[Federal Register Volume 70, Number 78 (Monday, April 25, 2005)]
[Proposed Rules]
[Pages 21290-21304]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-8078]



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Part III





Federal Retirement Thrift Investment Board





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5 CFR Parts 1600, 1601, 1604, et al.



Various Changes to the Thrift Savings Plan; Proposed Rule

  Federal Register / Vol. 70, No. 78 / Monday, April 25, 2005 / 
Proposed Rules  

[[Page 21290]]


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FEDERAL RETIREMENT THRIFT INVESTMENT BOARD

5 CFR Parts 1600, 1601, 1604, 1605, 1606, 1620, 1640, 1645, 1650, 
1651, 1653, 1655 and 1690


Various Changes to the Thrift Savings Plan

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 amend the Thrift Savings Plan 
(TSP) regulations to accommodate new TSP lifecycle investment 
allocation funds, eliminate references to open seasons (which Congress 
repealed), and to require participants to file all death benefit 
beneficiary designation forms with the TSP record keeper. The Executive 
Director also proposes to remove obsolete and unhelpful provisions from 
the regulations, eliminate references to TSP form numbers, notify TSP 
participants of a new mailing address for loan payments, and otherwise 
make the regulations easier to understand.

DATES: Comments must be received on or before May 25, 2005.

ADDRESSES: Comments may be sent to Patrick J. Forrest, Federal 
Retirement Thrift Investment Board, 1250 H Street, NW., Washington, DC 
20005. The Board's Fax number is (202) 942-1676.

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

SUPPLEMENTARY INFORMATION: The Board administers the Thrift Savings 
Plan (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 are 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)).

Lifecycle Funds

    The Executive Director proposes to amend TSP regulations to include 
references to the TSP ``lifecycle funds,'' which the TSP will offer to 
participants in mid-2005. In general, lifecycle funds are ``target 
asset allocation portfolios'' which hold a variety of investments 
including stable value, bond, and stock funds. The mix of these funds 
is chosen based on the date the investor expects to need the money in 
his or her account for retirement.
    The assumption underlying lifecycle funds is that people with 
longer time horizons for investment are both willing and able to 
tolerate risk while seeking higher rates of return. A further 
assumption is that as people approach the time when they will begin to 
withdraw their assets from the Plan, their portfolios should be 
adjusted to reflect a lower tolerance for risk. Thus, a young person 
who is many years from retirement would have more of his or her account 
invested in a lifecycle fund containing investments with higher risk 
and higher potential returns (such as stocks), and less in low-risk, 
lower-return investments (such as Government securities). The 
investments in a lifecycle fund would be adjusted gradually and 
automatically to lower risk portfolios as the need for withdrawal 
approaches. This process is referred to as rebalancing.
    Our analysis of TSP data shows that some TSP participants appear 
either to be ``chasing'' the latest returns or to be leaving their 
accounts unattended altogether, never rebalancing their portfolios. 
Some participants leave their entire account in the most conservative 
fund, the G Fund, when they may need the higher potential returns of 
the other funds to give them the retirement income they want. The 
evidence therefore suggests that many TSP participants could benefit 
from automatic professional asset allocation offered by a lifecycle 
fund.
    The TSP lifecycle funds will invest only in the five funds 
currently offered by the TSP. We will not be adding new funds or asset 
classes. Thus, the lifecycle funds will be composed of various 
percentages of the G, F, C, S, and I Fund assets. The C, S, and I Funds 
will provide exposure to domestic and international equities, while the 
G and F Funds will provide fixed income and stable value investments.
    Participation in the TSP lifecycle funds is voluntary, although the 
TSP strongly encourages every participant to consider the option. The 
TSP will make information available to participants that explain 
lifecycle funds in detail. Participants should read these materials 
closely before investing in one of the TSP lifecycle funds.

Open Seasons

    On December 21, 2004, the President signed into law the Thrift 
Savings Plan Open Seasons Act of 2004 (Pub. L. No. 108-469). That new 
law eliminates open seasons for the TSP and the restrictions on 
contribution elections that are tied to open seasons. The TSP will 
implement that law on July 1, 2005, and the Executive Director proposes 
to amend TSP regulations to explain the new rules under which 
participants can make TSP contribution elections after open seasons are 
eliminated.
    The last TSP open season will run from April 15 through June 30, 
2005. This means that participants may file contribution elections with 
their agencies or uniformed services at any time beginning April 15. 
Through June 30, these elections will be processed under the current 
rules. Beginning July 1, contribution elections will be processed under 
the new rules [uacute] that is, an election will be effective the first 
full pay period after it is filed.
    Participants will continue to file contribution elections with 
their agencies or services, and the agencies and services will continue 
to implement the elections by deducting contributions from 
participants' pay and reporting these amounts to the TSP each pay 
period.
    The Open Season Act does not affect the waiting period that new 
employees covered by the Federal Employees' Retirement System must 
serve before they become eligible for agency contributions to their 
accounts. The Act also does not affect contribution allocations or 
interfund transfers, which can be made at any time by using the TSP Web 
site or the ThriftLine or by submitting an investment allocation form 
to the TSP.

Death Benefits

    Federal law requires the TSP to pay a deceased participant's 
account to the beneficiary or beneficiaries identified in a statutory 
order of precedence codified at 5 U.S.C. 8242(d). See 5 U.S.C. 8433(e). 
The participant's designated beneficiary or beneficiaries are first in 
the order of precedence. A participant must use a specially designed 
paper designation of beneficiary form (a Form TSP-3) to designate a TSP 
beneficiary and TSP regulations explain the validity requirements for 
the form at 5 CFR 1651.3.
    Before 1995, a participant who was still employed by the Federal 
government was required to submit Form TSP-3 to his or her employing 
agency. Beginning on January 1, 1995, all TSP participants were 
required to submit Forms TSP-3 to the TSP record keeper; to be valid, 
the form must be received by the record keeper on or before the date of 
the participant's death. 5 CFR 1651.3(a). In addition to requiring all 
participants to submit the forms to the TSP record keeper, the new 
policy also required employing agencies

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to search their records and forward all Forms TSP-3 in their possession 
to the TSP record keeper.
    The TSP codified the new policy in TSP regulations at 5 CFR 1651.3 
on June 13, 1997 (62 FR 32429), after proposing the regulation on March 
27, 1997, and seeking public comment (61 FR 14653). The TSP also 
directly announced the new policy to employing agencies and 
participants. Specifically, the TSP mailed two ``Thrift Savings Plan 
Bulletins'' (Bulletins) to the TSP representatives of every employing 
agency and three editions of ``Highlights for Thrift Savings Plan 
Participants'' (Highlights) to every participant.
    The Bulletins, dated November 22, 1994, and November 16, 1995, 
instructed employing agencies to search their files for Forms TSP-3 and 
to forward them to the TSP record keeper.
    The Highlights, dated November 1994, November 1995, and May 1996, 
notified each participant of the policy change, including the 
requirement that employing agencies forward their Forms TSP-3 to the 
TSP record keeper. The Highlights also advised participants to review 
their participant statements to learn if their employing agencies had 
forwarded their forms to the record keeper. (Beginning in November 
1995, every TSP participant statement states, on page 1, whether the 
TSP has received a Form TSP-3 for the participant, and if so, the date 
it was signed.) The Highlights also advised participants that they 
could file a new Form TSP-3 and that the TSP would honor the valid form 
with the latest date.
    TSP regulations currently provide that the TSP will honor a Form 
TSP-3 if the participant's employing agency received it before 1995, as 
long as the TSP receives it before paying a death benefit. The TSP 
continued to accept the agency-filed forms to allow employing agencies 
sufficient opportunity to send them to the TSP. Employing agencies have 
had sufficient time to accomplish this task. In addition, in any case 
where an employing agency has not forwarded a participant's Form TSP-3 
to the TSP, the TSP has informed the participant at least twice a year 
for 10 years on participant statements that it does not possess a 
beneficiary form for the participant. A reasonable participant who 
received that information and wished to designate a beneficiary would 
have filed a new Form TSP-3. Therefore, the Executive Director proposes 
to amend 5 CFR 1651.3(a) to provide that all TSP beneficiary 
designations must be made with a valid Form TSP-3 received by the TSP 
record keeper on or before the date of the participant's death.

