[Federal Register Volume 67, Number 122 (Tuesday, June 25, 2002)]
[Proposed Rules]
[Pages 42856-42889]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-15775]



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Part II





Federal Retirement Thrift Investment Board





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5 CFR Part 1600 et al.



Employee Elections to Contribute to the Thrift Savings Plan, 
Participants' Choice of Investment Funds, Vesting, Uniformed Services 
Accounts, Correction of Administrative Errors, Lost Earnings 
Attributable to Employing Agency Errors, Participant Statements, 
Calculation of Share Prices, Methods of Withdrawing Funds from the 
Thrift Savings Plan, Death Benefits, Domestic Relations Orders 
Affecting Thrift Savings Plan Accounts, Loans, Miscellaneous; Proposed 
Rule

  Federal Register / Vol. 67, No. 122 / Tuesday, June 25, 2002 / 
Proposed Rules  

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FEDERAL RETIREMENT THRIFT INVESTMENT BOARD

5 CFR Parts 1600, 1601, 1603, 1604, 1605, 1606, 1640, 1645, 1650, 
1651, 1653, 1655, 1690


Employee Elections To Contribute to the Thrift Savings Plan, 
Participants' Choices of Investment Funds, Vesting, Uniformed Services 
Accounts, Correction of Administrative Errors, Lost Earnings 
Attributable to Employing Agency Errors, Participant Statements, 
Calculation of Share Prices, Methods of Withdrawing Funds From the 
Thrift Savings Plan, Death Benefits, Domestic Relations Orders 
Affecting Thrift Savings Plan Accounts, Loans, Miscellaneous

AGENCY: Federal Retirement Thrift Investment Board.

ACTION: Proposed rule with request for comments.

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SUMMARY: The Executive Director of the Federal Retirement Thrift 
Investment Board (Board) proposes to revise the Board's regulations to 
reflect the processes and terminology of the Thrift Savings Plan's new 
record keeping system, to codify several policy decisions related to 
implementation of this new system, and to add new methods of post-
employment withdrawals. This rule will allow participants more options 
and greater flexibility with which to manage their TSP accounts.

DATES: Comments must be received on or before July 25, 2002.

ADDRESSES: Comments may be sent to: Elizabeth S. Woodruff, General 
Counsel, Federal Retirement Thrift Investment Board, 1250 H Street, 
NW., Washington, DC 20005. The Board's FAX is (202) 942-1676.

FOR FURTHER INFORMATION CONTACT: Patrick J. Forrest on (202) 942-1659, 
Thomas L. Gray on (202) 942-1644, or Merritt A. Willing on (202) 942-
1666.

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 8401-8479. 
The TSP is a tax-deferred retirement savings plan for Federal civilian 
employees and members of the uniformed services which is similar to 
cash or deferred arrangements established under section 401(k) of the 
Internal Revenue Code (26 U.S.C. 401(k)). Sums in a TSP participant's 
account are held in trust for the participant.
    In 1996, Congress amended FERSA by enacting the Thrift Savings Plan 
Act of 1996, Public Law 104-208, 110 Stat. 3009, which permitted the 
Executive Director to offer, among other things, new withdrawal options 
to TSP participants. In order to accommodate these new withdrawal 
options and to make a number of benefits arising from recent 
technological advances available to TSP participants, the Board 
redesigned its record keeping system. The new record keeping system is 
expected to be operational on September 16, 2002.
    Thus, the Executive Director proposes to amend the TSP regulations 
that will be affected by the implementation of the new record keeping 
system. As explained below, the Executive Director also proposes to 
adopt uniform definitions, eliminate obsolete regulations, and 
reorganize various sections of the regulations to make them more easily 
understood.

Analysis of Part 1600

    On December 2, 1987, the Executive Director published in the 
Federal Register (52 FR 45802) a final rule concerning the procedures 
for open seasons and election periods during which Federal employees 
could make elections to contribute to the TSP. The rule is codified at 
5 CFR part 1600. The Executive Director substantially revised part 1600 
in a final rule published on May 2, 2001 (66 FR 22088), and amended on 
April 11, 2002 (66 FR 17603); the proposed rule further amends the 
final rule.
    The Executive Director proposes to remove all definitions generally 
applicable to the TSP from Sec. 1600.1 and place them in Sec. 1690.1.
    The proposed amendment deletes obsolete information from 
Secs. 1600.12 and 1600.13 and changes the dates for the TSP open 
seasons from May 15-July 31 to April 15-June 30 and from November 15-
January 31 to October 15-December 31.
    The proposed rule updates references to TSP forms in Secs. 1600.11, 
1600.14, and 1600.32 and makes current the reference to the percentage 
of basic pay employees may contribute to the TSP in Sec. 1600.22. 
Finally, Sec. 1600.32 explains that an eligible rollover distribution 
may be rolled over to the TSP by using a personal check, in additional 
to guaranteed funds.

Analysis of Part 1601

    On July 17, 1995, and September 14, 1995, the Executive Director 
published in the Federal Register (60 FR 47836 and 60 FR 36630) final 
rules concerning participants' choices of investment funds. These rules 
are codified at 5 CFR part 1601. The Executive Director substantially 
revised part 1601 in a final rule published on May 2, 2001 (66 FR 
22092); the proposed rule amends the final rule.
    The Executive Director proposes to remove all definitions generally 
applicable to the TSP from Sec. 1601.1 and to place them in 
Sec. 1690.1; proposed Sec. 1601.1 includes only definitions that are 
particularly relevant to participants' choices of investment funds, 
such as acknowledgment of risk and interfund transfer.
    Subparts B and C are generally revised to include transfers and 
rollovers to the TSP from eligible employer plans or traditional 
individual retirement accounts (IRAs) as also covered by the terms of 
this subpart. Accordingly, references to future contributions and loan 
payments are replaced with references to future deposits, which include 
contributions, loan payments, transfers and rollovers to the TSP. 
Subparts B, C, and D are also revised by deleting obsolete provisions 
and by updating references to TSP forms.
    Section 1601.22(c) is new and explains how the TSP will treat an 
ineffective interfund transfer.
    Section 1601.32 is revised to reflect the timing and posting dates 
for contribution allocations and interfund transfer requests in a daily 
valued environment, as opposed to the current monthly valued 
environment.
    Section 1601.34 is revised to explain additional reasons why a 
contribution allocation or interfund transfer on a Form TSP-50 or TSP-
U-50 may be rejected.

Analysis of Part 1603

    On June 23, 1997, the Executive Director published in the Federal 
Register final rules concerning the vesting of participants' accounts 
(62 FR 33968). These rules are codified at 5 CFR part 1603. The 
proposed rule amends the final rules.
    The Executive Director proposes to remove all definitions generally 
applicable to the TSP from Sec. 1603.1 and to place them in 
Sec. 1690.1; proposed Sec. 1603.1 is revised to include definitions 
that are particularly relevant to vesting, such as year of service. In 
addition, Sec. 1603.2(a) is expanded to include the vesting rule 
applicable to members of the uniformed services.

Analysis of Part 1604

    On October 4, 2001, the Executive Director published in the Federal 
Register final rules concerning uniformed services accounts (66 FR

[[Page 42857]]

50712). The rule is codified at 5 CFR part 1604. The proposed rule 
amends Sec. 1603.3(a)(1) by explaining more fully the percentage limits 
on contributions from basic pay.

Analysis of Part 1605

    On December 27, 1996, and May 1, 1998, the Executive Director 
published in the Federal Register final rules concerning the correction 
of administrative errors (61 FR 67472 and 63 FR 24380). The rule is 
codified at 5 CFR part 1605. The Executive Director substantially 
revised part 1605 in a final rule published on August 22, 2001 (66 FR 
44277), and with a proposed rule published on May 17, 2002 (67 FR 
35051). The proposed rule further amends the final rule.
    The Executive Director proposes to remove all definitions generally 
applicable to the TSP from Sec. 1605.1 and to place them in 
Sec. 1690.1; proposed Sec. 1605.1 includes definitions that are 
particularly relevant to error correction, such as Board error, 
breakage, and late contributions.
    Proposed Sec. 1605.2 introduces the concept of ``breakage,'' which 
replaces the concept of lost earnings for investments made after August 
31, 2002. Currently, the TSP record keeper calculates lost earnings 
based upon the gains and losses of the appropriate investment fund from 
the pay date for which a contribution should have been made to the end 
of the month prior to the month during which the lost earnings record 
is processed. Under the proposed rule, if, on the date makeup or late 
contributions subject to breakage are posted to the participant's 
account by the TSP, the value of the number of shares of the investment 
fund in which the contributions should have been invested is greater 
than the value of those shares on the posting date, the TSP will charge 
the employing agency the difference and will post this amount to the 
participant's account using the participant's current contribution 
allocation. If the value is less, the TSP will use the excess funds 
submitted by the employing agency to offset TSP administrative 
expenses.
    Section 1605.11 is amended to describe the situations in which 
breakage is applied to an account.
    Section 1605.12 is amended to explain how negative adjustments will 
be processed in a daily valued environment.
    Sections 1605.13, 1605.14, and 1605.15 are amended to delete 
references to lost earnings. A new paragraph (c) to Sec. 1605.15 is 
added to incorporate the rules of current Sec. 1606.8 regarding late 
payroll submissions.

Analysis of Part 1606

    On January 7, 1991, the Executive Director published in the Federal 
Register (56 FR 606) interim rules concerning the payment of lost 
earnings attributable to employing agency errors to participants' TSP 
accounts. These rules are codified at 5 CFR part 1606. Under interim 
part 1606, lost earnings on contributions that were not made on time 
because of administrative errors are calculated based upon a dollar-
valued system and monthly rates of return. The Board's new record 
keeping system is a share-based system, valued daily. Transactions will 
be posted to a participant's account based upon the share prices in 
effect on the date(s) that the transactions should have occurred. 
Application of share prices for dates earlier than the date a 
transaction is processed will replace the lost earnings process 
described in part 1606.
    Thus, the proposed changes to part 1606 are relevant for only a 
limited period. As explained in proposed Sec. 1606.2, a transition 
period from September 1, 2002, until March 31, 2003, is provided to 
enable employing agencies to submit lost earnings for contributions 
that were made before implementation of the daily valued TSP record 
keeping system. After this approximately 6-month period, all makeup and 
late contributions subject to breakage should be reported as described 
in part 1605; at that time, the use of lost earning records will be 
discontinued. Thus, part 1606, as revised, covers only payments posted 
to participants' account before September 1, 2002; all payments posted 
after August 31, 2002, are covered by part 1605.

Analysis of Part 1640

    On June 24, 1997, the Executive Director published in the Federal 
Register (62 FR 34154) final rules concerning the periodic information 
the TSP furnishes to participants. These rules are codified at 5 CFR 
part 1640. The proposed rule amends the final rules.
    The Executive Director proposes to remove all definitions generally 
applicable to the TSP from Sec. 1640.1 and to place them in 
Sec. 1690.1.
    Proposed Sec. 1640.2 reflects the Executive Director's decision to 
provide comprehensive written statements to participants concerning 
their accounts on a quarterly basis rather than twice yearly, the 
minimum frequency required by FERSA. The new comprehensive quarterly 
statements will incorporate the existing quarterly loan statements and 
no separate loan statements will be issued. The amendment also explains 
that Plan participants can obtain account balance information on a more 
frequent basis from the TSP Web site and the ThriftLine or can disable 
access to their account balance information on both the Web site and 
the ThriftLine.
    Proposed Secs. 1640.3 and 1640.4 set forth the information that the 
TSP will provide to participants regarding the status of their 
individual accounts during the reporting period. These changes reflect 
the additional information that will be available as a result of 
implementation of the TSP's new record keeping system, such as a 
participant's contribution allocation as of the end of the statement 
period.
    Proposed Sec. 1640.5 is unchanged.
    Proposed Sec. 1640.6 explains that a participant may elect to view 
his or her account statement by accessing the TSP Web site, rather than 
receiving an account statement by mail. If a participant chooses to 
receive his or her account statement from the TSP Web site, no account 
statement will be mailed. The section is also amended to describe more 
clearly a participant's obligation to provide the TSP with a current 
mailing address if the participant chooses to continue to receive an 
account statement by mail.

Analysis of Part 1645

    On November 20, 1996, the Executive Director published final rules 
in the Federal Register (61 FR 58973) concerning the way in which 
earnings are allocated to participants' accounts in the TSP. These 
rules are codified at 5 CFR part 1645. The proposed rule amends the 
final rules.
    The proposed rule amends the title of part 1645 from ``Allocation 
of Earnings'' to ``Calculation of Share Prices.'' This change is 
necessary because in the TSP's new record keeping system the process 
described in the current regulations is no longer relevant; an increase 
or decrease in the value (calculated daily) of a participant's interest 
in an investment fund will be reflected in the number and value of 
shares in that fund, rather than by a separate posting of monthly 
earnings to the account.
    The Executive Director proposes to remove all definitions generally 
applicable to the TSP from Sec. 1645.1 and place them in Sec. 1690.1; 
proposed Sec. 1645.1 contains definitions primarily relevant to the 
calculation of share prices, such as basis and forfeiture. The 
definitions of allocation, allocation date, month-end account balance, 
and valuation period are deleted because they are no longer applicable.

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    Proposed Sec. 1645.2 provides that employer contributions, employee 
contributions, loan payments, and other transactions will be posted 
using the appropriate share price for the relevant investment fund.
    The final monthly valued processing cycle in early September 2002, 
will determine account balances in the G Fund, F Fund, C Fund, S Fund, 
and I Fund, as of August 31, 2002. The account balance in each 
investment fund for each TSP participant will then be converted to 
shares. The initial share price for each of the investment funds will 
be $10.00 per share. Thus, a TSP account balance will be converted to 
shares by dividing the dollar-based account balance in each investment 
fund by $10.00. The number of shares in an account will be computed to 
four decimal places. Thereafter, following the close of business each 
business day, total net earnings (gross earnings minus administrative 
expenses (net of forfeitures) and investment management fees, plus any 
residual earnings from the prior business day) will be calculated for 
each investment fund. The total net earnings for each investment fund 
for each day will be divided by the number of shares in the fund at the 
opening of that business day. The result, truncated to two decimal 
places, is the daily change in share price from the prior business day.
    Proposed Secs. 1645.3 and 1645.4 also reflect the conversion to a 
share-based system.
    Proposed Sec. 1645.5 describes the method used to calculate the 
price of a share held in a TSP investment fund. Sections 1645.5(a) and 
(b) of the current regulations describe how to calculate the basis of 
an individual participant's account and of each investment fund in a 
monthly valued system, and thus are deleted because they are no longer 
relevant. Section 1645.5(c) of the current regulations is retained and 
redesignated as Sec. 1645.6, and is amended to describe the calculation 
of the total fund basis for each TSP investment fund in the new share-
based system.

Analysis of Part 1650

    On September 18, 1997, the Executive Director published final rules 
in the Federal Register (62 FR 49112) concerning the way in which 
participants can withdraw their TSP accounts. These rules are codified 
at 5 CFR part 1650. The final rules were amended most recently on April 
11, 2002 (66 FR 17603); the proposed rule further amends the final 
rules.
    The Executive Director proposes to remove all definitions generally 
applicable to the TSP from Sec. 1650.1 and place them in Sec. 1690.1; 
proposed Sec. 1650.1 retains definitions of terms primarily relating to 
withdrawals, such as in-service withdrawal and reimbursement. The 
definitions of monthly processing cycle and valuation date are deleted 
as obsolete.
    In September 2002, the Executive Director will make available in 
combination the withdrawal options that were approved by Congress in 
the Thrift Savings Plan Act of 1996, Public Law 104-208, 110 Stat. 
3009. Thus, proposed Sec. 1650.2, concerning eligibility for a 
withdrawal, is amended to provide that a separated participant may 
elect to withdraw his or her account using a combination of withdrawal 
options. Currently, if a participant who is separated from Government 
employment wishes to withdraw funds from the TSP, the participant must 
withdraw his or her entire account in the form of a single payment, a 
series of monthly payments, or a life annuity purchased by the TSP. The 
proposed amendment would permit a separated participant to request a 
withdrawal consisting of a combination of the withdrawal options. To 
accommodate the new post-employment withdrawal process, the Board has 
redesigned Form TSP-70 (for civilian employees) and Form TSP-U-70 (for 
uniformed services), Request for a Full Withdrawal. Among other things, 
the revision allows a participant to request a TSP annuity and to 
designate a beneficiary for the annuity on one form. The proposed rule 
reflects the use of the revised forms. (Other forms have also been 
revised and new forms created for the uniformed services; those for 
uniformed services are designated with a -U-.)
    Proposed Sec. 1650.2, concerning eligibility for a TSP withdrawal, 
contains several changes. The reference in current Sec. 1650.2(b)(1) to 
the cancellation of an automatic cashout has been deleted because 
accounts of less than $200 will be paid automatically and without prior 
notice to participants who are reported as separated. These automatic 
payments cannot be returned to the TSP. Proposed Sec. 1650.2(d) 
provides that a separated participant who is later reemployed will not 
have the option to withdraw that portion of his or her account balance 
which is attributable to an earlier period of employment unless the 
participant meets the criteria for an age-based or financial hardship 
in-service withdrawal. Finally, existing Sec. 1650.2(e), concerning 
spousal rights, is deleted because that information is contained in 
Secs. 1650.60 and 1650.61.
    Section 1650.3 is redrafted and reorganized but is substantively 
unchanged.
    Section 1650.4 is new. It parallels a similar provision in the loan 
regulations (5 CFR 1655.18(d)) and provides that the Board will 
investigate allegations of fraud or forgery in a participant's 
withdrawal request. If the Board finds evidence to suggest that the 
participant misrepresented his or her marital status, misrepresented 
his or her spouse's address (for CSRS participants), or submitted a 
withdrawal form with a forged spousal signature (for FERS and uniformed 
services participants), the Board will refer the case to the Department 
of Justice for criminal prosecution and, in the case of a participant 
who is still employed, to the Inspector General or other appropriate 
authority in the participant's employing agency for administrative 
action.
    Subpart B describes the types of withdrawals that are available to 
participants after separation from Government service. The subpart is 
substantially redrafted and reorganized. The Executive Director 
proposes to add a new Sec. 1650.11 to explain that separated 
participants may make a full withdrawal using a combination of 
withdrawal methods and to add a de minimis forfeiture rule. Existing 
Sec. 1650.10, concerning the right to withdraw in a single payment, is 
renumbered as Sec. 1650.12 and is amended to add the option for a one-
time partial withdrawal.
    Current Sec. 1650.11, concerning withdrawals in the form of monthly 
payments, is renumbered as Sec. 1650.13 and is amended to eliminate the 
option of computing monthly payments based on a fixed term. The 
Executive Director also proposes to add an annual election period 
during which a participant can change the dollar amount of his or her 
monthly payments. A participant who is receiving monthly payments 
calculated based upon IRS life expectancy tables may change to a fixed 
dollar amount; however, a participant who is receiving monthly payments 
based on a fixed dollar amount may not change to monthly payments based 
on life expectancy.
    Current Sec. 1650.12, concerning annuities, is reorganized and 
renumbered as Sec. 1650.14, but is substantively unchanged.
    Current Sec. 1650.13, concerning the transfer of a post-separation 
withdrawal to an eligible employer plan or traditional IRA, has been 
moved to subpart C, renumbered as Sec. 1650.25, and renamed to make the 
information provided in subparts B and C more

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consistent with that in subparts D and E.
    Current Sec. 1650.14, concerning deferred withdrawal elections, is 
deleted. Only immediate withdrawals will be available.
    Current Sec. 1650.15 is renumbered as Sec. 1650.16, and is amended 
to delete an obsolete reference to withdrawals made before 1998. 
Proposed Sec. 1650.15 is new. It explains the Board's policy with 
respect to inactive accounts. These accounts will be declared abandoned 
when the TSP's efforts to locate the participant have failed.
    Current Sec. 1650.16 is renumbered as Sec. 1650.17, and the 
information has been expanded to explain more fully a participant's 
right to change or cancel a withdrawal election.
    Subpart C contains the procedures for participants to make a post-
employment withdrawal. Current Sec. 1650.20 is renumbered as 
Sec. 1650.21 and is amended to eliminate the 30-day waiting period 
after separation before a withdrawal will be paid. The TSP will process 
a valid withdrawal request upon receipt of separation information from 
the participant's employing agency if the participant certifies on the 
withdrawal form that he or she does not expect to be reemployed by the 
Federal Government within 31 days of the date of separation. The 
remainder of the section is unchanged.
    Sections 1650.21 and 1650.22 currently provide that, upon receipt 
of a notice of separation, the TSP will automatically pay accounts of 
$3,500 or less directly to participants, unless the participant elects 
to leave the account in the TSP. The proposed rule renumbers those 
sections as 1650.22 and 1650.23, respectively. The proposed sections 
retain the cashout provision but apply it only to accounts that are 
less than $200, and eliminate the option to leave the money in the TSP. 
Current Sec. 1650.22(c), regarding spousal rights, has been moved to 
subpart G. A new Sec. 1650.24, describing how to apply for a 
withdrawal, and a new Sec. 1650.25, explaining some of the tax 
consequences of a post-employment withdrawal, are added.
    Subpart D describes the types of withdrawals that are available to 
participants while they are still in Government service. Current 
Sec. 1650.30, concerning age-based withdrawals, is renumbered 
Sec. 1650.31 and contains a new paragraph which provides that a 
participant who takes an age-based withdrawal is not eligible after 
separation to take a partial withdrawal from that account. A 
participant with both a civilian and uniformed services account can 
take a partial withdrawal from each account, provided that he or she 
has not taken an age-based in-service withdrawal from that account.
    Current Secs. 1650.31, 1650.32, and 1650.33 are renumbered as 
1650.32, 1650.33, and 1650.34, respectively, but are substantively 
unchanged.
    Subpart E contains the procedures for participants to make in-
service withdrawals. Current Secs. 1650.40, 1650.41, and 1650.42 are 
renumbered as 1650.41, 1650.42, and 1650.43, respectively. Proposed 
Sec. 1650.42 contains a new paragraph (b) that explains that there is 
no limit to the number of hardship withdrawals a participant may make, 
except that a participant must wait six months before submitting 
another request. Proposed Sec. 1650.43 contains tax information for in-
service withdrawals that is reorganized to make it more consistent with 
the tax information provided in Sec. 1650.25 for post-employment 
withdrawals.
    Subpart G explains the rights of spouses of participants when a 
withdrawal is requested. Current Sec. 1650.60, concerning spousal 
rights when a post-employment withdrawal is requested, is renumbered as 
1650.61, and is amended to include the spousal rights of a uniformed 
services member. A requirement is also added that the spouse's 
signature be notarized any time a withdrawal is requested.
    Current Sec. 1650.61, concerning spousal rights when a participant 
changes a withdrawal election, is deleted because the elimination of 
deferred withdrawal elections makes these rules unnecessary.
    Section 1650.62, concerning spousal rights when an in-service 
withdrawal is requested, is amended to require that the spouse's 
consent be notarized any time a withdrawal is requested.
    Sections 1650.63 and 1650.64, concerning the conditions under which 
the Executive Director will grant a waiver of the spousal notice and 
consent requirements (including waiver of the required spousal 
annuity), are unchanged since the April 11, 2002, amendment.

