[Federal Register Volume 67, Number 146 (Tuesday, July 30, 2002)]
[Rules and Regulations]
[Pages 49524-49527]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-19159]



[[Page 49523]]

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

Part IV





Federal Retirement Thrift Investment Board





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



5 CFR Parts 1605, 1620, 1651, and 1655



Correction of Administrative Errors; Expanded and Continuing 
Eligibility; Death Benefits; Loan Program; Final Rule

  Federal Register / Vol. 67, No. 146 / Tuesday, July 30, 2002 / Rules 
and Regulations  

[[Page 49524]]


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

FEDERAL RETIREMENT THRIFT INVESTMENT BOARD

5 CFR Parts 1605, 1620, 1651 and 1655


Correction of Administrative Errors; Expanded and Continuing 
Eligibility; Death Benefits; Loan Program

AGENCY: Federal Retirement Thrift Investment Board.

ACTION: Final rule.

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

SUMMARY: The Executive Director of the Federal Retirement Thrift 
Investment Board (Board) is revising the Board's Uniformed Services 
Employment and Reemployment Rights Act (USERRA) regulations regarding 
Thrift Savings Plan (TSP) contributions and loan payments, and updating 
the definitions used in those regulations. The Executive Director is 
also amending the Board's death benefit regulations to allow the spouse 
of a deceased participant to transfer a TSP death benefit payment to an 
eligible retirement plan or to the spouse's existing TSP account. 
Finally, the Executive Director is amending the Board's loan 
regulations to explain that the Soldiers' and Sailors' Civil Relief Act 
of 1940 allows a participant returning to civilian service from active 
duty military service to reduce to 6 percent the interest rate owed on 
a TSP loan for the period of missed TSP loan payments due to military 
leave.

EFFECTIVE DATE: July 30, 2002.

FOR FURTHER INFORMATION CONTACT: Merritt A. Willing or Patrick J. 
Forrest on (202) 942-1661. FAX (202) 942-1676.

