[Federal Register Volume 60, Number 34 (Tuesday, February 21, 1995)]
[Rules and Regulations]
[Pages 9595-9608]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-4062]



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 Rules and Regulations
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  Federal Register / Vol. 60, No. 34 / Tuesday, February 21, 1995 / 
Rules and Regulations  

[[Page 9595]]

FEDERAL RETIREMENT THRIFT INVESTMENT BOARD

5 CFR Part 1650


Methods of Withdrawing Funds From the Thrift Savings Plan

AGENCY: Federal Retirement Thrift Investment Board.

ACTION: Final rule.

-----------------------------------------------------------------------

SUMMARY: The Executive Director of the Federal Retirement Thrift 
Investment Board (Board) is publishing final regulations concerning 
methods of withdrawing funds from the Thrift Savings Plan (TSP). These 
regulations reflect changes made to eligibility requirements for the 
withdrawal of accounts from the Thrift Savings Plan resulting from the 
enactment of section 9 of the Federal Workforce Restructuring Act of 
1994. That law provides that all of the withdrawal methods formerly 
reserved for persons retiring from Government employment, and all 
related spousal rights, would become available to all Thrift Savings 
Plan participants who separates from Government employment, regardless 
of the person's length of service or retirement eligibility at the time 
of separation.

EFFECTIVE DATE: These rules are effective March 10, 1995.

FOR FURTHER INFORMATION CONTACT:
James B. Petrick, (202) 942-1661.

SUPPLEMENTARY INFORMATION: The TSP was originally established by the 
Federal Employees' Retirement System Act of 1986 (FERSA), Public Law 
99-335. FERSA set forth provisions, found in subchapter III of chapter 
84 of title 5, United States Code, for the administration of the TSP. 
Provisions concerning TSP withdrawals were found primarily in sections 
8433 and 8434 of title 5. Provisions concerning spousal rights relating 
to withdrawals were found primarily in section 8435 of title 5.
    As originally enacted, FERSA conditioned eligibility for the 
various withdrawal methods upon eligibility for basic retirement 
benefits. Consequently, persons without such eligibility upon 
separation from Government employment (generally less than 5 years of 
service) were not permitted to leave their accounts in the TSP and were 
only permitted to withdraw them by transferring them to an Individual 
Retirement Arrangement (IRA) or other eligible retirement plan. They 
could not receive a cash payment of their account. Persons with 5 or 
more years of service could leave their accounts in the TSP and had 
more withdrawal options, but cash payment options were only available 
to them when they reached retirement age. Spousal rights were also 
conditioned upon the retirement eligibility of the participant at time 
of separation.
    These rules proved confusing to participants and difficult to 
administer, requiring, for example, various withdrawal forms depending 
upon the participant's retirement eligibility. As a result of Public 
Law 103-226, which was enacted on March 30, 1994, all TSP participants 
who separate from Government employment will now have the same 
withdrawal options available to them.
    Spousal rights rules were also simplified by Public Law 103-226. 
Under the new rules, spouses of all FERS participants who separate from 
Government service with an account balance of more than $3,500 have the 
right to a survivor annuity, unless the spouse waives that right. The 
required annuity is a joint life annuity with the spouse with 50 
percent survivor benefits, level payments, and no cash refund feature. 
Spouses of Civil Service Retirement System (CSRS) participants are 
entitled to notice whether or not the participant separated from 
Federal service with eligibility for basic retirement benefits. Public 
Law 103-226 eliminated the requirement to notify former spouses of FERS 
and CSRS participants who separated from Federal service without 
eligibility for basic retirement benefits that the participant is 
withdrawing his or her TSP account.
    On December 28, 1994, the Board published a proposed rule in the 
Federal Register (59 FR 66796) proposing a new subpart 1650 reflecting 
the new simplified TSP withdrawal rules. Previously, on September 13, 
1994, the Board had published amendments to spousal rights regulations 
in the Federal Register (59 FR 46934) reflecting the changes in spousal 
rights rules made by the new legislation. Additionally, the September 
13, 1994 proposed amendments also amended the rules for obtaining an 
exception to the spousal waiver and notice requirements to allow 
participants seeking such an exception to submit copies of documents 
rather than originals or certified copies and to use statements instead 
of affidavits and declarations. Further, those amendments provided that 
a withdrawal form received within one year of an approved exception may 
be processed without obtaining a new exception.
    The Board is now issuing both sets of regulations in this final 
rule promulgating new Part 1650. The Board did not receive any comments 
on the proposed rule issued on December 28, 1994. However, the Board 
did receive one comment on the proposed changes to spousal rights rules 
published on September 13, 1994. The comment concurred with the 
proposed revisions to the spousal rights rules, including the 
elimination of the word ``current'' when referring to the spouse. The 
comment recommended that the word ``current'' be included in the title 
to the subpart dealing with spousal rights because subpart A includes a 
definition of ``current spouse.'' However, in accordance with the 
changes made by Public Law 103-226, the definitions of both ``former 
spouse'' and ``current spouse'' have been removed from the definitions 
section of part 1650 and have been replaced by a definition of 
``spouse.'' Thus, it is no longer necessary to include the term 
``current spouse'' in the title to the subpart dealing with spousal 
rights.
    The comment also recommended that the title to 5 CFR 1650.17 be 
revised to replace the word ``notification'' with the word ``notice'' 
to align with title with other changes made to subpart G. This change 
has been made in the final rule.
    The Board has made a number of other changes to the proposed rule 
published on September 13, 1994. Based upon the experience gained in 
rewriting the remainder of part 1650, as issued on 
[[Page 9596]] December 28, 1994, the Board has decided to rewrite and 
reorganize the spousal rights provisions, which the September 13 
proposal only amended. This is being done in order to set forth more 
clearly the simplified spousal rights rules enacted by Public Law 103-
226. Therefore, new Sec. 1650.18 deals comprehensively with the rights 
of spouses of FERS participants, new Sec. 1650.19 deals with the right 
of the spouses of CSRS participants to notice, and new Sec. 1650.20 
deals with spousal rights relating to changes in withdrawal elections. 
The sections concerning the granting of spousal waivers have been 
changed only by redesignating some of the paragraphs for the sake of 
clarity.
    The Board has also made one change to the regulations published on 
December 28, 1994. Previously, the definition of an ``insurable 
interest'' found at Sec. 1650.10(b)(4)(i), the existence of which would 
allow the purchase of a joint life annuity for the participant and a 
person other than his or her spouse, included a common-law spouse. 
However, the Board has determined that, if a person is a common-law 
spouse in a jurisdiction that recognizes common-law marriages, that 
person is treated under the law as being the spouse in all respects. 
Therefore, in the final regulations the treatment of a common-law 
spouse has been moved from the definition of ``insurable interest'' to 
the definition of ``spouse'' found in Sec. 1650.1. This change makes it 
clear that a common-law spouse will be treated as a legal spouse for 
all purposes under these regulations.
    In reissuing part 1650, the Board also decided to reorganize some 
of its provisions, to publish some provisions separately, and to 
eliminate others. Therefore, under this final rule, original subpart G, 
Spousal Rights, is designated in new part 1650 as subpart D. A new 
subpart, dealing with minimum distributions and to be designated as 
subpart E, will be issued separately. The subparts dealing with court-
ordered payments from TSP accounts and death benefits are each being 
issued as separate parts in the Code of Federal Regulations. Experience 
has shown that each of these areas has complex rules which are 
different from those used to process withdrawals. Finally, the subpart 
entitled ``Denial of Benefits,'' which was originally published as 
subpart K of part 1650, is being eliminated entirely. Experience in 
paying withdrawal benefits has shown that there is no need for a formal 
``claims'' procedure with respect to those benefits. Participants or 
others who wish to question or challenge certain aspects of a TSP 
withdrawal are free to do so simply by contacting the TSP Service 
Office or the Board. Each case must often be addressed or handled on 
its own merits, although, as permitted in Sec. 1650.6, the account can 
be ``frozen'' while the matter is under review. The Board currently 
sees no merit in having particular procedures which participants must 
follow in order to request such a review. Further, participants and 
beneficiaries remain free to pursue any claim for benefits in Federal 
court pursuant to 5 U.S.C. 8477.