Analysis of Part 1651

    On June 13, 1997, and June 9, 1999, the Executive Director 
published in the Federal Register (62 FR 32429 and 64 FR 31052) final 
rules concerning the payment of a TSP account upon the death of a 
participant. These rules are codified at 5 CFR part 1651. The Executive 
Director revised part 1651 in a proposed rule published on May 17, 2002 
(67 FR 35051). This proposed rule further amends the final rules.
    Implementation of the TSP's new record keeping system will require 
the redesign of a number of forms and will make obsolete the Form TSP-
11-B, Beneficiary Designation for a TSP Annuity, which is referenced in 
the current death benefit regulations at Secs. 1651.2(b)(3), (b)(5) and 
(b)(6), 1651.3(a) and (d), 1651.4(c), and 1651.10(a) and (c). This 
proposed rule changes those references to reflect the use of revised 
forms. In addition, definitions generally applicable to the TSP are 
removed from Sec. 1651.1 and placed in Sec. 1690.1.
    The proposed rule implements a new procedure for the payment of a 
TSP death benefit in cases where a participant has submitted a 
completed withdrawal or loan request to the TSP, but dies before 
disbursement of the withdrawal or loan. Currently, if the TSP learns 
that a separated participant has died after it received the 
participant's request to withdraw his or her account and before the 
payment is made, the TSP will not process the withdrawal. Instead, the 
TSP will pay the funds as a death benefit according to the order of 
precedence found at 5 U.S.C. 8424(d). If the participant has chosen to 
withdraw his or her account as a joint life annuity or an annuity with 
a refund or 10-year certain option, the TSP will pay the account to the 
joint annuitant or to the beneficiary or beneficiaries of the annuity 
as designated by the participant.
    Under proposed Sec. 1651.2(b)(1), if the TSP has received a request 
to withdraw an amount as a single payment, the TSP will disburse that 
amount to the participant (to become the property of his or her 
estate), even though he or she died before payment of the withdrawal. 
If the withdrawal request directs the TSP to transfer all or a portion 
of the single payment to a eligible employer plan or traditional IRA, 
the TSP will transfer that portion of the withdrawal to the designated 
plan or IRA. The Board has decided to adopt this practice because it 
gives effect to the participant's decision to remove the funds from his 
or her account, and thus to terminate the relationship with the TSP 
regarding these funds.
    This procedural change will not affect how the TSP will pay, as a 
death benefit, the portion of a post-employment withdrawal that the 
participant elected to receive in the form of monthly payments (as 
opposed to a single payment). Thus, proposed Sec. 1651.2(b)(2) provides 
that any amount remaining in the account when the TSP receives notice 
of the participant's death will be paid to the participant's 
beneficiaries according to the

[[Page 42860]]

beneficiary designation on file or under the statutory order of 
precedence.
    This procedural change also has no substantive effect on proposed 
Sec. 1651.2(b)(3), which describes how the TSP will distribute the 
portion of a TSP account identified by the participant for the purchase 
of a TSP annuity.
    Proposed Sec. 1651.2(c) applies the same new procedure to the 
payment of an in-service withdrawal request. Under the proposed rule, 
if a participant dies after completing an in-service withdrawal 
request, but before payment, the portion of the account elected for 
withdrawal will be paid in the same manner as a single payment post-
employment withdrawal (i.e., as a single payment to the deceased 
participant, to become the property of his or her estate).
    The proposed change also affects cases where a participant dies 
after submitting a properly completed loan agreement (and acceptable 
documentation, if required); current Board regulations do not address 
this situation. Under proposed Sec. 1651.2(d), the TSP will cancel a 
loan agreement if it receives notice of the participant's death before 
a loan check has been issued. If notice of the participant's death is 
received after a loan check has been issued but the check is not 
negotiated, the check can be returned to the TSP and the loan will be 
cancelled. In both cases, the loan amount will be included with the 
account balance to be distributed to the participant's beneficiaries 
according to the beneficiary designation on file or under the statutory 
order of precedence.
    The proposed rule amends Sec. 1651.14(f) to explain more fully the 
TSP's practice when a death benefit is payable to the trustee of a 
trust. The section is amended to state that payment will be made 
payable to the trust and mailed in care of the trustee.
    The proposed rule amends Sec. 1651.17 to permit beneficiaries to 
disclaim a portion of the death benefit; the TSP has decided to 
recognize partial disclaimers because they are acceptable in most 
states. Proposed Sec. 1651.17(c) is new and provides that a disclaimer 
executed on behalf of a minor must be signed by the guardian of the 
minor.

Analysis of Part 1653

    On March 13, 1995, and April 26, 1996, the Board published in the 
Federal Register (60 FR 13609 and 60 FR 18912) final rules concerning 
payment from a participant's TSP account pursuant to a retirement 
benefits court order or legal process. These rules are codified at 5 
CFR part 1653. The proposed rule amends the final rules.
    Subpart A of part 1653 details the TSP's procedures for reviewing 
retirement benefits court orders pursuant to 5 U.S.C. 8435(c)(1) and 
(2) and 8467. The proposed rule removes current Sec. 1653.1, which 
describes the purpose of the subpart, as unnecessary.
    Proposed Sec. 1653.1 consolidates and defines terms of art that are 
currently explained throughout subpart A. Definitions that are 
generally applicable to the TSP have been moved to Sec. 1690.1.
    Current Sec. 1653.2 describes those court orders that the TSP will 
honor (called ``qualifying retirement benefits court orders''). The 
section is generally reorganized and the process clarified. In 
addition, under current Sec. 1653.2(b)(3)(iii), a court order can 
describe a payee's entitlement using a formula, as long as its 
variables are readily ascertainable from the face of the order or from 
Government records. However, the TSP does not have access to Government 
records in general; therefore, the proposed rule requires that the 
variables must be readily ascertainable from the order or from TSP 
records.
    Also, under current Sec. 1653.2(c)(1), the TSP will honor a court 
order relating to an account that contains non-vested money if the 
money will become vested within 90 days of receipt of the order. The 
90-day period was chosen because, in the TSP's monthly-valued 
environment, it took approximately 90 days to process and pay a 
qualifying court order. After implementation of the new record keeping 
system, a court-ordered payment may be processed in as little as 31 
days from receipt of the order; therefore, proposed Sec. 1653.2(b)(2) 
reduces the relevant time period from 90 to 30 days.
    Proposed Sec. 1653.3(b) explains that the TSP cannot act on a 
retirement benefits court order if the order is incomplete, and 
describes the information that is necessary before the TSP will 
consider a court order to be complete. In Sec. 1653.3(c), the 
terminology has been changed; currently the section states that a 
participant's TSP account will be frozen ``upon receipt'' of certain 
documents. The proposed section explains that a participant's account 
will be frozen as soon as practicable after the TSP receives a 
document. The substantive effect of the rule remains the same; the 
amendment is intended to bring to the reader's attention the fact that 
court order processing time might delay the freezing of a participant's 
account.
    When the TSP receives a retirement benefits court order that 
purports to divide a participant's account, the parties are mailed a 
decision letter evaluating the court order and describing its effect on 
the participant's TSP account. If the court order requires a payment 
from the TSP, tax and payment information are currently sent to the 
appropriate parties in a separate mailing. Proposed Sec. 1653.3(f) 
amends the current rule to provide that the TSP will provide tax and 
payment information with the TSP decision letter.
    Proposed Sec. 1653.3(j) explains how the TSP will process multiple 
retirement benefits court orders relating to the same TSP account and 
replaces current Sec. 1653.3(l). Currently multiple court orders 
requiring payments to different payees are honored in the order of 
their effective dates. As it was originally written, FERSA did not 
express an order of precedence where multiple court orders awarded 
funds from the TSP to different payees. Therefore, TSP regulations were 
based on 5 U.S.C. 8435(d)(4), which applies where multiple court orders 
award survivor annuity interests to different spouses.
    Subsequently, FERSA was amended by Sec. 2(b) of the Child Abuse 
Accountability Act (CAAA) of 1994, Public Law 103-358, 108 Stat. 3420, 
3421 (codified at 5 U.S.C. 8437(e) and 8467) to provide that 
conflicting retirement benefits court orders that award funds to 
different payees will be honored on a ``first-come, first-served 
basis.'' 5 U.S.C. 8467(a). The proposed rule conforms Sec. 1653.3 to 
the CAAA.
    Section 1653.4 is redrafted to reflect the daily valuation of TSP 
accounts. Proposed Sec. 1653.4(e) codifies the TSP's practice of paying 
the stated dollar amount if a retirement benefits court order describes 
a payee's entitlement both as a fixed dollar amount and as a percentage 
or fraction of the participant's account, even if the percentage or 
fraction, when applied to the account balance, would yield a different 
result.
    Proposed Sec. 1653.4(f) describes a new TSP policy. Currently, if a 
retirement benefits court order requires the TSP to pay interest on an 
entitlement, the TSP uses the rates of return credited to the 
participant's account, unless the court order specifies another rate. 
Under the new policy, a court order can still specify the interest rate 
to be applied to a payee's entitlement by stating an annual percentage 
rate or a per diem dollar amount. If none is stated, the TSP will apply 
the rate of return for the G Fund. This policy will protect court order 
beneficiaries from market risk and preserve the value of their 
entitlements until they can be paid.
    Finally, proposed Sec. 1653.4 explains how earnings will be 
calculated after the

[[Page 42861]]

introduction of the new record keeping system. Because historical data 
concerning the monthly rates of return credited to a participant's 
account under the old system will not be converted to the new system, 
the TSP will be unable to apply those rates of return to a court-
ordered payment after the new system is introduced. Therefore, payments 
processed after August 31, 2002, will be credited with earnings at the 
G Fund rate (unless the order awards earnings at an annual percentage 
rate or a per diem dollar amount), even if earnings are to commence 
before August 31, 2002.
    The court order payment process is described at Sec. 1653.5. 
Currently, the TSP generally disburses a court-ordered award within 60 
to 90 days after approving the payment. Under the new process described 
at proposed Sec. 1653.5(a), those disbursements may be made within 31 
to 60 days after approval. Proposed Sec. 1653.5(d) describes the 
general rule that a payment will be made pro rata from all TSP 
investment funds, contribution sources, and both tax-deferred and tax-
exempt contributions; however, the amendment permits a court to specify 
tax-exempt balances that are to be paid from a uniformed services TSP 
account.
    Retirement benefits court orders occasionally instruct the TSP to 
mail a court-ordered payment to a third party addressee, such as the 
payee's attorney. The TSP's rules for this type of payment are the 
subject of frequent misunderstanding; therefore, proposed 
Sec. 1653.5(e) explains them in detail.
    Proposed Sec. 1653.5(g) is added to describe the order of 
precedence for the payment of multiple court order payees whose 
entitlements are created in the same court order, if the participant's 
account is insufficient to satisfy each payee's award. If the court 
order establishes an order of precedence, it will be honored; however, 
in the absence of an order of precedence, the TSP will first pay the 
spouse or former spouse, then children or agencies or persons acting on 
their behalf, and finally the attorney for the spouse or former spouse.
    Subpart B of part 1653 details the TSP's procedures for reviewing 
legal processes that enforce a participant's obligation to make alimony 
or child support payments pursuant to 5 U.S.C. 8437(e). Several 
sections of subpart B have been renumbered in the proposed rule to make 
them correspond to the analogous sections of subpart A; in addition, 
duplicate references have been deleted and replaced with a reference to 
the corresponding rule in subpart A. The proposed rule removes current 
Sec. 1653.20, which describes the purpose and scope of the subpart, as 
unnecessary. Current Sec. 1653.22, which provides the mailing address 
for the TSP record keeper, is condensed into proposed Sec. 1653.13(b).
    The proposed rule adds a new Sec. 1653.13(i) to subpart B to 
explain that the TSP will delay or cancel a payment required by a 
qualifying legal process only in response to a request by the legal 
authority that originally issued the legal process. Proposed 
Sec. 1653.13(j) also changes the order of precedence for the processing 
of multiple qualifying legal processes requiring payment to different 
payees. Because retirement benefits court orders, legal processes, and 
child abuse court orders require similar payments, and because the 
latter two orders both satisfy judgments against TSP participants, the 
TSP will process all orders or processes similarly.
    A new subpart C is added to part 1653 to explain that child abuse 
court orders are enforceable against the TSP and how the TSP will 
process them.

Analysis of Part 1655

    On April 14 1997, and August 26, 1998, the Board published in the 
Federal Register (62 FR 18019 and 63 FR 45391, respectively) final 
rules concerning the statutory program under which a participant may 
have temporary access to his or her account while still employed. The 
rule is codified at 5 CFR part 1655. The Executive Director revised 
part 1655 in a proposed rule published on May 17, 2002 (67 FR 35051). 
This proposed rule further amends the final rules.
    Proposed Sec. 1655.1 removes all definitions that are generally 
applicable to the TSP and places them in Sec. 1690.1. Definitions 
relevant solely to loans, such as amortization and loan repayment 
period, are retained in this section.
    Sections 1655.2, 1655.4, 1655.5, and 1655.6 are reorganized so that 
they are more easily understandable, but are substantially unchanged. 
Proposed Sec. 1655.5(b) is amended to make five years the maximum term 
for a general purpose loan and fifteen years the maximum term for a 
residential loan.
    Section 1655.3 is amended to reflect the availability of 
information concerning the cost of a loan in the booklet TSP Loan 
Program, which is available on the Board's Web site.
    Section 1655.7 is amended to delete references to monthly 
valuation.
    Section 1655.8 is amended to provide that information concerning an 
outstanding loan will now be provided to participants in their 
quarterly participant statements and not in a separate statement.
    Section 1655.9 is significantly revised as a result of the TSP's 
conversion from monthly to daily valuation; however, the basic concepts 
concerning the effect of a loan on an individual account remain the 
same. For example, loan disbursements will now be issued daily and 
funds will be removed from the account as soon as the loan is issued; 
however, loans will continue to be disbursed from employee 
contributions pro rata from each investment fund in which the 
contributions are invested and pro rata from tax-deferred and tax-
exempt balances for uniformed services accounts.
    Section 1655.10, describing the loan application process, is 
revised to reflect the fact that a participant may apply for a loan by 
submitting a paper application or by accessing the TSP Web site. The 
revision takes into account variations in the processes which depend 
upon the retirement coverage of the participant, the participant's 
marital status, and the type of loan requested.
    Sections 1655.10, 1655.11, and 1655.12, which describe the 
processes for submission and approval of a loan application, submission 
of a loan agreement, and approval of the loan, are being combined and 
significantly reorganized to make the entire application and approval 
process more understandable. The amendment now covers these topics in 
Secs. 1655.10, 1655.11, 1655.12, and 1655.13.
    Section 1655.14 is amended to provide that a participant may choose 
to make a partial loan payment, in addition to those payments that are 
required to be made through payroll deduction, by submitting a personal 
check or guaranteed funds directly to the TSP record keeper. Thus, a 
participant will no longer be required to reamortize his or her loan if 
the TSP receives payments in an amount different from the agreed amount 
and, for this reason, current Sec. 1655.15 is deleted in its entirety.
    Current Sec. 1655.13, concerning taxable distributions, is 
renumbered as Sec. 1655.15. The proposed rule reflects amendments to 
conform to a daily valued system and the period of time after 
separation within which a loan must either be repaid in full or be 
declared a taxable distribution.
    Section 1655.16 is amended to delete any reference to required 
reamortization. A participant may now reamortize at any time unless the 
loan is in default; however, the interest rate on the loan will remain 
the same. A loan will automatically be reamortized upon a participant's 
return from nonpay to pay status.

[[Page 42862]]

    Section 1655.17 is amended to explain that a returned loan check 
will be treated as a repayment and that information concerning the 
amount outstanding on a loan is available from the Board's Web site, 
the ThriftLine, or the TSP record keeper.
    Sections 1655.18, 1655.19, and 1655.20 are being clarified but 
their substance is unchanged.

Analysis of Part 1690

    On June 16, 1997, the Board published a final rule in the Federal 
Register (62 FR 32473) which established a plan year for the TSP. The 
rule is codified at 5 CFR part 1690. On June 9, 1999, the Board 
published a final rule in the Federal Register (64 FR 31062) that 
amended Part 1690 by adding a rule explaining the TSP's requirements 
for a valid power of attorney. The proposed rule amends the final rule.
    Current part 1690 is substantially reorganized. The proposed rule 
adds a Subpart A, which incorporates definitions of terms that are 
applicable throughout the Board's regulations. Subpart B incorporates 
the provisions of existing part 1690. The proposed rule adds 
Sec. 1600.13 to subpart B to describe the documentation that is 
required for the TSP to process transactions for a participant who is 
legally unable to act on his or her own behalf because of physical or 
mental incapacity.

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 and former 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, Public Law 
104-4, section 201, 109 Stat. 48, 64, 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 Sec. 202, 109 Stat. 48, 64-65, is not required.

List of Subjects

5 CFR Parts 1600, 1601, 1603, 1606, 1645, 1650, 1651, 1653, 1690

    Employment benefit plans, Government employees, Pensions, 
Retirement

5 CFR Parts 1604, 1655

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

5 CFR Part 1605

    Administrative practice and procedure, Employment benefit plans, 
Government employees, Pensions, Retirement.

5 CFR Part 1640

    Employment benefit plans, Government employees, Pensions, Reporting 
and recordkeeping requirements, Retirement.

Roger W. Mehle,
Executive Director, Federal Retirement Thrift Investment Board.
    For the reasons set out in the preamble, the Executive Director of 
the Federal Retirement Thrift Investment Board proposes to amend 5 CFR 
chapter VI as follows:

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

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

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

    2. Section 1600.1 is revised to read as follows:


Sec. 1600.1  Definitions.

    Definitions generally applicable to the Thrift Savings Plan are set 
forth at 5 CFR 1690.1.
    3. Section 1600.11 is amended by revising paragraph (a) 
introductory text to read as follows:


Sec. 1600.11  Types of elections.

    (a) Contribution elections. A contribution election must be made 
pursuant to Sec. 1600.14 and includes the following types of elections:
* * * * *
    4. Section 1600.12 is amended by revising paragraphs (a) and (b) to 
read as follows:


Sec. 1600.12  Period for making contribution elections.

    (a) Participation upon initial appointment or reappointment. An 
employee appointed, or reappointed following a separation from 
Government service, to a position covered by FERS or CSRS may make a 
TSP contribution election within 60 days after the effective date of 
the appointment.
    (b) Open season elections. Any employee may make a contribution 
election during an open season. The next open season will be October 
15, 2002, through December 31, 2002; thereafter, each year an open 
season will begin on April 15 and will end on June 30; a second open 
season will begin on October 15 and end on December 31. If the last day 
of an open season falls on a Saturday, Sunday, or legal holiday, the 
open season will be extended through the end of the next business day.
* * * * *
    5. Section 1600.13 is amended by revising paragraph (a) to read as 
follows:


Sec. 1600.13  Effective dates of contribution elections.

    (a) Participation upon initial appointment or reappointment. TSP 
contribution elections made pursuant to Sec. 1600.12(a) will become 
effective no later than the first full pay period after the election is 
received by the employing agency or uniformed service.
* * * * *
    6. Section 1600.14 is amended by revising paragraphs (a), (b) 
introductory text, and (b)(1) to read as follows:


Sec. 1600.14  Method of election.

    (a) A participant must submit a contribution election to his or her 
employing agency. Employees may use either the paper TSP election form, 
i.e., Form TSP-1 or Form TSP-U-1, or, if provided by their employing 
agency, electronic media to make an election. If an electronic medium 
is used, all relevant elements contained on the paper Form TSP-1 or 
Form TSP-U-1 must be included in the electronic medium.
    (b) A contribution election must:
    (1) Be completed in accordance with the instructions on Form TSP-1 
or Form TSP-U-1, if a paper form is used;
* * * * *
    7. Section 1600.22 is amended by revising paragraph (a) to read as 
follows:


Sec. 1600.22  Maximum contributions.

    (a) Percentage of basic pay. (1) Subject to paragraphs (b) and (c) 
of this section, the maximum employee contribution from basic pay for a 
FERS participant for January through November 2002 is 12 percent per 
pay period. The maximum contribution will increase one percent in 
December of each year until December 2005, after which the percentage 
of basic pay limit will not apply and the maximum contribution will be 
limited only as provided in paragraphs (b) and (c) of this section.

[[Page 42863]]

    (2) Subject to paragraphs (b) and (c) of this section, the maximum 
employee contribution from basic pay for a CSRS or uniformed services 
participant for January through November 2002 is 7 percent per pay 
period. The maximum contribution will increase one percent in December 
of each year until December 2005, after which the percentage of basic 
pay limit will not apply and the maximum contribution will be limited 
only as provided in paragraphs (b) and (c) of this section.
* * * * *
    8. Section 1600.32 is amended by revising paragraph (b)(3) to read 
as follows:


Sec. 1600.32  Methods for transferring eligible rollover distribution 
to TSP.

* * * * *
    (b) * * *
    (3) The participant must submit the completed Form TSP-60 or TSP-U-
60, together with a certified check, cashier's check, cashier's draft, 
money order, treasurer's check from a credit union, or personal check, 
made out to the ``Thrift Savings Plan,'' for the entire amount of the 
rollover. A participant may roll over the full amount of the 
distribution by making up, from his or her own funds, the amount that 
was withheld from the distribution for the payment of Federal taxes.
* * * * *

PART 1601--PARTICIPANTS' CHOICES OF INVESTMENT FUNDS

    9. The authority citation for part 1601 continues to read as 
follows:

    Authority: 5 U.S.C. 8351, 8438, 8474(b)(5) and (c)(1).

Subpart A--General

    10. Section 1601.1 is revised to read as follows:


Sec. 1601.1  Definitions.

    (a) Definitions generally applicable to the Thrift Savings Plan are 
set forth at 5 CFR 1690.1.
    (b) As used in this part:
    Acknowledgment of risk means an acknowledgment that any investment 
in the F Fund, C Fund, S Fund, or I Fund is made at the participant's 
risk, that the participant is not protected by the United States 
Government or the Board against any loss on the investment, and that 
neither the United States Government nor the Board guarantees any 
return on the investment.
    11. Subparts B and C are revised to read as follows:
Subpart B--Investing Future Deposits
Sec.
1601.11   Applicability
1601.12   Investing future deposits in the TSP investment funds.
1601.13   Elections.
Subpart C--Redistributing Participants' Existing Account Balances
1601.21   Applicability.
1601.22   Methods of requesting an interfund transfer.

Subpart B--Investing Future Deposits


Sec. 1601.11  Applicability

    This subpart applies only to the investment of future deposits to 
the TSP's investment funds, including contributions, loan payments, and 
transfers or rollovers from eligible employer plans and traditional 
IRAs; it does not apply to redistributing participants' existing 
account balances among the investment funds, which is covered in 
subpart C of this part.


Sec. 1601.12  Investing future deposits in the TSP investment funds.

    (a) Future deposits in the TSP, including contributions, loan 
payments, and transfers or rollovers from eligible employer plans and 
traditional IRAs, will be allocated among the investment funds based on 
the most recent contribution allocation made by the participant 
pursuant to Sec. 1601.13.
    (b) Investment fund availability. All participants may elect to 
invest all or any portion of their deposits in any of the TSP's five 
investment funds.


Sec. 1601.13  Elections.

    (a) Contribution allocation. Each participant may indicate his or 
her choice of investment funds for the allocation of future deposits by 
using the TSP Web site or the ThriftLine, or by completing Form TSP-50 
or Form TSP-U-50, Investment Allocation. The following rules apply to 
contribution allocations:
    (1) Contribution allocations must be made in one percent 
increments. The sum of the percentages elected for all of the 
investment funds must equal 100%;
    (2) The percentage elected by a participant for investment of 
future deposits in an investment fund will be applied to all sources of 
contributions and transfers from eligible employer plans and 
traditional IRAs. A participant may not make different percentage 
elections for different sources of contributions;
    (3) A participant who elects for the first time to invest in the F 
Fund, C Fund, S Fund, or I fund must execute an acknowledgment of risk 
in accordance with Sec. 1601.33. In addition, a participant who, before 
September 2002, has only invested in the F Fund or C Fund, must execute 
an acknowledgment of risk in accordance with Sec. 1601.33 before making 
any new election to invest in the F Fund, C Fund, S Fund, or I Fund;
    (4) All deposits made on behalf of a participant who does not have 
a contribution allocation in effect will be invested in the G Fund; and
    (5) Once a contribution allocation becomes effective, it remains in 
effect until it is superseded by a subsequent contribution allocation. 
If a separated participant is rehired and had not withdrawn his or her 
entire TSP account, the participant's last contribution allocation 
before separation from service will be given effect until a new 
allocation is made.
    (b) Effect of rejection of contribution allocation. If a 
contribution allocation on a Form TSP-50 or Form TSP-U-50 is found to 
be ineffective pursuant to Sec. 1601.34, the attempted allocation will 
have no effect. The TSP will provide the participant with a written 
statement of the reason the transaction was rejected.
    (c) Contribution elections. A participant may designate the amount 
of employee contributions he or she wishes to make to the TSP or may 
stop contributions only in accordance with 5 CFR part 1600.