SUPPLEMENTARY INFORMATION: The Board administers the TSP, which was 
established by the Federal Employees' Retirement System Act of 1986 
(FERSA), Public Law 99-335, 100 Stat. 514. The TSP provisions of FERSA 
have been codified, as amended, largely at 5 U.S.C. 8351 and 8401-79. 
The TSP is a tax-deferred retirement savings plan for Federal 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)).
    The Board published these regulations in proposed form in the 
Federal Register on May 17, 2002 (67 FR 35051). The Board received 
several comments on those regulations, which are discussed by section 
below.
    Proposed Sec. 1605.31(c) explains how a Federal Employees' 
Retirement System (FERS) employee who separates or enters nonpay status 
to perform military service will receive agency makeup TSP 
contributions to his or her civilian account when he or she is 
reemployed or returned to pay status in the civilian service. One 
commenter asked the Board to state expressly that the employee 
otherwise must be eligible to receive civilian agency contributions 
before being eligible to receive those agency makeup contributions. 
Final Sec. 1605.31(c) contains that statement.
    Proposed Sec. 1620.42 pertains to contribution elections filed by 
TSP participants who are reemployed or restored to pay status in the 
civilian service under USERRA. One commenter asked the Board to state 
expressly that agencies must reinstate contribution elections that were 
on file when the participant separated or entered nonpay status to 
perform miliary service, unless a new election is filed. Agencies 
retain the records of employees who enter nonpay status; therefore, 
they must reinstate a contribution election if the participant returns 
to pay status from a nonpay status unless a new election is filed. 
However, agencies do not necessarily maintain the records of employees 
who separate; therefore, an agency is not required to reinstate a 
contribution election if the participant is reemployed. Final 
Sec. 1620.42(b) informs participants and agencies of this distinction.
    Proposed Secs. 1651.2, 1651.5, and 1651.14 pertain to the payment 
of a TSP death benefit to the spouse of a participant. One commenter 
urged the Board to ``work with Congress'' to extend certain tax 
benefits now available for surviving spouses to surviving same sex 
partners. The commenter acknowledged that this would require a change 
in statute. The Board has a longstanding practice of taking no position 
on benefit levels and views them as matters for the Congress and the 
Administration to debate and conclude. The Board is neither chartered 
nor staffed to analyze, advocate, or oppose them.
    The final comment concerns proposed Sec. 1651.14, which explains 
that the spouse of a deceased participant may request the TSP to 
transfer all or a portion of a TSP death benefit to the spouse's TSP 
account if he or she already has one. The commenter asked if the TSP 
would apply this rule retroactively. The TSP applied this rule as early 
as permitted by statute. Before January 1, 2002, under the Internal 
Revenue Code (I.R.C.) a TSP death benefit could be transferred only to 
an individual retirement account. However, the I.R.C. was amended 
effective January 1, 2002, to allow a death benefit to be transferred 
to any eligible retirement plan, including the TSP. See 26 U.S.C. 
402(c)(8), (c)(9). The Board decided to offer the death benefit 
transfer option to all qualified spouses at the earliest possible point 
permitted by statute, i.e., in January 2002. Therefore, the TSP 
notified each qualified spouse who was to be paid a TSP death benefit 
in January 2002 that he or she could transfer that payment to his or 
her TSP account. The current rule merely codifies that practice.
    After publication of the proposed rule, Board staff reconsidered 
the wording in two of its provisions and made minor changes. First, 
proposed Sec. 1605.31(d) pertains to the payment of lost earnings and 
states that agencies will submit ``lost earnings records.'' Those 
records will not exist when the new record keeping system is 
introduced; therefore, final Sec. 1605.31(d) does not mention records. 
The rule continues to be, however, that agencies are required to make 
these payments. Second, the proposed definition of ``retroactive 
period'' at Sec. 1620.41 discusses ``retroactive agency 
contributions,'' which are more accurately described as ``missed agency 
contributions'' in the final definition.
    Accordingly, the Board is publishing the proposed rule as a final 
rule, with the above-mentioned minor modifications.

Regulatory Flexibility Act

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

Paperwork Reduction Act

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

Unfunded Mandates Reform Act of 1995

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

Submission to Congress and the General Accounting Office

    Pursuant to 5 U.S.C. 801(a)(1)(A), the Board submitted a report 
containing this rule and other required information to the U.S. Senate, 
the U.S. House of Representatives, and the Comptroller

[[Page 49525]]

General of the United States before publication of this rule in today's 
Federal Register. This rule is not a major rule as defined at 5 U.S.C. 
804(2).

List of Subjects

5 CFR Part 1605

    Claims, Employee benefit plans, Government employees, Military 
personnel, Pensions, Retirement.

5 CFR Part 1620

    District of Columbia, Employee benefit plans, Government employees, 
Military personnel, Pensions, Retirement.

5 CFR Part 1651

    Employee benefit plans, Government employees, Pensions, Retirement.

5 CFR Part 1655

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

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


    For the reasons set forth in the preamble, 5 CFR chapter VI is 
amended as follows:

PART 1605--CORRECTION OF ADMINISTRATIVE ERRORS

    1. 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).

    Section 1605.14 also issued under Title II, Pub. L. 106-265, 114 
Stat. 770.
    Subpart D also issued under 5 U.S.C. 8432b(b)(4) and (i), 8440e.

Subpart D--Miscellaneous Provisions

    2. Section 1605.31 is revised to read as follows:


Sec. 1605.31  Contributions missed as a result of military service.