Miscellaneous Amendments

    The Executive Director proposes to remove obsolete provisions from 
the regulations, such as 5 CFR part 1606, which was no longer effective 
after August 31, 2003, and 5 CFR 1620.33, which regulated retirement 
plan decisions pertaining to employment changes made before August 10, 
1996. The Executive Director also proposes to remove references to TSP 
form numbers from the regulations because they do not aid the reader 
and because the references require the TSP to amend its regulations 
whenever it changes form numbers. In addition, the Executive Director 
proposes to remove discussions of Federal income tax code provisions 
from the regulations because the TSP provides comprehensive tax 
information to participants and beneficiaries elsewhere, and because 
the references require the TSP to amends its regulations whenever TSP-
related provisions of the tax laws are amended.
    The Executive Director also proposes to simplify the regulations 
and make them more easily understood. For example, this proposed rule 
would simplify several provisions in Part 1605 of the TSP regulations 
to more clearly explain how the TSP and the employing agencies correct 
errors.
    The TSP has established a new mailing address for use by 
participants to mail loan repayment checks to the TSP. The proposed 
regulations inform participants that they should use this address only 
for loan repayments and not mail correspondence to that address. The 
proposed regulations also inform participants that the TSP does not 
agree to accept less than the total amount due on the loan by 
negotiating an instrument such as a check, share draft or money order 
with a restrictive legend on it (such as ``payment in full'' or 
``submitted in full satisfaction of claims''), or by negotiating an 
instrument that is conditionally tendered to the TSP with an offer of 
compromise.
    Finally, the Executive Director proposes to remove from the TSP 
regulations the references in section 1655.18(d) to the TSP's 
investigation of fraud and forgery allegations by spouses of 
participants. The TSP will continue to investigate these allegations, 
and may refer them to the United States Department of Justice for 
criminal prosecution and to an appropriate administrative agency for 
administrative action. However, it is not necessary to explain this 
process in the TSP regulations. This is because the TSP regulations 
explain to participants and beneficiaries their rights and obligations. 
The TSP investigates allegations of fraud or forgery only to preserve 
the integrity of the TSP loan and withdrawal programs, not to recover 
benefits for the individual who makes the allegation.

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, 2 U.S.C. 
1532, the Agency has considered 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, the Agency is 
not required to prepare a written statement regarding these regulations 
under 2 U.S.C. 1532.

List of Subjects

5 CFR Parts 1600, 1601, 1606, 1620, 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.

Gary A. Amelio,
Executive Director Federal Retirement Thrift Investment Board.
    For the reasons set forth in the preamble, the Board proposes to 
amend 5 CFR chapter VI as follows:

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PART 1600--EMPLOYEE CONTRIBUTON ELECTIONS AND CONTRIBUTION 
ALLOCATIONS

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

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

Subpart B--Elections

    2. Amend Sec.  1600.11 by removing ``TSP's investment funds'' from 
paragraph (b) and adding in its place ``TSP Funds''.
    3. Revise Sec.  1600.12 to read as follows:


Sec.  1600.12  Contribution elections.

    (a) An employee may make a contribution election at any time.
    (b) A participant must submit a contribution election to his or her 
employing agency. To make an election, employees may use either the 
paper election form provided by the TSP, or, if available from their 
employing agency, electronic media. If an electronic medium is used, 
all relevant elements contained on the paper form must be included in 
the electronic medium.
    (c) A contribution election must:
    (1) Be completed in accordance with the instructions on the form, 
if a paper form is used;
    (2) Be made in accordance with the employing agency's instructions, 
if the submission is made electronically; and
    (3) Not exceed the maximum contribution limitations described in 
Sec.  1600.22.
    (d) A contribution election will become effective no later than the 
first full pay period after it is received by the employing agency.
    4. Remove Sec. Sec.  1600.13 through 1600.18.
    5. Add a new Sec.  1600.13 to read as follows:


Sec.  1600.13  Timing of agency contributions.

    (a) Employees not previously eligible to receive agency 
contributions. An employee appointed or reappointed to a position 
covered by FERS who had not been previously eligible to receive agency 
contributions is eligible to receive agency contributions under the 
following rules:
    (1) If the effective date of the appointment is any day during the 
period June 1 through November 30, the agency contributions must begin 
the first full pay period of the following June; and
    (2) If the effective date of the appointment is any day during the 
period December 1 through May 31, the agency contributions must begin 
the first full pay period of the following December.
    (b) Employees previously eligible to receive agency contributions. 
An employee reappointed to a position covered by FERS who was 
previously eligible to receive agency contributions is immediately 
eligible to receive agency contributions.
    6. Add a new Sec.  1600.14 to read as follows:


Sec.  1600.14  Effect of transfer to FERS.

    (a) If an employee appointed to a position covered by CSRS elects 
to transfer to FERS, the employee may make a contribution election at 
any time.
    (b) Eligibility to make employee contributions, and therefore to 
have agency matching contributions made on the employee's behalf, is 
subject to the restrictions on making employee contributions after 
receipt of a financial hardship in-service withdrawal described at 5 
CFR part 1650.
    (c) If the employee had elected to make TSP contributions while 
covered by CSRS, the election continues to be valid until the employee 
makes a new valid election.
    (d) Agency automatic (1%) contributions for all employees covered 
under this section and, if applicable, agency matching contributions 
attributable to employee contributions must begin the same pay period 
that the transfer to FERS becomes effective.

Subpart C--Program of Contributions

    7. Revise Sec.  1600.22 to read as follows:


Sec.  1600.22  Maximum contributions.

    (a) Regular employee contributions. A participant's regular TSP 
contributions are subject to the following limitations:
    (1) FERS percentage limit. The maximum employee contribution from 
basic pay for a FERS participant for 2005 is 15 percent. After 2005 the 
percentage of basic pay limit will not apply and the maximum 
contribution will be limited only by the provisions of the Internal 
Revenue Code (26 U.S.C.).
    (2) CSRS and uniformed services percentage limit. The maximum 
employee contribution from basic pay for a CSRS or uniformed services 
participant for 2005 is 10 percent. After 2005 the percentage of basic 
pay limit will not apply and the maximum contribution will be limited 
only by the provisions of the Internal Revenue Code.
    (b) Catch-up contributions. (1) A participant may make tax-deferred 
catch-up contributions from basic pay at any time during the calendar 
year if he or she:
    (i) Is at least age 50 by the end of the calendar year;
    (ii) Is making regular TSP contributions at a rate that will result 
in the participant making the maximum regular contributions permitted 
under paragraph (a) of this section; and
    (iii) Does not exceed the annual limit on catch-up contributions 
contained in the Internal Revenue Code.
    (2) Elections to make catch-up contributions shall be separate from 
the participant's regular contribution election.
    (3) A participant who has both a civilian and a uniformed services 
account can make catch-up contributions to both accounts, but the total 
amount of the catch-up contributions to both accounts cannot exceed the 
Internal Revenue Code catch-up contribution limit for the year.
    (4) Catch-up contributions are not eligible for matching 
contributions.
    8. Remove Sec.  1600.23.
    9. Revise the part 1601 Part Heading to read as follows:

PART 1601--PARTICIPANTS' CHOICES OF TSP FUNDS

    10. The Authority citation for part 1601 is revised to read as 
follows:

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

Subpart A--General

    11. Amend Sec.  1601.1 by removing ``the F Fund, C Fund, S Fund or 
I'' from paragraph (b) and by inserting in its place ``a TSP Fund other 
than the G''.
    12. Amend Sec.  1601.11 by removing ``investment funds'' wherever 
it appears and adding in its place ``TSP Funds''.
    13. Revise Sec.  1601.12 to read as follows:


Sec.  1601.12  Investing future deposits in the TSP Funds.

    (a) Allocation. Future deposits in the TSP, including 
contributions, loan payments, and transfers or rollovers from 
traditional IRAs and eligible employer plans, will be allocated among 
the TSP Funds based on the most recent contribution allocation on file 
for the participant.
    (b) TSP Funds availability. All participants may elect to invest 
all or any portion of their deposits in any of the TSP Funds.
    14. Amend Sec.  1601.13 by revising paragraphs (a) and (b) to read 
as follows:


Sec.  1601.13  Elections.