Subpart C--Redistributing Participants' Existing Account Balances


Sec. 1601.21  Applicability.

    This subpart applies only to redistributing participants' existing 
account balances among the TSP's investment funds; it does not apply to 
the investment of future deposits, which is covered in subpart B of 
this part.


Sec. 1601.22  Methods of requesting an interfund transfer.

    (a) Participants may make an interfund transfer using the TSP Web 
site or the ThriftLine, or by completing a Form TSP-50 or Form TSP-U-
50, Investment Allocation. The following rules apply to an interfund 
transfer request:
    (1) Interfund transfer requests must be made in one percent 
increments. The sum of the percentages elected for all of the 
investment funds must equal 100%.
    (2) The percentages elected by the participant will be applied to 
the balances in each source of contributions and to both tax-deferred 
and tax-exempt balances on the effective date of the interfund 
transfer.
    (3) Any participant who elects to invest in the F Fund, C Fund, S 
Fund, or I Fund for the first time must execute an acknowledgment of 
risk in accordance with Sec. 1601.33. In addition,

[[Page 42864]]

a participant who, before September 2002, has only invested in the F 
Fund or C Fund, must execute an acknowledgment of risk in accordance 
with Sec. 1601.33 before making any new election to invest in the F 
Fund, C Fund, S Fund, or I Fund.
    (b) An interfund transfer request has no effect on deposits made 
after the effective date of the interfund transfer request; subsequent 
deposits will continue to be allocated among the investment funds in 
accordance with the participant's contribution allocation made under 
subpart B of this part.
    (c) If an interfund transfer on a Form TSP-50 or Form TSP-U-50 is 
found to be ineffective pursuant to Sec. 1601.34, the purported 
transfer will have no effect. The TSP will provide the participant with 
a written statement of the reason the form was rejected.

Subpart D--Contribution Allocations and Interfund Transfer Requests

    12. Section 1601.32 is revised to read as follows:


Sec. 1601.32  Timing and posting dates.

    (a) Posting dates. (1) A contribution allocation or an interfund 
transfer entered into the TSP record keeping system by a participant 
who uses the TSP Web site or the ThriftLine, or by a TSPSO participant 
service representative at the participant's request, at or before 11 
a.m. central time of any business day, will ordinarily be posted that 
business day. A contribution allocation or an interfund transfer 
request made on the TSP Web site, the ThriftLine, or with a TSPSO 
participant service representative, after 11 a.m. central time of any 
business day will ordinarily be posted on the next business day.
    (2) A contribution allocation or an interfund transfer request made 
on the TSP Web site or the ThriftLine on a non-business day will 
ordinarily be posted on the following business day.
    (3) A contribution allocation or an interfund transfer request made 
on Form TSP-50 or Form TSP-U-50 will ordinarily be posted under the 
rules in paragraph (a)(1) of this section, based on when the form is 
entered into the TSP system by the TSP record keeper. Such forms are 
ordinarily entered into the system within 24 hours of their receipt by 
the TSP record keeper.
    (4) In most cases, the share price(s) applied to an interfund 
transfer request is the value of the shares on the date the relevant 
transaction is posted. In some circumstances, such as error correction, 
the share price(s) for an earlier date will be used.
    (b) Limit. There is no limit on the number of contribution 
allocations or interfund transfer requests that may be made by a 
participant.
    (c) Multiple contribution allocations or interfund transfer 
requests. (1) If two or more contribution allocations or two or more 
interfund transfer requests are received for a participant and would be 
posted on the same day, the following rules will apply:
    (i) If one or more of the contribution allocations or interfund 
transfer requests are submitted through the Web site or the ThriftLine 
and one or more are made on Form TSP-50 or Form TSP-U-50 and would be 
posted on the same day, only the latest contribution allocation or 
interfund transfer request made through the Web site or the ThriftLine 
will be posted.
    (ii) If one or more of the contribution allocations or interfund 
transfer requests are made through the TSP Web site or the ThriftLine, 
only the contribution allocation or interfund transfer request entered 
at the latest time will be posted.
    (iii) If the contribution allocations or interfund transfer 
requests are submitted using Form TSP-50 or Form TSP-U-50, the forms 
will be posted in the order they are received by the TSP record keeper.
    (2) For purposes of determining the date and time of a contribution 
allocation or an interfund transfer request in applying the rules of 
this paragraph (c), the following rules apply:
    (i) The date and time of a contribution allocation or interfund 
transfer request made through the TSP Web site or the ThriftLine is the 
date and time the participant confirms the percentages.
    (ii) Central time is used for determining the date and time on 
which a transaction is entered and confirmed through the TSP Web site 
or the ThriftLine.
    (d) Cancellation of contribution allocation or interfund transfer 
request. (1) A contribution allocation or an interfund transfer request 
may be cancelled through the TSP Web site, the ThriftLine, through 
written correspondence, or by contacting a participant service 
representative.
    (2) A contribution allocation or an interfund transfer request may 
be cancelled by entering the cancellation on the TSP Web site or the 
ThriftLine only up to the deadline, described in paragraph (a) of this 
section, that is applicable to the original request. If a change or 
cancellation is received after the deadline, the original request will 
be processed as scheduled. Any subsequent request will then be 
processed in turn.
    (3) A participant may also cancel a contribution allocation or an 
interfund transfer request by submitting a letter to the TSP record 
keeper that requests cancellation and meets the following requirements:
    (i) The cancellation letter must be signed and dated and must 
contain the participant's name, Social Security number, and date of 
birth.
    (ii) The cancellation for the pending transaction must be received 
before the relevant transaction is processed.
    (iii) The letter must state unambiguously the specific contribution 
allocation or interfund transfer request it seeks to cancel.
    (A) If it does not identify the specific contribution allocation or 
interfund transfer request it seeks to cancel, the written cancellation 
will apply to any pending contribution allocation or interfund transfer 
request with a date (as determined under this paragraph (c)(3)) before 
the date of the cancellation letter.
    (B) If the date of a cancellation letter is the same as the date of 
a pending contribution allocation or an interfund transfer request and 
the request was made on Form TSP-50 or Form TSP-U-50, the form will be 
cancelled.
    (C) If the request was made on the TSP Web site or ThriftLine, it 
will only be cancelled if the written cancellation specifies the date 
of the TSP Web site or ThriftLine request to be cancelled.
    (D) If there is no contribution allocation or interfund transfer 
pending when the written cancellation is processed by the TSP record 
keeper, the cancellation will have no effect. Cancellation letters will 
not be held until a contribution allocation or interfund transfer 
request is received.
    13. Section 1601.34 is revised to read as follows:


Sec. 1601.34  Effectiveness of Form TSP-50 or Form TSP-U-50.

    A Form TSP-50 or Form TSP-U-50 will not be effective if:
    (a) It is not signed and dated or contains a future date, a date 
more than one year before the TSP's receipt of the form, or an invalid 
date.
    (b) It is missing a Social Security number, date of birth, or the 
participant's first or last name.
    (c) The participant's date of birth does not match the information 
in the TSP records.
    (d) The contribution allocation or interfund transfer percentages 
do not total 100%, or the percentages are not entered as whole numbers. 
An error under this paragraph (d) will not invalidate the entire form, 
but only that transaction for which the error occurred.
    (e) Such other reasons as may be determined by the Executive 
Director.

[[Page 42865]]

PART 1603--VESTING

    14. The authority citation for part 1603 continues to read as 
follows:

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

    15. Section 1603.1 is revised to read as follows:


Sec. 1603.1  Definitions.

    (a) Definitions generally applicable to the Thrift Savings Plan are 
set forth at 5 CFR 1690.1.
    (b) As used in this part:
    Service means:
    (1) Any non-military service that is creditable under either 5 
U.S.C. chapter 83, subchapter III, or 5 U.S.C. 8411, provided, however, 
that such service is to be determined without regard to any time 
limitations, any deposit or redeposit requirements contained in those 
statutory provisions after performing the service involved, or any 
requirement that the individual give written notice of that 
individual's desire to become subject to the retirement system 
established by 5 U.S.C. chapters 83 or 84; or
    (2) Any military service creditable under the provisions of 5 
U.S.C. 8432b(h)(1) and the regulations at 5 CFR part 1620, subpart H.
    Uniformed services means the Army, Navy, Air Force, Marine Corps, 
Coast Guard, Public Health Service, and the National Oceanic and 
Atmospheric Administration.
    Vested means those amounts in an individual account which are 
nonforfeitable.
    Year of service means one full calendar year of service.
    16. Section 1603.2 is amended by revising paragraph (a) to read as 
follows:


Sec. 1603.2  Basic vesting rules.

    (a) All amounts in a CSRS employee's or uniformed service member's 
individual account are immediately vested.
* * * * *

PART 1604--UNIFORMED SERVICES ACCOUNTS

    17. The authority citation for part 1604 is revised to read as 
follows:

    Authority: 5 U.S.C. 8440e, 8474(b)(5) and (c)(1).

    18. Section 1604.4(a)(1) is revised to read as follows:


Sec. 1604.4  Contributions.

    (a) * * *
    (1) Temporary percentage limitations. Subject to paragraph (a)(2) 
of this section, the maximum TSP regular employee contribution 
(including combat zone contributions) a service member may make for 
January through November 2002 is 7 percent of basic pay per pay period. 
The maximum contribution will increase one percent in December of each 
year until December 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.
* * * * *

PART 1605--CORRECTION OF ADMINISTRATIVE ERRORS

    19. The authority citation for part 1605 is revised to read as 
follows:

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

Subpart A--General

    20. Section 1605.1 is revised to read as follows:


Sec. 1605.1  Definitions.

    (a) Definitions generally applicable to the Thrift Savings Plan are 
set forth at 5 CFR 1690.1.
    (b) As used in this part:
    ``As of'' date means the date on which a TSP contribution or other 
transaction entailing acquisition of investment fund shares should have 
taken place. Employing agencies use this date on payment records to 
report makeup or late contributions.
    Attributable pay date ordinarily means the pay date of an erroneous 
contribution for which a negative adjustment is being made or, in the 
case of the uniformed services, the pay date of a contribution that is 
being recharacterized from tax-deferred to tax-exempt, or vice versa. 
However, if the erroneous contribution was a makeup or late 
contribution, the attributable pay date is the ``as of'' date of the 
erroneous makeup or late contribution.
    Board error means any act or omission by the Board which is not in 
accordance with applicable statutes, regulations, or the Board's 
administrative procedures that are made available to employing agencies 
and/or TSP participants.
    Breakage means the loss incurred or the gain realized on makeup or 
late contributions. It is the difference between the value of the 
shares of the applicable investment fund(s) that would have been 
purchased had the contribution been made on the ``as of'' date and the 
value of the shares of the same investment fund(s) on the date the 
contribution is posted to the account.
    Dollar value as of August 31, 2002, applies to contributions that 
are subject to breakage with an ``as of'' date on or before August 31, 
2002, or a negative adjustment with an attributable pay date on or 
before August 31, 2002, and means the amount of a contribution or 
negative adjustment plus earnings on that amount from the ``as of'' 
date or attributable pay date through August 31, 2002, computed 
pursuant to TSP procedures for allocating earnings that were in effect 
for the relevant time period and based upon the historic monthly rates 
of return for the applicable investment fund(s), without regard to any 
interfund transfer occurring between the ``as of'' date or attributable 
pay date and August 31, 2002.
    Employing agency error means any act or omission by an employing 
agency which is not in accordance with all applicable statutes, 
regulations, or administrative procedures, including internal 
procedures promulgated by the employing agency and TSP procedures 
provided to employing agencies by the Board.
    FERCCA correction means the correction of a retirement coverage 
error pursuant to the Federal Erroneous Retirement Coverage Corrections 
Act, title II, Public Law 106-265, 114 Stat. 770.
    Late contributions means:
    (1) Employee contributions that were timely deducted from a 
participant's basic pay but were not timely reported to the TSP record 
keeper for investment;
    (2) Employee contributions that were timely reported to the TSP but 
were not timely posted to the participant's account by the TSP because 
the payment record on which they were submitted contained errors;
    (3) Agency matching contributions attributable to employee 
contributions referred to in paragraph (1) or (2) of this definition; 
and
    (4) Delayed agency automatic (1%) contributions.
    Makeup contributions are employee contributions that should have 
been deducted from a participant's basic pay or employer contributions 
that should have been charged to an employing agency on an earlier 
date, but were not deducted or charged and, consequently, are being 
deducted or charged currently.
    Negative adjustment means the removal of money from a participant's 
TSP account by an employing agency.
    Negative adjustment record means a data record submitted by an 
employing agency to remove from a participant's TSP account money which 
the agency had previously submitted in error.
    Pay date means the date established by an employing agency for 
payment of its employees or service members.

[[Page 42866]]

    Payment record means a data record submitted by an employing agency 
to report contributions or loan payments to a participant's TSP 
account.
    Record keeper error means any act or omission by the TSP record 
keeper that is not in accordance with applicable statutes, regulations, 
or administrative procedures made available to employing agencies and/
or TSP participants.
    21. A new Sec. 1605.2 is added to Subpart A to read as follows:


Sec. 1605.2  Calculating, posting, and charging breakage.

    (a) Breakage will be calculated on makeup agency contributions that 
are reported on current payment records, and on makeup and late 
contributions from all sources that are reported on late payment 
records.
    (b) Breakage will be calculated and posted as follows:
    (1) The participant's contribution allocation for the ``as of'' 
date on the payment record will be determined as follows:
    (i) If the ``as of'' date is after April 30, 2001, the TSP will use 
the contribution allocation on file for the ``as of'' date.
    (ii) If the ``as of'' date is before May 1, 2001, the TSP will 
derive a contribution allocation from the investment of a contribution 
made for that date. If no contribution was made for the ``as of'' date, 
the TSP will derive a contribution allocation from the investment of 
the last contribution made within the 45 days preceding that date. If 
no contribution was made within this time, the derived contribution 
allocation will be 100% G Fund.
    (2) The TSP will determine the number of shares of the applicable 
investment fund(s) that would have been purchased had the contribution 
been made on time by dividing the amount of the contribution that would 
have been made to each investment fund (using the contribution 
allocation determined in paragraph (b)(1) of this section) by the 
applicable share price. If the ``as of'' date is after August 31, 2002, 
the TSP will determine the number of shares of each investment fund 
that would have been purchased on the ``as of'' date. If the ``as of'' 
date is before September 1, 2002, the TSP will determine the number of 
shares that the dollar value of the contribution as of August 31, 2002, 
would have purchased on August 31, 2002.
    (3) For each investment fund, the TSP will determine the value of 
the number of shares that would have been purchased, as determined in 
paragraph (b)(2) of this section, on the date the contributions are 
posted to the account.
    (4) The TSP will subtract the amount of the contributions that 
would have been made to each investment fund on the ``as of'' date from 
the value of the shares on the posting date, as determined in paragraph 
(b)(3) of this section.
    (5) The TSP will post the amount determined in paragraph (b)(4) of 
this section (which may be positive or negative) and the associated 
contribution to the participant's account in accordance with the 
participant's contribution allocation in effect on the posting date 
using the applicable share prices. If the participant had no 
contribution allocation in effect on the posting date, the 
contributions and breakage will be allocated to the G Fund.
    (6) If the TSP posts multiple employer makeup contributions with 
different ``as of'' dates for a participant on the same business day, 
the amount of breakage charged to the employing agency or forfeited to 
the TSP will be determined separately for each contribution, without 
netting any gains or losses attributable to different ``as of'' dates. 
If the TSP posts multiple employer makeup contributions with the same 
``as of'' date for a participant on the same business day, gains and 
losses from different sources of contributions or different investment 
funds will not be netted against each other. Instead, breakage will be 
determined separately for each investment fund by source of 
contribution.
    (7) Interfund transfers occurring between the ``as of'' date of the 
makeup contribution and the date the contribution is posted will not be 
considered in correcting an employing agency error.
    (c) If the amount determined in paragraph (b)(4) of this section is 
positive (i.e., the value of the shares that would have been purchased 
is greater on the posting date than on the ``as of'' date), the 
employing agency will be charged the difference between the 
contribution and the amount posted to the account. If the amount 
determined in paragraph (b)(4) of this section is negative (i.e., the 
value of the shares that would have been purchased is less than on the 
posting date), the difference between the contribution and the amount 
posted to the account will be forfeited to the TSP and used to offset 
administrative expenses.

Subpart B--Employing Agency Errors

    22. Section 1605.11 is revised to read as follows:


Sec. 1605.11  Makeup of missed or insufficient contributions.

    (a) Applicability. This section applies whenever, as the result of 
an employing agency error, a participant does not receive all of the 
TSP contributions to which he or she is entitled. This includes 
situations in which an employing agency error prevents a participant 
from making an election to contribute to his or her TSP account, in 
which an employing agency fails to implement a contribution election 
properly submitted by a participant, in which an employing agency fails 
to make agency automatic (1%) contributions or agency matching 
contributions that it is required to make, or in which an employing 
agency otherwise erroneously contributes less to the TSP for a 
participant's account than it should have. The corrections required by 
this section must be made in accordance with this part and the 
procedures provided to employing agencies by the Board in bulletins or 
other guidance. It is the responsibility of the employing agency to 
determine whether it has made an error that entitles a participant to 
correction under this section.
    (b) Employer makeup contributions. If an employing agency has 
failed to make agency automatic (1%) contributions that are required 
under 5 U.S.C. 8432(c)(1)(A), agency matching contributions that are 
required under section 8432(c)(2), conversion contributions that are 
required under section 8432(c)(3), or matching contributions that are 
authorized under 37 U.S.C. 211(d), the following rules apply:
    (1) The employing agency must promptly submit all missed 
contributions to the TSP record keeper on behalf of the affected 
participant. For each pay date involved, the employing agency must 
submit a separate payment record showing the ``as of'' date for the 
contributions.
    (2) The TSP will calculate the breakage due to the participant and 
post both the contributions and the associated breakage to the account 
in accordance with Sec. 1605.2.
    (c) Employee makeup contributions. Within 30 days of receiving 
information from his or her employing agency indicating that the 
employing agency acknowledges that an error has occurred which has 
caused a lesser amount of employee contributions to be made to the 
participant's account than should have been made, a participant may 
elect to establish a schedule to make up the deficient contributions 
through future payroll deductions. Employee makeup contributions can be 
made in addition

[[Page 42867]]

to any TSP contributions that the participant is otherwise entitled to 
make. The following rules apply to employee makeup contributions:
    (1) The schedule of makeup contributions elected by the participant 
must establish the dollar amount of the contributions to be made each 
pay period over the duration of the schedule. The contribution amount 
per pay period may vary during the course of the schedule, but the 
amounts to be contributed must be established when the schedule is 
created. The length of the schedule may not exceed four times the 
number of pay periods over which the error occurred.
    (2) At its discretion, an employing agency may set a ceiling on the 
length of a schedule of employee makeup contributions which is less 
than four times the number of pay periods over which the error 
occurred. The ceiling may not, however, be less than twice the number 
of pay periods over which the error occurred.
    (3) The employing agency must implement the participant's schedule 
of makeup contributions as soon as practicable.
    (4) For each pay date involved, the employing agency must submit a 
separate payment record showing the ``as of'' date for which the 
employee contribution should have been made. An employee is not 
eligible to make up contributions with an ``as of'' date occurring 
during a period of six months following a financial hardship in-service 
withdrawal, as provided in 5 CFR 1650.33. An employee may make up 
contributions during a period of ineligibility due to a hardship 
withdrawal as long as the ``as of'' date is for an earlier period.
    (5) Employee makeup contributions will be invested in accordance 
with the participant's current contribution allocation. The number of 
shares of each investment fund that will be purchased will be 
determined by dividing the amount of the makeup contributions by the 
share price of the applicable investment fund(s) on the posting date.
    (6) Employee makeup contributions will not be considered in 
applying the maximum amount per pay period that a participant is 
permitted to contribute to the TSP, but will be included for purposes 
of applying the annual limit contained in section 402(g) of the 
Internal Revenue Code (26 U.S.C. 402(g)(1)). For purposes of applying 
the annual limit of section 402(g), employee makeup contributions will 
be applied against the limit for the year of the ``as of'' date.
    (i) Before establishing a schedule of employee makeup 
contributions, the employing agency must review any schedule proposed 
by the affected participant, as well as the participant's prior TSP 
contributions, if any, to determine whether the makeup contributions, 
when combined with prior contributions for the same year, would exceed 
the annual contribution limit(s) contained in section 402(g) for the 
year(s) with respect to which the contributions are being made.
    (ii) The employing agency must not permit contributions that, when 
combined with prior contributions, would exceed the applicable annual 
contribution limit contained in section 402(g).
    (7) A schedule of employee makeup contributions may be suspended if 
a participant has insufficient net pay to permit the makeup 
contributions. If this happens, the period of suspension should not be 
counted against the maximum number of pay periods to which the 
participant is entitled in order to complete the schedule of makeup 
contributions.
    (8) A participant may elect to terminate a schedule of employee 
makeup contributions at any time, but a termination is irrevocable. A 
participant may not elect to make partial payments under the schedule. 
If a participant separates from Government service, the participant may 
elect to accelerate the payment schedule by a lump sum contribution 
from his or her final paycheck.
    (9) At the same time that a participant makes up missed employee 
contributions, the employing agency must make any agency matching 
contributions that would have been made had the error not occurred. 
Agency matching contributions must be submitted pursuant to the rules 
set forth in paragraph (b) of this section. A participant may not 
receive matching contributions associated with any employee 
contributions that are not actually made up. If employee makeup 
contributions are suspended in accordance with paragraph (c)(7) of this 
section, the payment of agency matching contributions must also be 
suspended.
    (10) If a participant transfers to an employing agency different 
from the one by which the participant was employed at the time of the 
missed contributions, it remains the responsibility of the former 
employing agency to determine whether employing agency error was 
responsible for the missed contributions. If it is determined that such 
an error has occurred, the current agency must take any necessary steps 
to correct the error. The current agency may seek reimbursement from 
the former agency of any amount that would have been paid by the former 
agency had the error not occurred.
    (11) Employee makeup contributions may be made only by payroll 
deduction from basic pay or, for uniformed services participants, from 
basic pay, incentive pay, or special pay, including bonuses. 
Contributions by check, money order, cash, or other form of payment 
directly from the participant to the TSP, or from the participant to 
the employing agency for deposit to the TSP, are not permitted.
    23. Section 1605.12 is amended by revising paragraphs (b)(1),(c), 
(f)(1), and (f)(2) to read as follows:


Sec. 1605.12  Removal of erroneous contributions.