    (a) Applicability. This section applies to employees who meet the 
conditions specified at 5 CFR 1620.40 and who are eligible to make up 
employee contributions or to receive employing agency contributions 
missed as a result of military service.
    (b) Missed employee contributions. An employee who separates or 
enters nonpay status to perform military service may be eligible to 
make up TSP contributions when he or she is reemployed or restored to 
pay status in the civilian service. Eligibility for making up missed 
employee contributions will be determined in accordance with the rules 
specified at 5 CFR part 1620, subpart E. Missed employee contributions 
must be made up in accordance with the rules set out in Sec. 1605.11(c) 
and the following procedures:
    (1) The employing agency will use the contribution election on file 
for the employee at the time he or she separated or was placed in 
nonpay status. If an employee terminated TSP contributions within two 
months before entry into military service, he or she may make a 
retroactive election to resume contributions for the first open season 
following the termination. The employee may also make retroactive 
contribution elections for any open season that occurred during the 
period of military service, as described at 5 CFR 1620.42.
    (2) The pay used to determine the amount of contributions eligible 
for makeup is the pay the employee would have earned had he or she 
remained continuously employed in the position held immediately before 
the separation or placement in nonpay status.
    (3) If the employee contributed to a uniformed services TSP account 
during the period of military service, the amount of employee 
contributions available for makeup will be reduced by the total amount 
of employee contributions made to the uniformed services TSP account. 
(This includes contributions from basic pay, incentive pay, and special 
pay, including bonus pay.)
    (c) Missed agency contributions. This paragraph (c) applies only to 
an employee who would have been eligible to receive agency 
contributions had he or she remained in civilian service or pay status. 
A FERS employee who separates or enters nonpay status to perform 
military service is eligible to receive agency makeup contributions 
when he or she is reemployed or restored to pay status in the civilian 
service, as follows:
    (1) The employee is entitled to receive the agency automatic (1%) 
contributions that he or she would have received had the employee 
remained in civilian service or pay status. Within 60 days of the 
employee's reemployment or restoration to pay status, the employing 
agency must calculate the agency automatic (1%) makeup contributions 
and report those contributions to the record keeper. After the 
contribution has been reported, the agency must submit lost earnings 
records for the contribution.
    (2) An employee who contributed to a uniformed services TSP account 
during the period of military service is also immediately entitled to 
receive agency matching makeup contributions to his or her civilian 
account for the employee contributions to the uniformed services 
account that were deducted from his or her basic pay, subject to any 
reduction in matching contributions required by paragraph (c)(4) of 
this section. However, an employee is not entitled to receive agency 
matching makeup contributions on contributions that were deducted from 
his or her incentive pay or special pay, including bonus pay, while 
performing military service.
    (3) An employee who makes up missed contributions is entitled to 
receive attributable agency matching makeup contributions (unless the 
employee has already received the maximum amount of matching 
contributions, as described in paragraphs (c)(2) and (c)(4) of this 
section).
    (4) If the employee received uniformed services matching 
contributions, the agency matching makeup contributions will be reduced 
by the amount of the uniformed services matching contributions.
    (d) Lost earnings. The employee is entitled to lost earnings on 
missed agency contributions made under paragraph (c) of this section. 
The employee will elect to have the lost earnings calculated using 
either the rates of return based on the contributions allocation(s) on 
file for the participant during the period of military service or using 
the rates of return for the G Fund; the participant must make this 
election at the same time his or her makeup schedule is established 
pursuant to Sec. 1605.11(c).

PART 1620--EXPANDED AND CONTINUING ELIGIBILITY

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


    Authority: 5 U.S.C. 8474(b)(5) and (c)(1).
    Subpart C also issued under 5 U.S.C. 8440a(b)(7), 8440b(b)(8), 
and 8440c(b)(8).
    Subpart D also issued under sec. 1043(b), Pub. L. 104-106, 110 
Stat. 186, 434-435; and sec. 7202(m)(2), Pub. L. 101-508, 104 Stat. 
1388.
    Subpart E also issued under 5 U.S.C. 8432b(i) and 8440e.

Subpart E--Uniformed Services Employment and Reemployment Rights 
Act (USERRA)--Covered Military Service

    4. Section 1620.41 is revised to read as follows:


Sec. 1620.41  Definitions.

