[Federal Register Volume 62, Number 181 (Thursday, September 18, 1997)]
[Rules and Regulations]
[Pages 49112-49119]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-24740]
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_______________________________________________________________________
Part IV
Federal Retirement Thrift Investment Board
_______________________________________________________________________
5 CFR Part 1650
Methods of Withdrawing Funds From the Thrift Savings Plan; Final Rule
Federal Register / Vol. 62, No. 181 / Thursday, September 18, 1997 /
Rules and Regulations
[[Page 49112]]
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.
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SUMMARY: The Executive Director of the Federal Retirement Thrift
Investment Board (Board) is publishing a final rule to implement two
provisions of the Thrift Savings Plan Act of 1996. The first specifies
how long a separated participant can maintain a Thrift Savings Plan
(TSP) account and the second expands TSP withdrawal options by allowing
in-service withdrawals.
DATES: This final rule is effective September 18, 1997.
FOR FURTHER INFORMATION CONTACT: Patrick J. Forrest, (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 (codified, as amended, largely
at 5 U.S.C. 8351 and 8401-8479). The TSP is a tax-deferred retirement
savings plan for Federal employees which 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 TSPA), Pub. L. 104-208, div. A, title I, sec. 101(f),
section 659. Before passage of the TSPA, a participant was required to
make a valid withdrawal election by February 1 of the year following
the latest of (1) the date upon which the participant attained age 65,
(2) the date that was 10 years after the effective date of the
participant's first TSP contribution, or (3) the date the participant
separated from Federal service. The Board was required by 5 U.S.C.
8433(f)(2) to purchase an annuity for a participant who did not make
such an election. However, the Board never purchased an annuity for a
participant under this rule because the tenth anniversary of the first
TSP contributions did not occur until April 1997.
Section 203(a)(4) of the TSPA amended FERSA to provide that a
participant must withdraw his or her account balance in a single
payment or begin receiving his or her TSP account balance in monthly
payments (or in the form of a TSP annuity) by April 1 of the later of
(1) the year following the year in which the participant reaches age
70\1/2\, or (2) the year following the year in which the participant
separates from Federal service. If the participant does not make an
election so that payment can be made by this deadline, the Board must
use his or her TSP account to purchase an annuity for the participant.
The first calendar year in which withdrawals will be required under the
amendment is 1998.
Before passage of the TSPA, FERSA also provided at 5 U.S.C. 8433(a)
that a TSP participant could only withdraw his or her account after
separating from Government employment. Therefore, in-service TSP
withdrawals were not permitted. Section 203(a)(6) of the TSPA amended
FERSA to allow in-service withdrawals under two circumstances. Under 5
U.S.C. 8433(h)(1)(A), a participant who has turned age 59\1/2\ can
withdraw an amount up to his or her entire vested TSP account balance
before separating from Government employment. A participant is allowed
only one withdrawal under this provision. In addition, under section
8433(h)(1)(B), a participant can obtain a withdrawal before separating
from Government employment on the basis of financial hardship. A
financial hardship withdrawal is limited to the amount the participant
contributed to the TSP (plus the earnings attributed to those
contributions). There is no limit on the number of such withdrawals.
This rule reorganizes and amends the Board's withdrawal regulations
at 5 CFR part 1650 to implement the TSPA amendments. Subpart A of part
1650 contains general information and rules. This rule adds new
definitions to section 1650.1 and rewrites the sections that describe
withdrawal eligibility (section 1650.2) and the effect of a freeze on a
participant's account (renumbered as section 1650.3) to make subpart A
apply to both post-employment and in-service withdrawals. Also, this
rule removes section 1650.5 (regarding outstanding loans) as an
independent section within subpart A. Before its removal, section
1650.5 explained that a participant must repay an outstanding TSP loan
or that his or her loan must be declared a taxable distribution before
the participant could obtain a post-employment withdrawal. An
outstanding TSP loan will not prevent an in-service withdrawal. Because
the substance of section 1650.5 is still a principle of post-employment
withdrawal eligibility, it has been moved to new section 1650.2(d).