* * * * *
    (b) * * *
    (1) To remove money from a participant's account, the employing 
agency must submit, for each attributable pay date involved, a negative 
adjustment record stating the amount of the erroneous contribution 
being removed, the attributable pay date with respect to which the 
erroneous contribution was made, and the source(s) of the 
contributions.
* * * * *
    (c) Processing negative adjustments. A negative adjustment will be 
allocated among investment funds in the same manner as the original 
contribution. The current value of the contributions that the agency 
seeks to remove by the negative adjustment will be calculated in 
accordance with the following rules:
    (1) If the attributable pay date for the erroneous contribution is 
on or before August 31, 2002, the TSP will:
    (i) For each source of contributions, determine the dollar value as 
of August 31, 2002 (as defined in Sec. 1605.1(b)), of the amount of the 
contributions to be removed from each investment fund;
    (ii) For each source of contributions and each investment fund, 
convert the dollar value determined in paragraph (c)(1)(i) of this 
section to shares by dividing by $10.00; and
    (iii) Multiply the price per share for the date the adjustment is 
posted by the number of shares calculated in paragraph (c)(1)(ii) of 
this section.
    (2) If the attributable pay date of the negative adjustment is 
after August 31, 2002, the TSP will:
    (i) For each source and type of contributions and for each 
investment fund, determine the number of shares that represents the 
amount of the contribution to be removed from the investment fund based 
upon the share price on the attributable pay date; and

[[Page 42868]]

    (ii) Multiply the price per share on the date the adjustment is 
posted by the number of shares calculated in paragraph (c)(2)(i) of 
this section.
* * * * *
    (f) * * *
    (1) If multiple negative adjustments for the same attributable pay 
date for a participant are posted on the same business day, the amount 
removed from the participant's account and used to offset TSP 
administrative expenses or returned to the employing agency will be 
determined separately for each adjustment. Earnings and losses for 
erroneous contributions made on different dates will not be netted 
against each other. In addition, for negative adjustment for any 
attributable pay date, gains and losses from different sources of 
contributions or different investment funds will not be netted against 
each other. Instead, each attributable pay date each source of 
contributions and each investment fund will be treated separately for 
purposes of these calculations;
    (2) The amount computed by application of the rules in this section 
will be removed from the participant's account pro rata from all 
investment funds, by source, based on the allocation of the 
participant's most recent account balance; and
* * * * *
    24. Section 1605.13 is amended by removing paragraph (a)(4) and by 
revising paragraphs (a)(3), (b)(3), and (d) to read as follows:


Sec. 1605.13  Back pay awards and other retroactive pay adjustments.

    (a) * * *
    (3) All makeup contributions under this paragraph (a) and 
associated breakage will be invested according to the participant's 
contribution allocation on the posting date. However, breakage will be 
calculated using the G Fund share prices and, if applicable, rates of 
return, unless the court or other tribunal with jurisdiction over the 
back pay case orders otherwise.
    (b) * * *
    (3) All makeup contributions under this paragraph (b) and 
associated breakage will be posted to the participant's account based 
on the participant's contribution allocation on the posting date. 
However breakage will be calculated using the participant's 
contribution allocation on the ``as of'' date reported by the employing 
agency.
* * * * *
    (d) Prior withdrawal of TSP account. If a participant has withdrawn 
his or her TSP account other than by purchasing an annuity, and the 
separation from Government employment upon which the withdrawal was 
based is reversed, resulting in reinstatement of the participant 
without a break in service, the participant will have the option to 
restore the amount withdrawn to his or her TSP account. The right to 
restore the withdrawn funds will expire if notice is not provided by 
the participant to the Board within 90 days of reinstatement. If the 
participant returns the funds that were withdrawn, the number of shares 
purchased will be determined by using the share price of the applicable 
investment fund on the posting date. No breakage will be incurred on 
any restored funds.
* * * * *
    25. Section 1605.14 is amended by revising the section heading and 
paragraph (b) to read as follows:


Sec. 1605.14  Misclassified retirement system coverage.

* * * * *
    (b) If a FERS participant is misclassified by an employing agency 
as a CSRS participant, when the misclassi-fication is corrected:
    (1) The participant may not elect to have the contributions made 
while classified as CSRS removed from his or her account;
    (2) The participant may, under the rules of Sec. 1605.11, elect to 
make up contributions that he or she would have been eligible to make 
as a FERS participant during the period of misclassification;
    (3) The employing agency must, under the rules of Sec. 1605.11, 
make agency automatic (1%) contributions and agency matching 
contributions on employee contributions that were made while the 
participant was misclassified;
    (4) If the retirement coverage correction is a FERCCA correction, 
the employing agency must submit makeup employee contributions on late 
payment records. The participant is entitled to breakage (or lost 
earnings) on contributions from all three sources. Breakage (or lost 
earnings) will be calculated pursuant to Sec. 1605.2. If the retirement 
coverage correction is not a FERCCA correction, the employing agency 
must submit makeup employee contributions on current payroll records; 
in such cases, the employee is not entitled to breakage. Agency makeup 
contributions may be submitted on either current or late payment 
records; and
    (5) If employee contributions were made up before the Office of 
Personnel Management implemented its regulations on FERCCA correction, 
and the correction is considered to be a FERCCA correction, an amount 
to replicate TSP lost earnings will be calculated by the Office of 
Personnel Management pursuant to its regulations and provided to the 
employing agency for transmission to the TSP record keeper.
* * * * *
    26. A new Sec. 1605.15 is added to read as follows:


Sec. 1605.15  Reporting and processing late contributions and late loan 
payments.

    (a) The employing agency must promptly submit late contributions to 
the TSP record keeper on behalf of the affected participant on late 
payment records as soon as the error is discovered. For each pay date 
involved, the employing agency must submit a separate record showing 
the ``as of'' date for the contributions. Breakage for both employee 
and agency contributions will be calculated, posted, and charged to the 
agency or forfeited to the TSP in accordance with Sec. 1605.2.
    (b) If an employing agency deducts loan payments from a 
participant's pay, but fails to submit those payments to the TSP for 
the pay date for which they were deducted (or submits them in a manner 
that prevents them from being timely credited to the participant's 
account), the employing agency will be responsible for paying breakage 
using the procedure described in Sec. 1605.2. The loan payment record 
must contain the ``as of'' date for which the loan payment was 
deducted.
    (c) All contributions or loan payments on payment records contained 
in a payroll submission received from an employing agency more than 2 
days after the pay date associated with the payroll submission (as 
reported on the appropriate journal voucher), will be subject to 
breakage calculated, posted, and charged to the employing agency (or 
forfeited to the TSP) in accordance with Sec. 1605.2. The employing 
agency will be apprised of the breakage due for each record reported on 
the late submission.

PART 1606--LOST EARNINGS ATTRIBUTABLE TO EMPLOYING AGENCY ERRORS

    27. The authority citation for part 1606 continues to read as 
follows:

    Authority: 5 U.S.C. 8432a, 8474(b)(3) and (c)(1). Section 1606.5 
also issued under Title II, Pub. L. 106-265, 114 Stat. 770.

Subpart A--General Provisions

    28. Section 1606.1 is revised to read as follows:

[[Page 42869]]

Sec. 1606.1  Definitions.

    (a) Definitions generally applicable to the Thrift Savings Plan are 
set forth at 5 CFR 1690.1.
    (b) Definitions generally applicable to employing agency errors and 
their correction are set forth at 5 CFR 1605.1.
    (c) As used in this part:
    Lost earnings record means a data record containing information 
enabling the TSP system to compute lost earnings.
    29. Section 1606.2 is revised to read as follows:


Sec. 1606.2  Purpose.

    (a) With the implementation of the TSP's daily valued record 
keeping system, losses suffered by participants arising out of 
employing agency errors will be corrected by calculating and posting 
breakage to an affected participant's account. Breakage will be 
calculated as described in 5 CFR 1605.2. However, in some cases, an 
employing agency may have submitted contributions subject to lost 
earnings before implementation of the daily valued record keeping 
system. As a result, a transition period until March 31, 2003, is 
provided to enable employing agencies to submit lost earnings records 
associated with these contributions.
    (b) After March 31, 2003, all makeup and late contributions subject 
to breakage should be reported as described in 5 CFR part 1605 and the 
use of lost earning records will be discontinued. Thus, only 
contributions and loan payments subject to lost earnings which were 
posted to participants' account before September 1, 2002, and for which 
lost earnings records are not submitted by August 31, 2002, are covered 
by this part. All payments posted after August 31, 2002, are covered by 
5 CFR part 1605.
    30. Section 1606.4 is amended by revising paragraph (c) to read as 
follows:


Sec. 1606.4  Applicability.

* * * * *
    (c) As explained in Sec. 1606.2, this part applies to errors that 
occurred before September 1, 2002.
* * * * *

Subpart B--Lost Earnings Attributable to Delayed or Erroneous 
Contributions

    31. Section 1606.5 is amended by revising paragraph (a)(4) to read 
as follows:


Sec. 1606.5  Failure to timely make or deduct TSP contributions when 
participant received pay.

    (a) * * *
    (4) The lost earnings will be posted to the participant's account 
based on the contribution allocation in effect on the posting date.
* * * * *


Secs. 1606.7 and 1606.8  [Removed]

    32. Sections 1606.7 and 1606.8 are removed.

Subpart C--Lost Earnings Not Attributable to Delayed or Erroneous 
Contributions

    33. Section 1606.9 is amended by revising paragraphs (a)(2) and 
(a)(3) to read as follows:


Sec. 1606.9  Loan allotments.

    (a) * * *
    (2) The TSP record keeper will compute lost earnings on the late 
loan allotment using the contribution allocation on file for the ``as 
of'' date of the payment; and
    (3) The lost earnings will be posted to the participant's account 
based on the participant's contribution allocation at the time the lost 
earnings are posted.
* * * * *

Subpart E--Processing Lost Earnings Records

    34. Section 1606.13 is revised to read as follows:


Sec. 1606.13  Calculation and crediting of lost earnings.

    (a) Lost earnings records submitted pursuant to this part will be 
processed daily by the TSP record keeper.
    (b) In calculating lost earnings attributable to a lost earnings 
record, earnings and losses for different sources of contributions or 
investment funds within a source will not be offset against each other.
    (c) Notwithstanding any other provision of this part, where the net 
lost earnings computed in accordance with this part on any lost 
earnings record are less than zero within a source of contributions, 
the employing agency shall not be credited with respect to that source 
of contributions. The amount of the negative lost earnings shall be 
removed from the participant's account and applied against TSP 
administrative expenses.

Subpart F--[Removed]

    35. Subpart F of part 1606 is removed.
    36. Part 1640 is revised to read as follows:

PART 1640--PERIODIC PARTICIPANT STATEMENTS

Sec.
1640.1   Definitions.
1640.2   Information regarding account.
1640.3   Statement of individual account.
1640.4   Account transactions.
1640.5   Investment fund information.
1640.6   Methods of providing information.

    Authority: 5 U.S.C. 8439(c)(1) and (c)(2), 5 U.S.C. 8474(b)(5) 
and (c)(1).


Sec. 1640.1  Definitions.

    Definitions generally applicable to the Thrift Savings Plan are set 
forth at 5 CFR 1690.1.


Sec. 1640.2  Information regarding account.

    The Board will provide to each participant four (4) times each 
calendar year the information described in Secs. 1640.3, 1640.4, and 
1640.5. Plan participants can obtain account balance information on a 
more frequent basis from the TSP Web site and the ThriftLine.


Sec. 1640.3  Statement of individual account.

    In the quarterly statements, the Board will furnish each 
participant with the following information concerning the participant's 
individual account:
    (a) Name, Social Security number, and date of birth under which the 
account is established;
    (b) Retirement system coverage and employment status of the 
participant, as provided by the employing agency;
    (c) Statement whether the participant has a beneficiary designation 
on file with the TSP record keeper;
    (d) Contribution allocation that is current at the end of the 
statement period;
    (e) Beginning and ending dates of the period covered by the 
statement;
    (f) The following information for and, as of the close of business 
on the ending date of, the period covered by the statement:
    (1) The total account balance and tax-exempt balance, if 
applicable;
    (2) The account balance and activity for each source of 
contributions;
    (3) The account balance and activity in each of the investment 
funds, including the number of shares, the share prices, and the dollar 
amounts; and
    (4) Loan information and activity, if applicable;
    (g) Any other information concerning the account that the Board 
determines should be included in the statement.


Sec. 1640.4  Account transactions.

    (a) Where relevant, the following transactions will be reported in 
each individual account statement:
    (1) Contributions;
    (2) Withdrawals;
    (3) Forfeitures;

[[Page 42870]]

    (4) Loan disbursements and repayments;
    (5) Transfers among investment funds;
    (6) Adjustments to prior transactions;
    (7) Transfers or rollovers from eligible employer plans and 
traditional IRAs; and
    (8) Any other transaction that the Executive Director determines 
will affect the status of the individual account.
    (b) Where relevant, the statement will contain the following 
information concerning each transaction identified in paragraph (a) of 
this section:
    (1) Type of transaction;
    (2) Investment funds affected;
    (3) Date the transaction was posted and, where relevant, any 
earlier date on which the transaction should have been posted or from 
which the calculation of the amount of the transaction was derived;
    (4) Source of the contributions affected by the transaction;
    (5) Amount of the transaction (in dollars and in shares);
    (6) The share price(s) at which the transaction was posted; and
    (7) Any other information the Executive Director deems relevant.


Sec. 1640.5  Investment fund information.

    Each open season, the Board will furnish each participant a 
statement concerning each of the investment funds. This statement will 
contain the following information concerning each investment fund:
    (a) A summary description of the type of investments made by the 
fund, written in a manner that will allow the participant to make an 
informed decision; and
    (b) The performance history of the type of investments made by the 
fund, covering the five-year period preceding the date of the 
evaluation.


Sec. 1640.6  Methods of providing information.

    (a) Individual account statement. The information concerning each 
participant's individual account described in Secs. 1640.3 and 1640.4 
will be sent to the participant at the participant's address of record 
in the TSP system by first class mail, unless otherwise elected under 
paragraph (b) of this section. It is the participant's responsibility 
to provide his or her current address to his or her agency or, in the 
case of a separated participant, to the TSP record keeper. For employed 
participants, the employing agency must provide the current address to 
the TSP record keeper.
    (b) Individual account statements available from the TSP Web site. 
As an alternative to receiving an account statement by mail as provided 
in paragraph (a) of this section, participants may elect to receive 
their individual account statements by accessing the TSP Web site. 
Participants who elect to receive their statements from the TSP Web 
site will not receive a statement by mail.
    (c) Investment information. The investment information described in 
Sec. 1640.5 will be furnished to each participant by:
    (1) Mailing the information to the participant by the method 
described in paragraph (a) of this section;
    (2) Making the information available to the participant on the TSP 
Web site as described in paragraph (b) of this section; or
    (3) Including the information in material published by the Board 
and distributed in a manner reasonably designed to reach the 
participant. This includes distributing the material through the 
participant's employing agency, service, or, in the case of a separated 
employee, through the TSP record keeper.
    37. Part 1645 is revised to read as follows:

PART 1645--CALCULATION OF SHARE PRICES

Sec.
1645.1   Definitions.
1645.2   Posting of transactions.
1645.3   Calculation of total net earnings for each investment fund.
1645.4   Administrative expenses attributable to each investment 
fund.
1645.5   Calculation of share prices.
1645.6   Basis for calculation of share prices.

    Authority: 5 U.S.C. 8439(a)(3) and 8474.


Sec. 1645.1  Definitions.

    (a) Definitions generally applicable to the Thrift Savings Plan are 
set forth at 5 CFR 1690.1.
    (b) As used in this part:
    Accrued means that income is accounted for when earned and expenses 
are accounted for when incurred.
    Administrative expenses means expenses described in 5 U.S.C. 
8437(c)(3).
    Basis means the number of shares of an investment fund upon which 
the calculation of a share price is based.
    Business day means any calendar day for which share prices are 
calculated.
    Forfeitures means amounts forfeited to the TSP pursuant to 5 U.S.C. 
8432(g)(2) and other non-statutory forfeited amounts, net of restored 
forfeited amounts.


Sec. 1645.2  Posting of transactions.

    Contributions, loan payments, loan disbursements, withdrawals, 
interfund transfers, and other transactions will be posted in dollars 
and in shares by source and by investment fund to the appropriate 
individual account by the TSP record keeper, using the share price for 
the date the transaction is posted.


Sec. 1645.3  Calculation of total net earnings for each investment 
fund.

    (a) Each business day net earnings will be calculated separately 
for each investment fund.
    (b) Net earnings for each investment fund will equal:
    (1) The sum of the following items, if any, accrued since the last 
business day:
    (i) Interest on money of that investment fund which is invested in 
the Government Securities Investment Fund;
    (ii) Interest on other short-term investments of the investment 
fund;
    (iii) Other income (such as dividends, interest, or securities 
lending income) on investments of the investment fund; and
    (iv) Capital gains or losses on investments of the investment fund, 
net of transaction costs.
    (2) Minus the accrued administrative expenses of the investment 
fund, determined in accordance with Sec. 1645.4.
    (c) The net earnings for each investment fund determined in 
accordance with paragraph (b) of this section will be added to the 
residual net earnings for that investment fund from the previous 
business day, as described in Sec. 1645.5(b), to produce the total net 
earnings. The total net earnings will be used to calculate the share 
price for that business day.


Sec. 1645.4  Administrative expenses attributable to each investment 
fund.

    A portion of the administrative expenses accrued during each 
business day will be charged to each investment fund. An investment 
fund's respective portion of administrative expenses will be determined 
as follows:
    (a) Accrued administrative expenses (other than those described in 
paragraph (b) of this section) will be reduced by accrued forfeitures 
and accrued earnings on forfeitures, abandoned accounts, and unapplied 
deposits;
    (b) Investment management fees and other accrued administrative 
expenses attributable only to the F Fund, C Fund, S Fund, or I Fund 
will be charged solely to the F Fund, C Fund, S Fund, or I Fund, 
respectively;
    (c) The amount of accrued administrative expenses not covered by 
forfeitures under paragraph (a) of this section, and not described in 
paragraph (b) of this section, will be charged on a pro rata basis to 
all investment funds,

[[Page 42871]]

based on the respective investment fund balances on the last business 
day of the prior month end.


Sec. 1645.5  Calculation of share prices.

    (a) Calculation of share price. The shares of each investment fund 
will have an initial value of $10.00. The share price for each 
investment fund for each business day will apply to all sources of 
contributions for that investment fund. The total net earnings (as 
computed under Sec. 1645.3) for each investment fund will be divided by 
the total fund basis (as computed under Sec. 1645.6) for that 
investment fund. The resulting number, computed to ten decimal places, 
represents the incremental change for the current business day in the 
value of that investment fund from the last business day. The share 
price for that investment fund for the current business day is the sum 
of the incremental change in the share price for the current business 
day plus the share price for the prior business day, truncated to two 
decimal places.
    (b) Residual net earnings. When the total net earnings for each 
business day for each investment fund are divided by the total fund 
basis in that investment fund, there will be residual net earnings 
attributable to the truncation described in paragraph (a) of this 
section that will not be included in the incremental change in the 
share price of the investment fund for that business day. The residual 
net earnings that are not included in the incremental share price for 
the investment fund will be added to the earnings for that investment 
fund on the next business day.


Sec. 1645.6  Basis for calculation of share prices.

    The total fund basis for each investment fund will be the sum of 
the number of shares in all individual accounts from all sources of 
contributions in that investment fund as of the opening of business on 
each business day.
    38. Part 1650 is revised 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.
1650.4   Certification of truthfulness.
Subpart B--Post-Employment Withdrawals
1650.11   Withdrawal elections.
1650.12   Single payment.
1650.13   Monthly payments.
1650.14   Annuities.
1650.15   Abandonment of inactive accounts.
1650.16   Required withdrawal date.
1650.17   Changes and cancellation of withdrawal request.
Subpart C--Procedures for Post-Employment Withdrawals
1650.21   Information provided by employing agency.
1650.22   Accounts of $200 or more.
1650.23   Accounts of less than $200.
1650.24   How to obtain a post-employment withdrawal.
1650.25   Taxes related to post-employment withdrawals.
Subpart D--In-Service Withdrawals
1650.31   Age-based withdrawals.
1650.32   Financial hardship withdrawals.
1650.33   Contributing to the TSP after an in-service withdrawal.
1650.34   Uniqueness of loans and withdrawals.
Subpart E--Procedures for In-Service Withdrawals
1650.41   How to obtain an age-based withdrawal.
1650.42   How to obtain a financial hardship withdrawal.
1650.43   Taxes related to in-service withdrawals.
Subpart F--[Reserved]
Subpart G--Spousal Rights
1650.61   Spousal rights applicable to post-employment withdrawals.
1650.62   Spousal rights applicable to in-service withdrawals.
1650.63   Executive Director's exception to the spousal notification 
requirement.
1650.64   Executive Director's exception to the spousal consent 
requirement.

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

Subpart A--General


Sec. 1650.1  Definitions.

    (a) Definitions generally applicable to the Thrift Savings Plan are 
set forth at 5 CFR 1690.1.
    (b) As used in this part:
    Eligible employer plan means a plan qualified under I.R.C. section 
401(a) (26 U.S.C. 401(a)), including a section 401(k) plan, profit-
sharing plan, defined benefit plan, stock bonus plan, and money 
purchase plan; an annuity plan described in I.R.C. section 403(a) (26 
U.S.C. 403(a)); an annuity contract described in I.R.C. section 403(b) 
(26 U.S.C. 403(b)); and an eligible deferred compensation plan 
described in I.R.C. section 457(b) (26 U.S.C. 457(b)) which is 
maintained by an eligible employer described in I.R.C. section 
457(e)(1)(A) (26 U.S.C. 457(e)(1)(A)).
    In-service withdrawal means an age-based or financial hardship 
withdrawal from the TSP that may be available to a participant who has 
not yet separated from Government service.
    Post-employment withdrawal means a withdrawal from the TSP that is 
available to a participant who is separated from Government service.
    Reimbursement means a payment made to or on behalf of a participant 
by any person or entity to cover the cost of an extraordinary expense 
described in Sec. 1650.32(b)(2).
    Traditional IRA means an individual retirement account described in 
I.R.C. section 408(a) (26 U.S.C. 408(a)) and an individual retirement 
annuity described in I.R.C. section 408(b) (26 U.S.C. 408(b)) (other 
than an endowment contract).


Sec. 1650.2  Eligibility for a TSP withdrawal.

    (a) A participant who is separated from Government service can 
elect to withdraw a portion of his or her account balance in a single 
payment or the entire account balance by one or a combination of the 
withdrawal methods described in subpart B of this part.
    (b) A post-employment withdrawal will not be paid unless TSP 
records indicate that the participant is separated from Government 
service. Upon receipt of information from an employing agency that a 
participant is no longer separated, the TSP will cancel a post-
employment withdrawal election.
    (c) A participant cannot make a post-employment withdrawal until 
any outstanding TSP loan has either been repaid in full or declared to 
be a taxable distribution. An outstanding TSP loan will not affect a 
participant's eligibility for an in-service withdrawal.
    (d) 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 rules:
    (1) A participant who is reemployed in a TSP-eligible position on 
or before the 31st full calendar day after separation is not eligible 
to withdraw his or her TSP account in accordance with subpart B of this 
part.
    (2) A participant who is reemployed in a TSP-eligible position more 
than 31 full calendar days after separation and who made a post-
employment withdrawal while separated may not withdraw any remaining 
portion of his or her account balance in accordance with subpart B of 
this part until he or she again separates from Government service.
    (e) A participant who has not separated from Government service may 
be eligible to withdraw all or a portion of his or her account in 
accordance with subparts D and E of this part.
    (f) A participant can elect to have any portion of a single or 
monthly payment

[[Page 42872]]

that is not transferred to an eligible employer plan or traditional IRA 
deposited directly, by electronic funds transfer, into a savings or 
checking account at a financial institution in the United States.
    (g) If a participant has a civilian TSP account and a uniformed 
services TSP account, the rules in this part apply to each account 
separately. For example, the participant is eligible to take one age-
based in-service withdrawal from each account.


Sec. 1650.3  Frozen accounts.

    (a) All withdrawals from the TSP are subject to the rules relating 
to spousal rights (found in subpart G of this part) and to domestic 
relations orders, alimony and child support legal process, and child 
abuse enforcement orders (found in 5 CFR part 1653).
    (b) A participant may not withdraw any portion of his or her 
account balance if the account is frozen due to a pending retirement 
benefits court order, an alimony or child support enforcement order, or 
a child abuse enforcement order, or because a freeze has been placed on 
the account by the TSP for another reason.


Sec. 1650.4  Certification of truthfulness.

