[Federal Register Volume 69, Number 102 (Wednesday, May 26, 2004)]
[Rules and Regulations]
[Pages 29849-29852]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-11844]



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  Federal Register / Vol. 69, No. 102 / Wednesday, May 26, 2004 / Rules 
and Regulations  

[[Page 29849]]



FEDERAL RETIREMENT THRIFT INVESTMENT BOARD

5 CFR Parts 1650, 1653, 1655 and 1690


Methods of Withdrawing Funds From the Thrift Savings Plan; Court 
Orders and Legal Processes Affecting Thrift Savings Plan Accounts; Loan 
Program; Thrift Savings Plan

AGENCY: Federal Retirement Thrift Investment Board.

ACTION: Final rule.

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

SUMMARY: The Executive Director of the Federal Retirement Thrift 
Investment Board (Board) is amending the court order regulations to 
remove attorneys from the list of permissible court order payees and to 
require non-English court orders to be accompanied by a certified 
English translation. The Executive Director is revising the TSP loan 
regulations to assess a $50 fee on new TSP loans, restrict a 
participant to a single general purpose loan at any time, and implement 
a 60-day waiting period between the date a participant repays a loan 
and the date the TSP will accept an application for a new loan of the 
same type. Finally, the Executive Director is clarifying the 
regulations pertaining to powers of attorney documents, guardianship 
orders, and conservatorship orders.

DATES: This final rule is effective July 1, 2004.

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

SUPPLEMENTARY INFORMATION: The Executive Director administers the TSP, 
which was established by the Federal Employees' Retirement System Act 
of 1986 (FERSA), Pub. L. 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. The TSP is 
similar to cash or deferred arrangements established for private-sector 
employees under section 401(k) of the Internal Revenue Code (26 U.S.C. 
401(k)).
    On April 7, 2004, the Executive Director published this rule in 
proposed form in the Federal Register (69 FR 18294). The Executive 
Director requested comments on the proposed rule and received sixty-
eight comments on the loan program changes. One comment came from a 
Federal employees' union, one came from a commercial entity, and the 
remaining came from TSP participants. The commercial entity asked the 
Board to clarify proposed sections 1655.21, 1690.12 and 1690.13; they 
are clarified in the final rule. One of the participants also commented 
favorably about the proposed changes to the court order, guardianship 
order, conservatorship order, and power of attorney regulations.

Union Comment

    A Federal employees' union commented that the Federal Employees' 
Retirement System was designed to place more of the risk and financial 
burden of saving for retirement on the Federal employees and that, in 
exchange, those employees receive ``direct access'' to their retirement 
savings ``to use them as they see fit.'' By making it more difficult 
and expensive for participants to use their own savings, the union 
continued, the Board is ``breaking a promise made to federal employees 
upon the inception of the Thrift Savings Plan.'' The union concluded 
that the Board is attempting to dictate the financial needs of 
participants beyond the current reasonable loan restrictions. The union 
also wrote that with recent low mortgage rates, participants need TSP 
loans to invest in real property.
    There can be no question that the money in the TSP belongs to the 
TSP participants; however, the TSP was created by the Federal 
Employees' Retirement System Act of 1986 (FERSA) and exists to provide 
retirement income to participants and their beneficiaries. To encourage 
the growth of TSP accounts, Congress exempted TSP contributions and 
earnings from Federal income taxation until they are withdrawn from the 
TSP. Just as importantly, Congress also protected TSP accounts from 
dissipation by restricting the ability of anyone, including the 
participant, to access the money in the TSP. For example, a creditor 
generally cannot access the money in the participant's account. With 
respect to participants' access, FERSA only allows in-service 
withdrawals in cases of financial hardship or, if the participant is 
still employed, on one occasion after reaching 59\1/2\. See 5 U.S.C. 
8433(h).
    Congress also placed restrictions on TSP loans to prevent the 
dissipation of retirement savings. FERSA requires the TSP to follow the 
Internal Revenue Code provisions that apply to private sector 
retirement plan loans. 5 U.S.C. 8433(g)(3). Among other things, those 
provisions set a maximum dollar amount for loans, require continuous 
loan payments, require the TSP to charge interest on TSP loans, and 
limit the length of time over which a loan can be repaid. Initially, 
FERSA limited the reasons for which a loan could be taken; Congress 
eliminated this ``purpose'' test in 1996 in favor of the current rule 
allowing a general purpose loan.
    Therefore, it is incorrect to conclude that Congress gave 
participants ``direct access'' to the savings in their TSP accounts 
``to use them as they see fit.'' FERSA states only that a participant 
``may apply to the Board for permission to borrow from [his or her] 
account.'' 5 U.S.C. 8433(g)(1). The Executive Director, therefore, must 
establish the conditions under which a loan request will be granted. 5 
U.S.C. 8433(g)(2). Consistent with the purpose of the TSP, these 
policies must promote saving for retirement.
    The Executive Director has determined that the current loan program 
has allowed many participants to use the TSP as a source of ready cash, 
which can be detrimental to long-term retirement savings. The Executive 
Director concluded that it is appropriate to limit access to a TSP loan 
to reinforce the importance of borrowing from the TSP only as a last 
resort.
    With respect to the union's comment that participants need TSP 
loans to invest in real estate, the Executive Director is not changing 
the rules applicable to TSP residential loans.
    Finally, the union commented that a $50 loan fee was inappropriate 
because it makes the TSP loan program more expensive. The fee will not 
increase the