    (a) Contribution allocation. Each participant may indicate his or 
her choice of TSP Funds for the allocation of future deposits by using 
the TSP Web site or the ThriftLine, or by completing and filing the 
appropriate paper TSP

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form with the TSP record keeper in accordance with the form's 
instructions. 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 TSP Funds 
must equal 100 percent;
    (2) The percentage elected by a participant for investment of 
future deposits in a TSP Fund will be applied to all sources of 
contributions and transfers (or rollovers) from traditional IRAs and 
eligible employer plans. 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 a TSP 
Fund other than the G Fund must execute an acknowledgment of risk in 
accordance with Sec.  1601.33;
    (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 effective until a new allocation 
is made.
    (b) Effect of rejection of contribution allocation. If a 
participant does correctly complete a contribution allocation, the 
attempted allocation will have no effect. The TSP will provide the 
participant with a written statement of the reason the transaction was 
rejected.
* * * * *

Subpart C--Redistributing Participants' Existing Account Balances 
(Interfund Transfers)

    15. Amend Sec.  1601.21 by removing ``TSP's investment funds'' and 
adding in its place ``TSP Funds''.
    16. Revise Sec.  1601.22 to read as follows:


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 and filing the appropriate 
paper TSP form with the TSP record keeper in accordance with the form's 
instructions. The following rules apply to an interfund transfer 
request:
    (1) Interfund transfer requests must be made in whole percentages 
(one percent increments). The sum of the percentages elected for all of 
the TSP Funds must equal 100 percent.
    (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 a TSP Fund other than 
the G Fund for the first time must execute an acknowledgement of risk 
in accordance with Sec.  1601.33.
    (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 is found to be invalid pursuant to 
Sec.  1601.34, the purported transfer will not be made. The TSP will 
provide the participant with a written statement of the reason the 
transaction was rejected.

Subpart D--Contribution Allocations and Interfund Transfer Requests

    17. Revise Sec.  1601.32 to read as follows:


Sec.  1601.32  Timing and posting dates.

    (a) Posting dates. The date on which the TSP processes or posts a 
contribution allocation or interfund transfer request (transaction 
request) is subject to a number of factors, including some that are 
outside of the control of the TSP, such as power outages, the failure 
of telephone service, acts of God, and unusually heavy transaction 
volume. These factors also could affect the availability of the TSP Web 
site and the ThriftLine. Therefore, the TSP cannot guarantee that a 
transaction request will be processed on a particular day. However, the 
TSP will process transaction requests under ordinary circumstances 
according to the following rules:
    (1) A transaction request entered into the TSP record keeping 
system by a participant who uses the TSP Web site or the ThriftLine, or 
by a TSP Service Office participant service representative at the 
participant's request, at or before 12 noon eastern time of any 
business day, will ordinarily be posted that business day. A 
transaction request entered into the system after 12 noon eastern time 
of any business day will ordinarily be posted on the next business day.
    (2) A transaction request made on the TSP Web site or the 
ThriftLine on a non-business day will ordinarily be posted on the next 
business day.
    (3) A transaction request made on a paper TSP form will ordinarily 
be posted under the rules in paragraph (a)(1) of this section, based on 
when the TSP record keeper enters the form into the TSP system. The TSP 
record keeper ordinarily enters such forms into the system within 24 
hours of their receipt.
    (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. If two or more contribution allocations or two or more 
interfund transfer requests (transaction requests) are received for a 
participant and would be posted on the same day, the following rules 
will apply:
    (1) A transaction request submitted through the TSP Web site or the 
ThriftLine will take precedence over one that is submitted on a paper 
form.
    (2) If one or more transaction requests are made through the TSP 
Web site or the ThriftLine, only the request entered by the participant 
at the latest time will be posted. The date and time of a transaction 
request made through the TSP Web site or the ThriftLine is the date and 
time (in Eastern time) that the participant confirms the percentages.
    (3) If the transaction requests are submitted using paper TSP 
forms, the forms will be posted in the order the TSP record keeper 
receives them.
    (d) Cancellation of contribution allocation or interfund transfer 
request. A participant may cancel a contribution allocation or an 
interfund transfer request (transaction cancellation request) through 
the TSP Web site or the ThriftLine, through written correspondence, or 
by contacting a participant service representative.
    (1) A transaction cancellation request may be made on the TSP Web 
site or the ThriftLine only up to the deadline, described in paragraph 
(a) of this section, which applies to the original request. If the 
cancellation request is not received until after the deadline, the 
original transaction request will be processed as scheduled.
    (2) A participant may also make a transaction cancellation request 
by submitting a letter to the TSP record keeper. To be effective, the 
TSP must receive and process the letter before the cutoff for the day 
the relevant transaction is submitted for processing. The letter must 
contain the following information to be processed:

[[Page 21294]]

    (i) It must be signed, dated, contain the participant's name, 
Social Security number, and date of birth; and
    (ii) It should state unambiguously the specific transaction the 
participant seeks to cancel.
    (A) If the letter does not identify the specific transaction the 
participant seeks to cancel, the cancellation request will apply to any 
pending contribution allocation or interfund transfer request with a 
date (as determined under this paragraph (d)(2)) before the date of the 
cancellation letter.
    (B) If the date of a cancellation letter is the same as the date of 
a pending transaction that was made on a paper TSP form, the form will 
be cancelled.
    (C) A letter will be effective to cancel a Web site or ThriftLine 
transaction request only if the cancellation request specifies the date 
of the TSP Web site or ThriftLine transaction request.
    (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.
    18. Revise Sec.  1601.33 to read as follows:


Sec.  1601.33  Acknowledgment of risk.

    (a) A participant who wants to invest in a TSP Fund other than the 
G Fund must execute an acknowledgment of risk for that fund. If a 
required acknowledgment of risk has not been executed, no transactions 
involving the fund(s) for which the acknowledgment is required will be 
accepted.
    (b) The acknowledgment of risk may be executed in association with 
a contribution allocation or an interfund transfer using the TSP Web 
site, the ThriftLine, or a paper TSP form.
    19. Remove Sec. Sec.  1601.34 and 1601.35 and redesignate Sec.  
1601.36 as Sec.  1601.34.
    20. Add a new subpart E to read as follows:

Subpart E--Lifecycle Funds


Sec.  1601.40  Lifecycle Funds.

    The Executive Director will establish TSP Lifecycle Funds, which 
are target date asset allocation portfolios. The TSP Lifecycle Funds 
will invest solely in the funds established by the TSP pursuant to 5 
U.S.C. 8438.

PART 1604--UNIFORMED SERVICES ACCOUNTS

    21. The authority citation for part 1604 continues to read as 
follows:

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

    22. Amend Sec.  1604.2 by removing the definitions of ``eligible 
retirement plan'' and ``TSP record keeper''.
    23. Revise Sec.  1604.3 to read as follows:


Sec.  1604.3  Contribution elections.

    A service member may make contribution elections as described in 5 
CFR part 1600. A service member may elect to contribute sums to the TSP 
from basic pay, incentive pay, and special pay (including bonuses). 
However, the service member must elect to contribute to the TSP from 
basic pay in order to contribute to the TSP from incentive pay and 
special pay (including bonuses). A service member may elect to 
contribute from special pay or incentive pay (including bonuses) in 
anticipation of receiving such pay (that is, he or she does not have to 
be receiving the special pay or incentive pay when the contribution 
election is made); those elections will take effect when the service 
member receives the special or incentive pay.
    24. Amend Sec.  1604.4 by revising paragraphs (a) and (b) to read 
as follows:


Sec.  1604.4  Contributions.

    (a) Employee contributions. Subject to the regulations at 5 CFR 
part 1600 and the following limitations, a service member may make 
regular contributions to the TSP from basic pay. If the service member 
makes regular contributions, he or she also may contribute all or a 
portion of incentive pay and special pay (including bonuses) to the 
TSP. The maximum TSP regular employee contribution (including 
contributions from pay earned in a combat zone) a service member may 
make for 2005 is 10 percent of basic pay. After 2005 the percentage of 
basic pay limit will not apply and the maximum contribution will be 
limited only by the provisions of the Internal Revenue Code (26 
U.S.C.).
    (b) Matching contributions. When matching contributions are 
authorized for a service member, that service member's regular 
contributions will be matched dollar-for-dollar on the first three 
percent of basic pay contributed to the TSP, and 50 cents on the dollar 
on the next two percent of basic pay contributed. Matching 
contributions only apply to regular contributions.
* * * * *
    25. Amend Sec.  1604.5 by revising paragraphs (a)(1) and (b)(3) to 
read as follows:


Sec.  1604.5  Separate service member and civilian accounts.

    (a) * * *
    (1) If a participant contributes to a service member account and a 
civilian account, the contributions to both accounts together cannot 
exceed the Internal Revenue Code (26 U.S.C.) contribution limits.
* * * * *
    (b) * * *
    (3) Transferred funds will be allocated among the TSP Funds 
according to the contribution allocation in effect for the account into 
which the funds are transferred.
* * * * *
    26. Amend Sec.  1604.7 by revising paragraph (c) to read as 
follows:


Sec.  1604.7  Withdrawals.

