[Federal Register Volume 74, Number 203 (Thursday, October 22, 2009)]
[Proposed Rules]
[Pages 54491-54493]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-25426]


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 Proposed Rules
                                                 Federal Register
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 This section of the FEDERAL REGISTER contains notices to the public of 
 the proposed issuance of rules and regulations. The purpose of these 
 notices is to give interested persons an opportunity to participate in 
 the rule making prior to the adoption of the final rules.
 
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 

  Federal Register / Vol. 74, No. 203 / Thursday, October 22, 2009 / 
Proposed Rules  

[[Page 54491]]



FEDERAL RETIREMENT THRIFT INVESTMENT BOARD

5 CFR Parts 1604, 1651, 1653, and 1690


Uniformed Services Accounts; Death Benefits; Court Orders and 
Legal Processes Affecting Thrift Savings Plan Accounts; Thrift Savings 
Plan

AGENCY: Federal Retirement Thrift Investment Board.

ACTION: Proposed rules with request for comments.

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SUMMARY: The Federal Retirement Thrift Investment Board (Agency) 
proposes to amend its regulations regarding uniformed services accounts 
to conform with mandatory tax provisions as well as current record 
keeping practices and allow only for pro rata court-ordered payments.
    The Agency proposes to amend its regulations regarding death 
benefits to provide for a clear process by which children of 
participants can establish parentage.
    The Agency proposes to amend its court order regulations so that 
when a court order directs that payment is to include earnings, the 
Agency is able to make a payment which calculates the payee's award 
amount based on the current price of the shares he/she was awarded.
    The Agency also proposes to amend its court order regulations to 
remove a provision which permits courts to direct payment from only the 
tax-exempt balance of a uniformed services account.
    The Agency proposes to amend its regulations at part 1690, subpart 
B, to add a regulation outlining the circumstances under which a TSP 
account may be frozen.

DATES: Comments must be received on or before November 23, 2009.

ADDRESSES: You may submit comments using one of the following methods:
     Federal Rulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
     Mail: Office of General Counsel, Attn: Thomas Emswiler, 
Federal Retirement Thrift Investment Board, 1250 H Street, NW., 
Washington, DC 20005.
     Hand Delivery/Courier: The address for sending comments by 
hand delivery or courier is the same as that for submitting comments by 
mail.
     Facsimile: Comments may be submitted by facsimile at (202) 
942-1676.
    The most helpful comments explain the reason for any recommended 
change and include data, information, and the authority that supports 
the recommended change. We will post all substantive comments 
(including any personal information provided) without change (with the 
exception of redaction of SSNs, profanities, et cetera) on http://www.regulations.gov.

FOR FURTHER INFORMATION CONTACT: Tim Carey at 202-942-1666 or Laurissa 
Stokes at 202-942-1645.

SUPPLEMENTARY INFORMATION: The Agency administers the TSP, which was 
established by the Federal Employees' Retirement System Act of 1986 
(FERSA), Public Law 99-335, 100 Stat. 514. The TSP provisions of FERSA 
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)).

Uniformed Services Accounts

    The Agency proposes to amend its regulations regarding uniformed 
services accounts, and, specifically, its provisions relating to the 
division of a uniformed services account pursuant to a court order or 
legal process. The Agency seeks to remove a provision suggesting that 
courts could direct the Plan to make a court-ordered payment other than 
one that is pro rata from both taxable and tax-exempt contributions.
    Uniformed services accounts are unique in that some or all of a 
uniformed services member's contributions may derive from tax-exempt 
income as a result of the combat zone tax exclusion. In 2001, the 
Agency issued final regulations regarding the uniformed services' 
participation in the TSP. Among many changes, the Agency determined 
that ``the TSP can honor a court order or legal process that apportions 
combat zone (tax-exempt) contributions between the participant and the 
payee,'' and, therefore, the final version of 5 CFR 1604.9(b) regarding 
court-ordered payments from a uniformed services member's account 
stated that payment will be made pro rata from all sources ``unless the 
court order or legal process directs otherwise.'' (66 FR 50716, October 
4, 2001).
    The Agency recently analyzed its authority and record keeping 
capability to issue payments from, as the regulation suggests, only one 
source of contributions in a uniformed services participant's account. 
The Agency has concluded that the Internal Revenue Code (I.R.C.) 
permits only pro rata payments from both taxable and tax-exempt funds, 
and that a court cannot direct the Plan to make a payment from, for 
example, only tax-exempt funds.
    Specifically, I.R.C. sections 72 and 402(e)(1)(A) preclude an 
allocation of basis pursuant to a court order if such allocation is 
other than pro rata. In particular, for purposes of determining tax 
liability, a spousal alternate payee is treated the same as the 
participant and, therefore, a distribution to a spouse or former spouse 
made pursuant to a court order must be made pro rata from taxable and 
tax-exempt amounts in a uniformed services account. 26 U.S.C. 
402(e)(1)(A). Therefore, the Agency's regulation permitting courts to 
order a payment other than pro rata is not permitted by the I.R.C. and 
must be changed.
    Additionally, the Agency's record keeping system cannot issue a 
payment from only one source of funds because it is programmed to make 
all payments from uniformed services accounts on a pro rata basis from 
taxable and tax-exempt balances. Therefore, changing this regulation to 
remove the language which suggests a court could direct the Agency to 
issue a payment other than one which is pro rata is not only 
technically correct but also reflects current record keeping processes.

