[Federal Register Volume 66, Number 193 (Thursday, October 4, 2001)]
[Rules and Regulations]
[Pages 50712-50717]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-24776]



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Part II





Federal Retirement Thrift Board





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5 CFR Part 1604



Uniformed Services Accounts; Final Rule

  Federal Register / Vol. 66 , No. 193 / Thursday, October 4, 2001 / 
Rules and Regulations  

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FEDERAL RETIREMENT THRIFT INVESTMENT BOARD

5 CFR Part 1604


Uniformed Services Accounts

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 adding regulations explaining the rules 
under which members of the uniformed services can participate in the 
Thrift Savings Plan (TSP).

EFFECTIVE DATE: October 9, 2001.

FOR FURTHER INFORMATION CONTACT: Patrick J. Forrest on (202) 942-1661.

SUPPLEMENTARY INFORMATION: The Board administers the TSP, which was 
established by the Federal Employees' Retirement System Act of 1986 
(FERSA), Public Law 99-335, 100 Stat. 514. The TSP provisions of FERSA 
have been codified, as amended, largely at 5 U.S.C. 8351 and 8401-79. 
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 (26 U.S.C. 401(k)).
    The National Defense Authorization Act for Fiscal Year 2000, Public 
Law 106-65, 113 Stat. 512, as amended by the National Defense 
Authorization Act for Fiscal Year 2001, Public Law 106-398, 114 Stat. 
1654, extended the opportunity to participate in the TSP to uniformed 
services members. The uniformed services include the Army, Navy, Air 
Force, Marine Corps, Coast Guard, Public Health Service, and the 
National Oceanic and Atmospheric Administration (NOAA). Therefore, 
beginning on October 9, 2001, uniformed services members can elect to 
contribute to the TSP, with contributions to commence in January 2002. 
Generally, uniformed services members are covered by the TSP 
regulations found at 5 CFR chapter VI. However, they will contribute to 
the TSP under rules that differ substantially from those that apply to 
civilian accounts; this rule supplements TSP regulations to explain 
those differences.
    On May 1, 2001, the Board published a proposed rule in the Federal 
Register (66 FR 21693). After that publication date, the Internal 
Revenue Code (I.R.C.) was amended by the Economic Growth and Tax Relief 
Reconciliation Act of 2001 (EGTRRA), Public Law 107-16, 115 Stat. 38. 
Some of those amendments affect the TSP, and this final rule reflects 
those changes. This final rule also makes several changes to the 
proposed rule for the purpose of clarification and to address comments 
submitted to the TSP from a Federal agency. With those changes, which 
are described below, the Board is adopting the proposed rule as final.