    As used in this subpart:
    Current contributions means contributions that must be made for the

[[Page 49526]]

current pay date which is reported on the journal voucher that 
accompanies the payroll submission.
    Nonpay status means an employer-approved temporary absence from 
duty.
    Reemployed or returned to pay status means reemployed in or 
returned to a pay status, pursuant to 38 U.S.C. chapter 43, to a 
position that is subject to 5 U.S.C. 8351 or chapter 84.
    Retroactive period means the period for which an employee can make 
up missed employee contributions and receive missed agency 
contributions. It begins the day after the employee separates or enters 
nonpay status to perform military service and ends when the employee is 
reemployed or returned to pay status.
    Separate from civilian service means to cease employment with the 
Federal Government, the U.S. Postal Service, or with any other employer 
from a position that is deemed to be civilian Government employment for 
purposes of participating in the TSP, for 31 or more full calendar 
days.

    5. Section 1620.42 is revised to read as follows:


Sec. 1620.42  Processing TSP contribution elections.

    (a) Time for filing election. Upon reemployment or return to pay 
status, an employee has 60 days to submit contribution elections to 
make current contributions and to make up missed contributions. An 
employee's right to make a retroactive TSP contribution election will 
expire if the election is not made within 60 days of the participant's 
reemployment or return to pay status. After the 60-day contribution 
election period expires, the employee must wait for an open season to 
submit a contribution election to make current contributions.
    (b) Current contributions. If the employee entered nonpay status 
with a valid contribution election on file, the agency must immediately 
reinstate that election for current contributions when the employee 
returns to pay status, unless the employee files a new contribution 
election as described in paragraph (a) of this section. If the employee 
separated to perform military service, the agency is not required to 
reinstate a prior contribution election. An election to make current 
contributions will be effective as soon as administratively feasible, 
but no later than the first day of the first full pay period after it 
is received by the employing agency.
    (c) Makeup contributions. An election to make up contributions will 
be processed as follows:
    (1) If the employee had a valid contribution election on file when 
he or she separated or entered nonpay status to perform military 
service, that election form will be reinstated for purposes of makeup 
contributions, unless the employee submits new contribution elections 
effective for any missed open season.
    (2) An employee who terminated contributions within two months of 
entering military service will be eligible to make a retroactive 
contribution election for the first open season that occurs after the 
effective date that the contributions were terminated. This election 
may be made even if the termination was made outside an open season.

    6. Section 1620.44 is amended by revising the last sentence to read 
as follows:


Sec. 1620.44  Restoring forfeited agency automatic (1%) contributions.

    * * * The employing agency will follow the procedure described in 
Sec. 1620.46(e) to have those funds restored.

    7. Section 1620.45 is revised to read as follows:


Sec. 1620.45  Suspending TSP loans, restoring post-employment 
withdrawals, and reversing taxable distributions.

