[Federal Register Volume 61, Number 223 (Monday, November 18, 1996)]
[Rules and Regulations]
[Pages 58754-58757]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-29449]



[[Page 58753]]

_______________________________________________________________________

Part IV





Federal Retirement Thrift Investment Board





_______________________________________________________________________



5 CFR Parts 1600, 1620 and 1655



Definition of Basic Pay; Thrift Savings Plan Loans; Interim Rule

  Federal Register / Vol. 61, No. 223 / Monday, November 18, 1996 / 
Rules and Regulations  

[[Page 58754]]



FEDERAL RETIREMENT THRIFT INVESTMENT BOARD

5 CFR Parts 1600, 1620 and 1655


Definition of Basic Pay; Thrift Savings Plan Loans

AGENCY: Federal Retirement Thrift Investment Board.
ACTION: Interim rule with request for comments.

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

SUMMARY: The Executive Director of the Federal Retirement Thrift 
Investment Board (Board) is publishing an interim rule to implement two 
provisions of the Thrift Savings Plan Act of 1996, and to amend the 
Board's interim loan regulations to codify changes made to the Thrift 
Savings Plan (TSP) loan program since the loan regulations were 
published in 1990. This interim rule conforms Board regulations to the 
statutory definition of ``Basic pay,'' expands TSP loan eligibility, 
and increases the efficiency of the TSP loan program.

DATES: This interim rule is effective November 18, 1996. Comments must 
be received by January 17, 1997.

ADDRESSES: Comments may be sent to Patrick J. Forrest, Federal 
Retirement Thrift Investment Board, 1250 H Street, N.W., Washington, DC 
20005.

FOR FURTHER INFORMATION CONTACT: Patrick J. Forrest on (202) 942-1662.

SUPPLEMENTARY INFORMATION: The Board administers the TSP, which was 
established by the Federal Employees' Retirement System Act of 1986 
(FERSA), Pub. L. 99-335, 100 Stat. 514, which has been codified, as 
amended, largely at 5 U.S.C. 8401-8479 (1994). The TSP is a tax-
deferred retirement savings plan for Federal employees that is similar 
to cash or deferred arrangements established under section 401(k) of 
the Internal Revenue Code.
    On September 30, 1996, the President signed the Thrift Savings Plan 
Act of 1996 (the 1996 Act), Pub. L. 104-208, div. A, tit. I, sec. 
101(f), Sec. 659. Prior to the passage of the 1996 Act, FERSA contained 
a definition of ``basic pay'' at 5 U.S.C. 8431. Section 206 of the 1996 
Act repealed 5 U.S.C. 8431 and amended 5 U.S.C. 8401(4) to provide that 
the term ``basic pay'' has the meaning given that term by 5 U.S.C. 
8331(3). The Board is amending its regulations to conform with this 
amendment.
    Also prior to the passage of the 1996 Act, FERSA provided at 5 
U.S.C. 8433(g)(2) that a TSP loan could be approved only if the funds 
sought were to be used for the purchase of a primary residence, for 
financial hardship, or for educational or medical expenses. Section 
203(a)(5)(B) of the 1996 Act eliminated this purpose test and the Board 
is amending its loan regulations to reflect this change. In addition, 
section 203(a)(5)(A) of the 1996 Act adds the following sentence to 5 
U.S.C. 8433(g)(1): ``Before a loan is issued, the Executive Director 
shall provide in writing the employee or Member with appropriate 
information concerning the cost of the loan relative to other sources 
of financing, as well as the lifetime cost of the loan, including the 
difference in interest rates between the funds offered by the Thrift 
Savings Fund, and any other effect of such loan on the employee's or 
Member's final account balance.'' This interim rule amends the Board's 
loan regulations to add this new requirement.
    The Board's interim loan regulations were published on January 10, 
1990. Since then, the Board has revised TSP loan procedures to increase 
the efficiency of the loan program. This interim rule also codifies 
those revisions.

Regulatory Flexibility Act

    I certify that these regulations will not have a significant 
economic impact on a substantial number of small entities because the 
regulations will affect only employees of the United States Government.

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 Notice of Proposed Rulemaking and 30-Day Delay of Effective 
Date

    Under 5 U.S.C. 553 (b)(3)(B) and (d)(3), I find that good cause 
exists for waiving the general notice of proposed rulemaking and for 
making these regulations effective in less than 30 days. Section 207 of 
the 1996 Act provides that the 1996 Act shall take effect on the date 
of its enactment and that its provisions are to be given effect at the 
earliest practicable date as determined by the Executive Director in 
regulations. The Executive Director has determined that the Board can 
give immediate effect to sections 203(a)(5) and 206 of the 1996 Act; 
therefore, a delay in their implementation would be contrary to the 
1996 Act. In addition, because the remaining provisions of this interim 
rule codify existing TSP loan program procedures, notice and public 
procedure on them is unnecessary.