Internal Revenue Code Provisions

    Under 26 U.S.C. 401(a)(31), certain distributions from the TSP can 
be transferred directly to an Individual Retirement Account (IRA) or 
another ``eligible retirement plan'' as defined in the I.R.C. at 26 
U.S.C. 402(c)(8)(B). The EGTRRA amended the definition of eligible 
retirement plan for tax years beginning in 2002 by adding two types of 
retirement plans into which TSP funds can be transferred, an annuity 
contract described in 26 U.S.C. 403(b) and an eligible deferred 
compensation plan established under 26 U.S.C. 457(b). See EGTRRA, 
sections 641(a)(1)(A), (a)(2)(A), and (b), 115 Stat. 118-20, to be 
codified at 26 U.S.C. 457(e)(16), and 402(c)(8)(B)(v)-(vi), 
respectively. (Generally, a section 403(b) annuity is purchased for an 
employee of a tax exempt organization or public school; a section 457 
plan is a deferred compensation plan for a state or local government or 
tax-exempt organization.) The final rule thus contains a new definition 
of ``eligible retirement plan'' at Sec. 1604.2 which incorporates those 
changes made to the Internal Revenue Code.
    Proposed Sec. 1604.4(a)(2)(i) explains that TSP contributions are 
subject to the I.R.C. elective deferral limit found at 26 U.S.C. 
402(g). Final Sec. 1604.4(a)(2)(i) describes the new elective deferral 
limit for tax years beginning in 2002, which was established by section 
611(d) of the EGTRRA, 115 Stat. at 97-8, to be codified at 26 U.S.C. 
402(g)(1) and (g)(5).
    Proposed Sec. 1604.4(a)(2)(ii) discusses 26 U.S.C. 457, which could 
have affected members of the uniformed services contributing to both 
the TSP and to a section 457 plan by limiting the total dollar amount 
of their contributions to both plans to $8,500. The final rule deletes 
proposed Sec. 1604.4(a)(2)(ii) because the EGTRRA repealed the 
provision in section 457 which linked TSP contribution to the section 
457 contribution limit. See EGTRRA, section 615, 115 Stat. 102, to be 
codified at 26 U.S.C. 457(c).
    Proposed Sec. 1604.4(a)(2)(iii) explains that 26 U.S.C. 415 limits 
the amount that a participant can contribute to the TSP and to other 
Federal civilian retirement systems. Effective for tax year 2002, the 
EGTRRA raised those contribution limits. See sections 611(b)(2), 
632(a)(1), 115 Stat. at 97, 113, to be codified at 26 U.S.C. 415(c)(1). 
Therefore, proposed Sec. 1604.4(a)(2)(iii) was rewritten for the final 
rule to describe the new limit; it was also renumbered, replacing the 
deleted Sec. 1604.4(a)(2)(ii).
    Proposed Secs. 1604.7(c), 1604.8(c) and 1604.9(c) state that the 
TSP will not transfer combat zone contributions (as defined in 
Sec. 1604.2) to an IRA or other eligible retirement plan. Those 
sections are based on 26 U.S.C. 402(c)(2), which only permits the 
transfer of sums that are included in gross income (combat zone 
contributions are not included in gross income). However, effective 
January 1, 2002, amendments to section 402(c)(2) will permit IRAs and 
other eligible retirement plans to accept after-tax contributions (if 
they choose to do so), and thus will permit the transfer of TSP combat 
zone contributions if the transferee IRA or other eligible retirement 
plan will accept non-taxable monies. See EGTRRA, section 643(a), 115 
Stat. at 122, to be codified at 26 U.S.C. 402(c)(2). Therefore, final 
Secs. 1604.7(c), 1604.8(c) and 1604.9(c) state that combat zone 
contributions can be transferred to an IRA or other eligible retirement 
plan if the receiving trustee will accept such funds.
    Under current 26 U.S.C. 412(a)(9), the surviving spouse of a TSP 
participant can only transfer a TSP death benefit to an IRA (to the 
exclusion of other eligible retirement plans), and proposed 
Sec. 1604.8(c) explains that limitation. The EGTRRA eliminated this 
limitation for tax years beginning in 2002, see section 641(d), 115 
Stat. at 120, to be codified at 26 U.S.C. 402(c)(9). Therefore, final 
Secs. 1604.8(c) and (d) explain that a surviving spouse can transfer a 
TSP death benefit to either an IRA or to another eligible retirement 
plan, including the TSP.

Definitions

    The definition of ``combat zone contributions'' found in proposed 
Sec. 1604.2 implies that only members of the armed forces can earn 
them. However, all members of the uniformed lservices may earn combat 
zone contributions; therefore, the implication to the contrary is 
removed from the final rule. The final rule also contains a more 
accurate definition of ``separation from service.''

Contributions

    Proposed Sec. 1604.3(e) explains that TSP contributions can be made 
from basic pay, incentive pay, and special pay (including bonuses). 
However, the proposed section does not explicitly

[[Page 50713]]

state that a member of the uniformed services must be making TSP 
contributions from basic pay in order to contribute to the TSP from 
incentive pay or special pay. Therefore, a sentence was added to final 
Sec. 1604.3(e) to state this rule explicitly.