Subparts B and C describe post-employment withdrawals and explain
the post-employment withdrawal process. The procedures which govern
post-employment withdrawals will remain essentially the same, with only
two substantive changes. The first is a revision of section 1650.15
(section 1650.13 in the Board's previous regulations) to reflect the
new required date for receiving a post-employment withdrawal. The
second is a revision of 1650.16 (section 1650.14 in the previous
regulations) to eliminate the restrictions on a participant's ability
to change or cancel a withdrawal election if he or she had any part of
his or her TSP account invested in the Common Stock Index Investment
Fund (C Fund) or the Fixed Income Index Investment Fund (F-Fund). In
addition, to make room for the two new subparts which govern in-service
withdrawals, the subparts B and C headings have been renamed and each
of the subparts' sections have been renumbered. To provide a more
convenient resource to the reader, the Board has republished subparts B
and C in their entirety.
This rule creates new subparts D and E in part 1650 to describe in-
service withdrawals and explain the in-service withdrawal process.
Section 1650.30 describes the age-based in-service withdrawal; section
1650.40 explains how to obtain one; and section 1650.42(a) describes
the participant's payment options. A participant is allowed only one
age-based in-service withdrawal. A participant who has reached age
59\1/2\ can withdraw up to his or her entire vested TSP account balance
as a single payment. Because an age-based in-service withdrawal is an
eligible rollover distribution, a participant can ask the TSP to
transfer all or a portion of the withdrawal to an Individual Retirement
Arrangement (IRA) or other eligible retirement plan. Any amount
withdrawn but not transferred is subject to mandatory 20 percent
Federal income tax withholding. An age-based in-service withdrawal is
not subject to the additional 10 percent tax imposed by the Internal
Revenue Code (I.R.C. 72(t)) on the early withdrawal of retirement
savings.
Section 1650.31 describes the financial hardship in-service
withdrawal; section 1650.41 explains how to obtain one; and section
1650.42(b) describes the participant's payment options. Only financial
hardships described under section 1650.31 can be used as the basis for
requesting an in-service withdrawal, and only sums contributed by the
participant and their attributable earnings can be withdrawn for this
purpose.
[[Page 49113]]
There are two types of qualifying financial hardships: insufficient
cash flow and extraordinary expenses. Under 1650.31(a)(1), a
participant will show financial hardship by demonstrating that his or
her monthly cash flow cannot meet ordinary monthly household expenses.
Under 1650.31(a)(2), a participant will show financial hardship by
demonstrating that he or she has incurred an unreimbursed and unpaid
extraordinary expense which cannot be met by his or her monthly cash
flow. Extraordinary expenses are limited to medical expenses relating
to the care or treatment of the participant, the participant's spouse,
or the participant's dependents; household improvements needed on
account of a medical condition, illness or injury to the participant,
the participant's spouse, or the participant's dependents; personal
casualty loss suffered by the participant; and legal costs associated
with the participant's separation and divorce. A participant can
qualify for a financial hardship withdrawal by meeting one of the tests
or by showing a combination of negative cash flow and extraordinary
expenses.
Like an age-based withdrawal, a financial hardship withdrawal is an
eligible rollover distribution; therefore, the participant may ask the
TSP to transfer all or a portion of the withdrawal to an IRA or other
eligible retirement plan. The TSP will withhold for Federal income tax
purposes 20 percent of any amount withdrawn but not transferred. The
hardship withdrawal applicant can ask the TSP to increase his or her
withdrawal so that the net disbursement after the mandatory withholding
will be the amount requested (or the maximum amount for which the
participant qualifies, if less than the amount requested). This is
subject to the availability of employee contributions and earnings in
the participant's account.