[[Page 29850]]

expense of the loan program, except to the participant who obtains a 
loan. Currently, every participant pays the costs of administering the 
loan program, even those who have never taken a loan. However, the 
Executive Director has determined that the costs of the loan program 
should, instead, be borne by the approximately 620,000 participants who 
use the TSP loan program, rather than by the 2.6 million participants 
who do not. By way of comparison, most private sector retirement plans 
charge loan fees. Of those that do, more than 70 percent charge a loan 
fee of $50 or more.

Participant Comments

    Every comment received from a participant addressed the proposed 
$50 loan fee. Thirty-one participants objected to the proposed fee. 
Many wrote that the fee is unnecessary because they assume 
(incorrectly) that either the interest charged on TSP loans pays for 
the expenses of the loan program, that the Department of Agriculture 
provides recordkeeping services for the TSP free of charge, or that the 
Board receives an appropriation from Congress to pay the TSP's 
administrative expenses. Other participants oppose the fee because they 
assume the Board will use the extra funds to hide TSP administrative 
expenses or even that the Board will divert the loan fees for non-TSP 
purposes. As explained below, none of these assumptions is true.
    Although the TSP charges each participant interest on his or her 
loan, the interest collected is deposited into the participant's 
account, it is not used to pay TSP administrative expenses. 5 CFR 
1655.9(c). Furthermore, although the TSP recordkeeper is a component of 
a Federal agency, its Congressional appropriations do not pay the TSP's 
administrative expenses. Rather, the Board pays the Department of 
Agriculture for the cost of its services, including the costs of 
administering the TSP loan program. The Board does not receive an 
annual appropriation to pay these expenses, or any other TSP expense; 
rather, the Board pays all TSP expenses with funds that belong to the 
TSP participants. 5 U.S.C. 8437(c)(3), 8437(d), and 8439(a)(3). TSP 
administrative expenses cost each participant approximately .07 percent 
of his or her account balance each year.
    Although some participants asked the Board to retain the policy of 
charging the loan program's expenses to all participants, as explained 
above, the Executive Director has determined that it is more equitable 
if the costs of the loan program are borne by the participants who use 
the program.
    One participant asked if the TSP would charge the loan fee even if 
the loan application were rejected. The loan fee is not an application 
fee; it will cover the costs of processing and servicing the loan. 
Therefore, as explained in final Sec.  1655.21, the TSP will deduct the 
loan fee from the loan proceeds only when it issues a loan. One 
participant also commented that the TSP should only charge the loan fee 
once because a participant should only pay for ``underwriting'' 
approval once. There is no underwriting approval in the TSP loan 
program.
    In contrast, thirty-eight participants wrote that the loan fee is 
appropriate, primarily because it will lower the cost of administering 
the TSP to those who do not use the loan program. Some participants 
asked the Board to charge a fee greater than $50 or to base the amount 
of the fee on the dollar amount of the loan. The Board will not base 
the loan fee on the dollar amount of the loan because the fee is 
intended only to pay the administrative costs of a TSP loan, which do 
not vary with the size of the loan. Several participants also suggested 
that the TSP eliminate the loan program altogether. The Board will not 
eliminate the loan program because it is an important benefit that the 
TSP is required by FERSA to provide.
    Some participants asked the Board to charge fees for other TSP 
transactions, such as interfund transfers and in-service withdrawals. 
The Executive Director does not plan to charge transaction fees in 
addition to the loan fee; however, decreasing the cost of the program 
for participants is an important consideration and the Executive 
Director does review all costs from time to time to determine whether 
they are appropriate.
    Forty-three participants commented on the Executive Director's 
proposal to limit participants to a single general purpose loan; 
thirty-three objected to the change. Most wrote that the Board should 
not impose any restrictions on their ability to use their own money. As 
explained in the answer to the union comment, the Executive Director's 
proposal is consistent with the purpose of the TSP, which is to grow 
retirement savings.
    Many commenters oppose limiting participants to a single general 
purpose loan because they want to borrow from their TSP accounts to pay 
for medical and dental expenses, home repair or improvement, car 