Court Orders

    A TSP account can be divided in an action for divorce, annulment, 
or legal separation, and is subject to legal process relating to 
alimony, child support, or child abuse. Proposed Sec. 1604.9(b) states 
that a payment made pursuant to a court order or legal process will be 
made pro rata from all contribution sources, including combat zone 
contributions. The Board has determined that the TSP can honor a court 
order or legal process that apportions combat zone contributions 
between the participant and the payee; therefore, final Sec. 1604.9(b) 
states that a pro rata payment will be made unless the court order or 
legal process directs otherwise.

TSP Loans

    Proposed Sec. 1604.5(a)(2) states that a TSP loan can be obtained 
by active duty members of the uniformed services and inadvertently 
seems to exclude members of the Ready Reserve from loan eligibility. 
Final Sec. 1404.5(a)(2) states that members of the uniformed services 
in any pay status may obtain a TSP loan. In addition, proposed 
Sec. 1604.10(c) explains how non-taxable combat zone contributions will 
be accounted for when a participant receives a TSP loan. Final 
Sec. 1604.10(c) was revised to discuss only loans that are not repaid 
(and which are therefore deemed to be taxable distributions).

Spousal Rights

    Proposed Sec. 1604.5(b) explains that uniformed services and 
civilian TSP account balances can be combined. Paragraph (b)(4) of that 
section states that a participant with a TSP account balance in excess 
of $3,500 must obtain spousal consent before transferring those funds 
between civilian and uniformed services TSP accounts. The Board has 
determined that a narrower rule is appropriate.
    The spouse of a member of the uniformed services has the same 
rights with respect to his or her spouse's TSP account as the spouse of 
a TSP participant who is covered under the Federal Employees' 
Retirement System (FERS). Specifically, a FERS-covered participant must 
obtain his or her spouse's consent before obtaining a TSP loan or an 
in-service withdrawal, and the spouse is entitled to a joint life 
annuity if the participant elects to receive a post-employment 
withdrawal. Because these rights do not change when funds are 
transferred between uniformed services accounts and FERS-covered 
accounts, it is not necessary to require spousal consent for those 
transfers.
    In contrast, the spouse of a TSP participant who is covered under 
the Civil Service Retirement System (CSRS) is entitled only to notice 
that the participant has received a TSP loan or withdrawal. It is 
unnecessary to require a participant to obtain spousal consent before 
he or she can move funds from a CSRS-covered TSP account into a 
uniformed services TSP account because the transferred funds will 
become subject to more stringent spousal rights rules. However, it is 
necessary to require spousal consent before a participant can move 
funds from a uniformed services account into a CSRS-covered TSP account 
because the transferred monies will become subject to the less 
stringent CSRS spousal protection rights. Therefore, final 
Sec. 1604.5(b)(4) requires spousal consent only for transfers from 
uniformed services TSP accounts to CSRS-covered TSP accounts.

Comments on the Proposed Rule

    The Board received one comment on the proposed rule from a Federal 
civilian agency with uniformed services members. The commenter's first 
remarks pertain to Sec. 1604.4(a)(1), which describes the temporary 
percentage (of basic pay) limitations on TSP contributions by members 
of the uniformed services beginning with 2001, and states that this 
limit will increase ``one percent'' each year until 2005. The commenter 
wrote that the section should begin with 2002, as that is when 
uniformed services contributions will commence, and suggested that the 
yearly contribution limit increase should be described as ``one 
percentage point'' each year until 2005. Another suggestion from the 
commenter pertains to Sec. 1604.4(b), which states that the secretaries 
of the military departments may authorize TSP matching contributions. 
The commenter noted that it is not only the secretaries of the military 
departments but also the Secretaries of Transportation, Commerce, and 
Health and Human Services who may authorize matching contributions for 
members of the Coast Guard, NOAA, and the Public Health Service, 
respectively. The Board agreed with the comments and incorporated all 
the suggestions into Sec. 1604.4 of the final rule.

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 employees of the Federal Government.