    (a) Suspending TSP loans during nonpay status. If the TSP is 
notified that an employee entered into a nonpay status to perform 
military service, any outstanding TSP loan from a civilian TSP account 
will be suspended, that is, it will not be declared a taxable 
distribution while the employee is performing military service.
    (1) Interest will accrue on the loan balance during the period of 
suspension. When the employee returns to civilian pay status, the 
employing agency will resume the deduction of loan payments from the 
participant's basic pay and the TSP will reamortize the loan (which 
will include interest accrued during the period of military service). 
The loan repayment term will be extended by the employee's period of 
military service. Consequently, when the employee returns to pay 
status, the TSP record keeper must receive documentation to show the 
beginning and ending dates of military service.
    (2) If the TSP does not receive documentation that the employee 
entered into nonpay status to perform military service and the period 
of missed loan repayments extends beyond one year, the loan will be 
closed and the outstanding loan balance (including accrued interest) 
will be declared a taxable distribution. However, the taxable 
distribution can be reversed in accordance with paragraph (c) of this 
section.
    (b) Restoring post-employment withdrawals. An employee who 
separates from civilian service to perform military service and who 
receives an automatic cashout of his or her account may return to the 
TSP an amount equal to the amount of the payment. The employee must 
notify the TSP record keeper of his or her intent to return the 
withdrawn funds within 90 days of the date the employee returns to 
civilian service or pay status; if the employee is eligible to return a 
withdrawal, the TSP record keeper will then inform the employee of the 
actions that must be taken to return the funds.
    (c) Reversing taxable distributions. An employee may request that a 
taxable loan distribution be reversed if the taxable distribution 
resulted from the employee's separation or placement in nonpay status 
to perform military service. The TSP will reverse the taxable 
distribution under the process described as follows:
    (1) An employee who received a post-employment withdrawal when he 
or she separated to perform military service can have a taxable 
distribution reversed only if the withdrawn amount is returned as 
described in paragraph (b) of this section;
    (2) A taxable loan distribution can be reversed either by 
reinstating the loan or by repaying it in full. The TSP loan can be 
reinstated only if the employee agrees to repay the loan within the 
original loan repayment term plus the length of military service, and 
if, after reinstatement of the loan, the employee will have no more 
than two outstanding loans, only one of which is a residential loan; 
and
    (3) The employee must notify the TSP record keeper of his or her 
intent to reverse a taxable loan distribution within 90 days of the 
date the employee returns to civilian service or pay status; if the 
employee is eligible to reverse a taxable loan distribution, the TSP 
record keeper will then inform the employee of the actions that must be 
taken to reverse the distribution.
    (d) Earnings. Employees will not receive retroactive earnings on 
amounts returned to their accounts under this section.

PART 1651--DEATH BENEFITS

    8. 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).


[[Page 49527]]



    9. Section 1651.1 is amended by adding a new definition, in 
alphabetical order, to read as follows:


Sec. 1651.1  Definitions.

* * * * *
    Eligible retirement plan means an individual retirement account 
described in I.R.C. section 408(a) (26 U.S.C. 408(a)); an individual 
retirement annuity described in I.R.C. section 408(b) (26 U.S.C. 
408(b)) (other than an endowment contract); a qualified trust; 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)).
* * * * *

    10. Section 1651.2 is amended by revising paragraph (a)(2) to read 
as follows:


Sec. 1651.2  Entitlement to benefits.

    (a) * * *
    (2) If there is no designated beneficiary, to the spouse of the 
participant in accordance with Sec. 1651.5;
* * * * *

    11. Section 1651.5 is amended by revising the section heading and 
the first sentence to read as follows:


Sec. 1651.5  Spouse of the participant.

    For purposes of payment under Sec. 1651.2(a)(2), the spouse of the 
participant is the person to whom the participant was married on the 
date of death. * * *

    12. Section 1651.14 is amended by revising paragraph (c) to read as 
follows:


Sec. 1651.14  How payment is made.

* * * * *
    (c) Payment to the participant's spouse. The spouse of the 
participant may request that the TSP transfer all or a portion of the 
payment to an eligible retirement plan (including the spouse's TSP 
account, if he or she already has one). A transfer to a spouse's TSP 
account is permitted only if the spouse is not receiving monthly 
payments from the account. In order to request such a transfer, a 
spouse must file Form TSP-13-S, Spouse's Election to Transfer to IRA or 
Other Eligible Retirement Plan, with the TSP record keeper.
* * * * *

PART 1655--LOAN PROGRAM

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


    Authority: 5 U.S.C. 8433(g) and 8474; 50 U.S.C. App. 526.


    14. Section 1655.7 is amended by revising paragraph (c) to read as 
follows:


Sec. 1655.7  Interest rate.

* * * * *
    (c) 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.

[FR Doc. 02-19159 Filed 7-29-02; 8:45 am]
BILLING CODE 6760-01-P