* * * * *
    (c) Combat zone contributions. If a service member account contains 
combat zone contributions, the withdrawal will be distributed pro rata 
from all sources. If a participant requests the TSP to transfer all, or 
a portion, of a withdrawal to a traditional IRA or eligible employer 
plan, the share of the withdrawal attributable to combat zone 
contributions (if any) can be transferred only if the IRA or plan 
accepts such funds.
* * * * *
    27. Amend Sec.  1604.8 by revising paragraph (c) to read as 
follows:


Sec.  1604.8  Death benefits.

* * * * *
    (c) Trustee-to-trustee transfers. The surviving spouse of a TSP 
participant can request the TSP to transfer a death benefit payment to 
a traditional IRA or eligible employer plan. The share of the death 
benefit payment that is attributable to combat zone contributions (if 
any) can be transferred only if the IRA or plan accepts such funds.
* * * * *
    28. Amend Sec.  1604.9 by revising paragraph (c) to read as 
follows:


Sec.  1604.9  Court orders and legal processes.

* * * * *
    (c) Trustee-to-trustee transfers. The current or former spouse of a 
TSP participant can request the TSP to transfer a court-ordered payment 
to a traditional IRA or eligible employer plan. If the payee requests 
the TSP to transfer all or a portion of the court-ordered payment to an 
IRA or plan, the share of the payment attributable to combat zone 
contributions (if any) can be transferred only if the IRA or plan 
accepts such funds.
* * * * *
    29. Amend Sec.  1604.10 by removing paragraph (a)(4).

[[Page 21295]]

PART 1605--CORRECTION OF ADMINISTRATIVE ERRORS

Subpart A--General

    30. The authority citation for Part 1605 continues to read as 
follows:

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

    31. Amend paragraph (b) of Sec.  1605.1 by removing the definitions 
of ``Board error'', ``Employing agency error'', and ``Record keeper 
error'', and by adding a new definition of ``Error'' to read as 
follows:


Sec.  1605.1  Definitions.

* * * * *
    (b) * * *
    Error means any act or omission by the Board, the TSP Record 
Keeper, or the participant's employing agency that is not in accordance 
with applicable statutes, regulations, or administrative procedures 
that are made available to employing agencies and/or TSP participants. 
It does not mean an act or omission caused by events that are beyond 
the control of the Board, the TSP Record Keeper, or the participant's 
employing agency.
* * * * *
    32. Revise Sec.  1605.2 to read as follows:


Sec.  1605.2  Calculating, posting, and charging breakage.

    (a) The TSP will calculate breakage on late contributions, makeup 
agency contributions, and loan payments as described by Sec.  
1605.15(b). This breakage calculation is subject to the following 
rules:
    (1) The TSP will not calculate breakage if contributions or loan 
payments are posted within 30 days of the ``as of'' date, or if the 
total amount on a late payment record or the total agency contributions 
on a current payment record is less than $1.00; and
    (2) The TSP will not take the participant's interfund transfers 
into account when determining breakage.
    (b) Calculating breakage. The TSP will calculate breakage as 
follows:
    (1) For contributions or loan payments with ``as of'' dates on or 
after January 1, 2000, the TSP will:
    (i) Use the participant's contribution allocation on file for the 
``as of'' date to determine how the funds would have been invested. If 
there is no contribution allocation on file, or one cannot be derived 
based on the investment of contributions, the TSP will consider the 
finds to have been invested in the G Fund;
    (ii) Determine the number of shares of the applicable investment 
funds the participant would have received had the contributions or loan 
payments been made on time. If the ``as of'' date is before TSP account 
balances were converted to shares, this determination will be the 
number of shares the participant would have received on the conversion 
date, and will include the monthly earnings the participant would have 
received had the contributions or loan payments been made on the ``as 
of'' date; and
    (iii) Determine the dollar value on the posting date of the number 
of shares the participant would have received had the contributions or 
loan payments been made on time. The difference between the dollar 
value of the contribution or loan payment on the posting date and the 
dollar value of the contribution or loan payment on the ``as of'' date 
is the breakage.
    (2) For contributions and loan payments with an ``as of'' date 
before January 1, 2000, the TSP will:
    (i) Value the contributions and loan payments from the ``as of'' 
date through the date TSP accounts were converted to shares, by using 
the greater of either the G Fund monthly rate of return or the average 
monthly rate of return for all TSP Funds;
    (ii) Determine the number of shares the participant would have 
received at conversion; and
    (iii) Determine the dollar value of those shares on the posting 
date by using the greater of either the G Fund share price or the 
average share price for all of the TSP Funds. The difference between 
the dollar value of the contribution or loan payment on the posting 
date and the dollar value of the contribution or loan payment on the 
``as of'' date is the breakage.
    (c) Posting contributions and loan payments. Makeup and late 
contributions, late loan payments, and breakage, will be posted to the 
participant's account according to his or her contribution allocation 
on file for the posting date. If there is no contribution allocation on 
file for the posting date, they will be posted to the G Fund.
    (d) Charging breakage. If the dollar amount posted to the 
participant's account is greater than the dollar amount of the makeup 
or late contribution or late loan payment, the TSP will charge the 
agency the additional amount. If the dollar amount posted to the 
participant's account is less than the dollar amount of the makeup or 
late contribution, or late loan payment, the difference between the 
amount of the contribution and the amount posted will be forfeited to 
the TSP.
    (e) Posting of multiple contributions. If the TSP posts multiple 
makeup or late contributions or late loan payments 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 transaction, without netting any 
gains or losses attributable to different ``as of'' dates. In addition, 
gains and losses from different sources of contributions or different 
TSP Funds will not be netted against each other. Instead, breakage will 
be determined separately for each as-of date, TSP Fund, and source of 
contributions.

Subpart B--Employing Agency Errors

    33. Amend Sec.  1605.11 by revising paragraphs (c)(5), (c)(6) and 
(c)(8) to read as follows:


Sec.  1605.11  Makeup of missed or insufficient contributions.

* * * * *
    (c) * * *
    (5) Employee makeup contributions will be invested in accordance 
with the participant's current contribution allocation. The number of 
shares of each TSP Fund that will be purchased will be determined by 
dividing the amount of the makeup contributions by the share price of 
the applicable fund(s) on the posting date.
    (6) Employee makeup contributions will be included for purposes of 
applying the annual limit contained in Internal Revenue Code (I.R.C.) 
section 402(g) (26 U.S.C. 402(g)(1)). For purposes of applying that 
limit, 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 I.R.C. 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 I.R.C. section 402(g).
* * * * *
    (8) A participant may elect to terminate a schedule of employee 
makeup contributions at any time, but a

[[Page 21296]]

termination is irrevocable. If a participant separates from Federal 
service, the participant may elect to accelerate the payment schedule 
by a lump sum contribution from his or her final paycheck.
* * * * *
    34. Revise Sec.  1605.12 to read as follows:


Sec.  1605.12  Removal of erroneous contributions.