Paperwork Reduction Act

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

Unfunded Mandates Reform Act of 1995

    Pursuant to the Unfunded Mandates Reform Act of 1995, 2 U.S.C. 602, 
632, 653, 1501-1571, the effects of this regulation on state, local, 
and tribal governments and the private sector have been assessed. This 
regulation will not compel the expenditure in any one year of $100 
million or more by state, local, and tribal governments, in the 
aggregate, or by the private sector. Therefore, a statement under 
section 1532 is not required.

Submission to Congress and the General Accounting Office

    Pursuant to 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 publication of this rule in today's Federal 
Register. This rule is not a major rule as defined at 5 U.S.C. 804(2).

List of Subjects in 5 CFR Part 1604

    Employment benefit plans, Government employees, Military personnel, 
Pensions, Retirement.

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

    For the reasons set out in the preamble, the Board adds a new 5 CFR 
part 1604 to read as follows:

PART 1604--UNIFORMED SERVICES ACCOUNTS

Sec.
1604.1  Applicability.
1604.2  Definitions.
1604.3  Contribution elections.
1604.4  Contributions.
1604.5  Separate service member and civilian accounts.
1604.6  Error correction.
1604.7  Withdrawals.
1604.8  Death benefits.
1604.9  Court orders and legal processes.
1604.10  Loans.

    Authority: 5 U.S.C. 8474(b)(5) and (c)(1); sec. 661(b), Pub. L. 
106-65, 113 Stat. 512, 672 (5 U.S.C. 8440e).

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Sec. 1604.1  Applicability.

    This part describes the special features of TSP participation 
applicable to members of the uniformed services. Uniformed services 
members are also covered by the other regulations of 5 CFR chapter VI 
to the extent they do not conflict with the regulations of this part.


Sec. 1604.2  Definitions.

    As used in this part:
    Basic pay means basic pay payable under 37 U.S.C. 204 and 
compensation received under 37 U.S.C. 206.
    Bonus contributions means contributions made by participants from a 
bonus as defined in 37 U.S.C. chapter 5.
    Civilian account means the TSP account to which contributions have 
been made by or on behalf of a civilian employee.
    Civilian employee means a TSP participant covered by the Federal 
Employees' Retirement System, the Civil Service Retirement System, or 
equivalent retirement plans.
    Combat zone compensation means compensation received for active 
service during a month in which a member of the uniformed services 
serves in a combat zone.
    Combat zone contributions means employee contributions that are 
made from compensation subject to the Federal income tax exclusion at 
26 U.S.C. 112 for combat zone compensation.
    Eligible retirement plan means a plan defined at 26 U.S.C. 
402(c)(8). Generally, an eligible retirement plan is an individual 
retirement account (IRA) or an individual retirement annuity (other 
than an endowment contract); a qualified pension, profit sharing, or 
stock bonus plan; an annuity plan described in 26 U.S.C. 403(a); an 
annuity contract described in 26 U.S.C. 403(b); or an eligible deferred 
compensation plan described in 26 U.S.C. 457(b). The IRA or other 
eligible retirement plan to which a payment from the TSP can be 
transferred must be a trust established inside the United States (i.e., 
the 50 states and the District of Columbia).
    Employee contributions means contributions made by participants 
from basic pay, incentive pay, and special pay (including bonuses).
    Employing agency means the organization that employs an individual 
who is eligible to contribute to the TSP and that has authority to make 
compensation decisions for that employee.
    Federal civilian retirement system means the Civil Service 
Retirement System established by 5 U.S.C. chapter 83, subchapter III, 
the Federal Employees' Retirement System established by 5 U.S.C. 
chapter 84, or any equivalent Federal civilian retirement system.
    Periodic contributions means employee contributions made from 
recurring incentive pay and special pay (including bonuses) as defined 
in 37 U.S.C. chapter 5.
    Ready Reserve means those members of the uniformed services 
described at 10 U.S.C. 10142.
    Regular contributions means employee contributions made from basic 
pay.
    Separation from service means discharge of a member from active 
duty or the Ready Reserve or transfer of a member to inactive status or 
to a retired list pursuant to any provision of title 10, U.S.C. The 
discharge or transfer may not be followed, before the end of the 31-day 
period beginning on the day following the effective date of the 
discharge, by resumption of active duty, an appointment to a civilian 
position covered by the Federal Employees' Retirement System, the Civil 
Service Retirement System, or an equivalent retirement system, or 
continued service in or affiliation with the Ready Reserve. Reserve 
component members serving on full-time active duty who terminate their 
active duty status and subsequently participate in the drilling reserve 
are said to continue in the Ready Reserve. Active component members who 
are released from active duty and subsequently participate in the 
drilling reserve are said to affiliate with the Ready Reserve.
    Service member means a member of the uniformed services on active 
duty or a member of the Ready Reserve in any pay status.
    Service member account means the account to which contributions 
have been made by or on behalf of a member of the uniformed services.
    Special and incentive pay means pay payable as special or incentive 
pay under 37 U.S.C. chapter 5.
    TSP record keeper means the entity that is engaged by the Board to 
perform record keeping services for the Thrift Savings Plan. The TSP 
record keeper is the National Finance Center, United States Department 
of Agriculture, located in New Orleans, Louisiana.
    Uniformed services means the Army, Navy, Air Force, Marine Corps, 
Coast Guard, Public Health Service, and the National Oceanic and 
Atmospheric Administration.