Section 1650.32 explains that a participant can continue to
contribute to the TSP after obtaining an age-based withdrawal, but is
not eligible to contribute to the TSP for a period of six months after
obtaining a financial hardship withdrawal. After six-months
ineligibility to contribute, the participant can resume TSP
contributions only by making a new TSP election on Form TSP-1.
Generally, a participant whose TSP contributions were discontinued
because of a financial hardship withdrawal is not required to wait
until a TSP open season to submit Form TSP-1. A FERS participant's
agency automatic (1%) contributions will continue following either type
of in-service withdrawal.
Finally, section 1650.33 explains that a TSP loan and an in-service
withdrawal are not interchangeable and that a TSP withdrawal cannot be
repaid.
In addition to amending the withdrawal provisions of part 1650,
this rule amends the spousal rights provisions. The TSPA provides that
the spouse of a FERS participant must consent to an in-service
withdrawal and that the spouse of a CSRS participant is entitled to
notice when the participant applies for an in-service withdrawal. These
spousal rights, which mirror those applicable to TSP loans, will be
incorporated into the withdrawal regulations. This rule makes no other
changes to the spousal rights provisions of the withdrawal regulations
other than by reorganizing them for purposes of clarity and ease of
reading.
These regulations were published in proposed form in the Federal
Register on August 7, 1997 (62 FR 42418), and the Board received one
comment. A Federal agency requested a clarification of the first
sentence of section 1650.32(a), which describes the period during which
a participant who obtains a financial hardship in-service withdrawal
cannot contribute to the TSP. In response, the Board revised the first
sentence of section 1650.32(b) to more explicitly describe the 6-month
period of contribution ineligibility.
Regulatory Flexibility Act
I certify that these regulations will not have a significant
economic impact on a substantial number of small entities because they
will apply only to Federal agencies and employees.
Paperwork Reduction Act
I certify that these regulations do not require additional
reporting under the criteria of the Paperwork Reduction Act of 1980.
Submission to Congress and the General Accounting Office
Under 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 before the publications of this rule in today's Federal
Register. This rule is not a major rule as defined at 5 U.S.C. 804(2)
Unfunded Mandates Reform Act of 1995
Pursuant to the Unfunded Mandates Reform Act of 1995, section 201,
Pub. L. 104-4, 109 Stat. 48, 64, the effect of these regulations on
State, local, and tribal governments and on the private sector has been
assessed. These regulations will not compel the expenditure in any one
year of $100 million or more by any State, local, and 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 in 5 CFR Part 1650
Employee benefit plans, Government employees, Pensions, Retirement.
Federal Retirement Thrift Investment Board.
Roger W. Mehle,
Executive Director.
For the reasons set out in the preamble, the Federal Retirement
Thrift Investment Board revises 5 CFR Part 1650 to read as follows:
PART 1650--METHODS OF WITHDRAWING FUNDS FROM THE THRIFT SAVINGS
PLAN
Subpart A--General
Sec.
1650.1 Definitions.
1650.2 Eligibility for a TSP withdrawal.
1650.3 Frozen accounts.
Subpart B--Post-Employment Withdrawals
1650.10 Single payment.
1650.11 Monthly payments.
1650.12 Annuities.
1650.13 Transfer of withdrawal payments.
1650.14 Deferred withdrawal elections.
1650.15 Required withdrawal date.
1650.16 Changes and cancellation of withdrawal election.
Subpart C--Procedures for Post-Employment Withdrawals
1650.20 Information to be provided by agency.
1650.21 Accounts of more than $3,500.
1650.22 Accounts of $3,500 or less.
Subpart D--In-Service Withdrawals
1650.30 Age-based withdrawals.
1650.31 Financial hardship withdrawals.
1650.32 Contributing to the TSP after an in-service withdrawal.
1650.33 Uniqueness of loans and withdrawals.
Subpart E--Procedures for In-Service Withdrawals
1650.40 How to obtain an age-based in-service withdrawal.
1650.41 How to obtain a financial hardship in-service withdrawal.
1650.42 Taxes related to in-service withdrawals.
Subpart F--[Reserved]
Subpart G--Spousal Rights
1650.60 Spousal rights pertaining to post-employment withdrawals.
1650.61 Spousal rights when a separated participant changes a post-
employment withdrawal election.