    (a) By signing a TSP withdrawal form, electronically or on paper, 
the participant certifies, under penalty of perjury, that all 
information provided to the TSP during the withdrawal process is true 
and complete, including statements concerning the participant's marital 
status and, where applicable, the spouse's address at the time the 
application is filed or the current spouse's consent to the withdrawal.
    (b) If the Board receives a written allegation from the spouse that 
the participant may have misrepresented his or her marital status or 
the spouse's address (in the case of a CSRS participant), or that the 
signature of the spouse of a FERS participant or uniformed services 
member was forged, the Board will submit the information or document in 
question to the spouse and request that he or she state in writing that 
the information is false or that the spouse's signature was forged. In 
the event of an alleged forgery, the Board will also request the spouse 
to provide at least three samples of his or her signature.
    (c) If the spouse affirms the allegation, the Board will conduct an 
investigation. If, during its investigation, the Board finds evidence 
to suggest that the participant misrepresented his or her marital 
status or spouse's address (in the case of a CSRS participant), or 
submitted the withdrawal form with a forged signature, the Board will 
refer the case to the Department of Justice for criminal prosecution 
and, if the participant is still employed, to the Inspector General or 
other appropriate authority in the participant's employing agency for 
administrative action.

Subpart B--Post-Employment Withdrawals


Sec. 1650.11  Withdrawal elections.

    (a) Subject to the restrictions in this subpart, participants may 
elect to withdraw all or a portion of their TSP accounts in a single 
payment, a series of monthly payments, a life annuity, or any 
combination of these options.
    (b) If a participant's account balance is less than $5.00 when he 
or she separates from Government service, the balance will 
automatically be forfeited to the TSP. The participant can reclaim the 
money by writing to the TSP record keeper and requesting the amount 
that was forfeited; however, TSP investment earnings will not be 
credited to the account after the date of the forfeiture.


Sec. 1650.12  Single payment.

    (a) Partial withdrawal. A participant can elect to withdraw a 
portion of his or her account balance in a single payment and leave the 
rest in the TSP until a later date, subject to Sec. 1650.16 and the 
following requirements:
    (1) The participant is eligible for a partial withdrawal only if he 
or she did not take an age-based in-service withdrawal from that 
account.
    (2) The participant may not elect a partial withdrawal of less than 
$1,000. No disbursement will be made if, at the time of payment, the 
account balance is less than $1,000.
    (3) Only one partial withdrawal is permitted.
    (b) Full withdrawal. A participant can elect to withdraw his or her 
entire account balance in a single payment.


Sec. 1650.13  Monthly payments.

    (a) A participant electing a full post-employment withdrawal (i.e., 
a withdrawal of his or her entire account) can elect to withdraw all or 
a portion of the account balance in a series of substantially equal 
monthly payments, to be paid in one of the following manners:
    (1) A specific dollar amount. The amount elected must be at least 
$25 per month; if the amount elected is less than $25 per month, the 
request will be rejected. Payments will be made in the amount requested 
each month until the account balance is expended.
    (2) A monthly payment amount calculated based on life expectancy. 
Payments based on life expectancy are determined using the factors set 
forth in Internal Revenue Service life expectancy tables set forth at 
26 CFR 1.401(a)(9)-9, Q&A 1 and 2. The monthly payment amount is 
calculated by dividing the account balance by the factor from the IRS 
life expectancy tables based upon the participant's age as of his or 
her birthday in the year payments are to begin. 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 
prior December 31 account balance by the factor in the IRS life 
expectancy tables based upon the participant's age as of his or her 
birthday in the year payments will be made. There is no minimum amount 
for a monthly payment calculated based on this method.
    (b) A participant receiving monthly payments calculated based upon 
life expectancy can make one election, during a period to be determined 
by the Executive Director, to change to a fixed monthly payment. 
Alternatively, the participant can change the amount of his or her 
fixed payments annually. A participant who is receiving monthly 
payments based on a fixed dollar amount, however, cannot, elect to 
change to an amount calculated based on life expectancy.
    (c) A participant receiving monthly payments, regardless of the 
calculation method, can elect at any time to receive the remainder of 
his or her account balance in a final single payment.
    (d) The TSP will ensure that the annual total monthly payments 
satisfy any applicable minimum distribution requirement of the Internal 
Revenue Code by making a supplemental payment in December of the year 
in which a minimum distribution is required.
    (e) A participant receiving monthly payments may change the 
investment of his or her account balance among the TSP investment funds 
as provided in 5 CFR part 1601.
    (f) Participants who elect to withdraw their account balances in a 
series of monthly payments cannot transfer or roll over money from a 
traditional IRA or eligible employer plan into their TSP accounts. 
Participants who have both a civilian TSP account and a uniformed 
services TSP account cannot combine the two accounts if they are 
already receiving monthly payments from one of the accounts.


Sec. 1650.14  Annuities.

    (a) A participant electing a full post-employment withdrawal can 
use all or

[[Page 42873]]

a portion of his or her account balance to purchase a life annuity. The 
portion of the participant's account balance elected and available for 
the annuity purchase must be at least $3,500. The TSP will purchase the 
annuity from the TSP's annuity vendor using the participant's entire 
account balance or the portion specified, unless an amount is necessary 
to satisfy any applicable minimum distribution requirement of the 
Internal Revenue Code. In the event that a minimum distribution is 
required before the date of the first annuity payment, the TSP will 
compute that amount and pay it directly to the participant.
    (b) An annuity will provide a payment for life to the participant 
and, if applicable, to the participant's survivor, in accordance with 
the type of annuity chosen. The first annuity payment will be made by 
the TSP annuity vendor approximately 30 days after the TSP purchases 
the annuity.
    (c) The amount of an annuity payment will depend on the type of 
annuity chosen, the participant's age when the annuity is purchased 
(and the age of the joint annuitant, if applicable), the amount used to 
purchase the annuity, and the interest rate available when the annuity 
is purchased.
    (d) Participants may choose among the following types of annuities:
    (1) A single life annuity with level payments. This annuity 
provides monthly payments to the participant as long as the participant 
lives. The amount of the monthly payment remains constant.
    (2) A joint life annuity for the participant and spouse with level 
payments. This annuity 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 the survivor is alive. The amount of the 
monthly payment remains constant, although the amount received will 
depend on the type of survivor benefit elected.
    (3) A joint life annuity for the participant and another person 
with level payments. This annuity 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 the survivor is 
alive. The amount of the monthly payment remains constant. The joint 
annuitant must be either a former spouse or a person who has an 
insurable interest in the participant.
    (i) A person has an ``insurable interest in the 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 (either blood or adopted, but not by marriage) who 
is closer than a first cousin is presumed to have an insurable interest 
in the participant.
    (iii) A participant can establish that a person not described in 
paragraph (d)(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 that 
demonstrates that the designated joint annuitant has an insurable 
interest in the participant (as described in paragraph (d)(4)(i) of 
this section).
    (4) Either a single life or joint (with spouse) life annuity with 
increasing payments. This annuity provides monthly payments to the 
participant only, or to the participant and spouse, as applicable. The 
monthly payments are adjusted once each year on the anniversary of the 
first payment, based on the Federal Bureau of Labor Statistics Consumer 
Price Index for Urban Wage Earners and Clerical Workers (CPI-W). Each 
year, the percentage change in the monthly unadjusted CPI-W index for 
July, August, and September over the monthly unadjusted CPI-W index for 
July, August, and September of the prior year is calculated. The 
following calendar year, the amount of the monthly payment is adjusted 
by the lesser of 3% or the percentage increase in the CPI-W, if any. In 
no case will the amount of the monthly payment be decreased based on 
the CPI-W. If the participant chooses a joint life annuity, the annual 
increase also applies to benefits received by the survivor.
    (e) A participant who chooses a joint life annuity (with either a 
spouse, a former spouse, or a person with an insurable interest) must 
choose either a 50 percent or a 100 percent survivor benefit. The 
survivor benefit applies when either the participant or the joint 
annuitant dies.
    (1) A 50 percent survivor benefit provides a monthly payment to the 
survivor that is 50 percent of the amount of the payment that is made 
when both the participant and the joint annuitant are alive.
    (2) A 100 percent survivor benefit provides a monthly payment to 
the survivor which is equal to the amount of the payment that is made 
when both the participant and the joint annuitant are alive.
    (3) Either the 50 percent or the 100 percent survivor benefit may 
be combined with any joint life annuity option. However, the 100 
percent survivor benefit can only 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) if the joint annuitant is not more 
than 10 years younger than the participant.
    (f) The following features are mutually exclusive, but can be 
combined with certain types of annuities, as indicated:
    (1) Cash refund. This feature provides that, if the participant 
(and joint annuitant, where applicable) dies before an amount equal to 
the balance used to purchase the annuity has been paid out, the 
difference between the balance used to purchase the annuity and the sum 
of monthly payments already made will be paid to the beneficiary(ies) 
designated by the participant (or by the joint annuitant, where 
applicable). This feature can be combined with any type of annuity.
    (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 be made to the beneficiary(ies) 
until 120 payments have been made. This feature can be combined with 
any single life annuity, but cannot be combined with a joint life 
annuity.
    (g) Once an annuity has been purchased, the type of annuity, the 
annuity features, and the identity of the joint annuitant cannot be 
changed, and the annuity cannot be terminated.


Sec. 1650.15  Abandonment of inactive accounts.

    A participant must select a withdrawal option by the time he or she 
reaches age 70\1/2\. If the participant does not do so and the TSP is 
unable to locate the participant, the inactive account will be declared 
abandoned in accordance with Sec. 1650.16.


Sec. 1650.16  Required withdrawal date.

    (a) A participant must withdraw his or her account under 
Sec. 1650.12, or begin receiving payments under Secs. 1650.13 or 
1650.14, by April 1 of the year following the year in which the 
participant reaches 70\1/2\ years of age or separates from Government 
service, whichever is later.
    (b) For account balances of $200 or more, a separated participant 
may elect to withdraw his or her account or to begin receiving payments 
before the date described in paragraph (a) of this section, but is not 
required to do so.
    (c) In the event that a participant does not withdraw his or her 
account or begin receiving payments in accordance with paragraph (a) of 
this section, the Board will transfer all of the funds in

[[Page 42874]]

the participant's account not already invested in the Government 
Securities Investment (G) Fund to that fund. A notice of this action 
will be sent to the participant with a warning that his or her account 
will be declared abandoned and forfeited unless the participant comes 
into compliance with paragraph (a) of this section within 90 days of 
the date of the notice.
    (d) If the participant does not take the appropriate withdrawal 
action within the 90-day period provided in paragraph (c) of this 
section, the Board will purchase an annuity for the participant after 
the following steps have been taken:
    (1) The account has been declared abandoned and the funds in the 
account have been forfeited;
    (2) A notice of this action has been sent to the participant;
    (3) The participant reclaims the account balance that was 
abandoned, but decides against a withdrawal pursuant to Secs. 1650.12 
or 1650.13; and
    (4) The participant provides the information that the Board needs 
to purchase an annuity pursuant to Sec. 1650.14.


Sec. 1650.17  Changes and cancellation of a withdrawal request.

    (a) Before processing. A pending withdrawal request can be 
cancelled if the cancellation is processed before the TSP processes the 
withdrawal request. However, the TSP processes withdrawal requests each 
business day. Withdrawal requests that are entered into the system by 
11 a.m. central time ordinarily will be processed that night; those 
entered after 11 a.m. central time will be processed the next business 
day. Consequently, a cancellation request must be received and entered 
into the system before the cut-off for the day the withdrawal request 
is submitted for processing in order to be effective to cancel the 
withdrawal.
    (b) After processing. A withdrawal election cannot be changed or 
cancelled after the withdrawal request has been processed.
    (c) Change in monthly payments. If a participant is receiving a 
series of monthly payments, the participant can change at any time: his 
or her withdrawal election to request a final single payment, the 
address to which the payments are mailed, whether or not a payment will 
be transferred (if permitted) and the portion to be transferred, the 
identity of the financial institution to which payments are transferred 
or sent by EFT, the identity of the EFT account, or the method by which 
direct payments to the participant are being sent (EFT or check). Once 
a year, during a period determined by the Executive Director, the 
participant may also elect to change the payment amount.

Subpart C--Procedures for Post-Employment Withdrawals


Sec. 1650.21  Information provided by employing agency.

    (a) Information to be provided to the TSP. When a TSP participant 
separates from Government service, his or her employing agency must 
report the separation and the date of separation to the TSP record 
keeper. Until the TSP record keeper receives this information from the 
employing agency, it will not pay a post-employment withdrawal.
    (b) Information to be provided to the participant. When a TSP 
participant separates from Government service, his or her employing 
agency must furnish the participant with the most recent copy of the 
TSP withdrawal booklet and annuity booklet, withdrawal forms, and tax 
notice. The employing agency is also responsible for counseling 
participants concerning TSP withdrawals.


Sec. 1650.22  Accounts of $200 or more.

    A participant whose account balance is $200 or more must submit a 
properly completed withdrawal election to request a post-employment 
withdrawal of his or her account balance.


Sec. 1650.23  Accounts of less than $200.

    Upon receipt of information from the employing agency that a 
participant has been separated for more than 31 days or after closure 
of any outstanding loan, whichever is later, the TSP record keeper will 
send the participant a check for the entire amount of his or her 
account balance if the account balance is $5.00 or more but less than 
$200. The participant may not elect to leave this amount in the TSP, 
nor will the TSP transfer this amount to an eligible employer plan or 
traditional IRA. (However, the participant may elect to roll over this 
payment into an eligible employer plan or traditional IRA.)


Sec. 1650.24  How to obtain a post-employment withdrawal.

    To request a post-employment withdrawal under this subpart, a 
participant must submit to the TSP record keeper a properly completed 
post-employment withdrawal request Form TSP-70 or Form TSP-U-70, or use 
the TSP Web site to do so. (A participant's ability to complete a post-
employment withdrawal request form on the Web will depend on his or her 
retirement system coverage, withdrawal election, account balance, 
marital status, and whether or not the withdrawal will be transferred 
to an eligible employer plan or traditional IRA.


Sec. 1650.25  Taxes related to post-employment withdrawals.

    (a) When a payment is made directly to a participant from the TSP 
after the participant has separated from Government service, the money 
is taxable income in the year in which the payment is made (except 
contributions from combat zone pay, which are not subject to taxation). 
However, a participant does not pay taxes on money that the TSP 
transfers directly or the participant rolls over to an eligible 
employer plan or traditional IRA until the money is withdrawn from the 
plan or IRA. In addition, any portion of a participant's TSP account 
which is used to purchase an annuity is not taxed at the time the 
annuity is purchased; monthly annuity payments are taxable income in 
the year in which they are paid.
    (b) A participant may request that the TSP transfer directly to an 
eligible employer plan or traditional IRA all or part of any withdrawal 
that is an ``eligible rollover distribution'' under the Internal 
Revenue Code. A withdrawal that is not an eligible rollover 
distribution cannot be transferred to an eligible employer plan or 
traditional IRA. If an eligible rollover distribution is not 
transferred, it is subject to mandatory 20% withholding.
    (c) An eligible employer plan or traditional that can accept a 
transfer must be a plan or IRA maintained in the United States, which 
means one of the 50 states or the District of Columbia.
    (d) The following TSP withdrawal methods are considered eligible 
rollover distributions under the Internal Revenue Code, 26 U.S.C. 
402(c)(4):
    (1) A single payment, as described in Sec. 1650.12;
    (2) Monthly payments, as described in Sec. 1650.13, where payments 
are expected to last less than 10 years at the time they begin. This 
means that if the participant elects a monthly payment amount, the 
amount, when divided into the participant's account balance at the time 
of the first payment, must yield a number less than 120. If the 
participant elects to change the payment amount after payments begin, 
future payments may not continue to qualify as eligible rollover 
distributions if they do not also meet the requirements of this rule; 
and
    (3) A final single payment, as described in Sec. 1650.13(c).
    (e) The following withdrawal methods are not eligible rollover 
distributions:
    (1) An annuity purchased by the TSP;

[[Page 42875]]

    (2) Monthly payments that do not meet the criteria set forth in 
paragraph (d)(2) of this section;
    (3) A minimum distribution payment or any portion of a payment 
which represents a minimum distribution;
    (4) A plan loan that is deemed to be a taxable distribution because 
of default; and
    (5) A return of excess elective deferrals.

Subpart D--In-Service Withdrawals


Sec. 1650.31  Age-based withdrawals.

    (a) A participant who has 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 withdrawal request, both at the time of the 
request and at disbursement, must be at least $1,000, unless the 
withdrawal request is for the entire vested account balance.
    (b) An age-based withdrawal is an eligible rollover distribution, 
so a participant may request that the TSP transfer all or a portion of 
the withdrawal to an eligible employer plan or traditional IRA.
    (c) A participant is permitted only one age-based withdrawal for an 
account.
    (d) A participant who makes an age-based withdrawal is not eligible 
to make a partial withdrawal after separating from Government service.


Sec. 1650.32  Financial hardship withdrawals.

    (a) A participant who has not separated from Government employment 
and who can demonstrate 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 withdrawal, 
both at the time of the request and at disbursement, must be at least 
$1,000.
    (b) A participant will demonstrate financial hardship if he or she 
meets one or both of the following tests:
    (1) Based on TSP calculations, the participant's monthly cash flow 
is negative (i.e., net cash income is less than ordinary monthly cash 
household expenses).
    (2) The participant has incurred or will incur within the next six 
months extraordinary expenses which he or she has not paid, for which 
the participant has not been and will not be reimbursed, and which 
cannot be met by his or her monthly cash flow over a period of six 
months. Documentation of the expenses must be dated within 45 days of 
the date of the withdrawal request. 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 as medical expenses for Federal income 
tax purposes, but without regard to the Internal Revenue Service's 
(IRS) income limitations on deductibility. However, the following 
expenses that are allowed by the IRS are not eligible TSP 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 TSP financial hardship calculations.
    (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 
deductibility or the fair market value of the property. Household 
improvements are structural improvements 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 repair or replacement resulting from a personal 
casualty loss that would be eligible for deduction for Federal income 
tax purposes, but without regard to the IRS income limitations on 
deductibility, fair market value of the property, or number of events. 
Personal casualty loss includes damage, destruction, or loss of 
property resulting from a sudden, unexpected, or unusual event, such as 
an earthquake, hurricane, tornado, flood, storm, fire, or theft.
    (iv) Legal expenses, which are limited to attorney fees and court 
costs associated with separation or divorce. Court-ordered payments to 
a spouse or former spouse and child support payments are not allowed, 
nor are costs of obtaining prepaid legal services or other coverage for 
legal services.
    (c) 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)(i) The amount which would both:
    (A) 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
    (B) Pay documented extraordinary expenses, if any.
    (ii) If the TSP calculates that the participant has a negative cash 
flow and extraordinary expenses, the amount of the net disbursement is 
equal to six times the amount of the negative monthly cash flow plus 
the amount of the extraordinary expenses. If the TSP calculates that 
the participant has a positive cash flow, the amount of the 
disbursement is equal to the amount of the documented extraordinary 
expenses minus six times the amount of the positive monthly cash flow.
    (d) A participant is not eligible for an in-service hardship 
withdrawal during the time he or she has pending a petition in 
bankruptcy under Chapter 13 of the Bankruptcy Code.


Sec. 1650.33  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; therefore, 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 a period of six months 
after the withdrawal is processed. Therefore, the participant's TSP 
contributions (and any applicable agency matching contributions) will 
be discontinued by his or her agency for six months after the agency is 
notified by the TSP; in the case of a FERS participant, agency 
automatic 1% contributions will continue. A participant whose TSP 
contributions are discontinued by his or her agency after a financial 
hardship withdrawal can resume contributions any time after expiration 
of the six-month period by submitting a new TSP contribution election. 
Contributions will not resume automatically.


Sec. 1650.34  Uniqueness of loans and withdrawals.

    An outstanding TSP loan cannot be converted into an in-service 
withdrawal or vice versa. Funds distributed as an in-service withdrawal 
cannot be returned or repaid.

Subpart E--Procedures for In-Service Withdrawals


Sec. 1650.41  How to obtain an age-based withdrawal.

    To request an age-based in-service withdrawal under this subpart, a

[[Page 42876]]

participant must submit to the TSP record keeper a properly completed 
age-based withdrawal request, Form TSP-75 or TSP-U-75, or use the TSP 
Website to initiate a request. A participant's ability to complete an 
age-based withdrawal on the Web will depend on his or her retirement 
system coverage, marital status, and whether or not part or all of the 
withdrawal will be transferred to an eligible employer plan or 
traditional IRA.


Sec. 1650.42  How to obtain a financial hardship withdrawal.

    (a) To request a financial hardship in-service withdrawal, a 
participant must submit to the TSP Service Office a properly completed 
financial hardship withdrawal form, Form TSP-76 or Form TSP-U-76, an 
earnings and leave statement dated within 45 days before the TSP record 
keeper's receipt of a withdrawal request, and supporting documentation 
for any extraordinary expenses listed on the application. These 
requirements apply even if the participant is in a non-pay status at 
the time the request is submitted.
    (b) There is no limit on the number of financial hardship 
withdrawals a participant can make; however, the TSP will not accept a 
financial hardship withdrawal request for a period of six months after 
a financial hardship disbursement is made.


Sec. 1650.43  Taxes related to in-service withdrawals.

    (a) When an in-service withdrawal is paid directly from the TSP to 
a participant, the money is taxable income in the year in which the 
payment is made (except contributions from combat zone pay, which are 
not subject to taxation). However, a participant does not pay taxes on 
an age-based withdrawal that the TSP transfers directly or the 
participant rolls over to an eligible employer plan or traditional IRA 
until the money is withdrawn.
    (b) An age-based in-service withdrawal from the TSP is an eligible 
rollover distribution, and a participant may request the TSP to 
transfer all or a portion of an age-based in-service withdrawal to an 
eligible employer plan or traditional IRA, consistent with 
Sec. 1650.25. If the withdrawal is not transferred, it is subject to 
mandatory 20% withholding.
    (c) A financial hardship in-service withdrawal from the TSP is not 
an eligible rollover distribution, and a participant therefore may not 
request the TSP to transfer a financial hardship in-service withdrawal 
to an eligible employer plan or traditional IRA. A financial hardship 
in-service withdrawal is subject to 10% withholding. The withholding is 
not mandatory; the participant may either avoid the withholding or 
increase the amount of withholding by submitting IRS Form W-4P, 
Withholding Certificate for Pension or Annuity Payments, to the TSP.

Subpart F--[Reserved]

Subpart G--Spousal Rights


Sec. 1650.61  Spousal rights applicable to post-employment withdrawals.

    (a) The spousal rights described in this section apply to full 
post-employment withdrawals when the participant's vested TSP account 
balance exceeds $3,500, and to partial post-employment withdrawals 
without regard to the amount of the participant's account balance.
    (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. 1650.64 to the spousal 
notification requirement within 90 days of the date the withdrawal 
request is received by the TSP. The participant must provide the TSP 
record keeper with the spouse's correct address and Social Security 
Number. The TSP record keeper will send the required notice by first 
class mail to the spouse at the most recent address provided by the 
participant.
    (c) The spouse of a FERS or uniformed services participant has a 
right to a joint and survivor annuity with a 50 percent survivor 
benefit, level payments, and no cash refund based on the participant's 
entire account balance when the participant elects a full post-
employment withdrawal. The participant may make a different withdrawal 
election only if his or her spouse waives the right to this annuity.
    (1) To show that the spouse has waived the right to this annuity, 
the participant must submit to the TSP record keeper a properly 
completed withdrawal request form, signed by his or her spouse in the 
presence of a notary, unless the participant was granted an exception 
under Sec. 1650.65 to the spousal notification requirement within 90 
days of the date the withdrawal form is received by the TSP.
    (2) Because a partial post-employment withdrawal will diminish the 
amount in the account that is available for a joint and survivor 
annuity, a spouse's consent is required before a partial withdrawal 
will be approved, regardless of the amount to be withdrawn.
    (3) Both a spouse's waiver of a joint and survivor annuity and a 
spouse's consent to a partial withdrawal must be properly notarized.
    (4) Once the spouse's waiver or consent, as the case may be, has 
been received by the TSP record keeper, the spouse's waiver or consent 
is irrevocable for that withdrawal.