Sec. 1604.3  Contribution elections.

    A service member may make contribution elections as described in 5 
CFR part 1600, with the following exceptions:
    (a) Initial uniformed services open season. A service member may 
make a contribution election during an initial uniformed services TSP 
open season beginning October 9, 2001, and ending January 31, 2002. 
Contributions based on an election made on or before December 31, 2001, 
will be deducted from pay the first full pay period of January 2002; 
elections made in January 2002 will be effective during the first full 
pay period after the election is received.
    (b) New service members. An individual who is appointed as a 
service member may make a TSP contribution election within 60 days 
after the effective date of the appointment; contributions based on 
such an election will be made during the first full pay period after 
the election is received.
    (c) Conversion between active duty and Ready Reserve status. A 
service member who converts from Ready Reserve status to active duty 
status (for more than 30 days), or who converts from active duty to 
Ready Reserve status, may make a TSP contribution election within 60 
days after the effective date of the conversion; contributions based on 
such an election will be made during the first full pay period after it 
is received.
    (d) TSP open season elections. In addition to being able to make a 
contribution election during the periods described in paragraphs (a) 
through (c) of this section, as applicable, a service member may make a 
contribution election during any TSP open season thereafter (as 
described at 5 CFR part 1600, subpart B).
    (e) Source of contributions. A service member may elect to 
contribute sums to the TSP from basic pay, incentive pay, and special 
pay (including bonuses). However, the service member must be 
contributing to the TSP from basic pay in order to contribute to the 
TSP from incentive pay and special pay (including bonuses). Except for 
an election to contribute from bonuses, all contribution elections must 
be made during one of the periods described in paragraphs (a) through 
(d) of this section. A service member may elect to contribute from 
special pay or incentive pay (including bonuses) in anticipation of 
receiving such pay (that is, he or she does not have to be receiving 
the special pay or incentive pay when the contribution election is 
made); those elections will take effect when the service member 
receives the special or incentive pay.

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Sec. 1604.4  Contributions.