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1650.62 Spousal rights pertaining to in-service withdrawals.
1650.63 Executive Director's exception to the spousal notification
requirement.
1650.64 Executive Director's exception to requirement to obtain the
spouse's signature.
Authority: 5 U.S.C. 8351, 8433, 8434, 8435, 8474(b)(5), and
8474(c)(1).
Subpart A--General
Sec. 1650.1 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 before 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.
In-service withdrawal means an age-based or financial hardship
withdrawal from the TSP obtained by a participant who is still employed
by the Government.
Monthly processing cycle means the process, beginning on the
evening of the fourth business day of the month, by which the record
keeper allocates the amount of earnings to be credited to participant
accounts in the Plan and authorizes disbursements from the Plan.
Participant means any person with an account in the Thrift Savings
Plan.
Post-employment withdrawal means a withdrawal from the TSP obtained
by a participant who has separated from Government employment, as
defined in this section.
Reimbursement means a payment made to or on behalf of a participant
by any person or entity (including an insurance company) to cover the
cost of an extraordinary expense described in Sec. 1650.31(a)(2).
Separation from Government employment means the cessation of
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.
Spouse means the person to whom a TSP participant is married on the
date he or she signs forms on which the TSP requests spouse information
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. 8351 and
8401-8479.
Thrift Savings Plan (TSP) contribution election means a request by
an employee to start contributing to the TSP, to terminate
contributions to the TSP, to change the amount of contributions made to
the TSP each pay period, or to change the allocation of future TSP
contributions among the investment funds, and made effective pursuant
to 5 CFR part 1600.
Thrift Savings Plan Service Office means the office established by
the Board to service participants. This office's current address is:
Thrift Savings Plan Service Office, National Finance Center, P.O. Box
61500, New Orleans, Louisiana 70161-1500.
Valuation date means, for purposes of a required minimum
distribution, the last day of the calendar year immediately preceding
the year for which a distribution is made.
Sec. 1650.2 Eligibility for a TSP withdrawal.
(a) A participant who separates from Government employment, as
defined in Sec. 1650.1, can withdraw his or her account by one of the
withdrawal methods described in subpart B of this part using the
procedures set out in subpart C of this part.
(b) A separated participant who is reemployed in a position in
which he or she is eligible to participate in the TSP is subject to the
following withdrawal eligibility rules:
(1) A participant who is reemployed in a TSP-eligible position on
or before the 31st full calendar day after separation cannot withdraw
his or her TSP account (except for an in-service withdrawal described
in subpart D of this subpart). If the participant is scheduled for an
automatic cashout, as described in Sec. 1650.22, the cashout will be
canceled if the participant informs the TSP that he or she has been
reemployed or expects to be reemployed within 31 full calendar days of
separation.
(2) A participant who is reemployed in a TSP-eligible position more
than 31 full calendar days after separation may withdraw the portion of
his or her account balance which is attributable to the earlier period
of employment. If the amount attributable to the earlier period of
employment is greater than $3,500, the participant must submit a
properly completed withdrawal request (Form TSP-70) selecting a
withdrawal option that results in an immediate withdrawal. However, a
Form TSP-70 will not be accepted unless the TSP records indicate that
the former employing agency reported the participant as separated from
Government employment. If a participant has elected to receive monthly
payments under Sec. 1650.11, upon report by the agency that the
participant is not separated, payments will not be made and, if already
started, will stop.
(c) A participant who has not separated from Government employment
can elect a withdrawal option described in subpart D of this part by
following the procedures set out in subpart E of this part.
(d) A participant cannot make a post-employment withdrawal until
any outstanding TSP loan has been either repaid in full or declared to
be a taxable distribution. An outstanding TSP loan does not affect a
participant's eligibility for an in-service withdrawal.