Section-by-Section Analysis

Subpart A
    Subpart A of part 1650 sets forth the general rules affecting a 
participant's eligibility to withdraw his or her TSP account.
    Section 1650.1 sets forth definitions of terms used in part 1650. 
The TSP is a defined contribution retirement plan, similar to a private 
sector 401(k) plan, for persons employed by the Federal Government. It 
is administered by the Board, an independent Federal agency within the 
Executive Branch, pursuant to the provisions of FERSA. Thus Sec. 1650.1 
provides general definitions for the terms ``Board,'' ``TSP'' and 
``Plan.''
    Participants in the Plan are generally covered under either the 
Federal Employees' Retirement System (FERS), established in 1986 along 
with the TSP, or the Civil Service Retirement System (CSRS), which was 
the previous retirement system for Federal employees. However, some 
Federal employees, such as those employed by the State Department, are 
covered under separate retirement systems, which are modeled after 
either FERS or CSRS. Therefore, definitions of ``FERS'' and ``CSRS'' 
are provided which make it clear that these terms also encompass 
``equivalent retirement systems'' such as those for State Department 
employees.
    Definitions are also provided for the terms ``account balance,'' 
``participant,'' and ``spouse.'' The term ``account balance,'' is 
defined to mean the nonforfeitable, valued account balance as of the 
month-end prior to a withdrawal. Pursuant to 5 U.S.C. 8432(g) and part 
1603, Vesting, Agency Automatic (1%) Contributions of persons who 
separate with less than three years (or in some cases two years) of 
service are forfeited to the TSP prior to withdrawal of an account. 
Also, as noted in the discussion of Sec. 1650.7, only the most recent 
valued account balance is eligible to be withdrawn. Therefore, it was 
deemed preferable to define ``account balance'' to mean the 
nonforfeitable (also referred to as ``vested''), valued account balance 
rather than to repeat both modifiers each time the term was used. The 
term ``participant'' rather than ``employee'' is used to describe 
persons having a TSP account, since the withdrawal rules primarily 
affect people who have ceased to be ``employed'' but who are still 
participating in the Plan.
    The term ``spouse'' is defined to include any person to whom the 
participant is married (as determined under the laws of the appropriate 
jurisdiction) on the date the participant signs a TSP withdrawal form 
asking him or her to state marital status. This definition recognizes 
that the TSP does not have information to determine marital status as 
of the date of separation or as of the date of payment. Instead, the 
TSP must rely upon the statement of the participant as to his or her 
marital status when the participant files TSP withdrawal forms. These 
statements are accompanied by a warning that a false statement is 
subject to criminal penalties under 18 U.S.C. 1001. The regulation 
makes it clear that a separated spouse is treated as a spouse under 
these rules. The regulation also includes in the definition of 
``spouse'' a common-law spouse with whom the person is living in a 
jurisdiction that recognizes common-law spouses. Again, the participant 
is responsible for informing the TSP if he or she has common-law spouse 
under this definition.
    Section 1650.2 states the general rule that, as a result of Public 
Law 103-226, all TSP participants who separate from Government 
employment have the right to choose any of the TSP withdrawal options. 
Those withdrawal options are set forth in subpart B. However, the 
availability of those withdrawal options may be affected by two other 
sets of rules. First, the spousal rights provisions of FERSA restrict 
the withdrawal options of married participants covered by the Federal 
Employees' Retirement System (FERS participants) to the 50 percent 
joint life annuity with level payments and no cash refund feature 
unless the spouse waives his or her right to that option. Married 
participants covered by the Civil Service Retirement System (CSRS 
participants) are not restricted in their choice of withdrawal options, 
buy the law requires that their spouses be notified of the withdrawal 
method the participant chooses. The rules implementing the changes to 
spousal rights resulting from Public Law 103-226 are found in subpart 
D.
    Second, the rules relating to required minimum distributions, which 
are found in section 401(a)(9) of the Internal Revenue Code, require 
tax-qualified [[Page 9597]] government retirement plans, including the 
TSP, to begin making distributions to participants by April 1 of the 
year following the year they become age 70\1/2\ or the year they 
separate from Government employment, whichever is later. These rules 
also require that, in certain circumstances, minimum distribution 
amounts be paid directly to the participant rather than transferred to 
an IRA or other eligible retirement plan or used to purchase an 
annuity. Consequently, the minimum distribution rules can limit the 
ability of some participants to have their entire accounts paid 
according to the withdrawal method they choose under these rules. The 
Board intends to publish separate rules, adding subpart E to part 1650, 
describing the effect of minimum distributions on TSP accounts. 
Reference to the minimum distribution rules is required here because 
they limit the participant's ability to withdraw the entire account 
according to his or her choice. Until regulations are issued adding 
subpart E to part 1650, those rules will simply be referred to as 
``minimum distribution requirements.''
    Third, the rules concerning matrimonial court orders and child 
support and alimony orders can affect the ability of the participant to 
withdraw his or her account, as well as the amount in the account 
available for withdrawal. Those rules are being published separately in 
part 1653.
    Section 1650.3 describes what constitutes a ``separation from 
Government employment'' for purposes of determining who is entitled to 
withdraw his or her TSP account. Section 8433 of title 5 limits the 
ability to withdraw an account from the TSP to persons who have 
``separated from Government employment.'' This limitation is in keeping 
with the primary purpose of the TSP as a retirement plan under which 
contributions and earnings are afforded favorable tax treatment because 
they will be used primarily to fund retirement benefits.
    Section 1650.3 makes it clear that the term ``separation from 
Government employment'' encompasses separation from positions in the 
Federal Government, the Postal Service, and in organizations that have 
employees who by statute are eligible to contribute to the TSP. For 
example, certain employees of employee organizations and employees 
working for a state or local government on an Intergovernmental 
Personnel Act (IPA) assignment are eligible to participate in the TSP 
under the provisions of Public Law 100-238. (See 5 CFR Part 1620). 
Under these regulations, separation from such positions will be 
considered a separation from Government employment (unless the 
participant returns to his or her position with the Federal 
Government).
    Section 1650.3 also makes it clear that the Board interprets the 
term ``separation'' to mean separation from Government employment (as 
described above) for at least 31 full calendar days. Because Congress 
limited access to the often significant amounts of money in TSP 
accounts to persons who had separated from Government employment, the 
Board determined that persons transferring between Government jobs (for 
example) should not be able to gain access to their TSP accounts after 
a short break in service. Thus the regulation states that a break in 
service must be at least 31 full calendar days. Similar rules have been 
adopted by Congress to limit access to refunds under the FERS and CSRS 
basic annuity programs.
    Section 1650.4 sets forth rules for dealing with employees who are 
rehired by the Government before they withdraw their TSP accounts. 
Because the Board has decided to define ``separation'' to mean a break 
in service of 31 or more full calendar days, it is necessary to 
establish procedures to ensure that participants who are withdrawing 
have the requisite break in service. Therefore, Sec. 1650.4(a) 
describes the statements that participants must make concerning their 
employment status and the length of their expected break in service in 
order to be able to withdraw their TSP accounts.
    This ``self-certifying'' approach was deemed preferable to an 
approach requiring the agency immediately to report all rehired 
employees. Because rehired employees are not permitted to resume TSP 
contributions until the next election period (see 5 U.S.C. 8432(b)), 
agencies may not need to report transactions to the TSP concerning 
these employees for up to six months after the date of rehire. 
Consequently, information concerning the rehired employee would not 
otherwise be reported to the TSP promptly or within a consistent 
timeframe after the date of rehire. Also, the Board wanted to avoid 
imposing upon the employing agencies the administrative burden of 
reporting every rehire action to the TSP, when only a few of those 
actions would ever affect TSP withdrawals. Because false information 
provided by the participant is subject to criminal penalties, self-
certification was deemed a reasonable way to ensure that persons who 
have been rehired (or expect to be rehired) within 31 days are 
prevented from withdrawing their accounts.
    Section 1650.4(b) states the rules for persons who are rehired 
after 31 full calendar days but still want to withdraw the portion of 
their accounts attributable to the earlier period of employment. 
Section 1650.4(b) provides that such a participant can only withdraw 
the portion of the account balance attributable to the first period of 
employment. The term ``attributable to the first period of employment'' 
means amounts contributed to the account during the period of 
employment to which the separation relates and any earnings on those 
amounts as of the date of payment. Amounts contributed after the date 
of rehire and earnings on such amounts are excluded.
    Section 1650.4(b) also provides that, if the amount in the account 
attributable to the first period of employment is more than $3,500, the 
participant can withdraw that amount only if he or she submits a valid 
withdrawal request form prior to the date the participant is rehired. 
As explained above, this requirement is fulfilled by the requirement 
that the participant state on the form if he or she has been rehired. 
It was not feasible to require that withdrawal actually occur before 
the date of rehire, because administrative delays on the part of the 
employing agency or the Board might make withdrawal impossible before 
then. However, it seemed inappropriate to give rehired participants the 
ability to withdraw their funds at any time (perhaps many years) after 
they were rehired. Thus, the Board has established the rule that the 
withdrawal request must be submitted before the date of rehire.
    If, however, the amount in the participant's account attributable 
to the first period of employment is $3,500 or less, the participant is 
eligible to receive an ``automatic cashout'' under the procedures set 
forth in Sec. 1650.17 without submitting any withdrawal forms. 
Therefore, the participant cannot be required to submit a withdrawal 
form prior to rehire in order to receive a withdrawal. For such a 
participant, Sec. 1650.4(b) allows the scheduled automatic cashout of 
the amount attributable to the first period of employment to proceed, 
even if the person has already been rehired (after more than 31 days) 
and no forms are submitted.
    Section 1650.5 states the rule that a participant cannot withdraw 
his or her TSP account until an outstanding loan has either been paid 
in full or declared to be a taxable distribution. Under the TSP loan 
program (see 5 CFR Part 1655), [[Page 9598]] a participant who 
separates with an outstanding loan must repay his or her loan in full 
within 90 days. If the participant does not do so, the outstanding loan 
balance is declared to be a taxable distribution. The participant can 
also speed up the declaration of the taxable distribution by signing a 
statement that he or she does not intend to repay the loan. The 
withdrawal must be delayed until this process is completed so that, if 
the participant pays the loan in full, that amount will be available to 
be included in the withdrawal.
    Section 1650.6 recognizes that, in certain circumstances, a 
withdrawal cannot be paid because a TSP participant's account is 
``frozen.'' The most common reason for placing a freeze on an account 
is that the Board receives a retirement benefits court order or an 
alimony or child support enforcement order. The Board is required by 
title 5 to honor the terms of such orders if they meet certain 
requirements. The requirements for such orders are discussed in part 
1653, which was published in proposed form in the Federal Register on 
October 26, 1994 (59 FR 53874). If such orders are found to be 
qualifying, the account cannot be paid to the participant until the 
interest of the other party (most frequently a spouse or former spouse) 
has been determined and paid out. At that point the account can be 
``unfrozen'' and the withdrawal can proceed. See 5 CFR 1653.3. This 
section also recognizes that the Board may need to place a freeze on an 
account for administrative reasons. For example, an employing agency 
error may have caused the account to have the wrong address. Until such 
an error is corrected, the account should not be paid.
    Section 1650.7 discusses the timing of TSP withdrawal payments. The 
TSP is a ``monthly valued'' plan. This means that the earnings (either 
positive or negative) on a TSP account, and thus the ``value'' of the 
account, is determined once a month as of the end of the preceding 
month. For the TSP, this determination occurs at approximately mid-
month, although the exact date varies, depending on the availability of 
the applicable rates of return. A TSP withdrawal cannot occur until the 
valuation process is completed for a given month; otherwise the amount 
to be withdrawn cannot be accurately determined. (Since all TSP funds 
are held in individual accounts, the amount to be withdrawn must be 
determined precisely; if too much or too little is paid, the difference 
must be absorbed by all other accounts.) The timing of the withdrawal 
payments in a monthly valued plan is also important for determining the 
timing of other actions, such as when a withdrawal election can be 
changed or canceled (see Sec. 1650.14).
    Subpart B of part 1650 describes the basic TSP withdrawal options 
which, as noted above, are now available to any TSP participant who is 
eligible to withdraw his or her TSP account balance under the rules 
stated in subpart A, and subject to the limitations found in the other 
rules identified in Sec. 1650.2. The conditions for eligibility 
contained in subpart A are not repeated for each withdrawal method 
identified in subpart B. Subpart B contains the rules governing the way 
each withdrawal option can be exercised (for example, the availability 
of certain annuity options to certain participants), as well as the 
rules for transferring all or part of certain withdrawal payments to an 
IRA or other eligible retirement plan, making deferred withdrawal 
elections, changing withdrawal elections, and imposing limits on the 
date by which a withdrawal choice must be made.
    Section 1650.8 provides that all TSP participants can withdraw 
their account balances in a single payment. The term ``lump sum'' is 
not used, since that term has a specific meaning for the tax treatment 
of the payment, which may or may not be applicable to all payments made 
under this method. All or part of the single payment received under 
this method can be transferred to an IRA or other eligible retirement 
plan in accordance with the rules set forth in Sec. 1650.11.
    Section 1650.9 sets forth the types of monthly payment options a 
participant can choose. Section 8433 of title 5 requires that the Board 
offer a participant the opportunity to receive his or her account in 
``one or more substantially equal payments to be made not less 
frequently than annually * * *.'' Under this provision, the board has 
established three options for calculating monthly payments. The options 
provide only for monthly payments because this was considered to be 
consistent with the presumed intent of the law to provide participants 
with the ability to receive a regular stream of retirement income from 
their TSP accounts.
    Under the first option, described in Sec. 1650.9(a)(1), a 
participant can choose monthly payments in a fixed dollar amount of his 
or her choice, with a minimum monthly payment amount of $25. The 
minimum amount avoids the administrative expense of processing small 
monthly payments. Under this option, which allows the participant to 
receive a predictable monthly income, payments continue until the 
entire account is paid out. When the account decreases to a point that 
the amount remaining is less than two payments, the remaining amount is 
paid out in a single payment. Therefore, the last payment may be larger 
than the chosen amount.
    The second option, described in Sec. 1650.9(a)(2), allows the 
participant to choose a fixed number of monthly payments instead of a 
fixed monthly payment amount. Under this option, payments are initially 
calculated by dividing the account balance by the number of payments 
chosen. Initial payments must be at least $25 for the election to be 
accepted. Payments are then recalculated each year in January by 