Submission to Congress and the General Accounting Office

    Under section 801(a)(1)(A) of the Administrative Procedure Act 
(APA), as amended by the Regulatory Enforcement Fairness Act of 1996, 
Pub. L. 104-121, tit. II, 110 Stat. 847, 857-875 (5 U.S.C. 
801(a)(1)(A)), the Board submitted a report containing this rule and 
other required information to the U.S. Senate, the U.S. House of 
Representatives, and the Comptroller General of the United States prior 
to the publication of this rule in today's Federal Register. This rule 
is not a major rule as defined in section 804(2) of the APA as amended 
(5 U.S.C. 804(2)).

Unfunded Mandates Reform Act of 1995

    Pursuant to the Unfunded Mandates Reform Act of 1995, Pub. L. 104-
4, section 201, 109 Stat. 48, 64, the effect of this regulation on 
State, local, and tribal governments and on the private sector has been 
assessed. This regulation will not compel the expenditure in any one 
year of $100 million or more by any State, local, or tribal governments 
in the aggregate or by the private sector. Therefore, a statement under 
section 202, 109 Stat. 48, 64-65, is not required.

List of Subjects

5 CFR Parts 1600 and 1620

    Government employees, Pensions, Retirement.

5 CFR Part 1655

    Credit, Government employees, Pensions, Retirement.

Federal Retirement Thrift Investment Board.
Roger W. Mehle,
Executive Director.

    For the reasons set out in the preamble, 5 CFR Chapter VI is 
amended as set forth below:

PART 1600--EMPLOYEE ELECTIONS TO CONTRIBUTE TO THE THRIFT SAVINGS 
PLAN

    1. The authority citation for part 1600 continues to read as 
follows:

    Authority: 5 U.S.C. 8351, 8432(b)(1)(A), 8474(b)(5) and (c)(1).

    2. The definition of Basic pay in Sec. 1600.1 is revised to read as 
follows:


Sec. 1600.1  Definitions.

* * * * *
    Basic pay means basic pay as defined in 5 U.S.C. 8331(3), and it is 
the rate of pay used in computing any amount the individual is required 
to contribute to the Civil Service Retirement and

[[Page 58755]]

Disability Fund as a condition for participating in the Civil Service 
Retirement System or the Federal Employees' Retirement System, as the 
case may be.
* * * * *

PART 1620--CONTINUATION OF ELIGIBILITY

    3. The authority citation for part 1620 continues to read as 
follows:

    Authority: 5 U.S.C. 8474 and 8432b; Pub. L. 99-591, 100 Stat. 
3341; Pub. L. 100-238, 101 Stat. 1744; Pub. L. 100-659, 102 Stat. 
3910; Pub. L. 101-508, 104 Stat. 1388; Pub. L. 104-106, 110 Stat. 
186; Pub. L. 104-134, 110 Stat. 1321.


Sec. 1620.72  [Amended]

    4. Section 1620.72 is amended by revising ``8431'' in paragraph 
(b)(1) to read ``8331(3)''.


Sec. 1620.83  [Amended]

    5. Section 1620.83 is amended by revising ``8431'' in paragraph (a) 
to read ``8331(3)''.

PART 1655--LOAN PROGRAM

    6. The authority citation for part 1655 is revised to read as 
follows:

    Authority: 5 U.S.C. 8433(g) and 8474.

    7. Section 1655.1 is amended by removing the definition of ``Mid-
Month Processing Cycle'', by revising the definition of ``Interim 
Account Balance'' and by adding, in alphabetical order, two new 
definitions to read as follows:


Sec. 1655.1  Definitions.

* * * * *
    Interim Account Balance means the unvalued account balance of a 
participant's account on the last business day of the month.
* * * * *
    Monthly Processing Cycle means the process, beginning on the 
evening of the fourth business day of the month, by which the 
recordkeeper allocates the amount of earnings to be credited to 
participant accounts in the Plan and authorizes disbursements from the 
Plan.
* * * * *
    Taxable Distribution means the reporting to the Internal Revenue 
Service as taxable income the amount of outstanding principal and 
interest on a loan upon failure by the participant to repay the loan in 
full according to the terms of the Loan Agreement/Promissory Note.
* * * * *
    8. Section 1655.2 is amended by revising the last sentence to read 
as follows:


Sec. 1655.2  Eligibility for loans.