(e) All withdrawals are subject to the rules relating to spouse's
rights (found in subpart G of this part), domestic relations orders,
alimony and child support legal process, and child abuse enforcement
orders (5 CFR part 1653). Post-employment withdrawals are also subject
to the Internal Revenue Code's required minimum distribution rules.
Sec. 1650.3 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 pending retirement
benefits court order, an alimony or child support enforcement order, a
child abuse enforcement order, or as a result of a freeze placed on the
account by the Board for another reason.
Subpart B--Post-Employment Withdrawals
Sec. 1650.10 Single payment.
A participant can withdraw his or her entire account in a single
payment.
Sec. 1650.11 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
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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. The amount must be at least $25 per month and must
satisfy 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 multiply 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 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 amount.
(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. 1650.12 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. The TSP
will send forms to a participant who chooses this method which ask 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 expectancy 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)(l) 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 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
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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 allow participants to purchase
annuities of the eliminated type or containing the eliminated feature
for five years after the date the decision to eliminate the annuity
type or feature is published in the Federal Register.
(g) Once an annuity has been purchased, the type of annuity, any
annuity features, and the identity of the annuitant cannot be changed,
and the annuity cannot be terminated.
Sec. 1650.13 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. 1650.10;
(2) Monthly payments, as described in Sec. 1650.11, 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. 1650.11(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. 1650.11(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. 1650.14 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. 1650.10, 1650.11 or
1650.12 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
roll-over 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. 1650.15 Required withdrawal date.
(a)(1) A participant must withdraw his or her account under
Sec. 1650.10 or begin receiving payments under Secs. 1650.11 or 1650.12
by April 1 of the year following the later of the year in which:
(i) The participant turns 70\1/2\; or
(ii) The participant separates from Government employment.
(2) However, in no event will a withdrawal be required under
paragraph (a)(1) of this section until 1998.
(b) A separated participant may elect to withdraw his or her
account or begin receiving payments before the date described in
paragraph (a) of this section, but is not required to do so.
Sec. 1650.16 Changes and cancellation of withdrawal election.
Subject to the rules relating to spouses' rights in subpart G of
this part, 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 is disbursed.
Subpart C--Procedures for Post-Employment Withdrawals
Sec. 1650.20 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
record keeper. Until the TSP record keeper receives this information
from the employing agency, it cannot process a post-employment
withdrawal for the participant. A post-employment withdrawal cannot
occur until at least 30 full calendar days have elapsed after the date
of separation except when the Sec. 1650.22(a) procedures apply.
(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.
[[Page 49117]]
Sec. 1650.21 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
post-employment withdrawal of his or her account balance.
Sec. 1650.22 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 monthly processing cycle
following the date of the notice if the account 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 the 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 (a) of this section, payment will be made as scheduled.
(c) No spousal rights attach to any post-employment 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--In-Service Withdrawals
Sec. 1650.30 Age-based withdrawals.
(a) A participant who reached age 59\1/2\ and who has not separated
from Government employment is eligible to withdraw all or a portion of
his or her vested TSP account balance in a single payment. The amount
of an age-based in-service withdrawal request must be at least $1,000.
(b) The participant may request that the TSP transfer all or a
portion of the withdrawal to an Individual Retirement Arrangement (IRA)
or other eligible retirement plan. If a participant chooses to receive
directly all or a portion of the withdrawal, the TSP will withhold for
Federal income tax purposes 20 percent of all amounts paid directly to
the participant.
(c) A participant is permitted only one age-based in-service
withdrawal.
Sec. 1650.31 Financial hardship withdrawals.
