. No. 99-335 (codified as amended at 5 U.S.C. Sec. 8433).
\5\Id.
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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\
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\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).
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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\
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\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.
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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\
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\14\Id.
\15\Vanguard, How America Saves 2016 97 (2016).
\16\Id.
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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]