    (a) Employee contributions. Subject to the regulations at 5 CFR 
part 1600 and the following limitations, a service member may make 
regular contributions to the TSP from basic pay. If the service member 
makes regular contributions, he or she also may contribute all or a 
portion of incentive pay and special pay (including bonuses) to the 
TSP:
    (1) Temporary percentage limitations. Subject to paragraph (a)(2) 
of this section, the maximum service member TSP regular employee 
contribution (including combat zone contributions) for 2002 is 7 
percent of basic pay per pay period. The maximum contribution will 
increase one percentage point each year until 2005, after which the 
percentage of basic pay limit will not apply and the maximum 
contribution will be limited only as provided in paragraph (a)(2) of 
this section.
    (2) Internal Revenue Code limitations. The dollar amount of TSP 
employee contributions is limited by two different provisions of the 
Internal Revenue Code (I.R.C.). If a service member's employee 
contributions exceed either of these limitations, the service member 
may request a refund of employee contributions (and associated 
earnings) from the TSP on the form titled ``Request for Return of 
Excess Employee Contributions to Participant,'' which can be obtained 
from the TSP record keeper. The completed form must be returned to the 
TSP record keeper by February 20 of the year after the excess 
contributions were made.
    (i) Limit on elective deferrals. Section 402(g) of the I.R.C. (26 
U.S.C. 402(g)) places a dollar limit on the amount a person may save on 
a tax-deferred basis through retirement savings plans. (For 2002, the 
limit is $11,000. The limit will increase each year by $1,000 until it 
reaches $15,000 in 2006; thereafter, it will be periodically adjusted 
by the Internal Revenue Service (IRS).) The TSP will not accept any 
employee contributions that exceed the I.R.C. section 402(g) limit. If 
a service member contributes to a civilian TSP account or to another 
qualified employer plan described at I.R.C. sections 401(k), 403(b), or 
408(k) (26 U.S.C. 401(k), 403(b), or 408(k)), and the total employee 
contributions from taxable income made to all plans exceed the I.R.C. 
section 402(g) limit, he or she may request a refund of employee 
contributions from the TSP to conform with the limit. (Combat zone 
contributions are not taken into consideration when determining the 
application of the I.R.C. section 402(g) limit.)
    (ii) Limit on contributions to qualified plans. Section 415(c) of 
the I.R.C. (26 U.S.C. 415(c)) also places an annual limit on the 
combined amount that can be contributed to the TSP and to other Federal 
civilian retirement systems (as defined in Sec. 1604.2). (The limit is 
periodically adjusted by the IRS; it is the lesser of 100 percent of 
compensation or $40,000 in 2002.) For purposes of applying this limit, 
compensation includes combat zone compensation. In implementation of 
this law, no employee contribution may be made to the TSP for any year 
to the extent that the sum of the employee's contributions to the TSP 
and to a Federal civilian retirement system, when added to the 
employer's contributions to the TSP for that year, would exceed the 
I.R.C. section 415(c) limit. (If a service member contributes to a 
civilian TSP account and to a service member TSP account in a single 
calendar year, the annual limit on contributions will be derived from 
the participant's combined service member and civilian compensation.) 
Combat zone contributions are taken into consideration when determining 
the application of the I.R.C. section 415(c) limit.
    (b) Matching contributions. When matching contributions are 
authorized for a service member, that service member's regular 
contributions will be matched dollar-for-dollar on the first three 
percent of basic pay contributed to the TSP, and 50 cents on the dollar 
on the next two percent of basic pay contributed. Matching 
contributions only apply to regular contributions. Matching 
contributions are not taken into consideration when determining the 
application of the contribution limit found at I.R.C. section 
402(g)(described in paragraph (a)(2)(i) of this section), but they are 
taken into consideration when determining the application of the 
contribution limit found at I.R.C. section 415 (described in paragraph 
(a)(2)(ii) of this section).
    (c) Deduction and transmittal of contributions. A service member's 
employing agency will deduct regular contributions from the service 
member's basic pay each pay period based on his or her contribution 
election and will transmit the contributions to the TSP. If a service 
member also elects to make periodic contributions to the TSP, the 
employing agency must deduct (and transmit to the TSP) these 
contributions from the service member's incentive pay or special pay 
(including bonuses), as applicable.


Sec. 1604.5  Separate service member and civilian accounts.