(a) A participant who has not separated from Government employment
and who demonstrates financial hardship is eligible to withdraw all or
a portion of his or her own contributions to the TSP and their
attributable earnings in a single payment to meet certain specified
financial obligations. The amount of a financial hardship in-service
withdrawal request must be at least $1,000. A participant will
demonstrate financial hardship if he or she meets one or both of the
following tests:
(1) The participant's monthly cash flow is negative, i.e., net
income is less than ordinary monthly household expenses based on TSP
calculations; and/or
(2) The participant has incurred or will incur within the next six
months an extraordinary expense which he or she has not paid, for which
there has not been and will not be reimbursement (as defined in
Sec. 1650.1), and which cannot be met by his or her monthly cash flow
over a period of six months. Extraordinary expenses are limited to the
following four types:
(i) Medical expenses payable by the participant and related to the
treatment of the participant, the participant's spouse, or the
participant's dependents. Generally, eligible expenses are those that
would be eligible for deduction for Federal income tax purposes, but
without regard to the Internal Revenue Service's (IRS) income
limitations on deductions. However, the following IRS allowable
expenses are excluded from TSP unreimbursed medical expenses: health
insurance premiums and expenses associated with household improvements
required as a result of a medical condition, illness, or injury to the
participant, the participant's spouse, or the participant's dependents.
These items are already taken into account elsewhere in the financial
hardship determination;
(ii) The cost of household improvements required as a result of a
medical condition, illness or injury to the participant, the
participant's spouse, or the participant's dependents, which is
eligible for deduction as a medical expense for Federal income tax
purposes, but without regard to the IRS income limitations on
deductions or the fair market value of the property. Household
improvements are changes to the participant's living quarters or the
installation of special equipment that is necessary to accommodate the
circumstances of the incapacitated person;
(iii) The cost of repairs or replacement resulting from casualty
loss that would be eligible for deduction for Federal income tax
purposes, but without regard to the IRS income limitations on
deductions, fair market value of the property, or number of events.
This is sudden property loss resulting from damage or destruction by
fire, storm, or other casualty, or due to theft of property; and
(iv) Legal costs, which are defined as attorney fees and court
costs, associated with separation or divorce. Unpaid legal costs do not
include alimony or child support payments or settlements a participant
must pay a spouse or former spouse.
(b) The amount of a participant's financial hardship withdrawal
cannot exceed the smallest of the following:
(1) The amount requested;
(2) The amount in the participant's account that is equal to his or
her own contributions and attributable earnings; or
(3) The gross amount which would, subject to a request made under
Sec. 1650.42(b), result in a net disbursement to the participant (after
the mandatory Federal income tax with holding) of enough funds to both:
(i) Make up the participant's negative cash flow for a period of
six months in the case of a financial hardship withdrawal based on
ordinary monthly household expenses; and
(ii) Pay the extraordinary expense upon which the participant's
financial hardship withdrawal is based. If the participant has a
negative cash flow, the amount of the net disbursement based on
extraordinary expense is equal to the amount of the extraordinary
expense. If there is a positive cash flow, the amount is equal to the
amount of the expense minus six times the amount of the calculated
monthly positive cash flow.
Sec. 1650.32 Contributing to the TSP after an in-service withdrawal.
(a) A participant's TSP contribution election will not be affected
by an age-based in-service withdrawal; there fore, his or her TSP
contributions will continue without interruption.
(b) A participant who obtains a financial hardship in-service
withdrawal may not contribute to the TSP for any pay date falling
within a
[[Page 49118]]
period of six months, beginning on the 46th day after the date of the
withdrawal and ending 180 days after this beginning date; therefore,
his or her TSP contributions (and any applicable matching
contributions) will be discontinued by his or her agency upon
notification by the TSP. A participant whose TSP contributions were
discontinued by his or her agency because of a hardship withdrawal can
resume contributions any time after expiration of the six month period
by submitting a new TSP Election Form (TSP-1). If a participant
voluntarily terminated TSP contributions, he or she can resume
contributions at the expiration of the six-month period, or in the next
open season during which the participant would be eligible to submit a
new Form TSP-1, whichever is later.
Sec. 1650.33 Uniqueness of loans and withdrawals.
An outstanding TSP loan cannot be converted into an in-service
withdrawal, and vice versa; nor can an in-service withdrawal be
returned or repaid.