    (a) Applicability. This section applies to the removal of funds 
erroneously contributed to the TSP. The TSP calls this action a 
negative adjustment, and agencies may only request negative adjustments 
of erroneous contributions made on or after January 1, 2000. Excess 
contributions addressed by this section include, for example, excess 
employee contributions that result from employing agency error and 
excess employer contributions. This section does not address excess 
contributions resulting from a FERCCA correction; those contributions 
are addressed in Sec.  1605.14.
    (b) Method of correction. Negative adjustment records must be 
submitted by employing agencies in accordance with this part and with 
any other procedures provided by the Board.
    (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 attributable pay date and the amount, by 
source, of the erroneous contribution.
    (2) A negative adjustment record may be for any part of the 
contributions made for the attributable pay date. However, for each 
source of contributions, the negative adjustment may not exceed the 
amount of contributions made for that date, less any prior negative 
adjustments for the same date.
    (c) Processing negative adjustments. To determine current value, a 
negative adjustment will be allocated among the TSP Funds as it would 
have been allocated on the attributable pay period (as reported by the 
employing agency).
    (1) If the attributable pay date for the erroneous contribution is 
on or before the date TSP accounts were converted to shares (and on or 
after January 1, 2000), the TSP will, for each source of contributions 
and investment fund:
    (i) Determine the dollar value of the amount to be removed by using 
the monthly returns for the applicable TSP Fund;
    (ii) Determine the number of shares the dollar value determined in 
paragraph (c)(1)(i) of this section would have purchased on the 
conversion date; 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 the date TSP accounts were converted to shares, the TSP will, for 
each source of contributions and TSP Fund:
    (i) Determine the number of shares that represent the amount of the 
contribution to be removed using the share price on the attributable 
pay date; and
    (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.
    (d) Employee contributions. The following rules apply to negative 
adjustments involving employee contributions:
    (1) If, on the posting date, the amount calculated under paragraph 
(c) of this section is equal to or greater than the amount of the 
proposed negative adjustment, the full amount of the adjustment will be 
removed from the participant's account and returned to the employing 
agency. Earnings on the erroneous contribution will remain in the 
participant's account;
    (2) If, on the posting date, the amount calculated under paragraph 
(c) of this section is less than the amount of the proposed negative 
adjustment, the amount of the adjustment, reduced by the investment 
loss, will be removed from the participants account and returned to the 
employing agency. However, the employing agency must refund to the 
participant the full amount of the erroneous contribution;
    (3) If an employing agency requests the removal of erroneous 
employee contributions from a participant's account, it must also 
request the removal, under paragraph (e) of this section, of any 
attributable agency matching contributions; and
    (4) If all employee contributions are removed from a participant's 
account under the rules set forth in this section, the earnings 
attributable to those contributions will remain in the account until 
the participant removes them with an in-service or a post-employment 
withdrawal. If the participant is not eligible to maintain a TSP 
account, the employing agency must submit an employee data record to 
the TSP indicating that the participant has separated from Federal 
service (this will allow the TSP-ineligible participant to make a post-
employment withdrawal election).
    (e) Employer contributions. The following rules apply to negative 
adjustments involving erroneous employer contributions:
    (1) The amount calculated under paragraph (c) of this section will 
be removed from the participant's account.
    (2) Erroneous employer contributions will be returned to the 
employing agency only if the negative adjustment record is posted by 
the TSP record keeper within one year of the date the erroneous 
contribution was posted. If one year or more has elapsed when the 
negative adjustment record is posted, the amount computed under 
paragraph (c) of this section will be removed from the participant's 
account and used to offset TSP administrative expenses;
    (3) If the erroneous contribution has been in the participant's 
account for less than one year when the negative adjustment record is 
posted and the amount computed under paragraph (c) of this section is 
equal to or greater than the amount of the adjustment, the employing 
agency will receive the full amount of the erroneous contribution. Any 
earnings attributable to the erroneous contribution will be removed 
from the participant's account and used to offset TSP administrative 
expenses;
    (4) If the erroneous contribution has been in the participant's 
account for less than one year when the negative adjustment record is 
posted and the amount computed under paragraph (c) of this section is 
less than the amount of the adjustment, the employing agency will 
receive the amount of the erroneous contribution reduced by the 
investment loss; and
    (5) An employing agency's obligation to submit negative adjustment 
records to remove erroneous contributions from a participant's account 
is not affected by the length of time the contributions have been in 
the account.
    (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 a negative adjustment for any 
attributable pay date, gains and losses from different sources of 
contributions or different TSP Funds will not be netted against each 
other. Instead, for each attributable pay date each source of 
contributions and each TSP Fund will be treated separately for purposes 
of these calculations. The amount computed by application of the

[[Page 21297]]

rules in this section will be removed from the participant's account 
pro rata from all funds, by source, based on the allocation of the 
participant's account among the TSP Funds when the transaction is 
posted; and
    (2) If there is insufficient money in the same source of 
contributions to cover the amount to be removed or the amount of the 
requested adjustment, the negative adjustment record will be rejected.
    35. Amend Sec.  1605.13 by revising paragraphs (a)(2)(ii), (a)(3), 
(b)(3), and (d) to read as follows:


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

    (a) * * *
    (2) * * *
    (ii) Instead of making contributions for the period of separation 
in accordance with the reinstated contribution election, the 
participant may submit a new contribution election if he or she would 
have been eligible to make such an election but for the erroneous 
separation.
    (3) All contributions made under this paragraph (a) and associated 
breakage will be invested according to the participant's contribution 
allocation on the posting date. Breakage will be calculated using the G 
Fund share prices in accordance with Sec.  1605.2 unless otherwise 
required by the employing agency or the court or other tribunal with 
jurisdiction over the back pay case.
    (b) * * *
    (3) All 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. Breakage 
will be calculated in accordance with Sec.  1605.2.
* * * * *
    (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 Federal service 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 the participant does not provide notice 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.
* * * * *
    36. Amend Sec.  1605.14 by removing the word ``excess'' from the 
last sentence of paragraph (a)(1) and by revising paragraphs (b)(4), 
(b)(5), and (c)(3) to read as follows:


Sec.  1605.14  Misclassified retirement system coverage.

* * * * *
    (b) * * *
    (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 on 
contributions from all three sources. Breakage 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 payment 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 date Office 
of Personnel Management (OPM) implemented its regulations on FERCCA 
correction], and the correction is considered to be a FERCCA 
correction, OPM may calculate pursuant to its regulations a dollar 
amount to replicate breakage, and transmit the dollar amount to the 
employing agency for transmission to the TSP record keeper.
    (c) * * *
    (3) The TSP will deem a participant to be separated from Federal 
service for all TSP purposes and the employing agency must submit an 
employee data record to reflect separation from Federal service. If the 
participant has an outstanding loan, it will be subject to the 
provisions of 5 CFR 1655.13. The participant may make a TSP post-
employment withdrawal election pursuant to 5 CFR part 1650, subpart B, 
and the withdrawal will be subject to the provisions of 5 CFR 
1650.60(b).
* * * * *
    37. Amend Sec.  1605.16 by revising paragraphs (a) and (b) to read 
as follows:


Sec.  1605.16  Claims for correction of employing agency errors; time 
limitations.

    (a) Agency's discovery of error. Upon discovery of an error made 
within the past six months involving the correct or timely remittance 
of payments to the TSP (other than a retirement system 
misclassification error, as covered in paragraph (c) of this section), 
an employing agency must promptly correct the error on its own 
initiative. If the error was made more than six months before its 
discovery, the agency may exercise sound discretion in deciding whether 
to correct it, but, in any event, the agency must act promptly in doing 
so.
    (b) Participant's discovery of error. If an agency fails to 
discover an error of which a participant has knowledge involving the 
correct or timely remittance of a payment to the TSP (other than a 
retirement system misclassification error as covered by paragraph (c) 
of this section), the participant may file a claim for correction of 
the error with his or her employing agency without a time limit. The 
agency must promptly correct any such error for which the participant 
files a claim within six months of its occurrence; the correction of 
any such error for which the participant files a claim after that time 
is in the agency's sound discretion.
* * * * *

Subpart C--Board or Record Keeper Errors

    38. Revise Sec.  1605.21 to read as follows:


Sec.  1605.21  Plan-paid breakage and other corrections.

    (a) Plan-paid breakage. (1) Subject to paragraph (a)(3) of this 
section, if, because of an error committed by the Board or the TSP 
record keeper, a participant's account is not credited or charged with 
the investment gains or losses that he or she would have received had 
the error not occurred, the participant's TSP account will be so 
credited.
    (2) Errors warranting the crediting of breakage under paragraph 
(a)(1) of this section include, but are not limited to:
    (i) Delay in crediting contributions or other monies to a 
participant's account;
    (ii) Improper issuance of a loan or withdrawal payment to a 
participant or beneficiary which requires the money to be restored to 
the participant's account; and
    (iii) Investment of all or part of a participant's account in the 
wrong investment fund(s).
    (3) A participant will not be entitled to breakage under paragraph 
(a)(1) of this section if the participant had the use of the money on 
which the investment gains would have accrued.
    (4) If the participant continued to have a TSP account, or would 
have continued to have a TSP account but for the Board or TSP record 
keeper error, the TSP will compute gains or losses under paragraph 
(a)(1) of this section for the relevant period based upon the

[[Page 21298]]

investment funds in which the affected monies would have been invested 
had the error not occurred. If the participant did not have, and should 
not have had, an account in the TSP during this period, then the TSP 
will use the G Fund rate of return for the relevant period and return 
the monies to the participant.
    (b) Other corrections. The Executive Director may, in his 
discretion and consistent with the requirements of applicable law, 
correct any other errors not specifically addressed in this section, 
including payment of breakage, if the Executive Director determines 
that the correction would serve the interests of justice and fairness 
and equity among all participants of the TSP.
    39. Amend Sec.  1605.22 by revising paragraph (c)(2) to read as 
follows:


Sec.  1605.22  Claims for correction of Board or TSP record keeper 
errors; time limitations.