Death Benefits

    The Agency proposes to amend its regulations regarding death 
benefits, and, in particular, its regulation regarding payment to a 
participant's child or children. Specifically, the Agency seeks to 
clarify the documentation children should submit

[[Page 54492]]

in the event that the identity of their father or mother is in dispute 
or unclear.
    As familial matters, including guidelines related to parentage, are 
rooted in state, not Federal, law, the Agency cannot adjudicate or 
otherwise determine matters of paternity or maternity. In support of 
their contention that they are the proper beneficiary of their parent's 
account, children of deceased participants often submit insufficient or 
otherwise unclear documentation (e.g., copies of obituaries and 
personal mementos). A lack of guidance regarding which documents to 
submit in support of parentage adds unnecessary time and inconvenience 
to the processing of death benefit determinations.
    The Agency, therefore, proposes to augment its death benefits 
regulations to describe the documentation it requires in support of a 
purported child's claim that a participant was his or her parent. 
Specifically, the Agency requests that affected children submit a court 
order or administrative finding or documentation which would establish 
parentage in the state in which the participant resided prior to his 
death.

Court Orders and Legal Processes Affecting Thrift Savings Plan Accounts

    The Agency is proposing to change its court order regulations to 
allow for court-awarded payments which account for investment earnings 
and losses as well as to reflect the previously-discussed requirement 
that all payments from participants' accounts be paid pro rata.
    Currently, in order for the Agency to take into account investment 
losses, a court order has to divide the account as of the date of 
distribution or identify a fixed amount that the parties agreed upon. 
Further, per the Agency's regulations, if a court order specifies that 
earnings are to be awarded and no specific rate is provided, even when 
an account experiences investment losses, the Agency awards earnings 
using its Government Securities Investment (G) Fund rate. 5 CFR 
1653.4(f)(3).
    The Agency, which receives many court orders directing that 
payments reflect earnings and losses until the date of distribution, 
proposes to change its regulations so that the division of an account 
factors in the current price of those shares included in a payee's 
award amount.
    In particular, if earnings, defined to include losses, are 
requested and a rate is not specified, the Agency proposes to determine 
the amount to be awarded by determining the payee's award amount (e.g., 
the percentage or fraction of the participant's account), and, based on 
the participant's investment allocation as of the effective date of the 
court order, the number and composition of shares that the payee's 
award amount would have purchased as of the effective date. 
(Determining the shares as of the effective date of the court order, 
and not a later date, preserves the court's intent and protects the 
payee from investment decisions made by the participant after the 
effective date of the court order.) The Agency will then multiply the 
price per share as of the payment date, which is generally two business 
days prior to the date of the award's disbursement, by the number and 
composition of shares comprising the payee's award amount as of the 
court order's effective date.
    The Agency believes that this calculation will result in more 
equitable awards as well as more efficient court order processing as 
parties are not required to return to court for additional or 
clarifying language.
    As previously discussed, the Agency also proposes to amend its 
court order and legal process regulations in order to conform with the 
I.R.C. and current record keeping procedures. In particular, the Agency 
seeks to remove language from Sec.  1653.5(d) which states that a court 
may specify a particular payment from the tax-exempt balance of a 
uniformed services account. Please see the Supplemental Information 
discussion regarding Uniformed Services Accounts for an overview as to 
why the Agency is proposing to remove such language.

Thrift Savings Plan

    The Agency wishes to add a regulation outlining the circumstances 
under which a participant's account may be frozen and when access to 
the Agency's web site and ThriftLine may be blocked. Though uncommon, 
freezes (or administrative holds) prevent a participant from 
withdrawing funds, including loans, from his or her account, and, 
therefore, the Agency seeks to place its participants on notice 
regarding the circumstances under which such a hold may occur and also 
the consequences of such a hold.

Regulatory Flexibility Act

    I certify that this regulation will not have a significant economic 
impact on a substantial number of small entities.

Paperwork Reduction Act

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

Unfunded Mandates Reform Act of 1995

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

Submission to Congress and the Government Accountability Office

    Pursuant to 5 U.S.C. 810(a)(1)(A), the Agency submitted a report 
containing this rule and other required information to the U.S. Senate, 
the U.S. House of Representatives, and the Comptroller General of the 
United States before publication of this rule in the Federal Register. 
This rule is not a major rule as defined at 5 U.S.C. 804(2).

List of Subjects

5 CFR Part 1604

    Military personnel, Pensions, Retirement.