repairs, or school tuition. Other participants oppose the changes 
because they want to use TSP loans to pay off high interest credit 
cards or as capital to start a business. The loan program changes will 
not prevent a participant from obtaining a TSP loan to pay such 
expenses. Rather, the changes will limit a participant to a single 
general purpose loan. This purpose of this limitation is to promote the 
use of the TSP as a retirement savings plan and to reinforce the 
importance of borrowing from the TSP as a last resort. The TSP is a 
retirement savings plan, not a savings account that should be used to 
finance short-term needs, refinance consumer debt or start a business. 
A participant who may need money in the near future and who does not 
have adequate savings should consider those short-term needs carefully 
before deciding how much to contribute to the TSP.
    Several commenters who oppose limiting participants to a single 
general purpose loan also wrote that the TSP is a necessary source of 
emergency funds in the case of financial hardship. However, TSP funds 
remain available if a participant can qualify for financial hardship 
in-service withdrawals.
    Forty participants commented on the 60-day waiting period between 
paying off a loan and receiving another of the same type; thirty-one of 
them oppose the change. Those who stated a reason for opposing the 
change (other than those reasons discussed above) believe it 
unreasonably limits their ability to obtain a loan or is simply 
designed to discourage loans.
    Before proposing the 60 day waiting period, the Executive Director 
undertook a study of the loan program; that study revealed that an 
increasing number of participants repeatedly pay off one loan and 
simultaneously apply for another. These participants are apparently 
using the TSP as an ongoing vehicle for financing their living 
expenses, rather than as a retirement savings plan. The waiting period 
is designed to correct this abusive practice.
    The waiting period also solves an administrative problem. Many 
participants simultaneously submit a new loan application with a loan 
payoff check. In such a case, the TSP cannot process the new loan 
application until it processes and deposits the loan payoff check, 
waits for it to clear, posts the funds to the participant's account, 
and closes the loan. Given the enormous volume (900,000) of TSP loans 
that are in existence, it is not administratively reasonable to 
manually manage large numbers of pending loan applications until the 
outstanding loan is closed and a new loan request can be processed. A 
limited waiting period, clearly communicated to participants and 
equitably applied, provides a systematic solution to this 
administrative problem.

[[Page 29851]]

    Several commenters questioned the Board's decision to advertise an 
implementation date for the loan program changes before receiving 
comments on the proposed rule. Others asked the Board to delay 
implementation of the new rules. The Executive Director publicly 
announced the loan program changes in mid-2003 for a mid-2004 
implementation date; since then, he has made numerous public statements 
about his intent to change the loan program. In addition, the Board 
announced the changes on the TSP Web site, the Thriftline, and in a 
one-time written notice mailed to every participant with an outstanding 
TSP loan. Before publishing the proposed loan regulations in the 
Federal Register, the Executive Director discussed the changes in 
Congressional hearings, the January 2004 TSP Highlights (a TSP 
publication), the April 2004 TSP Highlights, numerous press interviews, 
and sought the advice of the Employee Thrift Advisory Council (ETAC). 
The ETAC is a 15-member body established by FERSA to advise the Board 
on TSP matters. ETAC members represent members of the Uniformed 
Services and Federal and postal employees, both active and retired, at 
all levels of government, from wage earners to senior executives.
    The Board also welcomes the opportunity to review and respond to 
comments from participants who take an active interest in the TSP and 
wish to offer suggestions. Some participants who read the Highlights or 
news reports wrote letters to the Agency and the Agency fully 
considered their comments. Additionally, the Executive Director 
formally solicited comments from participants when he published the 
proposed loan regulations. The comment process allows the Board to 
address any misunderstandings about the proposed loan changes, to learn 
if there are unanticipated legal or policy impediments to the proposed 
changes, and to hear suggestions about how better to implement the 
proposed changes. Although the comments received did not cause the 
Executive Director to make any changes to the proposed loan rules, he 
did carefully consider all comments received.