dividing the immediately preceding December 31 account balance by the 
remaining number of payments. Although each year's monthly payment 
amount will be different from that of the previous year, because 
earnings will be reflected in the annual recalculation, the annual 
recalculation allows the account to be paid out as evenly as possible 
within the elected number of payments. Each year's monthly payment 
amount will be increased to $25, if necessary.
    The third option, described in Sec. 1650.9(a)(3), allows a 
participant to have monthly payments calculated based on Internal 
Revenue Service (IRS) life expectancy multiple Table No. V, found at 26 
CFR 1.72-9. Under this method, the monthly payment amount is calculated 
by dividing the account balance by the multiple from the table 
corresponding to the participant's age on his or her birthday in the 
year payments are being made, and then dividing the result by 12. 
Payments are recalculated in January of each year based upon the 
December 31 account balance and the multiple corresponding to the 
participant's age as of his or her birthday in the new payment year. 
This method allows a participant to spread monthly payments over his or 
her entire life expectancy. It also allows a participant who separates 
from Government employment prior to the year in which he or she becomes 
age 55 to avoid the 10 percent early withdrawal penalty on monthly 
payments received before the participant becomes age 59\1/2\. This 
result is allowed under the Internal Revenue Code because payments are 
based on life expectancy. The early withdrawal penalty cannot be 
avoided by choosing the other two monthly payment methods. However, 
payments made under a TSP annuity (see Sec. 1650.10) are also exempted 
because they are based on life expectancy.
    Section 1650.9(b) states the rule that a participant cannot change 
his or her [[Page 9599]] monthly payment election and choose a 
different calculation method or amount once payments have begun. This 
restriction is imposed because the statute requires that the payments 
be ``substantially equal.'' If a participant were able to change the 
calculation method or amount at will, the payments would not comply 
with the ``substantially equal'' requirement. Such a process could also 
create significant administrative burdens for the Plan.
    However, under Sec. 1650.9(c), a participant can decide at any time 
to receive his or her remaining account balance in a final single 
payment. This recognizes that participants may have a sudden need to 
liquidate their account balances, for example in cases where there is a 
medical emergency. It was determined that the ``substantially equal'' 
rule was not violated where the account would be entirely liquidated 
through a final single payment.
    Section 1650.9(d) Provides that, once they begin receiving equal 
payments, participants may invest their TSP account balances in 
accordance with the rules provided in part 1601, Participant Choices of 
Investment Funds. Under current regulations, participant accounts must 
be invested entirely in the Government Securities Investment Fund (G 
Fund) while participants are receiving monthly payments. It was 
originally thought that accounts of persons receiving monthly payments 
should be invested only in the G Fund to ensure a predictable monthly 
payment stream. However, with the elimination of the restrictions on 
participants' investment choices which originally existed, demand has 
grown to eliminate this restriction also. The calculation methods 
described above automatically account for positive and negative 
earnings associated with investing in the Common Stock Index Investment 
Fund (C Fund) or the Fixed Income Investment Fund (F Fund), thus 
insuring a relatively predictable income stream. The Board intends in 
the future to allow participants receiving monthly payments to invest 
in any investment funds offered by the TSP. When this change is 
implemented, part 1601 will be amended, and the language of 
Sec. 1650.9(d) will automatically incorporate the new rules.
    Section 1650.10 describes the rules relating to TSP annuities, 
including the various annuity options and features among which a 
participant can choose. TSP annuities are monthly payments made to the 
participant during his or her life or to the participant and a 
designated joint annuitant while either one is alive. The TSP purchases 
annuities for participants from a private sector annuity provider using 
the participant's entire account balance (although in some cases 
minimum distribution amounts must first be paid directly to the 
participants).
    Section 1650.10(a) describes the basic procedures and rules 
relating to the purchase of a TSP annuity. Annuities are purchased in 
the mid-month processing cycle and payments commence within 
approximately thirty days after purchase. Because it is not practicable 
to purchase annuities using small account balances, the minimum amount 
that can be used to purchase an annuity is $3,500. All TSP annuities 
and annuity features have equivalent actuarial values. This means that 
selection of additional features will result in a reduction in the 
amount of the monthly annuity payment.
    Section 1650.10(b) describes the basic annuity types. Section 8434 
of title 5 requires that the Board offer certain types of annuities for 
the TSP. The basic types of annuities offered by the TSP conform to the 
statutory requirement. These are a single life annuity for the 
participant with level payments (Sec. 1650.10(b)(1)), a joint life 
annuity for the participant and his or her spouse with level payments 
(Sec. 1650.10(b)(2)), a single life annuity or a joint life annuity 
with the spouse that has annual increasing payments 
(Sec. 1650.10(b)(3)), and a joint life annuity with a former spouse or 
a person having an insurable interest in the participant 
(Sec. 1650.10(b)(4)).
    Section 1650.10(b)(3) describes how the annual increase for 
increasing annuities is calculated. The amount of the increase is based 
upon the change in the Consumer Price Index. The statute prohibits 
decreases in annual payments; therefore, the annual increases will be 
zero in years where the relevant change in the index is either negative 
or zero. Also, because of Internal Revenue Code limits, the annual 
increase cannot be more than 3 percent.
    Section 1650.10(b)(4) describes the rules for the option of a joint 
life annuity with a person other than the spouse. As required by the 
statute, this option can only be used to purchase a joint life annuity 
with a former spouse or with a person having an ``insurable interest'' 
in the participant. The statute gives the Board discretion to define 
the term ``insurable interest'' in regulations. The definition of 
``insurable interest'' is based upon the idea that the survivor could 
be expected to obtain continuing financial benefit from the 
participant's life. Under this definition, close relatives are presumed 
to have an insurable interest in the participant. However, a method is 
also prescribed by which the participant can establish by affidavit 
that another person, not in the presumed group, has an insurable 
interest in him or her.
    Section 1650.10(c) describes the two levels of survivor benefits 
that are available for joint life annuities, whether with a spouse or 
with another person. These particular levels were not prescribed by 
statute, but rather were adopted by the Board based upon annuity 
options commonly available in the private sector. A participant who 
chooses a joint life annuity must also choose one of these levels. The 
50 percent survivor benefit provides that, whenever one of the joint 
annuitants dies, the other will receive, during his or her lifetime, 50 
percent of the benefit that was paid to the participant when both were 
alive. The 100 percent survivor benefit provides that the same amount 
paid to the participant when both the participant and the joint 
annuitant are alive will continue to be paid to the survivor during the 
survivor's lifetime. The initial payment amount will be lower if the 
100 percent survivor level is chosen than if the 50 percent survivor 
level is chosen. Under the IRS minimum distribution rules, the 100 
percent survivor benefit cannot be chosen for a joint annuity with 
someone other than the spouse if the joint annuitant is more than 10 
years younger than the participant. This rule is designed to prevent 
the use of retirement annuities to transfer income to a much younger 
beneficiary (for example, a child or grandchild). However, the 
regulations provide (in accordance with IRS regulations) that a 100 
percent benefit can be chosen for a joint annuity with any former 
spouse, regardless of age, if a qualifying court order (as described in 
part 1653) so provides.
    Section 1650.10(d) describes two additional features that can be 
combined with certain annuities. These features are not required by 
statute. The Board decided to make them available based upon its 
evaluation of annuity features that participants would be likely to 
find attractive. If either feature is chosen, the monthly payment 
amount is reduced.
    The first feature, described in Sec. 1650.10(d)(1), is the ``cash 
refund'' feature. This feature, which can be selected for any type of 
annuity, provides that, if the participant (or the participant and 
joint annuitant in the case of a joint annuity) dies before the amount 
used to purchase the annuity has been paid out, the remainder of the 
amount used to purchase the annuity will be paid in a lump sum to the 
beneficiary or beneficiaries named by [[Page 9600]] the participant. 
The participant who chooses this feature must, before the annuity can 
be purchased, complete Form TSP-11-B, Beneficiary Designation for a TSP 
Annuity, to name the beneficiaries to receive this payment and to state 
the portion of the payment to be paid to each beneficiary. After the 
annuity is purchased, the participant may change the beneficiaries. If 
the annuity is a joint life annuity, the survivor (even if not the 
participant) may also change the beneficiaries or their shares. 
Beneficiary changes after the purchase of an annuity are handled 
between the annuitant and the annuity provider and do not involve the 
TSP.
    The second feature, described in Sec. 1650.10(d)(2), is known as 
the ``10-year certain'' feature. This feature provides that, if a 
single life annuity is chosen, payments will be made for at least 10 
years. If the participant dies before the 10-year period expires, 
payments will be made to a designated beneficiary for the remainder of 
the period. Beneficiaries under this feature are designated on a Form 
TSP-11-B, in the same way as under the cash refund feature. The 10-year 
certain feature is only available for single life annuities, because it 
is expected that, in most cases, payments under joint life annuities 
would last at least 10 years.
    Section 1650.10(e) provides that the Board can establish other 
types of annuities and other optional annuity features, as it did in 
the case of the cash refund and 10-year certain features. The statute 
makes it clear that the Board can decide to offer additional annuity 
options.
    Section 1650.10(f) reflects the requirement found in the statute 
that any annuity method must be available to separating participants 
for at least 5 years after the date it is eliminated. This provision 
appears to have been designed to prevent the Board from eliminating 
annuity methods precipitously, when a participant may have been 
planning to choose such a method. Although the 5 year requirement may 
have little applicability to younger participants, it appears to be 
designed to preserve options for those participants who are near 
retirement age and who might be able to change their retirement date if 
they knew in advance that an annuity method would cease to be offered. 
Although the statute only speaks in terms of elimination of a ``method 
of payment,'' the regulation makes it clear that the Board would apply 
this rule to any annuity type (other than the statutorily prescribed 
annuity types), any benefit level, or any other annuity feature (such 
as the cash refund feature) that the Board has previously decided to 
offer.
    Section 1650.11 describes the situations under which a participant 
can have the TSP transfer all or a portion of a TSP withdrawal payment 
to an IRA or other eligible retirement plan, as defined in the Internal 
Revenue Code. Transfer of the entire account balance to an eligible 
retirement plan was mandated by Congress in FERSA. At the time of 
issuance of the original interim regulations in 1987, the participant 
had to choose to transfer either the entire account balance or nothing 
at all. However, in 1992 Congress enacted Public Law 102-318, which 
required all tax-qualified retirement plans (including the TSP), 
effective in 1993, to allow the transfer to an IRA or other eligible 
retirement plan of all or part of any ``eligible rollover 
distribution.'' Any part of an eligible rollover distribution that is 
not directly transferred is subject to mandatory 20 percent income tax 
withholding. Therefore, beginning in 1993, the Board implemented 
changes in the TSP transfer option to comply with the requirements of 
Public Law 102-318. This means that all TSP withdrawals that are 
identified as ``eligible rollover distributions'' can now be 
transferred, in whole or in part, to an IRA or other eligible 
retirement plan. Eligible rollover distributions include all single 
payments, as well as final single payments that end a series of monthly 
payments. Thus, a participant who wants his or her entire account 
balance transferred can elect a single payment (which is an option now 
available to all) and can have the entire payment transferred.
    Because the definition of ``eligible rollover distribution'' in 
Public Law 102-318 includes monthly payments expected to be made for 
fewer than 10 years and not based on life expectancy, certain TSP 
monthly payments also qualify for transfer. Section 1650.11 explains 
that monthly payments can be transferred if the participant elects 
fewer than 120 payments (i.e., fewer than 10 years of monthly 
payments), or the participant elects a monthly payment amount which, 
when divided into the account balance, yields a number less than 85. 
This number was chosen based upon an assumed annual earnings rate of 8 
percent for the account. This means that a fixed payment amount chosen 
by the participant that would result in fewer than 85 payments if paid 
in equal monthly installments from his or her existing account balance 
could be expected to result in fewer than 120 payments if the account 
accrued earnings at the rate of 8 percent per year during the payout 
period. TSP monthly payments calculated based on life expectancy cannot 
be transferred. This is because the Internal Revenue Code does not 
allow any payment which is calculated based on life expectancy to be 
transferred. (This also means that TSP annuity payments and minimum 
distribution payments cannot be transferred.)
    Section 1650.11(d) states the definition of an eligible retirement 
plan, which is found in section 402(c)(8) of the Internal Revenue Code. 
An IRA is included in the definition of an eligible retirement plan. 
The Internal Revenue Code also requires that an IRA or other eligible 
retirement plan be maintained in the United States, which is defined as 
the 50 states and the District of Columbia. Plans maintained in foreign 
countries or in United States possessions, such as Puerto Rico, the 
Virgin Islands, or Guam, do not qualify.
    Section 1650.12(a) contains the basic rule establishing the 
participant's right to choose that a single payment be made, or that 
monthly payments or an annuity begin, at a future date of his or her 
own choosing. This type of election is referred to as a ``deferred 
withdrawal'' election, and is specifically authorized in 5 U.S.C. 
8433(b).
    Section 1650.12(b) describes the time limit placed by 5 U.S.C. 
8433(b) upon the participant's right to make a deferred withdrawal 
election. Under that section, a participant must choose a date for his 
or her withdrawal to begin that is no later than April 1 of the year 
following the year the participant becomes age 70\1/2\. Because the TSP 
is a monthly valued plan, as explained in Sec. 1650.7, the month chosen 
for payment under Sec. 1650.12(b) must be no later than March of the 
relevant year, so that a payment can be made by April 1. Also, because 
the first annuity payment is made approximately 30 days after the 
annuity is purchased, an annuity will be purchased in the monthly cycle 
prior to the month chosen. Therefore, if a participant chooses an 
annuity to begin in March of the year following the year in which he or 
she becomes age 70\1/2\ (i.e., the latest possible date), the annuity 
will be purchased in February of that year. Persons who are already 
past the limit date (e.g., participants who separate when they are age 
73) when they make a withdrawal election cannot make a deferred 
withdrawal election. They must elect an immediate withdrawal.
    The rule stated in Sec. 1650.12(b) generally comports with the 
minimum distribution requirements found in the Internal Revenue Code. 
The minimum distribution rules generally require 
[[Page 9601]] separated participants to begin receiving payments from 
their accounts by April 1 of the year following the year they become 
age 70\1/2\. The rule set forth in Sec. 1650.12(b) requires a TSP 
withdrawal method to begin by the same date. Eventually, the Board 
expects the rule set forth in Sec. 1650.12(b), in conjunction with the 
rule set forth in Sec. 1650.13 concerning the date by which an election 