    * * * Persons who are eligible to contribute to the Thrift Savings 
Plan under 5 CFR part 1620 are also eligible to apply for a loan.
    9. Section 1655.3 is revised to read as follows:


Sec. 1655.3  Information concerning the cost of the loan.

    Before a loan is issued, the recordkeeper will provide the 
participant written information concerning the cost of the loan 
relative to other sources of financing, as well as the lifetime cost of 
the loan, including the difference in earnings rates between the funds 
offered by the Thrift Savings Fund and any other effect of the loan on 
the participant's final account balance.
    10. Section 1655.4 is revised to read as follows:


Sec. 1655.4  Number of loans.

    A participant may have no more than two loans outstanding at any 
time. Only one of the two loans may be a loan for the purchase of a 
primary residence.
    11. Section 1655.9 is amended by revising paragraphs (b) and (c) to 
read as follows:


Sec. 1655.9  Effect of loans on individual account.

* * * * *
    (b) The removal of the principal for earnings allocation purposes 
described in paragraph (a) of this section will be prorated according 
to the investment of the portion of the account represented by employee 
contributions and attributable earnings in the G Fund, the C Fund, and 
in the F Fund as of the most recent valuation date.
    (c) Loan payments, including both principal and interest, will be 
credited to the individual account of the participant repaying the loan 
for the month in which the loan payment is processed by the 
recordkeeper. The loan payments (principal and interest) will be 
credited pro rata to the G Fund, the C Fund, and the F Fund based upon 
the proportions of the interim account balances of the G Fund, the C 
Fund, and the F Fund balances in the borrower's account on the last day 
of the month prior to the month in which the loan payment is processed. 
Earnings on loan payments will be credited as described in 5 CFR part 
1645.
    12. Section 1655.10 is amended by removing paragraph (d) and by 
revising paragraph (c) to read as follows:


Sec. 1655.10  Loan application.

* * * * *
    (c) The application must contain the following information:
    (1) The participant's name, Social Security number, date of birth, 
current address, and pay cycle;
    (2) A statement as to whether the loan is for the purchase of a 
primary residence as described in Sec. 1655.20;
    (3) The amount requested and the loan repayment period;
    (4) Marital status of the participant and, if married, the name and 
address of the participant's spouse; and
    (5) Any other information that the Executive Director may from time 
to time prescribe.
    13. Section 1655.11 is amended by revising paragraph (d) to read as 
follows:


Sec. 1655.11  Loan Agreement/Promissory Note.

* * * * *
    (d) The signed Loan Agreement/Promissory Note must be accompanied 
by:
    (1) A completed and signed discretionary payroll allotment form 
authorizing deductions of all amounts due under the Loan Agreement/
Promissory Note, which deduction the participant agrees to maintain 
through his or her employing agency;
    (2) In the case of a loan for the purchase of a primary residence, 
supporting materials that document the purchase of the residence and 
the amount requested. This information is described in Sec. 1655.20; 
and
    (3) Any other information that the Executive Director shall from 
time to time require.
    14. Section 1655.12 is revised to read as follows:


Sec. 1655.12  Loan approval.

    (a) The application will be reviewed by the recordkeeper and will 
be accepted only if it conforms with the requirements of this part. 
Upon receipt of the application, the recordkeeper will determine 
whether:
    (1) The participant is qualified to apply for a loan under 
Sec. 1655.2 and has provided all required information;
    (2) The participant already has the maximum number of loans 
outstanding, or if the application is for a residential loan, the 
participant already has a residential loan outstanding;
    (3) The participant already has a pending loan application;
    (4) The requested loan exceeds the maximum amounts set forth in 
Sec. 1655.6(b), or is less than the minimum amount set forth in 
Sec. 1655.6(a). If the loan application process date occurs during a 
month before the monthly processing cycle, the maximum and minimum 
amounts will be determined using the interim account balance at the