Sec. 1650.62  Spousal rights applicable 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 for 
withdrawal.
    (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 an exception under Sec. 1650.64 to the spousal 
notification requirement within 90 days before the date on which the 
withdrawal request was submitted to the TSP. The participant must 
provide the TSP record keeper with the spouse's correct address and 
Social Security number. The TSP record keeper will send the required 
notice by first class mail to the spouse at the most recent address 
provided by the participant.
    (c) A participant who is covered by FERS or who is a member of the 
uniformed services must obtain the consent of his or her spouse before 
obtaining an in-service withdrawal, unless the participant was granted 
an exception under Sec. 1650.65 to the signature requirement within 90 
days of the date the withdrawal form is submitted to the TSP. To show 
the spouse's consent, a participant must submit to the TSP record 
keeper a properly completed withdrawal request form, signed by his or 
her spouse in the presence of a notary. Once a form containing the 
spouse's consent has been submitted to the TSP record keeper, the 
spouse's consent is irrevocable for that withdrawal.


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 CSRS 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 the 
notification requirement based on unknown whereabouts must be submitted 
to the Executive Director on Form TSP-16 or Form TSP-U-16,

[[Page 42877]]

Exception to Spousal Requirements, accompanied by one of the following:
    (1) A 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 which 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, state 
the last time the spouse's location was known, explain why the spouse's 
location is not known currently, and describe the good faith efforts 
the participant has made to locate the spouse in the 90 days before the 
request for an exception was submitted to the TSP. Examples of 
attempting to locate the spouse include, but are not limited to, 
checking with relatives and mutual friends or using telephone 
directories and 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 has made attempts within 
the preceding 90 days to locate the spouse and that the participant 
does not know the spouse's whereabouts.
    (iii) All statements must be signed and dated and must include the 
following certification: ``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 90 days of an approved 
exception may be processed so long as the spouse named on the form is 
the spouse for whom the exception has been approved.
    (c) The TSP, in its discretion, may require a participant to 
provide additional information before granting a waiver. The TSP may 
use any of the information provided to conduct its own search for the 
spouse.


Sec. 1650.64  Executive Director's exception to spousal consent 
requirement.

    (a) Whenever this subpart requires the consent of a spouse of a 
FERS or uniformed services participant 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. 1650.64; or
    (2) Due to exceptional circumstances, requiring the spouse's 
signature would be inappropriate.
    (i) An exception to the requirement for a spouse's signature may be 
granted based on exceptional circumstances only when the participant 
presents a court order which contains a finding or a recitation of 
exceptional circumstances regarding the spouse which would warrant an 
exception to the signature requirement.
    (ii) Exceptional circumstances are narrowly construed, but are 
exemplified by a court order or government agency determination that:
    (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 TSP account or withdraw his or her Thrift Savings Plan 
account balance notwithstanding the absence of the spouse's signature.
    (b) A post-employment withdrawal election or an in-service 
withdrawal request received within 90 days of an approved exception 
will be accepted by the TSP so long as the spouse named on the form is 
the spouse for whom the exception has been approved.

PART 1651--DEATH BENEFITS

    39. The authority citation for part 1651 is revised to read as 
follows:

    Authority: 5 U.S.C. 8424(d), 8432(j), 8433(e), 8435(c)(2), 
8474(b)(5) and 8474(c)(1).

    40. Section 1651.1 is revised to read as follows:


Sec. 1651.1  Definitions.

    (a) Definitions generally applicable to the Thrift Savings Plan are 
set forth at 5 CFR 1690.1.
    (b) As used in this subpart:
    Death benefit means the portion of a deceased participant's account 
that is payable under FERSA's order of precedence.
    Domicile means the participant's place of residence for purposes of 
state income tax liability.
    Order of precedence means the priority of entitlement to a TSP 
death benefit specified in 5 U.S.C. 8424(d).
    TIN means a taxpayer identification number. A TIN may be a Social 
Security number (SSN), an employer identification number (EIN), or an 
individual taxpayer identification number (ITIN).
    41. Section 1651.2 is revised to read as follows:


Sec. 1651.2  Entitlement to funds in a deceased participant's account.

    (a) Death benefits. Except as provided in paragraphs (b), (c), and 
(d) of this section, if the TSP receives notice that a participant has 
died, the funds in his or her account will be paid as a death benefit 
to the individual or individuals surviving the participant, in the 
following order of precedence:
    (1) To the beneficiary or beneficiaries designated by the 
participant on a TSP designation of beneficiary form that has been 
properly completed and filed in accordance with Sec. 1651.3 and the 
instructions on the form;
    (2) If there is no designated beneficiary, to the spouse of the 
participant in accordance with Sec. 1651.5;
    (3) If there are no beneficiaries or persons as described in 
paragraphs (a)(1) and (a)(2) of this section, to the child or children 
of the participant and descendants of deceased children by 
representation in accordance with Sec. 1651.6;
    (4) If there are no beneficiaries or persons as described in 
paragraphs (a)(1) through (a)(3) of this section, to the parents of the 
participant in equal shares or entirely to the surviving parent in 
accordance with Sec. 1651.7;
    (5) If there are no beneficiaries or persons as described in 
paragraphs (a)(1) through (a)(4) of this section, to the duly appointed 
executor or administrator of the estate of the participant in 
accordance with Sec. 1651.8; or
    (6) If there are no beneficiaries or persons as described in 
paragraphs (a)(1) through (a)(5) of this section, to the next of kin of 
the participant who is or are entitled under the laws of the state of 
the participant's domicile on the date of the participant's death in 
accordance with Sec. 1651.9.
    (b) Post-employment withdrawal request. If the TSP receives notice 
that a participant has died, a pending post-employment withdrawal 
request will be given effect or cancelled as follows:
    (1) Single payment. The TSP will give effect to a request by the 
participant to withdraw his or her account as a single payment. The 
funds designated for payment to the participant will be distributed as 
a single payment to the deceased participant (to become the property of 
his or her estate); funds designated for transfer to an eligible 
employer plan or traditional IRA will be

[[Page 42878]]

transferred to the designated eligible employer plan or traditional 
IRA.
    (2) Monthly payments. The TSP will cancel a request by a 
participant to withdraw his or her account in monthly payments. Any 
funds not already distributed when the TSP receives notice of the 
participant's death will be paid as a death benefit in accordance with 
paragraph (a) of this section.
    (3) Annuity. The TSP will cancel a request by the participant to 
withdraw his or her account in the form of an annuity. The TSP will 
also cancel an annuity purchase made on or after the participant's date 
of death but before annuity payments have begun, and the annuity vendor 
will return the funds to the TSP. In both cases, the funds designated 
by the participant for the purchase of the annuity will be paid as 
described:
    (i) If the participant requested a single life annuity with no cash 
refund or 10-year certain feature, the TSP will pay the funds as a 
death benefit in accordance with paragraph (a) of this section.
    (ii) If the participant requested a single life annuity with a cash 
refund or 10-year certain feature, the TSP will pay the funds:
    (A) As a death benefit to the beneficiary or beneficiaries 
designated by the participant on the annuity portion of a withdrawal 
request, Form TSP-70 or Form TSP-U-70; or
    (B) As a death benefit in accordance with paragraph (a) of this 
section if no beneficiary designated on the withdrawal request survives 
the participant.
    (iii) If the participant requested a joint life annuity without 
additional features, the TSP will pay the funds:
    (A) As a death benefit to the joint life annuitant if he or she 
survives the participant; or
    (B) As a death benefit in accordance with paragraph (a) of this 
section if the joint life annuitant does not survive the participant.
    (iv) If the participant requested a joint life annuity with a cash 
refund or 10-year certain feature, the TSP will pay the funds:
    (A) As a death benefit to the joint life annuitant if he or she 
survives the participant;
    (B) As a death benefit to the beneficiary or beneficiaries 
designated by the participant on the annuity portion of Form TSP-70 or 
Form TSP-U-70, if the joint life annuitant does not survive the 
participant; or
    (C) As a death benefit in accordance with paragraph (a) of this 
section if neither the joint life annuitant nor any designated 
beneficiary survives the participant.
    (v) If a participant dies after an annuity has been purchased, the 
annuity vendor will make or stop the payments in accordance with the 
annuity method selected.
    (c) In-service withdrawal request. If the TSP receives notice that 
a participant has died, a pending in-service withdrawal request will be 
given effect. The funds designated for the in-service withdrawal will 
be paid as a single payment to the deceased participant (to become the 
property of his or her estate); funds designated for transfer to an 
eligible employer plan or traditional IRA will be transferred to the 
designated eligible employer plan or traditional IRA.
    (d) Loans. If the TSP receives notice that a participant has died, 
a pending loan disbursement will be cancelled and the funds designated 
for the loan will be distributed as a death benefit in accordance with 
paragraph (a) of this section. If a TSP loan has been disbursed, the 
funds cannot be returned to the TSP and a taxable distribution to the 
participant will be declared in accordance with 5 CFR 1655.15.
    (e) Investment of a TSP account upon notice of death. If a 
participant dies with any portion of his or her TSP account in an 
investment fund other than the G Fund, the TSP will transfer the entire 
account into the G Fund after it receives written notice of the 
participant's death. The account will accrue earnings at the G Fund 
rate in accordance with 5 CFR part 1645 until it is paid under this 
part.
    42. Section 1651.14 is amended by revising paragraph (f) to read as 
follows:


Sec. 1651.14  How payment is made.

* * * * *
    (f) Payment to trust. If payment is to a trust, the payment will be 
made payable to the trust and mailed in care of the trustee. A TIN must 
be provided for the trust.
    43. Section 1651.17 is revised to read as follows:


Sec. 1651.17  Disclaimer of benefits.

    (a) Right to disclaim. The beneficiary of a TSP account may 
disclaim his or her right to receive all or part of a TSP death 
benefit. If the disclaimant is a minor, the disclaimer must be signed 
by the parent or guardian of the minor.
    (b) Valid disclaimer. The disclaimer must expressly state that the 
beneficiary is disclaiming his or her right to receive either all or a 
stated percentage of the death benefit payable from the TSP account of 
the named participant and must be:
    (1) Submitted in writing;
    (2) Signed by the person (or legal representative) disclaiming the 
benefit; and
    (3) Received before the TSP pays the death benefit.
    (c) Invalid disclaimer. A disclaimer is invalid if it is revocable 
or directs to whom the disclaimed benefit should be paid.
    (d) Disclaimer effect. The disclaimed share will be paid as though 
the beneficiary predeceased the participant, according to the rules set 
forth in Sec. 1651.10.
    44. Part 1653 is revised to read as follows:

PART 1653--COURT ORDERS AND LEGAL PROCESSES AFFECTING THRIFT 
SAVINGS PLAN ACCOUNTS

Subpart A--Retirement Benefits Court Orders
Sec.
1653.1   Definitions.
1653.2   Qualifying retirement benefits court orders.
1653.3   Processing retirement benefits court orders.
1653.4   Calculating entitlements.
1653.5   Payment.
Subpart B--Legal Process for the Enforcement of a Participant's Legal 
Obligations to Pay Child Support or Alimony Currently
1653.11   Definitions.
1653.12   Qualifying legal processes.
1653.13   Processing legal processes.
1654.14   Calculating entitlements.
1653.15   Payment.
Subpart C--Child Abuse Court Orders
1653.21   Definitions.
1653.22   Purpose.
1653.23   Processing and payment.

    Authority: 5 U.S.C. 8435, 8436(b), 8437(e)(3), 8467, 8474(b)(5) 
and 8474(c)(1).

Subpart A--Retirement Benefits Court Orders


Sec. 1653.1  Definitions.

    (a) Definitions generally applicable to the Thrift Savings Plan are 
set forth at 5 CFR 1690.1.
    (b) As used in this subpart:
    Court means any court of any State, the District of Columbia, the 
Commonwealth of Puerto Rico, Guam, the Northern Mariana Islands, or the 
Virgin Islands, and any Indian court as defined by 25 U.S.C. 1301(3).
    Effective date of a court order means the date it was entered by 
the clerk of the court or, if the order does not show a date entered, 
the date it was filed by the clerk of the court or, if the order does 
not contain a date entered or a date filed, the date it was signed by 
the judge.

[[Page 42879]]

    Retirement benefits court order or order means a court decree of 
divorce, annulment or legal separation, or a court order or court-
approved property settlement agreement incident to such a decree. 
Orders may be issued at any stage of a divorce, annulment, or legal 
separation proceeding.


Sec. 1653.2  Qualifying retirement benefits court orders.

    (a) To be qualifying, and thus enforceable against the TSP, a 
retirement benefits court order must meet the following requirements:
    (1) The order must expressly relate to the Thrift Savings Plan 
account of a TSP participant. This means that:
    (i) The order must expressly refer to the ``Thrift Savings Plan'' 
or describe the TSP in such a way that it cannot be confused with other 
Federal Government retirement benefits or non-Federal retirement 
benefits;
    (ii) The order must be written in terms appropriate to a defined 
contribution plan rather than a defined benefit plan. For example, it 
should generally refer to the participant's TSP account or TSP account 
balance rather than a benefit formula or the participant's eventual 
benefits; and
    (iii) If the participant has a civilian TSP account and a uniformed 
services TSP account, the order must expressly identify the account to 
which it relates.
    (2) The order must either require the TSP to freeze the 
participant's account to preserve the status quo pending final 
resolution of the parties' rights to the participant's TSP account, or 
to make a payment from the participant's account to a permissible 
payee;
    (3) If the order requires a payment from the participant's account, 
the award must be for:
    (i) A specific dollar amount;
    (ii) A stated percentage or fraction of the account;
    (iii) A portion of the account to be calculated by applying a 
formula that yields a mathematically possible result. All of the 
variables in the formula must have values that are readily 
ascertainable from the face of the order or from TSP records; or
    (iv) A survivor annuity as provided in 5 U.S.C. 8435(d).
    (4) A court order can only require a payment to:
    (i) Current or former spouses of the participant;
    (ii) Attorneys of current or former spouses of a participant (as 
fees);
    (iii) Dependents of the participant; and
    (iv) Attorneys of dependents of the participant (as fees).
    (b) The following retirement benefits court orders are not 
qualifying and thus are not enforceable against the TSP:
    (1) An order relating to a TSP account that has been closed;
    (2) An order relating to a TSP account that contains only nonvested 
money, unless the money will become vested within 30 days of the date 
the TSP receives the order if the participant were to remain in Federal 
service;
    (3) An order requiring the return to the TSP of money that was 
properly paid pursuant to an earlier court order;
    (4) An order requiring the TSP to make a payment in the future, 
unless the present value of the payee's entitlement can be calculated, 
in which case the TSP will make the payment currently; and
    (5) An order that does not specify the account to which the order 
applies, if the participant has both a civilian TSP account and a 
uniformed services TSP account.


Sec. 1653.3  Processing retirement benefits court orders.

    (a) The payment of a retirement benefits court order from the TSP 
is governed solely by FERSA and by the terms of this subpart. The TSP 
will honor retirement benefits court orders properly issued by a court 
(as defined in Sec. 1653.1). However, those courts have no jurisdiction 
over the TSP and the TSP cannot be made a party to the underlying 
domestic relations proceedings.
    (b) The TSP will review a retirement benefits court order to 
determine whether it is enforceable against the TSP only after the TSP 
has received a complete copy of the document. Receipt by an employing 
agency or any other agency of the Government does not constitute 
receipt by the TSP. Retirement benefits court orders should be 
submitted to the TSP record keeper at the following address: Thrift 
Savings Plan Service Office, National Finance Center, P.O. Box 61500, 
New Orleans, Louisiana, 70161-1500. Receipt by the TSP record keeper is 
considered receipt by the TSP. To be complete, a court order must 
contain all pages and attachments; it must also provide (or be 
accompanied by a document that provides):
    (1) The participant's Social Security number (SSN);
    (2) The name and last known mailing address of each payee covered 
by the order; and
    (3) If the current or former spouse of the participant is a payee 
of the court order and the order requires the payment to be mailed in 
care of a third party, the order must also provide the SSN of the 
spouse-payee and the state of legal residence of the spouse-payee.
    (c) As soon as practicable after the TSP receives a document that 
purports to be a qualifying retirement benefits court order, whether or 
not complete, the participant's account will be frozen. After the 
account is frozen, no withdrawal or loan disbursements (other than a 
required minimum distribution pursuant to section 401(a)(9) of the 
Internal Revenue Code) will be allowed until the account is unfrozen. 
All other account activity will be permitted.
    (d) The following documents do not purport to be qualifying 
retirement benefits court orders, and accounts of participants to whom 
such orders relate will not be frozen:
    (1) A document that does not indicate on its face (or is not 
accompanied by a document that establishes) that it has been issued or 
approved by a court;
    (2) A court order relating to a TSP account that has been closed;
    (3) A court order dated before June 6, 1986;
    (4) A court order that does not award all or any part of the TSP 
account to someone other than the participant; and
    (5) A court order that does not mention retirement benefits.
    (e) After the participant's account is frozen, the TSP will review 
the document further to determine if it is complete; if the document is 
not complete, the TSP will request a complete document. If a complete 
copy is not received within 30 days of that request, the account will 
be unfrozen and no further action will be taken with respect to the 
document.
    (f) The TSP will review a complete copy of an order to determine 
whether it is a qualifying retirement benefits court order as described 
in Sec. 1653.2. The TSP will mail a decision letter to all parties 
containing the following information:
    (1) A determination regarding whether the court order is 
qualifying;
    (2) A statement of the applicable statutes and regulations;
    (3) An explanation of the effect the court order has on the 
participant's TSP account; and
    (4) If the qualifying order requires payment, the letter will 
provide:
    (i) An explanation of how the payment will be calculated and an 
estimated amount of payment;
    (ii) The anticipated date of payment;
    (iii) Tax information and income tax withholding forms to the 
person responsible for paying Federal income tax on the payment;
    (iv) Information and the form needed to transfer the payment to an 
eligible

[[Page 42880]]

employer plan or traditional IRA (if the payee is the current or former 
spouse of the participant); and
    (v) Information and the form needed to receive the payment through 
an electronic funds transfer (EFT).
    (g) The TSP decision letter is a final determination of the 
parties' rights in the account. There is no administrative appeal from 
the TSP decision.
    (h) An account frozen under this section will be unfrozen as 
follows:
    (1) If the account was frozen upon receipt of an incomplete order, 
the account will be unfrozen if a complete order is not received within 
30 days of the date of the request described in paragraph (e) of this 
section;
    (2) If the account was frozen in response to an order issued to 
preserve the status quo pending final resolution of the parties' rights 
to the participant's TSP account, the account will be unfrozen if the 
TSP receives a court order that vacates or supersedes the previous 
order (unless the order vacating or superseding the order itself 
qualifies to place a freeze on the account). A court order that 
purports to require a payment from the TSP supersedes an order issued 
to preserve the status quo, even if it does not qualify to require a 
payment from the TSP;
    (3) If the account was frozen in response to an order purporting to 
require a payment from the TSP, the freeze will be lifted:
    (i) Once payment is made, if the court order is qualifying; or
    (ii) Forty-five (45) days after the date of the TSP decision letter 
if the court order is not qualifying. The 45-day period will be 
terminated, and the account will be unfrozen, if both parties submit to 
the TSP a written request for such a termination.
    (i) The TSP will hold in abeyance the processing of a court-ordered 
payment if the TSP is notified in writing that the underlying court 
order has been appealed, and that the effect of the filing of the 
appeal is to stay the enforceability of the order.
    (1) In the notification, the TSP must be provided with proper 
documentation of the appeal and citations to legal authority which 
address the effect of the appeal on the enforceability of the 
underlying court order.
    (i) If the TSP receives proper documentation and citations to legal 
authority which demonstrate that the underlying court order is not 
enforceable, the TSP will inform the parties that the payment will not 
occur until resolution of the appeal, and the account will remain 
frozen for loans and withdrawals.
    (ii) In the absence of proper documentation and citations to legal 
authority, the TSP will presume that the provisions relating to the TSP 
in the court order remain valid and will proceed with the payment 
process.
    (2) The TSP must be notified in writing of the disposition of the 
appeal before the freeze will be removed from the participant's account 
or a payment will be made. The notification must include a complete 
copy of an order from the appellate court explaining the effect of the 
appeal on the participant's account.
    (j) Multiple qualifying court orders relating to the same TSP 
account and received by the TSP will be processed as follows:
    (1) If the orders make awards to the same payee or payees and do 
not indicate that the awards are cumulative, the TSP will only honor 
the order bearing the latest effective date.
    (2) If the orders relate to different former spouses of the 
participant and award survivor annuities, the TSP will honor them in 
the order of their effective dates.
    (3) If the orders relate to different payees and award fixed dollar 
amounts, percentages or fractions of an account, or portions of an 
account calculated by the application of formulae, the orders will be 
honored:
    (i) In the order of their receipt by the TSP, if received by the 
TSP on different days; or
    (ii) In the order of their effective dates, if received by the TSP 
on the same day.
    (4) In all other cases, the TSP will honor multiple qualifying 
court orders relating to the same TSP account in the order of their 
receipt by the TSP.


Sec. 1653.4  Calculating entitlements.

    (a) For purposes of computing the amount of a payee's entitlement 
under this section, a participant's TSP account balance will include 
any loan balance outstanding as of the date used for calculating the 
payee's entitlement, unless the court order provides otherwise.
    (b) If the court order awards a percentage or fraction of an 
account as of a specific date, the payee's entitlement will be 
calculated based on the account balance as of that date. If the date 
specified in the order is not a business day, the TSP will use the 
participant's account balance as of the last preceding business day.
    (c) If the court order awards a percentage or fraction of an 
account but does not contain a specific date as of which to apply that 
percentage or fraction, the TSP will use the effective date of the 
order.
    (d) If the court order awards a specific dollar amount, the payee's 
entitlement will be the lesser of:
    (1) The dollar amount stated in the court order; or
    (2) The vested account balance as of the date specified in the 
court order as the effective date of the award (or, if no date is 
specified, the effective date of the order).
    (e) If a court order describes a payee's entitlement in terms of a 
fixed dollar amount and a percentage or fraction of the account, the 
TSP will pay the fixed dollar amount, even if the percentage or 
fraction, when applied to the account balance, would yield a different 
result.
    (f) The payee's entitlement will be credited with TSP investment 
earnings as described:
    (1) The entitlement calculated under this section will not be 
credited with TSP investment earnings unless the court order 
specifically provides otherwise.
    (2) If earnings are awarded and a rate is specified, the rate must 
be expressed as an annual percentage rate or as a per diem dollar 
amount added to the payee's entitlement.
    (3) If earnings are awarded and the rate is not specified, the TSP 
will credit the payee's entitlement with the rate of return for the G 
Fund.
    (4) Earnings at the G Fund rate will accrue on a monthly basis 
through August 31, 2002, beginning with the month following the 
entitlement date; thereafter, G Fund earnings will accrue on a daily 
basis, beginning with the business day following the date used for 
calculating the payee's entitlement (or beginning September 1, 2002, if 
interest or earnings commence before September 1, 2002) and ending 2 
days before payment is made.
    (g) The TSP will estimate the amount of a payee's entitlement when 
it prepares the court order decision letter and will recalculate the 
entitlement at the time of payment. The recalculation may differ from 
the initial estimation because:
    (1) The estimation of the payee's entitlement includes both vested 
and nonvested amounts in the participant's account. If, at the time of 
payment, the nonvested portion of the account has not become vested, 
the recalculated entitlement will apply only to the participant's 
vested account balance; and
    (2) After the estimate of the payee's entitlement is prepared, the 
TSP may process account transactions that have an effective date on or 
before the date used to compute the payee's

[[Page 42881]]

entitlement. Those transactions will be included when the payee's 
entitlement is recalculated at the time of payment.