is required, to eliminate the need for most required minimum 
distribution payments, except for those made in conjunction with 
another withdrawal election. However, as explained further in the 
discussion of Sec. 1650.13, because some participants over age 70\1/2\ 
who leave Government employment with less than 10 years of service will 
still be able to defer making a decision, minimum distribution payments 
will continue to be made to this group.
    Sections 1650.12 (c) and (d) describe the TSP procedures for 
notifying participants who have made deferred withdrawal elections of 
what actions they are permitted or required to take prior to 
implementation of their election.
    Section 1650.13 provides rules for implementing the provisions of 5 
U.S.C. 8433(h)(2). This section requires a TSP participant to make a 
withdrawal election by February 1 of the year following the year in 
which the later of three events occurs--the participant becomes age 65, 
the participant separates from Government employment, or the 
participant has 10 years of Plan participation. The statute expresses 
the latter event as ``the tenth anniversary of the year in which * * * 
[the participant] became subject to this subchapter.'' The regulation 
reflects the Board's interpretation of this language to mean the 
effective date of the first contribution made to the participant's TSP 
account, but no earlier than April 1, 1987, the date the TSP first 
began accepting contributions. The effective date of the first 
contribution is also chosen for administrative purposes, because it is 
a date that is clearly reflected in TSP records.
    For most participants (i.e., those with 10 or more years of 
Government service who separate or retire before age 65), this 
provision will operate to require a choice by February 1 of the year 
following the year in which the participant reaches age 65. The 
participant is still permitted to make a deferred election at that 
time, but the date of the deferral is subject to the limits stated in 
Sec. 1650.12(b), which require that a deferred election must begin by 
April 1 of the year following the year a participant becomes age 70\1/
2\. Together, these provisions ensure that a decision about the method 
of withdrawing the TSP account is made on or about the time a 
participant might be expected to retire and that payments begin no 
later than the year following the year in which the participant becomes 
age 70\1/2\. This allows both the TSP and the participant's spouse, who 
has certain rights with respect to the election, to be aware of the 
chosen withdrawal method by the normal retirement age. This also 
prevents the participant from receiving his or her entire account 
balance through the minimum distribution process without spousal 
involvement. However, because TSP participation only began in April 
1987, the 10th anniversary of the first TSP contributions will not 
occur until 1997. Therefore, a withdrawal election will not need to be 
made under this provision until February 1, 1998, at the earliest.
    By establishing a date by which the participant must make an 
election, the Board has also interpreted the statute as providing that 
a separated TSP participant need not make any withdrawal election prior 
to that date. Instead, a participant who separates from Government 
employment can decide to leave his or her account in the Plan and take 
no action until the required date.
    If a withdrawal election is not made by the required date, the 
statute provides that the ``benefits under this subchapter will be paid 
as an annuity * * *.'' Because the 10-year anniversary has not yet 
occurred for any TSP participant, there has as yet been no need to 
address participants who do not make an election by the required date. 
Section 1650.13(d) describes procedures which reasonably accommodate 
the language of the statute requiring that an annuity be purchased for 
such persons, yet also recognizes that the TSP may not be able to 
purchase an annuity for a participant who will not provide required 
information (such as a current address).
    Section 1650.13(d) also provides that, for married FERS 
participants, the annuity that must be purchased is the required joint 
life annuity with the spouse. Although this is not explicitly stated in 
5 U.S.C. 8433(h)(3), 5 U.S.C. 8435 requires a married FERS participant 
to purchase the required joint life annuity with his or her spouse if 
the spouse does not waive that right. If the required joint life 
annuity were not purchased under Sec. 1650.13, a married FERS 
participant could effectively avoid the requirement to purchase a joint 
life annuity with the spouse by refusing to make any election at all. 
For single participants covered by FERS and all participants covered by 
CSRS, however, a single life annuity will be purchased, since there is 
no statutory requirement to purchase a joint life annuity with the 
spouse.
    Section 1650.13(d)(3) recognizes that, in certain cases, the 
participant will not provide the TSP with adequate information to 
purchase the required annuity (either single life or joint life with 
spouse). Because the law does not allow accounts in this status to 
remain open indefinitely, the regulation describes a procedure whereby 
an account will be forfeited if there is not adequate information to 
purchase an annuity. However, if any person (such as the spouse or 
guardian, for example) can provide such information, the account will 
be restored and the annuity purchased. At the time of forfeiture, the 
participant generally would lose the right to choose a different method 
of withdrawal.
    Section 1650.14 sets forth rules concerning participants who change 
or cancel their withdrawal elections. Generally, participants can 
change their withdrawal elections as long as they have met any 
applicable spousal rights requirements with respect to the new 
election. For example, if a spouse of a FERS participant waives his or 
her right to a survivor benefit when the participant chooses a single 
life annuity, the participant can later change his or her election to a 
single payment without obtaining another waiver from that spouse. 
However, if the participant has a different spouse when a new election 
is made, a waiver would be required from the new spouse.
    The right both to change and cancel a withdrawal election is also 
affected by the date the payment is scheduled. As explained in 
Sec. 1650.7, the TSP is a monthly valued plan. As such, payments are 
scheduled to occur once a month during the mid-month processing cycle. 
Participants who have their accounts invested only in the G Fund can 
change or cancel their election as long as the change or cancellation 
can be processed prior to the mid-month cycle in which the account is 
scheduled to pay. This is because the underlying value of investments 
in the G Fund does not fluctuate. However, if a participant has all or 
a portion of his or her account invested in the C Fund or the F Fund, 
the underlying value can fluctuate. Therefore, the change or 
cancellation must be processed no later than the second-to-last 
business day (the ``cutoff date'') of the month preceding the mid-month 
cycle in which the account is scheduled to pay, so that the amount to 
be withdrawn can be insulated from [[Page 9602]] fluctuations in value 
after the end of the month. Failure to remove funds scheduled for 
withdrawal from the C and F Funds on the last day of the month would 
result in all other accounts having to absorb the fluctuations in the C 
and F Fund values after the end of the month. However, a person with 
money in the C or F Funds can change (but not cancel) his or her 
withdrawal election after the cutoff date if, under the changed 
election method, there is no change in the amount to be withdrawn from 
the C and F Funds as originally scheduled.
    Section 1650.14(d) provides an example to illustrate the treatment 
of elections to change withdrawal methods made by participants whose 
accounts are invested in the C or F Funds.
    Subpart C of part 1650 sets forth procedures adopted by the Board 
for processing TSP withdrawal elections and payments.
    Section 1650.15 sets forth the information that must be provided by 
the employing agency both to the TSP and to the participant at the time 
of the participant's separation from Government employment.
    Section 1650.15(a) requires the agency to inform the TSP 
recordkeeper of the participant's separation from Government 
employment. This is done by submitting a code indicating the separation 
from employment and the date of separation. Until this information is 
received, the withdrawal cannot be processed. Also, a withdrawal cannot 
occur until 30 days have elapsed since the date of separation reported 
by the agency. This interval ensures that normal contributions are 
received before the date of withdrawal and that the participant has a 
reasonable period of time after receipt of withdrawal and tax 
information from the employing agency to make withdrawal and tax 
withholding decisions. (The 30-day interval described in this section 
does not operate to enforce the rule stated in Sec. 1650.3 that an 
employee rehired within 31 days is not permitted to withdraw. As 
explained earlier, the TSP does not maintain information on the date 
employees are rehired. Therefore, the 30-day interval could not ensure 
that employees rehired within that period were not paid. Rather, as 
provided in Sec. 1650.4, that requirement is enforced by requiring the 
participant to certify to the length of his or her break in service and 
his or her employment status.)
    Section 1650.15(b) requires the agency to provide certain 
withdrawal and tax information to the participant at the time he or she 
separates from employment. The Board relies on the employing agencies 
to distribute this information to participants. This includes TSP 
withdrawal materials and forms and the written explanation required by 
section 402(f) of the Internal Revenue Code. The Code requires plans to 
furnish this explanation to participants within a reasonable time prior 
to their withdrawal. In order to facilitate TSP participants' ability 
to withdraw their accounts in a timely manner, the Board has instructed 
employing agencies to provide participants with this information when 
they separate. (The TSP also mails this notice to each participant upon 
receipt of separation information from his or her agency, unless 
withdrawal forms have already been received from the participant.)
    Section 1650.16 states the basic rule that, in order to withdraw 
his or her TSP account, a participant must complete the basic TSP 
withdrawal form (TSP-70) and any other form required by the TSP. As a 
result of the standardization of TSP withdrawal options accomplished by 
Public Law 103-226, the Board has been able to devise a withdrawal form 
that can be used by every participant to make a withdrawal choice under 
any of the withdrawal methods. Participants with account balances of 
$3,500 or less are also eligible to receive an ``automatic cashout'' of 
their accounts which requires no paperwork, as described in 
Sec. 1650.17.
    Section 1650.17 describes the procedures for paying out TSP 
accounts of $3,500 or less. These procedures differ from those relating 
to other TSP accounts because of Public Law 101-335. That statute 
amended title 5 of the United States Code to provide that a separated 
TSP participant with an account balance of $3,500 or less will 
automatically be paid the amount in his or her account in a single 
payment, unless the participant elects another withdrawal method. This 
payment is referred to as an ``automatic cashout.'' These participants 
can also choose to leave their accounts in the Plan.
    Section 1650.17(c) states that spousal notice and waiver provisions 
(to be published as subpart D) do not apply to the withdrawal of 
accounts of $3,500 or less. This also reflects the provisions of Public 
Law 101-335.
    Section 1650.17(d) confirms that the automatic cashout provisions 
apply only while the account is $3,500 or less. If the account increase 
to more than $3,500 (due to additional contributions or earnings), 
these rules cease to apply and the participant must submit withdrawal 
forms as required in Sec. 1650.16.
    Section 1650.17(e) excludes accounts of less than $5.00 from the 
automatic cashout procedures. Many participants have contacted the TSP 
asking that they not continue to be sent information about very small 
account balances. Often these accounts represent amounts deposited into 
a participant's account after an initial withdrawal, where a former 
employing agency has discovered that it owned small amounts of lost 
earnings to a group of employees. (See part 1605 for rules concerning 
agency paid lost earnings.) The Board has also determined that, for 
accounts of less than $5.00, it is not prudent to undertake the 
administrative processing costs associated with an automatic cashout. 
The Board plans to forfeit these accounts to the Plan automatically 
under procedures to be developed. The procedures will allow 
participants to reclaim these amounts, if they wish.
    Subpart D contains rules relating to spousal rights that apply when 
a TSP participant withdraws his or her account.
    Section 1650.18 implements the rules regarding the rights of 
spouses of FERS employees with respect to TSP withdrawals. These rules 
are found at 5 U.S.C. 8435. As amended by Public Law 103-226, that 
section requires that spouses of FERS participants with account 
balances of more than $3,500 waive their right to a joint and survivor 
annuity before the participant can choose any other form of TSP 
withdrawal. Section 8435 further requires the Board, if it offers more 
than one form of a joint life annuity with the spouse, to choose the 
particular form of annuity which will be purchased if the spouse does 
not sign a waiver. In accordance with this requirement, which is 
referred to as the ``signature requirement,'' the Board has chosen the 
joint life annuity with 50% survivor benefit, level payments, and no 
cash refund feature. Therefore, Sec. 1650.18(a) prohibits a FERS 
participant who is married at the time he or she submits a withdrawal 
request from selecting a withdrawal option other than this form of 
joint life annuity unless his or her spouse waives this annuity. 
Section 1650.18(b) states the forms which the spouse must sign to 
execute a valid waiver. Section 1650.18(c) confirms that these 
procedures do not apply to FERS participants whose account balances are 
$3,500 or less.
    Section 1650.19(a) implements the requirement found in 5 U.S.C. 
8351 (as amended by Public Law 103-226) that CSRS participants with 
account balances of more than $3,500 cannot withdraw their accounts 
until their spouses are sent notice of their [[Page 9603]] withdrawal 
elections. This is referred to as the ``notice requirement.'' Section 
1650.19(b) states that the required notice will be sent to the last 
know mailing address for the spouse, but that it is the responsibility 
of the participant to provide that address. Since the TSP does not 
maintain account information for spouses, and since spouses are usually 
not employed with the Federal Government, the TSP must rely on the 
participant to provide this information. The participant who provides 
false information is subject to criminal prosecution. Section 
1650.19(c) confirms that the notice requirement does not apply to CSRS 
participants whose account balances are $3,500 or less.
    Section 1650.20 describes the spousal rights rules that apply when 
either FERS or CSRS participants change their withdrawal elections. 
Section 1650.20(a) describes the rules that apply to spouses of FERS 
participants. The basic rule, as required by 5 U.S.C. 8435, is that 
spouses of FERS participants must waive their right to the annuity 
described in Sec. 1650.18 with respect to a changed withdrawal election 
if the spouse did not waive the annuity right with respect to the 
original election. Therefore, the regulation states that, unless the 
same spouse has already signed a waiver of the prescribed form of 
annuity, the participant cannot change that withdrawal election without 
obtaining a waiver. If the participant has previously obtained an 
exception to the same spouse's signature, as described in Sec. 1650.22, 
the exception is deemed applicable for one year from the date the 
participant signed the request form. After that date, either a waiver 
or a new exception must be obtained, because the circumstances 
surrounding the granting of the earlier exception may have changed.
    Section 1650.20(b) states that the spouse of a married CSRS 
participant must be notified when that participant changes his or her 
withdrawal election. 5 U.S.C. 8351 requires another notice whenever a 
change of withdrawal election is made. However, if an exception to the 
notice requirement for the same spouse has been granted pursuant to 
Sec. 1650.21, that exception is good for one year, and notice of a 
changed withdrawal election will not be necessary during that period.
    Section 1650.21 provides that the Executive Director may grant an 
exception to the notice requirement for spouses of CSRS employees (as 
described in Sec. 1650.19) where the participant establishes to the 
satisfaction of the Executive Director that the spouse's whereabouts 
cannot be determined. Section 1650.21 describes the process for 
establishing that a spouse's whereabouts are unknown. This section has 
been revised to allow participants who are seeking an exception to the 
notice requirement based on whereabouts unknown to submit statements in 
lieu of affidavits or declarations in support of their requests. These 
statements must be made pursuant to 18 U.S.C. 1001, which provides 
that:

    Whoever, in any matter within the jurisdiction of any department 
or agency of the United States knowingly and willfully falsifies, 
conceals or covers up by any trick, scheme, or device a material 
fact, or makes any false, fictitious or fraudulent statements or 
representations, or makes or uses any false writing or document 
knowing the same to contain any false, fictitious or fraudulent 
statement or entry, shall be fined not more than $10,000 or 
imprisoned not more than five years, or both.

    To ensure that the persons making statements are aware of the 
possible penalty, Sec. 1650.21(c) requires inclusion of the following 
on each statement: I understand that a false statement or willful 
misrepresentation is punishable under Federal law (18 U.S.C. 1001) by a 
fine or imprisonment or both. The Board has determined that this 
statement and the sanctions of 18 U.S.C. 1001 provide adequate 
protection against false statements, and therefore participants seeking 
exceptions can be relieved of the burden of providing notarized 
affidavits.
    Section 1650.22 allows the Executive Director to grant an exception 
to the requirement to obtain the signature of the spouse of a FERS 
employee if the spouse's whereabouts cannot be determined (based on the 
same requirements as stated in Sec. 1650.21) or if ``exceptional 
circumstances warrant the exception.'' Section 1650.22 describes how a 
participant can establish that ``exceptional circumstances'' exist.
    Section 1650.22(b)(2)(iii) has been revised to clarify the wording 
that must be included in a court order to justify the granting of an 
exception based on the express language of the order.
    To ease the burden on participants further, Secs. 1650.21 and 
1650.22 are also being revised to delete the requirement that the 
participant seeking an exception from the spouse notice or signature 
requirements obtain and provide only documents bearing an original 
signature or which are embossed or which bear the imprint of a seal. 
Participants may not submit photocopies of documents.