Subpart E--Procedures for In-Service Withdrawals
Sec. 1650.40 How to obtain an age-based in-service withdrawal.
To request an age-based in-service withdrawal, a participant must
submit to the TSP Service Office a properly completed withdrawal
election on Form TSP-75, Age-Based In-Service Withdrawal Request.
Sec. 1650.41 How to obtain a financial hardship in-service withdrawal.
To request a financial hardship in-service withdrawal, a
participant must submit to the TSP Service Office a properly completed
request for withdrawal on Form TSP-76, Financial Hardship In-Service
Withdrawal Request, a current earnings and leave statement, and
supporting documentation for any extraordinary expenses listed on the
application.
Sec. 1650.42 Taxes related to in-service withdrawals.
(a) An in-service withdrawal is an eligible rollover distribution
under the Internal Revenue Code (IRC), and the IRC requires that the
Board withhold at least 20 percent for Federal income tax purposes from
any portion of the withdrawal that is not directly transferred to an
Individual Retirement Arrangement (IRA) or other eligible retirement
plan. A participant who wants the TSP to transfer all or a portion of
an in-service withdrawal to an IRA or other eligible retirement plan
must submit to the TSP Service Office a properly completed Form TSP-75-
T, Transfer of In-Service Withdrawal. If the participant does not make
a transfer election, the withdrawal will be disbursed in the form of a
single payment minus the mandatory tax withholding. The mandatory
withholding cannot be waived, although a participant can elect to have
additional taxes withheld by submitting Form W-4P, Withholding
Certificate for Pension or Annuity Payments, to the TSP Service Office.
(b) If a participant applies for a financial hardship in-service
withdrawal and does not make a transfer election, he or she can request
the TSP to remove additional amounts from his or her TSP account so
that the amount received after the mandatory 20 percent tax withholding
is the amount requested (or for which the participant qualifies, if
that amount is less than the amount requested). This option may be
limited by the amount of employee contributions and attributable
earnings available for withdrawal.
Subpart F--[Reserved]
Subpart G--Spousal Rights
Sec. 1650.60 Spousal rights pertaining to post-employment withdrawals.
(a) The spousal rights described in this section only apply to
post-employment withdrawals when the participant's vested TSP account
balance exceeds $3,500.
(b) The spouse of a CSRS participant is entitled to notice when the
participant applies for a post-employment withdrawal, unless the
participant was granted an exception under Sec. 1650.63 to the spouse
notification requirement within one year of the date the withdrawal
form is processed by the TSP. The participant must provide the TSP
record keeper with the spouse's correct address. The TSP record keeper
will send the required notice by first class mail to the most recent
address provided by the participant.
(c) The spouse of a FERS participant has a right to a joint and
survivor annuity with a 50 percent survivor benefit, level payments,
and no cash refund when the participant elects a post-employment
withdrawal. The participant may make a different withdrawal election
only if his or her spouse waives the right to this annuity. To show
that the spouse has waived the right to this annuity, the participant
must submit to the TSP record keeper Form TSP-70, Withdrawal Election,
or Form TSP-11-C, Spouse Information and Waiver, signed by his or her
spouse. Once a form containing the spouse's waiver has been submitted
to the TSP record keeper, the spouse's waiver is irrevocable for
purposes of that form.
Sec. 1650.61 Spousal rights when a separated participant changes post-
employment withdrawal election.
(a) The spousal rights described in this section only apply to
post-employment withdrawals when the participant's vested TSP account
balance exceeds $3,500.
(b) The spouse of a CSRS participant is entitled to notice if the
participant changes his or her post-employment withdrawal election,
unless the participant was granted an exception under Sec. 1650.63 to
the spouse notification requirement within one year of the date the
form requesting the change is processed by the TSP. The participant
must provide the TSP record keeper with the spouse's current address.
The TSP record keeper will send the required notice by first class mail
to the most recent address provided by the participant.