Section 1655.2

    Proposed Sec.  1655.2(c) explains the general rule that a 
participant must be eligible to contribute to the TSP before he or she 
can apply for a TSP loan. It also explains an exception to that rule (a 
participant can apply for a loan if his or her TSP contributions were 
suspended when he or she obtained a financial hardship in-service 
withdrawal). However, proposed Sec.  1655.2(c) did not explain a second 
exception. Specifically, a participant can apply for a loan if he or 
she is not eligible to make TSP contributions because the participant 
stopped contributing to the TSP and is not yet eligible to resume 
contributing. Final Sec.  1655.2(c) explains this exception.
    The Executive Director is publishing the proposed rule as a final 
rule with several other clarifying changes to proposed sections 
1655.21, 1690.12 and 1690.13.

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 Sec.  
1532 is not required.

Submission to Congress and the General Accounting Office

    Pursuant to 5 U.S.C. 810(a)(1)(A), the Board submitted a report 
containing this rule and other required information to the U.S. Senate, 
the U.S. House of Representatives, and the Comptroller General of the 
United States before publication of this rule in the Federal Register. 
This rule is not a major rule as defined at 5 U.S.C. 814(2).

List of Subjects

5 CFR Parts 1650, 1653 and 1690

    Employee benefit plans, Government employees, Pensions, Retirement.

5 CFR Part 1655

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

    Dated: May 20, 2004.
Gary A. Amelio,
Executive Director Federal Retirement Thrift Investment Board.

0
For the reasons set forth in the preamble, the Board amends 5 CFR 
chapter VI as follows:

PART 1650--METHODS OF WITHDRAWING FUNDS FROM THE THRIFT SAVINGS 
PLAN

0
1. The authority citation for part 1650 continues to read as follows:

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

Subpart G--Spousal Rights


Sec.  1650.61  [Amended]

0
2. Amend Sec.  1650.61 by removing ``Sec.  1650.64'' from paragraph (b) 
and ``Sec.  1650.65'' from paragraph (c)(1), and adding in their places 
``this subpart''.


Sec.  1650.62  [Amended]

0
3. Amend Sec.  1650.62 by removing ``Sec.  1650.64'' from paragraph (b) 
and ``Sec.  1650.65'' from paragraph (c), and adding in their places 
``this subpart''.


Sec.  1650.64  [Amended]

0
4. Amend Sec.  1650.64 by removing ``Sec.  1650.64'' from paragraph 
(a)(1) and adding in its place ``this subpart''.

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

0
5. The authority citation for part 1653 is revised to read as follows:

    Authority: 5 U.S.C. 8435, 8436(b), 8437(e), 8439(a)(3), 8467, 
8474(b)(5) and 8474(c)(1).

Subpart A--Retirement Benefits Court Orders

0
6. Amend section 1653.2 by revising paragraph (a)(4) to read as 
follows:


Sec.  1653.2  Qualifying retirement benefits court orders.

    (a) * * *
    (4) A court order can require a payment only to a spouse, former 
spouse, child or dependent of a participant.
* * * * *

0
7. Amend section 1653.3 by revising the last sentence of paragraph (b) 
introductory text to read as follows:


Sec.  1653.3  Processing retirement benefits court orders.

* * * * *
    (b) * * * To be complete, a court order must be written in English 
or be accompanied by a certified English translation and contain all 
pages and

[[Page 29852]]

attachments; it must also provide (or be accompanied by a document that 
provides):
* * * * *

PART 1655--LOAN PROGRAM

0
8. The authority citation for part 1655 is revised to read as follows:

    Authority: 5 U.S.C. 8433(g), 8439(a)(3) and 8474.


0
9. Revise section 1655.2 to read as follows:


Sec.  1655.2  Eligibility for loans.

    A participant can apply for a TSP general purpose or residential 
loan if:
    (a) More than 60 calendar days have elapsed since the participant 
has repaid in full a TSP loan of the same type.
    (b) The participant is in pay status;
    (c) The participant is eligible to contribute to the TSP (or would 
be eligible to contribute but for the suspension of the participant's 
contributions because he or she obtained a financial hardship in-
service withdrawal or because he or she stopped contributing to the TSP 
and is not yet eligible to resume contributing);
    (d) The participant has at least $1,000 in employee contributions 
and attributable earnings in his or her account; and
    (e) The participant has not had a TSP loan declared a taxable 
distribution within the last 12 months for any reason other than a 
separation from Government service.