Sec. 1653.5  Payment.

    (a) Payment pursuant to a qualifying retirement benefits court 
order ordinarily will be made 60 days after the date of the TSP 
decision letter. This is intended to permit the payee sufficient time 
to consider decisions about tax withholding, payment by EFT, and 
transfer, if applicable, under paragraph (e) of this section. An 
earlier distribution may be made as follows:
    (1) If the payee is the current or former spouse of the 
participant, the payee can request to receive the payment sooner than 
60 days by making a tax withholding election, by requesting a payment 
by EFT, or by requesting a transfer described in paragraph (e)(1) of 
this section. The TSP decision letter will provide the forms a payee 
can use to request an earlier disbursement.
    (2) If the payee is someone other than the current or former spouse 
of the participant, the participant can request a disbursement sooner 
than 60 days by making the tax withholding election described in 
paragraph (e)(2) of this section (on forms provided to the participant 
with the TSP decision letter).
    (3) If the court order makes an award to multiple payees, a 
disbursement may be made earlier than 60 days only if requests for 
expedited payment are received from all of the payees.
    (4) In no event will payment be made earlier than 31 days after the 
date of the TSP decision letter.
    (b) In no case will payment exceed the participant's vested account 
balance, minus any outstanding loan balance.
    (c) The entire amount of a court order payee's entitlement must be 
disbursed at one time. A series of payments will not be made, even if 
the court order provides for such a method of payment. A payment 
pursuant to a court order extinguishes all rights to any further 
payment under that order, even if the entire amount of the entitlement 
cannot be paid. Any further award must be contained in a separate court 
order.
    (d) Payment will be made pro rata from all TSP investment funds in 
which the account is invested, based on the balance in each fund on the 
date payment is made, and from both tax-deferred and tax-exempt 
balances, if any. The TSP will not honor provisions of a court order 
which require payment to be made from specific investment funds or 
contribution sources. A court order may, however, specify a particular 
payment from the tax-exempt balance of a uniformed services TSP 
account.
    (e) Payment will be made only to the person or persons specified in 
the court order.
    (1) If payment is made to the current or former spouse of the 
participant, the distribution will be reported to the Internal Revenue 
Service (IRS) as income to the payee.
    (i) A current or former spouse of a participant may request that 
the TSP transfer all or a portion of the payment to an eligible 
employer plan or traditional IRA. A retirement benefits court order 
cannot prevent the TSP from providing this transfer option to a current 
or former spouse of a participant.
    (ii) Any amount that is not so transferred will be distributed to 
the payee. That distribution will be subject to mandatory Federal 
income tax withholding. The payee may elect to have an additional 
amount withheld by filing with the TSP the forms provided to the payee 
with the decision letter.
    (iii) Any distribution directly to the payee will be made under the 
following rules:
    (A) If the court order specifies a third-party mailing address for 
the payment, the TSP will mail to the address specified any portion of 
the payment which is not transferred to an eligible employer plan or 
traditional IRA. That portion will be disbursed in the form of a United 
States Treasury check made payable solely to the court order payee, and 
mailed in care of the third party addressee.
    (B) If the court order does not specify a third party addressee, 
the payee can choose to receive the distribution by United States 
Treasury check or by electronic funds transfer (EFT) to a checking or 
savings account at a financial institution.
    (2) If the payment is made to anyone other than the current or 
former spouse of the participant, the following rules apply:
    (i) The payment is taxable to the participant and is subject to 
Federal income tax withholding. The participant can elect the amount to 
be withheld by filing with the TSP the forms provided to the 
participant with the decision letter. If the participant does not make 
a withholding election, the TSP will withhold 10 percent from the 
payment. The tax withholding will be taken from the payee's entitlement 
and the gross amount of the payment (i.e., the net payment distributed 
to the payee plus the amount withheld from the payment for taxes) will 
be reported to the IRS as income to the participant.
    (ii) The payment will be made under the same rules described in 
paragraph (e)(1)(iii) of this section.
    (f) Payment will not be made jointly to two or more persons. If the 
court order requires payments to more than one person, the order must 
separately indicate the amount to be paid to each.
    (g) If there are insufficient funds to pay each court order payee, 
payment will be made as follows:
    (1) If the order specifies an order of precedence for the payments, 
the TSP will honor it.
    (2) If the order does not specify an order of precedence for the 
payments, the TSP will pay a current or former spouse first, a 
dependent second, and an attorney third.
    (h) If the payee dies before a payment is disbursed, payment will 
be made to the estate of the payee, unless otherwise specified by the 
court order. A distribution to the estate of a deceased court order 
payee will be reported as income to the decedent's estate. If the 
participant dies before payment is made, the order will be honored so 
long as it is submitted to the TSP before the TSP account has been 
closed.
    (i) If the parties to a divorce or annulment have remarried each 
other, or a legal separation is terminated, a new court order will be 
required to prevent payment pursuant to a previously submitted 
qualifying retirement benefits court order.
    (j) Payment to a person (including the estate of the payee) 
pursuant to a qualifying retirement benefits court order made in 
accordance with this subpart bars recovery by any other person claiming 
entitlement to the payment.

Subpart B--Legal Process for the Enforcement of a Participant's 
Legal Obligations To Pay Child Support or Alimony Currently


Sec. 1653.11  Definitions.

    (a) Definitions generally applicable to the Thrift Savings Plan are 
set forth at 5 CFR 1600.1.
    (b) As used in this subpart:
    Alimony means the payment of funds for the support and maintenance 
of a spouse or former spouse. Alimony includes separate maintenance, 
alimony pendente lite, maintenance, and spousal support. Alimony can 
also include attorney fees, interest, and court costs, but only if 
these items are expressly made recoverable by qualifying legal process, 
as described in Sec. 1653.12.
    Child support means payment of funds for the support and 
maintenance of a child or children of the participant. Child support 
includes payments to

[[Page 42882]]

provide for health care, education, recreation, clothing, or to meet 
other specific needs of a child or children. Child support can also 
include attorney fees, interest, and court costs, but only if these 
items are expressly made recoverable by qualifying legal process, as 
described in Sec. 1653.12.
    Competent authority means a court or an administrative agency of 
competent jurisdiction in any State, territory or possession of the 
United States; a court or administrative agency of competent 
jurisdiction in any foreign country with which the United States has 
entered into an agreement that requires the United States to honor the 
process; or an authorized official pursuant to an order of such a court 
or an administrative agency of competent jurisdiction pursuant to state 
or local law.
    Legal process means a writ, order, summons, or other similar 
process in the nature of a garnishment which is brought to enforce a 
participant's legal obligations to pay child support or alimony 
currently.


Sec. 1653.12  Qualifying legal processes.

    (a) The TSP will only honor the terms of a legal process that is 
qualifying under paragraph (b) of this section.
    (b) A legal process must meet each of the following requirements to 
be considered qualifying:
    (1) The legal process must have been issued by a competent 
authority;
    (2) The legal process must expressly relate to the Thrift Savings 
Plan account of a TSP participant, as described in Sec. 1653.2(a)(1);
    (3) The legal process must require the TSP to:
    (i) Pay a stated dollar amount from a participant's TSP account; or
    (ii) Freeze the participant's account in anticipation of an order 
to pay from the account.
    (c) The following legal processes are not qualifying:
    (1) A legal process relating to a TSP account that has been closed;
    (2) A legal process relating to a TSP account that contains only 
nonvested money, unless the money will become vested within 30 days of 
the date the TSP receives the order if the participant were to remain 
in Federal service;
    (3) A legal process requiring the return to the TSP of money that 
was properly paid pursuant to an earlier legal process;
    (4) A legal process requiring the TSP to make a payment in the 
future; and
    (5) A legal process requiring a series of payments.


Sec. 1653.13  Processing legal processes.

    (a) The payment of legal processes from the TSP is governed solely 
by the Federal Employees' Retirement System Act, 5 U.S.C. chapter 84, 
and by the terms of this subpart. Although the TSP will honor legal 
processes properly issued by a competent authority, those entities have 
no jurisdiction over the TSP and the TSP cannot be made a party to the 
underlying proceedings.
    (b) The TSP will review a legal process to determine whether it is 
enforceable against the TSP only after the TSP has received a complete 
copy of the document. Receipt by an employing agency or any other 
agency of the Government does not constitute receipt by the TSP. Legal 
processes should be submitted to the TSP record keeper at the following 
address: Thrift Savings Plan Service Office, National Finance Center, 
P.O. Box 61500, New Orleans, LA 70161-1500. Receipt by the TSP record 
keeper is considered receipt by the TSP. To be complete, a legal 
process must contain all pages and attachments; it must also provide 
(or be accompanied by a document that provides):
    (1) The participant's Social Security number (SSN);
    (2) The name and last known mailing address of each payee covered 
under the order; and
    (3) If the current or former spouse of the participant is a payee 
of the court order and the order requires the payment to be mailed in 
care of a third party, the order must also provide the SSN of the 
spouse-payee and the state of legal residence of the spouse-payee.
    (c) As soon as practicable after the TSP receives a document that 
purports to be a qualifying legal process, whether or not complete, the 
participant's account will be frozen. After the account is frozen, no 
withdrawal or loan disbursements will be allowed until the account is 
unfrozen. All other account activity will be permitted, including 
contributions, loan repayments, adjustments, contribution allocations 
and interfund transfers.
    (d) The following documents will not be treated as purporting to be 
a qualifying legal processes, and accounts of participants to whom such 
orders relate will not be frozen:
    (1) A document that does not indicate on its face (or accompany a 
document that establishes) that it has been issued by a competent 
authority;
    (2) A legal process relating to a TSP account that has been closed; 
and
    (3) A legal process that does not relate either to the TSP or to 
the participant's retirement benefits.
    (e) After the participant's account is frozen, the TSP will review 
the document further to determine if it is complete; if the document is 
not complete, the TSP will request a complete document. If a complete 
copy is not received by the TSP within 30 days of that request, the 
account will be unfrozen and no further action will be taken with 
respect to the document.
    (f) As soon as practicable after receipt of a complete copy of a 
legal process, the TSP will review it to determine whether it is a 
qualifying legal process as described in Sec. 1653.12. The TSP will 
mail a decision letter to all parties containing the same information 
described at Sec. 1653.3(f).
    (g) The TSP decision letter is final. There is no administrative 
appeal from the TSP decision.
    (h) An account frozen under this section will be unfrozen as 
follows:
    (1) If a complete document has not been received within 30 days of 
the date of a request described in paragraph (e) of this section;
    (2) If the account was frozen pursuant to a legal process requiring 
the TSP to freeze the participant's account in anticipation of an order 
to pay from the account, the account will be unfrozen if any one of the 
following events occurs:
    (i) As soon as practicable after the TSP receives a complete copy 
of an order vacating or superseding the preliminary order (unless the 
order vacating or superseding the preliminary order qualifies to place 
a freeze on the account);
    (ii) Upon payment pursuant to the order to pay from the account, if 
the TSP determines that the order is qualifying; or
    (iii) As soon as practicable after the TSP issues a decision letter 
informing the parties that the order to pay from the account is not a 
qualifying legal process;
    (3) If the account was frozen after the TSP received a document 
that purports to be a legal process requiring payment from the 
participant's account, the account will be unfrozen:
    (i) Upon payment pursuant to a qualifying legal process; or
    (ii) As soon as practicable after the TSP informs the parties that 
the document is not a qualifying legal process.
    (i) The TSP will hold in abeyance the processing of a payment 
required by legal process if the TSP is notified in writing that the 
legal process has been appealed, and that the effect of the filing of 
the appeal is to stay the enforceability of the legal process. The 
notification must be accompanied by the documentation and citations to 
legal authority described at Sec. 1653.3(i).
    (j) Multiple qualifying legal processes relating to the same TSP 
account and received by the TSP will be processed as follows:

[[Page 42883]]

    (1) If the legal processes make awards to the same payee or payees 
and do not indicate that the awards are cumulative, the TSP will only 
honor the legal process bearing the latest effective date.
    (2) If the legal processes relate to different payees, the legal 
process will be honored:
    (i) In the order of their receipt by the TSP, if received by the 
TSP on different days; or
    (ii) In the order of their effective dates, if received by the TSP 
on the same day.


Sec. 1653.14  Calculating entitlements.

    A qualifying legal process can only require the payment of a 
specified dollar amount from the TSP. Payment pursuant to a qualifying 
legal process will be calculated in accordance with Sec. 1653.4(a), 
(d), (f) and (g).


Sec. 1653.15  Payment.

    Payment pursuant to a qualifying legal process will be made in 
accordance with Sec. 1653.5.

Subpart C--Child Abuse Court Orders


Sec. 1653.21  Definitions.

    (a) Definitions generally applicable to the Thrift Savings Plan are 
set forth at 5 CFR 1600.1.
    (b) As used in this subpart:
    Child means an individual under 18 years of age.
    Judgment against a participant for physically, sexually, or 
emotionally abusing a child means any legal claim perfected through a 
final enforceable judgment which is based in whole or in part upon the 
physical, sexual, or emotional abuse of a child, whether or not that 
abuse is accompanied by other actionable wrongdoing, such as sexual 
exploitation or gross negligence.


Sec. 1653.22  Purpose.

    Under 5 U.S.C. 8437(e)(3) and 8467(a)(2), the TSP will honor a 
court order or other similar process in the nature of a garnishment 
that is brought to enforce a judgment against a participant for 
physically, sexually, or emotionally abusing a child.


Sec. 1653.23  Processing and payment.

    To the maximum extent consistent with sections 8437(e)(3) and 
8467(a)(2), child abuse court orders will be processed by the TSP under 
the procedures described in subparts A and B of this part.
    45. Part 1655 is revised to read as follows:

PART 1655--LOAN PROGRAM

Sec.
1655.1   Definitions.
1655.2   Eligibility for loans.
1655.3   Information concerning the cost of a loan.
1655.4   Number of loans.
1655.5   Loan repayment period.
1655.6   Amount of loan.
1655.7   Interest rate.
1655.8   Quarterly statements.
1655.9   Effect of loans on individual account.
1655.10   Loan application process.
1655.11   Loan acceptance.
1655.12   Loan agreement.
1655.13   Loan approval and issuance.
1655.14   Loan payments.
1655.15   Taxable distributions.
1655.16   Reamortization.
1655.17   Prepayment.
1655.18   Spousal rights.
1655.19   Effect of court order on loan.
1655.20   Residential loans.

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


Sec. 1655.1  Definitions.

    (a) Definitions generally applicable to the Thrift Savings Plan are 
set forth at 5 CFR 1690.1.
    (b) As used in this part:
    Amortization means the reduction in a loan by periodic payments of 
principal and interest according to a schedule of payments.
    Date of application means the day on which the TSP record keeper 
receives the loan application, either electronically on the TSP Web 
site or on Form TSP-20 or Form TSP-U-20.
    General purpose loan means any TSP loan other than a loan for the 
purchase or construction of a primary residence.
    Guaranteed funds means a cashier's check, money order, certified 
check (i.e., a check certified by the financial institution on which it 
is drawn), cashier's draft, or treasurer's check from a credit union.
    Loan issue date means the date on which the TSP record keeper 
authorizes disbursement of the funds from the participant's account for 
the loan amount.
    Loan repayment period means the time over which payments that are 
required to repay a loan in full are scheduled.
    Principal or principal amount means the amount borrowed by a 
participant from his or her individual account, or, after 
reamortization, the amount financed.
    Reamortization means the recalculation of periodic payments of 
principal and interest.
    Residential loan means a TSP loan for the purchase or construction 
of a primary residence.
    Taxable distribution means the amount of outstanding principal and 
interest on a loan which must be reported to the Internal Revenue 
Service as taxable income as a result of the failure of a participant 
to repay a loan in full, according to the terms of the loan agreement.


Sec. 1655.2  Eligibility for loans.

    A participant who is eligible to contribute to the TSP and who is 
in pay status is eligible to apply for a loan from his or her TSP 
account. Only a participant who has at least $1,000 in employee 
contributions and attributable earnings in his or her account may 
receive a loan (subject to the other terms and conditions set forth in 
this part). A participant who is separated from Government service may 
not receive a loan from his or her TSP account.


Sec. 1655.3  Information concerning the cost of a loan.

    Information concerning the cost of a loan is provided in the 
booklet TSP Loan Program (available on the TSP Web site, from the 
participant's personnel office or service, or from the TSP record 
keeper). From this information, a participant can determine the effects 
of a loan on his or her account balance and can compare the cost of a 
loan to that of other sources of financing.


Sec. 1655.4  Number of loans.

    A participant may have no more than two loans outstanding from his 
or her TSP account at any time. Only one of the two outstanding loans 
may be a residential loan. A participant with both a civilian TSP 
account and a uniformed services TSP account may have two outstanding 
loans from each account.


Sec. 1655.5  Loan repayment period.

    (a) Minimum. The minimum repayment period a participant may request 
for a loan is one year of scheduled payments.
    (b) Maximum. The maximum repayment period a participant may request 
for a general purpose loan is five years of scheduled payments. The 
maximum repayment period a participant may request for a residential 
loan is 15 years of scheduled payments.


Sec. 1655.6  Amount of loan.

    (a) Minimum amount. The initial principal amount of any loan may 
not be less than $1,000.
    (b) Maximum amount. The principal amount of a new loan must be less 
than or equal to the smallest of the following:
    (1) The portion of the participant's individual account balance 
that is attributable to employee contributions and attributable 
earnings (not including any outstanding loan principal);

[[Page 42884]]

    (2) 50 percent of the participant's vested account balance 
(including any outstanding loan balance) or $10,000, whichever is 
greater, minus any outstanding loan balance; or
    (3) $50,000 minus the participant's highest outstanding loan 
balance (if any) during the last 12 months.
    (c) If a participant has both a civilian TSP account and a 
uniformed services TSP account, the maximum loan amount available will 
be based on a calculation that takes into consideration the account 
balances and outstanding loan balances for both accounts.


Sec. 1655.7  Interest rate.

    (a) Loans will bear interest at the G Fund rate in effect on the 
date the TSP record keeper receives the paper application or on the 
date the request is entered on the TSP Web site.
    (b) The interest rate calculated under this section remains fixed 
until the loan is repaid, unless the participant informs the TSP record 
keeper that he or she entered into active duty military service and 
requests that the interest rate on a loan issued before entry into 
active duty military service be reduced to an annual rate of 6 percent 
for the period of such service. The participant must provide the record 
keeper with the beginning and ending dates of active duty military 
service.


Sec. 1655.8  Quarterly statements.

    Information relating to any outstanding loan will be included on 
the quarterly participant statements.


Sec. 1655.9  Effect of loans on individual account.

    (a) The amount borrowed will be removed from the participant's 
account when the loan is disbursed. Consequently, these funds will no 
longer generate earnings.
    (b) The loan principal will be disbursed from that portion of the 
account represented by employee contributions and attributable 
earnings, pro rata from each investment fund in which the account is 
invested and pro rata from tax-deferred and tax-exempt balances.
    (c) Loan payments, including both principal and interest, will be 
credited to the participant's individual account. Loan payments will be 
credited to the appropriate investment fund in accordance with the 
participant's most recent contribution allocation.


Sec. 1655.10  Loan application process.

    (a) Any participant may apply for a loan by submitting a completed 
loan application (Form TSP-20 or Form TSP-U-20) to the TSP record 
keeper.
    (b) The following participants may also apply for and complete a 
loan request on the TSP Web site:
    (1) FERS participants or members of the uniformed services 
requesting a general purpose loan if they are (i) unmarried, or (ii) 
married and have been granted an exception to the spousal requirements 
described in Sec. 1655.18.
    (2) CSRS participants requesting a general purpose loan if they are 
(i) unmarried, (ii) married and provide a current address for their 
spouse, or (iii) married and have been granted an exception to the 
spousal requirements described in Sec. 1655.18.
    (c) Persons not described in paragraph (b) of this section may use 
the TSP Web site to submit a loan application and obtain a loan 
agreement, but must complete the process by submitting the resulting 
loan agreement and any related documentation on paper.


Sec. 1655.11  Loan acceptance.

    The TSP record keeper will reject a loan application if:
    (a) The participant is not qualified to apply for a loan under 
Sec. 1655.2 or has failed to provide all required information on the 
loan application;
    (b) The participant has the maximum number of loans outstanding or, 
if the application is for a residential loan, the participant has a 
residential loan outstanding from the same account;
    (c) The participant has a pending loan agreement or in-service 
withdrawal request;
    (d) The amount of the requested loan is less than the minimum 
amount set forth in Sec. 1655.6(a);
    (e) A hold has been placed on the account pursuant to 5 CFR 
1653.3(c); or
    (f) The participant has received a taxable loan distribution from 
the TSP within the 12-consecutive-month period preceding the date of 
the application, unless the taxable distribution was the result of the 
participant's failure to repay the loan upon his or her separation from 
Government service.


Sec. 1655.12  Loan agreement.

    (a) Upon determining that a loan application meets the requirements 
of this part, the TSP record keeper will provide the participant with 
the terms and conditions of the loan, as follows:
    (1) If the participant submits a paper loan application, the TSP 
record keeper will mail the loan agreement (Form TSP-21-G, TSP-U-21-G, 
TSP-21-R, or TSP-U-21-R, as applicable) to the participant and other 
information, as appropriate.
    (2) If a loan request is completed on the ThriftLine or the TSP Web 
site, the TSP record keeper will mail the participant a confirmation 
that states the terms and conditions of the loan.
    (3) If the participant initiates a loan request on the TSP Web site 
which cannot be completed on the Web site, the participant must print 
the partially completed loan agreement directly from the Web site, 
provide any missing information (including spouse's signature or 
documents supporting a residential loan request, if applicable), and 
submit it to the TSP record keeper.
    (b) By signing the loan agreement, either electronically or on the 
form, the participant agrees to be bound by all of its terms and 
conditions, agrees to repay the loan by payroll deduction, and 
certifies, under penalty of perjury, to the truth and completeness of 
all statements made in the loan application and loan agreement to the 
best of his or her knowledge.
    (c) For loans submitted on paper and those that cannot be completed 
on the TSP Web site, the TSP record keeper must receive the completed 
loan agreement (including any required supporting documentation) before 
the expiration date stated on the loan agreement or the agreement will 
not be processed.
    (d) The signed loan agreement must be accompanied by:
    (1) In the case of a residential loan, supporting materials that 
document the purchase or construction of the residence and the amount 
requested (as described in Sec. 1655.20); and
    (2) Any other information that the Executive Director may require.
    (e) A participant may request that the loan be disbursed by direct 
deposit to a checking or savings account maintained by the participant 
in a financial institution by properly completing the required 
information on the loan agreement or on the TSP Web site, if the loan 
request can be completed on the Web site.


Sec. 1655.13  Loan approval and issuance.

    (a) When the completed loan agreement is signed electronically or 
returned by the participant to the TSP record keeper, together with any 
documentation required to be submitted, the loan will be initially 
approved or denied by the TSP record keeper based upon the requirements 
of this part, including the following conditions:
    (1) The participant has signed the promise to repay the loan, has 
agreed to repay the loan through payroll deductions, and has certified 
that the information given is true and complete to the best of the 
participant's knowledge;

[[Page 42885]]

    (2) Processing of the loan would not be prohibited by Sec. 1655.19 
relating to court orders;
    (3) The spouse of a FERS or uniformed services participant has 
consented to the loan or, if the spouse's whereabouts are unknown or 
exceptional circumstances make it inappropriate to secure the spouse's 
consent, an exception to the spousal requirement described in 
Sec. 1655.18 has been granted;
    (4) The spouse of a CSRS participant has been given notice or, if 
the spouse's whereabouts are unknown, an exception to the spousal 
requirement described in Sec. 1655.18 has been granted;
    (5) When a paper agreement is required, the completed loan 
agreement, including all required supporting documentation, was 
received by the TSP record keeper before the expiration date specified 
on the loan agreement; and
    (6) The participant has met any other conditions that the Executive 
Director may require.
    (b) If approved, the loan will be issued unless the TSP record 
keeper determines that:
    (1) The participant's employing agency has reported the 
participant's death or separation from Government service;
    (2) The participant's account balance on the loan issue date does 
not contain sufficient employee contributions and associated earnings 
to make a loan of at least $1,000;
    (3) A hold on the account is processed before the loan is 
disbursed; or
    (4) A taxable distribution on an outstanding loan is declared 
before the new loan is issued.
    (c) If the loan is otherwise acceptable but the amount available to 
borrow is less than the requested amount (but is at least $1,000), the 
loan will be issued in the maximum amount available at the time of the 
disbursement. In such a case, the periodic payment amount will remain 
the same and the loan term may be shortened.
    (d) A loan is considered to have been made to a participant on the 
loan issue date.