* * * * *
    (c) * * *
    (2) For errors involving contribution allocations or interfund 
transfers of which a participant or beneficiary has knowledge, he or 
she may file a claim for correction with the Board or TSP record keeper 
no later than 30 days after the TSP provides the participant with a 
transaction confirmation reflecting the error or makes available on its 
Web site a participant statement detailing the error. The Board or TSP 
record keeper must promptly correct such errors.
* * * * *

Subpart D--Miscellaneous Provisions

    40. Amend Sec.  1605.31 by revising paragraphs (b), (c)(1) and (d) 
to read as follows:


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

    (a) * * *
    (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 5 CFR 1620.42.
    (c) * * *
    (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.
* * * * *
    (d) Breakage. The employee is entitled to breakage on agency 
contributions made under paragraph (c) of this section. The employee 
will elect to have the calculation based on either the contribution 
allocation(s) on file for the participant during the period of military 
service or 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).
    41. Remove and reserve part 1606.

PART 1620--EXPANDED AND CONTINUING ELIGIBILITY

    42. 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) of Pub. L. 104-106, 110 
Stat. 186, and sec. 7202(m)(2) of Pub. L. 101-508, 104 Stat. 1388.
    Subpart E also issued under 5 U.S.C. 8432b(1) and 8440e.

Subpart A--General

    43. Amend Sec.  1620.1 by removing ``, waives open season rules,'' 
from the third sentence.
    44. Revise Sec.  1620.2 to read as follows:


Sec.  1620.2  Definitions.

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

Subpart B--Cooperative Extension Service, Union, and 
Intergovernmental Personnel Act Employees

    45. Amend Sec.  1620.12 by revising the third sentence to read as 
follows:


Sec.  1620.12  Employing authority contributions.

    * * * The employing authority can commence or terminate employer 
contributions at any time after providing all affected employees with 
notice of a decision to commence or terminate such contributions at 
least 45 days before the beginning of the applicable election period. * 
* *
    46. Revise the Subpart C heading to read as follows:

Subpart C--Justices and Judges

    47. Amend Sec.  1620.20 by adding the word ``judge'' to paragraphs 
(a)(2) and (b) after the word ``magistrate''.
    48. Amend Sec.  1620.21 by adding the word ``judge'' to paragraph 
(b)(2) after the word ``magistrate'', and by revising paragraph (a) to 
read as follows:


Sec.  1620.21  Contributions.

    (a) An individual covered under this subpart can make contributions 
to the TSP from basic pay in the amount described at 5 CFR 
1600.22(a)(1). Unless stated otherwise in this subpart, he or she is 
covered by the same rules that apply to a CSRS participant in the TSP.
* * * * *
    49. Amend Sec.  1620.22 by adding the word ``judge'' to paragraph 
(a)(2)(ii) after the word ``magistrate''.
    50. Amend Sec.  1620.23 by revising paragraph (b) to read as 
follows:


Sec.  1620.23  Spousal rights.

* * * * *
    (b) A current or former spouse of a bankruptcy judge, a United 
States magistrate judge, or a judge of the United States Court of 
Federal Claims, possesses the rights described at 5 U.S.C. 8435 and 
8467 if the judge is covered under this subpart.

Subpart D--Nonappropriated Fund Employees

    51. Remove and reserve Sec.  1620.33.

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

    52. Revise Sec.  1620.42 to read as follows:


Sec.  1620.42  Processing TSP contribution elections.

    (a) Current contribution election. 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. If the employee separated to perform military 
service, he or she must make a new contribution election to begin 
current contributions.
    (b) Makeup contribution election. Upon reemployment or return to 
pay status, an employee has 60 days to elect to make up missed 
contributions. An employee's right to make retroactive TSP 
contributions will expire if an election is not made within 60 days of 
the participant's reemployment or return to pay status.

[[Page 21299]]

    (c) Makeup contributions. Makeup 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 
determining the makeup contributions, unless the employee submits a new 
contribution election which he or she otherwise could have made but for 
the performance of military service.
    (2) An employee who terminated contributions within two months of 
entering military service also will be eligible to make a retroactive 
contribution election to be effective on the date the contributions 
were terminated.
    53. Revise Sec.  1620.43 to read as follows:


Sec.  1620.43  Agency payments to record keeper; agency ultimately 
responsible.

    (a) Agency making payments to record keeper. The current employing 
agency is responsible for making payments to the record keeper for all 
contributions, regardless of whether some of that expense is ultimately 
chargeable to a prior employing agency.
    (b) Agency ultimately chargeable with expense. The agency that 
reemployed the participant is ordinarily the agency ultimately 
chargeable with the expense of agency contributions and the breakage 
attributable to them. However, if an employee changed agencies during 
the period between the date of reemployment and October 13, 1994, the 
employing agency as of October 13, 1994, is the agency ultimately 
chargeable with the expense.
    (c) Reimbursement by agency ultimately chargeable with expense. If 
the agency that made the payments to the record keeper for agency 
contributions is not the agency ultimately chargeable for that expense, 
the agency that made the payments to the record keeper may, but is not 
required to, obtain reimbursement from the agency ultimately chargeable 
with the expense.
    54. Amend Sec.  1620.45 by revising paragraphs (a)(1), (a)(2), 
(c)(2) and (d) to read as follows:


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

    (a) * * *
    (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 maximum 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) The TSP may close the loan account and declare it to be a 
taxable distribution if the TSP does not receive documentation that the 
employee entered into nonpay status. However, the taxable distribution 
can be reversed in accordance with paragraph (c) of this section.
* * * * *
    (c) * * *
    (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 
maximum 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
* * * * *
    (d) Breakage. Employees will not receive breakage on amounts 
returned to their accounts under this section.
    55. Amend Sec.  1620.46 by revising paragraphs (b), (d) and (e) to 
read as follows:


Sec.  1620.46  Agency responsibilities.

* * * * *
    (b) Agency records; procedure for reimbursement. The agency making 
payments to the record keeper for all contributions and attributable 
breakage will obtain from prior employing agencies whatever information 
is necessary to make accurate payments. If a prior employing agency is 
ultimately chargeable under Sec.  1620.43(b) for all or part of this 
expense, the agency making the payments to the record keeper will 
determine the procedure to follow in order to collect amounts owed to 
it by the agency ultimately chargeable with the expense.
* * * * *
    (d) Agency automatic (1%) contributions. Employing agencies must 
calculate the agency automatic (1%) contributions for all reemployed 
(or restored) FERS employees and report those contributions to the 
record keeper within 60 days of reemployment.
    (e) Forfeiture restoration. When notified by an employee that a 
forfeiture of the agency automatic (1%) contributions occurred after 
the employee separated to perform military service, the employing 
agency must complete and file the appropriate paper TSP form with the 
TSP record keeper in accordance with the form's instructions to have 
those funds restored.
* * * * *

PART 1640--PERIODIC PARTICIPANT STATEMENTS

    56. The authority citation for part 1640 continues to read as 
follows:

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

    57. Amend Sec.  1640.3 by revising paragraph (f)(3) to read as 
follows:


Sec.  1640.3  Statement of individual account.

* * * * *
    (f) * * *
    (3) The account balance and activity in each TSP Fund, including 
the dollar amount of the transaction, the share price, and the number 
of shares; and
* * * * *
    58. Amend Sec.  1640.4 by revising paragraphs (a)(5) and (b)(2) to 
read as follows:


Sec.  1640.4  Account transactions.

    (a) * * *
    (5) Transfers among TSP Funds;
* * * * *
    (b) * * *
    (2) TSP Funds affected;
* * * * *
    59. Amend Sec.  1640.5 by revising the section heading and the 
first sentence of the introductory language to read as follows:


Sec.  1640.5  TSP Fund information.

    The Board will provide to each participant four (4) times each 
calendar year a statement concerning each of the TSP Funds. * * *
* * * * *

PART 1645--CALCULATION OF SHARE PRICES

    60. The authority citation for part 1645 continues to read as 
follows:

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

    61. Revise Sec.  1645.2 to read as follows:


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 TSP Fund to the appropriate individual 
account by the TSP record keeper, using the share price for the date 
the transaction is posted.
    62. Revise Sec.  1645.3 to read as follows:

[[Page 21300]]

Sec.  1645.3  Calculation of total net earnings for each TSP Fund.

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


Sec.  1645.4  Administrative expenses attributable to each TSP Fund.

    A portion of the administrative expenses accrued during each 
business day will be charged to each TSP Fund. A 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 a particular fund will be charged solely 
to that fund.
    (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 TSP Funds, based on the respective fund balances on the last 
business day of the prior month end.
    64. Revise Sec.  1645.5 to read as follows:


Sec.  1645.5  Calculation of share prices.