0
10. Amend section 1655.4 by revising the second sentence to read as 
follows:


Sec.  1655.4  Number of loans.

    * * * One of the two outstanding loans may be a residential loan 
and the other one may be a general purpose loan. * * *

0
11. Revise paragraph (b) of section 1655.11 to read as follows:


Sec.  1655.11  Loan acceptance.

* * * * *
    (b) The participant has the maximum number of loans outstanding 
under Sec.  1655.4;
* * * * *

0
12. Add a new section 1655.21 to read as follows:


Sec.  1655.21  Loan fee.

    The TSP will charge a participant a $50.00 loan fee when it 
disburses the loan and will deduct the fee from the proceeds of the 
loan.

PART 1690--THRIFT SAVINGS PLAN

0
13. The authority citation for Part 1690 continues to read as follows:

    Authority: 5 U.S.C. 8474.


0
14. Revise section 1690.12 to read as follows:


Sec.  1690.12  Power of attorney.

    (a) A participant or beneficiary can appoint an agent to conduct 
business with the TSP on his or her behalf by using a power of attorney 
(POA). The agent is called an attorney-in-fact. The TSP must approve a 
POA before the agent can conduct business with the TSP; however, the 
TSP will accept a document that was signed by the agent before the TSP 
approved the POA. The TSP will approve a POA if it meets the following 
conditions:
    (1) The POA must give the agent either general or specific powers, 
as explained in paragraphs (b) and (c) of this section;
    (2) A notary public or other official authorized by law to 
administer oaths or affirmations must authenticate, attest, 
acknowledge, or certify the participant's or beneficiary's signature on 
the POA; and
    (3) The POA must be submitted to the TSP recordkeeper for approval.
    (b) General power of attorney. A general POA gives an agent 
unlimited authority to conduct business with the TSP, including the 
authority to sign any TSP-related document. By way of example, a POA 
grants such authority by authorizing the agent to act on behalf of the 
participant or beneficiary with respect to ``all matters,'' ``personal 
property,'' ``Federal Government retirement benefits,'' or ``business 
transactions.''
    (c) Specific power of attorney. A specific power of attorney gives 
an agent the authority to conduct specific TSP transactions. A specific 
POA must expressly describe the authority it grants. By way of example, 
a specific POA may authorize an agent to ``obtain information about my 
TSP account'' or ``borrow or withdraw funds from my TSP account.''

0
15. Revise section 1690.13 to read as follows:


Sec.  1690.13  Guardianship and conservatorship orders.

    (a) A court order can authorize an agent to conduct business with 
the TSP on behalf of an incapacitated participant or beneficiary. The 
agent is called a guardian or conservator and the incapacitated person 
is called a ward. The TSP must approve a court order before an agent 
can conduct business with the TSP; however, the TSP will accept a 
document that was signed by the agent before the TSP approved the court 
order. The TSP will approve a court order appointing an agent if the 
following conditions are met:
    (1) A court of competent jurisdiction (as defined at 5 CFR 1690.1) 
must have issued the court order;
    (2) The court order must give the agent either general or specific 
powers, as explained in paragraphs (b) and (c) of this section;
    (3) The agent must satisfy the TSP that he or she meets any 
precondition specified in the court order, such as a bonding 
requirement;
    (4) The court order must be submitted to the TSP record keeper for 
approval.
    (b) General grant of authority. A general grant of authority gives 
a guardian or conservator unlimited authority to conduct business with 
the TSP, including the authority to sign any TSP-related document. By 
way of example, an order gives a general grant authority by appointing 
a ``guardian of the ward's estate,'' by permitting a guardian to 
``conduct business transactions'' for the ward, or by authorizing a 
guardian to care for the ward's ``personal property'' or ``Federal 
Government retirement benefits.''
    (c) Specific grant of authority. A specific grant of authority 
gives a guardian or conservator authority to conduct specific TSP 
transactions. Such an order must expressly describe the authority it 
grants. By way of example, an order may authorize an agent to ``obtain 
information about the ward's TSP account'' or ``borrow or withdraw 
funds from the ward's TSP account.''
[FR Doc. 04-11844 Filed 5-25-04; 8:45 am]
BILLING CODE 6760-01-P