    (a) Separate accounts. Service member accounts are maintained 
separately from civilian accounts. Therefore, service members making 
both civilian and uniformed services TSP contributions will have two 
TSP accounts. For those participants, the accounts are treated 
separately except in the following circumstances:
    (1) If a participant contributes to a service member account and a 
civilian account, the contributions to both accounts together cannot 
exceed the Internal Revenue Code contribution limits described in 
Sec. 1604.4(a)(2).
    (2) A member of the uniformed services may obtain a loan from his 
or her account, as described at Sec. 1604.10, and the loan will be 
disbursed from the uniformed services account. If the TSP maintains a 
service member account and a civilian account for an individual, the 
TSP will calculate the Internal Revenue Code maximum loan amount using 
both account balances, as described in Sec. 1604.10(a)(3).
    (b) Transfers between TSP accounts. Service member and civilian TSP 
account balances may be combined through a transfer (thus producing one 
account), and the transferred funds will be treated as employee 
contributions and otherwise invested as described at 5 CFR part 1600. 
Transfers under this section are subject to the following rules:
    (1) An account balance can be transferred once the TSP is informed 
(by the participant's employing agency) that the participant has 
separated from either civilian or uniformed services employment.
    (2) Combat zone contributions may not be transferred from a 
uniformed services TSP account to a civilian TSP account.
    (3) Transferred funds will be allocated among the TSP's investment 
funds according to the contribution allocation in effect for the 
gaining account.
    (4) A service member must obtain the consent of his or her spouse 
before transferring a uniformed services TSP account balance into a 
civilian account that is subject to Civil Service Retirement System 
spousal rights. A request for an exception to the spousal consent 
requirement will be evaluated under the rules explained in 5 CFR part 
1650.
    (5) Before the transfer can be accomplished, any outstanding loans 
from the account to be transferred must be closed as described in 5 CFR 
part 1655.

[[Page 50716]]

Sec. 1604.6  Error correction.

    (a) General rule. A service member's employing agency must correct 
the service member's account if, as the result of employing agency 
error, a service member does not receive the TSP contributions to which 
he or she is entitled. Except as provided in paragraph (b) of this 
section, those corrections must be made in accordance with 5 CFR part 
1605.
    (b) Missed bonus contributions. This paragraph (b) applies when an 
employing agency fails to implement a contribution election that was 
properly submitted by a service member requesting that a TSP 
contribution be deducted from bonus pay. Within 30 days of receiving 
the employing agency's acknowledgment of the error, a service member 
may establish a schedule of makeup contributions with his or her 
employing agency to replace the missed contribution through future 
payroll deductions. These makeup contributions can be made in addition 
to any TSP contributions that the service member is otherwise entitled 
to make.
    (1) The schedule of makeup contributions may not exceed four times 
the number of months it would take for the service member to earn basic 
pay equal to the dollar amount of the missed contribution. For example, 
a service member who earns $29,000 yearly in basic pay and who missed a 
$2,500 bonus contribution to the TSP can establish a schedule of makeup 
contributions with a maximum duration of 8 months. This is because it 
takes the service member 2 months to earn $2,500 in basic pay (at 
$2,416.67 per month).
    (2) At its discretion, an employing agency may set a ceiling on the 
length of a schedule of employee makeup contributions. The ceiling may 
not, however, be less than twice the number of months it would take for 
the service member to earn basic pay equal to the dollar amount of the 
missed contribution.


Sec. 1604.7  Withdrawals.

    A service member may withdraw all or a portion of his or her 
account under the rules in 5 CFR part 1650, with the following 
exceptions:
    (a) Separate accounts. If the TSP maintains a service member 
account and a civilian account for an individual, a separate withdrawal 
request must be made for each account.
    (b) Spousal rights. The spouse of a service member participant has 
the same TSP spousal rights as the spouse of a civilian participant 
covered under the Federal Employees' Retirement System; those spousal 
rights in the context of a withdrawal (and the process by which a 
service member may obtain an exception to them) are explained at 5 CFR 
part 1650.
    (c) Combat zone contributions. If a service member account contains 
combat zone contributions, the withdrawal will be distributed pro rata 
from all sources. If a participant requests the TSP to transfer all, or 
a portion, of a withdrawal to an Individual Retirement Account (IRA) or 
other eligible retirement plan, the share of the withdrawal 
attributable to combat zone contributions (if any) can be transferred 
only if the IRA or retirement plan accepts such funds.
    (d) Separation. The definition of separation from service at 
Sec. 1604.2 applies when determining a service member's eligibility for 
a withdrawal.