    (a) Calculation of share price. The share price for each TSP Fund 
for each business day will apply to all sources of contributions for 
that fund. The total net earnings (as computed under Sec.  1645.3) for 
each fund will be divided by the total fund basis (as computed under 
Sec.  1645.6) for that fund. The resulting number, computed to ten 
decimal places, represents the incremental change for the current 
business day in the value of that fund from the last business day. The 
share price for that 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 TSP Fund are divided by the total fund basis in 
that 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 fund for 
that business day. The residual net earnings that are not included in 
the incremental share price for the fund may be added to the earnings 
for that fund on the next business day.
    65. Revise Sec.  1645.6 to read as follows:


Sec.  1645.6  Basis for calculation of share prices.

    The total fund basis for a TSP Fund will be the sum of the number 
of shares in all individual accounts from all sources of contributions 
in that fund as of the opening of business on each business day.

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

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

    Authority: 5 U.S.C. 8531, 8433, 8434, 8435, 8474(b)(5) and 
8474(c)(1).

Subpart A--General

    67. Amend Sec.  1650.1 by removing from paragraph (b) the 
definitions of ``Eligible employer plan'' and Traditional IRA''.
    68. Revise Sec.  1650.4 to read as follows:


Sec.  1650.4  Certification of truthfulness.

    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.
    69. Add a new Sec.  1650.6 to read as follows:


Sec.  1650.6  Deceased participant.

    (a) The TSP will cancel a pending withdrawal request if it 
processes a written notice that a participant is deceased. 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.
    (b) If the TSP processes a withdrawal request before being notified 
that a participant is deceased, the funds cannot be returned to the 
TSP.

Subpart B--Post-Employment Withdrawals

    70. Amend Sec.  1650.11 by adding a new paragraph (c) to read as 
follow:


Sec.  1650.11  Withdrawal elections.

* * * * *
    (c) If a participant's vested account balance is less than $200 
when he or she separates from Federal service, the TSP will 
automatically pay the balance to the participant at his or her TSP 
address of record. The participant will not be eligible for any other 
payment option or be allowed to remain in the TSP.
    71. Amend Sec.  1650.17 by revising paragraph (a) to read as 
follows and by removing the word ``final'' from the last sentence of 
paragraph (c) and adding in its place the word ``fixed'':


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 and those that are entered into the record keeping system 
by 12:00 noon eastern time will ordinarily be processed that night; 
those entered after 12:00 noon eastern 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.
* * * * *

Subpart C--Procedures for Post-Employment Withdrawals

    72. Amend Sec.  1650.24 by revising the first sentence to read as 
follows:


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

    To request a post-employment withdrawal, a participant must submit 
to the TSP record keeper a properly completed paper TSP post-employment

[[Page 21301]]

withdrawal request form or use the TSP Web site to initiate a request. 
* * *
    73. Remove and reserve Sec.  1650.25.

Subpart E--Procedures for In-Service Withdrawals

    74. Amend Sec.  1650.41 by revising the first sentence to read as 
follows:


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

    To request an age-based withdrawal, a participant must submit to 
the TSP record keeper a properly completed paper TSP age-based 
withdrawal request form or use the TSP Web site to initiate a request. 
* * *
    75. Amend Sec.  1650.42(a) by revising the first sentence to read 
as follows:


Sec.  1650.42  How to obtain a financial hardship withdrawal.

    (a) To request a financial hardship withdrawal, a participant must 
submit to the TSP record keeper a properly completed paper TSP hardship 
withdrawal request form or use the TSP Web site to initiate a request. 
* * *
* * * * *
    76. Remove and reserve Sec.  1650.43.

Subpart G--Spousal Rights

    77. Amend Sec.  1650.63 by revising paragraph (a) introductory text 
to read as follows:


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 such an exception must 
be submitted to the TSP record keeper on the appropriate TSP paper 
form, accompanied by the following:
* * * * *

PART 1651--DEATH BENEFITS

    78. The authority citation for part 1651 continues to read as 
follows:

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

    79. Amend Sec.  1651.2 by revising paragraphs (b) and (d) to read 
as follows:


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

* * * * *
    (b) TSP withdrawals. If the TSP processes a notice that a 
participant has died, it will cancel any pending request by the 
participant to withdraw his or her account. 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. The funds designated by the participant for the 
withdrawal will be paid as a death benefit in accordance with paragraph 
(a) of this section, unless the participant elected to withdrawal his 
or her account in the form of an annuity, in which case the funds 
designated for the purchase of the annuity will be paid as described 
below:
    (1) 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.
    (2) If the participant requested a single life annuity with a cash 
refund or 10-year certain feature, the TSP will pay the funds as a 
death benefit to the beneficiary or beneficiaries designated by the 
participant on the annuity portion of the TSP withdrawal request form, 
or as a death benefit in accordance with paragraph (a) of this section 
if no beneficiary designated on the withdrawal request survives the 
participant.
    (3) If the participant requested a joint life annuity without 
additional features, the TSP will pay the funds as a death benefit to 
the joint life annuitant if he or she survives the participant, or as a 
death benefit in accordance with paragraph (a) of this section if the 
joint life annuitant does not survive the participant.
    (4) If the participant requested a joint life annuity with a cash 
refund or 10-year certain feature, the TSP will pay the funds as a 
death benefit to the joint life annuitant if he or she survives the 
participant, or as a death benefit to the beneficiary or beneficiaries 
designated by the participant on the annuity portion of the TSP 
withdrawal request form, if the joint life annuitant does not survive 
the participant, or 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.
    (5) If a participant dies after annuity payments have begun, the 
annuity vendor will make or stop the payments in accordance with the 
annuity method selected.
* * * * *
    (d) Investment of a TSP account upon notice of death. If a 
participant dies with any portion of his or her TSP account in a TSP 
Fund other than the G Fund, the TSP will transfer the entire account 
into the G Fund after it processes a notice that the participant has 
died, or a death code from the participant's employing agency reporting 
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.
    80. Revise Sec.  1651.3 to read as follows:


Sec.  1651.3  Designation of beneficiary.

    (a) Filing requirements. To designate a beneficiary of a TSP 
account, a participant must complete and file a TSP designation of 
beneficiary form with the TSP record keeper. A participant may 
designate more beneficiaries than the TSP form accommodates by 
attaching additional pages to the TSP designation of beneficiary form 
in accordance with the instructions on the form. A valid TSP 
designation of beneficiary remains in effect until it is properly 
canceled or changed as described in Sec.  1651.4.
    (b) Eligible beneficiaries. Any individual, firm, corporation, or 
legal entity, including the U.S. Government, may be designated as a 
beneficiary. Any number of beneficiaries can be named to share the 
death benefit. A beneficiary may be designated without the knowledge or 
consent of the beneficiary or the knowledge or consent of the 
participant's spouse.
    (c) Validity requirements. To be valid, a TSP designation of 
beneficiary form must be:
    (1) Received by the TSP record keeper on or before the date of the 
participant's death; and
    (2) Signed by the participant and two witnesses. The participant 
must either sign the form in the presence of the witnesses or 
acknowledge his signature on the form to the witnesses. If the 
participant attaches an additional page or pages to the designation of 
beneficiary form, each additional page must be signed and witnessed in 
the same manner (by the same witnesses) as the form itself, and must 
follow the format of the TSP designation of beneficiary form. A witness 
must be age 21 or older. A witness designated as a beneficiary will not 
be entitled to receive a death benefit payment; if a witness is the 
only named beneficiary, the designation of beneficiary is invalid. If 
more than one beneficiary is named, the share of the witness 
beneficiary will be allocated among the remaining beneficiaries pro 
rata.
    (d) Will. A participant cannot use a will to designate a TSP 
beneficiary.
    81. Revise Sec.  1651.4 to read as follows:

[[Page 21302]]

Sec.  1651.4  How to change or cancel a designation of beneficiary.

    (a) Change. To change a designation of beneficiary, the participant 
must submit to the TSP record keeper a new TSP designation of 
beneficiary form meeting the requirements of Sec.  1651.3 to the TSP 
record keeper. If the TSP receives more than one valid TSP designation 
of beneficiary form, it will honor the form with the latest date signed 
by the participant. A participant may change a TSP beneficiary at any 
time, without the knowledge or consent of any person, including his or 
her spouse.
    (b) Cancellation. A participant may cancel all prior designations 
of beneficiaries by sending the TSP record keeper either a new valid 
designation of beneficiary form meeting the requirements of Sec.  
1651.3, or a letter. If the participant uses a letter to cancel a 
designation of beneficiary, it must be signed and witnessed in the same 
manner as a TSP designation of beneficiary form; it must explicitly 
state that all prior designations are canceled; and the TSP record 
keeper must receive it on or before the date of the participant's 
death.
    (c) Will. A participant cannot use a will to change or cancel a TSP 
designation of beneficiary.
    82. Revise Sec.  1651.10 to read as follows:


Sec.  1651.10  Deceased and non-existent beneficiaries.