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end of the prior month. If the loan application process date occurs 
after the monthly processing cycle but before the end of the month, the 
maximum and minimum amounts will be determined using the most recent 
valued account balance;
    (5) The applicant is covered by a retirement system that is 
eligible to participate in the Thrift Savings Plan;
    (6) A CSRS participant who is married but does not know the 
whereabouts of his or her spouse has been granted an exception to the 
spousal requirement as described in Sec. 1655.18; and
    (7) The participant has received a taxable loan distribution (as 
described in Sec. 1655.13) from the Thrift Savings Plan within the 12 
consecutive month period preceding the date of application, except as a 
result of a failure to repay the loan upon the participant's separation 
from service or confirmed non-pay status for a period exceeding one 
year.
    (b) Failure by the applicant to comply with any of the requirements 
of this part will result in rejection of the loan application.
    (c) If the recordkeeper accepts the loan application, a Loan 
Agreement/Promissory Note will be sent to the applicant, as provided in 
Sec. 1655.11. When the completed Loan Agreement/Promissory Note is 
returned by the applicant, along with documentation, if required to be 
submitted under Secs. 1655.11(d) and 1655.20, the loan will be 
initially approved or denied by the recordkeeper based upon the 
requirements of this part, including the following conditions:
    (1) The participant has signed a promise to pay the loan and a 
statement that the information provided to the recordkeeper is true and 
complete to the best of the participant's knowledge;
    (2) Processing of the loan would not be prohibited by Sec. 1655.19 
relating to court orders;
    (3) A FERS participant's spouse has consented to the loan or, if 
the spouse's whereabouts are unknown or exceptional circumstances make 
it inappropriate to secure the spouse's consent, an exception to the 
spousal requirement described in Sec. 1655.18 has been granted;
    (4) The completed Loan Agreement/Promissory Note was received by 
the recordkeeper within 45 days of the date it was prepared;
    (5) The participant has completed and signed a loan payment 
allotment form; and
    (6) Any other conditions that the Executive Director may from time 
to time prescribe.
    (d) The loan issue date will occur within 60 days of the date the 
loan is initially approved unless the recordkeeper determines that:
    (1) A court order would prohibit the loan for the reasons described 
in Sec. 1655.19;
    (2) The participant's employing agency has reported the death, 
retirement, or separation of the participant;
    (3) The participant's account balance on the loan issue date does 
not contain sufficient employee contributions and related earnings to 
make the loan;
    (4) The loan exceeds the maximum loan amount set forth in 
Sec. 1655.6(b) as of the most recent valuation date; or
    (5) The loan does not comply with any other criteria that the 
Executive Director may from time to time prescribe.
    (e) Loans will be issued once a month. After the loan issue date, 
the recordkeeper will provide information to the United States Treasury 
which will permit the Treasury to mail a check for the principal amount 
of the approved loan to the participant.
    (f) A loan is considered to have been made to a participant on the 
loan issue date.
    15. Section 1655.13 is amended by revising paragraphs (a)(1), 
(a)(2)(ii) and (a)(3) to read as follows:


Sec. 1655.13  Distributions.

    (a) * * *
    (1) A participant is in confirmed non-pay status for a period of 
one year or more and the participant has not prepaid the loan as 
provided in Sec. 1655.17;
    (2) * * *
    (ii) 90 calendar days after the date of the notice from the 
recordkeeper to the participant that, because his or her payments were 
incorrect or missing for 90 calendar days (pursuant to 
Sec. 1655.15(a)), his or her loan must be reamortized or prepaid in 
full or a taxable distribution will be declared;
    (3) There are incorrect or missing payments (as described in 
Sec. 1655.15) and the participant fails to or is ineligible to exercise 
one of the reamortization or repayment in full options set forth in 
Sec. 1655.15;
* * * * *
    16. Section 1655.15 is amended by revising paragraph (b) and the 
fourth sentence of paragraph (c) to read as follows:


Sec. 1655.15  Incorrect payments.