Sec. 1604.8  Death benefits.

    The account balance of a deceased service member will be paid as 
described at 5 CFR part 1651, with the following exceptions:
    (a) Separate accounts. To designate a beneficiary for a TSP death 
benefit, a service member must file a valid beneficiary designation 
form. If the TSP maintains a service member account and a civilian 
account for an individual, a separate beneficiary designation form must 
be filed for each account.
    (b) Combat zone contributions. If a service member account contains 
combat zone contributions, the death benefit payment will be made pro 
rata from all sources.
    (c) Trustee-to-trustee transfers. The surviving spouse of a TSP 
participant can request the TSP to transfer a death benefit payment to 
an Individual Retirement Account (IRA) or other eligible retirement 
plan. The share of the death benefit payment that is attributable to 
combat zone contributions (if any) can be transferred only if the IRA 
or retirement plan accepts such funds.
    (d) Transfer to a TSP account. If the TSP maintains an account for 
a death benefit beneficiary who is the surviving spouse of the 
participant, the spouse can request the TSP to transfer the death 
benefit payment to his or her TSP account; the share attributable to 
combat zone contributions (if any) cannot be transferred into a 
civilian account.


Sec. 1604.9  Court orders and legal processes.

    A TSP account can be divided in an action for divorce, annulment, 
or legal separation, and is subject to legal process relating to child 
support, alimony, or child abuse. The TSP will make a payment from a 
service member's account under such orders or processes as described at 
5 CFR part 1653, with the following exceptions:
    (a) Separate accounts. To qualify for enforcement against the TSP, 
a court order or legal process must expressly relate to the TSP. 
Therefore, if the TSP maintains a service member account and a civilian 
account for an individual, a qualifying court order or legal process 
must expressly state from which account payment is to be made.
    (b) Combat zone contributions. If a service member account contains 
combat zone contributions, the payment will be made pro rata from all 
sources, unless the court order or legal process directs otherwise.
    (c) Trustee-to-trustee transfers. The current or former spouse of a 
TSP participant can request the TSP to transfer a court-ordered payment 
to an Individual Retirement Account (IRA) or other eligible retirement 
plan. If the payee requests the TSP to transfer all or a portion of the 
court-ordered payment to an IRA or other eligible retirement plan, the 
share of the payment attributable to combat zone contributions (if any) 
can be transferred only if the IRA or plan accepts such funds.
    (d) Transfer to a TSP account. If the TSP maintains an account for 
a court order payee who is the current or former spouse of the 
participant, the payee can request the TSP to transfer the court-
ordered payment to the payee's TSP account; the pro rata share 
attributable to combat zone contributions (if any) cannot be 
transferred.


Sec. 1604.10  Loans.

    A service member may be eligible for a TSP loan as described at 5 
CFR part 1655, with the following exceptions:
    (a) Separate accounts. If the TSP maintains a service member 
account and a civilian account for an individual:
    (1) A separate loan application must be made for each account;
    (2) A participant may have no more than two loans outstanding from 
each account at any time; one loan from each account may be a loan for 
the purchase of a primary residence;
    (3) The Internal Revenue Code maximum loan amount test, which is 
described in 5 CFR part 1655, will be applied using the combined 
balances in both TSP accounts; and
    (4) Separate TSP loan statements will be issued for each account.
    (b) Spousal rights. Before a loan agreement is approved for a 
service member account, the participant's spouse must consent to the 
loan by signing the loan agreement. A request for an exception to the 
spousal consent

[[Page 50717]]

requirement will be evaluated under the rules explained in 5 CFR part 
1650.
    (c) Combat zone contributions. The portion of a loan that is 
attributable to combat zone contributions (if any) will be determined 
when the loan is declared a taxable distribution, and that portion will 
not be reported as taxable income to the participant as a result of the 
declaration.

[FR Doc. 01-24776 Filed 10-3-01; 8:45 am]
BILLING CODE 6760-01-P