Regulatory Flexibility Act

    I certify that these regulations will not have a significant 
economic impact on a substantial number of small entities. They will 
affect only the ability of Federal employees to withdraw their TSP 
accounts and Board procedures relating to those withdrawals.

Paperwork Reduction Act

    I certify that these regulations do not require additional 
reporting under the criteria of the Paperwork Reduction Act of 1980.

Waiver of 30-Day Delay of Effective Date

    Pursuant to 5 U.S.C. 553(d)(3), I find that good cause exists for 
making these regulations effective in less than 30 days. The new 
withdrawal rules will be implemented during the March 1995 payment 
cycle, which will begin on March 10, 1995. Therefore, the new 
withdrawal rules must be in place by that date.

List of Subjects in 5 CFR Part 1650

    Employee benefit plans, Government employees, Retirement, Pensions.
Roger W. Mehle,
Executive Director.

Federal Retirement Thrift Investment Board

    For the reasons set out in the preamble, part 1650 of chapter VI of 
title 5 of the Code of Federal Regulations is revised to read as 
follows:

PART 1650--METHODS OF WITHDRAWING FUNDS FROM THE THRIFT SAVINGS 
PLAN

Subpart A--General

1650.1  Definitions.
1650.2  Eligibility.
1650.3  Separation from Government employment.
1650.4  Rehired employees.
1650.5  Outstanding loans.
1650.6  Frozen accounts.
1650.7  Monthly cycle for withdrawal payments.

Subpart B--Withdrawal Options

1650.8  Single payment.
1650.9  Monthly payments.
1650.10  Annuities.
1650.11  Transfer of withdrawal payments.
1650.12  Deferred withdrawal elections.
1650.13  Required date for making withdrawal election.
1650.14  Changes and cancellation of withdrawal election.
Subpart C--Procedures for Withdrawing TSP Accounts
1650.15  Information to be provided by agency.
1650.16  Accounts of more than $3,500.
1650.17  Accounts of $3,500 or less. [[Page 9604]] 

Subpart D--Spousal Rights

1650.18  Spouses of FERS participants.
1650.19  Spouses of CSRS participants.
1650.20  Spousal rights when participant changes withdrawal 
election.
1650.21  Executive Director's exception to requirement to notify the 
spouse.
1650.22  Executive Director's exception to the requirement to obtain 
the spouse's signature.

    Authority: 5 U.S.C. 8351, 8433, 8434, 8435, 8467(b)(5), and 
8474(c)(1).

Subpart A--General


Sec. 1659.1  Definitions.

    As used in this part:
    Account balance means, unless otherwise specified, the 
nonforfeitable valued account balance of a TSP participant as of the 
most recent month end prior to the date a withdrawal occurs.
    Board means the Federal Retirement Thrift Investment Board, 
established pursuant to 5 U.S.C. 8472.
    CSRS means the Civil Service Retirement System established by 5 
U.S.C. chapter 83, subchapter III, or any equivalent retirement system.
    FERS means the Federal Employees' Retirement System established by 
5 U.S.C. chapter 84, or any equivalent retirement system.
    Participant means any person with an account in the Thrift Savings 
Plan.
    Spouse means the person to whom a TSP participant is married on the 
date he or she signs forms requesting spouse information to be 
submitted to the TSP, including a spouse from whom the participant is 
legally separated, and including a person with whom a participant is 
living in a relationship that constitutes a common-law marriage in the 
jurisdiction in which they live.
    Thrift Savings Plan, TSP, or Plan means the Federal Retirement 
Thrift Savings Plan, established under subchapters III and VII of the 
Federal Employees' Retirement System Act of 1986, 5 U.S.C. 8431 et seq.
    Thrift Savings Plan Service Office means the office established by 
the Board to service separated TSP participants. This office's current 
address is: Thrift Savings Plan Service Office, National Finance 
Center, P.O. Box 61500, New Orleans, Louisiana 70161-1500.


Sec. 1650.2  Eligibility.
    A participant who separates from Government employment, as 
described in Sec. 1650.3, is eligible to withdraw his or her account by 
one of the withdrawal methods described in subpart B of this part, 
subject to the rules relating to spouses' rights (set forth in subpart 
D of this part), minimum distributions, and domestic relations orders. 
A participant cannot choose a withdrawal method while he or she is 
employed by the Government.


Sec. 1650.3  Separation from Government employment.

    For purposes of this part, a separation from Government employment 
occurs when a participant ceases employment with the Federal Government 
or the U.S. Postal Service (or with any other employer from a position 
that is deemed to be Government employment for purposes of 
participating in the TSP) for at least 31 full calendar days.


Sec. 1650.4  Rehired employees.

    (a) A participant who is reemployed in a position in which he or 
she can participate in the TSP on or before the 31st full calendar day 
after the date of separation is not eligible to withdraw his or her TSP 
account. In order to be eligible to withdraw his or her TSP account, a 
participant must state on Form TSP-70 (Withdrawal Request) that he or 
she is separated and expects the separation to last at least 31 full 
calendar days. If a participant is scheduled for an automatic cashout, 
as described in Sec. 1650.17, the cashout will be canceled if the 
participant states to the TSP that he or she has been reemployed or 
expects to be reemployed within 31 full calendar days.
    (b) A participant who is reemployed after 31 full calendar days 
after his or her date of separation in a position in which the 
participant is eligible to participate in the TSP may withdraw the 
portion of his or her account balance attributable to the earlier 
period of employment. However, if the amount in the account 
attributable to the first period of employment is greater than $3,500, 
the participant must submit, prior to the date of his or her 
reemployment, a properly completed withdrawal form (TSP-70) choosing a 
withdrawal option that results in an immediate withdrawal. A reemployed 
participant may not make a deferred withdrawal election, as described 
in Sec. 1650.12, or an election of monthly payments, as described in 
Sec. 1650.9. If a reemployed participant is already receiving monthly 
withdrawal payments, such payments will stop.


Sec. 1650.5  Outstanding loans.

    A participant is not entitled to withdraw his or her account 
balance until any loan outstanding at the time of separation has either 
been repaid in full or declared to be a taxable distribution.


Sec. 1650.6  Frozen accounts.

    A participant may not withdraw any portion of his or her account 
balance if the account is frozen as a result of a retirement benefits 
court order or a child support or alimony enforcement order or as a 
result of a freeze placed on the account by the Board for another 
reason.


Sec. 1650.7  Monthly cycle for withdrawal payments.

    The value of a TSP account is determined at approximately mid-
month, as of the end of the preceding month, after earnings are 
allocated to the account. TSP transactions that require valued account 
balances, such as withdrawals, can only occur after the value of an 
account has been determined. Because of this, withdrawal payments are 
generally made once a month, during what is known as the ``mid-month 
processing cycle.''

Subpart B--Withdrawal Options


Sec. 1650.8  Single payment.

    A participant can withdraw his or her entire account in a single 
payment.


Sec. 1650.9  Monthly payments.

    (a) A participant can withdraw his or her account balance in two or 
more substantially equal monthly payments, to be calculated under one 
of the following methods:
    (1) A fixed monthly payment amount. The amount must be at least $25 
per month and must satisfy any minimum distribution requirements. 
Payments will be made each month until the account is expended. If the 
last scheduled payment would be less than the chosen amount, it will be 
combined and paid with the previous payment;
    (2) A fixed number of monthly payments. The participant's month-end 
account balance for the month preceding the month of the first payment 
will be divided by the number of payments chosen in order to determine 
the monthly amount. If that amount is less than $25, the election is 
rejected. The payment must also meet any minimum distribution 
requirements. In January of each subsequent year, the TSP will divide 
the December 31 account balance from the prior year by the remaining 
number of payments in order to determine that year's monthly payments. 
If the monthly payment amount is less than $25, it will be increased to 
$25. This process will be repeated each year until the account is 
expended; or
    (3) A monthly payment amount calculated using the factors set forth 
in Internal Revenue Service expected return multiple table V, 26 CFR 
1.72-9. There is no $25 minimum monthly payment under this method. In 
the year payments begin, the monthly payment [[Page 9605]] amount is 
calculated by dividing the month-end account balance for the month 
preceding the month of the first payment by the factor from table V 
based upon the participant's age as of his or her birthday in that 
year. This amount is then divided by 12 to yield the monthly payment 
amount. In subsequent years, the monthly payment amount is recalculated 
each January by dividing the December 31 account balance from the 
previous year by the factor from Table V based upon the participant's 
age as of his or her birthday in the year payments will be made. That 
amount is divided by 12 to yield the monthly payment account.
    (b) A participant who chooses to receive monthly payments 
calculated using one of the three methods set forth in paragraph (a) of 
this section cannot change the method after payments begin. Also, 
except as provided in paragraph (c) of this section, the participant 
cannot change the number of payments or the payment amount after 
payments begin.
    (c) A participant receiving monthly payments can choose to receive 
the remainder of his or her account balance in a final single payment.
    (d) A participant receiving monthly payments may invest his or her 
account balance as provided in 5 CFR part 1601.


Sec. 1650.10  Annuities.