    (a) Designated beneficiary dies before participant. The share of 
any designated beneficiary who predeceases the participant will be paid 
pro rata to the participant's other designated beneficiary or 
beneficiaries. If no designated beneficiary survives the participant, 
the account will be paid according to the order of precedence set forth 
in Sec.  1651.2(a).
    (b) Trust designated as beneficiary but not in existence. If a 
participant designated a trust or other entity as a beneficiary and the 
entity does not exist on the date of the participant's death, or is not 
created by will or other document that is effective upon the 
participant's death, the amount designated to the entity will be paid 
in accordance with the rules of paragraph (a) of this section, as if 
the trust were a beneficiary that predeceased the participant.
    (c) Non-designated beneficiary dies before participant. If a 
beneficiary other than a beneficiary designated on a TSP designation of 
beneficiary form dies before the participant, the beneficiary's share 
will be paid equally to other living beneficiaries bearing the same 
relationship to the participant as the deceased beneficiary. However, 
if the deceased beneficiary is a child of the participant, payment will 
be made to the deceased child's descendants, if any. If there are no 
other beneficiaries bearing the same relationship or, in the case of 
children, there are no descendants of deceased children, the deceased 
beneficiary's share will be paid to the person(s) next in line 
according to the order of precedence.
    (d) Beneficiary dies after participant but before payment. If a 
beneficiary dies after the participant, the beneficiary's share will be 
paid to the beneficiary's estate. A copy of a beneficiary's certified 
death certificate is required in order to establish that the 
beneficiary has died.
    83. Revise Sec.  1651.13 to read as follows:


Sec.  1651.13  How to apply for a death benefit.

    The TSP has created a paper form that a potential beneficiary must 
use to apply for a TSP death benefit. The TSP must receive this form 
before a death benefit can be paid. Any individual can file this form 
with the TSP record keeper. The individual submitting the form must 
attach a copy of a certified death certificate of the participant to 
the form. The TSP record keeper's acceptance of this form does not 
entitle the applicant to benefits.
    84. Amend Sec.  1651.14 by revising paragraphs (b), (c) and (g) to 
read as follows:


Sec.  1651.14  How payment is made.

* * * * *
    (b) Payment. Payment is made separately to each entitled 
beneficiary. The TSP will send the payment to the address that is 
provided on the participant's TSP designation of beneficiary form 
unless the TSP receives written notice of a more recent address. All 
beneficiaries must provide the TSP record keeper with a taxpayer 
identification number; i.e., Social Security number (SSN), employee 
identification number (EIN), or individual taxpayer identification 
number (ITIN), as appropriate.
    (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 a traditional IRA or eligible employer 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 use the transfer form provided by the TSP.
* * * * *
    (g) If a death benefit payment is returned as undeliverable, the 
TSP record keeper will attempt to locate the beneficiary by writing to 
his or her TSP database address. If the beneficiary does not respond 
within 60 days, the TSP will forfeit the death benefit payment to the 
Plan. The beneficiary can claim the forfeited funds, although they will 
not be credited with TSP investment returns.
* * * * *
    85. Amend Sec.  1651.16 by revising the last sentence of paragraph 
(c) to read as follows:


Sec.  1651.16  Missing and unknown beneficiaries.

* * * * *
    (c) * * * The TSP may require the beneficiary to apply for the 
death benefit with a TSP form and submit proof of identity and 
relationship to the participant.

PART 1653--COURT ORDERS AND LEGAL PROCESSES AFFECTING TSP ACCOUNTS

    86. The authority citation for part 1653 continues to read as 
follows:

    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

    87. Amend Sec.  1653.5 by revising paragraphs (a), (d) and (e) to 
read as follows:


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 options. 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 of all or a portion of the payment 
to a traditional IRA or eligible employer plan. The TSP decision letter 
will provide the forms a payee must use to choose one of these payment 
options.
    (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 a tax withholding election on forms provided to 
the participant with the TSP decision letter.

[[Page 21303]]

    (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.
* * * * *
    (d) Payment will be made pro rata from all TSP 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 that require 
payment to be made from specific TSP 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. 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 that is not transferred to 
a traditional IRA or eligible employer plan.
    (2) If the payment is made to anyone other than the current or 
former spouse of the participant, the payment is taxable to the 
participant and is subject to Federal income tax withholding by the 
participant. The participant can elect the amount to be withheld by 
filing with the TSP the forms provided to the participant with the 
decision letter. 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.
* * * * *

PART 1655--LOAN PROGRAM

    88. The authority citation for part 1655 continues to read as 
follows:

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

    89. Amend Sec.  1655.1 by revising the definition of ``Date of 
application'' in paragraph (b) to read as follows:


Sec.  1655.1  Definitions.

* * * * *
    (b) * * *
    Date of application means the day on which the TSP record keeper 
receives the loan application, either electronically or on the TSP Web 
site or on a paper TSP form.
* * * * *
    90. Amend Sec.  1655.2 by revising paragraph (c) to read as 
follows:


Sec.  1655.2  Eligibility for loans.

* * * * *
    (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);
* * * * *
    91. Amend Sec.  1655.9 by revising paragraphs (b) and (c) to read 
as follows:


Sec.  1655.9  Effect of loans on individual account.

* * * * *
    (b) The loan principal will be disbursed from that portion of the 
account represented by employee contributions and attributable 
earnings, pro rata from each TSP 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 TSP Fund in accordance with the 
participant's most recent contribution allocation.
    92. Amend Sec.  1655.10 by revising paragraph (a) to read as 
follows:


Sec.  1655.10  Loan application process.

    (a) Any participant may apply for a loan by submitting a completed 
TSP loan application form to the TSP record keeper.
* * * * *
    93. Amend Sec.  1655.12 by revising paragraph (a)(1) to read as 
follows:


Sec.  1655.12  Loan agreement.

    (a) * * *
    (1) If the participant submits a paper loan application, the TSP 
record keeper will mail the loan agreement, and other information as 
appropriate, to the participant.
* * * * *

PART 1690--THRIFT SAVINGS PLAN

    94. The authority citation for part 1690 continues to read as 
follows:

    Authority: 5 U.S.C. 8474.

Subpart A--General

    95. Amend Sec.  1690.1:
    a. By removing the definitions of ``Open season'' and ``Investment 
fund'';
    b. By adding a new definition of ``TSP Fund'' to read as follows; 
and
    c. By revising the definitions of ``Account balance'', 
``Contribution allocation'', ``Share'', ``Share price'', and ``TSP 
record keeper'' to read as follows:


Sec.  1690.1  Definitions.

* * * * *
    Account balance means the sum of the dollar balances for each 
source of contributions in each TSP Fund for an individual account. The 
dollar balance in each fund on a given day is the product of the total 
number of shares in that fund multiplied by the share price for the 
fund on that day.
* * * * *
    Contribution allocation means the participant's apportionment of 
his or her future contributions, loan payments, and transfers or 
rollovers from eligible employer plans or traditional IRAs among the 
TSP Funds.
* * * * *
    Share means a portion of a TSP 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 fund in question. The number of shares is 
computed to four decimal places.
    Share price means the value of a share in a TSP Fund. The share 
price is calculated separately for each fund for each business day. The 
share price includes the cumulative net earnings or losses for each 
fund through the date the share price is calculated.
* * * * *
    TSP Fund means an investment fund established pursuant to 5 U.S.C. 
8438 and an investment allocation fund established pursuant to 5 CFR 
part 1601, subpart E.
    TSP record keeper means the entities the Board engages to perform 
record keeping services for the Thrift Savings Plan.
* * * * *

Subpart B--Miscellaneous

    96. Add a new Sec.  1690.14 to read as follows:


Sec.  1690.14  Checks made payable to the Thrift Savings Plan.

    (a) Accord and satisfaction. The TSP does not agree to accept more 
than the total amount due by negotiating an instrument such as a check, 
share draft or money order with a restrictive legend on it (such as 
``payment in full'' or ``submitted in full satisfaction of claims''), 
or by negotiating an

[[Page 21304]]

instrument that is conditionally tendered to the TSP with an offer of 
compromise.
    (b) TSP payment address. The TSP has established an address for the 
receipt of specified TSP payments. The TSP will not answer 
correspondence mailed to that payment address.

[FR Doc. 05-8078 Filed 4-22-05; 8:45 am]
BILLING CODE 6760-01-P