5 CFR Part 1651

    Claims, Government employees, Pensions, Retirement.

5 CFR Part 1653

    Alimony, Child support, Claims, Government employees, Pensions, 
Retirement.

5 CFR Part 1690

    Government employees, Pensions, Retirement.

Gregory T. Long,
Executive Director, Federal Retirement Thrift Investment Board.

    For the reasons stated in the preamble, the Agency proposes to 
amend 5 CFR chapter VI as follows:

PART 1604--UNIFORMED SERVICES ACCOUNTS

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

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

    2. Amend Sec.  1604.9 to revise paragraph (b) to read as follows:


Sec.  1604.9  Court orders and legal processes.

* * * * *
    (b) Combat zone contributions. If a service member account contains 
combat zone contributions, the payment will be made pro rata from all 
sources.
* * * * *

[[Page 54493]]

PART 1651--DEATH BENEFITS

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

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

    4. Amend Sec.  1651.1 to add the definition of ``Administrative 
finding'', in alphabetical order, in paragraph (b) to read as follows:


Sec.  1651.1  Definitions.

* * * * *
    (b) * * *
    Administrative finding means an evidence-based determination 
reached by a hearing, inquiry, investigation, or trial before an 
administrative agency of competent jurisdiction in any State, territory 
or possession of the United States.
* * * * *
    5. Amend Sec.  1651.6 to add a paragraph (d) to read as follows:


Sec.  1651.6  Child or children.

* * * * *
    (d) Parentage disputes. If the identity of the father or mother of 
a child is in dispute or otherwise unclear (e.g., only one parent is 
listed on a birth certificate), the purported child must submit to the 
TSP either:
    (1) A court order or other administrative finding establishing 
parentage; or
    (2) Documentation sufficient for establishing parentage under the 
law of the state in which the participant was domiciled at the time of 
death.

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

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

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

    7. Amend Sec.  1653.1 to add the definitions of ``Payment date'' 
and ``TSP investment earnings or earnings'', in alphabetical order in 
paragraph (b) to read as follows:


Sec.  1653.1  Definitions.

* * * * *
    (b) * * *
* * * * *
    Payment date refers to the date on which earnings are determined 
and is generally two business days prior to the date of an award's 
disbursement.
* * * * *
    TSP investment earnings or earnings means both positive and 
negative fund performance attributable to differences in TSP fund share 
prices.
* * * * *
    8. Amend Sec.  1653.4 to revise paragraph (f)(3) and remove 
paragraph (f)(4) to read as follows:


Sec.  1653.4  Calculating entitlements.

* * * * *
    (f) * * *
    (3) If earnings are awarded and the rate is not specified, the 
Agency will calculate the amount to be awarded by:
    (i) Determining the payee's award amount (e.g., the percentage or 
fraction of the participant's account);
    (ii) Determining, based on the participant's investment allocation 
as of the effective date of the court order, the number and composition 
of shares that the amount in paragraph (f)(3)(i) of this section would 
have purchased as of the effective date; and
    (iii) Multiplying the price per share as of the payment date by the 
number and composition of shares calculated in paragraph (f)(3)(ii) of 
this section.
* * * * *


Sec.  1653.5  [Amended]

    9. Amend Sec.  1653.5 by removing the last sentence of paragraph 
(d).

PART 1690--THRIFT SAVINGS PLAN

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

    Authority:  5 U.S.C. 8474.

    10. Add Sec.  1690.15 to read as follows:


Sec.  1690.15  Freezing an account--administrative holds.

    (a) The TSP may freeze (e.g., place an administrative hold on) a 
participant's account for any of the following reasons:
    (1) Pursuant to a qualifying retirement benefits court order as set 
forth in part 1653 of this chapter;
    (2) Pursuant to a request from the Department of Justice under the 
Mandatory Victims Restitution Act;
    (3) Upon the death of a participant;
    (4) Upon suspicion or knowledge of fraudulent account activity or 
identity theft;
    (5) In response to litigation pertaining to an account;
    (6) For operational reasons (e.g., to correct a processing error or 
to stop payment on a check when account funds are insufficient);
    (7) Pursuant to a written request from a participant; and
    (8) For any other reason the TSP deems prudent.
    (b) An account freeze (i.e., administrative hold) prohibits a 
participant from withdrawing funds, including loans, from his or her 
account. The participant continues to have the capability to conduct 
all other transactions including making contributions, changing 
contribution allocations, and making interfund transfers.
    (c) The Agency will notify the participant that his or her account 
has been frozen unless it determines it prudent to not notify the 
participant that his of her account has been frozen.
    (d) A participant may block on-line and ThriftLine access to his or 
her account by writing to the TSP or by submitting a request at http://www.tsp.gov.
    (e) A participant may remove a participant-initiated freeze 
(administrative hold) by submitting a notarized request to the TSP.

[FR Doc. E9-25426 Filed 10-21-09; 8:45 am]
BILLING CODE 6760-01-P