    (a) A participant can withdraw his or her entire account balance in 
the form of a life annuity. The participant's account balance must be 
$3,500 or more in order for the TSP to purchase an annuity. If a 
participant chooses this method, the TSP will be sent forms asking him 
or her to choose an annuity method, name a beneficiary (if required), 
and provide any necessary spousal waiver or spousal information. Upon 
receipt of the required information, the TSP will purchase the annuity 
from the TSP's annuity vendor using the participant's entire account 
balance, except for any amount necessary to satisfy minimum 
distribution requirements. The first annuity payment will be made 
approximately 30 calendar days after the purchase of the annuity. The 
annuity will provide a payment for life to the participant and, if 
applicable, the participant's survivor, in accordance with the type of 
annuity chosen.
    (b) The following types of annuities are available to participants:
    (1) A single life annuity with level payments. This annuity is 
based upon the life expentancy of the participant at the time of 
purchase and provides monthly payments to the participant as long as 
the participant lives.
    (2) A joint life annuity for the participant and his or her spouse 
with level payments. This annuity is based upon the combined life 
expectancies of the participant and the spouse and provides monthly 
payments to the participant, as long as both the participant and spouse 
are alive, and monthly payments to the survivor, as long as he or she 
is alive.
    (3) Either a single life or joint life annuity (as described in 
paragraph (b)(1) or (b)(2) of this section) where the amount of the 
monthly payment can increase each year on the anniversary date of the 
first annuity payment. The amount of the increase is based on the 
average annual change in the Consumer Price Index for Urban Wage 
Earners and Clerical Workers as measured between the period of July 
through September in the second calendar year preceding the anniversary 
date and July through September in the calendar year preceding the 
anniversary date. For example, if the anniversary date of an increasing 
annuity occurs in November of 1995, the amount of the increase will be 
calculated based upon the change in the index between the July-
September period in 1993 and the July-September period in 1994. Monthly 
payments cannot decrease, nor can they increase more than 3 percent 
each year. If this option is chosen in conjunction with a joint life 
annuity with the spouse, the annual increase continues to apply to 
benefits received by the survivor. (4) A joint life annuity, with level 
payments, for the participant and another person who either is a former 
spouse or has an insurable interest in the participant. This annuity is 
based upon the combined life expectancies of the participant and the 
other person. It provides monthly payments to the participant as long 
as both the participant and the joint annuitant are alive, and monthly 
payments to the survivor as long as he or she is alive. Increasing 
payments cannot be chosen for a joint annuity with a person other than 
the spouse.
    (i) A person has an ``insurable interest'' in a participant if the 
person is financially dependent on the participant and could reasonably 
expect to derive financial benefit from the participant's continued 
life.
    (ii) A relative (whether blood or adopted, but not by marriage) who 
is closer than a first cousin will be presumed to have an insurable 
interest in the participant.
    (iii) A participant can establish that a person not described in 
paragraph (b)(4)(ii) of this section has an insurable interest in him 
or her by submitting with the annuity request an affidavit from a 
person other than the participant or the joint annuitant demonstrating 
that the designated joint annuitant has an insurable interest (as 
defined in paragraph (b)(4)(i) of this section) in the participant.
    (c) Participants who choose a joint life annuity (with either a 
spouse or a person with an insurable interest) must choose either a 50 
percent or a 100 percent survivor benefit. A 50 percent survivor 
benefit provides a monthly payment to the survivor which is 50 percent 
of the payment made when both the participant and the joint annuitant 
are alive. A 100 percent survivor benefit provides a monthly payment to 
the survivor which is the same amount as the payment made when both the 
participant and the survivor are alive. Either the 50 percent or the 
100 percent survivor benefit may be combined with any joint life 
annuity option, except that the 100 percent survivor benefit can be 
combined with a joint annuity with a person other than the spouse (or a 
former spouse, if required by a retirement benefits court order) only 
if the joint annuitant is not more than 10 years younger than the 
participant.
    (d) The following mutually exclusive features can be combined with 
certain types of annuities, as indicated:
    (1) Cash refund. This feature provides that, if the participant 
(and joint annuitant, if applicable) dies before an amount equal to the 
balance used to purchase the annuity has been paid out, the difference 
between the balance used to purchase the annuity and the sum of monthly 
payments already made will be paid to the named beneficiaries. The 
participant (or the joint annuitant, if the participant is deceased) 
may name or change the beneficiaries. This feature can be combined with 
any other annuity option.
    (2) Ten-year certain. This feature provides that, if the 
participant dies before annuity payments have been made for 10 years 
(120 payments), monthly payments will continue to be made to the 
beneficiaries selected by the participant until 120 payments have been 
made. This feature can be combined with any single life annuity option, 
but cannot be selected in conjunction with any joint life annuity 
option.
    (e) The Board can, from time to time, establish other types of 
annuities, other levels of survivor benefits, and other annuity 
features.
    (f) The Board can, from time to time, eliminate a type of annuity 
(except for those annuities described in paragraph (b) of this 
section), a survivor benefit level, or an annuity feature. However, if 
the Board does so, it must continue to [[Page 9606]] allow participants 
to purchase annuities of the eliminated type or containing the 
eliminated feature for 5 years after the date the decision to eliminate 
the annuity type or feature is announced in the Federal Register.
    (g) Once an annuity has been purchased, the type of annuity, any 
annuity features, and the identity of the joint annuitant cannot be 
changed, and the annuity cannot be terminated.


Sec. 1650.11  Transfer of withdrawal payments.

    (a) At the participant's request, the TSP will transfer directly to 
an eligible retirement plan all or part of any withdrawal that is an 
``eligible rollover distribution,'' as defined in 26 U.S.C. 402(c)(4). 
A withdrawal method that is not an eligible rollover distribution 
cannot be transferred.
    (b) The following TSP withdrawal methods are considered eligible 
rollover distributions:
    (1) A single payment, as described in Sec. 1650.8;
    (2) Monthly payments, as described in Sec. 1650.9, where payments 
are expected to last less than 10 years at the time they begin, 
according to the following rules:
    (i) If the participant elects a number of monthly payments, the 
number of payments must be fewer than 120;
    (ii) If the participant elects a monthly payment amount, the 
amount, when divided into the participant's account balance as of the 
end of the month prior to the first payment, must yield a number less 
than 85.
    (3) A final single payment, as described in Sec. 1650.9(c).
    (c) The following withdrawal methods are not eligible rollover 
distributions:
    (1) Any annuity purchased by the TSP.
    (2) Any monthly payment that does not meet the rules set forth in 
paragraph (b)(2) of this section, including any monthly payment 
computed based on the Internal Revenue Service expected return multiple 
table V (see Sec. 1650.9(a)(3)).
    (3) Any minimum distribution payment or any portion of another 
payment which represents a minimum distribution payment.
    (d) An eligible retirement plan is a plan defined in 26 U.S.C. 
402(c)(8). There are three types of eligible retirement plans: an 
Individual Retirement Arrangement (IRA) (which can be either an 
individual retirement account or an individual retirement annuity), a 
plan qualified under 26 U.S.C. 401(a), and a plan described in 26 
U.S.C. 403(a). An IRA or other eligible retirement plan must be 
maintained in the United States, which means one of the 50 states or 
the District of Columbia.


Sec. 1650.12  Deferred withdrawal elections.

    (a) Subject to paragraph (b) of this section, a participant who 
separates from Government employment and elects to withdraw his or her 
account under one of the methods provided in Secs. 1650.8, 1650.9, or 
1650.10 may specify a future date (which shall be a month and year) for 
payment of the withdrawal.
    (b) The future date chosen under this section cannot be later than 
March of the year following the year in which the participant becomes 
age 70\1/2\. If that date has already passed when the participant makes 
an election, the participant cannot choose a future date.
    (c) If the withdrawal method chosen for future payment is a single 
payment or monthly payments (and the date specified for payment is more 
than four months in the future on the date the election form is 
processed), the participant will be notified before the date chosen 
that such payments are scheduled to begin. If the payments are eligible 
rollover distributions, the participant may choose to transfer all or 
part of the payments to an Individual Retirement Arrangement (IRA) or 
another eligible retirement plan.
    (d) If the withdrawal method chosen for future payment is an 
annuity (and the date specified for payment is more than four months in 
the future on the date the election form is processed), the participant 
will be notified before the date chosen. At that time, the participant 
will be sent information asking him or her to choose an annuity method, 
name a beneficiary (if the cash refund or 10-year certain feature is 
chosen), and provide any necessary spousal waiver or spousal 
information.


Sec. 1650.13  Required date for making withdrawal election.

    (a) A participant who separates from Government employment need not 
elect one of the withdrawal methods provided in Secs. 1650.8, 1650.9, 
or 1650.10 until February 1 of the year following the latest of these 
dates:
    (1) The date upon which the participant becomes age 65;
    (2) The date that is 10 years after the effective date of the first 
TSP contribution made by or on behalf of the participant (but not 
earlier than April 1, 1987); or
    (3) The date the participant separated from Government employment.
    (b) A separated participant may make a withdrawal election before 
the date described in paragraph (a) of this section, but is not 
required to do so.
    (c) A participant will fulfill the requirements of paragraph (a) of 
this section by making a deferred withdrawal election (as described in 
Sec. 1650.12) by the required date, provided that the date described in 
Sec. 1650.12(b) has not already occurred.
    (d) If a participant does not make an election by the date required 
by this section, the TSP will purchase an annuity for the participant 
in accordance with the following rules:
    (1) If a participant is covered by the Federal Employees' 
Retirement System (FERS) and is married on the date an election is 
required by this section, the TSP will purchase a joint life annuity 
with his or her spouse with a 50 percent survivor benefit, level 
payments, and no cash refund feature.
    (2) If the participant is covered by the Civil Service Retirement 
System (CSRS) or the participant is not married on the date an election 
is required by this section, the TSP will purchase a single life 
annuity with no other features.
    (3) If the participant fails to provide the TSP with adequate 
information to purchase one of the annuities described in either 
paragraph (d)(1) or (d)(2) of this section, as appropriate, by the date 
an election is required by this section, and such information cannot be 
obtained by the TSP from other sources, the participant's account will 
be forfeited. If the TSP is later provided with the required 
information, the TSP will purchase an annuity in accordance with this 
section, using the amount forfeited. No earnings will be credited to 
this amount after the date of forfeiture.
Sec. 1650.14  Changes and cancellation of withdrawal election.