* * * * *
    (b)(1) Interest from the beginning of the 90-day period described 
in paragraph (a) of this section will be added to the outstanding loan 
principal and the participant will be required to reamortize the loan. 
Generally, a reamortization schedule will be calculated to maintain the 
remaining number of payments scheduled for the loan. The recordkeeper 
will prepare and send a Rider to the Loan Agreement/Promissory Note and 
a new payroll allotment form to the participant. The recordkeeper must 
receive from the participant a signed Rider to the Loan Agreement/
Promissory Note and a newly signed payroll allotment form within 45 
calendar days of the date the Rider is prepared. If the 45th day falls 
on a Saturday, Sunday, or a Federal holiday, the deadline will be the 
next business day.
    (2) If the remaining number of payments would cause the loan term 
to extend beyond 18 years less 120 days from the loan issue date for a 
loan for the purchase of a primary residence, or five years less 120 
days from the loan issue date for any other loan, the recordkeeper will 
reamortize the loan to enable the entire amount of principal and 
interest to be repaid within those limits. The recordkeeper will 
prepare and send to the participant a Rider to the Loan Agreement/
Promissory Note and a new payroll allotment form. The recordkeeper must 
receive from the participant, within 45 calendar days of the date the 
Rider is prepared, the signed Rider to the Loan Agreement/Promissory 
Note and a newly signed payroll allotment form. If the 45th day falls 
on a Saturday, Sunday, or a Federal holiday, the deadline will be the 
next business day.
    (3) If no reamortized payments can be calculated under this section 
to allow the loan to be repaid within the time limit described in 
paragraph (b)(2) of this section, and the participant does not prepay 
the loan in full, a taxable distribution will be declared.
    (4) If the reamortized loan principal would exceed the maximum loan 
amount as calculated under Sec. 1655.6(b), the loan will not be 
reamortized. The participant must prepay the loan in full or a taxable 
distribution will be declared.
    (5) If a participant does not sign and return the Rider to the Loan 
Agreement/Promissory Note, and the participant does not prepay the loan 
in full, a taxable distribution will be declared.
    (6) A reamortization will be calculated based on the assumption 
that the reamortization will be completed 50 days after the Rider to 
the Loan Agreement/Promissory Note is prepared.
    (c) * * * If the additional payments would extend the term of the 
loan

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beyond five years from the loan issue date (or 18 years from the loan 
issue date in the case of a loan for the purchase of a primary 
residence), the participant must either reamortize the loan so as to 
establish scheduled payments that will repay the loan within those time 
periods or prepay in full the remaining unpaid amounts. * * *
* * * * *
    17. Section 1655.16 is amended by removing paragraph (d) and by 
revising paragraph (b) to read as follows:


Sec. 1655.16  Reamortization.

* * * * *
    (b) Before a loan can be reamortized, the recordkeeper must receive 
from the participant, within 45 days of the date a Rider to the 
participant's Loan Agreement/Promissory Note was prepared, a signed 
Rider to his or her Loan Agreement/Promissory Note which describes the 
estimated terms and conditions of the reamortized loan and a newly 
signed payroll allotment form. If the 45th day falls on a Saturday, 
Sunday, or Federal holiday, the deadline will be the next business day.
* * * * *
    18. Section 1655.17 is amended by revising the last sentence of 
paragraph (a) and the first sentence of paragraph (b) to read as 
follows:


Sec. 1655.17  Prepayment.

    (a) * * * Prepayment in full means receipt by the recordkeeper of 
payment of all principal and interest due in the form of a certified or 
cashier's check, a certified or treasurer's draft from a credit union, 
or a money order.
    (b) If a participant returns a loan check to the recordkeeper in 
order to repay his or her loan, it will be treated as a prepayment in 
full. * * *
    19. Section 1655.18 is revised to read as follows:


Sec. 1655.18  Spousal rights.

    (a) Within seven calendar days of a CSRS participant's loan 
application process date, the recordkeeper will send a notice to the 
participant's current spouse that the participant has applied for a 
loan.
    (b) As a condition for approval of the Loan Agreement/Promissory 
Note for a FERS participant, the participant must provide the 
recordkeeper with any evidence the Board requires to demonstrate that 
the current spouse has consented to the loan for which the participant 
has applied.
    (c) A CSRS participant may obtain a waiver of the spousal 
requirement described in paragraph (a) of this section if the 
participant establishes, to the satisfaction of the Executive Director, 
that the spouse's whereabouts are unknown.
    (d) A FERS participant may obtain a waiver of the spousal 
requirement described in paragraph (b) of this section if the 
participant establishes, to the satisfaction of the Executive Director 
that:
    (1) The spouse's whereabouts are unknown; or
    (2) Exceptional circumstances prevent the obtaining of consent.
    (e) The procedures for obtaining an exception to the spousal 
requirements (including the definition of exceptional circumstances) 
described in paragraphs (c) and (d) of this section will be the same as 
the procedures described in 5 CFR part 1650.
    20. Section 1655.19 is revised to read as follows:


Sec. 1655.19  Court orders.

    Upon receipt of a document that purports to be a qualifying 
retirement benefits court order or qualifying legal process relating to 
a participant's legal obligations to provide child support or make 
alimony payments, the participant's TSP account will be frozen. After 
the account is frozen, no loan will be allowed until the account is 
unfrozen. The Board's procedures for processing retirement benefits 
court orders and legal processes are explained in 5 CFR part 1653.


Secs. 1655.21 through 1655.24  [Removed]

    21. Sections 1655.21 through 1655.24 are removed.

[FR Doc. 96-29449 Filed 11-15-96; 8:45 am]
BILLING CODE 6760-01-P