Sec. 1655.14  Loan payments.

    (a) Loan payments must be made through payroll deduction in 
accordance with the loan agreement. Once loan payments begin, the 
employing agency cannot terminate the payroll deductions at the 
employee's request, unless the TSP instructs it to do so.
    (b) The participant may make additional payments by mailing a 
personal check or guaranteed funds to the TSP record keeper. If the TSP 
receives a payment that repays the outstanding loan amount and overpays 
the loan by $10.00 or more, the overpayment will be refunded to the 
participant. Overpayments of less than $10 will be applied to the 
participant's account and will not be refunded.
    (c) The initial payment on a loan is due on or before the 60th day 
following the loan issue date.
    (d) Subsequent payments are due at regular intervals as prescribed 
in the loan agreement, or most recent amortization, according to the 
participant's pay cycle.
    (e) If a payment is not made when due, the TSP will notify the 
participant of the missed payment and the participant must make up the 
payment in full. If the participant does not make up the payment by the 
end of the calendar quarter following the calendar quarter in which the 
payment was missed, the TSP will declare the loan to be a taxable 
distribution in accordance with Sec. 1655.15. The participant's make-up 
payment must be in the form of a personal check or guaranteed funds.
    (f) Interest will not accrue on the missed payment if the payment 
is made up by the deadline established in accordance with paragraph (e) 
of this section. Interest will accrue on the missed payment if the 
payment is not made up by the deadline and will be included in the 
calculation of any taxable distribution subsequently declared in 
accordance with Sec. 1655.15. Interest will also accrue on payments 
missed while a participant is in nonpay status.


Sec. 1655.15  Taxable distributions.

    (a) The Board may declare any unpaid loan principal, plus unpaid 
interest, to be a taxable distribution from the Plan if:
    (1) A participant is in a confirmed nonpay status for a period of 
one year or more, has not advised the TSP that he or she is serving on 
military duty, and payments are not resumed after the participant is 
notified the loan has been reamortized;
    (2) A participant separates from Government service and does not 
repay the outstanding loan principal and interest in full within the 
period specified by the notice to the participant from the TSP record 
keeper explaining the participant's repayment options;
    (3) The TSP record keeper advises the participant that there are 
missing payments and the participant fails to make (by personal check 
or guaranteed funds) a direct payment of the entire missing amount or 
repayment in full by the deadline established in accordance with 
Sec. 1655.14(e);
    (4) Any material information provided in accordance with 
Secs. 1655.10, 1655.12, or 1655.18 is found to be false;
    (5) With the exception of a loan described in 5 CFR 1620.45, the 
loan is not repaid in full (including interest due) within five years, 
in the case of a general purpose loan, or within 15 years, in the case 
of a residential loan, from the loan issue date;
    (6) The participant dies; or
    (7) The participant is a debtor in a chapter 13 bankruptcy action 
and a court order requires that no TSP loan payments may be deducted 
from the participant's pay.
    (b) If a taxable distribution occurs in accordance with paragraph 
(a) of this section, the Board will notify the participant of the 
amount and date of the distribution. The Board will report the 
distribution to the Internal Revenue Service as income for the year in 
which it occurs. That portion of a loan that represents a uniformed 
services participant's contributions from combat zone pay will not be 
included in this calculation.
    (c) If a participant dies and a taxable distribution occurs in 
accordance with paragraph (a) of this section, the Board will notify 
the participant's estate of the amount and date of the distribution. 
Neither the estate nor any other person, including a beneficiary, may 
repay the loan of a deceased participant.
    (d) If, because of Board or TSP record keeper error, a TSP loan is 
declared a taxable distribution under circumstances that make such a 
declaration inconsistent with this part, or inconsistent with other 
procedures established by the Board or TSP record keeper in connection 
with the TSP loan program, the taxable distribution will be reversed. 
The participant will be provided an opportunity to reinstate loan 
payments or repay in full the outstanding balance on the loan.


Sec. 1655.16  Reamortization.

    (a) A participant may request reamortization of a loan at any time 
to change the amount of the payments, unless the loan is in a default 
status.
    (b) Upon reamortization, the new principal balance of the loan will 
equal the unpaid principal on the date of reamortization plus any 
interest due on the unpaid principal.
    (c) The interest rate on a reamortized loan will be the same as the 
interest rate on the original loan.
    (d) A participant may request reamortization by using the TSP Web 
site or by contacting a TSPSO participant service representative.

[[Page 42886]]

    (e) When a participant's pay cycle changes for any reason, he or 
she should request a reamortization to adjust the scheduled payment to 
an equivalent amount in the new pay cycle. If the new pay cycle results 
in fewer payments per year and the participant does not reamortize the 
loan, the loan may be declared a taxable distribution pursuant to 
Sec. 1655.15(a)(3).


Sec. 1655.17  Prepayment.

    (a) A participant may repay a loan in full, without a penalty, at 
any time before the declaration of a taxable distribution under 
Sec. 1655.15, unless the participant has separated from Government 
service and has submitted a signed statement that he or she has 
forfeited the right to repay the loan in full. Repayment in full means 
receipt by the TSP record keeper of a payment, by personal check or 
guaranteed funds made payable to the Thrift Savings Plan, of all 
principal and interest due on the loan.
    (b) If a participant returns a loan check to the TSP record keeper, 
it will be treated as a repayment; however, additional interest may be 
owed. The loan, even though repaid, will also be taken into account in 
determining the maximum amount available for future loans, in 
accordance with Sec. 1655.6(b).
    (c) The amount outstanding on a loan can be obtained from the TSP 
Web site, the ThriftLine, or a TSPSO participant service 
representative, or by a written request to the TSP record keeper.


Sec. 1655.18  Spousal rights.

    (a) Spouse of CSRS participant. (1) Before a loan is disbursed to a 
CSRS participant, the TSP record keeper will send a notice to the 
participant's current spouse that the participant has applied for a 
loan.
    (2) A CSRS participant may obtain an exception to the requirement 
described in paragraph (a)(1) of this section if the participant 
establishes, to the satisfaction of the Executive Director, that the 
spouse's whereabouts are unknown as described in paragraph (c) of this 
section.
    (b) Spouse of FERS or uniformed services participant. (1) Before a 
loan agreement is approved for a FERS or uniformed services 
participant, the spouse must consent to the loan by signing the loan 
agreement.
    (2) A FERS or uniformed services participant may obtain an 
exception to the requirement described in paragraph (b)(1) of this 
section if the participant establishes, to the satisfaction of the 
Executive Director, that:
    (i) The spouse's whereabouts are unknown; or
    (ii) Exceptional circumstances prevent the participant from 
obtaining the spouse's consent.
    (c) Exception to spousal requirements. The procedures for obtaining 
an exception to the spousal requirements described in paragraphs (a)(1) 
and (b)(1) of this section are the same as the procedures described in 
5 CFR 1650.64 and 1650.65.
    (d) Certification of truthfulness. (1) By signing the loan 
application and the loan agreement, electronically or on paper, the 
participant certifies, under penalty of perjury, that all information 
provided to the TSP during the loan process is true and complete, 
including statements concerning the participant's marital status, the 
spouse's address at the time the application is filed, or the current 
spouse's consent to the loan.
    (2) If the Board receives a written allegation from the spouse that 
the participant may have misrepresented his or her marital status or 
the spouse's address (in the case of a CSRS participant), or that the 
signature of the spouse of a FERS participant was forged, the Board 
will submit the information or document in question to the spouse and 
request that he or she state in writing that the information is false 
or that the spouse's signature was forged. In the event of an alleged 
forgery, the Board will also request the spouse to provide at least 
three samples of his or her signature.
    (3) If the spouse affirms the allegation, in accordance with the 
procedure set forth in paragraph (d)(2) of this section, and the loan 
has been disbursed, the Board will give the participant an opportunity 
to repay the unpaid loan principal and interest within 60 days. If the 
loan is repaid during this period, the Board will not investigate the 
spouse's allegation.
    (4) Paragraph (d)(3) of this section will not apply if the 
participant has received a final divorce decree before the funds are 
received by the Thrift Savings Plan.
    (5) If the unpaid loan principal and interest are not repaid to the 
Plan in full within the time period provided in paragraph (d)(3) of 
this section, the Board will conduct an investigation into the 
allegation. If the participant has received a final divorce decree 
before the funds are received by the Thrift Savings Plan, the Board 
will begin its investigation immediately.
    (6) If, during its investigation, the Board finds evidence to 
suggest that the participant misrepresented his or her marital status 
or spouse's address (in the case of a CSRS participant), or submitted 
the loan agreement with a forged signature, the Board will refer the 
case to the Department of Justice for criminal prosecution and, if the 
participant is still employed, to the Inspector General or other 
appropriate authority in the participant's employing agency for 
administrative action.
    (7) Upon receipt of an allegation described in paragraph (d)(2) of 
this section, the participant's account will be frozen and no loan will 
be permitted until after:
    (i) 30 days have elapsed since the participant's spouse was sent a 
copy of the information or document in question, and no written 
affirmation of the alleged false information or forgery (together with 
signature samples, if required) has been received by the Board;
    (ii) The loan is repaid pursuant to paragraph (d)(3) of this 
section;
    (iii) The Executive Director concludes that the Board's 
investigation did not yield persuasive evidence that supports the 
spouse's allegation;
    (iv) The Executive Director has been assured in writing by the 
spouse that any future request for a loan or withdrawal comports with 
the applicable requirement of notice or consent; or
    (v) The participant is divorced.


Sec. 1655.19  Effect of court order on loan.

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


Sec. 1655.20  Residential loans.

    (a) A residential loan will be made only for the purchase or 
construction of the primary residence of the participant, or for the 
participant and his or her spouse, and for related purchase costs. The 
participant must actually bear all or part of the cost of the purchase. 
If the participant purchases a primary residence with someone other 
than his or her spouse, only the portion of the purchase costs that is 
borne by the participant will be considered in making the loan. A 
residential loan will not be made for the purpose of paying off an 
existing mortgage or otherwise providing financing for a primary 
residence purchased more than 2 years before the date of the loan 
application.
    (b) A primary residence must be used by the participant as his or 
her principal

[[Page 42887]]

residence. A primary residence may include a house, a townhouse, a 
condominium, a share in a cooperative housing corporation, a mobile 
home, a boat, or a recreational vehicle; a primary residence does not 
include a second home or vacation home. A participant cannot have more 
than one primary residence.
    (c) Purchase of a primary residence means acquisition of the 
residence through the exchange of cash or other property or through the 
total construction of a new residence. A residential loan will not be 
made for a lease-to-buy option, unless the option to buy is being 
exercised. Construction of an addition to or the renovation of a 
residence or the purchase of land only does not constitute the purchase 
of a primary residence.
    (d) Related purchase costs are any costs that are incurred directly 
as a result of the purchase or construction of a residence and which 
can be added to the basis of the residence for Federal tax purposes. 
Points or loan origination fees charged for a loan, whether or not they 
are treated as part of the basis, are not considered a purchase cost. 
Real estate taxes cannot be included.
    (e) The documentation required for a loan under this section is as 
follows:
    (1) For all purchases, except for construction, a copy of a home 
purchase contract or a settlement sheet; or
    (2) For construction, a home construction contract. If a single 
home construction contract is unavailable, other contracts, building 
permits, receipts, assessments, or other documentation that 
demonstrates the construction of an entire primary residence and 
expenses in the amount of the loan may be accepted at the discretion of 
the Executive Director.
    (f) The documentation provided under this section must--
    (1) Be from a third party;
    (2) Show the participant as the purchaser or builder;
    (3) Show the purchase price or construction price;
    (4) Show the full address of the residence; and
    (5) Bear a date that is no more than 24 months preceding the 
expiration date of the loan agreement.
    46. Part 1690 is revised to read as follows:

PART 1690--THRIFT SAVINGS PLAN

Subpart A--General
Sec.
1690.1   Definitions.
Subpart B--Miscellaneous
1690.11  Plan year.
1690.12  Power of attorney.
1690.13  Guardianship and conservatorship orders.

    Authority: 5 U.S.C. 8474.

Subpart A--General


Sec. 1690.1  Definitions.

    As used in this chapter:
    Account or individual account means the account established for a 
participant in the Thrift Savings Plan under 5 U.S.C. 8439(a).
    Account balance means the sum of the dollar balances for each 
source of contributions in each investment fund for an individual 
account. The dollar balance in each investment fund on a given day is 
the product of the total number of shares in that investment fund 
multiplied by the share price for the investment fund on that day.
    Agency automatic (1%) contributions means any contributions made 
under 5 U.S.C. 8432(c)(1) and (c)(3).
    Agency matching contributions means any contributions made under 5 
U.S.C. 8432(c)(2).
    Basic pay means basic pay as defined in 5 U.S.C. 8331(3). For CSRS 
and FERS employees, it is the rate of pay used in computing any amount 
the individual is otherwise required to contribute to the Civil Service 
Retirement and Disability Fund as a condition of participating in the 
Civil Service Retirement System or the Federal Employees' Retirement 
System, as the case may be. For members of the uniformed services, it 
is basic pay payable under 37 U.S.C. 204 and compensation received 
under 37 U.S.C. chapter 206.
    Board means the Federal Retirement Thrift Investment Board 
established under 5 U.S.C. 8472.
    C Fund means the Common Stock Index Investment Fund established 
under 5 U.S.C. 8438(b)(1)(C).
    Contribution allocation means the apportionment of a participant's 
future contributions, loan payments, and transfers or roll overs from 
eligible employer plans or traditional IRAs among the TSP investment 
funds.
    Contribution election means a request by an employee to start 
contributing to the TSP, to change the amount of contributions made to 
the TSP each pay period, or to terminate contributions to the TSP.
    Court of competent jurisdiction means the court of any state, the 
District of Columbia, the Commonwealth of Puerto Rico, Guam, the 
Northern Mariana Islands, or the Virgin Islands, and any Indian court 
as defined by 25 U.S.C. 1301(3).
    CSRS means the Civil Service Retirement System established by 5 
U.S.C. chapter 83, subchapter III, or any equivalent Federal retirement 
system.
    CSRS employee or CSRS participant means any employee or participant 
covered by CSRS.
    Date of appointment means the effective date of an employee's 
accession as established by the current employing agency.
    Day means calendar day, unless otherwise stated.
    Election period means the last calendar month of a TSP open season. 
It is the earliest period during which a TSP contribution election to 
start or change the amount of (but not terminate) contributions can 
become effective.
    Eligible employer plan means a plan qualified under I.R.C. section 
401(a) (26 U.S.C. 401(a)), including a section 401(k) plan, profit-
sharing plan, defined benefit plan, stock bonus plan, and money 
purchase plan; an annuity plan described in I.R.C. section 403(a) (26 
U.S.C. 403(a)); an annuity contract described in I.R.C. section 403(b) 
(26 U.S.C. 403(b)); and an eligible deferred compensation plan 
described in I.R.C. section 457(b) (26 U.S.C. 457(b)) which is 
maintained by an eligible employer described in I.R.C. section 
457(e)(1)(A) (26 U.S.C. 457(e)(1)(A)).
    Employee contributions means any contributions to the Thrift 
Savings Plan made under 5 U.S.C. 8351(a), 8432(a), or 8440a through 
8440e.
    Employer contributions means agency automatic (1%) contributions 
under 5 U.S.C. 8432(c)(1) or 8432(c)(3), and agency matching 
contributions under 5 U.S.C. 8432(c)(2) or 5 U.S.C. 8440e.
    Employing agency means the organization that employs an individual 
eligible to contribute to the TSP and that has authority to make 
personnel compensation decisions for the individual. It includes the 
uniformed services.
    Executive Director means the Executive Director of the Federal 
Retirement Thrift Investment Board under 5 U.S.C. 8474.
    F Fund means the Fixed Income Investment Fund established under 5 
U.S.C. 8438(b)(1)(B).
    FERS means the Federal Employees' Retirement System established by 
5 U.S.C. chapter 84 or any equivalent Federal retirement system.
    FERS employee or FERS participant means any employee or TSP 
participant covered by FERS.
    FERSA means the Federal Employees' Retirement System Act of 1986 
(FERSA), Public Law 99-335, 100 Stat. 514. The provisions of FERSA that 
govern the TSP are codified primarily in subchapters III and VII of 
Chapter 84 of Title 5, United States Code.

[[Page 42888]]

    Former spouse means (as defined at 5 U.S.C. 8401(12)) the former 
spouse of a TSP participant if the participant performed at least 18 
months of civilian service creditable under 5 U.S.C. 8411 as an 
employee or member, and if the participant and former spouse were 
married to one another for at least nine months.
    G Fund means the Government Securities Investment Fund established 
under 5 U.S.C. 8438(b)(1)(A).
    G Fund rate means the interest rate computed under 5 U.S.C. 
8438(f)(2).
    I Fund means the International Stock Index Investment Fund 
established under 5 U.S.C. 8438(b)(1)(E).
    In-service withdrawal request means a properly completed withdrawal 
election for either an age-based in-service withdrawal or a financial 
hardship in-service withdrawal, on any form required by the TSP, 
together with the supporting documentation required by the application.
    Investment fund means any investment fund established pursuant to 5 
U.S.C. 8438.
    Open season means the period during which employees may elect to 
make contributions to the TSP, change the amount of contributions, or 
terminate contributions (without losing the right to resume 
contributions during the next open season).
    Plan participant or participant means any person with an account in 
the Thrift Savings Plan or who would have an account but for an 
employing agency error.
    Post-employment withdrawal request means a properly completed 
withdrawal election on any form required by the TSP in order for a 
participant to elect a post-employment withdrawal of his or her account 
balance.
    Posting means the process of crediting or debiting transactions to 
an individual account.
    Posting date means the date on which a transaction is credited or 
debited to a participant's account.
    S Fund means the Small Capitalization Stock Index Investment Fund 
established under 5 U.S.C. 8438(b)(1)(D).
    Separation from Government service means generally the cessation of 
employment with the Federal Government. For civilian employees it means 
termination of employment with 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 31 or more 
full calendar days. For uniformed services participants it means the 
discharge from active duty or the Ready Reserve or the transfer to 
inactive status or to a retired list as more fully described in 5 CFR 
1604.2.
    Share means a portion of an investment fund. Transactions are 
posted to accounts in shares at the share price of the date the 
transaction is posted. The number of shares for a transaction is 
calculated by dividing the dollar amount of the transaction by the 
share price of the appropriate date for the investment fund in 
question. The number of shares is computed to four decimal places.
    Share price means the value of a share in an investment fund. The 
share price is calculated separately for each investment fund for each 
business day. The share price includes the cumulative net earnings or 
losses for each investment fund through the date the share price is 
calculated.
    Source of contributions means employee contributions, agency 
automatic (1%) contributions, or agency matching contributions. All 
amounts in a participant's account are from one of these three sources.
    Spouse means the person to whom a TSP participant is married on the 
date he or she signs a form on which the TSP requests spousal 
information, including a spouse from whom the participant is legally 
separated, and a person with whom a participant is living in a 
relationship that constitutes a common law marriage in the jurisdiction 
in which they live. Where a participant is seeking to reclaim an 
account that has been forfeited pursuant to Sec. 1650.16, spouse also 
means the person to whom the participant was married on the withdrawal 
deadline.
    Tax-deferred balance means employee or employer contributions that 
would otherwise be includible in gross income if paid directly to the 
participant and earnings on those contributions.
    Tax-exempt balance means employee contributions that are made by 
uniformed services participants from combat zone pay. It does not 
include earnings on such contributions.
    Thrift Savings Fund or Fund means the Fund described in 5 U.S.C. 
8437.
    Thrift Savings Plan, TSP, or Plan means the 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 Service Office or TSPSO means the office of the 
TSP record keeper which provides service to participants. The TSPSO's 
address is: Thrift Savings Plan Service Office, National Finance 
Center, P.O. Box 61500, New Orleans, Louisiana 70161-1500.
    ThriftLine means the automated voice response system by which TSP 
participants may, among other things, access their accounts by 
telephone. The ThriftLine can be reached at (504) 255-8777.
    Traditional IRA means an individual retirement account described in 
I.R.C. section 408(a) (26 U.S.C. 408(a)) and an individual retirement 
annuity described in I.R.C. section 408(b) (26 U.S.C. 408(b)) (other 
than an endowment contract).
    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, Office of Finance and 
Management, United States Department of Agriculture, located in New 
Orleans, Louisiana.
    TSP Web site means the Internet location maintained by the Board, 
which contains information about the TSP and by which TSP participants 
may, among other things, access their accounts by computer. The TSP Web 
site address is www.tsp.gov.
    Uniformed services means the Army, Navy, Air Force, Marine Corps, 
Coast Guard, Public Health Service, and the National Oceanic and 
Atmospheric Administration.
    Vested account balance means that portion of an individual's 
account which is not subject to forfeiture under 5 U.S.C. 8432(g).

Subpart B--Miscellaneous


Sec. 1690.11  Plan year.

    The Thrift Savings Plan's plan year is established on a calendar-
year basis for all purposes, except where another applicable provision 
of law requires that a fiscal year or other basis be used. As used in 
this section, the term ``calendar-year basis'' means a twelve-month 
period beginning on January 1 and ending on December 31 of the same 
year.


Sec. 1690.12  Power of attorney.

    This section applies to all regulations in this chapter that 
require a signature by the participant on a TSP form, where the 
participant desires to effect transactions through an agent (i.e., an 
attorney-in-fact). Before an attorney-in-fact may sign a TSP form on 
behalf of a participant, the TSP must have approved either a general 
power of attorney which authorizes the attorney-in-fact to act on 
behalf of the participant with respect to the participant's personal 
property or in Federal Government retirement, financial, or business 
transactions, or a special power of attorney which authorizes the

[[Page 42889]]

attorney-in-fact to effect transactions in the TSP on behalf of the 
participant. For the TSP to approve a power of attorney, it must be 
authenticated, attested, acknowledged, or certified by the principal 
before a notary public or other official authorized by law to 
administer oaths or affirmations. The TSP will advise the person 
submitting a power of attorney whether it is valid to effect 
transactions in the TSP.


Sec. 1690.13  Guardianship and conservatorship orders.

    This section applies to all regulations in this chapter that 
require a signature by the participant on a TSP form, where the 
participant is legally unable to sign his or her name because of 
physical or mental incapacity. Before a guardian or conservator may 
sign a TSP form on behalf of such a participant, the Board must have 
approved a guardianship or conservatorship order issued by a court of 
competent jurisdiction, as defined in Sec. 1690.1, which generally 
authorizes the guardian or conservator to manage the participant's 
estate, personal property, business or financial affairs, or retirement 
benefits, or which specifically authorizes the guardian or conservator 
to act on behalf of the participant to effect transactions in the TSP. 
For a guardianship or conservatorship order to be acceptable to effect 
TSP transactions, documentation must be submitted establishing that any 
bonding requirement or other preconditions specified in the court order 
have been satisfied. The Board will advise the guardian or conservator 
whether the order is valid to effect transactions in the TSP.

[FR Doc. 02-15775 Filed 6-24-02; 8:45 am]
BILLING CODE 6760-01-P