    (a) Basic rule. Subject to paragraphs (b) and (c) of this section 
and the rules relating to spouses' rights, a participant who has 
separated from Government employment can change his or her withdrawal 
election to any other withdrawal election or can cancel his or her 
withdrawal election if the change or cancellation can be processed 
before the withdrawal election is scheduled for disbursement.
    (b) Cutoff dates. For participants who have any part of their 
accounts invested in the Common Stock Index Investment Fund (C Fund) or 
the Fixed Income Index Investment Fund (F Fund), a withdrawal payment 
that has been approved is scheduled on the second-to-last business day 
of the month preceding the month the withdrawal payment is to be made. 
For participants whose accounts are invested entirely in the Government 
Securities Investment Fund (G Fund), a withdrawal payment that has been 
approved is scheduled by [[Page 9607]] the close of business on the day 
before the mid-month processing cycle in which payments are made.
    (c) Special Rule for C and F Fund Participants. Participants who 
have any part of their accounts invested in the C or F Funds may also 
change to another withdrawal method if the requested change can be 
processed before the close of business on the day before the mid-month 
processing cycle in which payment will be made, and provided that under 
the new withdrawal method the amounts they have invested in the C or F 
Funds will still be withdrawn as originally scheduled from those Funds 
during the mid-month processing cycle.
    (d) Example for participants whose accounts are invested in the C 
or F Funds. This example illustrates the operation of the rules set 
forth in paragraphs (b) and (c) of this section for participants who 
have a portion of their accounts invested in the C or F Funds.

    Example 1. Assume that such a participant wishes to withdraw the 
account by purchasing a single life annuity at the earliest possible 
date. The participant is married and has obtained the necessary 
waiver from her spouse for the purchase. All necessary forms have 
been submitted by the middle of April; thus, on the second-to-last 
business day in April, the annuity will be scheduled to be purchased 
in the May mid-month processing cycle. However, in late April, the 
participant decides that she would rather receive the account in a 
single payment. The participant must submit a new Form TSP-70 
electing the new withdrawal method. (She does not need a new spousal 
waiver, since her spouse already waived his right to a survivor 
benefit.) In this case, the participant will be able to change to a 
single payment if her properly completed Form TSP-70 is received and 
processed by the TSP recordkeeper by the close of business on the 
day before the May mid-month processing cycle. If that occurs, she 
will receive the single payment in May, instead of having the 
annuity purchased then.
    If, on the other hand, the participant wished to cancel her 
annuity purchase and leave her money in the Plan (or to change to a 
deferred withdrawal option), the TSP recordkeeper would have to be 
able to process her cancellation or change no later than the second-
to-last business day in April. If that did not occur, the annuity 
purchase would proceed in May.

Subpart C--Procedures for Withdrawing TSP Accounts


Sec. 1650.15  Information to be provided by agency.

    (a) Information to be provided to the TSP. When a TSP participant 
separates from Government employment, his or her employing agency must 
report the separation (including the date of separation) to the TSP 
recordkeeper. Until the TSP recordkeeper receives this information from 
the employing agency, it cannot process a withdrawal for the 
participant. A withdrawal cannot occur until at least 30 full calendar 
days have elapsed after the date of separation.
    (b) Information to be provided to the participant. When a TSP 
participant separates from Government employment, his or her employing 
agency must furnish the participant with the most recent copies of the 
TSP withdrawal booklet, withdrawal forms, and tax notice. The employing 
agency is also responsible for counseling participants concerning TSP 
withdrawals.


Sec. 1650.16  Accounts of more than $3,500.

    A participant whose account balance is more than $3,500 must submit 
a properly completed withdrawal election on Form TSP-70, Withdrawal 
Request, and any other form required by the TSP, in order to elect a 
withdrawal of his or her account balance.


Sec. 1650.17  Accounts of $3,500 or less.

    (a) Unless he or she has already submitted a complete withdrawal 
election and can be scheduled for payment, a participant whose account 
balance is $3,500 or less as of the month end following receipt of 
separation information from the employing agency will be sent a notice 
informing him or her that the account balance will be paid directly to 
the participant automatically in the third mid-month cycle following 
the date of the notice if the account balance is still $3,500 or less 
on the date of payment. The notice will inform the participant that he 
or she can:
    (1) Choose to transfer all or part of this payment to an Individual 
Retirement Arrangement (IRA) or other eligible retirement plan;
    (2) Choose another withdrawal method (as described in subpart B of 
this part);
    (3) Choose to have the payment made directly to him or her as soon 
as possible; or
    (4) Choose to leave his or her money in the Plan.
    (b) If the participant does not take one of the actions described 
in paragraph (b) of this section, payment will be made as scheduled.
    (c) No spousal rights attach to any withdrawals made to a 
participant whose account balance is $3,500 or less.
    (d) If a participant's account balance is $3,500 or less after 
separation but later increases to more than $3,500, this section will 
cease to apply to that participant.
    (e) This section does not apply to accounts containing a balance of 
less than $5.00.

Subpart D--Spousal Rights


Sec. 1650.18  Spouses of FERS participants.

    (a) A married participant covered by FERS whose account balance 
exceeds $3,500 must choose to withdraw his or her TSP account by having 
the TSP purchase a joint and survivor annuity with the spouse. The 
annuity chosen must have level payments, a 50% survivor benefit, and no 
cash refund. A married FERS participant may only choose another 
withdrawal election, a different type of annuity, or different annuity 
features if the spouse waives his or her right to the required annuity.
    (b) A spouse can waive his or her right to the annuity required in 
paragraph (a) of this section only by signing Form TSP-70, Withdrawal 
Election, or Form TSP 11-C, Spouse Information and Waiver, in the 
appropriate place. Once a form containing a waiver is filed with the 
TSP Service Office, the spouse's waiver is irrevocable.
    (c) A married participant covered by FERS whose account balance is 
$3,500 or less is not required to choose the annuity identified in 
paragraph (a) of this section and does not need to obtain a waiver from 
his or her spouse to make any withdrawal election.


Sec. 1650.19  Spouses of CSRS participants.

    (a) The spouse of a married participant covered by CSRS whose 
account balance exceeds $3500 must be sent notice of the participant's 
withdrawal of his or her account balance prior to the participant's 
withdrawal.
    (b) The TSP Service Office will send the notice required in 
paragraph (a) of this section by first class mail to the last address 
of the spouse on file. The participant is responsible for providing the 
TSP Service Office with the spouse's correct address.
    (c) The spouse of a married participant covered by CSRS whose 
account balance is $3500 or less is not entitled to the notice 
prescribed in paragraph (a) of this section.


Sec. 1650.20  Spousal rights when participant changes withdrawal 
election.

    (a) A married participant covered by FERS who has made a withdrawal 
election and who wants to change to another withdrawal election other 
than the annuity required in section 1650.17(a) must obtain a waiver 
from the spouse to which he or she is married on the date the new 
withdrawal form is signed, unless:
    (1) That spouse previously signed a waiver of the required annuity 
in connection with another withdrawal election made by the participant; 
or [[Page 9608]] 
    (2) The participant was granted an exception, under the procedures 
set forth in Sec. 1650.22, to the requirement to obtain that spouse's 
signature for a withdrawal election made by the participant within one 
year of the date the form requesting the change is processed by the 
TSP.
    (b) The spouse of a married participant covered by CSRS who has 
made a withdrawal election and who wants to change to another 
withdrawal election must be notified again prior to the withdrawal, 
unless the participant was granted an exception, under the procedures 
set forth in Sec. 1650.21, to the spouse notice requirement within one 
year of the date the form requesting the change is processed by the 
TSP.


Sec. 1650.21  Executive Director's exception to requirement to notify 
the spouse.

    (a) Wherever in the regulations in this subpart it is required that 
the Executive Director give notice of an action to the spouse of a 
participant, an exception to this requirement may be granted in cases 
in which the participant establishes to the satisfaction of the 
Executive Director that the spouse's whereabouts cannot be determined. 
A request for an exception based on whereabouts unknown must be 
submitted to the Executive Director on Form TSP-16, Exception to 
Spousal Requirements, accompanied by one of the following:
    (1) A judicial determination (court order) which states that the 
spouse's whereabouts cannot be determined;
    (2) A police or Governmental agency determination that is signed by 
the appropriate department or division head which states that the 
spouse's whereabouts cannot be determined; or
    (3) Statements by the participant and two other persons.
    (i) Each statement must be signed and dated and must state the 
following:

    I understand that a false statement or willful misrepresentation 
is punishable under Federal Law (18 U.S.C. 1001) by a fine or 
imprisonment or both.

    (ii) The participant's statement must give the full name of his or 
her spouse, declare the inability to locate the spouse, and state the 
efforts made to locate the spouse. Negative statements such as ``I have 
not seen or heard from him/her'' or ``I have had no contact with him/
her'' are not sufficient. Examples of attempting to locate the spouse 
include checking with relatives and mutual friends or using telephone 
directories or directory assistance for the city of last known address.
    (iii) The statements from two other persons must support the 
participant's statement that the participant does not know the 
whereabouts of his or her spouse.
    (b) A withdrawal election received within one year of an approved 
exception may be processed so long as the spouse named on the form is 
the spouse for whom the exception has been approved.
    (c) The requirements for establishing an exception for a withdrawal 
and the one-year period of validity of an approved exception apply to 
exceptions for loans under 5 CFR 1655.18.


Sec. 1650.22  Executive Director's exception to the requirement to 
obtain the spouse's signature.

    (a) In this subpart, if the spouse's signature is required, the 
Executive Director may grant an exception to this requirement if the 
participant can show that:
    (1) The spouse's whereabouts cannot be determined in accordance 
with the provisions of Sec. 1650.21; or
    (2) Due to exceptional circumstances, requiring the spouse's 
signature would otherwise be inappropriate.
    (i) An exception to the spousal signature requirement may be 
granted based on exceptional circumstances only when the participant 
presents a judicial determination (court order) or a governmental 
agency determination signed by the appropriate department or division 
head. A court order or a determination must contain a finding or a 
recitation of such exceptional circumstances regarding the spouse as 
would warrant an exception to the signature requirement.
    (ii) Exceptional circumstances is narrowly construed and includes 
such circumstances as when a court order:
    (A) Indicates that the spouse and the participant have been 
maintaining separate residences with no financial relationship for 
three or more years;
    (B) Indicates that the spouse abandoned the participant, but for 
religious or similarly compelling reasons, the parties chose not to 
divorce; or
    (C) Expressly states that the participant may obtain a loan from 
his or her Thrift Savings Plan account or withdraw his or her Thrift 
Savings Plan account balance notwithstanding the absence of the 
spouse's signature.
    (b) A withdrawal election received within one year of an approved 
exception may be processed so long as the spouse named on the form is 
the spouse for whom the exception has been approved.
    (c) The requirements for establishing an exception for a withdrawal 
and the one-year period of validity of an approved exception apply to 
exceptions for loans under 5 CFR 1655.18.

[FR Doc. 95-4062 Filed 2-17-95; 8:45 am]
BILLING CODE 6760-01-M