(c)(1) A married FERS participant who has made a post-employment
withdrawal election and who wants to elect another withdrawal method
(other than the annuity required in Sec. 1650.60(c)) must obtain a
waiver from the spouse to whom he or she is married on the date the new
withdrawal form is signed, unless:
(i) That spouse previously signed a waiver of the required annuity
in connection with an earlier post-employment withdrawal election made
by the participant; or
(ii) The participant was granted within one year of the date on
which the new withdrawal form is received by the TSP an exception under
Sec. 1650.64 to the requirement to obtain that spouse's signature for
an in-service or post-employment withdrawal election.
(2) Once a form containing the spouse's waiver has been submitted
to the TSP record keeper, the spouse's consent is irrevocable for
purposes of that form.
Sec. 1650.62 Spousal rights pertaining to in-service withdrawals.
(a) The spousal rights described in this section apply to all in-
service withdrawals and do not depend on the amount of the
participant's vested account balance or the amount requested to be
withdrawn.
(b) The spouse of a CSRS participant is entitled to notice when the
participant applies for an in-service withdrawal, unless the
participant was granted within one year of the date on which the
withdrawal form is received
[[Page 49119]]
by the TSP an exception to the notice requirement under Sec. 1650.63.
The participant must provide the TSP record keeper with the spouse's
correct address. The TSP record keeper will send the required notice by
first class mail to the most recent address provided by the
participant.
(c) A participant covered by FERS must obtain the consent of his or
her spouse before obtaining an in-service withdrawal unless the
participant was granted, within one year of the date on which the new
withdrawal form is received by the TSP, an exception to a signature
requirement under Sec. 1650.64. To show spousal consent, a participant
must submit to the TSP record keeper Form TSP-75, Age-Based In-Service
Withdrawal Request, or Form TSP-76, Financial Hardship In-Service
Withdrawal Request, signed by his or her spouse. Once a form containing
the spouse's consent has been submitted to the TSP record keeper, the
spouse's consent is irrevocable for purposes of that form.
Sec. 1650.63 Executive Director's exception to the spousal
notification requirement.
(a) Whenever this subpart requires the Executive Director to give
notice of an action to the spouse of a participant, an exception to
this requirement may be granted if the participant establishes to the
satisfaction of the Executive Director that the spouse's whereabouts
cannot be determined. A request for an exception to a notification
requirement based on unknown whereabouts 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) stating that the
spouse's whereabouts cannot be determined;
(2) A police or governmental agency determination 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 that meet
the following requirements:
(i) The participant's statement must give the full name of the
spouse, declare the participant's inability to locate the spouse, and
state the efforts the participant has made to locate the spouse.
Examples of attempting to locate the spouse include, but are not
limited to, checking with relatives and mutual friends or using
telephone directories or directory assistance for the city of the
spouse's last known address. Negative statements such as ``I have not
seen nor heard from him'' or ``I have not had contact with her'' are
not sufficient.
(ii) 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.
(iii) 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.
(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.
Sec. 1650.64 Executive Director's exception to requirement to obtain
the spouse's signature.
(a) Wherever this subpart requires a spouse's consent to a loan or
withdrawal or a waiver of the right to a survivor annuity, an exception
to this requirement may be granted if the participant establishes to
the satisfaction of the Executive Director that:
(1) The spouse's whereabouts cannot be determined in accordance
with the provisions of Sec. 1650.63; or
(2) Due to exceptional circumstances, requiring the spouse's
signature would be otherwise 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 governmental agency 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 are narrowly construed and include
circumstances such 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 by a separated participant or an in-
service withdrawal request by a participant in the Federal service
received within one year of an approved exception will 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
by a separated participant or an in-service withdrawal by a participant
in the Federal service and the one-year period of validity of an
approved exception also apply to exceptions for loans under 5 CFR
1655.18.
[FR Doc. 97-24740 Filed 9-17-97; 8:45 am]
BILLING CODE 6760-01-P